Things are looking grim indeed for the US economy. Unemployment is out of control—especially if you consider the U-6 (16.7%, up 0.2% in the last month) and Shadowstats (22%, up 0.3%) measures, which are far more realistic than the effectively public relations U-3 number that passes for the “official” unemployment rate (9.6%, up 0.1%).
The US is in a Depression, and the sooner it acknowledges that—rather than continuing to pretend otherwise—the better. Government action has attenuated the rate of decline, but not reversed it: a huge fiscal and monetary stimulus has put the economy in limbo rather than restarting growth, and the Fed’s conventional monetary policy arsenal is all but depleted.
The webinar organised by Phil Dobbie for BTNet went over very well this morning, with about 80 attendees and a lively discussion mediated by Phil. Unfortunately a power outage meant that GoToMeeting‘s recording of the presentation only commenced half way through, so to make amends Phil and I re-recorded it this afternoon. We lost some of the interactivity, but the information comes through very well in this format.
To see this re-recording, please click on either of the following links:
Phil Dobbie’s BTNet page “Aussie Rules”; or
A direct link to GoToMeeting.
Bernanke’s recent Jackson Hole speech didn’t contain one reference to the key force driving the American economy right now: private sector deleveraging (here’s the previous year’s speech for comparison’s sake). The reason the US economy is not recovering from this crisis is because all sectors of American society took on too much debt during the false boom of the last two decades, and they are now busily getting themselves out of debt any way they can.
Broadcaster and podcaster Phil Dobbie, who amongst other roles conducts the podcasts for BNET.com, is launching a Webinar seminar series with a talk by me on the Australian economy.
A webinar is an online version of a seminar at which the speaker can give a lecture (complete with slides, simulations, etc.) that up to 1,000 people can attend, and attendees can ask questions during the talk.
This first webinar is entitled “The Aussie Economy – Good Times or Stormy Waters? “, and it will take place at 11am (Australian Eastern Standard Time) on Friday September 3rd 2010.
Peter Martin reports in The Age today that Professor Ron Bird of UTS has weighed into the debate over the Rudd stimulus package. Professor Bird claimed that the stimulus was far less important than our strong economy prior to the crisis, and the secondary effect on our exports of stimulus packages undertaken elsewhere.
”The position we find ourselves in today is more due to our strong economic position going into the crisis and the massive stimulus packages undertaken by our trading partners,” Professor Bird says. ”The government can take little or no credit for either of these, a point it (and our learned academics) conveniently forget.” (Peter Martin, “Reserve Bank backing for stimulus“, The Age August 18 2010)
The record $6 billion profit that the Commonwealth Bank is expected to announce today is a sign of an economy that has been taken over by Ponzi finance. Fundamentally, banks make money by creating debt, and the amount of debt we’ve been enticed into taking on is the sign of a sick economy rather than a healthy one. The level of private debt that is actually needed to support business and maintain home ownership at historic levels (ownership levels have fallen over recent years!) is possibly as little as one sixth the current level.
I’m taking part in an Intelligence Squared debate on Tuesday next week–August 10 2010–on the topic:
“That only capitalism can save the planet”
I’m on the Opposition side, along with the poet and novelist Kate Jennings, and former Executive Director of Greenpeace International Paul Gilding. The Government side is Economics Editor of The Sydney Morning Herald Ross Gittins, businesswoman and company director Lucy Turnbull, and businessman, activist and writer Geoffrey Cousins.
The full description of the debate can be found here on the IQ Squared website.
We’ll be ranging across quite a few topics within that “That only capitalism can save the planet” rubric. To quote the IQ Squared header:
Chris Joye comments in his release of the recent RP Data-Rismark index that the news of a 0.7% fall in one month will be “manna from heaven for the housing market bears”. Far be it from me to disappoint him, so thanks for the manna. But what adds spice to the manna is the way that Chris has attempted to rationalize the outcome:
It’s sobering to remember here that we have had 17 consecutive monthly increases in Australian capital city home values. If the sharemarket rose for 17 months straight and then tapered, people would not think twice about. It might be wise to apply the same logic to our housing market.
The RPData-Rismark index has just been released, and it has fallen 0.7% in the month of June 2010.
I’ll have more to say on this shortly, but for now I can do no better than to direct you to the Business Spectator news report of the fall:
House prices fall 0.7% in June, flat in quarter
and Christopher Joye’s press release on this topic:
House prices on ice – for now
I also recommend Rob Burgess’s election blog perspective here:
POLL POSITION: Will Labor fall with house prices?
The American Monetary Institute has invited me to speak at their 2010 Monetary Reform Conference, at the University Center in downtown Chicago, between September 30th and October 3rd. I have agreed, though since this is in the middle of a teaching period for me it will be a “lightning trip” to the USA–leaving Sydney on Wednesday 29th and leaving Chicago on Monday 4th.
I’ll give a presentation covering the statistics on the debt-driven process that led to the economic crisis, an explanation of how money is created in a pure credit economy (based on my “Roving Cavaliers of Credit” post on this blog), and a model of debt-deflation as covered in my recent talk in New York.