Actually, real investment has also been increasing:
The point is that technically speaking we have a recovery occurring - business activity is picking up. I don’t think that this recovery is sustainable, due to many underlying problems with the US economy and the latest rounds of economic interventions. But the sustainability of the recovery occuring and whether or not we are having a recovery are two completely different issues.
This contradicts your previous statement:
By your previous definition of “recovery” of “actual structural realignment,” then we have not had a recovery for decades since the Fed has never once shrunk the money supply since the 30s, AFAIK.
But your new definition of “recovery” appear to have degrees - a strong recovery is one where most malinvetments have been purged, whereas a weak one is where most malinvestments have not been purged. Thus, what we experiencing now (an uptick in business activity) could be considered a recovery by your new definition if there was at least some structural realignment. And, indeed, there has been some structural realignment. For example, the Big Three have significantly curtailed their operations throughout the country and the world. A few banks have failed, while many other industries have cut overhead costs in order to remain competitive and become profitable again.
To be honest, I’ve always thought we haven’t had a recovery since ca. 1913. Every boom is the attempt to sweep under the rug the busts laying all over the place (malinvestments) and pray they go away - yes pray - cause it’s not the Fed. or the gov’t that let’s the malinvestments actually go away. That’s why each new bust cycle is worse than the last one because all the underlying problems never actually went away. That’s why the 1970’s saw a new phenomena called stagflation because the monetary policies screwed the economy up so much over the decades that a new monster surfaced on that bust. And one of the few if only times the Fed. artifically raised interest rates when Volker (spelling?) was in office under Reagan to such high levels [ca. 20-24%]. That action partially purged the economy, but I’ve come across estimates that I don’t have at within reach now in which stated the interest then (80’s) could have even gone higher to reach the natural interest rate as the 1970’s crushed the economy to such a point. Under Bush 2 the dot.com was only fixed with stimulating the economy, in other words, sweeping under the rug the fundamental problems of the economy. The economy with legislation and stimulation was pushed in the direction of the housing sector. Then it went bust. As you said before, the next time this beast surfaces it will only be worse then the initial housing bust in late 2008. The purchasing power of the dollar has decreased since 1913 to the value of 3-5 cents. Whereas from ca. 1787 to 1913 the value of the dollar actually rose in purchasing power above the initial dollar. The value is subjective in starting points of value [1787=1 dollar and 1913=1 dollar] but that’s to give it a perspective to notice if any deviation had occurred and it did. Up pre-1913, down post-1913. The up and down is evaluted using gold (and silver probably would show the same, but I know about the gold comparison). So technically yes. There hasn’t been a full recovery since ca. 1913. There has only been a decline with certain occurrences that delayed it’s full purge.
I wish I had Hoppe’s book but as I told you before he points out that the U.S. has been economically in decline since World War One except one upspike in the 1950’s due to lowering taxes and lowered gov’t spending. Only time, I believe, that ever happened during that time period at the same time. Then I pointed out Volker’s raising of interest rates in the 1980’s to ca. 20% that as I said has been estimated to not be enough as the damage of the stagflation in the 1970’s had really dug deep into the economy. Then the Savings and Loans was also a product of gov’t legislation, Fed. policies, and SEC policies that opened the door for that bubble to bust. Soon after the dot.com. Soon after the housing. All booms were only products of preceding busts swept under the rug and hidden. To only re-emerge worse than before. Next one will be even worse, if it gets that far because as of now interest rates are still low and the economy might be heading into another 1970’s stagflation type event. Or things have gotten so fundamentally screwed up that maybe somebody will end up having to come up with a whole new different name for this beast. Maybe something kin to Japan’s lost generation, I don’t know.
Anyways, that’s how I see it, and technically I’ve always thought there hasn’t been a real recovery even before the dates you gave kaju. There’s nothing surprising or amazingly profound about that non-recovery for nearly 90 years. Technology, from how I understand this, has been one of the most amazing upside’s to all of this that has allowed capitalism to sustain itself and find ways to stay alive, productive, and find profits sporadically enough throughout the economy. Another indicator that should be very apparent is it used to be that one parent could work for the family and sustain a household. Ever since the 1970’s (I believe), maybe a little later, there has been an increase in two income households.
I like the title of this thread.
