Yastrow: “We Are on the Verge of a Great, Great Depression”

The news that frequent CNBC guest Peter Yastrow of Yastrow Origer (and formerly with DT Trading) told CNBC that "We’re on the verge of a great, great depression. The [Federal Reserve] knows it" is going viral today.

But this is not news to anyone who has been paying attention.

As I pointed out
Tuesday, billion dollar fund managers agree: the government never fixed
the underlying economic problems, so we'll have another crash.

I provided details last month:

As I noted in January, the housing slump is worse than during the Great Depression.

As CNN Money points out today:

Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.

"We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."

Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.

Lately, they're "running out of money" at a faster clip, he said.

"Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.

And - in case you still think that the 29% of Americans who think we're in a depression are unduly pessimistic - take a look at what I wrote last December:

The following experts have - at some point during the last 2 years - said that the economic crisis could be worse than the Great Depression:

• Fed Chairman Ben Bernanke

• Former Fed Chairman Alan Greenspan (and see this and this)

• Former Fed Chairman Paul Volcker

• Economics scholar and former Federal Reserve Governor Frederic Mishkin

• The head of the Bank of England Mervyn King

• Nobel prize winning economist Joseph Stiglitz

• Nobel prize winning economist Paul Krugman

• Former Goldman Sachs chairman John Whitehead

• Economics professors Barry Eichengreen and and Kevin H. O'Rourke (updated here)

• Investment advisor, risk expert and "Black Swan" author Nassim Nicholas Taleb

• Well-known PhD economist Marc Faber

• Morgan Stanley’s UK equity strategist Graham Secker

• Former chief credit officer at Fannie Mae Edward J. Pinto

• Billionaire investor George Soros

• Senior British minister Ed Balls

***

States and Cities In Worst Shape Since the Great Depression

States and cities are in dire financial straits, and many may default in 2011.

California is issuing IOUs for only the second time since the Great Depression.

Things haven't been this bad for state and local governments since the 30s.

Loan Loss Rate Higher than During the

Great Depression

In October 2009, I reported:

In May, analyst Mike Mayo predicted that the bank loan loss rate would be higher than during the Great Depression.

In a new report, Moody's has just confirmed (as summarized by Zero Hedge):

The most recent rate of bank charge offs, which hit $45 billion in the past quarter, and have now reached a total of $116 billion, is at 3.4%, which is substantially higher than the 2.25% hit in 1932, before peaking at at 3.4% rate by 1934.

And see this.

Here's a chart summarizing the findings:

(click here for full chart).

Indeed, top economists such as Anna Schwartz, James Galbraith, Nouriel Roubini and others have pointed out that while banks faced a liquidity crisis during the Great Depression, today they are wholly insolvent. See this, this, this and this. Insolvency is much more severe than a shortage of liquidity.

Unemployment at or Near Depression Levels

USA Today reports today:

So many Americans have been jobless for so long that the government is changing how it records long-term unemployment.

Citing what it calls "an unprecedented rise" in long-term unemployment, the federal Bureau of Labor Statistics (BLS), beginning Saturday, will raise from two years to five years the upper limit on how long someone can be listed as having been jobless.

***

The change is a sign that bureau officials "are afraid that a cap of two years may be 'understating the true average duration' — but they won't know by how much until they raise the upper limit," says Linda Barrington, an economist who directs the Institute for Compensation Studies at Cornell University's School of Industrial and Labor Relations.

***

"The BLS doesn't make such changes lightly," Barrington says. Stacey Standish, a bureau assistant press officer, says the two-year limit has been used for 33 years.

***

Although "this feels like something we've not experienced" since the Great Depression, she says, economists need more information to be sure.

The following chart from Calculated Risk shows that this is not a normal spike in unemployment:

As does this chart from Clusterstock:

As I noted in October:

It is difficult to compare current unemployment with that during the Great Depression. In the Depression, unemployment numbers weren't tracked very consistently, and the U-3 and U-6 statistics we use today weren't used back then. And statistical "adjustments" such as the "birth-death model" are being used today that weren't used in the 1930s.

But let's discuss the facts we do know.

