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The Lesser Depression: How Bubble Finance Has Deformed The Jobs Cycle

Tyler Durden's picture




 

Submitted by Alhambra Partners' Jeffrey Snider via Contra Corner blog,

If you limited yourself to only the official unemployment rate the picture you get of the economy is seemingly one that fits very much inside historical expectations. The rate rose and fell just like it “should” in a recession/recovery cycle. That raises the question about why this period has been so divergent with past expectations. When even the Federal Reserve looks to something other than the unemployment rate (though of equally dubious features and deficiencies) to gain some insight into the economy’s actual station you know that traditional correlations have broken in some broad fashion.

There is a relatively clear demarcation between those times when the unemployment rate was highly correlated to other indications of economic activity and the period when its status seems to be more in doubt. This “recovery” has certainly been the most evocative of discussion and doubt, but that really extends backward to the prior two. While the “recovery” after the dot-com recession created the term “jobless recovery” it can also be seen in the cycle ten years before.

The term “jobless recovery” is itself an oxymoron since the main function of any economic advance is to broaden participation. Thus a “jobless recovery” is nothing of the sort, indicating more so the re-arranging of numbers rather than full achievement – the hallmarks of redistribution.

ABOOK Sept 2014 Payrolls Unemployment to LF

Measuring from “peak” unemployment forward, there is again a clear difference between the recovery after the deep recession in 1981-82 and those that have come after. Even in the early 1990’s, the labor force was obviously changing as the number of new potential entrants to the jobs market began to shift more toward staying out. Yet, there were still enough payroll gains to attract significant growth in the labor force (undisturbed by changes in population and demographics).

The Great Recession “recovery”, or “Lesser Depression”, has seen something altogether worse. Where the track of the unemployment rate appears very much normal, it has almost nothing to do with a healthy economy. In fact, in this instance, the unemployment is actually the primary indication of all that is wrong!

Structurally, even orthodox Keynesians have come around to actually identifying another clear demarcation in function. As Paul Krugman noted in his affable affirmation of “secular stagnation”,

“We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.”

Correlation does not prove causation at all, but it is more than curious that an economy gaining serial bubbles suddenly stops training itself on recession/recovery cycles. It’s made all the more compelling by the volumes of academic scholarship dedicated to the orthodox plan of “filling in troughs without shaving off peaks.” The primary appearance of that is to “elongate” the economic cycle, to depress the amplitude of downturn as well as the upswing, in order to better “manage” economic growth. That dangers of attempting as much are explicit in the very phrase itself, acknowledged at least as a possibility by those that claim it could not happen.

Yet, nearly every labor and economic statistic in this “cycle” demands recognition that it has happened. Not only have these “cycles” become elongated, denoted by the labor force’s post-1980’s tendency to not participate as much on the upswing, the overall shift has been one in which the peaks are clearly shaved in addition to elongation – the two are apparently and unfortunately not mutually exclusive.

That leaves quite a mess to clear up, and no real definitive means to do so outside of total reform (which orthodoxies don’t undertake on their own – instead inventing convolutions to try to doctor and conjure explanations that satisfy at least apathetic attention while preserving the bureaucratic paradigm). It also leaves the economy on a new kind of plane we have not witnessed in history outside of perhaps the Great Depression itself.

Given new incoming data, including that in today’s employment reports, it very much looks as if the amplitudes have waned and that not only recovery has been shorn of its bounce but that contractions too may be much shallower. In other words, the economy doesn’t really recover but remains in a depressing and durable state lingering between shallow contraction and absence of that.

ABOOK Sept 2014 Payrolls LF NominalABOOK Sept 2014 Payrolls LF Percent

I don’t think it will ever become an official recession, outside of more heavy and major revisions (which are all too possible), but it certainly appears as if the change in economic trajectory past the middle of 2012 is a low-amplitude “cycle.” The question now is whether that has finished its course, or whether elongation means many more months on the same, slow downward slope.

The data on the labor force, as well as income, suggests further erosion. That would make sense if the paradigm I have sketched here is valid. If monetary intrusion unites both cycle elongation together with structural deformations (of the negative variety), existing now alongside the most intense and sustained monetary intrusions should logically impart the same patterns in proportionality – lower ultimate trend coupled with startling elongation.

