Economy Worse Than Great Depression

People have been throwing around the phrase "worse economy since the Great Depression" for four years now, and I've agreed with them. Today, however, I'm starting to think that this economy is actually worse than it was during the Great Depression. In terms of quarterly GDP growth, it is. At this point of the Depression, quarterly GDP growth had shot up to over 10% and remained close to that level for more than two years. It appears that GDP is about to go negative after only having shot up to 4% and hovering around an anemic 2% for three years. In other words, it's becoming clear that this "recovery" is weaker than the recovery seen during the Great Depression.

(Click to enlarge charts.)

Not only is the economy "recovering" at a lesser pace than it did during the Great Depression, it's doing so with credit having been expanded to historic lengths. Total debt-to-GDP is currently 60 points higher than it was at its peak during the Great Depression. 60 points. That should scare you. With the Fed pumping an Amazon River of liquidity, Washington spending even more than it did during the New Deal, and consumers buying things they can't afford, the economy is still contracting!

(Click to enlarge chart.)

From the preceding chart, you might come to the conclusion that we're at least moving in the right direction in terms of deleveraging. But remember that 1) federal debt has passed the point where it becomes a drag on an economy and has rocketed past 100% GDP, 2) much of the consumer "deleveraging" has been from write offs and debt transferred to the federal government, 3) consumers are now charging essentials to their credit cards, and 4) the student loan bubble looks like this:

(Click to enlarge chart.) 

Notice that the preceding chart only shows student loan debt owned by the federal government. Total student loan debt has surpassed $1 trillion. (Did the Fed not create a chart for this in order to conceal this ugly fact?) Regardless, student debt is the next bubble to burst.

I maintain that the economy is worse than it was during the Great Depression, and the only reason why it doesn't feel that way is because 1) advances in technology and economies of scale have made creature comforts affordable for everyone, 2) food stamps and other government programs have replaced bread lines and work camps, and 3) this country is living well beyond its means.

Buried Headlines: July 26, 2012

And so it begins. At the National Urban League conference in New Orleans, Obama called for stricter gun control. According to the Community Organizer, the federal government is now "in the trenches with communities and schools and law enforcement" to reduce crime "using the best practices". We all know what it means when a Marxist says that.

Anti-2nd Amendment Campaign Begins: Obama Calls For Measures Against Gun Violence

In other Community Organizer news:

80% Of Obama’s Top 2008 Campaign Bundlers Received Political Appointments

In other news:

Government Motors Stock Falls To New Low

Tax Dollars At Play: SF Library Installs Computer Privacy Screens For More Discreet Porn Watching

Forget Double Dip, The UK Is Now In A Depression

D.C. Public Schools (Among The Nation's Worst) Spend Almost $30,000 Per Student

A Look At Executive Branch Earmarks

Botched Earnings: The Next Way Facebook May Upset Wall Street

65% Of QE3 Is Already Priced In The Market

Weather Extremes Leave Parts Of U.S. Grid Buckling

ECOMINOES FLASHBACK:  Massive Blackout: Obama's Stimulus Did Little For Infrastructure

Pro-Cannabis Protesters Jeer Obama In Oakland

Raising The Minimum Wage Doesn’t Help Workers

Votes Against Fed Audit Bill Were To Protect Deficit Spending

Ron Paul's swan song, his "Audit the Fed" bill, legislation the long-time libertarian congressman has been pushing for over a decade, passed by a large margin in the House today. Although Dingy Harry Reid has indicated that it won't be brought up in the Senate, the fact that the bill enjoyed wide bi-partisan support is a testament to Paul's tireless efforts to educate not only libertarian-leaning American citizens, but also the good doctor's colleagues in Washington.

There was opposition to the bill, however. 97 Democrats and 1 Republican voted "nay". The few who voted against the bill and were willing to speak to the media justified their decisions with the usual spiel about the need to maintain the Fed's "independence" (as if the board of directors doesn't have Goldman Sachs on speed dial). For example, Minority Leader Steny Hoyer offered this gem:

It will undermine the independence of the Federal Reserve and will, therefore, undermine the competence in the Federal Reserve, which plays a significant role in stabilizing the economy and addressing the creation of jobs.