The Wall Street Journal noted in July 2009:

The average length of unemployment is higher than it's been since government began tracking the data in 1948.

***

The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

The Christian Science Monitor wrote an article in June entitled, "Length of unemployment reaches Great Depression levels".

60 Minutes - in a must-watch segment - notes that our current situation tops the Great Depression in one respect: never have we had a recession this deep with a recovery this flat. 60 Minutes points out that unemployment has been at 9.5% or above for 14 months:

Pulitzer Prize-winning historian David M. Kennedy notes in Freedom From Fear: The American People in Depression and War, 1929-1945 (Oxford, 1999) that - during Herbert Hoover's presidency, more than 13 million Americans lost their jobs. Of those, 62% found themselves out of work for longer than a year; 44% longer than two years; 24% longer than three years; and 11% longer than four years.

Blytic calculates that the current average duration of unemployment is some 32 weeks, the median duration is around 20 weeks, and there are approximately 6 million people unemployed for 27 weeks or longer.

Moreover, employers are discriminating against job applicants who are currently unemployed, which will almost certainly prolong the duration of joblessness.

As I noted in January 2009:

In 1930, there were 123 million Americans.

At the height of the Depression in 1933, 24.9% of the total work force or 11,385,000 people, were unemployed.

Will unemployment reach 25% during this current crisis?

I don't know. But the number of people unemployed will be higher than during the Depression.

Specifically, there are currently some 300 million Americans, 154.4 million of whom are in the work force.

Unemployment is expected to exceed 10% by many economists, and Obama "has warned that the unemployment rate will explode to at least 10% in 2009".

10 percent of 154 million is 15 million people out of work - more than during the Great Depression.

Given that the broader U-6 measure of unemployment is currently around 17% (ShadowStats.com puts the figure at 22%, and some put it even higher), the current numbers are that much worse.

But it is important to look at some details.

For example, official Bureau of Labor Statistics numbers put U-6 above 20% in several states:

• California: 21.9

• Nevada: 21.5

• Michigan 21.6

• Oregon 20.1

In the past year, unemployment has grown the fastest in the mountain West.

And certain races and age groups have gotten hit hard.

According to Congress' Joint Economic Committee:

By February 2010, the U-6 rate for African Americans rose to 24.9 percent.

34.5% of young African American men were unemployed in October 2009.

As the Center for Immigration Studies noted last December:

Unemployment rates for less-educated and younger workers:

• As of the third quarter of 2009, the overall unemployment rate for native-born Americans is 9.5 percent; the U-6 measure shows it as 15.9 percent.
• The unemployment rate for natives with a high school degree or less is 13.1 percent. Their U-6 measure is 21.9 percent.
• The unemployment rate for natives with less than a high school education is 20.5 percent. Their U-6 measure is 32.4 percent.
• The unemployment rate for young native-born Americans (18-29) who have only a high school education is 19 percent. Their U-6 measure is 31.2 percent.
• The unemployment rate for native-born blacks with less than a high school education is 28.8 percent. Their U-6 measure is 42.2 percent.
• The unemployment rate for young native-born blacks (18-29) with only a high school education is 27.1 percent. Their U-6 measure is 39.8 percent.
• The unemployment rate for native-born Hispanics with less than a high school education is 23.2 percent. Their U-6 measure is 35.6 percent.
• The unemployment rate for young native-born Hispanics (18-29) with only a high school degree is 20.9 percent. Their U-6 measure is 33.9 percent.

No wonder Chris Tilly - director of the Institute for Research on Labor and Employment at UCLA - says that African-Americans and high school dropouts are experiencing depression-level unemployment.

And as I have previously noted, unemployment for those who earn $150,000 or more is only 3%, while unemployment for the poor is 31%.

The bottom line is that it is difficult to compare current unemployment with what occurred during the Great Depression. In some ways things seem better now. In other ways, they don't.

Factors like where you live, race, income and age greatly effect one's experience of the severity of unemployment in America.

In addition, wages have plummeted for those who are employed. As Pulitzer Prize-winning tax reporter David Cay Johnston notes:

Every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar, new data from the Social Security Administration show. Total wages, median wages, and average wages all declined ....

