Policymakers Have Made Another Economic Depression Unavoidable

[Crewleader]

By Mike Whitney

Equities markets have been battered all week by bad economic data sending investors piling into "risk free" Treasuries. The Dow Jones slipped 276 points on Wednesday followed by a 41 point loss on Thursday. The benchmark 10-year Treasury has ducked below 3 percent repeatedly signally a slowdown that could lead to another recession.

On Wednesday, the S&P/CaseShiller home price index confirmed that 5-year long housing crash was still gaining pace. Home prices have fallen to their lowest level in 8 years with no end in sight. Meanwhile the Chicago Manufacturing Gauge recorded its biggest decline in 2.5 years while factory orders dropped in April by the most since May, 2010. There was also bad news on the unemployment front where privately-owned businesses hired only 38,000 workers from April to May, nearly 100,000 less jobs than analysts had predicted. Also, consumer confidence fell to its lowest reading in six months.

So, housing, manufacturing, unemployment and consumer confidence are all down, down, down and down.

Friday's unemployment report was also worse than expected. The Bureau of Labor Statistics (BLS) reported that unemployment rose to 9.1 percent while the Labor Force Participation Rate remained stuck at 64.2%, well below the normal rate of 67%. According to Calculated Risk, "The current employment recession is by far the worst recession since WWII in percentage terms...(The BLS report) was well below expectations for payroll jobs, and the unemployment rate was higher than expected."

So, no new jobs are being created and the economy is quickly decelerating. It's all bad.



http://www.marketoracle.co.uk/Article28499.html

[Mulhane]

1. "When the going gets tough....

the tough get going." Try Costa Rica or Belize.

"Have you ever been in a situation and you had no clue how it was going to get better, how the hurting would stop, how the pain would ease, but now you look back on it ..
THAT'S GOD passing us through tribulation to see a brighter day."

"Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people. The abolition of religion as the illusory happiness of the people is the demand for their real happiness. To call on them to give up their illusions about their condition is to call on them to give up a condition that requires illusions."

[LiberalEsto]

2. 11 of my husband's co-workers were laid off today

He didn't get laid off, but they dumped some of the others' work on him.

:(

[Yo_Mama]

5. Sorry - that's a bad feeling

Although, I guess, not as bad as being laid off in this economy.

What industry is your husband's company in?

[LiberalEsto]

6. Thanks, Y.M.

He's in IT. His company has a number of contracts with the federal government in DC. They seem to think IT workers should put in 12-hour days, work many weekends and be grateful they haven't been replaced by people on H1B visas. Of course they don't get paid for the extra hours.

Serfdom is back!

[orangeapple]

3. wrong on a few points

"Remember, the economy is not a sentient being. It does not consider whether a policy is good or bad. Like any system it merely responds to input. If spending increases, incomes will increase, demand will increase, employment will increase and the economy will grow."

This is wrong. Spending isn't magically or automatically good, and won't automatically or magically create growth. If it could then the QE programs he criticizes would have done some good instead of just create more inflation.
Profitable economic activity is what creates wealth and allows an economy to grow.


"Conversely, contractionary policies are contractionary. This is something the deficit hawks don't seem to grasp. If you slash government spending, lay off workers, and trim the deficits, then spending will slow, incomes will shrivel, GDP will wither, and the economy will slip back into recession. In other words, if you take steps to shrink the economy, then the economy will shrink."

The government isn't 'the economy'. Government is merely a consumer. It doesn't create wealth or grow the economy, it just consumes production from the economy. If you take steps to shrink government consumption there is more (not less) wealth left for society to trade and consume. There are individuals who have their incomes supplemented by the government, but the government in this instance hasn't created wealth, it has simply transferred it.


"The economy needs stimulus because stimulus IS spending...government spending. And, as we noted earlier, the economy does not care "who spends"; it merely responds to input. And the input that's needed now is more spending. Government spending will do just fine."

Actually, 'the economy' needs savings, because savings increase the pool of real capital that allows for investment in new ventures and improved processes - the events that actually increase real wealth.
Government spending is going to generate more consumption, but there is no reason to assume it will generate more savings. To the degree is generates consumption over savings, it makes the problem worse.

The author of this piece needs to read up on the 1920-1 Depression, how the government/Fed response differed, and how much the outcome differed.

[sendero]

4. Wrong on the main point..

... there is no capital formation problem in the US as the capital is all at the top. There is a DEMAND problem because there is no money at the middle/lower levels to buy anything. No amount of SUPPLY SIDE LOW TAX BULLSHIT will fix ONE FUCKING THING in this economy.


You are 3 decades late and a dollar short.