Guest Post: If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Is the U.S. really a post-oil economy?

One way to gauge the real economy is to look at charts of the GDP, wages, household debt and the price of oil; another way is to correlate all of these on one chart. The following chart (courtesy of frequent contributor B.C.) plots these four metrics thusly: GDP/(wages/household debt)/price of oil.

What pops out of the chart is what happens when oil spikes higher or declines. In 1973, the first oil shock sent the economy off a cliff. Conversely, when oil fell to $12/barrel in the late 1990s while wages were rising strongly, the plotline peaked, reflecting a strong economy.

In 2008, oil spiked to $140/barrel in 2008, household debt reached record heights and wages began stagnating, and the economy fell into a sharp recession. When oil plummeted back to $40/barrel in early 2009, the plotline spiked up.

When oil prices and household debt are high while wages stagnate or decline, the economy sinks to recessionary levels.

Here are B.C.'s observations:

This chart utterly discredits the economics profession and those who claim that the post-industrial economy ("deindustrialization" and "financialization") is not oil-constrained and the service economy is what the rest of the world should adopt as the normative standard at $100+/barrel oil.

The current plotline is hovering just above the recessionary levels of late 2008. Does this reflect a strong economy, or one that is weak? If oil keeps climbing, what will that do to a visibly weak economy?

The Bulls are convinced that the U.S. has decoupled from the rest of the world and from the price of oil. This chart makes the opposite case: the price of oil matters, especially when wages are declining and household debt is elevated.

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Fri, 03/02/2012 - 12:07 | 2216867 Flakmeister
Flakmeister's picture

Is it because we are being lied to??

Fri, 03/02/2012 - 12:13 | 2216893 nope-1004
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If This Is Such a Strong Economy, Why Does This Chart Look Recessionary?

Maxine Waters says "that chart is upside-down.  There, solved!!"


Fri, 03/02/2012 - 12:19 | 2216921 YesWeKahn
YesWeKahn's picture

It's like what the D-congressman (can't remember his name) said duing the last Bernank testmony:

Up is good, down is bad, up is right, down is wrong. He said that people can only understand this simple language if only if he is not an idiot himself.

Fri, 03/02/2012 - 12:45 | 2216980 Shocker
Shocker's picture

Oh that chart just looks dandy. Its called, we are in at least a major recession. There is no doubt about it


Fri, 03/02/2012 - 13:04 | 2217027 slewie the pi-rat
slewie the pi-rat's picture

don't matter

don't mean nuthin

the only thing that matters is the fiat ponzi confidence game, at this point, and the "price" you will need to pay to buy PMs

if you need oil, just go buy some, for pete's sake!

everyone has money, unless they are "poor", and they're hangin tough

you can make things
rake things
shake 'n bake things
the only thing that matters is the belief in fake things!

Fri, 03/02/2012 - 13:22 | 2217042 slewie the pi-rat
slewie the pi-rat's picture

i told zeroHeads last week that the syrian "crisis" had been put into china's hand and what the process was that they were authoring

then, i pointed out that kofiAnnan had been "appointed" to run the process

yesterday, kofiA called for the closure uf the UK embassy in syria

today:  UK withdraws diplomats from Syria, closes embassy -

Fri, 03/02/2012 - 13:22 | 2217097 slewie the pi-rat
slewie the pi-rat's picture

oh!  here's the link to what "happened" yesterday: Ban and New Envoy Annan Discuss Ways to Resolve Syria Crisis

Fri, 03/02/2012 - 13:28 | 2217119 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Bulls are full of shit. The only thing they leave in a pasture is what they are full of.

Fri, 03/02/2012 - 14:35 | 2217360 rosiescenario
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.....maybe it was Bwarney, "Up and in is good" "Down indicates E/D"...and is not so good.

Fri, 03/02/2012 - 15:58 | 2217794 Shizzmoney
Shizzmoney's picture

Maxine Waters, LOL!

her husband's bank, OneUnited, the larget black-owned bank in the US, just foreclosed on a Black Church here in Boston.  It's the oldest Black church in the United States, where Frederick Douglass preached back during the abolition days.

What a disgrace.

