“How close are we to a new Great Depression?” This was a question and article put out by none other than CNBC yesterday. Going back to the piece that I wrote yesterday, had we not run a deficit equal to 10% per year of GDP, the 2008-09 “recession” would have seen a decline of OVER 10% (a 10% or greater decline of GDP IS the definition of a “depression”) and we would never have had a positive quarter since then. In short, the answer to CNBC’s question is that we ALREADY are and HAVE BEEN in a depression since late 2007, early 2008.
Look at housing for example, I can remember back in the mid to late 1980’s where 1.5 million new homes were built per year in the U.S. Fast forward to the current “recovery”, we have only built 1.5 million homes in the last 4 YEARS,…total! This by the way is a drop of 75% or so. Inventories are still very high and the foreclosures just keep on coming. Banks have been withholding foreclosed homes from the market and not dumping them so as to not shoot themselves in the foot and smash prices further. Ask yourself, are the banks on more solid footing today than they were back in 2008? Look at the auto industry, back in the heyday, 16-17 million units were sold per year. Now, after dropping to slightly less than 10 million units, 13 million is all we can hope for and still 20% lower than “the good old days”.
These are 2 pretty significant industries and at one point the heart of our economy. Neither has, nor will, even come close to the glory days even with interest rates as low as they have ever been. The “bubbles” have not reflated and after seeing interest rates drop to the current levels, who can argue “recovery or even green shoots” with a straight face? My point is this, ALL of the past “policy tools” that used to work, now don’t and they haven’t worked in a very very PUBLIC FASHION! It is not like fiscal policy was used on it’s own, neither was monetary policy. No, they were used jointly and absolutely blasted full force at the economy, the result? Not enough umpf to kick this dying carcass of an economy forward for more than a few months at a time.
I would also like to add that the “numbers” we are forced to use are compiled by the government and are not even close to the reality as compilation methods have been changed numerous times to elicit “more favorable” numbers! Even with false unemployment, inflation and sales numbers, the policy tools have not worked. Now, we face municipalities, states, the Treasury and the Fed having to go forward with impaired balance sheets and the ability to “borrow and spend” more being impaired. Make no mistake, on the municipal and state levels, taxes will be raised and services cut unlike anything we have ever seen or “nightmared” about. Which leaves only the Fed and Treasury as the “engines of new credit”. The balance sheet of the Fed is now laden with junk credit and the Treasury’s admitted debt (not counting war debt, Medicare, Social Security and many other obligations) is already over 100% of GDP.
Folks, this is a depression and will be seen as one shortly. We are just one market event, bankruptcy event, one more MF Global or PFG Best or other fraud event uncovered (ie. where’s the Gold?) away from this realization. People ask me all the time “when do you think it will happen?” to which I now always reply, “could be tomorrow, next week, next month or whatever, it should have already happened long ago”. If not for bogus reporting of economic numbers, bogus accounting and “marking of assets” by banks, official sector propping (officially and behind the curtains) of the stock and bond markets, bogus reporting by our media to keep the herd calm, the roof would have already caved in.
In this business you can never ever “guarantee” anything but I will guarantee you this, when, not if the roof caves, you will hear from every direction possible, “who could have seen this coming?”. A better question would be, “who couldn’t?”. Every “Black Swan” event is by definition a “surprise”. In the current, because something is “needed” to point a finger at, you can bet your last Dollar that some sort of Black Swan event which “no one could have seen coming” will appear out of nowhere. Every policy tool has been used and every financial and economic number fudged or forged, the only thing left is to point fingers which may be exactly what this LIBOR scandal will morph into. In the meantime you have only one job to do, do not let yourself be fooled, bored or scared out of your precious metals positions. It is WAY TOO LATE IN THE GAME to make that mistake now!