The horizon is not so far as we can see, but as far as we can imagine

Not a Double Dip, A Second DownLeg

I’ve been predicting hiring improvement in the spring for some time, but I’ve been holding off on the double dip prediction.  I still don’t think one is going to happen, because I think, in effect, the downturn (which I agree with Stirling, is technically a depression, not a recession) is not going to end.  Sure, you can make some technical arguments for it ending, but really, the economy isn’t going to roar again, or even trundle along nicely again.   So when it turns down again, it’ll be a downleg of the same depression, not a “double-dip”.

We’re seeing a global wave of Hooverism.  Virtually everyone outside of Asia is refusing to continue stimulus at necessary levels, after having done their original stimuli at inadquate levels or in ways which were outright incompetent.  The leading edge of this isn’t the US, it’s Europe, which has decided not to either borrow from China or print money.

Meanwhile, in the US, we had a “jobs” bill which was only 15 billion dollars (probably two magnitudes too small) and which was profoundly stupid in any case—there won’t even be 15 billion dollars worth of value from it.  Meanwhile state and municipal tax revenues continue to decline.  There is no place in the US economy which is going to generate sufficient demand, and the only sure useful demand is military, but military spending isn’t all that cost effective.  Of course, it’s better than tax cuts, and it’s the only type of stimulus both parties believe in.

At this point Obama’s economic policy amounts to “war, war and more war” and “Oh yes, trillions for the financial industry.”  Substantially, that’s it, that’s all.

The economy has not recovered.  The banks have not recovered, if forced to actually recognize their losses both Citigroup and Bank of America would be bankrupt.  Quite possibly so would some of the other large ones.

China seems to have decided that it doesn’t want a full US recovery.  The calculus is this: a recovery in the US drives up commodity prices even as it allows the US to buy more goods.  Since the US buys those goods with China’s money anyway, better to have cheap commodities and make less sales which aren’t actually sales.

And the oil and commodity trap remains.  With the world economy still sucking wind, oil is hovering around 75 to 80 dollars a barrel.  If there was a real recovery, oil would quickly go back to 150 and bring the entire thing crashing down anyway.

Bernanke and Geithner, with all their spending, appear to have not saved the world.  Indeed, they may have put off the reckoning for less than 2 years.  For a bill of at least 4 trillion, and arguably more, that’s pretty amazing incompetence.  Which, of course, is why Bernanke was reappointed.  Nothing succeeds amongst the US’s elites like failure.


The Beach


Why Financial Crises Will Keep Happening


  1. anonymous

    Is that a general agreement with Stirling, or are you referring to something specific he wrote? Got a link?

  2. Ian Welsh

    I believe he’s said as much at Corrente, but I’ve also heard it from him in conversation. (That he regards this as a depression, not a recession.)

  3. Jay

    Here, here. But what to do? Learn to hunt rabbits? I mean really.

    And where is Stirling, anyway? Why isn’t he writing anything?

  4. John B.

    “Nothing succeeds amongst the US’s elites like failure.”

    Hey, well, that’s good news for Obama. He should be re-elected quite easily then…

  5. BDBlue

    Did you see this – big banks assets now equal to 63% of GDP. How screwed up is that? And on so many levels, I don’t even know where to begin.

  6. bob mcmanus

    “China seems to have decided that it doesn’t want a full US recovery.”

    If I were a paranoid type…

    “And where is Stirling, anyway? Why isn’t he writing anything?”

    Ian explained some of this the other day. I don’t know if his posts are still archived at The Agonist, but he has pretty well laid out the next few years to my satisfaction.
    It won’t be fun, and the last chance will come after Obama’s successor.

  7. Ian – Do you think that we are the victims of our own phony, feculent statistics, i.e., the controversial “birth/death” unemployment model, or the overuse of hedonically juiced numbers to blunt inflation? You, Numerian, Stirling & JP treated the issues of questionable Goverment stats many times over at the Agonist. Thanks! JB

  8. SAW


    Here, here. But what to do? Learn to hunt rabbits?”

    Um, yes.

  9. Ian Welsh

    The birth/death model isn’t guilty at this particular point in time. The numbers are, generally, heavily massaged, however.

  10. zot23

    Great article, thanks again Ian.

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