ABOOK Sept 2014 Payrolls All Four Index

That may also offer a potential explanation for why we see so many divergences in the data, particularly jobs and payrolls. The more heavily adjusted the series, the more it is captured by “trend-cycle analysis” that views elongation as indifferent to historical experience. The mainstream statistics model “recovery”, deficient of slope undoubtedly, but still recovery on its central axis. Yet, the less adjusted series cannot follow that trajectory because there is no broadening of the upswing, instead the slow erosion shows up as irregularities and deficiencies that don’t appear to be outright recession (and also not outright recovery).

To summarize all of this:

Essentially the bubble economy, dating to monetary changes toward more active “management” through finacialism, have transformed economic behavior to something like what we have seen in Europe since 2009.

 

In more general terms, the basic malformation is not all dissimilar to the Japanese experience of the past quarter century, regardless of the appearance and maintenance of “inflation” or “deflation” (just different forms of instability).

 

As financialism spreads, so does disharmony, not just in function but in breaking correlations among economic accounts and statistics that were once seemingly so unconquerable.

 

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Sun, 09/07/2014 - 22:25 | 5192452 Greenskeeper_Carl
Greenskeeper_Carl's picture

recovery my ass. call it like it is, we are in a depression and have been for years. The only thing they can point to and say "look how much better it is" is the stock market, and most people who can't find jobs and are struggling to stay afloat don't give a shit about that

Sun, 09/07/2014 - 22:54 | 5192498 junction
junction's picture

Reagan's joke campaigning against Carter (while his campaign aide and former spook Casey was in Madrid arranging for the Ayatollah to delay releasing the American hostages in return for future ordnance from the USA) was: "It's a recession when the other guy is out of work, it's a Depression when you lose your job."  For over 30 years, decisions by large U.S. companies have been made not on the basis of increasing competiveness but on making money fast, even if means off-shoring manufacturing, cutting R&D to the bone and letting hedge funds and management consultants control business decisions.  This bottom line fever has wrecked the USA.  Billionaires like Warren Buffet can block the Keystone pipeline because it will taken away business from his Burlington oil rail car business.  Obamacare was created not to provide healthcare for the uninsured but to enrich drug companies and private hospital chains and a course of treatment for hepatitis C can cost up to $150,000 if you use a dual drug treatment.  Looters everywhere getting rich while most of the country is going the Ferguson, Missouri route, cops on perpetual ticketing blitzes and elected officials and judges taking their payoffs behind closed doors.

Mon, 09/08/2014 - 01:42 | 5192718 All Risk No Reward
All Risk No Reward's picture

The only reason they can claim "recovery" is because the Debt Money Monopoly is able to count their looting of society as GDP.

I  **hate** these demonic apparitions, but you gotta admit that's brilliant from a criminal mind stand point.

Main street is getting bled out...

Mon, 09/08/2014 - 05:23 | 5192858 PT
PT's picture

How to recognize a "Jobless Recovery":

1.  Technology allows us to make lots of stuff with fewer jobs.
2.  So everyone keeps working but for fewer hours per week.
3.  Debt is minimal.
4.  A large proportion of people's incomes is spent on leisure activities.
5.  Other people take care of the sick, poor and homeless just for fun, because otherwise they would be bored.  Not that many people are sick or poor or homeless anyway.
6.  Likewise, a lot of energy / resource problems are tackled by people who just do it for fun.  Such problems are resolved before they become serious.
7.  Excess production is viewed as a good thing as it means we can do less work and have more leisure time later.
8.  Empty homes sold to the homeless / given away.

How to recognize a Disfunctional Dystopia:

1.  Huge debt everywhere.
2.  People confusing the words "debt" and "affordable".
3.  Open promotion of Ponzi Finance.
4.  Some people work huge hours and get fuck-all in return.  While others are unemployed.
5.  Common propaganda to the weak and defenceless:  "It is all your fault.  You would be richer if only you worked harder for less money".
6.  All information / education tied to huge debts.
7.  The information that is free turns out to be all sales and propaganda.
8.  Excess production is destroyed to keep prices high.
9.  Empty ho- WTF????  Are you a fucking communist or something???  This is an efficient capitalist system.  There are NO empty homes.  Ooohh, those empty homes.  Empty homes will be left to rot and then bulldozed to the ground and maybe later rebuilt and sold at 10x what people can afford because that is what the free market is because that is what the banks will lend and that is what idiots will borrow and it's not my fault idiots are willing to pay that much and banks are willing to lend them that much and we have freedom and they are free to do that and anyway there's no such thing as a free lunch because there just isn't!  Fuck you!  Leave me alone!

