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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Why All the Double Dip Recession Talk Is Pure B.S. …

Economics / Great Depression II Aug 09, 2010 - 08:09 AM GMT

By: Larry_Edelson

Economics

Best Financial Markets Analysis ArticleIf the recent slew of bad economic news coming out of the U.S. hasn’t convinced you that the economy stinks, then it’s time to wake up and smell the coffee. Because …

All the recent talk about a double-dip recession is nothing more than pure B.S.


Why? Because the U.S. economy …

A. Never emerged from a recession. Period.

Quite to the contrary, in reality …

B. The economy is already in a depression.

The problem is that no one wants to admit it. Certainly not in Washington. Not on Wall Street either. And, unfortunately, not even on Main Street.

But the fact of the matter is that in real terms, the U.S. economy has already contracted more than it did during the Great Depression.

I’ll prove it to you in a minute. But before I do, here are a few simple facts that also show you that the economy is either rivaling the depths of the 1930s, or is already in worse shape …

First, the true unemployment rate in this country is at least 22%. Not the 9.5% mythical figure Washington is reporting.

You see, Washington plays with the unemployment number. The figure they report every month is what they call the “official” unemployment rate. But it includes only those ages 16 or older who are not currently employed, but are able and available to work, and “actively seeking work.”

The problem: Washington conveniently leaves out people who are working part-time, people whose hours have been dramatically cut, and “discouraged” workers — those who are ready, willing and able to work — but have essentially given up looking for a job because they can’t find one.

Add these workers into the mix and you have an unemployment rate of 22.7% — more than double the so-called official number and almost as bad as the Great Depression of the 1930s.

And that’s just a nationwide average. In places like Detroit, Los Angeles, Allentown, Pa. and other urban areas, the real unemployment rate is as high as 40%, far worse than during the Great Depression.

If you include part-time and 'discouraged' workers, the actual national unemployment rate is 22.7% — almost as bad as the Great Depression.
If you include part-time and “discouraged” workers, the actual national unemployment rate is 22.7% — almost as bad as the Great Depression.

Second, from its 1925 peak, the median home price in the U.S. fell 12.57% into a bottom in 1932. Compare that to the 31% decline since the property peak in 2007.

Third, in 1929, total U.S. debt as a percent of GDP stood at roughly 290%. Today, it’s approaching 380%, and growing.

Put another way, it now takes $3.80 to produce $1 of GDP, compared to $2.90 during the Great Depression. I don’t know about you, but to me, that’s not real economic growth. It’s debt-riddled growth.

Moreover, when debt is growing so rapidly, there is simply no way the economy can produce the same amount of unencumbered goods and services than it did just a decade ago.

Fourth, U.S. high-yield corporate bond default rates last year hit their highest level since the Great Depression. And although they’ve come down a bit since then, there’s no doubt in my mind that corporate bond default rates are going to surge dramatically higher in the months ahead.

Fifth, total corporate and personal bankruptcy filings each year in the U.S. are now more than double the number of filings that occurred during the entire decade of the Great Depression.

Sure, bankruptcy laws have changed dramatically, making it far easier for individual and corporations to stave off creditors, with far less stigma. But is that a good thing? Or does it merely make things look better on the surface?

Either way, I repeat, we’re talking bankruptcy filings in a single year that are now more than double the filings that occurred in the entire Great Depression.

Now, for the real proof the economy is already in a Depression.

Back in the 1930s — and all the way through 1971 — the U.S. monetary system was on a gold standard. In 1933, for instance, $1 of GDP was equal to 1/35 of an ounce of gold.

In 1971, it was equal to about 1/42 of an ounce of gold. Then, Richard Nixon severed the link between the dollar and gold once and for all.

Don’t get me wrong. I do not advocate a gold standard. Never have, never will. But you simply must understand that just because the world is no longer functioning on a gold standard — doesn’t mean you cannot — or should not measure values in terms of gold.

As a matter of fact, you should. Measuring values in terms of an asset that represents the real value of money is the only real way to measure anything today. That’s even truer these days than ever before because paper currencies are so fickle and volatile in nature.

So now, let’s take a look at our country’s GDP in terms of the amount of gold it can buy.

And let’s do a simple comparison of 1932, the depths of the Great Depression … with 1971, just before the gold standard was abolished … the year 2000, the peak of the tech bubble … the year 2007, the real estate peak … and the latest GDP data.

Let’s see what’s really happening — in terms of how much gold the country’s GDP can purchase at those different points in time.

U.S. GDP In Terms Of Gold Purchasing Power

Here’s the summary, and a chart to go along with it …

arrow black Why All the Double Dip Talk Is Pure B.S. ... In 1932, our country’s GDP was worth 2.8 billion ounces of gold.

arrow black Why All the Double Dip Talk Is Pure B.S. ... In 1971, it was worth 27.74 billion ounces of gold. Put another way, our country’s GDP was almost ten times what it was in 1932.

arrow black Why All the Double Dip Talk Is Pure B.S. ... In 2000, our country’s GDP would purchase 34.54 billion ounces of gold.

arrow black Why All the Double Dip Talk Is Pure B.S. ... At year-end 2007, it was worth only 16.87 billion ounces of gold.

arrow black Why All the Double Dip Talk Is Pure B.S. ... As of March 31, 2010, our country’s GDP would purchase a mere 13.08 billion ounces of gold.

That’s a 22.47% decline in three years, since the peak of the housing bubble … and a whopping 62.13% decline since the end of the year 2000.

If that’s not a contraction, if that’s not a depression in real terms, I don’t know what is.

Of course, almost everyone will argue with me about the above analysis, their main objection being: I’m just viewing the economy in terms of gold, and that the contraction I speak of is merely because the price of gold has gone through the roof.

But I ask you the following questions, and I’ll let you answer them …

If gold isn’t real money, then what is? Paper money?

If so, then why does paper money — in almost all cases — buy you less than it did a couple of years ago … five years ago … ten years ago … fifty years ago?

Why does a barrel of oil cost nearly eight times more than it did just ten years ago, when in gold terms, the price of oil is the same?

For the economy’s current GDP to equal the same gold purchasing power it had in the year 2000 — 34.54 billion ounces of gold — the price of gold would have to plummet by more than 64.5%.

What are the chances that’s going to happen, when the Federal Reserve recently stated it would print as much as $5 trillion more in funny money to try and turn the economy around, by papering over the mess?

Folks, the U.S. economy is already in a depression. Deep in a depression. And as I said at the outset, almost no one realizes it.

Hopefully, you do. And hopefully, you’re taking the steps necessary to protect your wealth, so that it does not suffer the same devastating losses in real terms.

And further, so that you have a solid plan to profit from what almost no one else recognizes.

Best wishes,

Larry

P.S. Stay ahead of the curve with all my analysis, all of my recommendations, all of my flash alerts, strategies to protect and grow your money, and more! Become a Real Wealth Report member today by clicking here now.

It’s a mere $99, and is the best money you will ever spend for your investments. I guarantee it!

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