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January 11, 2011 / J. Shaw

Unavoidable Great Depression?

 Unfortunately, I agree with much that is in this article. I see no recovery this year …..maybe a long malaise by an insolvent government…. I sincerely hope I am wrong. SHAW
 
Article
The new year unfailingly raises spirits, even for those who don’t imbibe.  It represents a clean slate, a new start, and a time to make resolutions to improve ourselves and our lives.  It is a time for renewal.
 
Economists and politicians are not immune to optimism.  Many economists project wonderful things for the coming year.  Likewise, Republican political pundits are especially ebullient, anticipating major political changes.  Unfortunately, these expectations are no more realistic than our personal resolutions, and they have similar shelf-lives.

 The Economy

The year 2011 begins with the government-driven mantra that a recovery is under way.  “The Recovery Summer” was accompanied by similar fanfare, only to become the subject of late-night TV jokes.  The 2011 recovery meme will be as valid and fleeting as that of its predecessor.

Why the optimism?  The government has not changed course.  Its previous “solutions” have been ineffective and have exacerbated problems.  Just as you cannot cure a hangover by drinking more, you cannot cure a debt problem with more debt.  Both forms of temporary relief risk irreparable long-term damage.

A year ago, I predicted that there would be no recovery and that the seriousness of our economic plight would become apparent: “The year 2010 is likely to be the pivotal year where pundits stop referring to the recession and begin openly talking about a Depression.”

No recovery occurred, despite claims by the NBER that the recession ended in June 2010.  Nor will 2011 see any recovery.

In my opinion, we are in the beginning stages of an unavoidable Great Depression.  Recognition is not widespread because of the concerted attempt by government and its media allies to minimize problems.  The recovery propaganda machine is incessant, powerful, and committed.  Nevertheless, understanding is growing that something bigger, more destructive, and longer-lasting than the typical recession is upon us.

The unsustainable debt piled up over the last thirty years continues to grow exponentially.  Deficits are so large that they force the Fed to utilize Quantitative Easing.  Last year, the Federal Reserve had these options:

  1. The Fed continues its QE beyond its planned cessation in March 2010.
  2. The Fed raises interest rates to levels that would attract the capital necessary to fund government operations via conventional credit markets.
  3. No Fed action is taken.  This would cause the government to default on some of its obligations.
It was easily predicted that the Fed would continue QE and that QE would not work:

 Of the three alternatives, what is best economically is worst politically. This natural conflict between good economics and good politics is not unusual. Economically, the country would be harmed least by implementing alternative 2. From a political standpoint, alternatives 2 and 3 are probably unacceptable. Thus, it is likely that alternative 1 will be used. Again! It is precisely the continual overuse of this alternative that led to the current, sad state.

 
Article-Forget about Economic Recovery in 2011, By Monty Pelerin
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