Recession’s Over…Move Along…Nothing to See Here Folks….

Why it's not quite time to go to the mall.

September 23, 2010

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14652_caution_dcWell, it’s finally over – in the U.S. The Great Recession that began in December 2007 ended in June 2009, the National Bureau of Economic Research announced this week.

The longest recession since the Great Depression has left 15 million workers jobless – 9.6%. Shadow statistics data suggest the real unemployment rate is much higher as discouraged workers leave the labour force permanently.

But the U.S. economy is on the mend, right? The investment banks are paying back their loans. GM is ready to go public. The housing market is … well, let’s just skip that one.

According to former journalist and White House advisor Steve Rattner, the U.S. sent $82 billion to the automakers. How much will be repaid is uncertain, says Rattner, whose day job is with private equity firm, Quadrangle Group, where presumably debt repayments go to the bottom line.

As for the banks, they’re paying off their debts, anxious to be clear of direct government oversight? Not exactly. From Reuters last month:

“The government’s $700 billion bailout of the financial system may still be politically toxic, but for those who voted for the program, there is some good news: the taxpayer bill continues to drop.

“On Thursday, congressional scorekeepers projected the overall deficit impact of the Troubled Asset Relief Program — or TARP — will be about $66 billion.”

Still, that’s evidence of healing, isn’t it? A debt of $66 billion is better than a $700 billion one. Now if only the banks would lend again so the Fed doesn’t have to contemplate new measures towards quantitative easing.

But somebody’s already doing the lending. Here’s what blogger Jim Quinn says:

“Total credit market debt peaked at $52.9 trillion in the 1st quarter of 2009. It is currently at $52.1 trillion. The GREAT DE-LEVERAGING of the United States has chopped our total debt by 1.5%. Move along. No more to see here. Time to go to the mall. Can anyone in their right mind look at this chart and think this financial crisis is over?”

Okay, well how about the consumer? Somebody must be deleveraging. Apparently savings have gone from 0% to 6%. There’s a catch, of course. If there’s deleveraging, it’s not just increased savings, but reductions in debt. And how is debt being reduced? According to Mark Whitehouse at the Wall Street Journal, it’s the magic of default.

“People can pay off existing loans, or they can renege on the loans, forcing the lender to charge them off. As it happens, the latter accounted for almost all the decline. Our own analysis of data from the Fed and the Federal Deposit Insurance Corp. suggests that over the two years ending June 2010, banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.”

“That means consumers managed to shave off only $22 billion in debt through the kind of belt-tightening we typically envision. In other words, in the absence of defaults, they would have achieved an annualized decline of only 0.08%.”

Ah yes, the Great Deleveraging. Toto, I’ve a feeling we’re not back in Kansas yet.

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