When the Economic Cycle Research Institute's (ECRI) Lakshman Achuthan makes a recession call, you can be sure the economy is in deep trouble. ECRI is so afraid of making a premature call, of crying wolf, that when they finally do make the call, the train has already left the station. Achuthan hit the media circuit last week, saying that a recession in the United States is "inescapable," meaning the economy is already contracting. I last discussed a new recession in The Economy Is Worse Than You Thought (August 31).
Most Americans think the so-called "Great" Recession, or the Housing Bubble Recession as Eric Janszen likes to call it, never ended. And rightly so. The National Bureau of Economic Research (NBER) officially calls recessions according to where they think we stand in the business cycle, which tracks expansions and contractions in the economy. The main indicators of recession are real (inflation-adjusted) GDP and GDI (gross domestic income), but there are other indicators as well (falling income, job losses, etc.).
The world changed in 2007-2008. Actually, the Empire's decline began in the early 1980s, but that's another story. It would be more accurate to say the shit hit the fan in 2007-2008 after a long build-up. When I started this blog in January, 2010, I ridiculed the "business cycle" view of what was happening early on (March 4, 2010). My view has not changed since. Given that current and recent GDP is consistently overstated, and thus revised downward after the fact, I don't put much stock in the quarterly growth numbers since the "Great" Recession began. That said, the BEA says the economy grew at an anemic 1.3% annual rate in the first half of this year.
I was warning of a "double dip" in 2010 on this blog, but that did not come to pass, at least officially. There was still stimulus money circulating in the economy, and increased Medicare/Medicaid payouts alone are almost enough to keep personal consumption (PCE) in positive territory, all else being equal. Today the situation has gone from bad to much, much worse. The Daily Ticker's Aaron Task interviewed Lakshman Achuthan last week (video below) in a story called “It’s Going to Get a Lot Worse”: ECRI’s Achuthan Says New Recession Unavoidable—
Weakness in leading economic indicators has become so pervasive the Economic Cycle Research Institute now predicts a new recession is unavoidable.
"The vicious cycle is starting where lower sales, lower production, lower employment and lower income [leads] back to lower sales," co-founder Lakshman Achuthan declares in the accompanying video.
Whereas Achuthan said the jury is still out in late August, the weakness in leading economic indicators — and ECRI uses a dozen for the U.S. alone, he notes — has become a "contagion" that is spreading like "wildfire."
Although the recovery has been "subpar" by nearly every measure, Achuthan refutes the idea the economy never got out of recession in the first place. "Just because it looks and feels a certain way doesn't mean it's a recession," he says. "You haven't seen anything yet. It's going to get a lot worse."
It's too soon to predict just how bad it's going to get, but he expects another spike in unemployment and further expansion of the federal government's $1 trillion deficit. This forecast has huge ramifications for the 2012 election and the already struggling U.S. consumer and Achuthan says a "mild" recession is the best-case scenario.
In my August 31st post on a new recession, I downplayed the effects it might have, emphasizing that we had never really gotten out of the contraction which started in late 2007. But I have changed my mind. The rest of this year and all of next year are likely to be very bad. The only remaining question is how bad things are going to get.
The problem is that there is nothing on the horizon which might eventually counter a new recession and pull us out of it. Where will new jobs come from? No one can say. We are likely to lose more jobs. When will the Housing Market hit bottom and new construction begin again? No one can say. Will there be a new stimulus package to temporarily boost spending? This is very unlikely. Will there be a new technology boom that might create millions of jobs? Again, this is very unlikely. And so on. Nothing is going to save our bacon this time if Acuthan is right in saying "you haven't seen anything yet."
This is all very depressing. I'm sorry to tell you this stuff. The only Good News is that no one, not even our hopeless leading economists and political leaders, is still in denial about where the economy stands. Now we will all pay for their previous denial, assuming that something could have been done about our tragic situation in the first place. What form did their denial take? They bailed out the banks. They haphazardly tossed some stimulus money at the economy and threw in some some tax breaks. They came up with Cash For Clunkers. (Remember that?)
Our leading economists and political leaders assumed, as Acuthan still does, that we were suffering through a particularly bad contraction in the business cycle. Consequently they assumed that the economy would bounce back, as if economic growth is the default case, that growth happens automatically, regardless of historical circumstance. They thus believed the business cycle is unchanging & eternal. They believed in the Free Lunch. In short, they were clueless, or alternatively, uncaring.
Millions of people are likely to see their lives turn from already bad to even worse over the next year. The poverty rolls will increase as more and more people are forced out of the rapidly shrinking Middle Class. Batten down the hatches, there's a big storm coming. Good luck.
Hatches? Who can afford hatches? I will link to this from my Old Jarhead blog.
Robert A. Hall
Author: The Coming Collapse of the American Republic
(All royalties go to a charity to help wounded veterans)
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Posted by: Robert A. Hall | 10/03/2011 at 12:50 PM