The Second World Depression – Moon of Alabama

June 5, 2009

The Second World Depression

This is depressing:

World industrial production continues to track closely the 1930s fall, with no clear signs of ‘green shoots’.

World stock markets have rebounded a bit since March, and world
trade has stabilised, but these are still following paths far below the
ones they followed in the Great Depression.

There are new charts for individual nations’ industrial output. The
big-4 EU nations divide north-south; today’s German and British
industrial output are closely tracking their rate of fall in the 1930s,
while Italy and France are doing much worse.

The North Americans (US & Canada) continue to see their
industrial output fall approximately in line with what happened in the
1929 crisis, with no clear signs of a turn around.

Japan’s industrial output in February was 25 percentage points
lower than at the equivalent stage in the Great Depression. There was
however a sharp rebound in March.

This too: Why the Present Depression Will Be Deeper than the Great Crash of 1929

Unless it is over, we will not know if this depression will really be worse than the 1930s one. There are different causes this time (on which economists will never agree), there are different policies in place to arrest the downfall and the world is much more interconnected which creates a faster fall and possibly also for a faster rise.

There are some 'green shots', signs that we are already in a turnaround, but I believe them to be false. The problems in the banking systems are still unacknowledged, the losses are papered over, the economic foundation is still unsound. I do expect another sharp leg down over the next twelve month.

A problem is that with the current response the major states are taking massive amounts of debt just to save a broken banking system. The talk of 'systemic important banks' that can not be allowed to go bankrupt at any price reminds me of all the 'indispensable men' that clutter the worlds graveyards.

With non sharply increased deficits in about every country the capacity and political will to take on more debt to arrest another sharp downturn is weakened.

The recovery will therefore take longer than most expect. The high unemployment, in the U.S. 16.4% are now unemployed or underemployed, will take a serious collective psychological toll. That can have unexpected consequences.

Posted by b on June 5, 2009 at 16:51 UTC | Permalink

Comments

b) But you can still make a killing timing the swings. In fact, with values this low, any kind of upward momentum is the investment opportunity, literally, of a lifetime. There are mining stocks that have returned 200%+ in mere months, where the long-term prognosis is 2% per year, or a **lifetime of earnings** in a single augenblik. Sadly, all the low-hanging fruit has been picked, and now we’re all on a sleight-of-hand ride to hell in a hand basket. Geithner is in Beijing and Obama is in Riyadh not to celebrate our cultural diversity, but to beg them not to bail out of US$ holdings, at least until BHO shows Treasury can monetize bank-broker gambling losses onto the peon wage slaves who elected them, under a cock-and-balls slogan, “Yes, We Can (Go Bankrupt)”. There are severe limits to almost any ‘green technology’ growth scam. ‘Clean coal’ is purely a scam for Fed tax credits, solar is hamstrung by silicon and rare metals, wind, even if every hilltop was carpeted with them would only amount to the power from two ordinary gas-fired power plants. Those who scream Peak Oil and let’s Carbon Cap & Trade failed Economics 101 during the week the professor covered price sensitivity, opportunity cost and consumption. This is the part of the campout where the fires flare up one last time, then ping into ashes and sparks, drifting lazily upward into the clear, cold night of stars. Wait! Wait! An energy breakthrough!! http://www.newswiretoday.com/news/52064/

Posted by: Pierre Thatcher | Jun 5 2009 17:45 utc | 1

Honestly, what can one do to protect your remaining 401K? Treasuries?? The only options I see I have is buying stocks on companies…it is depressing to say the least

Posted by: Euska | Jun 5 2009 18:32 utc | 2

SQM is an interesting Chilean company that manufactures fertilizers and lithium. Consumer goods will continue to be strong and many, like SQM are paying dividends–Kimberly Clarke (Kleenex, Scot, Huggies and Depends), Johnson and Johnson are a couple of others. Exxon is an exceptional company that will be a big winner so long as oil stays plentiful.
I wouldn’t get too heavy in any Big Pharma or Medical as gov’t changes could really undermine their market position.
Inflation is gonna be a bitch so I definitely would not put squat into treasuries or bonds. However, real estate presents some wonderful opportunities.
I want to say that the economy will suck, especially on the “big” end. But, I think there will be a decent economy that will continue. I would recommend leaving this country if you can. My parents are really pushing back at my plans to get to the Mediterranean.
We are also witnessing the great force of entropy. We had such a concentration of power and wealth there is no end to the forces which work against these aggregations. The rest of the world should benefit. Again, the larger corporations who’ve taken on lots of debt will no doubt vanish, the playing field will be open to smaller niche actors again!

Posted by: scott | Jun 5 2009 20:10 utc | 3

With a timely crisis of sufficent magnitude, reinstatement of inheritance tax could become an option. That would ameliorate the deficit and more importantly, the gini coefficient. If this level of inequality persists for another generation, the miracle of compound interest ensures that any pretense of democracy will be gone for good.

