As best covered by Zero Hedge in two parts (part one and part two), nearly one month ago, two "top" economists, Mark Zandi, chief economist at Moody's, and Alan Blinder, professor of economics at Princeton and former Federal Reserve vice chairman, released a paper along with op-eds in periodicals including the Wall Street Journal. Now, presumably this paper was preceded by several months of research and was originally formulated on an observation linked to the final conclusions which it presents. So, considering your own perspective and experience over these same several months, you might be a little surprised at the titles of this paper, never mind the content. Now, before disclosing the title, please note, this is not a Bankster Report satire piece or an exaggeration, and its not April Fools' Day. No, this one is just too good to make up, even for the Onion:
Their paper--the paper of these top economists: "How We Ended the Great Recession."
Well, whatever--its over! That's right! Yeah! Oh c'mon--what do you mean you haven't heard!? Duh, the worst "recession" since the Great Depression is, like, totally over, yo! Two top economists from Moody's and Princeton/the Fed say so, so it must be true! And not only that, but "we" (read: "Keynesians") ended it!
Why are you being so skeptical? Seriously, you should totally show some more respect for your Federal Reserve officials and other bankster masters. You might be surprised to hear that the Great Recession is over, and, in fact, that Mr Blinder and Mr Zandi were announcing this development almost a month ago, but indeed, there was actually rejoicing in the streets just today as the DJIA closed under 10,000, and the S&P came within one measly point of the apparently vital super critical 1040 support level. Yeah, no signs of trouble there, and certainly no recession.
Haven't you noticed all the sighs of relief in the air, as the Great Recession is finally over? Bankster Report witnesses overheard several individuals brown-baggin' it in the streets, stating, "S&P at 1041? Ah, no sweat, baby--the Great Recession is oh-vaaa!" Clearly, I'm pretty sure I saw a bunch of unemployed people--some few dozens of the nearly 15 million unemployed officially recorded according to the BLS's manipulated low estimates--I'm pretty sure I saw them dancing and frolicking in wide circles, while holding hands and singing Simba's "The Circle of Life," as they heard the wonderful news from Princeton's Blinder and Moody's Zandi that the recession is over! "Yeah!", they chirped. "All hail Bernanke!"
Wrong: Give me break--do you think we are we that stupid? The "Great Recession" is not over. Its hardly over: there are millions of jobs that have evaporated and will never return; there are trillions in "wealth" that has evaporated and will never return; as much of that "wealth" was digital entries in the retirements accounts of millions of Americans, that savings will not return either.
Even more audacious than the headline declaration of an economic "Mission Accomplished" is the paper's utterly unsustainable use of Orwellian un-evidence that is completely made up out of thin air and absolutely impossible to prove or disprove. This is not an unfairly harsh statement to make: since when can an economist offer a 4-year projection based on "No Policy Response" as the criterion? How can "No Policy Response" be offered as a basis for projecting an economic response?
It cannot: it is the economic equivalent of logic's fallacy of affirming the consequent:
A: "If there is no policy response, the system will fall apart!"
B: "There is no policy response!"
Then: "The system will fall apart!"
Of course, Messrs Blinder and Zandi are only perpetuating a completely evidence-free creation first paraded by Mr Bush, et al, in October 2008, when we first heard the completely unsubstantiated, fear-based assertions that unless the almighty government intervenes with massive, multi-trillion dollar bailouts, the whole entire world was bound to disintegrate into fine powder and be sucked into the closest black hole, leaving no trace of human existence whatsoever, oh, if the economic system failed!
But the claim of ending the "Great Recession" is not Mr Blinder's first audacious--and evidence-free--claim of the last few months: no, indeed, the former Fed vice chairman also penned an WSJ editorial titled "Government to the Economic Rescue," which determined, as suggested by the title, that the government saved the day. In response to the 64% of Americans who think the policies have failed, Mr Blinder's response is simple:
"The 64% are wrong."
He continues to explain that only $400 Billion or so "went to the banks," and even somehow manages to reduce the $23.7 Trillion -- or $23,700 Billion--in crisis-related taxpayer-funding bailout to $50 Billion. Now that is skill: dropping $23.650 Trillion just like that? .
