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Great Depression Online Archive Issue:

Second Stimulus and the Fantastic Cat's Meow

Great Depression Online
Long Beach, CA
August 31, 2010

Inside This Issue You Will Discover…

*** Depression, Not Recession
*** Out of Ideas
*** Second Stimulus and the Fantastic Cat’s Meow
*** And More

Depression, Not Recession

According to David Rosenberg the economy’s caught in depression, not recession.  We think he’s on to something.  CNBC reports…

“Positive gross domestic product readings and other mildly hopeful signs are masking an ugly truth: The US economy is in a 1930s-style Depression, Gluskin Sheff economist David Rosenberg said Tuesday.

“Writing in his daily briefing to investors, Rosenberg said the Great Depression also had its high points, with a series of positive GDP reports and sharp stock market gains.

“But then as now, those signs of recovery were unsustainable and only provided a false sense of stability, said Rosenberg.

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Rosenberg calls current economic conditions ‘a depression, and not just some garden-variety recession,’ and notes that any good news both during the initial 1929-33 recession and the one that began in 2008 triggered ‘euphoric response.’

“The 1929-33 recession saw six quarterly bounces in GDP with an average gain of 8 percent, sending the stock market to a 50 percent rally in early 1930 as investors thought the worst had passed.

“‘False premise,’ Rosenberg said.  ‘And guess what?  We may well be reliving history here.  If you’re keeping score, we have recorded four quarterly advances in real GDP, and the average is only 3 percent.’”

In short, between 1929 and 1933 the U.S. economy experienced periods of broader more robust growth than the economy has since late 2007.

Out of Ideas

To long time readers of the GDO, Rosenberg’s assessment comes as no surprise.  We’ve been calling this a depression for so long now we must be fools.  What’s more, we were so convinced the recovery was a fraud we missed out on an epic bear market bounce.  We buried our heads in the sand and called it the mother of all suckers rallies.

People pointed their fingers at us and laughed.  Others called us names.  Some even unsubscribed to our newsletter.

But now, even after the government spent billions of dollars it didn’t have to produce a slew of signs that say Project Funded by the American Recovery and Reinvestment Act, something has slipped.

While somewhere, some sign manufacturer’s gotten fat and happy off the government bonanza, for the rest of us, what did the stimulus really stimulate…aside from Portland cement production?

One day we’re told green shoots of recovery are taking root, that soon the whole landscape will be covered in molasses, and the next day the economy’s tortured by billions of hornets in its undershorts.  No one seems to know just what is happening.

You see, the smart and saucy fellows of the brain trust are out of ideas…except, of course, to double down on the master plan – more government spending.  Here’s what we mean…

Second Stimulus and the Fantastic Cat’s Meow

Take one Laura Tyson.  We’ve never met the woman.  In fact, until her OpEd was published in the New York Times over the weekend we’d never heard of her.  But after reading her call for a second stimulus we were overcome with horror when we discovered she’s on the President’s Economic Recovery Advisory Board. 

Tyson seems to think more stimulus would be just the cat’s meow…

“Two forms of spending with the biggest and quickest bang for the buck are unemployment benefits and aid to state governments.  The federal government should pledge generous financing increases for both programs through 2011.

“But can the government afford this additional spending?  The answer is yes.  Despite the large federal deficit, global savers, including savings-hungry American households, are snapping up United States government securities at very low interest rates.”

“Over the next few years, there is little risk that federal deficits will crowd out private investment or precipitate a crisis of confidence in the American government, a spike in American interest rates or a sudden drop in the dollar.”

Perhaps Tyson is right.  Perhaps the U.S. Government can borrow and spend money forever and ever.  Perhaps we live in a world without consequences where all mistakes can be papered over with the strike of a Presidential pen.

Yet somehow this notion seems a little too fantastic.  And even if it were true, what good would more stimulus do anyway?  Aside from a boatload of signs…not much.

Sincerely,

M.N. Gordon
Great Depression Online

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