Posted by: …—… | Jun 5 2009 22:25 utc | 4

Marc Faber & Jim Rogers have now both predicted that hyper-inflation will sooner or later occur in the U.S. (due to a massive dollar devaluation), according to their clips on youtube…

Posted by: alister | Jun 6 2009 0:00 utc | 5

hey —, how do you think an inheritance tax will get passed? The deal is that the wealthy and the elderly vote. So, how again, in our representative democracy will these problems get fixed?
The burden will shift upon the common folk and the moderately successful professionals who currently bear the brunt of the burden. Fees, fines will tax the shit out of us, this will become increasingly egregious and ultimately there will be little faith in these institutions. I am convinced we will see a default on our debt and no one knows what happens after that. It will be scary, and the media and the politicos will freak the fuck out as they ARE the establishment. Life won’t really change much but it will be different. I am really trying to get some idea what that will look like.

Posted by: scott | Jun 6 2009 14:27 utc | 6

The wealthy aren’t numerous enough to get anything by voting. Their approach is to negate everyone else’s vote. The “death tax” got suspended by sleight-of-hand, convincing small fry that their interest is identical with billionaires’. Link estate taxes to the popular outrage at parasitic bankers, and the tax could be reinstated and beefed up. The trick is to bleed the richest most (and to terrorize their tame legislators.)

Posted by: …—… | Jun 6 2009 15:36 utc | 7

Well, this really isn’t the GD2. In GD1 we had fought a real war, against a real army of millions, there was a real flu pandemic instead of a sell-more-Gilead-stock-for-the-Don-Rumsfeld con, and 90% of Americas still lived on the farm with a crank telephone and kerosene lamps, but all the food they needed was right at hand, even if they did have to sell their milk, butter and eggs for button and pin money.
This time we’re fighting a purely fake war, against an imaginary enemy in Virginia, there have been several attempts to gyn up a global pandemic, but no big profits yet, and only 5% of Americans live on the farm now. We have impossibly expensive cell phone and internet bills, unbelievable back in the day utility and property tax bills, and nothing to eat, not even surplus cheese and powdered milk and dried egg whites are going to save America now when the trade economy fails.
But we have something they didn’t have in GD1. Petroleum. Petroleum as pure refined power is still cheaper than bottled water, and that’s what keeps all the lights on at night and makes your cell phone all yakky and your computer all blinky. And we have another thing they didn’t have in GD1. Fiat money. Fiat money as pure refined power, supporting a fiat administrative bureaucracy that chokes the very air that we breath (remember, we are all now hazardous substance breathers according to EPA).
More people that you would care to admit work for the government or are contracted to it, or work for petroleum or are contracted to it, or work for the treasury or the banks or are contracted to it. Then you have the universities on the tax dole, the whole security wehrmacht, and you have something else they didn’t have in GD1.
The Department of Defense. The largest corporation on the planet in all of history.
Our ships, planes and tanks together burn more non-renewable resources than all of our cars and trucks combined. The daily operating cost to field just one of our dozens of super-carriers is more than the annual budget of many small communities, and the retail cost of just one of our useless nuclear submarines is enough to buy a 2000-acre farm and the farm equipment and labor to feed 100,000 people, forever.
We got a good thing going here! Let’s not fuck it up by dwelling on a Depression.
As Friedman joked, as long as foreign countries are stupid enough to take our fiat paper in trade for their dark plastic, who ends up the better on the deal. USA do!!
We got paper and plastic! Woo-hoo! Sell blood! Laissez les bon temps roulez!!

Posted by: Aunty Mame | Jun 7 2009 7:09 utc | 8

AM 8) You forgot another thing they didn’t have in GD1: television, the mass psychosis Shopping Channel and Democracy Mirage which has brainwashed an entire country of thrifty Connecticut Yankees and Colorado cattle farmers and North Dakota sod busters to give away all the gains they have torn from the earth and wrested a profit from a century, for a 400 sf box with a $400,000 noose around their neck, and a cradle to grave direct deposit from their wages statement to their credit card, and think everything is OK. We are frog marched retrograde back to civil war.
s3) ‘past performance is no guarantee of future gains’, Exxon’s performance last year was the Buffett-billionaires disparately rolling out of their positions into the play de jeure, undelivered commodities futures’ momentum play, which drove oil to a $160/bbl stratosphere, and robbed Mom and Pop of $100Bs. That, right there, just that, was positive evidence the Western world is definitively bankrupt.
If you ignore the market pundits and the pay-for-play media that pimp for them, the simple fact today is oil companies are pulling in their horns, they are very slowly drawing down reserves, they are producing distillates at far lower capacities, and they have shut down heavy sour crude production because they all acknowledged that nobody knows if there will be a summer driving season this year. This time, the law of supply and demand is working. Gasoline is going up because supply is going down. Supply going down means higher incremental profits, but lower overall quarterlies.
Invest at your own risk. Research, research, research, research. And if your broker recommends a stock, punch him in the eye. Would you buy a used condo from this guy?

Posted by: Herbert Hoover | Jun 7 2009 16:17 utc | 9

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