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Not The “D” Word!

7 July 2010 No Comment

I’m starting to see the D word being used more – the D word of course is Depression. While most are caught up in the usage of the term “Double-dip” a few fearless economists and analysts are actually using the word depression.  I believe that the identification of a period as a depression seems like it would come after the fact in hindsight.  While we might call it a double-dip now, if the economy struggles for a ten year span, history might identify it as a depression.  For now, it’s just guessing.

A great article over the weekend on the US being trapped in a depression, with a couple points I’d like to illustrate here.

First, a description of where we are today:

“Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing,” he said.

California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.

Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. “It is getting worse every single day,” said state comptroller Daniel Hynes. “We are not paying bills for absolutely essential services. That is obscene.”

Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.

Not very encouraging.  The article follows this up with a slam dunk:

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

This quote says it all.  We are still in a terrible economy despite 18 months of zero interest rates and stimulus!  Do we not understand how bad this is?  This is unprecedented.

The article follows it up with discussions of possible future quantitative easing in the works.  I’d say QE2 is right around the corner (right after the elections of course).  Hang in there boys and girls.

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