Van Hoisington's Latest Observations On The "Growth Recession"

Tyler Durden's picture

By Van Hoisington

Growth Recession


Reserve Chairman Ben Bernanke said in a recent television interview
that economic growth was not “self sustaining.” This description also
applies to an economy that is in a classic growth recession. A growth
recession is characterized as an economy where GDP grows but the
unemployment rate also moves higher.


close look at the U.S. economy bears out Chairman Bernanke's
description. The economy has been expanding for 17 months, yet both the
labor force participation rate and the employment to population ratio
stand at new cyclical lows and beneath the cyclical lows of the prior
expansion. This is an unprecedented development (Chart 1). For the past
19 months, the unemployment rate has been above 9%, underscoring the
harshness of labor market conditions. The employment to population
ratio, which is a better measure of labor market conditions than the
unemployment rate, was at the cyclical low of 58.2% in November,
matching the lowest reading since 1984.


addition to the increase in the number of unemployed, the quality of
jobs remaining in the system is also falling. 478,000 full-time jobs
were lost in November, increasing the six month loss in this most
important employment category to 1.6 million (Chart 2). Part-time
employment rose by 878,000 over the last six months, offsetting part of
the loss in full time jobs, but substituting part-time for full-time
employment lowers household income.



U.S. has 15.1 million unemployed persons and another 11 million
underemployed or marginally attached to the labor force. The latter is
measured by the broad or U6 unemployment rate which stood at 17% in
November. Not surprisingly, with this excess labor, the 12 month
increase in average hourly earnings fell to a new cyclical low of 1.6%
in November. A record 43 million persons receiving food stamps confirms
the economic distress.


Monetary Policy Remains Ineffective


by the Federal Reserve, including the start of the second round of
quantitative easing (QE2), have increased bank reserves by approximately
$1 trillion since the latter part of 2008. Virtually all of this gain
is held in excess reserves at the Federal Reserve Banks earning very
close to 10 basis points. In other words, the Fed has provided
substantial new reserves to the banks and they have, in turn, deposited
the funds back with the Fed.


are not money unless banks turn them into loans and deposits. Loans are
made based on bank capital, which continues to erode because of loan
write-offs due to increasing delinquency and default. The bulk of the
problem loans are in the residential and commercial real estate.
Additionally, the private sector does not have the balance sheet
capacity to increase borrowings because their debt ratios are at or near
record levels.


consider QE policy to be on a successful path because the psychology of
its orchestration has boosted the stock market, thereby creating a
wealth effect. However, QE has also set in motion unintended
consequences. The same factors that have boosted equities have also
lifted commodity prices and mortgage rates, both of which are damaging
to economic activity.


loans can be financed at 1% or less. This encourages speculative buying
of commodities for inventory, thereby causing food and fuel price
increases. For household's of average means, funds for discretionary
purchases are quickly drained. This is especially evident since the pump
price is now at or above $3 a gallon. A 30-year mortgage rate
approaching 5% only serves to accelerate the downward pressure on home
prices - the main source of household wealth. In short, higher stock and
commodity prices are not a net gain in current circumstances.


the past twelve months M2 has risen 3.1% versus the 110 year average
growth of 6.6%. If the velocity of money is unchanged in the next year,
nominal GDP will rise by 3%. If inflation stays at the less than 1%
pace, then real growth will be a paltry 2% in 2011. In the aftermath of
failed financial innovation and private sector deleveraging, velocity of
money has historically declined. Thus, real GDP may rise less than 2%
next year. Either way, the unemployment rate will continue to rise.
Fiscal policy influences GDP through the velocity of money. Thus, the
new tax compromise may serve to stabilize velocity, but if it passes it
will provide limited stimulus to the economy since most of the package
is just an extension of existing tax rates, not a reduction in tax rates
from current levels.


