Monday, October 10, 2011

Batten Down The Hatches, A Big Storm's Coming in America

When the Economic Cycle Research Institute's (ECRI) Lakshman Achuthan makes a recession call, you can be sure the economy is in deep trouble. ECRI is so afraid of making a premature call, of crying wolf, that when they finally do make the call, the train has already left the station. Achuthan hit the media circuit last week, saying that a recession in the United States is "inescapable," meaning the economy is already contracting. I last discussed a new recession in The Economy Is Worse Than You Thought (August 31).

Most Americans think the so-called "Great" Recession, or the Housing Bubble Recession as Eric Janszen likes to call it, never ended. And rightly so. The National Bureau of Economic Research (NBER) officially calls recessions according to where they think we stand in the business cycle, which tracks expansions and contractions in the economy. The main indicators of recession are real (inflation-adjusted) GDP and GDI (gross domestic income), but there are other indicators as well (falling income, job losses, etc.).

The world changed in 2007-2008. Actually, the Empire's decline began in the early 1980s, but that's another story. It would be more accurate to say the shit hit the fan in 2007-2008 after a long build-up. When I started this blog in January, 2010, I ridiculed the "business cycle" view of what was happening early on (March 4, 2010). My view has not changed since. Given that current and recent GDP is consistently overstated, and thus revised downward after the fact, I don't put much stock in the quarterly growth numbers since the "Great" Recession began. That said, the BEA says the economy grew at an anemic 1.3% annual rate in the first half of this year.

I was warning of a "double dip" in 2010 on this blog, but that did not come to pass, at least officially. There was still stimulus money circulating in the economy, and increased Medicare/Medicaid payouts alone are almost enough to keep personal consumption (PCE) in positive territory, all else being equal. Today the situation has gone from bad to much, much worse. more