Thoughts on a rainy Sunday. Let's start with some important definitions.
Phony — something you disapprove of it because it is false rather than genuine. Synonyms:
- as an adjective: false, spurious, sham, counterfeit, bogus, mock, dummy, pseudo
- as a noun: fake, sham, forgery
Abnormal — something unusual, especially in a way that is worrying. Synonyms:
- as an adjective: anomalous, unnatural, irregular, aberrant, unusual
I dislike the phrase "the new normal." It implies the "Great" Recession was an aberration, that prior to the recession, there was an "old normal" where normal means "something usual and ordinary, what people expect."
I suggest we call the alleged post-recession period the new abnormal. We've shifted from the old phony economy based on unlimited, easy private credit (leverage) to a new phony economy based on unlimited, easy public spending (debt). This graph (hat tip Barry Ritholzt) says it all—the recent past was not what we would think of as normal.
Double Triple Quadruple? Bubbles
In the new abnormal, GDP numbers are even more deceptive & meaningless than they were in the old normal. As a general measure of human welfare GDP is fraudulent, but now it's a complete joke. As Calculated Risk points out in analyzing the 3.2% increase in the first quarter—
- Personal consumption expenditures (PCE) increased $130.7 billion
- Personal saving declined $88.5 billion
- Government social benefits to persons increased $61.1 billion
Even without getting into the grisly details—inventories didn't actually increase in the fourth quarter; they dropped by $19.7 billion—you can see that government social benefits + the savings decrease exceeds the increase in personal consumption expenditures, much of which came from higher gasoline prices. Calculated Risk notes that such "growth" is "not sustainable." No shit.
If you really want to understand the new abnormal, consider that 95% of mortgages were backed by government entities in the first quarter.
In other words, there is no private mortgage market in the United States. And the government-sponsored market (Fannie Mae, et. al.) is losing money hand over fist. This trend is not sustainable either.
So I don't expect the new abnormal to last very long. I expect it to morph into something very destructive to your standard of living. I was listening to UT Austin economist James Galbraith echo all the things I've said here at DOTE. The housing market will suck for a very long time, as I described in The End Of Suburbia — Really! Unemployment will be abnormally high for years to come, as I described in When Will "Full" Employment Come Again?
The only real difference between Galbraith and me is that he thinks we need even more public spending (debt) to create jobs, whereas I don't think more spending will make much difference. Therefore, such spending would only accelerate a sovereign debt crisis in the United States in my view. It certainly won't stimulate the economic growth required to avoid the crisis. And obviously Galbraith, like almost all economists, is not thinking about the next oil price shock.
Which brings me to denial. There's an elaborate game people play when they're vested in a hopeless situation. They have to pretend there's something we can do about it. If we only do this, if we only do that, we can pull through the current troubles. I get hysterical missives from Senator Bernie Sanders in my e-mail—
For the third time in three days, Senate Republicans on Wednesday blocked Wall Street reform. “That’s wrong,” Bernie said of the filibuster. “The American people are disgusted that the greed and recklessness of Wall Street caused this recession and they want action now to prevent it from ever occurring again. I hope Republicans reconsider and allow this debate to go forward.”
Real Wall Street reform should include a cap on credit card interest rates, an end to Federal Reserve secrecy, the dismantling of financial institutions considered too big to fail and major reforms in the way Wall Street does business to encourage small business and job growth.
Bernie is right, of course—that's what real Wall Street reform should include. Bernie has hope! Bernie wants me to be an activist! Fight the good fight, come out swinging. Take on the banks, teach those rotten Republicans a thing or two. Pretend the Democrats are better. Etc. My real choices are between no reform and cosmetic form (i.e. the appearance of reform). I'm not sure which is worse. This is all Wheel Of Suffering stuff. Fuck it.
Bernie is perpetuating a cruel hoax in saying the problems I've described here (and financial reform) are solvable. The fix is in. The die is cast—
The decision or course of action has been determined and cannot be changed. For example, "Now that I've announced my resignation, the die is cast." This expression comes from the Latin Iacta alea est, “the dice have been thrown,” which according to Suetonius was said by Julius Caesar when he crossed the Rubicon and invaded Italy in 49 b.c. In English it dates from the first half of the 1600s.
The Rubicon has been crossed. We're on the other side. The new abnormal is a temporary time of extend & pretend. It will end, and when it does, it will be replaced by something much, much worse.
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