The Tax Compromise - a Minimal Boost


tax compromise reached on December sixth between President Obama and
the Republican leadership is in many respects like QE2. It plays to
psychology but does little to improve fundamental economic conditions.
The psychological benefit is that it ends the uncertainty of what tax
rates will apply to 2011 and 2012. However, the lower tax rate only
applies to these two years and thus, it does not constitute a permanent
extension of the current tax rates. Substantial scientific economic
research indicates that large responses to tax rate changes only occur
when households believe that their permanent income has changed. Also,
the contents of the tax compromise are designed for political impact
rather than economic effect.


security tax rates are cut by 2%, an amount equaling $120 billion. This
is a positive for the economy but the benefit is much smaller than it
appears at first blush. Of this amount, $60 billion replaces the Making
Working Pay outlays of 2009 and 2010. The cut in social security taxes
does not exempt the wage earner from income taxes and this transitory
boost to income may not be fully spent because of concerns of employment
and income in the current environment. Such a cut is really no
different that the rebate stimulus measures already unsuccessfully tried
by Presidents Ford, Bush, and Obama.


extension of unemployment benefits carries an expenditure multiplier of
close to zero, meaning that there is no net boost to the economy.
Historical experience indicates that accelerated depreciation will have a
very limited impact until late in 2011. The accelerated depreciation
will serve to pull 2012 capital outlays into 2011 in order to take
advantage of the benefit. Thus, the net boost from the total package to
GDP growth is not much more than 0.5%. This minimal short term benefit
will be lost over time since the package increases aggregate
indebtedness which is the main structural problem of the U.S. economy.
Significant research indicates

over-indebtedness leads to economic deterioration, heightened systemic risk and, in the case of major contractions, deflation.


State and Local Government Drag


the state legislatures return to work in January, they face combined
deficits in the vicinity of $280 billion. At this stage, most of the
quick fixes and rainy day funds have already been exhausted. Deficits of
this magnitude mean that cuts in spending and higher taxes are likely
outcomes. In November, state and local governments cut 11,000 jobs,
pushing the employment level in this sector back to the 2007 level. This
will be an ongoing theme.


Bond Yields


bond yield moves in the same direction as inflation about 70% of the
time annually, and the correlation is even higher for longer periods of
time. While there are numerous episodes when they have not lined up for
shorter-time spans, this relationship is one of most stable in
macroeconomics. The 30 year bond yield is currently well above 4% yet
inflation is less than 1%, resulting in roughly a 3% real yield. The
real yield has averaged about 2% over the last 140 years, suggesting
value at these levels. The US inflation rate will continue to fall as
the economy remains in a growth recession. In time (possibly soon!),
this will produce lower long term Treasury yields.


Van R. Hoisington

Lacy H. Hunt, Ph.D.


h/t Adam

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kalum's picture

Hello 3 years of unemployment benefits.

Bear's picture

Maybe thirty years.

Xedus129's picture

It's hard to live on 10 ounces of silver a week!


Also, I watched a video with Taz on MSNBC, and Nader too.. Nader quoted that if you adjust minimum wage for 1968 to today it is less than half.  I was wondering if anyone could confirm that and speculate as well, I'll try and do the numbers myself but I've been designing a microprocessor for about 9 hours straight and my head might explode at any time :).

Sudden Debt's picture

Socialistic models work fine untill the money runs out. And now that the banks got their 12 trillion dollar wellfare checks, there's no more money.


A_MacLaren's picture

The Minneapolis Fed has an inflation calculator on its home page.

What is a dollar worth?

Directions: Enter years as 4 digits (i.e. 1913) through 2010. Enter dollar amount without commas or $ sign in box on first line. Click Calculate button to compute dollar amount shown on second line.

If in (year), I bought goods or services for $ then in (year), the same goods or services would cost $.                                                                                                                                                                            The extension to wages fits.  If my earnings in XXXX were YYYY, comparable price level adjusted wages would be ZZZZ.  Mixes in the basket of goods (substitution), and hedeonic and quality adjustments not considered.  Afterall, a gallon of milk in 1968 isn't as good as a gallon of modern milk.  Similarly, beans, rice, cheese are vastly improved over the years.  Shelter now includes granite counter-tops, cable hook-ups in every room, carpets are stain-free, etc., etc.
voltaic's picture

The extension does not allow for three years of benefits, since the extension still allows for a maximum of 99 weeks in most states. Also since the BLS measure of the unemployment rate is going down in some states, such as NY, those state maximums will be less than 99 weeks. 

