Global Economic Crisis

Official data just released reveals that the United Kingdom has experienced its worst recession since quarterly economic output reports were first tabulated in1955. In Q2 of 2020 the UK’s GDP contracted by negative 20.4%. This rate of economic contraction was driven by enforced lockdowns of much of the British economy in the wake of Covid-19, which has stricken the nation  more than other European economies.

The calamitous Q2 economic data means that the UK is experiencing the worst degree of economic  collapse of any major developed economy. As bad as the economic news is, there is reason to believe it will get worse. Even the UK government admits that unemployment, already at record levels, will significantly increase in the months ahead. The government has warned of hundreds of thousands of additional jobs that will cease to exists as the coronavirus pandemic continues to paralyze the economy, leading to an unprecedented level of demand destruction.

The dire economic news from  the UK is reflective of what is transpiring throughout the world. Despite continued talk by many pundits and government officials in leading economies about the likely V-shaped recovery  of economic growth, based on  optimistic forecasts of early vaccine development and improved Covid-19 therapeutics, the hard data offers  increasing evidence of a Global Economic Crisis, in effect the Great Depression of the 21st century.

The U.S. Bureau of Economic Analysis released its report on GDP growth for Q 1 of 2020. The numbers were dismal, negative 4.8 percent. Though this was the worst decline experienced by the American economy since 2008, at the height of the Global Financial crisis, it was merely a harbinger of much worse to come. It must be recognized that the impact of the demand destruction inflicted by the Covid-19 pandemic only began to emerge in the last two weeks of Q1.

A more telling pointer of whist to expect in Q2 was the latest jobless claims report issued by the U.S. Labor Department. According  to the report, an additional  3.8 million American workers filed unemployment claims. Cumulatively, this means that during the past 6-weeks more than  30 million U.S. workers have filed jobless claims. In other words, over a period of only six weeks, the U.S. unemployment rate has skyrocketed from 3.5 percent to more than 18 percent. This is an unprecedented rate of accelerated employment contraction. Not even during the Great Depression has the American economy witnessed such appalling statistics.

The collapse of the job market in the United States brings with it a radical contraction in aggregate demand. This would point to the Q2 report showing that, at a minimum, the nation’s GDP will  shrink by more than 20 percent, and possibly as high as 40 percent.

The collapse of the world’s largest economy at unprecedented velocity is only a reflection of a global economic implosion. The Global Economic Crisis will linger after the health crisis  created by the coronavirus has receded. This is indeed the Great Depression of the 21st century.

In a startling forecast published in Project Syndicate entitled, “The Coming Greater Depression of the 1920s,” NYU economics professor Nouriel Roubini outlines ten negative trends that ensure the inevitability of a full-fledge economic depression sometime during the current decade. Professor Roubini achieved notoriety for predicting with uncanny accuracy the Global Financial Crisis of 2007-09.

Roubini points out that even prior to the coronavirus pandemic there were downside trends involving structural issues left over from the financial crisis of 2007-09, coupled with deglobalization and the balkanization of supply chains, decoupling between China and the United States and other geopolitical rivalries, and environmental factors  such as climate change. What the COVID-19 pandemic has done is accelerate and magnify those negative trends, which already  have created a perfect storm, leading to a “greater depression” later on in the present decade.

The current economic crisis created by the coronavirus will bring about a severe, U shaped recession, which moist economists now believe will exceed the 2007-09 Global Financial Crisis in  severity. There will be no V shaped recovery, in Roubini’s view. The most chilling aspect of Professor Roubini’s forecast is that even if the COVID-19 enabled recession eventually has a U-shaped recovery, it will only be temporary, with a 21st century Great Depression to follow in its wake, making the 1920s  a time of Global Economic Crisis, with prospects of recovery being differed until the 1930s, all predicated on new technologies and the emergence of more competent political leadership.

The U.S. Labor Department released its worst weekly jobs report, demonstrating that the Covid-19 pandemic has unleashed a full-fledged global economic crisis more severe than the financial crisis of 2007-09, and increasingly likely to exceed the Great Depression of the 1930s in its impact.

Since the Labor Department began issuing its weekly jobless claims report in 1967, the previous record for unemployment filings was 695,000 in 1982. The expectation was that the report released today would be very bad, most estimates being in the range of one million. The actual number: 3.3 million. This is worse than devastating; it is a clear sign that we are beyond a severe global recession, and are almost certainly heading into a global economic depression.

