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Guest Post: About That "No Recession" Call

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith or OfTwoMinds blog,

Metrics of real economic growth are plummeting, and are about to drop through the "line in the sand" indicating recession.

Wise decisions, prudent adaptation and real progress all require facing reality: yes, the channel you can't change. While the global economy melts like an ice cream cone in mid-July Death Valley, the official murmurings reassure us the U.S. is in "slow but steady growth, not recession."

Courtesy of longtime contributor B.C., here is a chart that combines key metrics of real growth into one line and plots it against real GDP (gross domestic product). GDP is the blue line, and the black line depicts gross private investment + wages less debt service/M2 less the monetary base.

OK, that's a mouthful, but what it combines are key measures of economic activity: private investment, net earnings minus debt service, i.e. what the household has to spend, and the money supply (M2) minus the monetary base.

What that measures is how much money (M2) is actually entering the economy after the Federal Reserve added $2 trillion to the nation's monetary base since late 2008. If most of that is dead money sitting in reserves, then we'd expect actual money in circulation (M2) to stagnate.

OK, on to the chart:

 

The usual definition of a recession is GDP goes negative. But this isn't necessarily true. Notice that GDP never went below the zero line in the 2001 recession. Dipping close to zero was good enough.

The more interesting line is our composite of economic activity. Note that every break of the red "line in the sand" drawn on the chart resulted in recession. That composite line is dropping and is perilously close to piercing the line that has signaled recession over the past 40 years.

We can pose the "recession" question in this way: if real investment, net earnings after debt service and M2 money are all puking, how can the economy be "growing slowly but steadily"? Based on what? Free money from the Martian Central Bank? If the Martians were being generous, we'd see increases in M2 and earnings as money flowed into the real economy. We see no evidence of either, so we have to scratch the "free money from the Martian Central Bank" theory.

While we're at it, let's also dump the Fed's "reverse Robin Hood" policy (stealing from the middle class and giving the loot to the bankers) and the Keynesians' Cargo Cult (borrow and blow, borrow and blow, squawk!). Both have demonstrably failed, despite unprecedented sums of stimulus and "free money" being thrown into favored fiefdoms and cartels.

 

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Fri, 10/12/2012 - 16:53 | 2882994 dapper_dan
dapper_dan's picture

Because the numbers are a total farce.  When you use falsely low inflation estimates to deflate the GDP "growth", its works like magic! Just change the deflator and you're still in the black...    We need to have something for Econ PhDs do for a living after graduation, jeesh, either this or fudge those BLS unemployment numbers...

 

Sat, 10/13/2012 - 04:26 | 2884126 Boris Alatovkrap
Boris Alatovkrap's picture

Boris is to make for analogy... Economy is like big pie. Money is to division of pie to pieces. QE is to increase pieces of same pie. If measuring GDP Y/Y, but is cutting more pieces, Boris is cannot use number of pieces over number of pieces Y/Y for proclamation of GDP growing, but is adjusting:

2011 M2 growth is 10.7%

2011 GDP growth is 3%

Boris is simple custodial engineer, but is real GDP not -7.7% in shrinkage like scrotum in cold swimming?!

Sat, 10/13/2012 - 20:51 | 2885906 All Risk No Reward
All Risk No Reward's picture

>>Economy is like big pie. Money is to division of pie to pieces. QE is to increase pieces of same pie.<<

That's a common misconception.  Since our money is debt, the number of mutually exclusive claims on the same underlying assets is increased.  The Great Extinguishment is when the fun begins.  It isn't that everyone is going to get something less, it is that many are going to get nothing (you've been extinguished) and the system operators are going to get a whole lot.

The Great Extinguishment will commence when the Debt Money Tyrants determine they've looted the Treasury and offloaded as much of their debt onto society as possible.  Yes, they are "stupid" to steal the nation's monetary wealth and offload their debt onto us just like the workman who steals your gold coin is "stupid."  At least, that's their media promoted narrative.

Your analogy would be correct if money were simply printed instead of issued as debt.

Debt Money Tyranny 6.1

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

Nicole Foss on Finance and Bubbles

https://www.youtube.com/watch?v=kYXA9XHFUCU

Mon, 10/15/2012 - 14:50 | 2891542 Boris Alatovkrap
Boris Alatovkrap's picture

"Since our money is debt, the number of mutually exclusive claims on the same underlying assets is increased."

Boris is refer to Fed Balalnce Sheet, "M2" monetary base. Is GDP re-hypothecation? "Mutually Exclusive" is not true! True is money for debt, but if is not correlation to real wealth, even imaginary real wealth, is money in free-for-all collapse. US Dollar is debt back for  40 year after Bretton Woods, is not free-for-all collapse, but is slow degradation. True is money supply expand more fast for economy expand, but is loose correlation, no?! So, who is cut pie in micro thin piece!? Who is piece to be cut micro thin?