Quixotic_Not's picture

Since the incept of the U.S. *Industrial Economy* collapse that started in the 70s, the perp skool predators have been working OT to keep the *illusion* of *properity* alive.

A chicken/chiclet in every pot, a credit card in every pocket, a home loan for every collective of suckers (i.e. families).

Unemployment insurance for the afflicted!

Rule numero uno in mass herding (mind control = The Illusion) divide and conquer by keeping the sheeple angry and focused on self-preservation.

Moreover, once women were placed into positions of *leadership* it became easy -- Women ALWAYS place familia numero uno, their country a distant 2nd, 3rd, or worse...

The Founding Fathers placed the Nation numero uno, even above their own families.

The WISE understand there is no -0- way of keeping HUMAN NATURE in check without an ethical/moral RULE OF LAW.

No way in hell that could ever happen again with this immoral/debauched collective of huddled masses...they are so dumbed-down-to-sucumb they cheer the destruction of their own prosperity, and that of their progeny.

In 2008, the Fraud St./DoC kabal began looting the U.S. Treasury direct to deposit, and nary a .GOV regulator raised his parasitical head.

RoRoTrader's picture

Hosington and Hunt's theories about velocity of money made a lot of sense until I discovered Dancing With the Stars.

Atomizer's picture

Lemmings are comforted.

Davos Annual Meeting 2010 - CNBC The Next Global Crisis



scratch_and_sniff's picture

Just informing the site moderators, ZH has become painfully slow these past few days. Taking 40+ seconds to load a page etc...

sbenard's picture


My 80-yr old mother has a bunch of investment-grade corporate bonds. She has them in a trust account at Morgan Stanley. Her investment advisor there keeps telling her to sit tight on them despite rising interest rates and a bond bloodbath in recents weeks.

Can anyone tell me how I can determine the market value of these bonds? I have the cusip #s, dates, values, etc. I'm hoping there might be a website where I can plug the cusips in or the various bond data and it will compute for me the current market values of those bonds.

I'm am grateful for any assitance or suggestions you can offer! Thank you!

P.S. I have an Texas Instrument BAII Plus Professional calculator, but I've never used it for bonds. I think I have an HP calc around too, if that one is better.

traderjoe's picture has market data for actual transactions for bonds - size and price of trade. I'm on my iCrap right now so can't give the specific link. I'll update later if I can. I think they have a market data page and then you select bonds and then you can search by cusip.

eskin1's picture

You can try the following link as well:

I used that link to learn how to use the calculator when studying for my CFA. You basically will need the future value, number of years to redemption, annual cashflows and the current yields - which you can find either through your account or just through Google or Yahoo finance. Good luck!

Reese Bobby's picture

Good commentary.  I only disagree with his observation of inflation and real interest rates.  CPI & PPI my ass.  The conditions for inflation are upon us and will get worse: food, copper, cotton, oil etc.  Plus soaring labor costs in China are starting to drive up the cost of the massive imported goods we rely on.  In my opinion these higher costs will either be passed on to end-markets or squeeze corporate profits; probably a combination of the two.  Hello Stagflation!

goldsaver's picture

Yeah, I looked at that also. In what alternate universe does he thinks that inflation is a 1%? Perhaps if you don't eat or use any forms of energy, or wheat, cotton, coffee, oats, corn, lumber, OJ, copper...

Destrier's picture

If you believe that the world economy is still over levered, then the recent upturn in rates will bite hard, bringing about yet another slowdown. This should prompt another flight to quality rally in long Treasuries.  I"m with Van and Lacy, bitchez.....

unum mountaineer's picture

be long or just be out i guess. but treasuires are quality tho?..idk . things fall apart in this piece in the bond yeild section imho.

unum mountaineer's picture

Ph.D..sigh..CPI..sigh..can't price anything...can't bring myself to believe a centrally planned stat line

doggis's picture

a growth recession - come frickin ON.......damn i feel like i am eating CRAZY pills here........ our 'growth' is due to the federal gov't taking over and spending 12% plus of the economy....... a spending spree that is unsustainable..... ....let me guess what happens to the economy once that spending level drops - oh yeah , REALITY!!!!

lets keep priming the command and control pump and dumping out that inventory boys - growth my ass!!

mcarthur's picture

It's a sad commentary that a 12% or so GDP deficit is necesary to result in 2% or so GDP growth. Just imagine what the outcome would be if attempts were made to limit the deficit to say 6%.  A death spiral.

