Depression Delayed?
Chris Laird
The recent earnings reports in the US are strong, and the economy is growing to a reasonable degree. Asia is not just growing, it is booming. Commodities economies in areas such as Latin America are growing as well.
Alternatively, Europe is still stagnating somewhat, though recently their purchasing index is looking better...But, I doubt they will ever get above their socialistic morass... It will be interesting to see if Tony Blair can get any agreement on economic reforms in Europe when he takes over the EU lead for six months... this year....
Of course, the US, all things aside, has its same problems,... debts and more debts in every sector, housing, consumer, government and private sector and corporate... GM and Ford have gigantic debts of roughly 300 and 160 billion. And their unfunded pensions are a lot more of same... The same goes for much of corporate America, even though some have significantly improved their cash positions...and evidently are in a wait and see mode to see if it is worth investing some of it in new capital investments.... Some are actually looking at doing that now... And of course the US trade and Federal deficits.
Does this all combine to portend a Recession or Depression delayed???
In spite of the fact that I have been a very vocal deflationist... I am not enamored to it. I'm that way right now because it will be impossible for the world to amortize its debts, public and private... and corporate.
However, the world economy is showing strong signs of growth and it may become sustainable for a period of time... meaning depression/recession delayed. I am willing to look at this as a possibility. For the next few months I am going to put half of my focus and research on the possible economic recovery of the US and Asia....and the participating commodities nations....
But, for the present I believe and expect to continue to believe that a depression, not just a recession is coming, but the issue would be: when is the thing due? 1, 2, 5 years? We definitely will have one because of all the overinvestment and malinvestment, and speculation...
But, we may see economic growth for a while and all the while the bubbles grow...with interest rates so low right now, speculation can continue for a while. But as I have said, if the US ten year treasury rises one percent, then I will be looking for serious fallout in the housing market and US consumer optimism. But, things may just carry on upward further if certain factors become evident.
The factors that would be necessary to see continued reasonably good US economic numbers are:
- A rise in personal income becomes evident
- Mortgage interest rates do not rise more than 1 pct
- There is not significant terror attack on any major economy
- Corporate profits continue to be healthy
- Evidence of significant corporate capital investment becomes apparent and not just anecdotal.
- No stock market or bond market crash in either Asia, or the US, and no currency crisis.
- No banking/derivatives crisis.
- There is continuing demand for US Treasuries
We may just see all of these things in the near future. If that happens, we will have a delay of the inevitable recession/depression. But there is going to be a price to pay, because the needed economic adjustments are delayed as well and will be larger when they do happen.
It really does not matter to me if this delay happened, even though I have said a depression is near. Really, it would be better for many of us to have this delayed as long as possible... And I am not a one tune guy; if things change, then I will change my view as well.
But at this point I still see a depression coming, but it may be later and not sooner.
Really, if you were to agree that all this mountain of debt worldwide cannot be amortized...and that the speculation monster I call Bubble 2, (in real estate, and financial instruments such as bonds and derivatives) that this monster will not go away till it dies a bad death somehow.. and the necessary economic adjustments will happen as they must at some point.
If there were to come a hyper inflation next, a delay of any serious economic crisis would allow you to buy more PM's. If there is a delay in a deflationary depression, you will have more time to buy... u guessed it... PM's... And of course if you are of a speculative mindset you can just have a ball right now!
It is hard to divine the length of this present bubble 2, a true interlinked worldwide monster bubble.... Of course the Kondratieff cycle says we're due in roughly 70 years from the 1930's. But that cycle allows for 10 to 15 years on either side... Also, there is no Kondratieff analog for a world economy as large and interlinked and fast and electronic as the one today... so perhaps the Kondratieff winter will be stretched further into the future by some factor....
Really, If the US was the driver of the 20th century world economy, as Britain was in the 19th, and now China, or rather Asia proper is becoming the driver of the 21st century world economy (driver in the sense that they are calling most of the shots)... the idea of a Kondratieff winter predicated on only the US driven economy may be a wrong thing to do. (By the way I do not base my thinking on depressions solely on the Kondratieff cycle).
Once again, this would be a paradigm shift from the US centric economy to an Asia centric one.... and so all the economic thinking should reflect this and deemphasize the US more and more over time... and I believe this is happening now, but paradigms die hard in the mind.... so this will just become more and more evident as time progresses until one day the world realizes, "Hey! its not about the US any more... the hell with THEM!"
Chris Laird, editor
www.prudentsquirrel.com
July 28, 2005
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