Depression coming in 2014

[briann]

Very good article.

http://www.forbes.com/sites/greatspeculations/2012/05/30/watching-a-global-depression-develop-in-slow-motion/

Watching A Global Depression Develop In Slow Motion
Harry Dent, Contributor
 10 comments, 9 called-out + Comment now

(Image credit: AFP via @daylife)

The U.S. economy seems to be doing pretty well compared to Europe and even the slowdowns in many emerging countries. But is this recovery as real and sustainable as most economists are starting to presume?

We see the present 2% growth rate as merely QE2 on a lag. Recall that the economy went from a financial meltdown to 4% growth on about a one-year lag from the massive QE1, but then slowed down to near zero growth in the third quarter of 2010 necessitating QE2.

 
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June will mark one year from the end of QE2 and the economy already seems to be slowing from its peak around January. It is likely that growth will continue to fade in the 3rd and 4th quarter, especially with Europe’s recession deepening. This means we will likely see either an extended operation twist or some form of QE3 ahead.

Europe looks increasingly scary as Greece approached its elections on June 17, especially after a massive QE2 (LTRO) of $1.3 trillion that seems to have had little impact on creating growth. How can the eurozone bridge the massive gap between lower debt and more competitive nations in the north and the less so in the south? The southern European countries don’t want austerity and the northern countries don’t want to endlessly have to bail them out.

Wouldn’t the euro be stronger after a short term crisis if the weakest countries like Greece or Portugal exit? The big problem from our view is Spain, partially because it is too big to fail and too big to bail out. But what makes Spain different is the massive real estate bubble and overbuilding. Spain’s unemployment is almost 25% with youth at 51%. Its real estate bubble lasted longer and went higher than in the U.S. with a peak share of 13% of the workforce in construction vs. 5.8% in the U.S.

Spain greatly overbuilt commercial and residential real estate and what makes this a long term crisis is that the number of prime home buyers in the 30–39 age bracket drops 40% over the next two decades! It simply is not possible to bail out Spain. It will eventually have to see massive loan write-offs and defaults – much more in the private sector than the public.

All of southern Europe and Germany, Austria and Switzerland have similar drops in housing demand. Private debt is three to four times public debt in most developed countries, so most economists and people are missing the 800-pound gorilla. Guess who has the highest total debt ratios as a percentage of GDP in Europe? The U.K. and Ireland, at 510% and 626%, respectively. That compares to 378% in the U.S. and 400% in Spain. Hence, a growing meltdown due to sovereign debt crises will cause private debt to start to deleverage in the worst countries in Europe, from the U.K. to Ireland to Spain to Portugal to France. Italy and Greece don’t have as high of a ratio of private debt, and Germany is at 280%.

Then there is China with its massive overbuilding bubble in housing, infrastructure and industrial capacity. Capital investment, mostly through local governments and state-owned enterprises (SOEs) has been driving about 50% of GDP growth with consumer spending more in the 35% range.

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China forces interest rates on bank deposits below the inflation rate to prop up their inefficient banks, hence households that can afford it invest in real estate. China has by far the most overpriced real estate in the world compared to income. Real estate prices are starting to fall and the 10% of consumers that drive 60% of spending will be severely impacted when this bubble bursts – and that is likely to be the straw that breaks the camel’s back in China beyond the slowing of exports to Europe.

Within the next year, and likely sooner than later, Spain will break the back of Europe as it requires larger and larger bailouts. That crisis will impact the US economy, banks and stock markets. The slowing of both major zones will impact China’s already slowing export machine, and then the bursting of the real estate bubble will strongly impact spending of China’s new upper and middle class.

China’s “hard landing” will then accelerate already falling commodity prices and hurt the exports of many emerging countries. That’s how we get a worldwide financial crisis that is deeper than 2008 and further stimulus plans will quickly become impotent as is already the case in Europe. The dangers of a global crash are high between late 2012 and late 2014.

[realist26]

We are for all intents and purposes already in a depression.  49% of American households pay ZERO income tax and under the weight of a huge Obama debt, real GDP is below 2%.  If Obama is kicked out and Romney attempts to reduce spending, the economy will go into negative growth and deflate which is theoretically good for the long run.  However, the lazy people will revolt, the economy will tank further, and then Romney will get the blame.  As for Europe, the European financial crisis threatens to destroy the world's financial system.  Unfortunately the world's largest economy does not have a leader and is exacerbating the problem with a reckless debt-fueled spending binge

[serbian army]

Interest rates are artificially lowered by the Fed and that sends a false signal to business owners. They think that savings are up and start capital project counting on future spending when in fact savings rate did not change or time preference.
We have stages of production and too much is allocated to early stages in R&D.
I do not have so much time to explain so here is one great video:

[Zelhar]

I am starting to think that instead of all the bailouts since 2008 the best thing was to do nothing, let banks default, let countries default and then when they can't borrow they would have to cut back on welfare spending. It would be painful but in the aftermath the economy will be free to sort things out much quickly.

Besides the whole concept of sovereign debt is a giant scam. Governments suck up most of the capital out of the economy so they can bloat themselves and spend on welfare and then they cut the interest and inflate prices so they actually pay back less in terms of real purchasing power and value then what they borrow.

[serbian army]

Non-farm payrolls up 69,000 in May, up 20,000 including revisions to March/April

Non-farm payrolls increased 69,000 in May and were up only 20,000 including revisions to March/April. The consensus expected a gain of 150,000.