DoctoRx's picture

You're right if it were done via tax hikes.  But if it were done by stopping the war machine and stopping payments to Medicare/aid fraudsters, U of Phoenix-type "colleges", etc., and if the Fed refused to monetize the remaining deficit, then a thousand zillion flowers could bloom.  As it stands we're eally ucked.

CrashisOptimistic's picture

You guys have read enough comments now to KNOW why CPI is low and correct.

Housing.  What % of YOUR monthly budget is housing and did it rise by 10% last year?

Answer: No.  And because it is such a large % of your budget it drags down all the other things for a composite result of . . . a very low number.

You already know this.  Stop deceiving yourself.

Stuck on Zero's picture

When housing costs were skyrocketing I didn't see it reflected in the inflation rate.

unum mountaineer's picture

Inflation is an increase in cost of living.  Or it always has been.  I now see all sorts of lengthy presentation about what it *really* means, but I don't see any evidence that what it *really* means translates to cost of living.  Isn't cost of living the only significance to inflation? 

I think folks need to get it together when considering every piece of this specific discussion. (Talk about housing, but not about food) How about we talk about putting ALL necessary goods in that basket and stop playing shell games. Let's stop talking about what it "really" means and what you experience through your own experiences.  Let's make a conscious decision to not drink the koolaid and have an all-inclusive discussion on the topic and not pick and choose what to include and what not to. All can agree, those on a fixed income are boondoggled. 

CrashisOptimistic's picture

Dood, food is rising.  So are clothes.  So is fuel.


Housing swamps them out.  This is not rocket science.

unum mountaineer's picture

so where does the money to pay for all these things come from? income sources right? jobs? what's that doing? I guess you believe the "official" unemployment numbers right...or that mortgage payments are being made on time, month on month? food is rising, fuel is rising. clothing has not risen YET in imo. you can go to to see what I mean.

In your antfarm analogy, you miss the point. All CB's are engaging in this hide the salami game..right from the same playbook. In the end the average individual is fucked over either way.

take meyer on this one and I'll know everything I need to in regards to this discussion. you are right...this is not rocket science at all. GL.

TheProphet's picture

Isn't 'hide the salami' a euphemism for having sex?


mcarthur's picture

Observation #1.  The female participation rate stalled out a few years ago so this is essentially the first recession in recent times that has not had to fight this headwind.  Toss in baby boomer early  retirements and you will not see a recovery in overall participation rate, period.  It is now structural.


Observation #2.  Thank Nixon for the continuance of the great recession.  Bernake is pushing on a rope since the make up of GDP these days means an increase of stimulus means an increase in imports from China in particular.  All would have been nice if Richard had kept them in the dark ages instead of rolling out the carpet.  Sink all container ships and the world will be right again.

Clinteastwood's picture

Hey Mac (and all),

Check out this female participation stimulus:

Do you ever feel like a plastic bag
Drifting through the wind
Wanting to start again

Do you ever feel, feel so paper-thin
Like a house of cards
One blow from caving in

Do you ever feel already buried deep
Six feet under
Screams but no one seems to hear a thing

Do you know that there's still a chance for you
Cause there's a spark in you

You just gotta ignite the light and let it shine
Just own the night
Like the Fourth of July

'Cause baby, you're a firework
Come on let your colors burst
Make 'em go "Aah, aah, aah!"
You're gonna leave them all in awe, awe, awe

Boom, boom, boom
Even brighter than the moon, moon, moon
It's always been inside of you, you, you
And now it's time to let it through

Cause baby you're a firework
Come on show 'em what you're worth
Make 'em go "Aah, aah, aah!"
As you shoot across the sky-y-y

You don't have to feel like a wasted space
You're original, cannot be replaced
If you only knew what the future holds
After a hurricane comes a rainbow

Maybe a reason why all the doors are closed
So you could open one that leads you to the perfect road

