Saturday, December 26, 2015

The Great Depression of 2006 never happened?

I got a comment last week about this blog being wrong for 10 years. And the writer went further by adding

“The point of all this is to say, that yes we will have ups and downs in markets, that's what markets do. But to sit on your hands for a decade and wait for a depression, and when it doesn't materialize after a decade, not admit flaw in your assumptions, is bullheaded.”
The following is not directed at my readers, but to Anonymous Dec 19, 5:21

I’d like to clarify a few things. During the years 2007, 8, 9 and 10 no one referred to those years as “the greatest recession since The Great Depression.” They do now. Janet Yellen in her address the other day stated, the bail out in 2007 was to confront “the greatest recession since the Great Depression.” No government employee is going to wave a flag and say we are currently in a depression. The Federal Reserve and the Treasury confronted the Congress in 2007 and said bluntly, to do a bailout or kiss the economy goodbye. And by the way the bail out failed to accomplish anything except spend money. We have 45.4 million people in the US on food stamps— so the telltale soup line kitchens of the 1930’s are not there.

The 100K, my wife and I have in savings, did not double in value over the last 10 years, it did nothing. We were effectively taxed by the government $100,000; our investment earnings were confiscated.

From 2006 to 20015 people have gone back to school to further their education because they couldn’t find a job. It didn’t do much, other than stimulate the economy and build up debt among young people. Over 60 percent of these loans will never be paid off, and they will linger around and hound the borrower until they die.

The national debt has increased 10 trillion dollars and the size of it means absolutely nothing to anyone. The US government has probably borrowed all of the saving in banks in the US and the entire amount in our retirement funds. They will have no problem paying you back, but will it be in your lifetime? Or will the entire amount paid to you have very little purchasing power?

There was the Great Invisible Displacement of Jobs because of the computer revolution that has been glossed over,(one person now had 10 times the productivity) and they were good paying jobs, gone forever. The largest loss of jobs has been to Asia; cheaper labor and lower corporate taxes. Most of those were minimum wage jobs.

There are absurd levels of unemployment in Europe. When Spain reports 20 percent, is it any more believable than any other government report? We can safely assume that they are not exaggerating. Banks in Europe are now “paying” negative interest rates. So with T-bills paying a quarter of a percent, a lot of foreign savings deposits will be headed to the US. ---Congress will have more money to borrow and spend.

You need a car; the car companies offer the new 8-year loan for those that can’t afford the 5 year one. The neat thing about this, is that it pushes the buyer’s insolvency out an extra 3 years into the future and at the same time stimulates the economy. Let’s face it, if it wasn’t affordable in 5 years, you shouldn’t have bought it in the first place.

Plus, look at what you purchase, everything has shrunk in size. There is no inflation unless you have a tape measure. Bleach and Ammonia used to be about a dollar a gallon. Guess what, they now sell half gallons at a dollar. Kind of looks the same, but there was a switch made you just didn’t catch it.

So from looking at this Great Depression, there is only one conclusion I can make. If you have money in the banks or in retirement funds, the interest on your savings have been confiscated for the last 10 years and prices have doubled. People with no savings thought that they had nothing to lose until they got a student loan, a wide TV and a new SUV. Add to that health insurance premiums cable and a couple of cell phones. They are living paycheck to paycheck. And if they are not working, they have moved home with mom and dad who are in their 80’s.

The real question: “Is the Great Depression over?” The answer is “No, it’s about to get worse.” Starvation in the Middle East. The collapse of the Euro in Europe. The collapse of oil prices could end most wars being fought (which might be a good thing). Stock market values are hypothecated on thin air. Bond prices are so low as to be deemed unreasonable as credible financial investment instruments. Speculative bubbles in rental real estate are rampant.

For people my age, the consensus is,keep working and don’t retire; it can’t be as painful, as retiring to suffer the future financial downfalls of fixed retirement benefits. We know something is about to change. Wall Street and the Federal Reserve have stirred the pot and no one is sure of the results. We do know one thing for sure, it is not going to be something that was planned or expected to happen.

This Great Depression started in 2006 and the end date is still not in sight. The only mistake I made in 1980 was to assume the interest rate would be around 7 percent up through my retirement. The changes over the last 10 years have been so gradual, they have been absorbed without being observed.

Here is hoping that the New Year will be better.

I hope everyone had a Merry Christmas, and here is I my wish to all of you, for a Happy New Year.


Sackerson said...

Well argued, and Merry Christmas!

dearieme said...

Happy New Year, Jim.

Catching Fish said...

Don't forget half of the new millennials age 25 hears old live at home.... from social security tax data payments 70% of Americans make less than $30,000. An then to talk about the demise of the middle class, the medium income in 1999 was $54000 in 2014 the medium income was $48000. On top of that you have 94.4 million Americans that is not in the labor force..... almost 30% of the total population but 50% of the working age.... yet the govt reports unemployment is 5%. The person that made the comment has no clue what is going on. Happy New Year Jim

Unknown said...

There's a saying in the east, "You don't feel the prick of a needle if it's not on your flesh" Sadly, most sheeples behave so, they are close minded and do not see the injustice and sufferings of other people unless they themselves are personally affected.

Happy New Year Jim.

AIM said...

A thin facade is in place to mask our true condition. That is all that has been needed to keep the majority misinformed, anesthesized and docile (as in the Mr. Anonymous that Jim's post is aimed at). This strategy of the powers that be is made easy by the majority's lack of connection and vigilance. Yet, one can peek behind the facade, and soon all will see more of the truth since the facade is beginning to slowly erode. We will overcome despite it all. A happy, healthy and prosperous 2016 to all!