According to Chuck Neubauer and Ted Rohrlich writing in the LA Times in 2004, Maxine Waters' relatives had made more than $1 million during the preceding eight years by doing business with companies, candidates and causes that Waters had helped. They claimed she and her husband helped a company get government bond business, and her daughter Karen Waters and son Edward Waters have profited from her connections. Waters replied that "They do their business and I do mine."[43]

Citizens for Responsibility and Ethics in Washington (CREW) named Waters to its list of corrupt members of Congress in its 2005, 2006, 2009 and 2011 reports.[44] Citizens Against Government Waste named her the June 2009 Porker of the Month due to her intention to obtain an earmark for the Maxine Waters Employment Preparation Center.[45]

Waters' husband is a stockholder and former director of OneUnited Bank and the bank's executives were major contributors to her campaigns. In September 2008, Waters arranged meetings between U.S. Treasury Department officials and OneUnited Bank, so that the bank could plead for federal cash. It had been heavily invested in Freddie Mac and Fannie Mae, and its capital was "all but wiped out" after the U.S. government took them over. The bank received $12 million in Troubled Asset Relief Program (TARP) money.[46][47] The matter is currently being investigated by the House Ethics Committee.[48]

Fri, 03/02/2012 - 12:20 | 2216923 Buckaroo Banzai
Buckaroo Banzai's picture

Are we just being lied to, or is it more sinister than that?

Breitbart: “Wait ‘Til They See What Happens March 1st”

"In a stunning coincidence, It appears Andrew Breitbart suffered his untimely death just hours before he was set to release damning video footage that could have sunk Barack Obama’s 2012 re-election campaign.

Around three weeks ago on February 9 during the ‘Blog Bash’ event in Washington DC, Breitbart made a prophetic comment that takes on a somewhat chilling nature given the fact that he died in the early hours of March 1st.

Speaking to Lawrence Sinclair of Sinclair News, Breitbart stated, “Wait til they see what happens March 1st.”

It’s almost certain that Breitbart was referring to his plan to release damning footage of President Obama that he had been promising to reveal throughout the month of February.

As we reported yesterday, Breitbart spoke of his intention to release the tape during his CPAC speech last month. The footage shows Obama in his college days appearing alongside former Weather Underground terrorists Bill Ayers and Bernardine Dohrn. Observers had speculated that the footage could have derailed Obama’s hopes for a second term."

Fri, 03/02/2012 - 12:56 | 2217010 LetThemEatRand
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Putting aside my personal opinion of Breitbart, the coincidence is pretty amazing.  There was a time I would have openly laughed at the suggestion, but I don't put anything past these guys.  Having said that, would knocking him off make the videos go away?  It's not like he was some lone wolf.   Surely someone else in his large organization has access or would come forward if the videos disappeared etc.

Fri, 03/02/2012 - 13:14 | 2217047 RobD
RobD's picture

Well I suppose, if you were one of his associates and you got an anonymous note soon after Breitbarts death implying that you would be next, you may think twice about releasing the video.

Fri, 03/02/2012 - 13:17 | 2217055 Buckaroo Banzai
Buckaroo Banzai's picture

If you knew that you would be killed if you came forward with the video (which is certainly credible given what happened to Breitbart), what would you do?

I don't envy those that worked for Breitbart, who might be in a position to release the video. It is "nut up or shut up" time.

Fri, 03/02/2012 - 13:31 | 2217135 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Breitbart was either full of it or just dumb. Why would you warn everyone weeks ahead of time if you were to release such material? This gives your enemies time to cover up a potentially damaging leak. Just release it then let the chips fall.

Fri, 03/02/2012 - 14:52 | 2217435 Buckaroo Banzai
Buckaroo Banzai's picture

Call it arrogance, call it hubris?

Fri, 03/02/2012 - 13:18 | 2217067 Citxmech
Citxmech's picture

So if you were holding these allege videos for Breitbart what would you do at this point?  Now ask yourself what you would do in this situation but add being confronted by a few scary gentlemen threatening to skin your children in front of you if you don't hand over the copies along with the names of everyone involved?  Never underestimate the power of "offers you can't refuse."

Fri, 03/02/2012 - 13:52 | 2217210 viahj
viahj's picture

surely the videos are on the organizations computers, so Anonymous....

Fri, 03/02/2012 - 13:04 | 2217029 AcidRastaHead
AcidRastaHead's picture

Then I merely lament the loss of his balls since those days.

Fri, 03/02/2012 - 14:38 | 2217373 rosiescenario
rosiescenario's picture

"Obama in his college days appearing alongside former Weather Undergroun"....jeesh, that would be a plus....he is now owned by Goldmun's Sack....

Fri, 03/02/2012 - 14:59 | 2217468 Totentänzerlied
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Obomba's connection to the Weathermen was a non-issue in '08, it will be a non-issue in '12. I'd be pleasantly surprised if even 50% of Obama voters could honestly say they dislike the Weather Underground and disagree with its message/intent/method.