And see this, this, and this.

Food Stamps Replace Soup Kitchens

1 out of every 7 Americans now rely on food stamps.

While we don't see soup kitchens, it may only be because so many Americans are receiving food stamps.

Indeed, despite the dramatic photographs we've all seen of the 1930s, the 43 million Americans relying on food stamps to get by may actually be much greater than the number who relied on soup kitchens during the Great Depression.

In addition, according to Chaz Valenza (a small business owner in New Jersey who earned his MBA from New York University's Stern School of Business) millions of Americans are heading to foodbanks for the first time in their lives.

***

The War Isn't Working

Given the above facts, it would seem that the government hasn't been doing much. But the scary thing is that the government has done more than during the Great Depression, but the economy is still stuck a pit.

***

The amount spent in emergency bailouts, loans and subsidies during this financial crisis arguably dwarfs the amount which the government spent during the New Deal.

For example, Casey Research wrote in 2008:

Paulson and Bernanke have embarked on the largest bailout program ever conceived .... a program which so far will cost taxpayers $8.5 trillion.

[The updated, exact number can be disputed. But as shown below, the exact number of trillions of dollars is not that important.]

So how does $8.5 trillion dollars compare with the cost of some of the major conflicts and programs initiated by the US government since its inception? To try and grasp the enormity of this figure, let’s look at some other financial commitments undertaken by our government in the past:

As illustrated above, one can see that in today’s dollar, we have already committed to spending levels that surpass the cumulative cost of all of the major wars and government initiatives since the American Revolution.

Recently, the Congressional Research Service estimated the cost of all of the major wars our country has fought in 2008 dollars. The chart above shows that the entire cost of WWII over four to five years was less than half the current pledges made by Paulson and Bernanke in the last three months!

In spite of years of conflict, the Vietnam and the Iraq wars have each cost less than the bailout package that was approved by Congress in two weeks. The Civil War that devastated our country had a total price tag (for both the Union and Confederacy) of $60.4 billion, while the Revolutionary War was fought for a mere $1.8 billion.

In its fifty or so years of existence, NASA has only managed to spend $885 billion – a figure which got us to the moon and beyond.

The New Deal had a price tag of only $500 billion. The Marshall Plan that enabled the reconstruction of Europe following WWII for $13 billion, comes out to approximately $125 billion in 2008 dollars. The cost of fixing the S&L crisis was $235 billion.

CNBC confirms that the New Deal cost about $500 billion (and the S&L crisis cost around $256 billion) in inflation adjusted dollars.

So even though the government's spending on the "war" on the economic crisis dwarfs the amount spent on the New Deal, our economy is still stuck in the mud.

Why Haven't Things Gotten Better for the Little Guy?

Government leaders make happy talk about how things are improving, but happy talk cannot fix the economy.

Two fundamental causes of the Great Depression, and of our current economic problems, are fraud and inequality:

• Fraud was one of the main causes of the Depression, but nothing has been done to rein in fraud today

• Inequality was another major cause of downturns - including the Depression - but inequality is currently worse than during the Depression

There are, of course, other reasons the economy is still stuck in a ditch for most Americans, such as encouraging too much leverage, bailing out the big speculators, failing to break up the mammoth banks, and failing to spend wisely, where it will do some good. See this and this. But fraud and inequality were core causes of the Depression, and our failure to address them will only prolong our misery.

Comments

[blindman]

and here is the how of it. the why in here too.
don't miss the comment section of the l.b. link.
London Banker
http://londonbanker.blogspot.com/search?q=Concentration%2C+Manipulation+...
…
“In October 2008 the global financial markets crashed. The story in the media is
that it was a panic caused by the insolvency of Lehman Brothers. This is not the truth –
or at least not all of it. The crash actually followed a $2 trillion margin call by these
four global banks on their prime brokerage clients and OTC counterparties – effectively a
30 per cent increase in required margin. It was the margin call that forced liquidation
of global portfolios of all asset classes – and particularly the high quality, most
liquid asset classes.”
..
comment and links…..
leverage margin call doomsday opaque
derivatives.. – paper scam. ongoing
dr. strangelove written all over it.
.
Max Keiser NAPK???= PEY?O TPA?Z? (drugs, banks
and the Crisis, Greek subs)
http://maxkeiser.com/2011/05/31/max-keiser-napk%cf%89%cf%84%ce%b9%ce%ba%...
.