Something like that.

Sun, 09/07/2014 - 22:52 | 5192500 world_debt_slave
world_debt_slave's picture

yep, the panic of 08, crash of 09 and depression of 10

Sun, 09/07/2014 - 23:30 | 5192551 X.inf.capt
X.inf.capt's picture

and the world war  in '14....

how history repeats itself....

Mon, 09/08/2014 - 06:52 | 5192903 Bangalore Equit...
Bangalore Equity Trader's picture

Listen WDS. I will tell you this in confidence. I was in the USSA when the wheels came off the wagon. I was what is called a "LANDED" resource at my tech job in Research Triangle Park, USA.
I witnessed first hand your strong, robust 'merican economy "GRIND" to a complete halt! A complete halt, I say man.

Let me be clear, you are onto something with your "DEPRESSION" theory.

Sun, 09/07/2014 - 22:25 | 5192453 AdvancingTime
AdvancingTime's picture

The long-term implications of poor job creation are massive. The biggest may be that a huge number of people are dropping from the work force. Often these people have little in the way of savings, this means that the burden of caring for them will be transferred to society. If to many people shift into this category we will slowly wear down through attrition.

Finding a fair way to share and balance the work load that goes on every day may be one of the most important problems facing our modern world. Not discovering a solution to this dilemma bodes poorly for our consumer driven economy and adds to the toxic problem of inequality. More on the implications of unemployment in the article below.

http://brucewilds.blogspot.com/2013/09/implications-of-poor-job-creation...

Sun, 09/07/2014 - 22:38 | 5192478 NoDebt
NoDebt's picture

"Not discovering a solution to this dilemma bodes poorly for our consumer driven economy and adds to the toxic problem of inequality."

We have found a solution.  We will have a more government-driven economy and inequality will continue to worsen until the next market crash (at which point the "rich" will be dragged down, without the "poor" being raised up).

Small number of rich, large number of poor, and just enough middle class to service the rich.  As it has been in most societies throughout most of human history.  A giant reversion to the mean.  The 20th century in the US was an anomaly.  Driven by cheap energy and winning WWII without having all our cities bombed flat to the ground, unlike everywhere else across the then-developed world.  

Sun, 09/07/2014 - 22:49 | 5192496 disabledvet
disabledvet's picture

So we have the cheap AND PRODIGIOUS energy (look at Venezuela for a primer on Viva La Differance) in the USA AND we have "the security detail."

Send in R Lee Emery and friends here...what's the problem?

Not enough ceeegars? To paraphrase Reagan "the Government just needs to get off the back of the war effort here."

Mon, 09/08/2014 - 06:34 | 5192889 Majestic12
Majestic12's picture

"paraphrase Reagan "the Government just needs to get off the back of the war effort here.""

Yeah, that's it...."the government"....

You mean the fiat ...."PRIVATE" ...banking system????  There....I fixed it for you.....

Sun, 09/07/2014 - 23:09 | 5192523 Greenskeeper_Carl
Greenskeeper_Carl's picture

that last paragraph you wrote points something out that is missed by most people, even on here. Its important for people to understand that the prosperity we enjoyed in those decades after WWII occured only because we were the only developed country left with our infrastructure still standing. In order for that to occur again, the rest of the world would have to experience something similar. In an age of ICBMs and nuclear weapons, we wouldnt have the luxury of remaining untouched while the rest of the world was left in ruins. We would all go down together. Just one ballistic missile submarine like our Ohio class has the ability to destroy every major city on any continent on earth, and we arent the only ones that have them.

Sun, 09/07/2014 - 23:21 | 5192535 NoDebt
NoDebt's picture

I've written that last paragraph at least 2 dozen times on ZH over my tenure here, Carl.  Very few things I can lay claim to as being uniquely my own words and thinking.  That is one of them.  I say it because I've seen NOTHING that has refuted it or explains broad macro realities better. 

