That is a statement of fact. Many here can't see it, thinking only in political terms. A strong conservative candidate MIGHT have galvanized the base, the way Palin began to do, but in the end people were going to vote against Bush's party because, "It is STILL the economy, stupid!
So, I wonder how many people still think this will be a typical 18 month V-shaped recession followed by a strong recovery. Some in the media are just starting to pick on the likelihood that all of 2009 will be very hard with a stagnant or contracting ecnomy, more layoffs and bankruptcies and contracting GDP.
Oh, there are still lots of folks here who link to the Fed’s historical GDP chart to try to argue that everything is fine because real GDP growth will be at an average 3% clip during this period. I’ve also noticed that those are the same folks that in Oct/Nov were saying that you should be buying stocks because by Q3-09 the economy will be roaring back, and many are now saying that perhaps it might take a little longer.
The key here is consumers. Since consumers became 70% of the GDP, and the economy became dominated by “service” sector activity, the economy of the US has rested upon consumers consuming. And in many cases, consuming utterly nonsensical goods and services.
Look down inside the report and see how consumers are now saving - savings jumped up: “disposable personal income less
personal outlays — was $310.3 billion in the fourth quarter, compared with $130.8 billion in the third.”
That’s big. Very big.
Retail sales of final domestic product dropped 5.1%. Again, big.
Consumers have snapped their wallets shut. You could see this coming in prior GDP reports as employment and wages softened, which is what the NBER was looking at a year ago to call the top of the expansion. Credit has also ceased expanding.
There will be no rapid recovery. The Fed and Congress can’t (and won’t) be able to perform effective reflation of the consumer economy before real mindset change sets in. A huge hole has been blown into the “balance sheet” of Joe and Jane America - their 401k’s are taking, coupled with the equity in their house collapsing. They now realize that they must save for retirement - the old fashioned way. And when they do that, they cut back on consumption, which will lead to further job losses, which will lead us down the path of debt deflation, just as described by Irving Fisher in 1933.
We’re in a full bore debt deflation. No longer any doubt about it. The recent paper out of the NBER shows that, on average in the OEDC 12 countries, we’re looking at a six or so year recovery period. We’re also looking at about 7% more unemployment before we get to the bottom.