Recovering Economy Goes Into Relapse

by | May 18, 2011 | Forecasting | 29 comments

Do you LOVE America?


    State sponsored media will have you know that the economy is doing better. Never mind that the fundamental problems facing America are nowhere near resolved – and in fact – are much worse now than they were prior to the 2008 crash.

    Hope is just about lost. Change is not coming.

    The much touted recovery never happened, unless your singular measure of economic health is the stock market, in which case America is booming.

    The reality on the ground, however, is dismal, as evidenced by events of the past few weeks:

    • People are still losing jobs and there’s no meaningful labor to be had. While Vice President Joe Biden continues to talk up the administration’s jobs programs, it’s clear that real jobs – the kind that pay the rent and put food on the table for a family of four – are hard to come by. The official unemployment rate inched up to 9% last month, and if you count those who are part-time laborers looking for full time work we’re at 15.9% (link). As is usually the case, however, the government’s numbers don’t tell the whole story. According to John Williams, utilizing the same statistics that were used to calculate the unemployment rate before 1981, over one in five Americans are currently without work – roughly 22%. The recession of the late 70’s and early 80’s saw unemployment reach 10.8% and during the Great Depression unemployment reportedly hit 25%. Looking at the figures from John Williams, it is quite clear that this jobless recovery is a whole lot worse than it’s been made out to be. We are bordering on Great Depression territory – and it’s very likely that we’re already there.
    • Housing Is Destabilizing. The Fed can continue to print as much money as they so choose in an effort to “stabilize” prices, but here’s the deal: It’s not working! Remember that $8000 tax credit for new home buyers? It was used by President Obama and the media to convince Americans to buy homes. For a while, the deterioration in the housing market had slowed. But, as we predicted then, as soon as the tax credit expired, the collapse resumed. We recently learned that home prices are down 8% year-over-year, and estimates that were once positive for growth are now being reassessed. Nearly a year ago we opined that, like Japan’s real estate bubble crash, the US was in for massive declines. We estimated on the order of 50% – 75% from peak to trough. Unless a flurry of new buyers step in from somewhere (see jobs report above if you think this is a possibility), a further decline is all but guaranteed. Even if the Fed is successful in raising home prices with respect to the US dollar, if you compare housing to other assets like food or precious metals, there will be a significant decline in value. The latest housing figures confirm this trend, with housing starts, housing permits and the number of houses currently under construction all missing analysts expectations.
    • Consumer Credit Still Collapsing. Officially, consumer credit increased at a rate of 3% year over year. This may seem like it’s a positive thing, suggesting that banks are starting to lend again, the idea being that banks lending means people spending. Looking closer at the numbers, however, shows that those loans aren’t exactly pumping cash back into the economy. As Karl Denninger points out, it turns out that if we separate out loans for college related expenditures, non-revolving consumer credit is actually dropping every month. This means that the money we may have thought was going to boost economic spending on Main Street is actually ending up pumping up the College Education Bubble.
    • GDP Growth is a Fiction. In his most recent Wellington Letter, economist Bert Dohmen says that global GDP numbers, including those of the United States, are fictitious. While GDP has been showing positive growth as of late, Dohmen suggests that the growth is based solely on rising prices. As the Federal Reserve continues to print, prices continue to rise. The result is a positive growth rate. If we were to adjust for real inflation by factoring out price increases, then our purported 3% economic growth would actually be negative 2%! That’s a significant difference, and one that has been completely ignored by booming stock markets, which, incidentally, are rising because of the same inflationary effect.
    • None of this is self sustaining. As we’ve mentioned previously, with the Federal Reserve’s policies of quantitative easing and the governments bailouts and stimulus the facade never would have been allowed to manifest. The system was on the brink in 2008. It remains on the brink in 2011. If the recovery was truly self supported, then we would be able to stop all of these emergency programs. Doing so, however, would likely have a much worse effect now than it would have had we never engaged in them at the onset of the crisis. The fact is, if the US Federal Reserve really does stop monetary easing in June of this year, the economy will likely drop into a full-fledged depression within a matter of weeks. Thus, the intervention is likely to continue until our creditors pull the plug, at which point we’re toast. Bottom line: we’re just pushing out the timeline a little bit longer because there’s no way out.
    • The Fukushima Disaster Is Coming to a Head. While generally out of the news, the reality is that Japan is in serious trouble – and this means that the rest of the world is in serious trouble. HP, one of the largest computer companies in the world, has announced that they are reducing their outlook for the rest of the year because of  “near-term impact from the Japan earthquake and related events.” They won’t be alone. As Michael Ruppert suggested last month, we could very well see the economic system fall apart if and when corporate earnings in June and July don’t meet expectations. Some of the world’s top tier companies had to shut down operations, many are still not operating at full steam, and TEPCO isn’t being completely truthful about what is happening with the nuclear plants. Japan is a large consumer market and they have essentially been taken out of the economic growth picture for now. Couple that with parts distribution problems and this may be enough to flip the switch on the entire global economy.
    • Government Raids Private Pensions to Stay Afloat. In January we opined that Timothy Geithner’s letter to Congress, in which he said that the US would have to default on certain debt obligations if the debt ceiling wasn’t raised, was nothing less than a confirmation of how bad things really are. He has all but confirmed that the entire system is just weeks away from collapse in the event we can’t get a credit extension. Congress will undoubtedly pass the extension soon, but at some point we’ll be cut off by our creditors. What Mr. Geithner did this week shows that those “rumors” about the government seizing private retirement accounts were not conjecture. They are, in fact, reality. When push comes to shove, if for whatever reason the US government can’t get the money they need, they will come after yours. Does this sound like a government that is functioning optimally?

