Archive for the ‘Depression’ Category

My Thoughts On Our Current Economic Situation

Tuesday, January 19th, 2010

I would like to provide an overall update as to my thoughts on our current economic situation.

My blog post of September 1, 2009 summarizes my current thoughts well.  It can be found here:

http://www.economicgreenfield.com/2009/09/01/are-we-going-into-a-depression/

Many of my concerns and reasons for such an outlook have been expressed in this blog. 

Of course, over the last few months there have been signs of economic recovery – or at least a lessening of economic weakness.  However, I believe that these signs represent the type of intermittent economic strength that is often seen during periods of prolonged economic weakness.

back to <home>

SPX at 1141.69 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Depression | Comments Off

Are We Going Into A Depression?

Tuesday, September 1st, 2009

Please note – some might find this post disturbing

I would like to provide an overall update as to my thoughts on our current economic situation.

First, however, a brief recap of what others think of our current economic situation (details of which can be found under the “Economic Forecasts” and “Stock Market” categories on the right-hand side of the home page):

  • Practically all economists, federal officials, companies and investment professionals are confident that we have “seen the worst” of the economic damage, and are heading toward a gradual recovery
  • Only a small handful of economists think even a “double-dip” recession (further economic weakness before a lasting recovery) is possible.  None that I have seen are forecasting an economic dropoff that would lead into a Depression.
  • Corporate Earnings growth is projected to be robust through (at least) 2010
  • The stock market (as seen by the S&P500) is above 1000 – after having a very strong multi-month rally

Given the above, how likely is renewed economic weakness and how strong could it possibly be?  What is the potential downside?

My analysis and overall thoughts on our economic condition, and likely future outcome, has not changed.  Although I am an optimistic person by nature, my overall analysis of our current economic condition does not engender optimism.  I do not believe that we have even come close to having seen “the bottom” as far as economic weakness is concerned.  Furthermore, I see our future economic situation as one that holds great peril and rather severe potential downside.   I do believe we are heading into what will inarguably be classified as a Depression.

The reasons for my conclusions are many.  In general, we face an array of  complex and deeply embedded problems.  For those who want a more specific background of my thoughts on this matter, I would recommend reading the articles I have written, (which can be found listed under the “ProsperityByPen.com Directory” found on the right-hand side of the page  as well as at this link)

http://www.economicgreenfield.com/prosperitybypencom-directory/   

and the various blog posts on this site. 

In particular, I would like to call attention to my four-part Depression series that started with the June 22 post, which can be found at this link:

http://www.economicgreenfield.com/2009/06/22/are-we-in-a-depression/

Since I wrote the article “A S&P500 Target of 100?” discussed in the last post of that Depression series I have used the S&P500 price of 100 as a type of potential endpost, and have been thinking of what type of probabilities to assign to its likelihood of occurring in the near future (a  two-year window since it was written).  Most people would think that such a price target is simply impossible.  However, since I wrote the article in early March, the probabilities I have assigned to it have increased, unfortunately. 

Our current and future economic conditions are of great complexity.  As I have previously stated, I do not want further economic weakness to occur and I do hope that my analysis and conclusions regarding our economic course are completely incorrect.  My overall desire is for us to attain what would be considered Sustainable Prosperity.

______

 

For those who haven’t yet read this site’s disclaimer, please see the “Special Note” here:

http://www.economicgreenfield.com/a-special-note/

 

SPX at 1020.62 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Depression | Comments Off

Debunking A Popular Phrase

Wednesday, August 12th, 2009

One of the phrases that I have heard innumerable times is that our current period of economic weakness “isn’t as bad as The Great Depression because during The Great Depression unemployment was at 25%.”

While I have commented repeatedly on this blog that I don’t believe we should be equating our current economic condition to that of The Great Depression, I would like to comment on the phrase above.

As one can see on the chart found in this The Economist article:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176

the unemployment rate during The Great Depression peaked at 25%.  Also of note is the steady yet unrelenting climb in the rate leading to this peak.

Another issue that would need to be factored into any discussion of the two periods’ unemployment rates is that of comparibility.  While I haven’t seen any well-documented analysis of the methods used during each period, the prevailing wisdom appears to be that our current unemployment rate is understated vs. that used during The Great Depression. 

As I have stated previously on this blog, (on the “Why Aren’t Companies Hiring?” series that started on July 24) ”The unemployment issue currently facing the country is severe and complex.”  It is important that we keep it in proper historical context.

