Monday, January 5, 2009

No, It's NOT The 1930's

To listen to the media talk about it, the current recession is already the worst since the Great Depression. Well, if you were greedy and/or clueless enough to entrust your money to Bernie Boondogle (that's Mr. Madoff to you), yes, it certainly is. Reserve a place at your favourite ledge and ponder the Perfidy Of Man, if you so desire. But don't launch yourself into the void, because we're just not there yet.

Our western socio-economic model had recently evolved into a perniciously short-sighted "finance-trumps-all" type - and the omnivorous media just loved it. They could - and still do - report every little twitch in prices as if they really mattered, grilling regiments of "experts" for their pithy commentary. They called it value-added content, but in fact it was bull. Not as in bull and bear, but as in baloney.

Likewise, today's media-expert-politician ringlet has a favourite sound-bite of vacuous luncheon meat: "The worst recession since the Great Depression".


Oh, no doubt about it: if you are caught in the subprime-financial engineering-speculative leverage-hedge fund-private equity vicious cycle, you are definitely having an Anno Horribilis. But that's NOT the economy - you had only convinced yourselves it was, you self-centered navel gazing schmucks. Go ahead and jump if it makes you feel better (it won't), but don't tell US to come along for the ride, ok? We got a world to run and it doesn't revolve around the P&L of your daily trading sheets.

Here's a window to the real economy, then - in my opinion by far the most important one: jobs. The insured unemployment rate (IU: the number of insured unemployed divided by the number of employees that are covered or eligible for unemployment insurance) reached 3.4% last month, a near double from 1.8% in 2006.

Insured Unemployment Rate (recessions shaded)

Yes, things are bad, but not as bad as 1975 when insured unemployment reached 7%, or even 1982 when it went to 5.4%. And, most definitely, NOT the worst since the 1930's - not even close (at least, not yet).

So, why are analysts and the financial press already foaming in the mouth? Because they are judging the world as they see it through their own ash-coloured glasses. A perspective so distorted now as it was back when Madoff was a prince instead of a bum. Amazing what a few thousand layoffs in your closest vicinity can do for your personal view of the world, eh? Yes, a recession is when your neighbor gets fired and a depression is when you do.

All this has consequences for the immediate future, defined as the next six months or so. Contrarians, take note...


  1. Mr. Madoff, oh yes.... How perfect.... I drove by his house in PB this morning on my way the plow. He lives in Peter Pulitzer's old house. You know, remember, the "sleeping with the trumpet" Roxane, "The Prize Pulitzer"..... There were a couple of MSM news crews camped outside on North Lake Way, I stopped to let them know this little factoid and they got all excited and ran to their cells, WHAT A SCOOP...!

    You said....

    "... But don't launch yourself into the void, because we're just not there yet....."

    I say, YES...! JUMP, PLEASE JUMP, DO IT FOR US.... PLEASE....!

    Best Regards,


  2. Hell,

    Thought you would enjoy this quote (from a story on Bloomberg).

    "Diane Casey-Landry, chief operating officer of the American Bankers Association, a trade group in Washington, said that bank profitability had to come ahead of any demand to ease lending.

    'Taxpayers should get a return on their investment,' Casey-Landry said. 'We have to go back to a time when we realize not everyone is entitled to get a loan. What is going to get us out of this recession is sound lending to people who are going to pay it back, not throwing money at people who can’t."


  3. Holy Hell!

    Someone woke up on the wrong side of the Blogosphere... and I like it!! I like the Passion!

    But don't let the unwashed (yet white collared) masses get you down. Some of us know it'll get worse. And they're the one's looking forward to the Change.

    But... since they don't hear opportunity knocking anymore, I'm gonna have to side with Econolicious.. No offense Hell

  4. I understand your analysis, Mr. Hell, but I would like to point out a problem with your data. You're putting a bit too much trust in the official unemployment data, which is about as reliable as the government's inflation numbers.

    According to Mr. Williams of, unemployment is cooking at around 16% or so... far above any of the recent 'recessions.'

    It could be possible that the media is vaguely aware that things look rather uncomfortable. I doubt, however, if they are cognisant of just how uncomfortable the 2007 Depression will be.

  5. Re: crooked official statistics

    Lies, damn lies and statistics... yes, it's true that things have changed in official statistics. Inflation, in particular, is an out and out lie (hedonic pricing, etc).

    Still, claims for unemployment benefits is one number that is particularly difficult to cook, since it comes from bona fide filings. Not perfect, but pretty decent...

  6. "Still, claims for unemployment benefits is one number that is particularly difficult to cook,"

    But does it not fail to capture those who have been unemployed longer then the benefits last?

    Best Regards,


  7. Lies, Damned Lies and Sta..... Noooo!

    Stats never lie; just the arrogant (criminal?) SOBs who mis-use the stats. This does presume that the input data is valid in the first instance!

    Mind you, the Sheeple do not know how to sort out the glass shards from the crystalline carbon! They both look the same if you view them through the wrong end of the 'scope.

    If unemployment heads above 15% of the population better have your Nationalist Socialist banners at the ready!

    Brian P

  8. I think you also have to remember there is a particularly nasty structural readjustment occurring in the news media right now. Enormous numbers of journalists are getting laid off from their jobs as we write as a result of a structural change occurring within their industry which really independent of the larger debt bubble-credit crunch.