Jim in San Marcos said...

Thank you all for your wishes

Here is hoping the New Year is a good one for all of you too.

Take care.

The Mortgage Guy said...

Jim I've been a lurker here since 2008. I stumbled upon your site while searching for truth in a desert of deliberate media obfuscation at the least and out right propaganda at worst. Your site was one of the many oases of veracity that I came upon both back in 08 and presently.

I had a front line seat to the financial devastation of that time, these times, and early on I might add. I owned a mortgage origination company back then having migrated from the financial planning field. The earliest signs of things to come became apparent shortly after 9/11, a time that witnessed unwarranted easy monetary policy that helped inflate the ill fated bubble. The initial easing was warranted in light of the terrorists attacks. There was no reason however not reverse that easy policy a couple of years later.

It was around 2003 when we started to see our wholsalers buying ridiculous mortgage paper. Our wholesalers wanted to buy loans that didn't require proof of a job, proof of income or proof of assets. The only things required was a 620ish credit score and a solid appraisal. We also saw demand for 100% loan to value loans, on both a first and second mortgage basis. Purchase money mortgages were equally ridiculous with 103% loan to value loans as well as a plethora of similar offerings.

On a number of occasions, I would come right out and ask my wholesalers "what are you guys doing buying this garbage paper?" The most common answer was "we're not holding it" or "we sell the loans to Wall Street" (Bear, Lehman,etc.). It became apparent that the proliferation of these toxic time bombs was due not to consumer demand necessarily but due to Wall Street's ravenous appetite to securitize debt. It's interesting to note, that had Glass Steagal not been repealed by the signature of Bill Clinton, these toxic loans could not exist and what is erroneously referred to as the Bush recession, would not have happened. It is equally interesting that theses loans could not have proliferated without their fraudulent sercuritization, which is the second biggest reason after Clinton, for the economic meltdown of 2008/09.

Having provided some background, let me state that not only has "depression grade" financial devastation been inflicted all along, very little if anything has changed. That is because nothing has been done to address the problems at hand, rather all efforts taken were to paper over the damage.

The mirage of economic expansion is primarily due to a leftist media meme that brainwashed masses to believe the stock market is the economy as is the unemployment rate. Anyone with any financial acumen will tell you that the stock is one of the poorest economic indicators in existence. They will also tell you that the stock market's precipitous rise isn't due to economic or business fundamentals but to an unprecedented printing of trillions that were funneled into the market via insolvent banks. Thus benefiting the very entities that created the economic woe while starving Main Street of any trickle down.

As for the unemployment rate, that is a statistic rendered useless by it's historically skewed shrinkage in the labor force. By some estimates, 80% to 85% of the unemployment rate drop isn't due to job creation but rather labor force shrinkage. This phenomenon is due to the way the unemployment rate formula works. Based on the way the formula works, it is possible to lower the unemployment rate to zero without creating a single job. This is accomplished through the labor participation rate falling to the necessary degree. One can duplicate this phenomenon with the jobs calculator on the Federal Reserve of Atlanta website.

The Mortgage Guy said...


Taking away the two most used economic indicators used by the media to present a false sense of prosperity, we are faced with a majority of indicators that present are more sobering view of the economy. Even the highly touted 298,000 jobs (supposedly) created in the latest jobs report is a sham. All of the jobs were created by the BLS through voodoo seasonal adjustments; and not by actual businesses. The raw numbers show a loss of in excess of 60,000 jobs.

Since the end of Clinton's great recession, job creation has failed to keep up with population growth, an important metric that only lost it's importance since the advent of the state owned media. The jobs that have been created are part time and low paying. The kind of jobs you can't buy a house with, as evidenced by the historically low home ownership rate. Not only are these jobs so bad that people cannot afford to buy homes, over half of all U.S. twenty five years olds live in their parent's basement.

For the first time in history, the middle class is a minority in America. For the first time in history business failures out number new business creation. Half of the working people in the United States earn less than $30,000. Not only are incomes down on a purchasing power basis but wealth is down as well. 62% of Americans have less than $1,000 in savings.

Add to this that one in five children are on foodstamps and Unicef ranks the U.S. 35 out of 41 wealthy countries for percentage of children living below poverty. One in three children do. In 1950 80% of American men held jobs. Today only 62% hold jobs.

We still have the QE time bombs to deal with, bank solvency (papered over now but not in the impending meltdown) as well as the pension plan deficiencies. All of which will rumble through the economy on the days of reckoning.

What you/our detractors fail to realize is that the absence of bread lines (due to ebt and mail) and the lack of tanks in the streets doesn't mean we have not and are not in a depression. Even in Greece, there are no tanks in the street.

Jim, you and I were right all along. Take comfort in former Federal Reserve Governor, Richard Fischer's confession as to what they did to paper over the apocalyptic destruction to our economy. Please keep your sanity when encountering the masses that have been brainwashed with a concerted media effort in order to hide our sad reality and please keep up the fine work.

A Happy and Prosperous New Year to you and your readers.

Anonymous said...

Nice timely post Jim!!!!!
I love it, markets are melting! I'm the poster that Jim quoted and one that has learned so much from him.Temporarily, I wish the markets were better off.
But I am equally surprised as anyone to see the markets open like this, the worst year on record. Luckily, our blogger Jim thought me to never bet it all on one thing, thanks jim.
What I see is a market that either will surprise us all to the upside or one that continues to sink, point being, my call is we see volatility from here on out.

I remember jim talking about the oil glut, while many heavyweight investors were storing the crude on tankers, it took some time, but you were right about the oil glut.

In any case, these are some interesting times, lets see what happens.