Your mistake, which we all make these days, is to assume that the American public could care any less about anything of importance and/or possesses anything resembling the commonsense definition of a functional moral compass (bomb Iran!).

<sarc>Obama has ties to some hippie terrorist organization? Pffffft! So what? He's still gonna pay my mortgage, buy me an iPad 3, renew America, and support Green Energy! You're just trying to slander Obammie cause you hate blacks and poor people!</sarc>

Sat, 03/03/2012 - 10:08 | 2219512 blueridgeviews
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You could have pictures of Obama standing next to Stalin, Mao and Castro embracing each other and the American sheeple would still vote him in. The media would say something like: "look, he can mend the broken fences between all of us".


Seems to me there are 14 million new food stamp recipients that will surely vote for the free lunch.......dinner,breakfast,home etc....

Fri, 03/02/2012 - 12:26 | 2216940 SheepDog-One
SheepDog-One's picture

Lieconomic model.

Fri, 03/02/2012 - 12:09 | 2216872 Dr. Richard Head
Dr. Richard Head's picture

This's different.

Fri, 03/02/2012 - 12:10 | 2216880 Flakmeister
Flakmeister's picture

Yes... and people are about to find out how different......

Notice the first tooth of the saw... the second one is forming...

Fri, 03/02/2012 - 12:45 | 2216987 FrankThinkTank
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When oil drops this time, the 'nank used all of our Keynesian weapons.

The spike in that graph we'll see will look good, but there will be so few left "households" left in that measurable index that it won't be relevant. 

The initial deflation is going to be dwarfed by the ensuing inflation corellating with a drop from a new peak on this graph - thanks to escaserbated imbalance of  liquidity and demand. (gigantic monetary base thanks to the 'nank and other central banks)

It won't matter that the pumped money sits in Fed reserve accounts for primary dealers, the impact will be felt; the argument has long been made that since it's not in the sheeples' circulation it won't affect inflation. lolz to the moon of course.  

Fri, 03/02/2012 - 12:51 | 2216998 FrankThinkTank
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But have no fear. There will be plenty of scape goats left..

sovereign citizens, oil "speculators", gold bugs etc

Fri, 03/02/2012 - 15:00 | 2217473 Oracle of Kypseli
Oracle of Kypseli's picture

O'Bummer will pull a Hugo Chavez on AmeriKans after an alleged national security event followed by martial law.

Wake up AmeriKa! Alex Jones, Celente, Keiser and even Glen Beck will then be proven right.

Fri, 03/02/2012 - 12:11 | 2216888 JPM Hater001
JPM Hater001's picture

Paula Poundstone was different.  This is wack.

Fri, 03/02/2012 - 12:43 | 2216977 Mugatu
Mugatu's picture

As Austin Powers would say "Whoop de doo Basil - What does it all mean?"

I thought everything was bullish now?

Fri, 03/02/2012 - 12:53 | 2217000 resurger
resurger's picture

There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.” Ludwig von Mises


Fri, 03/02/2012 - 13:22 | 2217096 marathonman
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My bet is on total catastrophe of the currency system involved.  Goldman Sachs ain't going quietly into the night.

Fri, 03/02/2012 - 13:48 | 2217197 hamurobby
hamurobby's picture


Expect nothing less. Why would anyone give up absolute power over everything.

Fri, 03/02/2012 - 14:47 | 2217412 Backspin
Backspin's picture

Agreed, but I think they can and will drag it out as long as they can, and it could be a while.  "They" are numerous and powerful and are not just going to roll over and give up.

Fri, 03/02/2012 - 12:10 | 2216876 MFL8240
MFL8240's picture

Because this goverment the Federal Reserve and the Wall Street gangsters are incapable of telling the truth.

Fri, 03/02/2012 - 12:18 | 2216917 Bunga Bunga
Bunga Bunga's picture

Not only that.

Fri, 03/02/2012 - 12:09 | 2216877 Chuck Bone
Chuck Bone's picture

There is one unit of energy behind each unit of GDP. Anyone who tells you otherwise does not believe in thermodynamics.

Fri, 03/02/2012 - 12:11 | 2216887 Flakmeister
Flakmeister's picture

Those damn leftwing intellectual elites are forcing their Laws on us...

Fri, 03/02/2012 - 15:19 | 2217571 sun tzu
sun tzu's picture

Paul Krugman and Larry Summers?

