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

George Washington's picture

 

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:

***

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:

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.


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Dr. Engali's picture

Simon is a chairsatan suckass. Man there are some really stupid people commenting in this video. Why is it that everybody in hedge land (except maybe robo and hammy) cansee it coming but these " pros" can't?

myshadow's picture

What does that make leesman?  Jesus Christ he goes into complete idiot mode by 9.40.

It has been the administrations fault to not address what we have been experiencing as a depression to begin with.

They would have had a lot more juice about policy if they had started there, now it looks like it is down hill on their watch.

A sunami wipes out 20% of Japan's power grid and pollutes the country way beyond their admission and that is gonna cost around the world, let alone 100+ oil.

docj's picture

But it's going to be a Great, Great Depression!! That's 2x the Great!! How can that not be totally freaking made of awesome!?!?!

Doom - it's what's for dinner.

And breakfast.

And lunch.

DaveyJones's picture

It's good to be great but it'd be great to just be good.

Cman5000's picture

 " Technical difficulties please stand by " Enjoy the soothing music ...

Dr. Acula's picture

John Williams foresees a hyperinflationary great depression

http://www.shadowstats.com/article/hyperinflation-special-report-2011

"The U.S. economic and systemic-solvency crises of the last four years only have been precursors to the coming Great Collapse: a hyperinflationary great depression.  Such will encompass a complete collapse in the purchasing power of the U.S. dollar; a collapse in the normal stream of U.S. commercial and economic activity; a collapse in the U.S. financial system as we know it; and a likely realignment of the U.S. political environment."

Founders Keeper's picture

[John Williams foresees a hyperinflationary great depression.]

IMO, Mr. Williams is correct. Prepare accordingly.

Political realignment. (Read final abrogation of US Constitution and conclusion of capitalism). Again, prepare accordingly.

 

FEDbuster's picture

The "Hyper Depression"?  "Mega Depression"?  "Ginormous Depression"? "The Depression to end all Depressions"?  The "Princeton Professor Period"?

Shell Game's picture

Excellent piece, thanks for the link.

Confuchius's picture

The writer of this piece keeps referring to 10% unemployment.

Is this simply the standard lie from the kleptocrats or is the author unable to read shadowstats.com and see that unemployment is very4 close to 25%.

Dr. Acula's picture

John Williams is shadowstats :)

He must be referring to the government's published statistic.

geno-econ's picture

You can add international investor Mobius [sp?] who yesterday declared that there will be another credit crisis within months because we have not rectified  cause of 2008 financial crisis

Winston Smith 2009's picture

You got the spelling right. Here's what he said. It's pretty much a "No shit Sherlock" to anyone other than the mainstream "expert" crowd (you know, the ones who never saw this huge mess coming and didn't see the bubble in this chart - http://www.ritholtz.com/blog/wp-content/uploads/2008/12/case-shiller-cha...):

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

From: http://www.bloomberg.com/news/2011-05-30/mobius-says-fresh-financial-cri...

rocker's picture

+10 Excellent.  The theme of many should not be about kicking the can down the road on benefits for those who are in need.

It is really about kicking the can down the road on the Bankster's who destroyed America. Where are the much needed regulations that were removed years ago to let them destroy our once great nation.

Bambi, the DOJ, the supreme court, the SEC, bank regulators and anybody who can start to fix it seem to care less. WTF.  Big Ben made them bigger and more greedy. 

tired1's picture

Not to worry, the IMF is rady to help. Seriously - i heard some blurbs on Fox.

EEDIT: It became evident to me about three years ago that the unfundent mandates on top fo decades of proflaget spending would lead to hyper-inflation by the time the bulk of the Baby Boomers 'came online' with demands of the system. At that time I thought there was time to plane a graceful exit. Well, it was obvious to others as well.

What I see now is a transver of wealth at an accelerated rate, the social consequences are unimaginable to me, but I have seen it happen in other nations - Russia and the CIS places. The folks at the top are well aware of the situation. There is little choice but to put on a good face while the nations drowns in debt.

But to most folks I know, the US is too bid to fail.

 

Racer's picture

And the person that make it Greater... none other than the ChairSatan himself.. the one person who was supposed to be an expert on the other lesser Great Depression

tired1's picture

Yeah, Bernanke is a fool.....

If they only knew the damage they were doing...

If only they _____ then there could be a solution.

To me it seems they know pretty much what the situation is. It's been done before. That they could get away with it in the US is the stumbling block to seeing the reality.

I dont have any solutions but most folks cant even see the problem.

Founders Keeper's picture

[If only they _____ then there could be a solution.]---tired1

Hi tired1.

In reply to your post:  Truth  is all that's necessary.  Then, let the chips fall where they may. The average American will react just fine if provided the simple truth.

 

MGA_1's picture

Can't say that - we were about to drop into something awful late 2008.  They just kicked the can down the street a couple years.  Install of deflation, we're probably looking at some sort of nasty inflation now.

11b40's picture

Well, I don't  have any problem saying it.