Fri, 10/12/2012 - 17:13 | 2883059 Daily Bail
Daily Bail's picture

VIDEO - Jamie Dimon: 'We Did Fed A Favor Buying Bear Stearns'

2 minute clip from Dimon's CFR speech yesterday.  Some new details on the back-room bailout negotiations.  This is worth your time.

Fri, 10/12/2012 - 18:01 | 2883192 AldousHuxley
AldousHuxley's picture

Dimon's father, Theodore Dimon, was an executive vice president at American Express. The younger Dimon came to Weill's attention when Theodore passed along an essay that Jamie had written.

Weill promised Dimon that he would have "fun" and hired him as his assistant at....American Express.

 

 

these are the fuckers who are pushing for "meritocracy" for everyone else under the banking system by forcing them debts.

Fri, 10/12/2012 - 19:07 | 2883342 The Alarmist
The Alarmist's picture

I remember when Jamie would show up at 388 Greenwich and the trading floors would be buzzing as if God himself had descended from heaven ... I didn't realise at the time that he had indeed.

Sat, 10/13/2012 - 03:30 | 2884113 jeff montanye
jeff montanye's picture

if dimon were really god he wouldn't have to keep stealing from his loan loss reserves as his non performing loans increase and his net interest margin contracts in order to make his eps.  i hear a clock ticking.

Sat, 10/13/2012 - 04:28 | 2884128 Boris Alatovkrap
Boris Alatovkrap's picture

analog or digital?

Fri, 10/12/2012 - 17:14 | 2883063 duo
duo's picture

If "real" 6-7% inflation had been used, the economy would have shrunk 30% since 2008, which would explain why it feels like a depression to everyone but bankers and politicians.

Fri, 10/12/2012 - 17:16 | 2883066 Westcoastliberal
Westcoastliberal's picture

I trust John Williams Shadowstats much more than any of the "fibbing" from the Feds.  Any "official" numbers are just a sideshow for the "rubes".

Did I mention we are soooooo screwed?

Fri, 10/12/2012 - 17:19 | 2883071 Long-John-Silver
Long-John-Silver's picture

We are not in a recession, we are in a depression.

Fri, 10/12/2012 - 18:03 | 2883194 TrustWho
TrustWho's picture

since we have already experienced the Greatest Depression, ZHers should create a new name for this economic disaster.

This is the Greatest Depressed Recession or GDR.

Since the 1930s, america has lost all masculine qualities to the feminist, because males are unfeeling neanderthals. We are in the soft feelly society and when life gets tough, we crawl onto the couch, curl up under a blanket and take Prozac...generic of course to treat our depression. Therefore, instead of saying this economic period is the Worst Recession since the Great Depression, we can call this period The Greatest Depressed Recession

There are more clever people on this site than I, so take a shot at naming this period..... WB picks the winner.

Fri, 10/12/2012 - 20:01 | 2883489 NooooB
NooooB's picture

Hells yes! I'm in!

I've always been confused by calling it a "Recession". At school "Recess" was fun and in no way depressing except for the occasional pee-pee pants. No, this is much less fun. And, No swing sets!

So my first submission will be an old school nod to the Depression of the 30's with some modern swing for the kids and going back away from the aforementiondly fun term "Recess".

DEP-CON II The Fuckenning  This time the dust bowls are in your soul.........

DEBT-CON II etcetera etcetera...

THE BIG TAKE BACK  Because Serfs should be poor!

Or, for a less flashy, less "movie title" type names. Maybe more scholarly sounding;

The period of the - OH MY GOD THESE STUPID SHITS WILL BUY ANYTHING!!! I MEAN THEY ACTUALLY THOUGHT "MORTGAGE BACKED SECURITIES" WERE A REAL THING!!! YAAAY!! THESE DUMB FUCKERS WILL FALL FOR ANYTHING!!! I KNOW! LET'S GIVE AWAY ALL THE MONEY TO US! THE BANKS! Stupid shits....

I suppose I should let someone else have a go...


Sat, 10/13/2012 - 00:00 | 2883941 dexter_morgan
dexter_morgan's picture

++

Sun, 10/14/2012 - 20:10 | 2888866 waviator
waviator's picture

"The Great Deception"

Fri, 10/12/2012 - 18:05 | 2883204 OutLookingIn
OutLookingIn's picture

Yes.

We entered depression in 2008.

2011 - 12 is much like 1931 - 32 during the 'Great Depression.

Welcome to the 'Greater Depression'. Worse yet to come.

Sat, 10/13/2012 - 04:30 | 2884130 Boris Alatovkrap
Boris Alatovkrap's picture

Vodka is barometric for measure economy...

Recession is measuring in shot glass, Depression in bottle size (magnum)!

Fri, 10/12/2012 - 17:19 | 2883072 dick cheneys ghost
dick cheneys ghost's picture

Is a recession while in a depression even possible?

Fri, 10/12/2012 - 18:08 | 2883211 OutLookingIn
OutLookingIn's picture

Yes.