Fri, 03/02/2012 - 12:20 | 2216907 Dr. Richard Head
Dr. Richard Head's picture

The laws of thermodynamics have been suspended by the laws of collateralization. You see, Wall Street simply sold forward a couple of decades of production, energy, and labor to extract miniscule (percentagwise) transaction fees.  They didn't extract the energy, just profited from it.  The financial machinations are very complex and best left to Ivy League financial managers. The whole idea of entropy does NOT exist in a financial ledger, as Ben Bernanke has ended the whole idea of gradual decline into disorder.  /sarc

Fri, 03/02/2012 - 12:24 | 2216938 centerline
centerline's picture

And there you go letting silly laws of nature get in the way of things.  LOL.

Fri, 03/02/2012 - 15:09 | 2217525 Oracle of Kypseli
Oracle of Kypseli's picture

Cryogenics will follow soon my friends. The laws of physics can be put into suspended animation for only limited time.

Also I remind you that scientist stiil can not explain the force of gravity which does not diminish even behind super thick lead walls.

The best explanation is that the earth sucks.

Al jokes aside, they are coming down hard.

Fri, 03/02/2012 - 12:24 | 2216939 Flakmeister
Flakmeister's picture

That pretty well sums it up....

It's funny in that the people that understand thermo and similar physical concepts instantly identify and understand the artificial pulling forth of demand and, in the long run, the negative effects therein...

Fri, 03/02/2012 - 12:32 | 2216955 Dr. Richard Head
Dr. Richard Head's picture

I think the whole idea of Math and compounded interest are clearly not subjects the majority of society can come to terms with as it relates to debt in general.  The math becomes a political tool for the red/blue team fuckcunts out there.  Math matters with welfare when it comes to red team voting tardfucks, but is rendered irrelevant when wars are put into that same math equestion or argument.  Similarly the opposite will hold true for blue team twatfarts lever pullers. 

I am simply adding alcohol to my equation, as we are all Greeks now in the US.  The problem is the Greeks at least nip the heels while the math fucks them over.


Fri, 03/02/2012 - 12:40 | 2216967 centerline
centerline's picture

The brainwashing is so complete at this point that even if the average person could for a moment see the math - even the basic math - they would reject it.  And society would reinforce the abandonment of such thinking as well.

"Think of how stupid the average person is, and realize half of them are stupider than that."
George Carlin

We live in groupthink hell, where groups of people can achieve stupidity in a much more complete, efficient and self-reinforcing manner than even George postulated in the above statement!  LOL.

Fri, 03/02/2012 - 13:15 | 2217048 GeneMarchbanks
GeneMarchbanks's picture

It's called a cult -- in respect to what you live in -- the realization is even more highlighted when you actually leave physically and get so perspective outside of the heavily filtered sources.

The name of the game is Weltanschauung, and in the States there is only the corporatist approved one. Hence Mittens Rmoney as the embodiment of corporate personhood.

Simple arithmetic is really not a grand intellectual exercise and the 'problems' within the US socio-economic construct shouldn't be associated within the domain of math alone. Dubious moral practices and a general breakdown of all institutions have contributed much more than 'poor education'.

Fri, 03/02/2012 - 13:32 | 2217141 centerline
centerline's picture

Amen.  And thanks for the new term.  Already reading all about "world view."

Fri, 03/02/2012 - 13:56 | 2217221 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

" We live in groupthink hell, where groups of people can achieve stupidity in a much more complete, efficient and self-reinforcing manner than even George postulated in the above statement!  LOL."

The blonde with the big boobs and skirt suit from HR would call that syngergy which is a, like, good thing!

If we all just promote more synergy via celebration of diversity, six-sigma training and ISO practices, the economy will be just fine.

Fri, 03/02/2012 - 14:13 | 2217267 centerline
centerline's picture

Great idea.  I love it.  I will bring it up in my next 360 degree review.  LOL.

Fri, 03/02/2012 - 14:59 | 2217385 Die Weiße Rose
Die Weiße Rose's picture

the "average person" is a myth created, by those who want to control others -

the "average person" is much more intelligent than the " intellectual elite" will give them credit for.

To control someone you have to destroy their self-confidence, and make them believe that they are stupid and ignorant and blind and completely lost without your help. You have to destroy peoples natural intuition and self-believe and their innate natural emotional intelligence and good sense, you have to destroy their very conscience, intuition, judgement and their relationship and understanding of their world around them.

You do that by demonizing the "average person" by making them believe that they are stupid, helpless and incompetend. By destroying their "Weltanschauung" their relationship and understanding of their world around them, you can so enslave and control the now submissive and demonized "average person" slave into your absolute Power.

If the "average person" is so stupid and helpless

then who is the Master, the Führer, the Saviour,

the all-powerful intellectual elite ?

and who is the slave ? you...


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