http://www.thepeakeffect.com/2011/04/top-25-holders-of-derivatives-total...
.
According to the 2rd qtr. OCC Derivative Report, the 5 largest holders of derivatives
(commercial banks) hold 97% of all derivatives.
http://investmentwatchblog.com/according-to-the-2rd-qtr-occ-derivative-r...
.
There is still over $1000 TRILLION in bad paper sitting out there according to the Bank
of International settlements!
November 8th, 2009
http://investmentwatchblog.com/there-is-still-over-1000-trillion-in-bad-...
.
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&add...×4832360
.
The Doomsday Machine in Dr. Strangelove
http://www.youtube.com/watch?v=cmCKJi3CKGE
.
all right, this is too much information.
?
.
“the whole point of a doomsday machine is lost if you keep it a secret
why didn’t you tell the world, ey.?” dr. strangelove.

[MrSteve]

your 1000 trillion is properly called a quadrillion. Image the full faith and credit it takes to make those deals whole!

[blindman]

a doomsday commitment.

[wombats]

We are not in a depression until Ben, Tim and Barry say its a depression...

[RockyRacoon]

That would be truthful, so don't expect that admission any time soon.  

Maybe after it's over.

[Inspector Bird]

I'm all on board with the cause being fraud.  Not as much with the inequality - unless you define it better.

Inequality in terms of access to markets?  YES!

Inequality in terms of income levels - 100% NO!

There is no question inequality, as defined by an ability to access certain goods, services, or information, have led to tremendous shifts of wealth from one group/class to another.  But the shifting itself isn't the problem - it's how that shift occurred that's a problem.

Were information and access equal for all - then less "rigging of the system" would occur.  I was burned several times by "good information" from my broker that only turns out to be him trying to offload their crap.  I was young then, but am wiser now. 

Fraud, though, I am convinced is the #1 cause of this.  Fraud because it encompasses Moral Hazard - people doing things they know are dangerous and can potentially shift against them quickly.  It's not truly "FRAUDULENT"...it's just fraudulent in the sense that it's people doing something because they know they can get away with it.  Which, at its base, is true fraud.

[calltoaccount]

Fraud indeed, down to the most basic buy and (naked) sell transaction.

And check out these Paul Craig Roberts - Max Keiser interview videos, perhaps the best straight talk analysis I've seen re exactly what we're up against. Paul Craig Roberts interview:

part 1:       http://www.youtube.com/watch?v=kEPob3kQ-6g&feature=player_embedded

part 2:     http://www.youtube.com/watch?v=sX7M3w02Bfw&feature=player_embedded

Roberts' comments should be disseminated far and wide.

[DaveyJones]

"Inequality in terms of access to markets?  YES! Inequality in terms of income levels - 100% NO!"

no causation between the two? therefore no inequality?

"access" now means non free market corruption, fraud, control of the regulatory agencies and absolute legal immunity. That tends to have an effect on income levels. 

"true fraud" is actually a criminal act that actually gets prosecuted when actually discovered by a government that acutally governs.

As Rocky points out, we have a much bigger or basic problem here - an actually corrupt government. Nothing is going to be "equal" until that problem is fixed. No equal access to markets, no equal protection, no equal sharing of the national debt, no equal access to the media...no equality.   

[RockyRacoon]

Yeah!  What you said more eloquently.

[RockyRacoon]

Just remember that the gears of fraud have to be greased with greed and powered by government complicity.   It's all of a system doncha know.

[JR]

A fitting comment to this story appears on Drudge today from mktcynic…

“’Wall Street is having a hard time figuring it out’ pretty much sums up the reason I am out of the stock market.  Brilliant financial advisers in concert with the Fed and DC systematically fleeced me out of over $200K between 2000-2007… never again.  Never did like Atlantic City or Vegas.

