The “Great Recession” is over, so
we're told by CBS News
, quoting Mark Zandi of Moody Analytics. Zandi,
CBS explains, is one of the nation's top economists. The recovery, we
hear, is moving forward, the light at the end of the tunnel is within
our view. The economic times are a-changin', they tell us. However,
the facts and figures seem to tell a different story, one in which
that light at the end of the tunnel may very well herald the arrival
of the Greater Depression. The prevailing economic propaganda of
recovery tends to leave out contraindicating factors, such as credit
contraction and its affect on the economy as a whole.
On February 5, 2010, Bloomberg reported
that consumer credit declined again, for the 11th month in
a row. According to the article, the “series of declines is the
longest on record.” This decline is due, as noted in the article,
in part to a reduction in consumer spending, as consumers think twice
about taking on nonessential debt and parting with their hard earned
cash. However, consumers coming to their senses -- spending less and
saving more -- isn't the only factor at play in this decline. Credit
contraction also plays a significant role in the reduction of
spending and borrowing, as well as being an important factor in the
current condition of the economy.
When banks and lenders could sell away
risk via the derivatives market, credit expanded rapidly, and the
housing bubble inflated, raising home prices far above the norm. With
the ability to pass risk onto investors via such financial
as mortgage backed securities and collateralized debt
obligations, a whole world of sub-prime credit opened up to
potential borrowers. Bad credit loans
, no cash down, no credit
history needed – the advertisements were everywhere. Home equity
loans flourished as home values continued to inflate. Credit card
companies hawked their wares aggressively. Even family pets
credit card offers in the mail.
And then came the sub-prime tremors.
Sub-prime mortgage defaults exploded and the mortgage melt-down
began. With a whoosh felt 'round the world, the rapid deflation of
the housing bubble sucked the value out of properties and the
financial instruments built upon real estate mortgages and loans.
Banks, lenders, and investors incurred incredible losses. Those
investors included school districts and municipal planners, which
felt the losses via, as a November 15, 2007, Bloomberg article
, the fact that “state-run pools have parked taxpayers'
money in some of the most confusing, opaque and illiquid debt
investments ever devised. These include so-called structured
investment vehicles, or SIVs, which are among the subprime mortgage
debt-filled contrivances that have blown up
at the biggest banks in
the world.” Pension funds and other retirement plans saw their
worth seeping away. Trillions of dollars of wealth evaporated.
With that, credit began contracting.
Not only had losses rendered banks and lenders that hadn't outright
failed without the liquidity for lending at previous levels, but also
they were no longer able to sell off risk to frightened and fiscally
wounded investors. In response to mounting losses, banks and lenders
began to pump up credit card interest rates and slash credit limits,
even on those with good payment histories. Home equity loans dried
up. Small business loans became increasingly difficult to come by.
The government started pumping money into the financial system –
taxpayer money. One of the primary goals for this was to get banks
and lenders to lend again.
The reason that re-expanding credit has
been deemed so important is that the collective American perception
of economic well-being has been built on a foundation of credit and
debt, rather than on solid financial achievements. Houses, cars,
vacations, big screen televisions, etc. and so on – all the
trappings of the good life – just make the monthly payments, choose
your payment plan, interest only, adjustable rate, pay the monthly
minimum, put your equity to work and let the good times roll. A full
70 percent of the American economy depends on consumer spending. And,
as pointed out in a February 3, 2010, ABC news report
jobs comprise more than 80 percent of non-farm U.S. Employment.”
Thus, if consumers are not spending, profits fall for those that
depend on that spending, and jobs are lost. Hence, our current record
unemployment rates. Because the spending that kept everything moving
was hugely reliant on the availability of credit, credit contraction
resulted in economic turmoil.
However, despite the infusions of
taxpayer money via government bailouts and lending programs, credit
remained tight. For a brief period of time, banks were hesitant to
even lend to each other. Rather than using government money for
loosening credit as it was intended, banks chose to shore up their
cash reserves and stronger banks bought weaker banks. Waves of
foreclosure swept the nation, as homeowners were unable to refinance
homes with fallen values, lower credit scores, and little remaining
equity. Negative equity became the phrase of the day, as property
values fell so low that people owed more than the property was worth.
According to a February 2, 2010, New York Times article
, it is
expected that by June 2010, more than 5 million homes will be worth
less than 75 percent of their mortgages.
The recovery propagandists use
Orwellian phrases like “jobless recovery” while they try to
convince the public and potential investors that everything is just
fine. Things are moving in the right direction, they tell us, so let
the spending begin. How exactly is there to be a recovery without
jobs? How are consumers to consume without cash or credit? Why would
any sensible consumer consume in the face of record debt burdens,
including those that the government forced upon them via bailouts and
astronomical deficit spending? As Stephen Lendman recently wrote, if
the recession is over, it's because the depression has begun.
In a January 18, 2010, Atlantic Free
, Lendman quoted David Rosenberg, a former Merrill Lynch
economist, currently working with the Canadian firm, Gluskin Sheff.
“The credit collapse and the accompanying deflation and
overcapacity are going to drive the economy and financial markets in
2010. We have said this repeatedly that this recession is really a
depression because the (post-WW II) recessions were merely small
backward steps in an inventory cycle but in the context of expanding
credit. Whereas now, we are in a prolonged period of credit
contraction, especially as it relates to households and small
businesses,” said Rosenberg, as quoted by Lendman. Lendman went on
to write that “Rosenberg highlighted asset deflation and credit
contraction imploding “the largest balance sheet in the world - the
US household sector” in the amount of “an epic $12 trillion of
lost net worth, a degree of trauma we have never seen before.”
A common sense interpretation of the
economic facts – facts, that is, not the misinformation,
manipulated statistics, and incomplete data presented as facts by
politicians, big business, and their media cheerleaders – indicates
clearly that we are not in recovery and our recession is not over. In
fact, the credit contraction, asset deflation, rampant foreclosure,
record high unemployment, and struggling dollar all indicate that
economic depression may be upon us. Remember, the recovery
propagandists are of the same group that never saw this coming, those
that couldn't imagine that the housing and other bubbles would burst.
Don't let that group influence your financial planning. Instead, rely
on your own common sense assessment of what you see around you and
your own checking of facts and figures. The information is out there,
so put it to work for you to mitigate the potential damages of our