Just wanted to say I get some feeling like you guys are saying about never having recovered too. The parasitic class needs to create constant strife to hide the fact of its nature. The tremendous advancement in the past couple centuries could only have been much greater without government, and I just want better for the future.
If anyone’s ever taken a class on environmentalism, (biology, geology etc) they will tell you not to trust the studies released by oil companies because they have an interest in lying about it. This should be applied to the government as well, if you look at the federal reserves commission for investigating the causes of the recession they hired pro-central bank economists.
I am econ major and here is my outlook on the US economy, there are 3 major problems we have.
1.Misallocation of resources (basically the ABCT applied to our economic situation no need to go into detail here)
A capital consumption problem, basically you increase productivity by accumulating capital, because when you are saving rather then consuming less resources are devoted to supplying your consumption and more can be devoted to increasing productivity ultimately for your future consumption. It seems to me as though Americans are consuming their capital, the government taking on lots of debt is actually consuming lots of it for us, and they are acting to discourage savings so in effect we are consuming our productivity..
The most serious problem is the inflation problem, they literally doubled the money supply. The banks are holding onto it now but once we get moderate inflation I predict once it reaches maybe 7 or 8% the banks will realize they are hemorrhaging wealth and will get out of the dollar which will result in a massive spike in inflation.
I don’t know what could cause the moderate inflation it could be foreigners not rolling over their bonds and the government printing money to pay for their programs, it could come out of no where if the dollar starts dropping then psychological momentum could bring about moderate inflation.
If the fed tries to combat this and raises interest rates our federal debt will become much more difficult to service.
So getting back to what I said before, I believe foreigners willingness to hold onto our dollars and bonds is contingent upon confidence in a strong US economy, so the government has an incentive to tell us the economy is recovering, if confidence dropped our economy could face a currency crisis. (of course it is basically inevitable all they can do is prolong the day of reckoning)
So since economists from time to time will change the way they measure GDP and purchasing power, the government can skew the interpretation of the data. For things like unemployment I’d give them the benefit of the doubt, but I’d be skeptical of many of their figures, sorry if this is sloppy I’m in a hurry.
And I view this as one long cycle starting in the late 90s, I don’t base it on X% of GDP growth=recession, that does not seem very meaningful in describing these economic phenomena.
My point: arguing that there is a recovery by Keynesian definition doesn’t mean anything to a lot of people here.
An increase in productive activities is no recovery in a meaningful sense if there aren’t enough resources to see those productive activities to fruition.
There are different degrees of liquidation. How much liquidation is required for a “true recovery” is a question I cannot answer, but the more the better. Has there been some liquidation? Probably, but only minimally. So I concede the point. Also, the central bank does not have to shrink its balance sheet for there to be structural realignment. They can keep their balance sheet stable, and it will still purge malinvestments; that is, if the government stops what it’s doing, a deflationary correction will take hold and cleanse the system (if it’s left alone). Remember, the malformed capital structure requires perpetual and incremental degrees of inflation (defined as an increase in the supply of money beyond the demand of cash holdings). So yes, if we want to define a recovery as a complete realignment in the structure of production then we haven’t had a “real recovery” since 1921.
But all I’m trying to say is that government policy is propping up the malformed capital structure and perpetuating malinvestments. It has delayed the real-estate correction (both residential and commercial) and inflated a bond bubble. This is an untenable condition, and must inevitably lead to a complete systemic crises.
Anybody who thinks there is an economic recovery should find the nearest mental institution and seek professional help immediately. I can’t believe some of the things in this thread from people that visit this website; how can you buy into this nonsense? The Fed more than doubles its balance sheet and the US gets a tiny bounce in “GDP” and suddenly everything is fine? I see the real unemployment rate at 20%, the largest debtor in history increasing its debt ceiling by 15% in one stroke of the pen, and absolutely no increases in productive capacity - what world do these people live in where America is a blossoming field of flowers and unicorns?
I don’t need to tell anyone here why GDP is a nonsense statistic. The government spending portion was probably the entire “increase” in GDP. I’ll tell you what, if you are one of the deluded people who thinks the economy is recovering, then:
Dive head first into the sucker rally known as the equity market and have fun.
Explain why not only there is still a zero-interest rate policy, but why the FOMC continues to use the “extended period” pledge every time the minutes are released.
