New Deal democrat's blog

The Great Depression, Part 3

In Part I of this series, Bonddad and I looked at the years 1929 - 1933. These years saw a decline of 25% in the chained GDP figures; a failure of 20% of commercial banks, a drop in personal income from $90 billion to $50 billion and a drop in the level of industrial production from 60 to 30. In
part II
we looked at the years 1934 - 1940, where we saw that growth returned to 1929 levels in 1937, although this was lowered by the recession of 1938. By 1939 GDP was again increasing. In this article, we will look at what happened statistically and practically during the years of 1934 - 1938.

The Great Depression, Part 2

In Part I of this series, Bonddad and I looked at the years 1929 - 1933. These years saw a decline of 25% in the chained GDP figures; a failure of 20% of commercial banks, a drop in personal income from $90 billion to $50 billion and a drop in the level of industrial production from 60 to 30. The contraction was the most severe of the last 100 years. Let's take a look at years 1934 - 1940 to see how the economy performed.

''At the end of February, we were a con-geries of disorderly panicstricken mobs and factions. In the hundred days from March to June we became again an organized nation confident of our power to provide for our own security and to control our own destiny.'' - Walter Lippmann, 1933

The Hundred Days were only the start of a process that ended by transforming American society.

The Great Depression, Part 1

This article is the first in a series on the Great Depression. I am collaborating on this series with Bonddad. The purpose of this series is simply to talk about the Great Depression. The reason for writing this article is the emergence of the "FDR made the Depression worse" talking point from the Right Wing Noise Machine -- econ division. While none of the stories using this line have an facts to back them up -- no charts, no graphs no data -- they continue to spew this talking point. So, let's get some data -- as in facts -- to see that actually happened.

Welcome Huffington Post Readers

I'd like to thank my buddy Bonddad, with whom I am collaborating on "The Great Depression" series, for giving you a link over here, where I typically post.

At the moment I am absorbed with finishing that series, but I wanted to give you a flavor for the type of analysis you can expect from me. My nom de blog was actually inspired by the Schlesinger history quoted extensively in part 1 of the "Great Depression" series, and at the time I was very much surprised to find that it was still availalble (which is sad, no?).

How do we prevent another Bust-out?

Herewith from the Encyclopedia of Credit:

The intentional act of driving a company into insolvency in order to extract as much of the assets as possible form the company for the use of the operators.

Respite R.I.P.!

If you've been reading me this year, you know I have made a few highly contrarian calls that turned out to be correct. Most importantly, that after picking up early in the year, demand destruction during the recession that I already believed was happening, would cause inflation to fade strongly later in the year. As a corollary to that, when others were counting the days until $130 a barrel oil would hit $200, I called it a top, and started a Countdown to $100 Oil that turned out to be too tame! I also was among the first on the blogosphere to note that China's bubble was bursting and that the recession would go global, and that the markets feared deflation.

But there is one call I made over a year ago which now can be given a well-deserved burial: the notion that there would be a "respite" in the ongoing "slow motion bust" at some point before the end of 2008.

Another indicator of the end of deflationary recessions

It is clear that we are in an economic environment that we have not seen in over half a century. Statistics that have been generated only since World War 2 cover a period of time which was marked almost exclusively by continuous inflation. The last deflationary recession was in 1949-50.

As a result, many measures that accurately forecast changes in the economy during an inflationary period (for example, a positive sloping yield curve) may not apply now. Thus, I have been looking for statistical measures or comparisons that have data back to 1929, and appear to have given accurate readings even during deflationary periods. In general, it appears that the Kasriel indicator of positive yield curve + M1 money supply consistently growing in an absolute sense, and also faster than inflation did accurately coincide with periods of growth even during the Great Depression. Additionally, M2 money supply growing faster than commercial bank loans also coincided with the onset of recovery even prior to WW2. I have also looked at the role of an increase in the rate of real residential investment compared with GDP as a harbinger of recovery.

Today I will look at a fourth indicator.

Black September and home sales

A few weeks ago I diaried that, while Housing is nowhere near bottoming, nevertheless there was substantial evidence that the decline may be shifting from the vertical, "guillotine" phase to the more bumpy "sandpaper" phase. I wrote:

In the case of the housing market crash, how would the change from "guillotine" to "sandpaper" look? In the past, Calculated Risk has reckoned that the inflection point between advancing and declining house prices was at about 7 months' supply. So I submit that first of all, we would see a decline in months' supply of houses for sale towards that mark, as sales started to outstrip new house starts and existing homes being offered for sale. In order to accomplish that, you would first need to see that new home building has declined to a level where sales exceed new starts. You would also want to see existing home sales increasing on a year-over-year basis. In other words, the volume of new home starts would transition from guillotine to sandpaper first, well before prices themselves would begin the transition.

And Guess what? All of those conditions have either started or appear to be on the cusp of starting.

Exactly WHY are we bailing out Cerberus Capital Management?

Last week President Bush announced that you and I are loaning Chrysler $4 Billion. I have a simple question: exactly WHY are we bailing out a profitable, well-connected private company, namely, the company that owns Chrysler, Cerberus Capital Management?

Even when Cerberus Capital Management bought Chrysler in July 2007, it was noted that

The sale of Chrysler (DCX) to private equity giant Cerberus Capital Management hasn't gone through yet, but Standard & Poor's and Moody's Investors Service (MCO) have already rated the soon-to-be independent carmaker's debt as "junk," or below investment grade.

That's not all. Standard & Poor's ratings essentially say that Chrysler could be a recession away from bankruptcy.