    We can’t know for sure when the system will completely buckle, though the evidence above indicates that we are well within the collapse `which started sometime in 2007/2008 right now. Predictions and timelines are impossible to get right. We can, however, look at trends. And, the current trends suggest that we are a long way from any sort of self sustained recovery or normalcy. As has been the case for the last several years, we can expect things to continue to worsen.


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      1. Where Are We Going? And Why Are We In A Hand Basket?

      2. I never felt the recession or the recovery.  Could be that I don’t rely on the corporation for money or protection.  If you work for a corporation, you are a corporation.  If you work for yourself, you are yourself.  When I need more money I can always work a little smarter or harder, but I never have to beg for a raise.
        Get off the corporate grid while you can and take whatever green toilet paper you have and turn it into something tangible.

      3. And they want to tax the miles that I drive because they need more tax money and they wish everyone would buy a new electric car?  Mr. president, we will tax the number of miles you fly on our jets & helo.
        It all started with Mr. Wilson & the U.S. non-federal reserve in 1913.

      4. The American Sheeple are in for a rude awakening.  Most have no idea of the tsunami headed their way.  Our 50 year high standard of living is coming to an abrupt end.  I hope our parents & grandparents enjoyed the good times.  

        I feel sorry for my kids.

      5. All 401k’s will soon be confiscated for the greater good.  They will give you US treasuries in trade. They will say they have no other choice.  It is then that everyone will know what lies before us. But then it will be far too late for the masses.  Prepare now.

      6. Hope you’re all strapped in with your rain suits on. The S#][T is officially hitting the fan. They’re just dripping it slowly at first!

      7. Great post, BTW. I like these that lay it all out like that. It makes it easier to explain to others… Not that it’s likely to do a lot of good, but i do enjoy trying!

      8. Economic Death by Cancer Is the Politician’s Choice
        By: Rick Ackerman

        Do you want to die from a massive heart attack, or a long drawn-out bout with cancer?

        And … why do politicians always choose cancer?  The obvious answer is that cancer, despite how ugly it is, keeps them in power.  As long as they are promising to pump money into everyone’s pockets, like drunken sailors on shore leave after several months at sea, they believe they’ll be kept in power.  And that is the their only reason for being.


      9. I never felt the recession either unless you count the loss of value on my 2 homes. We could be living more conservative but we don’t I am sorry to say. I guess our purchases help employee some person in the places we buy from. I know if I were to lose this job I have working from home and making killer money I would be screwed. Like most folks employed, I don’t take my free time and utilize it to gain skills for my next job. I sit and think of going fishing instead. Nothing like sitting out in the middle of a lake in a float tube pulling in the fish. Guess since I am not all wacked out mentally over all this stuff (due to the fishing and nature stuff) I am more relaxed in my life. I have no retirement, have lots of cash, silver, food storage, but everything else really will just happen when it happens and there isn’t shit I can do about it.

      10. Comments….. Fe-Fi-Fo-Fum- I smell the blood and in order for it not to be ours we need rely on ourselves and family. Grow our own food supply. Seeds will be worth more than gold and good for trade (you cant eat gold). Find good people and prep together. I feel like we are closer now than ever.

      11. Dunno how to say this, but (/braces for impact…)

        I’m drowning in headhunter calls. I’ve been to two face-to-face interviews this week so far, and approximately four new phone screenings – in my second week of half-arsed looking around (I work IT for a living; been at my present job a few years now, and feel like sniffing for a better opportunity). 

