“In real terms, the economy is already in recession… Industrial output continues to flag (in January it was down by another .5 percent) while millions of good-paying factory jobs are being airmailed to China where labor is a mere fraction of the cost in the USA. Also, automobile inventories are up while factory production is in freefall.” – Online Journal, February 22, 2007
Chicken Smith View:
Let’s look at a couple of charts from the government’s Bureau of Economic Analysis (BEA):
This chart represents our current trade defecit. Yes, it’s negative. Yes, it means that we import more than we export. We also spend significantly more than we make. So how can we do that? Credit. Just like you can buy all you want on your credit cards and only pay the minimums each month, so too does the rest of our economy. From a regular person like you or me all the way up the food chain including investors, corporations, our government, everyone in our country is living on credit. Which leads us to this next chart:
This chart shows our ever increasing debt. And of course, there’s no collective plan to reduce that in any way. Unfortunately, these credit defecits can’t go on forever. Eventually some market condition changes (ie, foreign investors start dumping their dollars, too many banks collapsing, a market crash, too many bankruptcies, etc.) and the credit bills will become due. That’s when no one will have the money to pay them back and everyone will start waking up to the fact that credit is not infinite.
So, how will all this end up? Economists don’t know, the Fed doesn’t know, investors don’t know, banks don’t know, and the government doesn’t know. The fact is that because the future is so uncertain, it’s in a lot of people’s best interest not to know, or worse, say that everything is going well “there’s nothing to see here, move along…” and it’s all blue skies ahead.
The truth is, that the signs are all lining up, just like they did prior to the first Great Depression, and the signs are all pointing to a dramatic down-turn in our debt-ridden economy. But wait, aren’t we a world power, the richest, the biggest spenders, the best? Well, sure, but we’re also the the biggest debtors, close to 60% of all world-wide credit is consumed by us. One of the major factors of the Great Depression was buying on margin. This is true today, and we’re so deep in credit that there’s really no way out unless the market corrects itself via Great Depression 2.0.
BTW, do read the Online Journal article by Mike Whitney if you get a chance. It lays out the causes of the next depression in greater detail.