Look at the 1930's, up until 1937 the economy was slowly improving, then took a tail spin down until full employment kicked in during the war years.

Fri, 10/12/2012 - 17:34 | 2883119 A Lunatic
A Lunatic's picture

Who needs GDP when your buddies own the printing presses, run the tax system, write the laws............

Fri, 10/12/2012 - 17:41 | 2883135 JR
JR's picture

The economy is not recovering. The economy is broken and cannot be mended; all the opposite views are as noise to cover this failure. It appears that the central planners’ use of GDP as a measure of the economy -- in recession or depression or prosperity—is no more relevant than the Soviet Union’s benchmark reports on the progress of Stalin’s Five-Year Plans.

Dr. Lacy Hunt makes these observations On Debt Disequilibrium, Deleveraging, And Depression, reported this past June on Zero Hedge:

“This is critically important to understand.

“While the media remains focused on GDP it is the wrong measure by which to measure the economy. A truly growing economy leads to rises in prosperity. GDP does NOT measure prosperity — it measures spending. It is the measure of real personal incomes that measures prosperity. Prosperity MUST come from rising incomes.

“GDP, on the other hand, can be distorted through government spending, which masks the effects of declining prosperity through weaker incomes. GDP does NOT lead to an increase in prosperity....  

“While the liquidity interventions by the Fed have increased stock prices — it has also continued to create pressure on the average American by deteriorating prosperity….

“The increases in debt without a productive return will ultimately lead to a larger proportion of government debt in the economy, versus private debt, with no relative increase in GDP. To put this into perspective - without changes to the current system government spending will reach 40% of GDP by 2050.

“This will not happen as the system will collapse long before then.” 

http://www.zerohedge.com/news/guest-post-dr-lacy-hunt-debt-disequilibrium-deleveraging-and-depression

Fri, 10/12/2012 - 18:03 | 2883196 New_Meat
New_Meat's picture

"The usual definition of a recession is GDP goes negative. But this isn't necessarily true."

't'weren't true in the run up to the '08 election, nor now

'course the ECRI and that Lashman guy have been on the other side of all of this.

Go figure.

- Ned

Fri, 10/12/2012 - 18:35 | 2883281 ejmoosa
ejmoosa's picture

The economy is weakening. 

One year ago more than 7 in 10 companies had higher year over year profit growth and the average for all businesses was double digits.

Today, only 5.5 of 10 have higher profit growth, and the rate of year over year profit growth for all businesses is below 7%, and declining.

There is nothing on the horizon to stimulate the economy.

Hopium has run it's course.

The only thing that can be done is to create a better business environment going forward, and that's not happening yet.

This has been more of a dead cat bounce recovery, with one helluva price tag attached.

 

"I predict that just at the final stages of the Presidential Election cycle kick off, the often touted Obama Recovery will gasp it's last breath. The most important thing is that Obama will own this outright. The days of blaming Bush will be over. Obama may try, but we will have become immune to it's effects. He will have taken too much credit to be successful a second time at the Blame Bush game.

The Obama administration will not be able to offer any steps, plans or promises to improve the situation. If his opponents are smart, they will use snippets of his own speeches against him. The American people, once again facing higher unemployment, will have had enough. Hope for Change will not be enough."

http://www.nolanchart.com/article8700-obamas-goose-is-simmering.html

May 2011

 

 

 

 

 

 

 

Fri, 10/12/2012 - 18:46 | 2883307 OneTinSoldier66
OneTinSoldier66's picture

"While we're at it, let's also dump the Fed's "reverse Robin Hood" policy (stealing from the middle class and giving the loot to the bankers)..."

 

First, I'd like to say that I think that "middle class" should be replaced with "savers" in the above quote. With that said...

 

And the reason I should do this, is...?

Fri, 10/12/2012 - 19:54 | 2883468 Muppet
Muppet's picture

Excellent economist John Hussman (hussman.com) maintains that recession began during this summer (June-July).  He believes that start-date will become recognized once this recession is fully acknowledged.

Sat, 10/13/2012 - 19:00 | 2885762 zippy_uk
zippy_uk's picture

Tyler -your obviously asking too many awkward questions again...

It was fixed by the authorities using the "new economic paridigm" - an end to boom and bust. GOT THAT!!

Nothing to see here - move along....

Fri, 10/19/2012 - 02:00 | 2903541 MeelionDollerBogus
MeelionDollerBogus's picture

The only valid way to measure a recession is jobs and wages. When wages on a year-to-year basis decline FOR EACH PERSON, looking at payroll data, when jobs are DOWN in participation rate YEAR-TO-YEAR looked at as far back as you can go, THEN you can see a recession.

GDP, productivity, M2 are NOT predictors or even DESCRIPTIVE of the real problem or inputs to the situation.

Thu, 12/20/2012 - 03:04 | 3081797 cgagw
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