It's nice to know that somebody else recognizes it, too.

Mon, 09/08/2014 - 00:55 | 5192662 CheapBastard
CheapBastard's picture

You all makes good points. Post-WWII the merikan bankers and industries were the clear winners. The USA handed loans to all the "losers" for rebuilding as long as all the construction contracts went to USA industries. Basically the USA gubmint paid USA insutries via the destroyed nations for their reconstruction.

We tried to do that in Vietnam but lost our shirts and were beaten there 100% and thrown out the door; no juicy recontructions contracts there.

However, then we have the juicy Eye-Rack War where fat contracts were awarded to all those "with us" for the invasion/destruction of that nation. For the MIC and Wall Street the Eye-Rack War was a Golden Era. 

 

Mon, 09/08/2014 - 06:34 | 5192891 Majestic12
Majestic12's picture

"Basically the USA gubmint paid USA insutries"

Yeah, that's it...."the government"....genius!

You mean the fiat ...."PRIVATE" ...banking system????  There....I fixed it for you.....

Mon, 09/08/2014 - 06:46 | 5192900 Majestic12
Majestic12's picture

"We will have a more government-driven economy..."

Seriously?

As if any part of the "government" lifts a fucking finger without "permission" or outright "orders" from Wall St.????

Are you even reading the same article on the same blog...?

Unless you're a troll, you should take an economics and polictical science course..."university" level...not HS....

Sun, 09/07/2014 - 22:37 | 5192467 SillySalesmanQu...
SillySalesmanQuestion's picture

I had no idea that"trend cycle analysis" was another way of saying, "they're making it up as we go along"...
I learn so much here at the Hedge. ;)

Sun, 09/07/2014 - 22:48 | 5192494 StagStopa
StagStopa's picture

good porn tylers...thats what

i needed. 

Sun, 09/07/2014 - 22:55 | 5192506 fibonacci's claus
fibonacci's claus's picture

no powerpoint???  B- )

Sun, 09/07/2014 - 23:03 | 5192514 Let The Wurlitz...
Let The Wurlitzer Play's picture

"Lessor Deression" is comical.  When the smoke clears this will be called the "Greater Depression", we are just not done yet.   The last piece of the puzzle is the stock market and the cemetral planners know it, thats why they are grasping at straws trying to hold this thing togerther but in the end they are just making it worse.  I cant wait for the headlines that the CME is going bankrupt because the US government owes it money for major losses in S&P futures positions.  It will happen.

 

Sun, 09/07/2014 - 23:05 | 5192517 DOGGONE
DOGGONE's picture

Show this to your readers!
http://patrick.net/forum/?p=1223928
It shows the big con is DECEPTION BY OMISSION!

Sun, 09/07/2014 - 23:16 | 5192532 q99x2
q99x2's picture

"I don’t think it will ever become an official recession"

Nope. You'll see the mushroom clouds and pandemics long before you see the next recession.

Goldman Sachs must be stopped. Arrest Loyd Blankfein.

Sun, 09/07/2014 - 23:22 | 5192537 Hal n back
Hal n back's picture

we know the cme is offering incentives to trade spx/es contracts; how do we know if and how much is being traded?

 

that would explain how we have a 5 year rally when the economy is far from on fire and not even growing n real units and further, it explains how the market has rallied on consistently lower volume. (ourside of financial engineering)

 

Sun, 09/07/2014 - 23:26 | 5192546 teslaberry
teslaberry's picture

this will change from a great recesssion to a catastrophe when and if the u.s. government stops all the entitlement and welfare payments. which will probably be done when the miltiary starts running out of money. or----will result from the hyperinflation of the currency as indexing makes sure that entitlements buy SUBSTNATIALLY LESS FOOD and FUEL. 

 

hyperstagflation. it's the hyperstagflation.

Sun, 09/07/2014 - 23:46 | 5192573 astitchintime
astitchintime's picture

OK, I think I can sum this all up to one sentence:

.gov interference on STEROIDS has seriously screwed us all!

Mon, 09/08/2014 - 06:37 | 5192893 Majestic12
Majestic12's picture

".gov interference on STEROIDS has seriously screwed us all!"

Yeah, that's it...."the government"....