As this is only the initial phase of the impact of the coronavirus induced unemployment, the figures just released by the Labor Department suggests the unemployment rate will likely exceed 20 %, possibly even 30 percent. It is not just the U.S. shedding jobs at an unprecedented rate; the entire global economy is being struck by a tsunami of jobs destruction. This economic catastrophe will inevitably lead to a level of severe social and political strife not experienced globally since the 1930s.

Perhaps the most insightful economist to watch as the Global Economic Crisis unleashed by the Covid-19 pandemic rages is Nouriel Roubini, economics professor at New York University. In the months leading up to the 2008 global financial crisis , his predictions were eerily accurate. Now he has published an essay on what is unfolding regarding the Coronavirus pandemic induced economic disaster on the Project Syndicate website, entitled ominously “A Greater Depression?”

I urge ever sensible person to read it; the link is: https://www.project-syndicate.org/commentary/coronavirus-greater-great-depression-by-nouriel-roubini-2020-03?

Among the points Professor Roubini makes is that the collapse in stock markets has greatly exceed in velocity not only what occurred during the global financial crisis of 2008, but also during the Great Depression during the 1930s. While other prognosticators are predicting a U or L or worst case V trajectory and recovery, Roubini views such happy talk as delusional. He sees every indicator as pointing to a global economy in unrestrained free fall. The hope for an eventual recovery lies in a host of unconventional monetary and fiscal measures. However, as he observes, there are a host of probable white swan events and negative political realities that will likely obstruct the unprecedented policymaking the now full-fledged Global Economic Crisis requires.

The imposed shutdown of much of the world’s economy, all being done in a frantic effort to contain the rapidly spreading coronavirus, has set the stage for possibly the worst contraction in economic history. JP Morgan has now issued its first projection on the impact of Covid-19 on economic growth. They forecast in Q1 and Q2 of this year combined contraction of negative 14 percent in the United States, and negative 22 % in the Eurozone. This rate of decline exceeds the initial period of the 2008 Global Financial Crisis and 1929 stock market crash that unleashed the Great Depression.

What is unique about the 2020 Global Economic Crisis is that is being initiated by self-imposed demand destruction predicated on a public health emergency. We are entering uncharted territory.

The  core supporters of President Donald Trump maintain that despite the at times troublesome tweets and verbal coarseness, this is trivial compared to the tangible economic results achieved during the first year-and-a-half of his administration. The relatively high GDP growth rates and low official unemployment rates are heralded by his adherents as signposts on the road of making America “great again.”

I am not as sanguine. In  the first place, based on the pattern of economic cycles in the last hundred years, the American economy is overdue for a severe  recession. It has not happened yet due to the monetary alchemy of the U.S. Federal Reserve, in lockstep with other central banks across the globe.

Secondly, and more importantly, Trump has now unleashed a trade war. It is the economic equivalent of an economic world war, as President Trump is targeting friend and foe alike;   China, Canada   and the European Union have been hit with sizeable tariffs; these countries have responded with retaliatory tariffs, matching America’s in scope and severity.

Many scholars of the Great Depression have argued that this worldwide economic calamity was not driven by the Wall Street crash of 1929, buy by a massive wave of protectionism in the early 1930s, characterized by a wave of tariffs and quotas.

Has President Donald Trump opened a Pandora’s box that may unleash a massive global economic crisis?

he latest numbers from the Bureau of Labor Statistics indicate that the United States supposedly “created” 115,00 jobs in April. Not even President Obama’s supporters are cheering loudly over this figure, as it indicates a slowing down of job creation-and that is if the number is accurate. As many know, BLS jobs numbers are usually a mathematical abstraction based  on assumptions and inferences, not hard numbers. In any event, if there were 115,000 jobs created in April, that is below the approximately 200,000 new jobs that must be created in the U.S each month in order to keep up with population growth. In other words, 115,000 new jobs in April would mean that the American unemployment rate would increase.

