Physiognomy of Economic Depression - Eric Janszen

[TheServant]

Re: Physiognomy of Economic Depression - Eric Janszen

Some people still feel wealthy, despite losing big in the stock market and their home values. But I get the idea that some of the spending is just habit and not something they really feel confident about. Its the American pastime and gosh darn it, what do you expect us to do?

I think you hit upon an important point. A majority of people, particularly those 40 years old and younger?, seem to truly think that they haven't really taken a loss in their retirement account or house. They see it as a "temporary" phenomenon, that will correct itself by the end of the year.

Even those who have "seen the light" and are seriously asking my opinion on how long this mess might go on are asking in the context of "should I get back in the stock market now or later this year?" or "should I buy my house this year or next?".

[Tybee Island]

Re: Physiognomy of Economic Depression - Eric Janszen

EJ's thoughts here get to the core of something that has troubled me over the past several months:

"No two events of this type are alike. The similarities and differences show up in the data. What impresses us most is how unimpressed many appear to be about the seriousness of this depression. They ask why many restaurants are still booked up and why many malls are still busy, even if apparently the shoppers in them are buying less. Where are soup lines? Where is the high crime rate?

We remind them that we are only one year in to a multi-year process.

The average man or woman does not change his or her behavior until years after an economy has changed around them. No one likes change, even positive change but especially negative change. The tendency is to ignore change as long as possible, and hope it goes away and "normalcy" returns. Meanwhile, change goes on.

This depression is transforming the world around us. If you don't think so, I encourage you to take a closer look. On the surface much appears to be the same as, say, two years ago, but under the surface much has changed and is changing--shifting relationships among friends, families, and colleagues. Changes in circumstances affect the range of choices people can make. They make different decisions than before. Different decisions produce different results. Those results impact someone else's decisions. Collections of decisions combine in unexpected ways. One of the most obvious is that consumers buy less as a sustained reduction income and wealth influences purchasing decisions. As they do, after a lag, they will find that they have less to buy because retailers, wholesalers, and manufacturers eventually respond by consolidating or going out of business."

The recent cries of the NAR to relax appraisal standards because it is hampering the "housing recovery" yet it was the flagrant corruption between appraisers and mortgage brokers that greased the skids of the bubble and was cited as a target by state attorney generals as an abuse to be rectified immediately to prevent a bubble from happening again less than a year ago.

Barney Frank's forcing of 125% LTV loans by Freddie and Fannie that again just returns us to bubble making and severely impairs borrowers in an environment of falling housing values, yet somehow is the perceived panacea to return us to how things were.

Helen Thomas challenging the administration for "staging the news" for pre-screening questions and participants to somehow create a Kabuki Theater of news events for public consumption.

It seems that "hope" and "prayer" have become the means to assuage our predicament and never-mind the compelling facts and gross economic distortions occurring that will forever change the way we live.

It is clear to me that so many do not have the right internal wiring to grasp the truth and accept the change thrust upon them. They prefer the untrue and purposely obfuscated government generated reports from the BLS and others.

Why do we trust the Fed data that is so frequently the basis of so many charts here and elsewhere. Why is it that we believe this information? If we know the Government has purposely used inaccurate CPI numbers to calculate GDP, then we know that it has been overstated for years and we have been a far less productive nation for decades and our creditors have all been duped into lending us their savings.

I sense that many will wake up from their self induced fog and will move even closer to those that promise them a better future and offer a variety of potions to soothe their fears rather than accept the new reality.

Hedge Fund managers will be replaced by evangelicals creating new churches offering a better life be it here and now or at the very least in the thereafter.

[don]

Re: Physiognomy of Economic Depression - Eric Janszen

“As long as people are saving or paying down their debts, this economy cannot recover. People must begin borrowing and spending again.”


The People's FIRE Daily

[metalman]

Re: Physiognomy of Economic Depression - Eric Janszen

“As long as people are saving or paying down their debts, this economy cannot recover. People must begin borrowing and spending again.”


The People's FIRE Daily

"...we will charge the people to keep their money in the bank..."

[bart]

Re: Physiognomy of Economic Depression - Eric Janszen

"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services."

-- Ben Bernanke, the current (2009) Chairman of the Board of Governors of the Federal Reserve Bank of the United States, in a speech he made on November 21, 2002 before the National Economists Club in Washington, D.C.

[sishya]

Re: Physiognomy of Economic Depression - Eric Janszen

santafe2,

Thanks for the feedback. Better now?

