Nine years ago, January 2010, was the bottom of what I’ve come to call the Managed Depression. Here is a piece from that time which is still relevant. At that time, we were awaiting a “recovery” and hoping for productivity gains to get us out of it. But they didn’t. And the core issues outlined here remain.
What would make a recovery sustainable? If you ask an economist, they’d tell you that what makes any economy grow and prosper is, ultimately, what they call “productivity gains”. That’s the ability to make more with less that allows a people to prosper. During the 1990s this was given as the reason why interest rates could remain low and we could have one Hell of a party – a sloppy, hazy bender. We live in the hangover that resulted, but have we really learned how intoxicating this one, simple idea is?
Is the stock market nothing but a bubble waiting to burst? There are many reasons to believe that there is one last downturn at the exit of this Managed Depression, which may indeed be slowly forming. The risk comes in the nature of how the economy is so carefully managed through monetary policy directed by the Federal Reserve. Years of zero interest and $3.7T in quantitative easing have produced a situation that’s hard to pull out of without a lot of collateral damage.
The problem is that a lot of money is chasing an awful lot of risk these days. Junk Bonds (aka “speculative grade investments”) are making a strong run, selling a record $265B through May 2014. The reason? Interest rates stuck near zero mean no return for investors, and as things turn around they have an appetite for risk. A rise in interest rates would slaughter this market and cause losses that will reverberate through equity markets before things really have a chance to turn around.
What’s the right thing to do to help the economy? Clearly, Congress has no idea, making bizzy with games designed to impress their constituents. Major economists don’t agree, either, with at least three different views on what is going on and the appropriate remedies. How can it be so chaotic and disorganized?
It’s always been Barataria’s creed that if you complain about how things are you have to stick your neck out and offer a better solution. Our answer has always been that there is a totally new economy forming around us as we work through the Managed Depression, and that there is a dire need for public and private leadership to help us create that new world dynamically. That’s a bit too hard to define , but we can offer is a different way of looking at the situation we’re in. It doesn’t directly point to courses of action, but it suggests things that should be tried.
Here is a description of the Triple Threat to the US Economy – Business Cycles, Globalism, and Demographics – and how they are working together to make this a once in a lifetime change.
I recently wrote this piece for submission to a mainstream media outlet, but it was rejected. I’d like to present it here.
Economic health, like personal health, starts with honesty. When something is wrong a good diagnosis is the first step towards the proper cure and a strong recovery. Our economy is been deep in what is commonly called a “Great Recession”. That strange term is a substitute for the dreaded word that most of us know is the true condition – a depression.
That “D-word” may be feared, but it should not be. It simply points to different and more unusual treatment than we are used to. History will eventually come to know our present economy as what I call a “Managed Depression” – unusual among similar stages in the business cycle in that this one has been carefully managed.
Consumer confidence, as measured by a survey plugged into a magic formula, is at the highest level in nearly five years. Housing prices have risen for the sixth straight month. All is attributed to improvements in employment, something rarely noted in the media over the summer but felt by people all across the US.
The long answer is that everyone who watches this never believed that employment was improving much. Employment growth leading the overall economy hasn’t been the way recessions have run since the end of WWII. That alone tells us that this time is different. What makes it different is important because it highlights what Barataria readers have been clued into since 2007 and urgently since 2008 – that this is at the very least a different kind of economic event.
Call it what you will, but there can be little doubt that different times call for different measures.
One of the great features of this global economic slowdown, which I call a Depression, is that it has not been genuinely global. The developed world – US, Europe, UK, and Japan – have been mired in slow growth and dogged unemployment for at least four years. While Europe enjoyed a small boom when the Euro took hold in the 2000s, much of it was fueled by government debt. The US has not performed well since 9/11 despite an ocean of red ink from Washington. But the BRIC nations – Brasil, Russia, India, and China – have enjoyed reasonable growth and a net improvement in resilience and stability.
Until now, that is. The slowdown is finally hitting everyone. What this might mean is very hard to tell.