Private sector payrolls increased 82,000 in May. Revisions to March/April subtracted 62,000, bringing the net gain to 20,000. May gains were led by education & health care (+46,000) and transit/ground passenger transport (+20,000). The weakest sector was construction (-28,000).
The unemployment rate ticked up to 8.2% from 8.1% in April.
Average weekly earnings – cash earnings, excluding benefits – were up 0.1% in May and up 1.7% versus a year ago.

Implications: Improvement in the labor market slowed noticeably in May. Including downward revisions for prior months, payrolls – both overall and for the private sector – expanded only 20,000. In addition, the total number of hours worked declined 0.2% in May while average hourly earnings increased only 0.1%. Total cash wages are still up a hardy 3.5% from a year ago, but they’ve been essentially unchanged over the past three months. In addition, the duration of unemployment increased and the share of the unemployed who quit their prior job dropped for the second straight month. However, not all the data in today’s report was negative; in fact, some of it was actually quite strong. Civilian employment, an alternative measure of jobs that includes small-business start-ups, increased 422,000 in May. In the past year, civilian employment is up at a 190,000 monthly rate versus a 149,000 pace for nonfarm payrolls. Although the unemployment rate ticked up to 8.2% in May, this was due to a 642,000 increase in the labor force. In the past year, the labor force is up 1.1 million, while the unemployment rate has dropped 0.8 percentage points. Another piece of good news was that the diffusion index, the share of private companies that are adding jobs versus cutting jobs, increased to 59.4% in May. One plausible explanation for the relative weakness of recent payroll numbers is the unusually mild winter. In the past six months (December – May), nonfarm payrolls are up an average of 174,000. December through February was above average and now we’ve had three months below. Supporting the case for a weather affect, construction jobs were up an average of 14,000 in December to February but down an average of 16,000 the past three months. Another possibility is that some firms are waiting for the outcome of the health care ruling and election to see whether the coast is clear for more hiring. At this point, there is no clear sign that problems in Europe are the source of slower job creation in the US.

[briann]

Non-farm payrolls up 69,000 in May, up 20,000 including revisions to March/April

Non-farm payrolls increased 69,000 in May and were up only 20,000 including revisions to March/April. The consensus expected a gain of 150,000.

Private sector payrolls increased 82,000 in May. Revisions to March/April subtracted 62,000, bringing the net gain to 20,000. May gains were led by education & health care (+46,000) and transit/ground passenger transport (+20,000). The weakest sector was construction (-28,000).
The unemployment rate ticked up to 8.2% from 8.1% in April.
Average weekly earnings – cash earnings, excluding benefits – were up 0.1% in May and up 1.7% versus a year ago.

Implications: Improvement in the labor market slowed noticeably in May. Including downward revisions for prior months, payrolls – both overall and for the private sector – expanded only 20,000. In addition, the total number of hours worked declined 0.2% in May while average hourly earnings increased only 0.1%. Total cash wages are still up a hardy 3.5% from a year ago, but they’ve been essentially unchanged over the past three months. In addition, the duration of unemployment increased and the share of the unemployed who quit their prior job dropped for the second straight month. However, not all the data in today’s report was negative; in fact, some of it was actually quite strong. Civilian employment, an alternative measure of jobs that includes small-business start-ups, increased 422,000 in May. In the past year, civilian employment is up at a 190,000 monthly rate versus a 149,000 pace for nonfarm payrolls. Although the unemployment rate ticked up to 8.2% in May, this was due to a 642,000 increase in the labor force. In the past year, the labor force is up 1.1 million, while the unemployment rate has dropped 0.8 percentage points. Another piece of good news was that the diffusion index, the share of private companies that are adding jobs versus cutting jobs, increased to 59.4% in May. One plausible explanation for the relative weakness of recent payroll numbers is the unusually mild winter. In the past six months (December – May), nonfarm payrolls are up an average of 174,000. December through February was above average and now we’ve had three months below. Supporting the case for a weather affect, construction jobs were up an average of 14,000 in December to February but down an average of 16,000 the past three months. Another possibility is that some firms are waiting for the outcome of the health care ruling and election to see whether the coast is clear for more hiring. At this point, there is no clear sign that problems in Europe are the source of slower job creation in the US.

Every single jobs report has been revised downward.  Most significantly, had the labor participation rate remained unchanged since 2009, we would be at 11% unemployment... NOT 8.2%.

[syyuge]

Economy is crashing on a global scale only because free economy is being more and more replaced by the controls and the communism.

[syyuge]

If the Eurozone is disbanded, then the increased internal competition will in turn sharpen the technological cutting edge of most of them. In this case even countries like Greece and Spain will be able to compete techno-economically with China on many fronts.

But they will not be doing it, as they prefer a NWO and OWG under the leadership of the Red Dragon China. In fact Eurozone is another useless entity like USSR.     

[realist26]

The common American believes the media narrative that free market principals caused the economic crisis.  To the contrary, it was actually government programs plus the fed.  So more and more government spending, zero interest rate policy etc, programs, is making the situation worse and quite frankly, scary....

[syyuge]

The policies of lower interest rates, coupons, welfare programs, over-expenditure on infrastructures, under-expenditure on manufacturing sector, oversize government functions  and stoppage of competitive offloading convert themselves in to controls, when they are inserted in to a free market economy. Actually any step that creates hindrances to the growth of the competitive entrepreneurs can be construed as a control. As the controls invariably lack competitiveness, so they deteriorate the economy further leading to the vicious cycle of ever increasing controls till the whole structure collapses. So it all needs effective intervention before that time. Actually restructuring of the whole economy on concepts of free markets alone can help now.

[briann]

All the government stimuli has window-dressed the economy... making us believe that we were recovering in 2010 .   

Lets see if they continue to do more of the same.