    A number of my neighbors are journalists and I frequently notice stress in their voices when we meet for children's play dates, dog walks, etc....
    I think it only natural they somewhat erroneously associate what they are personally experiencing with the larger credit crunch. That and I think the managers are using the credit crunch as a kind of 'cover of darkness' to tell their staffs why the news media is making layoffs when the reality is the firings have been in the works for a while.

    As has been often stated on this blog by others, it becomes a depression when you lose your own job.

    ... though it is an interesting notion that larger macroeconomic political policy is being erroneously and disproportionately influenced by the unique microeconomic climate in our news media. I guess I shouldn't be surprised by this observation.

  9. Anecdotal data is interesting, but dangerous to extrapolate from. But still, it can hint at trends correctly sometimes.

    So far, unemployment seems to have hit the outliers (extreme rich, commission-types, and the extreme poor). Of the middle class, only the FIRE types seem highly impacted.

    People employed with the gov or very large companies seem untouched. Some may interpret this as implying that we have a bullet-proof middle class so the economy can only collapse so far before the US starts to grow again.

    I'm not comfortable with that conclusion. The state govs are starting to crack financially (they don't have their own central banks like national govs). IMHO, thats the tipping point. At that point either the US gov takes a bigger, more expensive role or we start seeing unemployment in the middle class (teachers, etc.).

    Are there any limits to US gov bailouts? Seriously, the rules elude me.

    Edwardo- Easy now! I meant no offense by questioning gold. Just playing Devil's Advocate;)

  10. Re: lies, damned lies, and statistics

    True, employment is hard to cook... but it is cooked nonetheless. If memory serves, the unemployment data for November was approximately as follows:

    300,000 were laid off
    400,000 "left the work force"

    Sooo.... I take that to mean about 1 million people lost their job. Not to mention, most people who are unemployed cannot actually apply for benefits.

  11. Pardon, make that "unemployment numbers are hard to cook."

    Ahhh, the joys of editing...

  12. Have to agree with the scotsman. The numbers are probably skewed because of incorrect counting. There has also been a huge trailing correction

    Sept revised up 100K...
    Oct revised up 80k
    Dec -533K (unrevised) based on the trend it will be revised up to at least -600K?

  13. "Still, claims for unemployment benefits is one number that is particularly difficult to cook,..."
    Now they have "discouraged workers" that drop out of the stats after their benefits run out. Back in the old days those were counted in the unemployment stats. Now exactly sure when the standards last changed, but you really have different accounting standards between now and then.

  14. Re: unemployment statistics

    Please do not confuse the monthly employment situation report with the weekly claims for unemployment benefits number.

    I like the latter series because it is dynamic and short-term, i.e. it captures changes in the job market very quickly. And it cannot be cooked much.

  15. Hi Hell,

    I can assure you that here in France, which is neither Germany nor Spain or Ireland, we can feel the hit very hard. And our economy-and-finances are certainly not as hardly hit as the US one.

    Not in daily figures but in developments schemes for 2009.

    Clear as a picture we are heading for a nightmarish year. Not not only the building and automotive industries, I can assure you.

    In this scenario, the chances for the US to escape the toll seem extremely limited to me.

    It would be up to China to fill the bowl. Financially and try to re-start the engine. Unchanged.

    I just do not believe that this is possible, Hell. We have definitely changed millenary. Rebalancing will occur. Willy-nilly.

    Rebalancing an economy implies an enornous level of unemployment. No way that you can handle it diferently.

    Neo-con ideology will certainly not help at this stage. It might even become counterproductive for a while.

    Just wait and see.

    This is certainly not the end of the capitalism as the eighties were the years of the end of communism. But something is in the process of being destroyed.

    Building a new economy will take much more than trumping money markets with smart capital injections.

    Are they that smart by the way, hell?

  16. good point re: jobs, but isn't another perspective gleaned from household wealth? Per Rosenberg at ML, household net worth through the 4th quarter is likely to decline over 20% from it's 2007 peak. The 1975 deflation in asset values (this represented the worst economic backdrop of the past five decades), the decline was -3.6%.

  17. 1. The insurable unemployed are a modest subset of the overall workforce

    2. The broadest measures of unemployment show much worse numbers. These broader numbers include, among other things, the "discouraged workers."

    3. So called birth death adjustments have led to an aggressive understatement of unemployment figures

  18. Hell, I have to agree with the folks offering corrections to you. By going back to the 70s, you are viulnerable to comparing apples-n-oranges. Even only looking at fresh new weekly unemployment claims doesnt give an accurate comparison; the methodologies for weekly reporting of unemployment claims are still different betwen the 30s, the 70s and today. The eligibility requirements within the 50 states for filing a new claim have changed markedly from 1974, 1980, etc, and the counting of claims has as well. These are state policy changes, not statistical gamesmanship.

  19. Thai Said "...... though it is an interesting notion that larger macroeconomic political policy is being erroneously and disproportionately influenced by the unique microeconomic climate in our news media. I guess I shouldn't be surprised by this observation."

    Can someone tell me what the above means.

  20. Journalist "freak out" over job security as people like you read more blogs and watch less TV is influencing politicians always hungry for media attention

    Is that simple enough for you?