        I’m guessing that it’s hit-and-miss, depending on the type of job, where you are, and what you want to make. 

        Housing is still a wreck – that I can agree with. OTOH, I’m saving up to (soon, hopefully!) buy some land (paying cash outright), then buy a proper home to put on it. By then, I won’t ever have to worry about shady mortgage brokers and the like.

        As for the rest, I suspect we won;t see an economic SHTF for at least five years… the economy is *big*, and it’ll take that long for it to grind down.

      12. As soon as the flood waters around the refineries go down, I will probably have work again…..but I don’t know how I feel about leaving family in these times and being right in the middle of where I see more natural calamities coming…….I follow the other things that are going to get us more than the money thing

      13. Comments…..When I see the President passing a healthcare bill that will bankrupt America, put TSA Agents in our airports to guard America from terrorist attacks,  the pilfering of public employees retirement funds to keep the government going and the legalization of law enforcement to legally force their way into your homes without warrent or probable cause while we are to stand by and not protest.

        This is just a few steps in the many more to come, that will change the Greatest Nation in the world into just another DICK – TATOR – SHIP!!!!!

        How long do you think the American public is going to put up with this BS from our ELECTED government?

        Hope the next change will replace all of those in office.

      14. Things are worse than they appear. If you add in all the people on gubmint handouts of all kinds (most, or maybe all of which did not exist during the last depression), the USA is above 1930s unemployment levels.

        OQ– have you ever heard that the bigger they are, the harder they fall? Things have been “grinding down” for some time. Note that the USSR split roughly along ethnic lines. We will probably see such an “ethnic cleansing”in USA in our lifetime.

        Jobs have not totally disappeared, they have for the most part gotten more scarce. In the 1990s, MickyD’s constantly had help wanted signs posted. I remember Wendy’s putting job applications in every take-out bag.

        An observation about the “good job creation” numbers Obummer et al were just crowing about…about 25% of those jobs were literally at MickyD’s.

      15. The logistics of confiscating retirement accounts just does not wash. How would the government get the cash out of all those 401K plans without completely demolishing the stockmarket? They would have to sell to get the cash. Before they even got their hands on any accounts the sell off would be massive and the accounts would not be worth anything. If they froze the accounts, they would still have to sell the assets and the market would crash. If they seized the accounts for a long slow selloff, anyone holding nonseized accounts would sell and the market would crash. This idea just does not wash!!

      16. In true communist fashion, they will own the corporations (means of production) and collateralize the equities with their co-conspirator the Fed for the cash. Simple, itz!

      17. The New Con-Stuh-Tooshun of Amerika:

        *All people have a right to health care, housing, food, 24 hour entertainment and anything else that keeps them passively occupied.
        *All people not recieving government entitlements have the legal obligation to support those who do.
        *No words, actions, or thoughts against those in power shall be tolerated.
        *No Christian religious beliefs may be expressed in any public area. They may be practiced quietly in homes, provided the practice is not forced upon anyone under age 18.
        *All non-Christian religious beliefs are to be publicly condoned and may not be criticized in any manner.
        *All persons from age 5 to age 18 must report daily to the nearest indoctrination/education center established by local authorities.
        *No weaponry of any kind shall be possessed by anyone other than legally authorized enforcement personnel.
        *Only food, beverages and drugs manufactured by authorized corporations may be consumed or possessed.
        *Any person accused of any violation, whether tried or not, whether found guilty or not, shall be incarcerated and all property of any kind, whether involved in said violation or not, shall be siezed and shall not be returned to the accused.
        *The geographic and/or political boundaries of Amerika may be identified, defined and enforced only by those in authority. Their decisions on closing/opening/or abandoning said borders may not be questioned by citizens.
        *This Con-Stuh-Tooshun may be amended only by those in authority.
        *This Con-Stuh-Tooshun shall not be interpreted so as to limit or deny any other implied power reserved to those in authority.
        *Those in authority shall be the sole arbiters and interpreters of this Con-Stuh-Tooshun.

        Orwell would be proud!

