Thursday, June 16, 2011

The 2nd Great Depression?


By Nick Sorrentino

The summer slump continues. The market has been down for six straight weeks and it looks like it might tack another week onto the slide.

Where is the recovery?

Remember the “green shoots?”

The only green shoots I see are in the vacant lots where McMansions were supposed to blossom. The economy in contrast looks very red, the color of debt and other things.

The housing swoon that started in 2007 is greater now in percentage terms than what America saw during the Great Depression, and we are not at the bottom. In fact we are likely far from a bottom in housing as new federal rules come online over the next year that will make it more difficult for potential purchasers to get into a home.

The job front?

After a slight decline over the past year the official number of unemployed has ticked up back to 9.1%. This is the official number. The real number counting under employed and discouraged workers is much higher than this.

Gas prices?

Thankfully they are off their highs. $3.50 a gallon seems like a bargain from what we thought we might be dealing with.

Though gas is off slightly the cost of other goods is still trending up. Bought coffee lately? It’s way more expensive than a year ago. Same for beer. You can see my priorities.

All of these things add up to a very dismal economic picture, yet the president, Chairman Bernanke, and Treasury Secretary Geithner still speak in terms of “recovery.” Come on, we’ve been through a lot. It’s time to level with the American people.

They can’t do this of course, because at least some part of the population continues to buy the spin. If the president were to say that things were actually going to you know where, and that new ideas needed to be employed the last believers would be lost and the doom and gloomers would throw up their hands and collectively say, “I told you so.”

This would precipitate a bigger slide in the markets than what we have seen. For most people in the investing world, retail investors to institutional traders, there is an acknowledgement that things are very bad indeed, but that they would be even worse if anyone from “officialdom” acknowledged this. So we putter along in a wink and a nod type of economy.

The problem with not acknowledging the severity of the economic challenges that we are presented with as a country is that sooner or later these problems will force us to deal with them. When this happens the pain will be even worse than if we had chosen to face them directly.

So what are we to do? Do we acknowledge officially the black hole we teeter on with the hope that with repentance we will be able to free ourselves from its grip over the long term? Or do we continue to pretend that the black hole is not there, even though we know that it is, until it is too late? The latter will probably give us a few more months without real pain but the former begins the process of renewal. We must begin the process of renewal.

I say this as a relatively young man. I am 35. Hopefully, God willing I will have time to recover from the economic calamity we are embroiled in. Let the market correct. Let housing prices come down even more. In the long run this will be both good for me and for our country.

But again, God willing, I have a “long run.” I can understand the fear that many in retirement and on the edge of retirement have about acknowledging what I think most people know to be true, that we are very near, if not already in the midst of a second Great Depression. Such an acknowledgement will hammer retirement accounts in the short term. But for the sake of the country, and most of its inhabitants, we must let the economy really correct.

It will grow again.

If we are wise (we can be wise about this) we will plant the next economy in the fertile earth of savings and real capital, and not in the shallow dust of credit and speculation.

About Me

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Nick Sorrentino is the Editor of The Liberty and Economics Review and CEO of Exelorix.com a social media management company.