Aware Brain

Last month, Fed chairman Ben Bernanke famously announced the recession is “likely over”. What is more “likely” is that many Americans, hearing this news from an authority figure, will adopt this belief and act accordingly. It is stunning that a pronouncement from a single person can have such an effect on humans, but more stunning is the fact that Bernanke would say such a thing from his position of authority. Whether he did this as a placebo effect or some other reason, the fact remains that there is zero chance that the recession is over.

Any thinking person who spends even a few minutes looking at the facts can figure this out. As one controversial figure put it: “A 3-year old with a pocket calculator can figure out we’re screwed.” His opinions may be extreme, but the logic is an interesting mental exercise.

Anyway, what makes it obvious that we are headed for a second coming of the Great Depression? There are 6 factors working against any recovery.

• Employment
• Government liabilities
• Retail sales
• Productivity
• Global marketplace
• American morale

In each area, the current status, and future prospects are not good.

Employment: The current official unemployment rate is roughly 10%, and the real rate is likely approaching 20%. Even these current levels do not support sufficient consumption by consumers to drive a recovery. In fact, these levels are not even enough financial horsepower to keep the economy from crashing. More problematic is that unemployment is certain to rise even further. Most businesses are still struggling to stay afloat, and even the very few who are doing OK are nowhere near ready to take on more employees. In Boynton Beach Florida, Michaels Nursery was awarded a contract to provide landscaping for the $1.5 billion mega-cruise ship Oasis Of The Seas. “This is a real big thing for us, a real shot in the arm,” Bill Churchill, general manager of Michaels, said of the Oasis project. However, Michaels has not hired to fill the vacancies of several workers who left the company in the past year.

Government liabilities: As each new public financial catastrophe is recognized, the government representatives respond with a knee-jerk reaction to try and fix it. Bank bailouts. Cash-for-clunkers. Health care. Homebuyer credits. Unemployment benefits extensions. The problem is that the current load of debt piled onto the government is already unsustainable, and there are dozens of new catastrophes coming which the government will need to address. Some estimates put the figure at $100 trillion. If banks were labeled as “too big to fail”, the government is “too big to bail”. On smaller scales, California and some local governments are already bankrupt. The US Federal government cannot do this visibly, but what are the symptoms of a functional bankruptcy?

Retail sales: A textbook example of the retail sales landscape is the automotive industry. The real level of sales was masked by the cash for clunkers program, but since its expiration sales are dismal. How bad? CBS calls it a plunge. The Palm Beach Mall in Florida is nearly a ghost town.  Macys and Dillards moved out this year, and Sears announced they are leaving in January, which will also result in another 100 people becoming unemployed. At the mall’s Belt Mania kiosk, employee Margarita Gonzalez has a bleaker outlook. “The mall is going to close because it’s just empty every day,” she said. “Business is bad.” Any projections of a retail sales increase are based only on hope, there is no increase in consumers spending power that can be measured.

Productivity: Technical and high paying jobs have been outsourced overseas for years. One factor which has kept some of these jobs in the US has been the value of US influence. Companies wanted to maintain a strong American presence. With the decline of the US economy, the “American” brand has eroded, and is less of an influence on local job sourcing. As the value of the finance sector in the US declines, more of the decision making process for labor will be made in other countries, making it more likely that the migration to overseas labor will accelerate. I am not talking about outsourcing, I mean actual employment by foreign workers in other countries. According to a former White House economist, 25% of American jobs could end up in other countries. As a country we need to figure out what our role as a producer in the international marketplace is. We no longer manufacture many large scale goods, except for autos, and that industry is declining as well as moving overseas. The US needs to have a “job” in the world economy. Ideally this should be established before we lose our old one.

Global Marketplace: The US was the center of the world economy for several decades. The rest of the financial universe revolved around America. Obviously, this is changing rapidly. The rest of the world is starting to think that the US is not necessarily the be-all end-all of existence. Governments and industry worldwide have been announcing intentions of dumping the dollar as a world currency. One economist sees the dollar dying a slow death, like the British pound did under similar circumstances 40 years ago.

American morale: The recession has only been in effect for a few years, and, the nation’s population is already depressed about its employment and financial woes. Many are still in denial about how serious the issue is. After a decade of a second great depression, Americans will likely be demoralized in 2020. In the 1930′s, the financial and emotional depression was only broken by the fighting spirit of WW2. Hopefully there will be some alternate method for getting us out of this one. The war-making technology has changed in the past 50 years, so that a conflict today would have more serious consequences.

In any case, the real, underlying facts do not support any conclusion other than further economic decline.

~ by Dave on October 21, 2009.

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