SPX at 1005.73 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Depression | Comments Off

Another Mention of The Great Depression

Monday, August 3rd, 2009

On July 26th Ben Bernanke said, “”I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”  The quote and associated details can be found here:

http://online.wsj.com/article/SB124865498517982625.html

I found the quote interesting primarily as it once again underscores the popularity (or should I say fixation) that many people, including prominent economists, have in comparing (and associating the characteristics of) our current period of economic weakness with that of The Great Depression.  As I wrote in my July 13th post, I think that viewing the two periods similarly is not only incorrect but perilous.

SPX at 987.48 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Ben Bernanke, Depression | Comments Off

Comparing The Great Depression To Our Current Economic Situation

Monday, July 13th, 2009

In previous posts I have spoken of the comparisons between our current period of economic weakness and that of The Great Depression.  Those posts were on June 22 and June 15, and can be found at these links:

http://www.economicgreenfield.com/2009/06/22/are-we-avoiding-a-depression/

http://www.economicgreenfield.com/2009/06/15/great-depression-stock-charts-vs-our-current-period/

I would like to reiterate my view, seen in the above links, that although our current period of economic weakness does have similarities to that of The Great Depression, there are notable differences as well.  To believe that both situations are very similar, and by acting accordingly, imperils our economic situation. 

The reason I feel as if I need to reiterate these views is twofold.  First, people in general seem fixated on the comparison.  Second, two of perhaps the most influential economists of today (Paul Krugman and Christina Romer) recently had articles, found in the below links, in which they discuss our current situation in context of The Great Depression:

“That ’30’s Show” by Paul Krugman

http://www.nytimes.com/2009/07/03/opinion/03krugman.html?_r=1

“The Lessons of 1937″ by Christina Romer

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176

SPX at 879.34 as this post is written

 

Copyright 2009 by Ted Kavadas

  • Share/Bookmark

Tags:
Posted in Depression | Comments Off

The Concept of a “Super Depression”

Tuesday, June 23rd, 2009

Please note; some will find this post disturbing

I would like to call your attention to the article titled “A S&P500 Target of 100?” which is found under the “Investor” heading here:

http://www.economicgreenfield.com/prosperitybypencom-directory/

With the S&P500 currently at 893.72, I am sure that many will find the mere notion of the 100 level to be highly unlikely if not outlandish.  However, I would point out that our current economic situation is exceedingly complex, and that any further economic weakness could play out in an unpredictable fashion.

As indicated in the article, if the S&P500 were to fall to the 100 level the accompanying economic situation would likely be dreadful and chaotic.  It could very well represent the biggest challenge our nation has ever encountered. 

Such a situation, if it were to occur, could be categorized as a “Super Depression,” which I would define as a severe Depression embedded with highly complex, difficult-to-solve problems.

In future posts, I will likely further comment on the prospects of a Depression and/or ”Super Depression.”  From my perspective, on an “all things considered” basis, both are (most unfortunately) possibilities. 

____

For those who haven’t yet read this site’s disclaimer, please see the “Special Note” here:

http://www.economicgreenfield.com/a-special-note/

SPX at 893.31 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Depression, Stock Market | 1 Comment »

How Can We Go Into a Depression?

Tuesday, June 23rd, 2009

As previously indicated, in this post:

http://www.economicgreenfield.com/2009/06/19/current-economic-forecasts/

most mainstream economic forecasters as well as many other financial professionals believe that “the worst is behind us” as far as economic damage.   It certainly would be nice if this were the case.

However, for a variety of reasons, I continue to believe that while it is possible that “the worst is behind us” there is more likely to be more damage ahead.  There is an array of serious problems, as well as various indicators that indicate potentially severe economic weakness ahead.  Any further economic weakness could certainly push the economy from a “severe recession” into a Depression. 

The way I view it, there are a range of various scenarios that can play out from here.  On the one end of the spectrum is the above-referenced mainstream economist consensus, one of gradual improvement.  On the other end of the spectrum is that of continued economic weakness that has the potential to build upon itself.

A question arises as to how continued economic weakness could happen, both from a fundamental basis, as well as a quantifiable one.  The situation is highly complex and there are many drivers.   Continued economic weakness, assuming it will happen, would likely “play out” in a very unpredictable fashion.

As a reference to our current situation, I would point out the writings in the “Investor” section, which provide some quantifiable aspects.  The writings in the “Articles” section will provide some other background as well.  They can be found here:

http://www.economicgreenfield.com/prosperitybypencom-directory/ 

SPX at 897.33 as this post is written

  • Share/Bookmark

Tags:
Posted in Depression | Comments Off

Are We Avoiding a Depression?