Too bad its not true. Let us take heed of a few facts not mentioned by our Fed front Mr Blinder and Mr Zandi in "How We Ended the Great Recession."
Unemployment is still a nightmare
Unemployment is still over 9.7% (non-seasonally adjusted; 9.5% if SA). Unemployment has increased in the several months since the above-mentioned paper was ostensibly started: it was 9.3% in May. "Real unemployment" (U6) stands at 16.8%, up from 16.7% since the spring, and showing no improvement whatsoever since last years' 16.8% (July 2009, NSA). Of the over 14.6 million unemployed, 45% of these individuals, or 6.6 million people, have been without work for 27 weeks or more. For those lucky enough to hold onto their jobs, the average work week is at 34.2 hours--not even full time for those people with jobs--and the BLS reports 8.5 million people who are not included in the baseline unemployment rate are "involuntary part time" due to their hours having been cut from full-time to part-time. The BLS also reported that 1,609 Mass Layoffs (a layoff of 50 or more employees at a single employer) wiped out 143,703 jobs in July alone. Does this sound like the recession has ended to you?
Gross Domestic Product is weak
In perhaps the most glaringly wrong projection of this pipe-dream paper, the authors Blinder and Zandi state that, thanks to the massive policy intervention and Mr Bernanke's helicopter, they can confidently state that US GDP will end 2010 at a recovery-esque 2.9% increase. Well guess what? With all these TRILLIONS in "Policy Response," we'll be lucky if the GDP nudges 2%: Goldman Sachs is predicting US GDP to drop to half this estimate, or 1.5%, and that's with an unexpected massive oil spill and Iranian saber-rattling to help bolster the flailing GDP. Next year is not looking too good either: Goldman has likewise cut 2011 GDP projections to a meager 1.9% from a previous 2.5%. Recession over?
Housing is still in free-fall
One of the biggest manipulation of the inflation data is obtained through the Fed's/CPI overweighting of housing prices (rental and purchase, and particularly the ridiculous "owner's equivalent rent") and complimentary exclusion of food and energy in the so-called "core inflation" statistic. Honestly, I don't know in which world the Fed economists live, but food and energy prices are rather quite important to the inflationary experience of the rest of us. This, in my opinion, is a huge part of the current inflation-deflation debate: do not rely on the Fed so-called inflation numbers unless you are willing to account for the huge skew (nearly 30%) embedded within these statistics because of the overweighting of housing: as housing prices fall, inflation "falls," regardless of the real price data because of this overweighting. Hence the deflation issue: prices have fallen so much (33% from the peak, or more), and "wealth" is disintegrating with this fall, leaving less money in the hands of the homeowners (loanowners) and thus allowing less money to enter this consumer-based economy. This stat from the July housing numbers discussed yesterday stands out: 13% decrease YOY--that is, a 13% average decrease in money values, and inflation is stagnant. If prices were not increasing, then inflation should be negative (that is, deflation), and we should have a staggering -12% number, or something along that line. Prices are increasing, but the difference is being cancelled out by that huge housing weight as it continues to slide down. (The manipulated CPI's role in TIPS is another story altogether.)
That said, here's a repeat of yesterday's data: new home sales down 32% from last year; median home price at the lowest level since 2003 ($204,000); July new home sales down 12% from June; average sales price plunged 13.2% since July. Markets down almost 8% in the last thirteen trading days. So tell us, how exactly did "we" end it, this recession, dear authors of "How We Ended the Great Recession"?
OH, that--yeah, uh. Yeah. They were just kidding. Ha. The recession's...uh...back.
Today, the recession has apparently rematerialized at Princeton and Moody's, but at least Mr Zandi is admitting it. As Bloomberg reports, Mr Zandi has apparently had second thoughts on the "Mission Accomplished:" after one month ago having declared the recession "end," Mr Zandi has now placed the likelihood of a "double dip recession" at 33%--1 in 3 odds. Nouriel Roubini is booking the dark horse at 40% odds.
Me--I'm on Black Swan, to Place. or Win.
Then we all lose.