The Federal Reserve cut its growth forecast for the second half of 2012 and 2013 last week, raising concerns yet again about the potential for a "double-dip" recession. While some, notably the cycle watchers at ECRI, believe the U.S. economy is definitely heading for another recession (or already there), Gluskin Sheff's chief economist and strategist David Rosenberg goes a big step further.
"We are living in a modern-day depression," he declares.
This dramatic statement is based on several factors, including the record number of Americans living on Food Stamps — 46 million or 1-in-7 in 2011. Because these benefits are now given in the form of electronic debit cards, we don't have bread lines like in the 1930s, but they are there in virtual form. And that's just the most obvious form of government support for its struggling citizenry. (See: Marion Nestle on The (Big) Business of Food Stamps: "Here's Where the Profits Come In")
"Government transfers to the personal sector now makes up nearly one-fifth of total household income," Rosenberg writes. "Even Lyndon Johnson, architect of the 'Great Society', would blush at that."
In the accompanying video Rosenberg also cites:
Wealth Destruction: The Fed's recent report on the massive 40% drop in median household wealth from 2007-2010. (See: The American Dream Shrinks: Avg. Net Worth Falls 40% From 2007-2010)
The Housing Bust: Despite recent signs of stabilization, the national housing market remains depressed, with nearly 30% of mortgage holders under water. This is particularly troubling for Baby Boomers, who had viewed their homes as a major source of potential income for retirement but now wear them as a "ball and chain," Rosenberg quips.
Unemployment: As with housing, Rosenberg dismisses the job market's improvement in recent years. He cites the "real" unemployment rate — currently 14.8% -- and the fact the country is still down 5 million jobs from its 2007 peak.
While the economy has been growing for three years, the recovery is the worst in the post-war ear, he says. Growth is "pathetic" given the "gargantuan" support the federal government and Federal Reserve have provided, he declares, noting this is not a U.S.-only phenomenon.
"Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments."
While many shudder to think what the economy would look like without that support, Rosenberg says policymakers' attempting to "put a floor" under the economy only serve to "prolong the agony."
Judging by historical research on past debt deleveraging cycles, this 'modern-day depression' is only halfway done, Rosenberg says, and that's his glass half-FULL outlook.
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