But in April, again according to the BLS, the U.S. unemployment rate did not increase; in fact it “declined” to 8.1 percent. If job creation is lagging behind the expected entry of new workers into the U.S. labor market, how did the magicians at the Bureau of Labor Statistics construct a reduction in unemployment?  Very simple. There are so many discouraged unemployed workers in the United States, they are simply giving up and “leaving” the labor force. In many cases, actually, the BLS is exercising initiative and assuming that a certain proportion of the unemployed simply drop out of the workforce each month.

The real meaning of the April jobs number is that the participation of age-eligible Americans in the labor force -both working and unemployed-is at a 30 year low. How is that synonymous with an economic recovery?

In point of fact, a staggeringly high rate of unemployment, made artificially lower by not counting those long-term unemployed workers as being part of the active labor force, is by no means characteristic of a post-recessionary economic recovery. What has recovered since the onset of the global financial and economic crisis in 2008 are equity prices, which have regained almost all of their losses. However, that recovery is not due to increased consumer demand stemming from the reentry into the workforce of formerly unemployed workers. Rather, stock prices regained most of their losses and have enjoyed a recovery due almost entirely to the loose monetary policies of the Federal Reserve under the tutelage of its chairman, Ben Bernanke.

In contrast with the policies of President Franklin Roosevelt during America’s Great Depression of the 1930s, which focused on facilitating job creation, the policymakers in the U.S. have focused their efforts on reinflating equity prices through quantitative easing (money printing) and offering banks (including investment banks) historically low interest rates, in effect free money. Perhaps sooner than we can imagine, history will render its verdict on this policy of neglecting a recovery in the labor market in favor of reinflating the stock market.

Nobel Prize winning economist Paul Krugman, in his recent column, has declared that the crisis in the global economy is now a depression.  Since the onset of the global economic crisis, policymakers and media pundits have resisted using the “D” word, instead preferring terms such as the “Great Recession.” However, this is what Paul Krugman wrote in his  December 11, 2011 New York Times column:

“ It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege. .. Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained.”

Krugman points out in his piece that the economic disaster now unfolding in Europe threatens a resurgence of anti-democratic, populist authoritarianism of the type that infected European civilization during the Great Depression of the 1930s.Of course, the same dangers also lurk in the United States.

In my book, “Global Economic Forecast 2010-2015: Recession Into Depression,” I predicted in 2009 that the policy responses following the collapse of Lehman Brothers in 2008 would not only fail to resolve the global financial and economic crisis; they would create a sovereign debt contagion that would transform the recession into a depression.  Paul Krugman has confirmed the validity of my forecast made in 2009.

In his closing observation, Paul Krugman offers an ominous warning. After describing how Hungary, one of the new democracies in Eastern Europe, is receding into authoritarian rule as its politics become more extremist, all due to the economic crisis in Europe, Krugman writes about the Eurozone political leaders,  “they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.”

It appears that the global economic crisis, and Eurozone debt crisis, are increasingly becoming a political crisis.

WALL STREET POLICE: GLOBAL ECONOMIC CRISIS

Officer Larry of the NYPD is on his way to Zuccotti Park in lower Manhattan to arrest peaceful protesters involved with the Occupy Wall Street movement. Being a public spirited member of the New York Police Department, Officer Larry does remind us that there is a global economic crisis underway that rivals the Great Depression of the 1930s.

The FDIC once again did its Friday Night below-the-radar exercise; shutting down insolvent banks while Americans and their news media were in low gear or distracted. This time, five more banks were shuttered, while the U.S. media overdosed on coverage of the wedding of the daughter of former president Bill Clinton.

With the FDIC closing of 5 banks in Oregon, Washington,  Florida and Georgia, the total for the first 7 months of 2010 stands at 108 failed institutions. This compares with a mere 69 at the same point last year. And 2009 was supposedly one of the worst years ever for bank closings in the United States since the Great Depression of the 1930s.

Despite claims by U.S. economic policymakers that the American banking crisis was “cured” by the U.S. Treasury and Federal Reserve bailouts of the nation’s financial industry, there is no doubt that FDIC bank closings will set a record in 2010, eclipsing the already dismal figures for 2009.

In my book, “Global Economic Forecast 2010-2015: Recession Into Depression,”  I project a severe deterioration in the U.S. banking sector during the latter part of 2011. The accelerating pace of FDIC bank closings, combined with the  continuing global economic crisis and  indications of a double dip recession, would seem to provide growing validation of my prediction.