EconomicGreenfield

Although almost everyone believes we are in an economic recovery, it behooves us to at least consider whether instead we are in a continuing Depression, as I have previously written.  Beginning on June 22, 2009, I wrote a series of four blog posts that examined various aspects of our economic situation and whether we were in, or heading into, a Depression.

As I wrote on January 19, “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.”

Let’s assume, for a moment, that we are in a continuing Depression, as opposed to an economic recovery as almost everyone believes.  How could virtually everyone be wrong on such a prominent issue?

I believe the answer is complex and lengthy.  However, there are at least three basic underpinnings of such a mistaken belief.

First, judging the sustainability of economic strength after a steep economic decline seems challenging.  During the 1930′s, there were many prominent people who believed that the Depression was over, only to have the economy relapse into further weakness.

Second, since the late 1920s, this country has had very few periods of Depressions or prolonged recessions, as defined.  Due to this lack of “experience,” it may be very difficult to discriminate between continual Depression characteristics, during which intermittent economic strength manifests, and that of a new economic recovery that follows a definite end of economic weakness.  As well – and this is of critical importance – how should government, business and citizens act during a Depression?  Needless to say, how these parties should act during a continual Depression will vary greatly as opposed to that of an economic recovery.   Acting as if one is in a sustainable recovery, when in fact one is in a continuing Depression, would prove devastating.

Third, as I have written of previously, do we, as a nation (and by extension the world) really understand our present economic environment?  We, as a nation, failed (some examples are found here) to predict  the severe economic weakness of late ’08 and early ’09.  Was this failure a “one-time” event – i.e. a fluke not to worry about – or the early “innings” of what will prove to be a colossal, long-running economic misinterpretation?  Before one can flippantly dismiss this concern – as I’m sure most will be tempted to do – one should heed the existence (often mentioned in this blog) of many negative “outliers” during this purported sustainable economic recovery.  Perhaps most noticeable among these outliers is unemployment issues that are proving rather intractable.

Of course, the hope is that we are avoiding a Depression.  However, if we are actually in one, it would strongly behoove us to acknowledge such and act accordingly.

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On an intermittent basis I post a summary of my thoughts on our (U.S.) current economic situation.

My overall views have not changed since my last post on the subject, which can be found in the January 19 post.

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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.

SPX at 1141.69 as this post is written

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.

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

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

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