The Genesis of My Forecast of the Greater Depression
I first came to the conclusion that the US economy would enter the Greater Depression in 1998. I came up with the term independently, but later learned that it had been used earlier by Doug Casey. On all forums and blogs I have always posted under my name, Jas Jain, but in early days of my comments in 1990s I would sign as Rabbi Jazzman (rabbi of morality of financial practices and their impact on the real economy and asset classes, e.g., the stock market and the housing market; with moral tone obvious in my use of language). Here is a quote from the period, July 1998:
"May be you are on to something here... What will happen...? The Greater Depression? ...The glory days of the US stock market may be over for good and in few decades the Chinese might assume the place of the supreme economic power in the world. Shalom, shalom. Rabbi Jazzman"
In 1998, I also concluded that fraudulent financial practices, permitted by the US govt and enforcement agencies, e.g., SEC (Securing Entitlements for Crooks), have guaranteed an inefficient allocation of capital, on which the private US economy heavily depends, on top of the theft of the shareholders, would necessarily lead to a weak economy, long-term, and the US economy would enter a period of long-term growth far poorer than during the Great Depression, which was also caused by such practices that had preceded it, but at a lower degree of fraud. It also became obvious to me that a large number of organized group of economists, including Bernanke, have been lying about the true causes of the Great Depression -- bad financial practices, especially related to lending. I also concluded that, historically, the stock market has been a substitute debt market. Hence, I started to sign off some of my comments with: It is the debt, stupid! Not diligently and rigorously preventing the fraud since the mid-1990s had guaranteed outcome similar to, or worse than, the Great Depression. Now, after dozen years we have the data to prove that forecast. My forecast was based primarily on the widespread fraudulent financial practices, e.g., stock options, acquisitions, and related accounting practices, at the highest levels in corporate America and evidenced themselves in the so-called stock market, which I termed as the Scam Market, bubble. It wasn't a bubble but a direct consequence of fraud. It continues to be the primary mechanism to defraud the wider public, including thru pension funds.
After the Tech "Bubble" Burst
The economy was officially in a recovery in late 2001, but a very weak recovery. Here are my comments on July 27, 2003:
THERE HAS BEEN NO ECONOMIC RECOVERY, INCLUDING DURING THE GREAT DEPRESSION, WHERE THE YoY NOMINAL GDP GROWTH RATE DID NOT REACH 5% WITHIN ONE YEAR OF THE RECOVERY. WE HAVE BEEN SUPPOSEDLY IN A RECOVERY FOR 20 MONTHS AND THE NOMINAL GDP SHOWS NO SIGNS OF GROWING AT 5%. A "weak recovery," or "sub-par recovery" is like being half pregnant! If the weak recovery lasts long enough conditions would be as bad or worse than during a recession, or depression. For example, a 2% growth in real GDP over a period of 10 years would create conditions worse than the Great Depression! During the worst 12 years of the Great Depression, the real GDP growth averaged 2.83%! But, that was a full percentage point below the trend-line growth rate before the Great Depression.
At the minimum, the nominal GDP growth rate would have to go above 5% and stay there for at least one year for the trend to be revered. That means that the 10-year Note yield must get above 6% [upper limit, my forecast was that it will not get to 5.5%] for a year.
Don't let the e-CON-meisters lure you into the con game of predicting bright future for the US economy. There are far more powerful secular trends (the attached gr aph [updated to the present, see Fig. 1] being just one piece of evidence) that point to the opposite. The recent low in the 10-year Treasury yield points to continuing weak growth in nominal GDP, a very bad sign for future employment, the single most important factor. A GDP growth rate above 3.4% that fizzles after one quarter is no good after a recession. And that is what has been happening.
Continuation of the Fraudulent Financial Practices Became a Necessity
The weak economic "recovery" wasn't going to get GW Bush re-elected. In November 2002, two years ahead of the next election, things were getting desperate and suggestions from trade groups (pool and spas!) that a housing boom could be just the shot-in-the-arm to lift the economy from its funk caught the imagination of the managers of the economy. What was needed was low rates and even lower standards of mortgage lending. Enters on the main stage a big actor -- Ben Bernanke to save the economy from replay of the Great Depression (GD). I wasted no time in concluding that the jig was up, i.e., we were already there, i.e., the conditions already existed. There is no way to prove the counter factual: Would GW Bush gotten re-elected without permitting the mortgage fraud, beginning in 2003 and continued thru 2007, and would Bernanke be appointed the Fed Chairman in 2006 (a place was held for Bernanke until Greenspan's term expired for good)? My conclusion in 2006 was that the mortgage fraud was a necessity. Here is what I said on 09/04/2006 (See, or Peak Debt):
Let us see, in 2003, Bernanke wanted to artificially boost the economy in preparation for the Bush re-election in late 2004 and his own future appointment. He had read articles by some self-serving economists in 2002, if it hadn't occurred to him, that low interest rates could boost housing and that may lead the economy out of the recession (it was already out of the recession, but didn't feel like a recovery with the employment falling). So, during the first half of 2003, Bernanke, as a Fed Governor, started to publicly talk about the deflation threat and how the Fed can always stop that by "printing money." Thus, the Fed, under Greenspan chairmanship back then, lowered the rates to "emergency" levels when the only real emergency was the Bush re-election. Greenspan was very happy to play along because his own reappointment in 2004 was contingent upon the economy visibly recovering.