The unemployed is absolute numbers of the left vertical axis. I don't think it correctly takes into account the increase in population. So I think it should be % of unemployed could be better measure. I think the unemployment in this recession is still not as bad as early 1980's.

[bart]

Re: Physiognomy of Economic Depression - Eric Janszen

The unemployed is absolute numbers of the left vertical axis. I don't think it correctly takes into account the increase in population. So I think it should be % of unemployed could be better measure. I think the unemployment in this recession is still not as bad as early 1980's.

Here are unemployment claims as a percent of the total civilian work force which does somewhat show what you're talking about.






But actual unemployment stats show a very different picture, especially when one takes definition changes and the idiotic birth/death model into account. They are based on workforce numbers too.

[mickeyc21]

Re: Physiognomy of Economic Depression - Eric Janszen

I've met two people playing golf in the last two days (on LA's depression era public works courses) who are unemployed or significantly under-employed.

Both had "real" jobs - not a given in LA at all. One was a lawyer whose firm has gone through two rounds of lay offs. He said he never even considered it possible he would be unemployed as lawyers do fine in recessions. The other guy installed air conditioning and said at this time of year he was normally working huge hours and the demand for his time was always more than he was capable of providing. He was a Korean guy living in the Koreatown section of LA and was strongly considering leaving the state.

What was unusual about the two interactions was that they both wanted to discuss how bad things were for them. This is new. Up until now people have hinted that things aren't perfect but have been unwilling to actually say it. The lawyer told me "I'm on the edge of complete financial disaster".

On an entirely different topic: to the people buying new cars as inflation hedges or because of fears of shortages, WTF are you thinking?! If you can afford a new car by all means knock yourself out but there is no reason to come up with bizarre justifications.

[Quincy K]

Re: Physiognomy of Economic Depression - Eric Janszen

I've met two people playing golf in the last two days (on LA's depression era public works courses) who are unemployed or significantly under-employed.

Both had "real" jobs - not a given in LA at all. One was a lawyer whose firm has gone through two rounds of lay offs. He said he never even considered it possible he would be unemployed as lawyers do fine in recessions. The other guy installed air conditioning and said at this time of year he was normally working huge hours and the demand for his time was always more than he was capable of providing. He was a Korean guy living in the Koreatown section of LA and was strongly considering leaving the state.

What was unusual about the two interactions was that they both wanted to discuss how bad things were for them. This is new. Up until now people have hinted that things aren't perfect but have been unwilling to actually say it. The lawyer told me "I'm on the edge of complete financial disaster".

On an entirely different topic: to the people buying new cars as inflation hedges or because of fears of shortages, WTF are you thinking?! If you can afford a new car by all means knock yourself out but there is no reason to come up with bizarre justifications.

I have heard similar stories regarding attorneys. I believe that one compelling reason is the high possibility of never being paid and the tremendous up-front costs involved. Just think of all those cases against Chrysler and GM that are now worthless because of the BK. Also, how many people are now just insuring themselves to the legal limit and nothing more?

In a bankrupt society, the need for attorneys greatly diminishes.

[flintlock]

Re: Physiognomy of Economic Depression - Eric Janszen

We have 2500 sq ft "starter homes" around here. What people think they need these days really shot up in the housing boom.

I used to wire new homes back in the 80s. I remember thinking, "Wow, look at these fancy rich folks homes" while working on them. Now I go back to the same homes 25 years later and they are 2300 sq feet and look like crap compared to the new homes 20 somethings are buying right out of college with the money their parents gave them as a graduation present.

[flintlock]

Re: Physiognomy of Economic Depression - Eric Janszen

My parents totally ignored the warnings last year from my brother and I about the impending stock crash. Lost 40%+ of their retirement, plus a large chunk of their home value, which while a modest home, sits between a $3.7 and a $7 million home, so potentially was worth a lot.( they've been there 25 years) They of course had to admit we were right and that my Uncle the stockbroker was wrong. Lesson learned right?


I asked my mom recently, "Are you hedged against inflation?" She replied " What's hedge mean?" And yes, my uncle still manages their money. :rolleyes: Dad is convinced things will snap back by the fall.

[we_are_toast]

Re: Physiognomy of Economic Depression - Eric Janszen

Here are unemployment claims as a percent of the total civilian work force which does somewhat show what you're talking about.

As always, very nice graphs Bart.

I'm not sure how you chose the scales for the data, but using these scales, one thing that sticks out is the degree to which the current Continued claims exceeds the initial claims. It could simply be the result of the scales chosen, or maybe it really does mean something.

