Six Reasons This Is A Depression
“The markets are telling us something valuable when (after a period of unprecedented government bailouts, incursions and stimulus programs) the yield on the 5-year note is south of 1% and the 10-year, is down to 2%,” says Rosenberg.
But here’s six more reasons why it looks like America is in a depression:
1) “Interest rates go to zero and there is no revival in credit-sensitive spending.”
2) “Banks are sitting on nearly $2-trillion of cash and yet there is no lending going onto the private sector.”
3) Almost half the ranks of the unemployed have been looking for a job fruitlessly for at least six months. You might not see soup lines, but according to Rosenberg, they’re in the mail — “99 weeks of unemployment cheques for over 10 million jobless Americans.”
4) In a recession, growth would be back to new highs three years after the initial contraction. This time around, everything from personal income to GDP to home prices to corporate earnings is still down from levels seen at the end of 2007.
5) “Depressions usually are caused by a bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories. You tell me which fits the bill today.”
6) “In a recession, the economy is revived by government stimulus. In depressions, the economy is sustained by government stimulus. There is a very big difference between these two states.”
David Rosenberg has nailed this one on the head.
The key to recognize what is wrong with the economy is to look at interest rates.
Interest rates measure the demand for money. The demand is very low.
Canada and Australia have yet to experience the full effects America has felt. It appears both countries are 5 years behind the American and European experience.
Once China slows considerably over the next year, both these resource based countries will finally see their real estate bubbles burst.
One of the early indications that the slow down is imminent is the recent large drop in the Baltic Dry Index. The BDI seems intent on testing the 2008 lows!