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When Does a Recession Become a Depression?

Research & Commentary
January 26, 2012

by Salvatore Babones

The US economy officially went into recession in December 2007.  The recession supposedly lasted eighteen months.  By July 2009 the economy was growing again.

Well, at least the Plutonomy was growing again.

Over the past two and a half years executive pay has powered ahead.  According to corporate governance monitors GMI executive pay was up 36% in 2010, and though the data are not yet in no one thinks the pace slowed down in 2011.

Luxury goods sales hit record levels in 2011.  Tiffany’s took a stock market beating because Tiffany’s 2011 sales growth was “only” 4% in the Americas, versus 9% in 2010.

Corporate profits are at record levels, estimated to have risen “only” 6% in 2011 after larger increases in 2010 and 2009.  Companies like Apple, Google, Microsoft, and even Cisco Systems are sitting on literally tens of billions of dollars in uninvested cash.

[pullquote]Companies like Apple, Google, Microsoft, and even Cisco Systems are sitting on literally tens of billions of dollars in uninvested cash.[/pullquote]

Meanwhile in the Realonomy where the Other 99% live things aren’t so rosy.

The US economy employs 5 million fewer people than it did in 2007.  Many of those still employed have been forced to switch from full-time to part-time jobs.  The number of Americans employed full-time is down 8 million from 2007.

Meanwhile the working-age population has increased by 7 million people, giving a total employment deficit of 15 million jobs.

So corporations are hoarding record profits while unemployment stands at record levels.  That’s not a recession.  That’s daylight robbery.

When will it end?  The answer seems to be: no time soon.

The Federal Reserve Board’s Federal Open Market Committee (FOMC) met Tuesday and Wednesday January 24-25 to consider the future of the American economy and the Fed’s policy options.

In their official statement, the FOMC said that it “currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

In other words, we’re screwed.

The Great Depression wasn’t one long recession.  Officially, the National Bureau of Economic Research (NBER) recorded a first recession in 1929-1933 and a second recession in 1937-1938.  But you wouldn’t have known it if you were looking for work.

[pullquote]The reality is that the Realonomy has been in recession since the beginning of 2008.[/pullquote]

The reality is that the Realonomy has been in recession since the beginning of 2008.  The FOMC doesn’t expect any real improvement until the end of 2014 at the earliest.  that’s at least seven years of bad stuff going down in the Realonomy.

And maybe more.

Whether the NBER ultimately divides the period 2008-2014 into one recession, two recession, or many recessions, it’s starting to look like one big thing: a second Great Depression.

Recession or Depression — call it what you want.  We need 15 million new full-time jobs to catch up to where we were before we even think about moving ahead.  We’re currently creating fewer than 2 million jobs a year, many of them part-time.  And the whole while the population is growing.

On the math, it’s a Depression.  Calling it a Depression won’t change it, but it might change how government goes about fixing it.  We need jobs — millions of jobs — today.  The private sector isn’t producing them.  Someone has to.

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