      18. Excellent writeup Mac! Most excellent. Caught everything right down the middle.
        Personally, I do IT and it seems there is quite a vacuum for good people. I’m just starting to look. Things are iffy at work because administrative roles are often filled by warm bodies that have had their brains removed.
        I’ve got the fuel barrels full, the pantry stuffed and stacks of ammo in case the zombies attack. Thanks JWR! …and thanks Mac for all you do. (I’m still passing that book around. Its been read at least 5 times in the last year…)

      19. C: Which part of Ponzi don’t you understand?  Okie, your best yet…but I think you mispelled it, Con-Stuh-tush-un.  Understand what you are saying Mona but I almost want it to go down while it is on his watch.  I really do believe he could have pulled a rabbit out of the hat and turned it around, but don’t think it is possible now.  Time & money.  What can we expect with somebody that never held a real job out of ivy that is a multi-millionaire.  Thanks Ill-I-noise.  You are weenies.  His plan is to take it down.  Terry, things are closer than they appear when backing up.  Scott, what kind of fish?

      20. The big news that is being withheld from us is that the Fukushima radiation fallout is heavily impacting the N. American continent, courtesy of the jet stream.  At least 30% of us will get some form of cancer over the next 20 years that we wouldn’t have gotten normally.  Google Dr. Helen Caldicott for her March 2011 seminar in Montreal where she examines the covered up effects of Chernobyl 25 years after.

      21. Fresh walleye, morel mushrooms, rice and a cold one for dinner.  I’m not worried about any stinking economy.   I’m going fishing tonight for more wallies.  Scott, your welcome to come along.  BYOB

      22. c
        No need to get cash out of the retirement accounts. All that is needed is an asset transfer. Effectively, the gov’t takes the stocks, bonds, securities, etc and replaces them with treasuries. The assets are the security for the treasuries.
        Now just what do you suppose the gov’t would do with the stocks? Why vote them of course. Tis the easiest way to get to an engineered economy. The problem has always been the capriciousness of the investor who bets against the machinations of the Fed. Besides, the average holder of a 401K is more concerned about mythical dollar losses* than real economics. Even one of the Fed folks has stated that unless you are one of the insiders, you have nothing to say.

        *Nothing has any value until the money changes hands. As an example: An ounce of gold has no value until you have a willing buyer who actually trades money or some other item for it.
        Invest in yourself by increasing your skill-sets.

      23. Here is something all you financial gurus might find interesting or maybe already knew. My friend who leads our wednesday night group at his house has a small business dealing in LED lights and he gets stuff from China. After group we were standing around visiting talking about our favorite subject…..the end times we are in. Any way he was telling me something monumental happened 2 weeks ago that no one was making any big announcement about cause the panic it would cause. He says all his stuff from China and the emails there is some tag on it (he tried finding an example thru his phone and ran out of patience and is supposed to show me next week) anyway he says the dollar already lost it’s number one flagship and everything is no longer going off the dollar but instead the euro…..I’ll have to see one of these tags in his email next week and then maybe I can tell you all more……but this was just one more sign to me that the dollar IS already dead….just no big announcement about it and so the public doesn’t know

      24. Thank Gawd I joined the military instead of going to college… Uncle sam invested over 130,000.00 dollars to turn me into a cold-blooded killer! My major was the USMC Sniper Rifle Remington 700 and I WILL maintain a SECURE perimeter at 500 meters from my snipers nest when the SHTF!

        C’on Bwitches let the NWO Games Begin!

      25. I hear ya Nina…12 years in the Infantry and two tours have given me all the skills I need. Plus 20 in the fire dept and a paramedic does seem to round things out now doesn’t it?
        I have a hunch that my doorstep will be accomadating a few more souls after the poo is launched into the whirl-i-gig. Oh well I’ll save as many as I can but NO bankers or politicians need apply.
        Personelly I prefer the M-24 Sniper weapons system I used or maybe I’ll just pick up a Drag like the one I had in the Stan.

        Mac—-I love you man! You and the others here give me hope and inspiration, drive on my brothers and sisters!

      26. I’d like to have a CheyTac M200 and then learn to use it very proficiently

      27. Overtheedge: Thankyou for the explaination. That makes perfect sense but is just not the way most honest people think.  

      28. Wanna hear something scary? My husband and I were down at our bank last week and looked into getting a credit card (for emergencies only). Neither of us have any credit. Not bad credit, just no credit. The lady working with us took our information and then said it usually takes about 30 days or more to get approved or not approved. Then she asked how much we earned in a year. We told her less than $10,000, at which she widened her eyes with surprise, paused, then said “…uh, okay…”. (Our annual income is actually less than that, but people usually don’t believe us when we tell them the actual number, so…) As soon as she typed that information in, it was about 5 seconds before it flashed “Approved!”. I kid you not. Even the lady was surprised. So, for being the type of people that the credit card companies believe will never be able to pay off any type of debt, we are awarded a brand spankin’ new credit card! God Bless America!

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