Posted on 01/30/2009 2:05:29 PM PST by NVDave
Yes, at the St. Louis Federal Reserve:
http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf
Now, since we’re talking about debt, let’s talk about debt in terms of our national ability to service the debt; ie, relative to GDP. Well, this topic has been rattling around the halls of investment/market analysis shops for a year now... so here’s a link to a chart:
http://bp3.blogger.com/_rWY3qGfe6gc/SI1dtCRoXGI/AAAAAAAAA5o/FCp7-0EiyKI/s1600-h/Picture+1.png
There ya go. Have a stiff drink whilst you’re reading Fisher’s paper.
You’ll need it.
Oh, on the subject of how long should we expect this to last?
Good question. Some nice people from the universities who are on the NBER have already been looking into that very question:
http://www.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf
Executive summary: unemployment rises for about five years, housing takes six years to start recovering.
ie, we’re nowhere close to done yet.
Gonna get much worse. Some hospitals will be closing soon. Flat broke. The industrial rental units my business is located within will be at half occupancy in about a month or two. Getting real quiet and spooky around here. Commercial real estate collapse now occurring.
Where is ‘here’?
A business acquaintance of mine is in the medical field. Looks like the health sector is now being affected. They were one of the last men standing.
Fortunately I was already drinking. I admit that was compelling reading and he sounds like a sharp tack, right up until he stated that FDR’s spending pulled us out of the Depression. But then, that was the conventional wisdom at the time and I’m sure most all people thought it inconceivable not to believe FDR “solved” the Depression.
Good read though. You read his paper and without a doubt we have to be in or heading for deflation. There is going to be no breaking the strangle-hold of deflation in the short term and unemployment is going to skyrocket. Like all depressions, the key will be KEEPING your job or being independently wealthy like Rush “I refuse to participate in a recession with my $Millions” Limbaugh.
We are heading for a depression. I hope it is a Good Depression and not a Great Depression. I just want a little one... Well, I don’t want one at all of course, but I’m convinced it is a foregone conclusion.
If the natural course of deleveraging/deflation would not have caused it on its own, which I now think was extremely likely, you can be sure that the Democrats economy-robbing mis-allocation of future tax dollars spent today will certainly push us over the cliff and into depression. They are robbing us of the capital we need to dig out of the coming depression, and they are going to make it longer, deeper and worse.
At this point, GDII would not surprise me in the least. I pray I am wrong.
The free trade crowd around here is going to be ecstatic to see the US workers wages follow that trend. But as we are a 'consumer society', who is going to have the wherewithal to consume?
Having followed your posts concerning 'deflation', may I ax you to make a prediction where the economy goes - providing we don't have a World War to tilt the scheme?
We're big boys, give it to us straight.
The issue of “who is going to consume?” when we have high unemployment, nervous consumers and declining wealth in both home equity and equity investments in retirement plans is a very real issue. The more money that people save, the less they spend. We can see the results of this most starkly in the collapsing rate of imports - part of what is propping up GDP (even as we’re seeing annualized rates of decline of -6%+) is the collapse in imports. If we were to factor out the collapse of the imports in the GDP report, we’d be seeing something more like a -12% annualized decline in GDP.
The economy will stagger along at a reduced rate of consumption and wealth. The place to look is Japan - they underwent a vicious debt deflation in the early 90’s, they propped up their bad banks for years and years, tried to pretend that their financial system was still viable (while no one trusted it) and they just sort of tottered along, with zero % interest rates (or darn near zero rates) and limited to no growth for years and years. They finally started to see a pick-up after 2002, only to go straight down into what is quite likely the most drastic recession (more like a depression) since WWII. As the US consumer as quit buying cars, electronics, etc - the Japanese export-driven economy is seeing a huge contraction.
Where we differ is that their economy is based on exports. Ours is based on services, rather than products. A fair number of service were in the financial sector - shuffling paper to and fro. Those jobs are going, going, gone, and quite likely not coming back. The vastly outsized proportion of the US GDP that the financial sector used to make up won’t be coming back. Easy credit won’t be coming back anytime soon, and neither will jobs in ‘service’ industries that are judged by the consumers to be non-essential. I have to laugh when I see Starbucks claiming what they’re going to do to plump up their sales. Why is anyone going to fritter away money on nasty take-away coffee, when you can buy a thermos bottle and pack your own?
Whenever I’m out and about any more, I look around and think “OK, let’s put ourselves into the mindset of the consumer one year from now - is that business over there essential enough to make it to the ‘need’ list, or is it on the ‘want’ list?”
For example, we’re in the mall in Billings in December, and I’m wondering “Does any mall need seven retail outlets to sell Little Miss Slut outfits to young women?”
Sure, there’s no doubt a business selling skankware. But *seven* of them in one mall? Where are young women getting the disposable income to keep all of these retail outlets in business? It isn’t their intrinsic earning power, unless these clothes are for business and trade, so to speak. When I watch young women spending in retail malls, I see nothing but plastic, plastic, plastic... and I wonder who is paying that Visa bill.
There’s an awful lot of businesses that are on the ‘want’ list. Wyoming is still the state with the lowest unemployment, and I’m starting to see the choices happen here: antique and knick-knack businesses, going bust. Pizza joints, bust. Even a chain fast food joint (KFC) went bust in the last six months.
More and more folks are looking hard at their spending habits and making choices that are going to put both local and national companies out of business - not because the business is run poorly, or they’re in debt over their head. Simply because the business provides something that is a ‘want’ not a ‘need.’
So I think it entirely possible we see a slow, but inexorable fundamental shift in consumer behavior, simply because the free-n-easy days are over. People who want to retire will have to save like never before, and the habit of thrift and savings will take down many retail outfits.
Autos sales won’t return to 16 million cars/year. Probably not ever. We already have 1.2 registered cars for every licensed driver in the US. How many more cars do we need?
We have more housing available than people who can afford them.
We have a shrinking export market, and stagnant wage growth.
For all these reasons, I could see a “recovery” that is very much like the Japanese model of the 90’s. We get things stabilized and there we sit.... just tottering along, with elevated unemployment, dysfunctional banks, high levels of government debt, high taxes to pay the interest on this debt, low discretionary spending, etc.
The major difference between our future and the Japanese experience might be that when the Fed runs out of rabbits in their hat, interest rates start going up - and we have a period of elevated interest rates and stagnant growth.
Ironically I did the same thing several weeks ago. My AO is a suburb of Portland, Oregon, which has been hard hit. Scary.
And thanks for the well thought out response.
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