Recession Over. Depression Continues.
If you read the papers you’re likely to think that the recession is over…we’re in full recovery mode…with rising sales, rising production, and rising prices. This year is going to be a good one for stocks…and the US economy is coming back stronger than expected.
Is it true?
Well, it’s sort of true. The recession is over…the depression continues. As we keep saying, if you’re going to make a royal mess of things, you need taxpayer support. And with the unwitting and unwilling support of millions of American taxpayers, the federal authorities are busily making a bad situation worse.
Don’t believe us? No worries. Since everyone is so sure that the economy is hunky dory, the burden of proof is on us to show that it is not.
First, we point out that the evidence is mixed. Here’s David Rosenberg, on the ‘new normal:’
“…what was previously unthinkable suddenly becomes the ‘new normal’. From March 1983 (when the Reagan-led economic expansion took hold) through to September 2008 (when Lehman collapsed) we never once had a month where US vehicle sales came in as low as 11 million units at an annual rate. That is a span of 25 years.
“In yesterday’s WSJ, page B1, there is a huge article titled ‘Late Surge in Car Sales Raises Hopes for 2009.’ This ‘surge’ seems to have taken sales up to 11 million units in December (data out later today), which would be up from 10.9 million in November. So here we are today, and it is apparently good news that we had virtually no growth in sales towards the end of the year even with dramatic incentives according to the article, GM gave its dealers $7,000 for some of its models and that we had 11 million units when the ‘old normal’ was 16 million units (not to mention that 12 million is the cutoff for replacement demand – autos are still being taken off the highways and driveways of America).”
“Personal Bankruptcy Filings Rising Fast,” says The Wall Street Journal. That’s the way depressions work. It takes time for people to run out of money and out of options. Then, they give up…admit defeat…and get on with their lives.
That’s true for the housing market too. People hold on. They wait. They hope prices will go up. And finally, they give up. That’s when prices really go down. That hasn’t happened yet. The depression is still young! David Rosenberg again:
“One would think that of all the sectors that should be benefiting from all the government largesse it would be housing – but at 355k in November, new home sales were down 11% MoM and the fifth lowest level in 3 decades. It is now taking the builders a record 14 months to locate a buyer upon completion of a unit. And the unsold inventory shot back up to 7.9 months’ supply from 7.2 in October. Sales of completed homes are still down 38% from what were already depressed levels of a year ago.”
“Living on nothing but food stamps,” says a New York Times headline. A record 39 million people are getting food stamps. For some of them, that’s all they have. They’ve used up their unemployment compensations. They’ve spent all their savings. They’ve mooched off of relatives and friends. Now all they’ve got is the kindness of strangers who work for the US federal government.