“I’ll be damned if I ever give them my money again.

“If these idiots living in their Ivory Towers ever went to a grocery store and filled up a cart or ever filled up an SUV or pickup at the gas station or drove around the country and witnessed all the half empty strip malls…then, maybe then they could begin to ‘figure it out.’”

[twotraps]

[ratso]

Did some else just say THE SKY IS FALLING?  

And if 40 million economists said it, it must be true.  

Time for a little Grateful Dead and a taste of Margaritaville.

[sun tzu]

If the administration and lamestream media say it's green shoots and recovery summer it must be true. Time for you to buy a McMansion. Home prices always go up up and awayyyyyyyyyyyyyy

[CH1]

All this is true, but isn't this is the day after the Raising the Debt Limit vote failed?

"The market is falling - let us raise the limit so we can save you."

Maybe?

[Hannibal]

If that's all there is,...just break out the booze and have,... some fun (and keep on stacking).

[SirIssacNewton]

We've been in a Great Depression for a while now, but it has been papered over by the Fed at great expense to us, the Taxpayers.  What we are seeing and will continue to witness is the unravelling of that paper to reveal the rotting corpse of our Republic.  There are too many potential negative avenues and none of them will end well.  Any solution will ultimately required great hardship and great turmoil to be experienced by all because the top 3% will extract it from us.  I don't see any outcome that will leave our Constitution intact.  We are already witnessing the emergence of facisim.....we are just going to have to wait to see it expressed in its overt dictorial form.  (Use of Great - 4 times...... I wanted to keep up)

[shortus cynicus]

Hmm... but where are those 8 trillions gone?

Can it be, that FED has just borroved it to TBTF banks so they can fill a hole after marking MBS to market?

I can't see that amount of money poring on a street. Of course we have price increases, but not in this scale.

[Freddie]

"34.5% of young African American men were unemployed in October 2009."

Hope & Change.  Bush was heaven compared to this.

[Freddie]

LOL!  I get junked 4 times by Democrats here on ZH still kissing Mugabe 2's arse.

[CompassionateFascist]

And that's not counting the boyz in prison.

[Azannoth]

You know you have a Depression when the local drug gangs are laying off dealers and channel stuffing

[Dr. Engali]

Lol comment of the day :)

[dugorama]

Remind me again why people hate on the Clinton administration?  Just what was so awful about peace and prosperity (and striking al Queda in their training camp tents with cruise missles - wag the dog reference here)?

[Diogenes]

Clinton treated the White House like a cheap motel from the day he moved in until the day he moved out. I'm not saying he was the sleaziest president ever, but the others had the decency to be sneaky about it.

[sun tzu]

US embassies and military bases blown up with no retaliation?

Serbian War was peace? In an Orwellian way. The same way the Libyan War is a kinetic action to liberate Muslims. 

Dotcom bubble was prosperity? The same way the housing bubble was prosperity. People went from flipping stocks to flipping houses.

Revisionist history can make every president look wonderful. They even credited FDR with ending the Great Depression when it is clear that WWII ended the Great Depression.  About 10 years from now you'll be proclaiming that Obama presided over peace and prosperity. Yeah, bruh, I'm hatin' on your man like I hate on all the carnival barkers and snake oil salesmen. 

[akak]

They even credited FDR with ending the Great Depression when it is clear that WWII ended the Great Depression.

Despite the frequency with which that meme is repeated, World War II did NOT in any way whatsoever bring the USA out of the Great Depression; Americans were STILL experiencing a lowered, Depression-level standard of living throughout that war.  It was only the recovery and rebuilding following World War II that truly ended the Great Depression, which in fact ran from 1929 to 1945.

[Prometheus418]

Uh huh.  It's amazing what a country packed full with war machine manufacturing equipment can produce after a little retooling.

Only way WWIII will end the same is if we rebuild manufacturing capacity to fight it- war doesn't make anything but dead bodies.

[Freddie]

Well GW is a Hope & Change liberal like quite a few others here.  We all told you dumb f**ks.   At least with bush we had 5% unemployment, less market manipulation and some sanity.  