You mean the fiat ...."PRIVATE" ...banking system????  There....I fixed it for you.....

Mon, 09/08/2014 - 00:37 | 5192632 ebworthen
ebworthen's picture

When the adulterated unemployment rate is used that shows 6% instead of 16% - and the historically low labor force participation rate is not shown - it makes it hard to take the authors seriously.

There is also a lot of flim-flam in the article, and too much icing and sprinkles put on the turd economy.

Mon, 09/08/2014 - 00:41 | 5192640 CheapBastard
CheapBastard's picture
Australia Post chief says letter volumes “about to fall off a cliff”

Friday, August 15th, 2014

 

Australia Post chief executive Ahmed Fahour has revealed that his company’s letters business has significantly surpassed last year’s $218m loss — and the situation is only going to get worse.

In a speech to business leaders yesterday, he revealed that letters services at the Post have incurred more than A$300m ($280m USD) in losses this financial year.

He said: “Unfortunately, all of our market analysis indicates that the volume declines we’ve already experienced have been relatively gentle and we are about to hit an even bigger cliff."

The entire Bullish story can be read here:

 

http://postandparcel.info/62277/news/companies/australia-post-chief-says...

Mon, 09/08/2014 - 05:50 | 5192871 PT
PT's picture

Yeah, that happens when everyone pays bills and prints emails over the interwebs.  No-one writes letters anymore.

Bit of a worry for us old-fashioned folks.  And for the ones that don't have high speed or any interwebs.

But wouldn't their parcel delivery business be picking up?
They don't have that much competition, do they?  And who had all the infrastructure in place first?

Mon, 09/08/2014 - 07:04 | 5192916 Bangalore Equit...
Bangalore Equity Trader's picture

Listen. You guys, both Aussie and USSA are just plain lucky. Why? Because you have figured out how to "MAKE" your poop disappear with just one flush.

Let me be clear. This is a game changing technology and will negate any and all repercussions from these "SO CALLED" depressions!

Mon, 09/08/2014 - 08:03 | 5192989 PT
PT's picture

Unfortunately, some fuckwit mandated "water-saving" toilets and now it takes three flushes to make most of the poop disappear.  Keep that in mind when the technology comes to your place.  If I ever accumulate enough resources to build my own house, and if I can't have an old-fashioned toilet, then I will put a hose in the toilet so I can flush it all away properly.

Mon, 09/08/2014 - 04:57 | 5192844 messystateofaffairs
messystateofaffairs's picture

The economic situation such that a single unseasonably bad day of weather could trigger a system wide collapse. We must all pray for favorable weather while expanding the monetary base to establish stability. Beat that Krapman.

Mon, 09/08/2014 - 05:55 | 5192877 PT
PT's picture

Very strange how out of all that bad weather, no windows were broken.  And strange too for Krapman not to notice.  I mean, I only just noticed but I'm a "layman".  What's Krapman's excuse?

Mon, 09/08/2014 - 06:41 | 5192896 Majestic12
Majestic12's picture

ShadowStats and Mish have pointed all of this out since late 2003...

it was obvious back then, and today screams of "creative" stats and accounting...

They took a page right out of Wall St.... (fuck GAAP...we'll call it "off-balance sheet items"...and debt will become an "asset"...HA!, HA!, HA!...ROFLTAO...)

Mon, 09/08/2014 - 08:23 | 5193020 AdvancingTime
AdvancingTime's picture

Expect dismal job creation to continue, today many forces are coming together that tend to make this the new normal. Over the years as we have become able to produce more with less labor we have seen the fruits of our work improve the lives of many people. Today we enjoy being able to have far more goods and luxury's then at any time in history, but soon we will find ourselves competing with robots for jobs and see many of our options for earning a living swept away.

Many people forget that small business is the backbone of America, this is the real job creator and the place where people "with skin in the game" do real work. This is where many skills are learned and honed and useful training takes place. It does not help that the President and most of Washington lack solid backgrounds in both business and the economy. Few of the people who make the laws and set the rules have ever been responsible for meeting a payroll. More on this subject in the article below.

http://brucewilds.blogspot.com/2013/12/the-reason-dismal-job-creation-wi...

Do NOT follow this link or you will be banned from the site!