Yes, were about to drop into something awful in late '08, but the response from Bernanke and the administration was wrong. wrong, wrong.  The big bank bondholders should have been sheared and the busted banks taken over and broken up. 

The vast majority of stimulus" should have gone to Main Street and the middle class, where it would have promptly been re-cycled back into the economy and actually done some "stimulating".

They should have listened to Volcker and a new version of Glass-Stegall should already be in place.  Bank leverage should be capped at 10%, and rules for commodity trading to curb speculation should re-instated.

There was a crisis in 2008 alright, and that is when real solutions should have begun to be implemented.  Now, the problems are all bigger, we are worse off than  in 2008, and not f**king thing has actually been solved.

So, yes, I can say that about Bernake.....and a lot more, too, but I'm in a hurry.

Kayman's picture

11b40

You've hit the nail on the head. Supporting the Criminal Banking Cartel/Casino is a cancer on this country.

Kayman
on Tue, 11/10/2009 - 14:53
#126072

Thanks Tyler:

Through the banal marketing term "outsourcing" our myopic corporations and government have gutted the American Middle Class by transferring manufacturing jobs to China. Supposedly, we will be a "service" economy- you do my laundry and I do yours. And when we are not vacationing in Vegas we can gamble on Wall Street.
Sadly, I think we are in the unstoppable decline of the American Empire. Obama and Bush, with the supporting cast of Bernanke, Greenspan, Paulson and Geithner are the last Emperors flailing around, afraid to tell the American people that there is no free lunch, afraid to tell China that American ports will no longer unload containers full of Junk.
When we look back in a couple of decades, we will see the one-way trade relationship with China (what pray tell is in this for the American people ?), the dangerous derivative markets (side bets designed to churn fees) and the loading of private debt onto the American taxpayer were the seeds of our destruction.
And our bought and paid-for politicians are trying to hide the truth by printing money and borrowing unrepayable sums to provide a short-term bandage on a mortal long-term wound.

Bananamerican's picture

"real solutions should have begun to be implemented"

woulda coulda shoulda....

dude, there are ASSETS to be stripped at pennies on the taxpayer funded dollar...

There is a SCRIPT for this oligarchical shit show....

rocker's picture

@11b40 +10  QE3 for the public would be nice. Don't know who you are. But you are so right on. If they just capped the banks at the knees we would be better off.

Scumbag Barton Biggs said the consumer just got a tax break when oil fell under 100 for a week. This dirtbag has no reality of the strife that Bernanke put on most Americans. If he just regulated the banks. Yup. 

My sentiment towards a country that I always believed in has been destroyed by the banking cartel of the FED. Gosh, I really loved America. We socialized banks to save Wall Street. We paid for most of their misdeeds. We went to war because they were attacked for their injustices to other nations. That is why it happened. What the cartel dosen't realize is. This time many Americans are smarter and know what they are doing. And now, many Americans hate Goldman, Morgan, Lehman, Citigroup, and the Fed. After all, they steal your investments at every opportunity. But hey, they trade perfect for 90 days in a row. Something that makes me go Hmmmmm. Rigged market, you bet. Anybody who thinks different is lost.

Now the real economy is dead. We are treated like communist in America and the laws against us are worse everyday. Because of the banksters cartel we lose more of our freedoms, our wealth, and our belief that the Constitution works for us.

I do believe we are headed for a depression in America. The Cartel has assured it by not regulating the banks. Why didn't they regulate what they do. They actually made it worse. Gave them free money and said destroy what's left. And they have.   

We are Japan now living under the supreme court's new unconstitutional laws.

web bot's picture

You'd have to be an absolute idiot to look at this mess and think that everything is going to be fine.

<shaking head>

Winston Smith 2009's picture

"You'd have to be an absolute idiot to look at this mess and think that everything is going to be fine."

You've just described most of the CNBC staff.

nohweh's picture

Good to see you Eric, CNBC,BBC any ABC you prefer. The telescreen may not see you all the time; that's when it starts looking for you.

Henry Chinaski's picture

Normalcy bias.  People don't want to look at this mess. There is so much chaff in the air, I can't totally blame them.

downrodeo's picture

Excellent point. Right you are. Everybody knows that we are f*(#ed, its just easier to pretend we're not as we go about our business.

It is alot like high-end retailers. We all know that when we walk into Ralph Lauren, we're purchasing clothes that were made in sweatshops by 10 year old children. Still, it is much easier to buy that stuff when we pretend we don't know that.

 

 

"Under and behind and inside everything the man took for granted, something horrible had been growing."

The Alarmist's picture

Either that or a member of the party elite honour-bound to spout the party line. But when you are a member of the party, things will always be just fine for you.

Bananamerican's picture

especially if your name is Ed Balls.

god, what a manly name!

anyway, if this economy is rubbing Balls the wrong way i can assure you this will not be pleasant

FEDbuster's picture

What about his brother, Harry Balls?  Or, his dad, Dick Balls? And his dog, Blue?