[Matte_Black]

Dear Freddie (lol)

Clearly, you do not know G.W. Anyone who has been active in politics on the internet for more than a couple years knows that G.W. is an independent conservative.

Wake up. The time for this kind of bullshit is past. We have been sold down the river and both parties got paid. Wake the fuck up.

Mr. Washington is that rare breed of conservative who honestly seeks the truth no matter what it may be, whereas you are just some internet loudmouth named Freddie. Learn some respect for your betters, and you may acquire some cred around here.

[Freddie]

-4

[theopco]

Anybody who thinks there is a direct and strong correlation between who is sitting in the white house and what is going on the economy at any given time is a complete and utter moron, or deliberately trying to mislead the ignorant.

So which are you?

As if helicoptering clinton back in would give us full employment.

fer crissakes.

[sun tzu]

Every president has been handed a clusterfuck but only one has spent the first two years of his presidency whining and pointing fingers. 

Nixon got LBJ's Vietnam War

Ford got Nixon's demoralized nation

Carter got Ford's inflation

Reagan got Carter's unemployment and stagflation

Bush Sr got Reagan's S&L collapse

Clinton's got Bush Sr's recession

Bush Jr got Clinton's dotcom bubble

Obama got Bush's housing bubble

[Freddie]

We have video evidence of the housing bubble with Democrats (2006) stopping any regulation of Fannie & Freddie.

Maxine Waters, Frank, Dodd, Hillary, Obama, House Cong Black Caucus.

We also have Obama and others filing CRA lawsuits through ACORN to make sure banks lent money to everybody.  Save us the revisionist history.   The Dems and Obama are doing Mugabe 2.

[DosZap]

Bush Sr, had us coming out of the recession, and Clinton got the credit for the good times.

Simple as it get's to be.

[CrockettAlmanac.com]

Bush Sr. apparently had you coming and going.

[theopco]

Oh much better. A more sophisticated defense of the same lie.

[dugorama]

You have a pretty short (and faulty) memory.  Bush gave us 2008 - the collapse of Bear Steans etc.  Don't be blaming this collapse (or TARP, etc) on his successor.  This was Bush baby, all Bush all the time.  You might not like how Obama has dealt with it anymore than I do, but this economy was brought to you by Bush n buddies.  Period.

[purplefrog]

Still in denial, huh?

[sun tzu]

Your Messiah voted for TARP, promoted Tiny Tim to head of Treasury, refused to have the DOJ prosecute anyone and continues the bailout game. Bush only gave to Obama what Clinton gave to Bush. Clinton gave Bush the dotcom bubble that blew up in his face. Bush gave Obama the housing bubble that blew up in his face. Stop whining and deal with it. Now go suck off your Messiah. Period.

[rocker]

Since your headless, I must ask:

Were you born a dick head, or does it come natural?

[Dr. Engali]

Man you are a stupid obummer dick sucking fuck if you think he is any different than Bush. They were both bought and paid for and brought to you by the same people you dumb ass oslummer sheeple.

[sherryw]

Got any more descriptors up your sleeve?

[FeralSerf]

No shit!

+1000

[HungrySeagull]

All I know is get the &^%$ out of teh City and live quietly on the farm and only go into town once a month or have UPS ship it in.

Seasons change as the year goes along. We don't really notice that much anymore. However Ammunition and other useful materials are pretty stimulating to the respective industry sectors.

[The Alarmist]

The playbook on these things is that the only way out is another world war.  That might explain why TPTB are getting behind this Arab Spring thing in spades.

[falak pema]

I think that if GW dug a tunnel he would find ... the center of the earth...its so deep his reasoning...it is like wading in your own bath tub...well done...we now know that the great, great, great, great...is not out of date.

[max2205]

Dammit GW!!, We are not in a Depression till the market says we are....Duuuuuuude.

[Ruffcut]

I still call it the "slow" depression.

Slow going in execution.

Slow in people "getting it".

Slow in proper monetary responses.

Slow, to NO justice to those who accelerated it.

Slow, to no truth in the real deal.

But slow, does not make good for reality TV.

[newbee]

PM's: gold, silver, lead and brass ... get 'em while you can.