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This is not the 1930's

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August 17, 2010 – Comments (13)

The Pragmatic Capitalist has another very good post up regarding employment trends

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THIS IS NOT THE 1930'S
16 August 2010 by TPC

http://pragcap.com/this-is-not-the-1930s

This is not the 1930's.  It’s not even the early 80's.  Heck, it’s not even the 70's.  All of these economic downturns were characterized by one glaring similarity – the jobs came back.  As The Economist recently noted the 30's actually had a relatively robust job’s recovery and similar trends were apparent in the 70's and 80's:

“FEARS that the recovery of America’s economy after the financial crisis would fail to spur an increase in employment are being realised. In July, 52,000 fewer people were employed on non-farm payrolls than in July 2009, the month in which it is estimated the American economy climbed out of recession. Comparing the latest recession with previous ones is unflattering. The American economy has seen downturns this severe and recoveries this jobless, but never one on top of the other.”



The largest single barrier to sustained recovery remains the labor market.   Unfortunately, aggregate demand remains subdued as the private sector remains mired in a debt de-leveraging cycle.  The problem here is like some sort of sick death spiral – the problem of debt has reduced private sector spending and investment as households and corporations continue to pay down debt.  This has resulted in below trend revenue growth at corporations.  Below trend revenue growth results in poor visibility and a hesitancy to hire – margin expansion via cost cutting is only sustainable up to a certain level and we’re already seeing corporate margins reach high historical levels.



So, the problem with the US economy is quite simple really – the labor market is unlikely to recover until the problem of debt is alleviated.  Based on my research I think it’s safe to say that the de-leveraging cycle is likely to last at least into 2012 and that means tepid job’s growth is likely to persist.  And that ultimately means tepid economic growth.   David Rosenberg is certainly right about one thing – this recession never ended.  Unfortunately, most people (specifically, those in government) fail to understand that this is not your typical recession – this is a balance sheet recession and debt remains the largest impediment to sustained economic recovery.

13 Comments – Post Your Own

#1) On August 17, 2010 at 1:15 PM, outoffocus (23.07) wrote:

 Unfortunately, most people (specifically, those in government) fail to understand that this is not your typical recession – this is a balance sheet recession and debt remains the largest impediment to sustained economic recovery.

Not only that, but you cannot expect to create more jobs by favoring large corporations (that have little room for growth) over small businesses (that generally have alot of room for growth). All the previous job recoveries started with a growth in entrepreneurship and small business. Our current government has stifled small business (with taxes, and new expensive ti implement regulations) so they could bail out their big business buddies.

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#2) On August 17, 2010 at 1:46 PM, cbwang888 (26.00) wrote:

This is "the developed countries are doped with made in China products" recession.

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#3) On August 17, 2010 at 1:53 PM, binve (< 20) wrote:

outoffocus,

Exactly! I am in complete agreement, and I particularly like Rosenberg's thoughts on that matter

cbwang888 ,

That's a fact...

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#4) On August 17, 2010 at 1:57 PM, outoffocus (23.07) wrote:

binve

Yea I just got around to listening to the video. I replied with my thoughts on the other blog.

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#5) On August 17, 2010 at 2:02 PM, binve (< 20) wrote:

outoffocus ,

Cool, thanks! Yeah, I just sent you a reply there :)..

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#6) On August 17, 2010 at 2:23 PM, portefeuille (99.60) wrote:

well, some places are doing great currently, hehe ...



enlarge

 

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ZEW Indicator of Economic Sentiment - Slight Decrease

The ZEW Indicator of Economic Sentiment for Germany drops by 7.2 points in August 2010. The indicator now stands at 14.0 points after 21.2 points in the previous month. This value is below the indicator's historical average of 27.3 points.

The German economy developed very dynamically in the second quarter of the current year. This is documented by the latest GDP growth estimates and by corporate data from the current reporting period. The current decrease of the economic sentiment indicates that the enormous growth observed in the second quarter is unlikely to continue. Due to Germany's dependence on exports, major risks for economic growth arise from a weak development abroad, e.g. in the euro zone and the United States.

"Given that economic growth worldwide looses momentum, the euphoria about the growth rates in some branches makes financial market experts feel uneasy. Anyway, high growth rates are always easier to realise from a low base level, though with decreasing dynamics", says ZEW President Prof.
Dr. Dr. h.c. mult. Wolfgang Franz.

Once again, the assessment of the current economic situation in Germany improves considerably compared to the previous month. In August the corresponding indicator rises by 29.7 points to 44.3 points. The economic expectations for the euro zone rise by 5.1 points in August. The respective indicator now stands at 15.8 points. The indicator for the current economic situation in the euro zone improves by 13.5 points and now stands at minus 13.0 points.

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#7) On August 17, 2010 at 3:09 PM, leohaas (31.52) wrote:

Agree, deleveraging needs to happen before job growth can return. But if it happens too fast, the economy would completely collapse. Two more years of the same seems a fair estimate to me.

Germany is indeed doing great. Its quarter-over-quarter GDP growth was 2.2% in the 2nd quarter. That compares to 9% GDP growth as we in the US would have reported it (in the US we annualize GDP growth numbers). Amazing (not sustainable, but still excellent).

Notice the first graph: it estimates the 2007-2009 recession ended 12 months ago. Alstry would probably not agree with this one (and neither would many of the other perma-bears here on CAPS)...

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#8) On August 17, 2010 at 3:38 PM, Mstinterestinman (20.33) wrote:

All I'm gonna say is they know nothing their nuts! Nuts! :)

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#9) On August 18, 2010 at 10:23 AM, dwot (49.79) wrote:

I am reading a piece on deflation and debt deleveraging, http://www.elliottwave.com/club/protected/pdf/deflation/deflation_full.pdf

It has a full section written back in 2002.  I read Edward Chandler's (sp?) "Easy Money" over 3 years ago which did a lot to shape my view of the markets.

Excellent post.

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#10) On August 18, 2010 at 10:34 AM, catoismymotor (29.58) wrote:

#6 - True. Germany is doing well right now so long as people in other countries are willing to put up the cash to buy their manufactured goods.

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#11) On August 18, 2010 at 10:43 AM, Tastylunch (29.28) wrote:

And thus the true cost of the bailouts is revealed. By not having a failure mechanism in place for interconnected banks we have delayed the inevitable delveraging that needs to happen.

As they say on Southpark

"they tuk our Jobs!"

Except this time the "they" is the mega banks....

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#12) On August 18, 2010 at 11:37 AM, Dow3000 (< 20) wrote:

Fascism doesn't work...nuff said.  On the bright side, the coming crash will wake everybody up to this fact...although I believe most already are and just need a spark.  Very excited for the rebirth of free market capitalism...next few years are going to really suck though.

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#13) On August 18, 2010 at 3:00 PM, binve (< 20) wrote:

Thanks dwot, !

Tastylunch ,

Hey man!

>>And thus the true cost of the bailouts is revealed. By not having a failure mechanism in place for interconnected banks we have delayed the inevitable delveraging that needs to happen.

*exactly*

>>"they tuk our Jobs!"

Der Do DORR!  That was the best episode of South Park ever :)

Dow3000 ,

Agreed!..

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