All that the Greenspan-Bernanke did during 2003-2007 was to artificially boost the economy and literally borrow from the future employment and growth. The proof is in the pudding. What fraud giveth fraud taketh away!
Fig. 2 (Exhibit A for the prosecution) shows miserable failure of policies to manipulate the economy since Reagan, lest we forget Reagan fired Volcker and gave America Maestro Greenspan and his successor GW Bush gave America Miracle-maker Bernanke. Sorry, no miracles. Unless, of course, we call defending fraudulent practices by authorities, and throwing wool in the eyes of the public, miracles. Here is what I concluded on 27 Feb 2006 (See):
I think that based on the above the FRS should stand for Fraudulent Reserve System. It has helped perpetrate biggest fraud on American People by making it easy for bankers and financiers to push debt on them.
The beginning points of the two graphs in Fig. 2 are growth rates during GD and the ending points are the current growth rates over similar periods now. The two graphs clearly show that we have already been in the Greater Depression. And you haven't seen nothing yet. The Greater Depression would last for the rest of your life if you were over 50. The 10-year, 12-Year and 20-year growth rates would go negative at some point in time. No one has power to stop that. The damage, institutionalizing fraudulent financial practices for such a long period, has already been done. The current form of this is allowing mortgage fraud (mortgages that no private person with his, or her, own money would make) by FHA, Fannie and Freddie, all in the name of saving the system. The current system not only doesn't deserve to be saved it needs to be exterminated and replaced with relatively honest financial practices. Lloyd Blankfein is not doing God's work. He is doing Satan's work and people like him need to be locked in jail for the rest of their lives with no communication allowed. They are the carriers and facilitators of financial fraud.
Ten Years of Hoover & FDR, 1930-1940, Against Ten Year of GW Bush and Obama
Now let us look at some shocking facts about our recent hires for the top job.
There are couple of key differences between the economy of 1920s and 1930s and the one in the recent decades. First, the economy was young and more active on the up side as well as the down side. One can also call this more volatile. Now the economy is old and not very agile. Second, there was lot less government intervention back then compared to now. On whose behalf does the govt mostly intervene?!
Looking at the above figure, isn't the performance of the recent top guys pathetic with all their promises of jobs and growth? GW Bush even bragged about "strong economy" that his policies had created. And Obama has continued all of GW' Bush's economic policies and some more giveaways. During the decade of GD we had 10.7% higher economic growth with 2.4% lower population growth! See (my emphasis):
"The U.S. population over the past decade increased by 9.7 percent, surpassing the 300 million mark to reach 308.7 million, but at a rate slower than recent decades. Since 1900, only the 1930s [7.3%] experienced lower growth than the past decade, which saw growth similar to the 1980s (9.8 percent)."
Had the economic growth under the recent Presidents, GW Bush and Obama, both proven defenders of fraudsters, been the same as during 1930-40 we would have severe job shortages! Defending crooks' interests is not consistent with creating jobs for honest people. Hoover was morally superior man than Obama and the same goes for FDR versus GW Bush. America has a serious problem of having morally bankrupt people at the top of the economy and the politics. Only they can survive the journey to the very top!
Some may say that we don't have soup lines now. Food stamps are the modern version of the soup lines. Also, in terms of employment, as per my best guestimate (data is not available for 1930s), the employment rate for white men between 18-55, as a percentage of all white men in the age group, during the recent slum was not much different from the worst period in GD, 1932-33.
Why Are We In the Greater Depression?
Major depressions in the US, as the country became more industrialized and financialized, have been caused by bad financial practices that have ranged from loose to widespread fraud, which is where we have been for the past 16 years. And there is No Change since Obama. Unless an overwhelming majority of crooks are removed from power and shut in jails, the US economy would continue to get worse, log-term, with few years of artificially inflated growth, at a very high cost, followed by deep recessions. We have a system that rewards bad people at the very top as well as a significant percent at the bottom. That lessens incentives for honest work. We are not Europe and we are not Japan, we are worse. China, Europe and Japan would fair better over the coming years. They have more responsible governments than ours in terms of looking out for the honest working men and women.