Monday, June 8, 2009

A Tale of Two Depressions…

Barry Eichengreen and Kevin H. O’Rourke assembled a terrific piece showing the WORLD ECONOMY now versus during the Great Depression. Regular readers of my blog will not be surprised to find that the data they point to indicate that today’s depression is WORSE than the original Great Depression.

Here’s a link to their article, please follow that link and read it there are a ton of good charts and very useful information:

A Tale of Two Depressions…

This article is an update of their original and their new findings are:
• World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.

• World stock markets have rebounded a bit since March, and world trade has stabilised, but these are still following paths far below the ones they followed in the Great Depression.

• There are new charts for individual nations’ industrial output. The big-4 EU nations divide north-south; today’s German and British industrial output are closely tracking their rate of fall in the 1930s, while Italy and France are doing much worse.

• The North Americans (US & Canada) continue to see their industrial output fall approximately in line with what happened in the 1929 crisis, with no clear signs of a turn around.

• Japan’s industrial output in February was 25 percentage points lower than at the equivalent stage in the Great Depression. There was however a sharp rebound in March.

Industrial output has crashed throughout the world, no doubt. I could show you chart after chart, but I’m going to show you just three charts that clearly show what’s happening right here in the U.S. and these charts come directly from our own Fed (so you know they can be trusted, LOL).

The first chart is Industrial Production of durable consumer goods. This is yet another classic parabolic chart that rose in the post WWII era in typical exponential math 3 phase style; slow and controlled growth, followed by a more rapid pace, which gives way to an exponential blow off/ parabolic rise:

Parabolic rises ALWAYS lead to collapse. The collapse usually returns to at least the point at which the parabolic move began – its base. In this case, I would expect a return to 1990 at a minimum. This parabolic collapse is why this is no ordinary recession.

Now let’s look at exports… here we see the same parabolic rise but this chart only goes back to 1992. Still I can identify three phases and a parabolic rise that is now collapsing. A return to the 2003 export level would be expected given the parabolic collapse:

Just for a bonus, here’s the same export chart but in year-over-year percent change:

Now the last chart I want to show is the chart that provides the fuel for economic activity, Private Domestic Investment. Here too we see a post WWII parabolic/ exponential rise which is followed by collapse. Although it is not shown on this chart yet, I’m certain there will be a small blip arise to form a “right shoulder” on this chart. I would then expect the parabolic collapse to continue and it’s fairly obvious from this chart that the parabolic phase began around 1990 – that’s where I would expect it to return. Yet, because this chart is in dollars, I would want to see it corrected into REAL dollars or by gold:

Those who do not understand bubble dynamics and exponential math are lost. Inflation/ deflation? This statistic, that statistic. Bull to all of it. Easy credit and debt were the real fuel behind all the parabolic charts. The parabolic move has ended and math will take care of the rest. History just has yet to record the end result.

It’s a good thing we have a social safety net and are so efficient at producing saturated fat and corn syrup. We now have over 11% of our population on food stamps – that’s approaching one in nine! ONE IN NINE!!

Our government and central Keynesian bankers believe they can create never ending growth. Exponential math argues otherwise…

Bad Company – Shooting Star: