The Great Recession never ended. I say that because the deep economic flaws that caused it were never corrected. All recovery efforts since merely clouded our eyes to the problems growing larger around us, even making them worse, and now we are going back into the belly of the Great Recession.
The recovery was all a prop, which is why I call it a fake recovery. In September, we entered the second part that I’ve long said would hit when the props were removed. (To be clear, I don’t mean predicted to happen in every year I’ve been writing on economics, but that I have said throughout those years would come when the Fed unwound its recovery efforts. Well, the Fed did, and we’re here!)
The needed, difficult and even painful correction of numerous economic flaws was repeatedly kicked further down the road all of those years by our cowardly politicians who did what an equally cowardly electorate wanted. The Fed gave us this extension in time by breathing new life into the bubbles that had collapsed during the Great Recession. It did that via its own artificial respiration — the hot air it breathed into the economy’s dead lungs — trillions of dollars created out of thin air. But none of that solved anything. Instead, it avoided solution.
We have heard our politicians admit over and over they were kicking the can down the road, rather than resolving the problems. They admitted it, and we let them get away with it because we the people (in aggregate, not meaning every particular individual) didn’t want to face the pain or true economic reconstruction, which would have to entail demolition of a badly flawed financial structure and with major legal changes.
In what ways am I saying we propped up the belly of the Great Recession so we never felt its gaping bottom because we didn’t want to deal with the pain of true recovery after difficult surgery? For one, we made the banks that were too big to fail far bigger, rather than breaking them down into smaller companies so they could never threaten us as they did, requiring bailouts as they did. We avoided reinstating the regulatory firewall between banking and stock markets known as Glass-Steagall. We even went back to deregulation of banks when we started tearing down some of the poorly constructed regulations we had created (like the Volker Rule) as a way of avoiding the reinstatement of far tougher Glass-Steagall regulations. We did almost everything wrong.
My central thesis has always been that, as soon as the Fed’s artificial life support (FedMed) was removed, we would go right back into the belly of the Great Recession to find out what is truly down there; and, now that the Fed’s life support was partially removed (as the Fed stopped its post-recovery tightening way ahead of schedule), we’ll discover the patient died years ago and only looked alive because of the artificial life support, but has never been healed.
The cancer that remains
- The banks are bigger than they have ever been;
- they are just as full of rubbish derivatives;
- they have, again, offloaded their worst loans to Fannie Mae and Freddie Mac;
- stocks are more overinflated in value against real earnings and not just tax-disguised earnings;
- stated earnings were improved mostly by reducing the number of shares they are distributed to, not by improving profit margins;
- corporations used almost none of the Fed’s life support to capitalize businesses, develop new products and new markets, but gave it all back to stock holders in dividends and buybacks;
- the middle class grew slightly weaker the entire time of the Fed’s fake recovery while the top 10% grew vastly wealthier, increasing the gap between the rich and the rest and, thereby, increasing social tensions that will erupt over the years ahead (as they already did with Trump’s election victory) in ways that will further tear apart the nation’s (and the world’s) tectonic political plates;
- the diminishment of the middle class over the course of the “recovery” period has permanently damaged the once-great consumer market that defined and drove the US economy for decades, helping to support all economies in the world, while the self-correction for this rich/poor gap is that the rich producers have fewer and fewer consumers who can spend on their products;
- meanwhile the concurrent rise in consumer debt means consumers have less elasticity in their spending, so they cannot offset their moribund income growth by taking out more debt;
- and the debt balloons that were overinflated in consumer credit, mortgage finance, corporate finance, and government finance will deflate or even implode now that the money supply that inflated them has been partially removed.
And that’s my short list.
In support of my debt statements above, here are some stats that I read right after writing all of that: