Smoke & Mirrors Running Out — Depression to Follow

Monty Pelerin / EconomicNoise.com

Those who believe the economy is recovering are ignorant of the facts. Other than the Great Depression no US recovery (and I don’t believe we are in a recovery) taken longer. Eventually it may take more than a decade like the 1930s. Or perhaps it will be like Japan which is in its third decade of “recovery.”

Politics and Economics

The truth is that our economy is spent, exhausted and filled with misallocations and distortions made much worse by government interventions. There is no recovery, nor will there be one until a massive purge (usually referred to as a depression) occurs. This event will result in bankruptcies that release scarce, misallocated physical capital from unproductive and unwanted areas to places where it is needed and can be utilized efficiently.

Rather than allow this pre-condition to an economic recovery and a growing, efficient economy, politicians want to prevent it. They use smoke, mirrors and propaganda (lies) to hide the reality of our sick economy. Their obfuscations continue, but the effective life is limited.

What politicians do to the country beyond their term in office means nothing to them. Their concern is only for themselves and the short-term that exists between elections. As a result they rob from the future to hide the true conditions of the present. Those still unborn will be paying for their criminal economic charade.

Economic Conditions

So how bad is the economy? Michael Shedlock, “Mish” is among the more prolific as well as more incisive financial analysts on the web. [CORRECTION: The attribution provided to Mish was incorrect. It should have been to  Karl Denninger (the link is to Denninger's site). Thanks to a reader from pointing this out.] His site is always worth reading, but a recent post is essential. To impress upon you the seriousness of the situation and to encourage you to read his post, I quote some of his points (anything in red is my emphasis):

… we’re doing the same thing that led to the 2008 blowup — we’ve learned exactly nothing.  In real terms our GDP is in fact contracting by about $500 billion a quarter, after adjusting for debt expansion — that’s $2 trillion a year, more or less.

In terms of debt and inflation, Mish determined that:

… we’re contracting in purchasing power adjusted for new debt at more than 10% over the last four quarters.

The debt to GDP ratio reached the highest in history just before the 2008 collapse. It remains in this record territory and is just as unsustainable now as it was in 2008:

… the absolute level of debt to GDP, however, refuses to go under 350%; it has now started rising again but is entirely coming from two sectors — business credit and the Federal Government.

Consumers reduced their debt levels, although probably not enough. They are still strapped with more debt than many can properly service. Consumption, as a result, has dampened as more income goes to debt service and less debt is added. That appears to be a condition that should prevail for several more years.

Remember, the announced reason for the loose Fed policy was to drive consumption. As Mish observed:

… this so-called “expansion” driven by ZIRP and deficits has a use-by date that has expired and we are now trying to evade the fact that the fish is well into the “stinks up the joint” stage.

Obviously, it has not worked.

Read Mish’s article to view most of his observations in chart format.

Desperate Government

continue article at Economic Noise:

http://www.economicnoise.com/2013/06/10/smoke-and-mirrors-running-out-depression-to-follow/