Sunday, June 21, 2009

Beware of "Green Shoots!" US Committing Economic Suicide?

John Mauldin warns us about the phrase "This Time It's Different" and details exactly why it isn't and may be much, much worse. (Emphasis marks added - Ed.) So, we hear the Obama terminators want to strengthen the Fed and decrease the number of other regulators. This is a joke, right? Well, it's still not a full six months from the Obama/Biden phalanx taking over the reigns of governance, and we do remember what our pal, Joey, warned us would take place in the first six months.

Is the leadership of the U.S. committing suicide or are they exempt? Will "foreign entities soon own everything of value" here? Will they become "the major (or only) source of employment for U.S. citizens?"

Ben Bernanke's career will be analyzed and written about for many years. But the one thing that has caused me the most pain is his bringing of the term "green shoots" into the investment lexicon. These may be the two most overused and annoying words of my investment career. Every possible sign of a recovery is anointed with the phrase.

Of late, there has been a tendency for analysts to see numbers or statistics that are "less bad" and interpret them as signs that we are in recovery or at least almost there. They glance back at previous recoveries and say, "Doesn't this look like the last time? When such and such happens it means that recovery is on the way. We should therefore buy stocks" (or whatever).

That we are condemned to read such musings is part of the investment landscape. But that does not mean we shouldn't take the time to look at what the writer of those words is actually looking at. All too often of late, I find these people grasping at straws or failing to understand the data.

My premise for uttering the heresy "This Time It's Different" is that the fundamental nature of the economic landscape has so changed that comparisons with post-WWII recoveries is at best problematical and at worst misleading.

As we will see next week, we are on a track that looks far more like the Great Depression than the recessions of our lifetimes. To expect a normal recovery cycle, whether it is corporate profits or lending or consumer spending or capital investment or (pick a category) is just not reasonable. This is a period that is fundamentally, in so many ways, different. And the recovery (and there will be one!) will also be of a different warp and woof throughout the entire world economy.

Let me see if I can summarize my thinking before we get into the reasoning behind it.

First, we are at the end of a huge cycle of increasing private debt that ended in an overleveraged society. The process of reducing debt and unwinding leverage is going to take a rather long time. It will not be the typical one or two years and then things get back to an ever-higher normal.

We are, using a phrase coined by my friend Mohammed El Erian at PIMCO, on our way to a new normal. We are hitting a massive reset button on our economic world, taking us to some new and lower level of consumer spending, leverage, etc. No one knows what the new level will be, although admittedly we are closer to it than we were a year ago.

At this new normal, we will not need as many malls or factories or stores or new-car plants or car dealerships or any number of other things to satisfy the new normal of consumer desires. As an example, and jumping ahead to a statistic for one minute, capacity utilization is now approaching 65%. Anything under 80% is anemic. Does anyone really think that businesses (in general) are going to invest more money in expanding capacity, in the face of the lowest level of production relative to potential since the 1930s?

The savings rate has shot up from zero to 6% in just a very short time. It used to be 12%. It would not be all that unusual historically for savings to go to 9% or more in a few years. That means that consumer spending will drop by 9%. Since consumer spending was 70% of GDP, that new lower level will become our new normal. And of course, due to population growth and hopefully increasing incomes, consumer spending will once again grow from whatever that new normal will be. But it is going to take some time for spending to reach the level of our productive capacity of a few years ago. We are going to have to shutter a few factories and businesses.

Read the whole article here (after entering your email address) and read about Peter Bernstein's life and his books at this site too. You won't regret the time spent. Danny Schechter states without stuttering that

A recent study cited by the Editor of the Financial Times argues that we are now in a Depression although no one wants to use the term or face the music.

Recall that it took the National Bureau of Economic Research a full year to recognize the reality of a recession that analysts at investment banks had been acknowledging for as long. Despite everything that has happened, and is continuing to occur on the economic front---a rise in unemployment claims, mounting foreclosures, and escalating bankruptcies—the sense of crisis is being downplayed to stoke confidence and encourage the belief in “green shoots” and an emerging recovery.

John R. MacArthur, publisher of Harper's Magazine, has some unkind words for our change President here.

Yes, of course it’s nice to have a president who speaks in complete sentences. But that they’re coherent doesn’t make them honest.
Chris Hedges says the American Empire is already bankrupt here and Len Hart says it's definitely all over now (baby blue).

A true democracy is the exercise of free choice among real alternatives. A recent US regime change means little to those daring to demand the truth about 911.

That's because real power no longer rests with the office of 'President'. Real power resides with the axis of MIC/K-Street/CIA-NSA. This cabal has good motives for continuing to cover up 911 and suppressing the truth. This cabal is among those who benefited most from 911.What was true of Rome is true of the US. Emperors could rarely be called 'good' - just 'less bad'. By that scale, Bush, like Caligula, is 'most bad', Obama 'much less bad' but not yet really 'good'. A spoon full of sugar does little to sweeten a thousand acres of sheep sour or smelly manure.

Unfortunately, the system by which our leaders are selected exploits this paradigm, the result of the raw power accrued to extremely wealthy and armed interventionists, the merchants of war and plunder. I had hoped the American people deserved a better choice than 'less bad Obama' vs 'most bad Bush'. We can expect surface changes but precious few fundamental reforms.

Nothing said by Bush about 911 is true.

Everything said about 911 by the US government, most prominently the Bush administration, is but a part of the 'big lie'!

The US required a real revolution but got the 'less bad' Obama. That's how the system works. The result is that the people are never adequately or honestly represented by government. It also follows that until 911 is fully investigated and those truly guilty brought to justice, no US government can claim to be legitimate.

The Obama administration will not bring George W. Bush to justice for the crimes of high treason and mass murder called '911'. The office of President is powerless against the entrenched and combined powers of the 'intelligence community', K-Street and the Military/Industrial Complex. The government, the nation no longer belong to the people. Our 'sovereignty', guaranteed us in the US Constitution, is mocked.

That nothing said by the Bush administration about the crimes called 911 is true is good reason to suspect Bushco of high treason and mass murder. That Bushco benefited from 911 is cause to suspect that 911 was an act of mass murder and high treason perpetrated upon the people by its own government! Bush, his administration and enablers had method, motive and opportunity to pull off the crime of the century.

A real revolution would make holding those responsible a high priority. A real revolution would bring them to justice. Tragically, Americans have neither the stomach for nor the means by which a revolution of any sort may be waged. The lesson is this: if you wish to commit mass murder for profit you must first seize control of the government.

Funny, but I'm not feeling so "green shootzy" anymore. Suzan _______________


Serving Patriot said...


Thanks for pointing out the Hedges article. I read that the other day -- and Lanchester's even better LROB article -- and hoped to find the time to blog both. But, between a late week trip, garden work and jus' plain relaxing, I never did!

Keep up the good work!


Suzan said...

Thank you, sweetie!

It's tough doing all this free work, isn't it? ;)))

Hope your garden is coming along well. You will need it.