Monday, June 22nd, 2009

Perhaps the most common refrain heard with regard to our current economic situation, and why it won’t become a Depression, is that we as a nation have been proactive and aggressive in “managing” this period of economic weakness. 

This theory, more or less, has the following generalized (and summarized) structure:

  1. There has been rigorous research conducted on the causes of The Great Depression.
  2. Ben Bernanke is widely proclaimed as an expert on The Great Depression era.
  3. Through the knowledge derived through the extensive research of The Great Depression, as well as Ben Bernanke’s expertise of the era, we (as a nation) have a thorough understanding of the causes of The Great Depression, and how that period could have been better managed, if not avoided either fully or in part.
  4. During our current period of economic weakness, widely called “The Economic Crisis” (or “Financial Crisis”), we (as a nation) have been very proactive in deploying various intervention measures that would have avoided The Great Depression and therefore will act to help us avoid a Depression.

I question a variety of the assumptions above.  Additionally, and perhaps most importantly, is our current economic predicament analogous to that of The Great Depression?  While there are certain similarities, there appear to be notable differences as well.  Plus, just the time differential alone would appear to make comparisons difficult.

If the two periods are fundamentally different, why are people apt to compare them?  While this is difficult to answer, it may be (at least in part) because Americans have few periods of severe economic weakness to reference, especially over the last 100 years or so.  If this is correct, it may also call into question the appropriateness of comparisons between this period and The Great Depression.

With regard to whether we, as a nation, have a thorough knowledge of The Great Depression, has been questioned by some.  If our current period of economic weakness is not comparable to that of The Great Depression, it becomes more of an ”academic question” as “lessons learned” from The Great Depression would not necessarily be applicable to the situation we now face.

Furthermore, if our current period of economic weakness is not comparable to that of The Great Depression, the main concern becomes whether our intervention efforts, that purportedly would have avoided The Great Depression, will help us avoid going into our own Depression.

As one can see from the above, I think there are considerable questions that can, and should, be raised with regard to the widely held aforementioned theory and generalized structure presented.

 SPX at 904.99 as this post is written

  • Share/Bookmark

Tags: , ,
Posted in Ben Bernanke, Depression | Comments Off

Are We In a Depression?

Monday, June 22nd, 2009

One of the questions that seems to be popular since the economic events of 2008 is whether we are in a Depression.  As such, for the next few posts I will be commenting on the topic.

Here are two links that indicate that we are not in a Depression:

http://seekingalpha.com/article/142831-great-depression-ii-it-s-not-even-close?source=email

http://www.calculatedriskblog.com/2009/06/update-what-is-depression.html

Yet, as indicated in this following link, the rate of decline in various measures seems to indicate that our experience to date at least matches, if not exceeds, that of The Great Depression.

http://www.ft.com/cms/s/0/b31c06a2-5a7a-11de-8c14-00144feabdc0.html

So, as seen above, there seems to be contrasting measures regarding our current economic weakness.  At this point, most in the mainstream use the term “severe recession” to classify our current economic predicament.

In my opinion, on an “all things considered” basis, I think the “severe recession” classification is apt, but one could also strongly argue for using a “mild Depression” tag at this point in time.  The Unemployment Rate and GDP decline seem to be cited as the predominant statistics in determining whether a Depression exists.  While it is true that both of these measures are not near those that would indicate a Depression, there are an array of other measures that have undergone severe declines and currently stand at (or near) multi-decade lows.  As well, it just seems like there is an extraordinary level of stress evident from a fundamental perspective that is far out of the ordinary even for “tough times.”  

Regardless of the economic classification used, I think the more important issue is the characteristics of the economy; the underlying problems and how easily they can be solved; and the economy’s future trend – either recovery or further decline.  Of course, whether we are on a path to Sustainable Prosperity, as well as associated issues, should be considered.

SPX at 921.23 as this post is written

  • Share/Bookmark

Tags: ,
Posted in Depression, Sustainable Prosperity | Comments Off

Great Depression Stock Charts vs Our Current Period

Monday, June 15th, 2009

I’m sure everyone has seen the various charts depicting the stock market during The Great Depression to that of our recent period.

The comparisons that I have seen show a definite visual resemblance, and perhaps that is what is attracting such attention, as these charts have proven very popular.

From my perspective, I think that any resemblance is more happenstance than anything else.  I don’t expect The Financial Crisis to ”play out” like The Great Depression, either in the stock market or fundamentally via the economy. 

SPX at 923.72 as this post is written

  • Share/Bookmark

Tags: , ,
Posted in Depression, Stock Market | Comments Off