Like a lightning bolt, your heart will glow
And when it's time you'll know

You just gotta ignite the light and let it shine
Just own the night
Like the Fourth of July

Cause baby you're a firework
Come on show 'em what your worth
Make 'em go "Aah, aah, aah!"
As you shoot across the sky-y-y

Baby you're a firework
Come on let your colors burst
Make 'em go "Aah, aah, aah!"
You're gonna leave them all in awe, awe, awe

Boom, boom, boom
Even brighter than the moon, moon, moon
It's always been inside of you, you, you
And now it's time to let it through

Nikki's picture

Although you tried to use dark humor to cover it, what you said is essentially true. The global wage arbitrage battle has wiped out the lower and much of the middle class. It is so much more than just factory jobs. The Bernak's masters hope for a bubble bursting in China and dollar debasement will create enough reasons to close the gap and rebiuild here. He is of course, wrong again.

tony bonn's picture

growth recession - said like a true politician....are you going to serve beer with that pretzel logic the next time?

there is absolutely no validity to the gdp construct - an invention by a dissident russian accepted more for its intellectual fascination than for its relation to reality...furthermore there is no legitimacy to the way the fake construct is measured....

if you want a macro factor with which to navel gaze take a look at gdi which is more dismal yet. john wiliams hasn't shown gdp growth since 2000 except for 1-2 quarters.....

you can't measure gdp - you can only imply it through indirect measures...thus it is not scientific - it is more economic fraud dependent upon handling of the implicit factors creating it.....

and comparing economic series over time to predict future direction of other series is voodoo economics at its many times has the definition of unemployment and inflation been changed over the past 40 years? not all of the series are updated....hence analysis done on them is hokum...

america has two polarized economies....that of the top quintile where unemployment is quite low and the other 4 quintiles where unemployment is quite high....the income disparities are most pronounced between the two sets...

furthermore, the jobless recovery is a fact of internationalization where international firms derive revenue and income overseas to the point where corporate growth and profits has absolutely no bearing to domestic conditions....this is also why some people bemoan the ever perpetual rise of the stock market as is not irrational even though it is rather pricey....the stock market at this point simply reflects the price warping of interest rates....

what a complete crock....

zhandax's picture

I will agree with your conclusion and you covered some of the high spots of why but you hit bone when you brought in America having two polarized economies.  The corporatocracy (plutocracy, oligarchy, choose your poison), has made it acceptable to outsource, resort to a temp labor force, to cut every corner to hit an earnings projection.  These harlots are simply earnings streams for wall street to trade and fodder for the M&A mill (in better times).  They add little social value to the equation, have a market-driven incentive to renege on any prior pension agreements, represent the worst of the concentration of power, and are ripe for the axe of antitrust action.

Then you have US small businesses; the traditional workhorse of the economy and the creator of the majority of real jobs.  My hat is off to these heroes with the caveat that I will not be joining them in the coming year.  It appears they may get a reprieve from an onerous tax hike for the next couple of years but there is not any way a sane person would risk any serious amount of capital on a new venture in which success was not virtually guaranteed (read this as a government backstop and the government is presently only interested in backstopping the asswipes with lobbyists).

This second group are ostensibly why wall street funnel capital to new ventures; but it is far more profitable to scalp ticks on the established than to actually make a market in new equities.  As long as wall street is allowed to forgo their primary responsibility in the interest of making a fast easy buck there will be no improvement in the core main-street metrics.  This is why both these mega-corporations and wall street need to be dismantled now.

Sadly, the only way I see this happening is systemic collapse.  Fortunately, that appears to be inevitable within six years at most.


Horatio Beanblower's picture

The Ponzi must go on...


"Unsuspecting shoppers who take out store cards and then forget about them could be hit with surprise charges, thanks to a change in policy from Britain's largest store card operator.

Santander, which owns cards operated by House of Fraser, Laura Ashley, Debenhams and many more, has written to its customers with a variety of changes to terms and conditions. These include the right to charge a £10 fee if customers do not use the cards for six months. It also has the right to cancel a card if customers do not use it within a similar period."

zhandax's picture

I had a Macys card since about 1985.  Two years ago, I received a notice that Citi had bought their CC portfolio.  I immedately shredded the card and have refused all further offers.  Interesting that the store personel are unaware of this and are surprised when I tell them this is why I will not have one of their cards.

