Is It Depression Yet?

As we start moving into summer I thought it might be interesting to take a look at some economic predictions made way back in 2007 by an “informed” opinionator over at Sustainable Living’s Natural Hub, a Q&A piece entitled Timing of a depression triggered by high oil prices.

An Overview of unfolding recession as the oil economy fades was published in 2006 explaining the various factors that would mark a worldwide recession due to increasing oil prices. Some of its indicators have long since come and gone, others have been with us for years already, and some of the predictions have come true in these last few months. For those of us living in the real world, recession and ‘stagflation’ have been facts of life for years despite the mainstream news media’s reluctance to actually use the word when reporting on where speculators have taken futures on oil and food supplies lately. They won’t use the ‘D’ word either [depression], but here’s a list of signs that it’s already upon us.

Sign 1. “For there to be a deep recession, there first has to be a credit bubble – a high level of personal indebtedness in the community.”

Well, this one’s sure a no-brainer! Hopefully most readers of this blog have made real efforts to minimize or get out from under personal debt over the past few years (exempting mortgage issues), or were never deeply in debt in the first place. Those who consolidated credit card and other installment loan debts by refinancing when the mortgage boom was on may be facing serious issues with that mortgage now, but that’s such a huge issue that if mortgage debt is the biggest of your worries, you’re doing pretty well.

Sign 2. “Will the collapse of the housing bubble trigger a depression?”

The speculative real estate frenzy was maintained by artificially low interest rates maintained by government need to sell federal junk bonds to overseas investors (mostly China) in order to finance oil imports and maintain massive military costs for its 2-front wars. The “housing bubble” has officially collapsed.

This expert claims that the collapse is enough to trigger deep recession, but not enough to trigger a depression. For that, you need something more…

Sign 3. “Will rising oil prices trigger a depression?”

Short answer: Yes. The expert opinion prognosticating how this would work is positively eerie looking back from here inside the deepening worldwide depression (complete with global food crisis). Check it out…

“First, the credit bubble has to collapse [done]. Next, oil has to become structurally expensive [done]. A reasoned guess post-credit-collapse would be when oil both reaches and maintains a price of close to $US80 a barrel [it's at ~$120 a barrel now and still rising]. …At the point of oil settling at or over $80 for a year or longer there is likely to be structural (oil component of goods price adjustment) inflation of 10% – 20%. At this point, if price movements in 2005 are a guide, petrol may reach close to $US4 a gallon at the pump [it's well over $4 a gallon for diesel with no indications it will ever come down]. This will make petrol effectively unaffordable for many low income people who have no other transport options (chiefly a USA condition).

Huh. This expert put off the scenario in his own mind until 2015, but we already know that expert economists like to pretend things are always better than they really are. So for a final sign of depression…

Sign 4. “How many months or years will a deep recession last before it becomes a depression?

Most of us at the lower end of the economic scale know by our own community and regional experience that the government isn’t reporting real unemployment figures, and isn’t even counting most of the people who are unemployed at any given time (number-fudging, basing reports entirely on who’s getting unemployment money this week). This expert suggests that when we reach 25% to 30% unemployment, when part-time workers have less work than they want, when there are “few business start-ups,” when tax take no longer equals expenditures, when food prices have doubled and when the trend is “no end in sight” for those conditions, we will be in a depression.

It is very difficult to find real figures for unemployment and underemployment in the U.S. these days. TNTalk figures that rates are routinely underestimated by 150%. Which as of April 2008 would put real unemployment at very nearly 15%. Another source places the total defacto unemployment rate at a firm 13.3%. If we add those part-timers (people who have gone from full employment to inadequate part-time jobs), we may already be at 25% for all practical purposes of making ends meet in working class America.

We are there, despite government figure-fudging on unemployment. The trigger events this expert cite will be; a) when oil is so expensive that most low income earners can’t afford to run a car, b) when food and retail prices in general have risen by 20%. These conditions – if they do not already prevail in your locality – should affect a majority of the population by summer. 2008, not 2015.

The whole essay is worth reading for its historical value if nothing else. The wildly errant projections of when all this may come to pass seem positively infantile considering this was written just a year ago. Gold has risen, the dollar has fallen and keeps on falling, oil is over $100 a barrel and NOT coming down, the credit bubble has burst, millions are threatened with immediate homelessness, oil is too expensive for truck fleets, trains, shipping and home heating, and jobs are few and far between.

It behooves concerned citizens to ignore what government Pollyannas are telling us month to month, instead arranging our affairs as if reality on the ground is the reality we must deal with. Because it is. We cannot expect experts in or out of government to tell us the truth, or to help anybody out of their increasingly untenable situations. Further postings to what people can do while living inside a real world-wide economic recession will be forthcoming, so stay tuned!

And don’t forget to plant some ‘maters and peas, even in patio pots if that’s all the room you’ve got. Nobody will be able to afford those at the grocery store this year!

Links:

Is It a Recession? Or a Depression?
Overview of unfolding recession as the oil economy fades
Timing of a depression triggered by high oil prices
Sustainable Living: The Fading of the Oil Economy

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Filed under Debt, Economic Prognostication, Economic Recession, Energy, Fuel, Transportation | Comment (1)