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No Economic Recovery in Sight
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by PIM of SPAIN | July 10, 2009 at 03:58 am
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According to the headline in the Financial Times: “the International Monetary Fund says the recession is ending.” Further into the story, “the IMF thinks the recovery may be "weak" and may require more stimuli to get consumers spending again.” As usual, the IMF is wrong about everything. There is no recession; this financial crisis is a depression.
And it will remain a depression until the huge pile of debt accumulated over the last quarter century has been paid down. Until all the none viable businesses and banks have gone broke and restructured. Until consumers have real money to spend, not just more credit. Until those things happen, there is no way for a real recovery to take place.
For more than half a century, the driving force of the world economy has been the willingness of consumers to go further and further into debt. That permitted businesses to expand sales and profits.
This trend has lasted for over half a century. But now a definitive change has occurred, consumers aren't going into debt anymore and bankers aren't lending them money anymore. Consumers’ houses aren't going up in value but down, and they have nothing to borrow against. It's definitely over. After working their whole career in a growing economy they now have to figure out how to survive in a declining economy.
“Bloomberg reports: about PMI, a large mortgage insurer, predicts that housing prices will fall for another two more years. Prices will be driven down by unemployment and foreclosures, says the insurer.”
“The Financial Times reports that consumer credit fell again in May, for the 4th month in a row.” "Delinquencies at record high," is another FT headline.
"U.S. consumer credit fell for the fourth straight month in May, the Federal Reserve reported late yesterday. Credit inched down at an annual rate of 1.5% during the month – a $3.2 billion drop to a total consumer debt load of $2.52 trillion. Coupled with the previous three months, we're now experiencing the biggest and longest consumer deleveraging since 1991. We even have a somewhat respectable savings rate – 6.9%, the highest since 1993.”
An expert on the subject tells:
"The Obama team doesn't seem to know what it is doing on economic matters, does it? They had a good man on the team – Paul Volker. He was the only one who really knew what he was doing. And they seem to have edged him out.
"This is a very bad sign. It was Volker who saved the day the last time the US dollar seemed to be headed for the scrap heap. This time, it looks as though they have no intention of saving it."
For starters: Paul Volker was the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987). He is currently chairman of the newly formed Economic Recovery Advisory Board under President Barack Obama.
Paul Volcker, a Democrat, was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan. Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983. Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in '81 as well.
Nobel laureate Joseph Stiglitz said about him in an interview:
Paul Volcker, the previous Fed Chairman known for keeping inflation under control, was fired because the Reagan administration didn't believe he was an adequate de-regulator. The US has thus suffered from the consequences of choosing as regulator-in-chief of the economy someone who didn't believe in regulation.
Source: Wikipedia.
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PIM of SPAIN
San Pedro de A, Malaga, Spain
Most RecentMost Recommended Comments (2)
at 09:05 on July 10th, 2009
Yes, with back to no spending money unless we have money, consumers won't consume until they have jobs.
I do wonder if growth won't take place for five years, and only after the next bubble, the commercial real estate bubble bursts.
Volker would have been a better chairman than Greenspan, but Reagan wanted the economy to grow.
My opinion is that most of the inflation was caused by the increasing price of oil, not the deficit, which was miniscule under Carter.
When the price of oil dropped, the economy took off again, as it did in the '90s.
We refuse to deal with the energy problem. We act as if it is "just another commodity" in a free market.
Without a steady supply of relatively cheap energy, our economy will not grow.
If we want it to be "green", then build nuclear reactors, while we work on the rest of the problem.
at 09:37 on July 10th, 2009
Count with at least that 5 years, but don't wonder if it is going to take 10 - 20 years down the road, look at Japan.
Roy you are right, synthetic biodiesel made via nuclear power will safe hundreds of thousand if not millions of jobs, keep the money in the own US economy, while not supporting middle Eastern terrorist. Saving trillions in the process to re-activate the US economy. I wrote about it, amongst other posts, in
Biofuel of Biofool
Biodiesel can be used in any diesel engine without modification.
Finally we still have plenty of ‘cheap’ accessible coal disposals around the world, why not making use of that, as was done in WWII in Germany and later in South Africa when it was boycotted as result of their Apartheid Policy by the rest of the world.
Coal-to-liquid Technologies do exist since the 1920s, however only recently new developments have made its conversion process more efficient and economical. For years it was simply too expensive compared to pumping oil out of the ground. This process require a great deal of heat, heat derived from coal combustion. This process is referred to as Indirect Liquefaction. A major disadvantage of the technique is that the amount of coal used for heat in the coal-to-liquid process is greater than the amount converted to fuel. As a result, this process produces large amounts of CO2, ash, fly ash, sulfur dioxide, and nitrogen oxides - N2O, not to mention the enormous waste of coal. The making of hydrogen for the process forms the bulk of pollutants produced from direct liquefaction, but the creation of these pollutants can be largely avoided by separating the hydrogen with heat generated from a new generation of super-safe nuclear reactors. Electrical power production from nuclear energy does not produce any CO2 or N2O emissions. With this type of energy clean diesel fuel can efficiently be extracted from coal.
Diesel Fuel is the best Transportation Fuel and cleaner than electricity generated from coal fired plants. Diesel has effectively twice the specific energy of Ethanol and 10 times that of Hydrogen. It is very environmental friendly.
Per unit of energy delivered, coal is about 20% of the cost of oil, but contains one-third more carbon. If coal can be liquefied by nuclear energy there will be no or much less pollution, once biodiesel fuel is derived from coal.