Depression Special Report
Number 52 August 1, 2009 snippet
Current Economic Downturn Is Worst Since Great Depression
John Williams
Shadow Government Statistics
Published Aug 5, 2009
Extract published
on 321gold with kind permission of John Williams of ShadowStats.Com
OVERVIEW
U.S. Economy Is in a Multiple-Dip
Depression. The grand
benchmark revision of the national income accounts on July 31,
2009 confirmed that the U.S. economy is in its worst economic
contraction since the first downleg of the Great Depression,
which was a double-dip depression. The current economic downturn
increasingly will be referred to as a depression, and it is far
from over. There will be intermittent blips of new activity,
such as the current cash-for-clunkers automobile giveaway program
that appears to be generating a one-time spike in auto sales.
Yet, this downturn will continue to deteriorate, proving to be
extremely protracted, extremely deep and particularly nonresponsive
to traditional stimuli.
As discussed in recent writings,
the economy suffers from underlying structural problems tied
to consumer income, where households cannot keep up with inflation
and no longer can rely on excessive debt expansion for meeting
short-falls in maintaining living standards. The structural issues
are not being addressed meaningfully and cannot be addressed
without a significant shift in government economic and trade
policies, which under the best of circumstances still would drag
out economic woes for many years.
The current depression likely
will show multiple dips in business activity, as was seen during
the Great Depression and in the double-dip recession of the early-1980s.
I shall argue that the current downturn started at least a year
earlier than the December 2007 onset proclaimed by the National
Bureau of Economic Research (NBER), official arbiter of U.S.
recessions. The current depression is the second dip in a multiple-dip
downturn that started back in 1999, and it preceded and in fact
was the proximal trigger for the systemic solvency crisis that
rose to public view in August 2007. The ensuing systemic problems
did not cause the slowdown in business activity, but they exacerbated
it significantly.
While the current circumstance
should become recognized as a "depression," worse lies
ahead as the U.S. government's long-range insolvency and current
efforts at debasing the U.S. dollar trigger a hyperinflation
in the next five years. Risks for the onset of a hyperinflation
in the United States are particularly high during the next year.
As will be discussed in the soon-to-be-updated Hyperinflation
Special Report (see the existing April 2008 version for basic
background), the United States would be particularly hard hit
by such a circumstance. Unlike Zimbabwe, which has been able
to maintain some level of functioning commerce during its hyperinflation,
due to the backstop of an active black market in U.S. dollars,
the United States has no such backstop. Accordingly, a U.S. hyperinflation
likely would force cessation of regular commerce, triggering
a great depression of a magnitude never before seen in the United
States.
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John Williams
email: Contact_Form
website: http://www.shadowstats.com/
Walter J.
"John" Williams was born in 1949. He received an A.B. in Economics,
cum laude, from Dartmouth College in 1971, and was awarded a M.B.A.
from Dartmouth's Amos Tuck School of Business Administration in
1972, where he was named an Edward Tuck Scholar. During his career
as a consulting economist, John has worked with individuals as
well as Fortune 500 companies.
Formally known
as Walter J. Williams, my friends call me John. For more than
25 years, I have been a private consulting economist and, out
of necessity, had to become a specialist in government economic
reporting.
One of my early
clients was a large manufacturer of commercial airplanes, who
had developed an econometric model for predicting revenue passenger
miles. The level of revenue passenger miles was their primary
sales forecasting tool, and the model was heavily dependent on
the GNP (now GDP) as reported by the Department of Commerce. Suddenly,
their model stopped working, and they asked me if I could fix
it. I realized the GNP numbers were faulty, corrected them for
my client (official reporting was similarly revised a couple of
years later) and the model worked again, at least for a while,
until GNP methodological changes eventually made the underlying
data worthless.
That began a
lengthy process of exploring the history and nature of economic
reporting and in interviewing key people involved in the process
from the early days of government reporting through the present.
For a number of years I conducted surveys among business economists
as to the quality of government statistics (the vast majority
thought it was pretty bad), and my results led to front page stories
in the New York Times and Investors Business Daily, considerable
coverage in the broadcast media and a joint meeting with representatives
of all the government's statistical agencies. Despite minor changes
to the system, government reporting has deteriorated sharply in
the last decade or so. -- John Williams
321gold Ltd
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