Stabilizing the economy and addressing the creation of jobs, eh? Hoyer's BS aside, why would anyone oppose an audit of the Federal Reserve? To me, the answer is simple: The Fed is Washington's enabler, and those who partake in the most deficit spending have the most to lose from an intervention (audit). Congress wouldn't be able to deficit spend very much if it didn't have the Fed to print money and buy the debt. So it's very telling that 97 Democrats--but only 1 Republican--voted against the bill. And look at some of the names on the roll call:

-Debbie Wasserman Shultz
-Nancy Pelosi
-John Lewis
-Linda Sanchez
-George Miller
-Ed Markey

These are among the most fiscally liberal members of Congress. They voted nay to protect the goose that lays their golden deficit spending egg.

Full roll call (click to enlarge):

Buried Headlines: July 25, 2012

Many people believe that the economy got off track in 2008, but in reality the economy never completely recovered from the tech bust of 2000. The tech boom that preceded the bust was fueled by Federal Reserve liquidity pumping, and the "recovery" we saw after the bust was merely the Fed inflating another bubble (the real estate bubble). As I've stated again and again, the Fed has been unnecessarily prolonging our suffering by continuing to pump massive amounts of liquidity into the system. The tech bubble never should have happened, but the Fed should have at least learned its liquidity lesson in 2000 and allowed the system to deleverage and clear itself of malinvestment. But it didn't, and now we've experienced twelve years of job destruction in this country. If you weren't frothing at the mouth angry at the Fed before, I hope you are now.

12 Year Jobs Depression: Fewer Americans Working Today Than In 2000

ECOMINOES FLASHBACK:  More On The Ongoing Depression And The Coming Austerity

How A Surge In Labor-Force Dropouts Is Artificially Suppressing The Unemployment Rate

Timmah Geithner: "Economy Is Not Growing Fast Enough, Unemployment Is Very High"

In other news:

Ron Paul's "Audit-The-Fed" Swan Song Passes House (With Full Roll Call)

NSA Whistleblowers: Government Spying On Every Single American

Earnings Revision Leading Indicator Points To Recession

Pennsylvania Coal Companies Announce Layoffs, Blame Obama

UK Economy Shrinks Dramatically; Longest Double-Dip Recession In 50 Years

Record First-Half Trade Deficit For Japan

$500B Alaskan Gold And Copper Mine In Upstream Battle With EPA

The Green Graveyard Of Taxpayer-Funded Failures

People Still Read Newsweek? Owner Says Magazine Will Eventually Be Online Only

Crazy Krugman Claims No Debt Crisis

Paul "hurricanes are good for the economy" Krugman, the self-proclaimed fastest damn writer in economics, has been making the rounds promoting his new book "End This Depression Now", a work that, as you might suspect, advocates massive Keynesian spending as a "solution" to the interminable economic depression. (As if that hasn't already been tried.) Krugman recently gave an interview to Business Insider in which the former deficit hawk and rational human being claimed to have "seen the light" in terms of deficit spending and the national debt. BI's Joe Weisenthal explains:

"Somebody has to spend more than their income, and, for the time being, that has to be the government," says Krugman.

But what about the deficit, that so many people are concerned about? After all, Krugman was something of a deficit hawk during the Bush administration.

He notes two things: One is that the deficit spending under Bush was totally wasteful, and that that should have been time to pay down debts. But he also says he's learned from watching the US and Japan that it's much harder for a country to have a debt crisis than he previously appreciated.

"My thinking has evolved," says Krugman. "If you haven't updated your views in the face of new experiences, you're not doing your job."

The fact that the US has its own currency makes a big difference, as evidenced by the crisis in Europe, where the countries without their own currencies are getting into so much trouble.

He still thinks a debt crisis is theoretically possible, but the evidence of the last several years shows it's much harder than he realized.

By "explains" I mean that Mr. Weisenthal demonstrates how far gone Krugman is. In reality, the last several years have shown that a debt crisis is easier to create than previously thought. Last year, S&P demonstrated to the world that the "good faith and credit" of the U.S. isn't iron-clad. The U.S. lost its AAA credit rating for the first time ever and faces the threat of additional downgrades. The reduction in rating increases Uncle Sam's cost of borrowing and makes it that much more difficult for Washington to get its fiscal house in order. This is significant because government debt inexorably becomes a drag on an economy after passing 90% of GDP, and it recently rocketed past 100%. A moribund economy further burdened by debt yields less revenue to the Uncle Sam, which makes it more difficult for Uncle Sam to pay his debt, which becomes even more difficult to pay back as borrowing expenses increase.