Most sheep simply think it is their lot to be sheared....

TheProphet's picture

Well, if the Lord didn't want them sheared, he would not have made them sheep, now would he?

TexDenim's picture

"A growth recession is characterized as an economy where GDP grows but the unemployment rate also moves higher."

This is a self-correcting relationship over time, unless of course the US economy implodes. What will happen as bond yields rise and unemployment fails to improve is that we will enter a period of what was called, in the Ford administration, "stagflation" where inflation becomes pernicious and growth and employment remains stagnant. This is almost as bad as deflation and the Japanese disease. These are grim times we are heading toward.

DoctoRx's picture

Is your avatar's bra made of denim?

If not, and that's actually (allegedly) you, who's going to take your comments seriously?  Something about a booby trap to distract a guy . . .

Meanwhile I do agree w your comment, FWIW.

TexDenim's picture

My avatar is an Italian model sporting a special push-me-up bra for plunging neckline dresses. Those are her real headlights.

LawsofPhysics's picture

I will thank zerohedge for their great insight in front running capital flows of the Fed and primary dealers.  Much of the "wealth" I have accumulated recently is simple due to being alive during the 80's and remember what markets did during that recession.  This time things are indeed a bit different.  Since this post deals with "growth" which, as far as I can tell, is the cornerstone of all the dominant economic models the world over.  Ultimately,he United States may be in a pretty good position given that we have not really raped our natural resources as many over sovereign nations and economies have.  The problem I do see and the question I have is the following;  what is stopping the our creditors from simply leaving the dollar for hard assets or securing contracts for mineral rights (required for growth and technology development)?

Look, is has been great front running fear and the Fed, but now what?  We all know the market dynamics being supported by the Fed are unsustainable and the laws of Physics and Nature if you will are going to force  I have turned a lot of this wealth into land purchases outside of city limits.  The way I figure it, this land has a good fresh water source (I bough the mineral rights and water rights as well) and good soil for a number of ag-based crops with applications across the board.  Right now almost 15% of the American population is on food stamps.  What people don't realize is that right now over 20% of the fossil fuels we burn are done so to convert inert atmospheric nitrogen to ammonia for 100% of the fertilizer used in industrial farming.  Yes there is some organic farming going on and there are organisms in Nature that can make their own fertilizer, but the latter natural process is slow.  The physics and thermodynamics are what they are and regardless of the God you might pray to, for the foreseeable future, it will take almost 500 kJ per mole to break the nitrogen-nitrogen triple bonds.  Counting all the feed (from plants) that is fed to animals thst supply the protein that we eat, organic farming does not even register in the grand scheme of things.  In fact, if we shut down the Habor-Bosch process and relied on only natural or "organic" processes for the ammonia and nitrate/nitrite and utilized every scare inch of land to grow food (which we can't for obvious reasons) we could support between half a billion and a billion people depending on what the weather does.  The way I figure it the land is my hedge.  For example, in the immediate future should the "build america bonds" program fail to find funding and cities begin to default, I see a great opportunity to put these folks to work on my land in exchange for some of the food we grow. 

I was just wondering if and when these academic idiots, like Uncle Ben, are going to be forced to realize that cheap labor and cheap energy drive economies and not cheap paper.  Can we ever expect economic professors around the world to ever start dealing with the reality if the finite planet we are currently confined to?  Yes, I have done very well over the last 20 years by front running stupidity, but even I will admit that eventually only those at the very top of this global ponzi may not get burnt eventually.  My 500K salary today will become tomorrow's poverty line.  This is especially true when a wheel-barrow of gold can't buy you clean clean water, simply because there is none in your area.  They way I see it, eventually doesn't lead, brass, and gunpowder become the ultimate hedge?  Think about it this way, one thing that has not changed during the whole fraudclosure mess is this "possession remains nine tenths of the law".



LawsofPhysics's picture

Okay, I see that the "save" button is to submit.  I will proofread next time, sorry.