Related to number 2, if the Fed funds rate goes up to just one percent they will have QUADRUPLED it - we saw what happened when the discount rate was raised by a baby step of 25bp in January (with only $17bn outstanding at the time). How is the market going to react when they stop giving away free money?
Why has the FASB not grown a spine and a brain and decided to reimplement real (mark to market) accounting? How about the tiny little, oh, $2.8 trillion in loans, or 40% of total assets of the US’s 4 largest commercial banks that would be affected.
Where’s that balance sheet reduction? With such a strong recovery, all those RMBS, auto loans, and other garbage the Fed has should fetch a high price on the market!
The Fed has forced people to buy risky assets because the pensioners can’t get any return on CDs and savings accounts so they’re forced to go gamble in equities. The volume just keeps getting lower and lower, with all the big guys getting out and all the poor suckers jumping in. They can print money and change the accounting rules, and use their zero-interest rate policy nonsense to create a ridiculously steep yield curve which would allow any big bank who isn’t completely brain dead to profit - but you know what, eventually the fundamentals will win. If anybody can address my above concerns I’d be amused.
Best regards,
Chris
I know I’ll get flamed for this (again) but here we go: Interventionism works, and it works well.
That’s not because it’s inherently superior to allowing the market to correct itself. far from it: it’s incredibly wasteful and it’s an abomination. But it has an enormous advantage over free-market based politics: the people.
When the whole system started to shake in late 2007 people started to become scared. 2008 brought more madness: foreclosures, government-sanctioned speculation in the crude oil market, large banks being unmasked as liars and cheats etc. Now, people can react in two ways at the prospect of an imminent disaster: either they prepare themselves or they childishly believe that someone will come and save them from themselves. That’s what has happened. Remember that while we talk about being ready for emergencies, like owning gold and silver coins, stocking up canned food or how to protect ourselves from inflation, most people live day by day. They don’t want to save money. They are unable to make sacrifices today to build up a capital for tomorrow. They take a loan after another to, say, change their car every two-three years and their cellphone every six months. They are the vast majority and when in late 2008 it finally looked like they were about to pay the bills they got scared and prayed for Santa Claus to come save them. They desperately want to believe that just by trusting governments they will be allowed to continue their mindless spending spree forever and ever. They got their wish and we got *****. They just don’t care if food and fuel prices are skyrocketing and they don’t ask themselves why the stock market is racing madly in face of less than stellar prospectives. If they cannot afford something they’ll just take another loan or will simply do without paying their equally brain-dead children’s schooling fees. Children cannot be kicked out of school and who cares if somebody else has to fork the bill.
That’s why there’s an economic recovery: because most of the people just want to believe there’s one to avoid reckoning day.
Esuric:
I agree with most of your post except:
“Also, the central bank does not have to shrink its balance sheet for there to be structural realignment. They can keep their balance sheet stable, and it will still purge malinvestments; that is, if the government stops what it’s doing, a deflationary correction will take hold and cleanse the system (if it’s left alone).”
If the central bank doesn’t shrink its balance sheet this will put upward pressure on the prices of assets its holding. We know that prices signal changes in the structure of production and the allocation of resources. Thus if the central bank continues to have a bloated balance sheet and distorts prices I think a structural realignment is not possible.
Yes, but as prices adjust, costs will rise and reveal the malinvestments, which will bring about a correction (a collapsed structure of production). The inflation has to be perpetual; you need a continuous reduction in the market rate of interest relative to the natural rate.
To the post above:
I wonder then, if a dictator will take over america in the face of hyperinflation?
It’s very possible.
Even if we get a temporary recovery, I think the real question is: at what cost? What have we given up to get this?
“Yes, but as prices adjust, costs will rise and reveal the malinvestments, which will bring about a correction (a collapsed structure of production). The inflation has to be perpetual; you need a continuous reduction in the market rate of interest relative to the natural rate.”
You make a good point and I agree. However, especially in times like the current crisis which saw massive deleveraging and liquidation, costs may very well continue to fall even in the face of ramped up money printing and asset prices climbing for no good reason. Although eventually you’re certainly right that the costs will rise, as everything except the currency will rise, I think that by the point the imbalances will be so bad that the structure of production will only adjust after a total collapse of monetary system.
(btw is it just me or is the quote function not working?)