Predicting Worse Ahead from
America's Economic Crisis
Taken from a report by Stephen Lendman
Economist John Williams publishes the shadowstats.com electronic
newsletter with updated sample data on his site. He calls government figures
corrupted and unreliable because manipulative changes rigged them for political
and market purposes. To correct them, he reverse-engineers GDP, employment,
inflation, and other key data for greater reliability to subscribers.
On August 1, Williams called the "Current Economic Downturn
(the) Worst Since (the) Great Depression." It began a year earlier than
reported, triggered a systemic solvency crisis, and the effects of "a
multiple-dip depression (are) far from over."
The July 31, 2009 national income accounts "confirmed that the
US economy is in its worst economic contraction since the first downleg of
the Great Depression, which was a double-dip" one like today's.
Intermittent upturns are common, like from spiked auto sales from
the cash-for-clunkers program that borrowed future purchases for today's.
"Yet, this downturn will continue to deteriorate, proving to be extremely
protracted, extremely deep and particularly nonresponsive to traditional
The economy suffers from deep structural problems related to household
income. Consumers are over-indebted, can't borrow, and Washington's policies
aren't helping them. Continued economic decline will follow. "The current
depression is the second dip in a multiple-dip downturn that started in 1999
(and triggered) the systemic solvency crisis" that was visible by August
2007 but started in late 2006.
worst lies ahead, the result of the "government's long-range
insolvency and (dollar debasing that risks) hyperinflation during
the next five years," and perhaps sooner in 2010. It will
cause "a great depression of a magnitude never before seen
in" America, disrupting all business and commerce and reverberating
Williams defines deflation as a decrease in goods and services prices,
generally from a money supply contraction. Inflation is the reverse. Hyperinflation
debases the currency to near worthlessness. Officially, two or more consecutive
declining quarters means recession, but better measures are protracted weakened
production, employment, retail sales, construction, capital investment, and
demand for durable goods among other factors.
A depression occurs when inflation-adjusted peak-to-trough contraction
exceeds 10%, and a great depression when it's 25% or worse.
Today's economic downturn preceded the systemic solvency crisis after
key data "hit cycle highs and began to weaken in late-2005 for housing
and durable goods orders....early-2006 for nonfarm payrolls, (and) late-2006
for retail sales and industrial production, patterns more consistent with
a late-2006" real recession onset. Gross Domestic Income (GDI) data confirms
Its real growth peaked in Q 1 2006, and revised GDI data contracted
in seven of the last nine quarters. "Revised GDP shows the sharpest annual
decline in the history of the quarterly GDP series," suggesting a much
deeper and protracted downturn than previously reported.
July 2009 marked the 19th consecutive month of contraction, "the
longest downturn since the first downleg of the Great Depression." More
recent GDP declines of 3.3% and 3.9% in Q 1 and Q 2 2009, "are the worst
showings in the history of the quarterly GDP series" dating back to 1947-48.
In 1946, a greater contraction occurred because of post-war production cutbacks,
but it was short-term.
Today's most reliable economic indicators show the downturn is deepening,
not abating as deceptive media accounts report. "The SGS (Shadow Government
Statistics) alternative measure of GDP suggests (a) 5.9% contraction....versus
the official year-to-year" 3.9% figure.
The official estimated annualized Q 2 2009 decline was 1% compared
to SGS's figure "in excess of five-percent." Its alternative data
show "deeper and more protracted recessions" than officially reported,
suggesting a deepening crisis ahead.
The CBO's Grim Forecast
the conservative Congressional Budget Office sees a weaker economy
ahead, contrary to most consensus views of a sustainable upturn.
Its latest projections are as follows:
- for the next five years, economic weakness and lower demand will pressure
workers with unemployment or underemployment;
- part-time work only will be available for millions wanting full-time jobs;
- low consumption will persist through 2014;
- unemployment benefits will be exhausted;
- households will be pressured to make mortgage payments, pay for health care,
meet other obligations, and provide for their families at a time state and
city budget crises force deep cuts in vital social services, not made up for
by the federal government;
- tax revenues are down 17%, the sharpest decline since 1932;
- $600 billion in investment losses will result plus another $5.9 trillion
in lost output through 2014; and
- the federal deficit will nearly double over the next 10 years to about
In sum, CBO projects a more severe protracted downturn than it earlier
forecast in January.
Troubled Times Ahead
On July 14, Egon von Greyerz, Founder and Managing Partner of Zurich-based
Matterhorn Asset Management AG, specializing in precious metals and other
investments, said "The Dark Years Are Here" and explained why.
Because of "the devastating effects of credit bubbles, government
money printing (and) disastrous actions that governments are taking, (upcoming)
tumultuous events will be life changing for most people in the world."
They'll begin by year end, last for two to three years, then
be followed by extended economic, political, and social upheaval, perhaps
continuing for two decades.
Greyerz cites three main concerns:
- exploding unemployment and government deficits;
- trillions of unreported bank losses and worthless derivatives; and
- rising inflation, high interest rates, collapsed Treasury bond (and UK gilt)
valuations resulting in more money creation, worthless paper, and a "perfect
vicious circle (leading to) a hyperinflationary depression followed by the
collapse of the dollar and British pound.
America is hemorrhaging financially and economically. Reckless money
creation achieved short-term hope, benefited Wall Street alone short-term,
elevated world stock markets, and led some to believe the crisis was over
when, in fact, it's worsening.
Aside from expected short-lived upturns, "every single sector
of the real economy is deteriorating whether it is production, unemployment,
corporate profits, real estate, credit defaults, construction, federal deficits,
local government and state deficits etc."
We're in "the first phase of this tragic saga." Likely
by year end, a second more serious one will start. Real unemployment now tops
20%. It hit 25% in the Great Depression with 35% of the nonfarm population
out of work and desperate.
"It is our firm opinion that (US) non-farm unemployment levels
will reach 35% at least....in the next few years" with all uncounted
Growing millions with no jobs, incomes, savings, or safety net protections
will create "a disaster of unimaginable consequences that will affect
the whole fabric of American society" to a degree far greater than in
the Great Depression.
unemployment now plagues Western and Eastern Europe as well,
and by 2010 will more greatly affect most parts of the world,
"including China, Asia and Africa. Never before has there
been a global unemployment crisis affecting the world simultaneously."
Ahead expect sharp drops in consumption and global trade leading
to depression, poverty, "famine and social unrest."
Already, conditions are worse than in the 1930s, but the worst is
yet to come. Expect:
- an extremely severe global depression in
most countries with grave economic, political, and social consequences;
- social safety net protections will end;
- private and state pensions will likely collapse; and
- unemployment, poverty, homelessness, hunger, and famine will cause a protracted
period of economic, political, social, and institutional upheaval.
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