And consider this: for the first time, debt-to-GDP has rocketed past 100% in a peacetime economy. Washington has already thrown the kitchen sink at the economy (to no avail), and the impending second leg down is going to create even greater demand for government services in the form of disability benefits, food stamps, etc. God help Uncle Sam if there's a war. If the second round of recession doesn't turn the debt problem into a full-blown crisis, an international conflict would. And it's not like the U.S. has a track record of minding its own business in tumultuous parts of the world.

I think I'm preaching to the choir when I say that Paul Krugman is nuts.

Buried Headlines: July 24, 2012

Today marks the second anniversary of the implementation of one of the worst pieces of legislation this country has seen, Dodd-Frank. To mark the occasion, Dodd, co-architect of the mortgage meltdown, penned an opinion piece in which he defended his economy and jobs-killing act. In the piece, the MPAA CEO, who escaped the economic misery he created unscathed, claimed that his bill merely put into place "basic rules to prevent a crisis". Basic rules? The regulatory burden of Dodd-Frank will cost the economy $1 trillion over the first five years! (.pdf) There's nothing "basic" about that.

Second Anniversary Of The Economy And Jobs-Killing Dodd-Frank Act

ECOMINOES FLASHBACK: Frank And Dodd Started The Mortgage Crisis, But Not For The Reason You Think

In other news:

"Unbiased" Opinion: Obamacare Architects Preside Over Forthcoming CBO Cost Analysis

What Are They Going To Do During The Second Leg Down? Federal Government's Debt Jumps More Than $1T for 5th Straight Fiscal Year

Pat Buchanan: America Needs No More Neo-Imperial Nonsense

Charting America's Ever Shrinking "Revisionist" Economy

No Housing Recovery In These Three Charts

Crony Capitalism: Solyndra Figures Attend Swank Obama Fundraiser

IRS Sizes Up Political Groups' Tax-Exempt Status

Isn't Socialism Great? Cash-Strapped Argentine Town Pays Employees By Raffle

PIIGS: Ten Italian Cities At Risk Of Bankruptcy, Schools May Not Reopen

ECOMINOES FLASHBACK: California: The GDP, Budgetary Woes, And Resistance To Austerity Of A PIIGS Nation

Who Really Invented the Internet? Hint: It Wasn't Algore

Irony: Consumer Financial Protection Bureau Publishes 1,099-Page Proposal To Streamline The Mortgage Process

Ice-T Defends Gun Rights: "The Last Form Of Defense Against Tyranny"

Social Unrest When The "2nd" Recession Hits?

If the long-term unemployed have been finding difficulty securing employment in a job market so bad that one million Americans applied for 50,000 low-wage, part time positions at McDonald's, how will they fair when the economy deteriorates even further and even the Golden Arches stops hiring? Widespread financial ruin aside, I'm concerned about the impact on the nation's social fabric. In my very first post for ECOMINOES, I wrote about the potential for social unrest. Many readers accused me of being hyperbolic, but I stand by what I said. Long-term unemployment will break a man. (.pdf) And millions upon millions are long-term unemployed, most of them will continue to be unemployed throughout the second leg down, and millions upon millions more will become long-term unemployed as the economy continues to contract.

With the direction in which the economy is heading, Republicans are likely going to take the White House and the Senate in addition to holding the House. I would expect the new GOP regime to be much more fiscally conservative than its Bush-era counterpart. In fact, I suspect that the new GOP-controlled government will begin taking long-overdue austerity measures, which will eliminate the prospect of a new emergency unemployment benefits program. So, the growing masses of long-term unemployed will face a job market with even fewer prospects, and there will be no emergency unemployment program to count on. This is what we call a powder keg.

Buried Headlines: July 23, 2012

Extended unemployment benefits are expiring for the 28 million American workers displaced by the interminable economic depression, and there are few jobs to be had. So, more and more, the unemployed are filing for disability. This humble blogger has been underemployed for years, but at least he can say he's been working. But, down the line, if I find that America's social contract is still broken and this formerly-great nation can still offer no better opportunities than McJobs, I'm going to have to find a way to leave the country. Perhaps by then progress will have been made on the libertarian microstates in Honduras.

