How Bad is it Really? Is it Worse than it Looks?

By Mr Quarter

The main stream media (MSM) and Obama are sounding the economic alarm with more and more urgency. Words like apocalypse, disaster, tsunami and the like are strewn about like so much confetti when ever there is a discussion of the current and potential future economic situation. Obama and the congress just put into place legislation to spend about $10,000 from each tax paying household over the next several years in order to halt the economic slide and avert what Obama and the MSM assure us is impending doom. The questions that seem to loom like the elephant in the room is, "Are things really that bad? If so, could it get worse?"

A recent analysis that I stumbled across suggests that, at based on the empirical data the current economic situation is certainly not equivalent to the 1930's and may not even be as bad as was experienced the recession of 1981. First, looking at the current unemployment figures, it is clear that an unemployment rate of 7.6% is not good and has increased from a year ago by about 2.2 percentage points. But, in comparison to prior times of economic history, the increase in unemployment must be put into the perspective of the available labor force and the total population of the country (i.e., one million jobs lost is less significant if the labor force is 50% larger). The current US labor force is approximately 156 million people, more than the entire population of the US in 1930 which the 1930 census puts at 123 million. Similarly, the US work force in 1981 was approximately 107 million or 50% smaller than today. Two comparisons of empirical data below illustrate the point.

This chart compares the percentage decline in payroll employment during today's recession with that observed in other economic downturns in the period immediately following "peak employment"




Similarly, this chart shows the job losses as a percent of the available labor force in one year periods during prior economic downturns.



The point being that the empirical data do not support the doom and gloom forecasts that are being bandied about.

Other economic indicators also tell a similar story. The chart below depicts four metrics commonly held forth as indicators of economic health and prosperity. The comparison is the 1981 recession period and 2008-2009. Clearly, none of these metrics approach the levels seen in the 1981 period.

So how bad is it really? Are conditions so bad that we needed to mortgage the futures of our children and grandchildren to fix it. Or, are the Democrat politicians merely spending money on pet projects and causes to ensure their continued political dominance. Anyone remember the quote from Rahm Emmanuel just before the inaugural, "A crisis is a terrible thing to waste"?

How bad could it get? This question is the one that nags and scares me personally. I am reading a lot about foreign financial conditions that have great potential to drag down the rest of the world. Three areas seem particularly vulnerable. First, eastern Europe (the EU states of eastern Europe, Russia, and Ukraine). The short story is that Austrian, Swedish, Greek, Italian, and Belgian banks have lent princely sums to private and government enterprises in these countries. Apparently, the expectation if a debt failure rate of 20%. Second, Great Britain is on the verge of bankruptcy. It has been reported in the past month that the major banks of Great Britain are technically insolvent. Third, Mexico is on the verge of becoming a lawless state without a government and is considered on the same level as Pakistan. No less than the United States military has assessed the situation in Mexico and concluded that "the government, its politicians, police and judicial infrastructure are all under sustained assault and press by criminal gangs and drug cartels. How that internal conflict turns out over the next several years will have a major impact on the stability of the Mexican state. Any descent by Mexico into chaos would demand an American response based on the serious implications for homeland security alone."

Personally, I don't know what to believe or expect. Certainly, all the published indicators are that things are bad and are going to get a lot worse. Is the answer to stockade and purchase provisions and personal armaments? Is the answer to buy gold? Should I sit here like a chump and watch it all go down while I make blueberry smoothies in the blender I bought with a credit card?

Funny thing is, where I work is doing OK business wise. A little slower than usual but nothing to panic about. I have the opportunity to talk to a great number of people from around the country and they say pretty much the same thing. And here is the real kicker, totally anecdotal and unscientific. I drive to work every morning on a 20 mile commute that takes about 45 minutes. There still seems to be the same number of other A-holes out there on the road, crawling along bumper to bumper. So either they are all still going to work .... or they are headed to the mall to buy the same smoothie blender that I got and they will use the increase in their credit limit that Tim Geitner got them.