Paranoid wrote:
Joe Ponzio of Seeking Alpha has an entirely different perspective. Not saying I agree, but wondered if CM or Davos have reviewed this article yet?
Why This Downturn Wont be Like 1929
http://seekingalpha.com/article/124827-why-this-downturn-won-t-be-like-1929
Hello Paranoid:
Happy to give you my take on it. I just want to nicely point out that my affiliation with this site and Chris is nothing more than contributing/posting the best of what I read each day. In other words, just because my picture is below Chris’s doesn’t make me smart, doesn’t mean that CM will or won’t agree with my comment, in fact I’m often awed by many of the contributions I read and learn a lot from this comment section.
So here is my (personal) opinion:
"Impossible!" naysayers scream. "Unemployment is 8.1% and rising!"
Right, which means that employment is 91.9% which means that 91.9% of our consumer-driven economy can start saving more. And if unemployment rises to 15%, then 85% of Americans can focus on spending a little less and saving a little more.
Unemployment: In reality closer to
19.8% and increasing with losses of 1/2 to 1 million jobs per month. The number of unemployed workers during GDI was 25% but, if you worked one day a week you were considered employed.
Or look at it like this. Unemployed 13,700,000 Part time but trying to get full-time 8,900,000 and marginally attached and discouraged 2,100,000 for a whopping total of 24,700,000
So, in reality and I’m going to use really rough numbers here, if I recall, in 2006 (pre-GDII) there were about 80,000,000 men working and 70,000,000 women working, totaling about 150,000,000. Now we are down to about 125,000,000.
Put simply, the entire state of Texas has about 25,000,000 people in it.
So to say 91.9% are employed is erroneous. To say if it goes to 15% that 85% will focus saving more and spending less doesn’t take into account systemic risk. U3 and U6 numbers of this magnitude have a systemic impact on the economy.
In the fourth quarter of 2008, personal saving exploded — from 0.4% a year earlier to 3.2%, a hell of a jump in just one year. In fact, at no other point in the past fifty years have Americans increased their savings as a percentage of disposable income as quickly as they have in the past year
If you look up the way savings rate is calculated you will see the BEA once again uses some Enronesque accounting. Also, the don't count 401k and a real property. I go by debt loads not savings. Savings should not be called savings inside the BEA.
Add income of all types, and then deduct amount of personal taxes equal disposable income. Total amount of expenditures including rent, food, clothing and trivialities deducted from disposable income equal total amount for personal savings.
In addition, non mortgage interest payments started plummeting, down 13% from a year earlier. In the past fifty years, the amount of non mortgage interest paid by consumers has never dropped so quickly. In fact, from 1948 to 1987 — pretty damn good years in this country— this number neverfell.
This has little to do with low interest rates. We know that credit card companies have dramatically increased rates over the past two years. So…people are saving more and paying off debt.
I'm not certain how they deleveraged. Cashed in 401k's? Bankruptcy? Sold their house paid off debt? Lost their house and didn't pay the second mortgage? I don't know. But by now the author has me questioning everything.
If you look beyond the numbers, 91.9% of American consumers have, in the aggregate, been paying off debt and saving more and more in recent months.
One in 8 are late on home payments or in foreclosure. The Alt-A's and NINJA wave starts this summer, prime foreclosures outnumber sub-prime now with the systemic fallout wave 1 caused. Wave 2 is the same size. Credit card defaults are up, I doubt 91.9% of American consumers are in this fine shape. Is the 91.9% the number he thinks are working?
The American consumer spent $240 billion less last quarter than in the previous quarter.
And for me, this is the key. American consumers didn't borrow because their house isn't appreciating and the 401k/IRA is tanking and they are petrified by the unemployment numbers or are unemployed or underemployed. Consumers, not all, but many, felt rich, planned on selling their home and buying another and took on a lot of debt.
I don’t think we are going to ever see that again. Not for 50 years. Not until we manufacture more than we consume. Without that willingness to borrow I think we will drive older cars, eat home more, buy less stuff despite what Mr. TV tells us to buy and that is going to really slow down recovery.
But This Spending Is Different! It's Too Much!
In 1929, non-defense federal spending was just 0.77% of GDP. During the first three years of the Depression, the government did nothing to help curb the decay, actually paring back spending while Americans were losing jobs. Enter Roosevelt, the New Deal, and deficit government spending. (Roosevelt took the country off the gold standard to fund the recovery. Imagine what the headlines were back then!)
Roosevelt more than quadrupled non-defense federal spending to where it would ultimately become more than 5% of GDP in 1936. In essence, Roosevelt and the US Government filled the void when businesses couldn’t or wouldn’t put people to work. By 1942, unemployment was back below 5%, private investment was back on track, having grown tenfold since the 1932 low, and the consumer was healthy again.
One could argue that today’s proposed spending is too much. I’m not going to speak to the fundamental policy changes they’re proposing; but, I’ll tell you this: When Joe American loses his job and can’t find work, he’ll gladly help the government build the high speed train from New York to LA so that he can put food on his table.
Our debt, $80,000,000,000.00 is now being paid by printing money since revenues are down. That is like someone counterfeiting money to make a credit card or house payment. That funny money devalues our dollar and makes gas, food and anything and everything else more costly.
GDP is another Enroneque number. Cooked by about 40%. Our GDP/Earnings are 1,600% of what we owe. And, oh by the way, we don’t even take enough in each month to make the minimum payment, so we counterfeit it and shaft our kids and grandkids with the tab that we will never pay off. This is akin to a family earning $50,000.00 and buying an $800,000.00 house and telling the banker that his kids would have to pay what he can’t and some money each month will be printed on the HP printer.
Sorry, I would not read Joe’s book, visit his blog and I certainly wouldn’t invest with his company. Nothing personal, just don’t think he gets it.
IMHO this is and will be a depression, the likes of one this world has never seen.
Take care