8,753,935: Workers On Disability Set Another Record In July; Exceed Populations Of 39 States

CBO: Record Number Of Workers On Disability *To Increase*

In other news:

Food Stamp, Inc.: How SNAP Benefits Enrich Crony Capitalists

Roubini: US Economy Going from Bad to Worse

Worldwide Downturn: Moody's Changes Aaa-Rated Germany, Netherlands, Luxembourg Outlook To Negative

What Taxmageddon Really Means For Families

Why You Pay Too Much In Taxes

Obama Offers Lowest Number of Offshore Lease Sales EVER

Pelosi: Obamacare Is An "Act Of Fiscal Stability"

Google Facing Force Of Aggressive E.U. Regulators

Buried Headlines: July 22, 2012

Even market-cheering CNBC admitted this weekend that we're close to an official recession. Too bad the economy has actually been contracting for years.

CNBC: Earnings Show Recession May Be "Fast Approaching"

In other news:

Great Society: US Poverty Highest Since 1960s

Gotta CTRL+P To Prop Up That Stock Market: Fed Looks At Third Round Of Easing

ECOMINOES FLASHBACK:  Fed Dollar Printing Responsible For Global Food Crisis

US Benchmark 10-Year Treasury Yield Hits New Lows

Lieborgate: Here Come The Arrests

The Eminent Domain Mortgage Heist

Spain Is Out Of Money In 40 Days

Comprehensive List Of The Big Banks' Improprieties

Washington's Blog recently published an impressive list of the recent improprieties of the Big Banks. This humble blogger is awestruck by what the Big Banks have been able to get away with, but not at all surprised that essentially no one has been brought to justice. Clearly, the banks, the Fed, and the SEC are part of the same cabal.

Here are some recent improprieties by the big banks:

• Laundering money for drug cartels. See this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis)

• Laundering money for terrorists

• Engaging in mafia-style big-rigging fraud against local governments. See this, this and this

• Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here and here

• Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts

• Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)

• Pledging the same mortgage multiple times to different buyers.  See this, this, this, this and this.  This would be like selling your car, and collecting money from 10 different buyers for the same car

• Cheating homeowners by gaming laws meant to protect people from unfair foreclosure

• Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing

• Engaging in insider trading of the most important financial information

• Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this

• Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this

• Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this

• Otherwise manipulating markets. And see this

• Participating in various Ponzi schemes. See this, this and this

• Charging veterans unlawful mortgage fees

• Cooking their books (and see this)

• Bribing and bullying ratings agencies to inflate ratings on their risky investments

The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees.  But studies show that most of the fraud is committed by management.

Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud.  See this, this and this.

But at least the big banks do good things for society, like loaning money to Main Street, right?
Actually:

• The big banks no longer do very much traditional banking. Most of their business is from financial speculation. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. Instead, they are mainly engaged in financial speculation and derivatives. (and see this)

• The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See this, this and this

• A huge portion of the banks’ profits comes from taxpayer bailouts. For example, 77% of JP Morgan’s net income comes from taxpayer subsidies

• The big banks are literally killing the economy … and waging war on the people of the world

And our democracy and republican form of government as well.

Gun Control Futile: Supply Will ALWAYS Meet Demand

Due to calls for gun control that have been spurred by the recent tragedy in Aurora, CO, I believe it's a good time to talk about the futility of gun prohibition. As is with demand for anything, demand for guns will always be met with supply from some source, be it legal or black market. Frontline recent reported that only 8% of guns used in crimes are obtained legally. (In other words, the recent mass-shooting was an aberration.) The remaining 92% of guns used in crimes are purchased off the black market from the consumer level of the supply chains of criminal organizations such as Mexican drug cartels, the Russian mob, and Hezbollah. Criminals will always carry guns because 1) demand for guns is inelastic, meaning that it remains relatively constant despite increases in price (often a result of increased law enforcement efforts), and 2) as long as there Mexican drug cartels, a Russian mob, and Hezbollah, there will be a supply of guns to meet demand.

Aurora, CO has strict gun laws that don't prevent criminals from obtaining guns, but do prevent law-abiding citizens from defending themselves in situations such as the massacre at the movie theater. And, because of the recent tragedy, Aurora will unfortunately likely pass even stricter gun laws, perhaps even banning private ownership of guns all together. But it won't keep guns out of the hands of criminals. Because criminals will always demand guns, and criminal organizations will always supply criminals with guns.

Author's note: I find it interesting (and quite frustrating) that the Bible-thumping side of the conservative spectrum seems to understand the futility of gun prohibition, but fails to understand the futility of narcotics prohibition, despite the fact that it's the same damn concept.