Wildly speculating; maybe it indicates the broadness of the depression. These numbers reflect job losses, but don't indicate anything about job creation. During normal business cycles or sector shifts in the economy it seems there's a much better chance to find a job in a different sector, or the need to rebuild inventories comes fast enough to prevent continued claims from exceeding initial claims on your graph. Maybe this steep crossover shows how deep and broad the depression is and that there are simply no new jobs to be found anywhere.

[GRG55]

Re: Physiognomy of Economic Depression - Eric Janszen

I love the book, but ever notice that she lives in a house that is around 3000 sqf? That is much larger than what I or any of my friends have, and I work from home.

It's the "American way", I suppose...

I'm building a home that is quite a bit smaller than that, and I think is still too big. But I rationalize it as we are trying to make it somewhat wheelchair compatible, which means wider halls & doors, an enlarged bathroom and so forth.

But my wife used quite a few of the learnings from Susanka's books in the planning. In part this was because of how much we enjoyed living in our last home, a 70-year old inner-city Craftsman that we renovated and restored as faithfully as we could to the period [You haven't really lived until you find yourself spending holidays searching through architectural salvage yards as far afield as Portland, Oregon trying to match the original door hardware in the home ]. Although this was long before we discovered anything much that had been published on such things, we only began to really understand why we so much appreciated the spaces in that home after we read Susanka [and another important book*] and realized how much of this stuff was routine and typical design in many homes built decades ago.

* A Pattern Language; Christopher Alexander, Sara Ishikawa and Murray Silverstein, Oxford University Press, New York, 1977.

[GRG55]

Re: Physiognomy of Economic Depression - Eric Janszen

...This depression is transforming the world around us. If you don't think so, I encourage you to take a closer look. On the surface much appears to be the same as, say, two years ago, but under the surface much has changed and is changing--shifting relationships among friends, families, and colleagues. Changes in circumstances affect the range of choices people can make. They make different decisions than before. Different decisions produce different results. Those results impact someone else's decisions. Collections of decisions combine in unexpected ways. One of the most obvious is that consumers buy less as a sustained reduction income and wealth influences purchasing decisions. As they do, after a lag, they will find that they have less to buy because retailers, wholesalers, and manufacturers eventually respond by consolidating or going out of business.

The economy has changed, behavior follows...

From Gluskin Sheff's David Rosenberg [formerly @ Merrill]:

...Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy.

Indeed, by our estimates, there is up to another $5 trillion of household debt that has to be eliminated in coming years and that process is going to require that consumers go on a semi-permanent spending diet. Companies see this, which is why they are not just downsizing their payroll, but have also cut the workweek to a record low of 33.1 hours. Fewer people are working and those that are still working have seen their hours dramatically cut this cycle...

...The op-ed column by Bob Herbert in the Saturday New York Times really hit the nail on the head on this whole ‘green shoot’ issue — how can there be ‘green shoots’ when the labour market is deteriorating at such a rapid clip fully nine months after the Lehman collapse. The full brunt of the credit collapse may be behind us, but please, the other two shocks, namely deflating labour markets and deflating home prices, are very much still front and centre...

...As we said above, companies have permanently reduced the size of their operations with the knowledge of how much credit is going to be available to them in the future to survive because the financial sector is going to be operating under more supervision and regulation and leverage ratios, which means the funds available to support a given level of GDP is going to be measurably smaller than what we had become accustomed to during the secular credit expansion, which really began in the mid-1980s, only to turn parabolic during the ‘ownership society’ era of 2002 to 2007.

What makes this cycle “different” is that three-quarters of the workers that were fired over the last year were let go on a permanent, not a temporary basis. A record 53% of the unemployed today are workers who were displaced permanently — not just temporarily because of the vagaries of the traditional business cycle. This means that these jobs are not going to be coming back that quickly, if at all, when the economy does in fact begin to make the transition to the next expansion phase. In turn, this implies that any expansion phase is going to be extremely fragile and susceptible to periodic setbacks...

[Slimprofits]

Re: Physiognomy of Economic Depression - Eric Janszen

Sure, we still hear "green shoots" sold hard, as if the load of debt that holds the economy back can be wished away, yet we also see more skepticism and less willingness to accept assertions by industry analysts and economists at face value. Reports on economic data still lack historical perspective, but at least most don’t read like press releases anymore, yet readers are still being set up for major disappointment.

What channels are you all watching? The tone of reporting has not changed by one iota, even since the Lehman crash.