Two Charts Imply Current U.S. Recession May Be Longest in History

As I am still looking out for these mysterious "green shoots" in vain that seem to be visible only for the talking heads at CNBC, here are 2 charts that make me wonder whether the current nosedive of the US economy may become the longest recession/depression in the history of the new world.

click to enlarge

GRAPH: The current recession has already beaten all other economic downturns in terms of length since the Great depression from 1929 to 1933. Former Fed chairman Alan Greenspan managed to keep recessions in the last 20 years below 12 months. But he had a weapon that is not available anymore to his successor Ben Bernanke: Starting at higher interest rate levels Greenspan had a lot of rate-lowering ammunition to tame the bear. With zero interest rate policy Bernanke has used up the Fed's only weapon long before the present recession will begin to show any significant changes. Chart courtesy of chartoftheday.com

Now let's have a look at the level of indebtedness:

GRAPH: As all economic crashes are based on too much money in the system, while nobody has any in her/his pockets, the current GDP/debt ratio of more than 400% (this chart ends in Q2/08 and the Fed only started pumping up money supply later last year with growth rates in the 3-digit area) implies the US economy is going to remain below the waterline for some more time well into the next decade. Take note that this GDP/debt ratio does neither include future federal and state pensions liabilities nor exploding health care expenses that are the result of worsening demographics. Chart found on tickerforum.org

As always, one does not need to be a financial whiz kid or tea leaf reader to see when the economic situation will turn into something the Fed and bankers like to describe as 'unprecedented' once it starts happening. You only have to look back in history to get a reliable picture of future developments as there are only two constants in markets: greed and panic.

Comments

[user396040:]

It's hard to square this with the "Hyperinflation's just around the corner" piece you just posted. If demand and economic activity remain depressed, inflation will not emerge. I tend to attach more credibility to this than to the hyperinflation post, but you can't really have it both ways.

Jun 12 02:09 PM

[Dave Wrixon:]

"Take note that this GDP/debt ratio does neither include future federal and state pensions liabilities nor exploding health care expenses that are the result of worsening demographics. Chart found on tickerforum.org"

Nor does it fully include Dollar Reserve Holdings. OK, it is not all technically Federal debt but it is all IOUs, and in many ways it is much more threatening but it has not fixed redemption date. Whilst the mechanics of dumping it all overnight might make that an unlikely outcome, it is very huge potential problem. Your currency can only get junked by those that hold it.

Jun 12 02:31 PM

[The One Thing:]

The one thing we can't afford to cut is military. We have all the revenue we need, we just need to cut all the entitlements to the bone...and even cut or privatize education. Why do kindergardners need laptops...just focus on reading, 'riting, 'rithmitic and all you need is a few books, big chief tablets, and a white board.


On Jun 12 01:48 PM conceptwizard wrote:

> These charts are a good indication of the seriousness of the situation.
> This is why Ben is speaking frankly in front of Congress. He is saying
> plainly that we are in a critical state and if nothing is done, the
> circumstances will worsen considerably.
> Congress as usual is spending its time on getting shareholders a
> say on boards an getting policies made on their new car company.
> All the unconsequental items that WILL not save the country.
> THis country is on the brink of absolute disaster. Where are the
> changes. We are flying headlong into a brick wall and they are doing
> absolutely nothing to stop us or even slow us down.
>
> Obama was right he can change America, we will go down in history
> as the country that was living beyond its means to the breaking point
> so much that it finally came down around us, and due to an unwillingness
> to initiate the changes required to save America, he will be known
> as the President that allowed it to happen. We are taking about core
> changes that really will save us. A 60% cut in military spending,
> Bring the 746 bases home. End the wars. Increase income taxes by
> 20%. Invest in private businesses. These are all hard, career wrecking
> decisions that have to be made. Instead we get the status quo that
> got us here to start with.

Jun 12 05:35 PM

[markincorsi...:]

"Longest in History" ? Longer than the one that started in 410? Certainly more global and likely to be painful for more people. And more profitable for more people as well.

Jun 13 09:28 AM

[Paco Ahlgren:]

It's going to be a tough economy for a while. Certainly the U.S. and Europe will come out far less powerful than before -- economically and otherwise.

Inflationary price pressure -- which I've written extensively about here -- is the thing we need to worry about, and watch, most. The speed and magnitude of price increases is going to be unprecedented in this country -- and I'm including post-civil war data in that prediction.

Good article. The charts are very revealing.

Jun 13 10:37 AM

[Alphameister:]

It's all going to end badly, but please note that you could have issued the same warning in the spring of 2003 based on a ratio comparable to that of 1929 and would have missed a very profitable bull market from 2003 to 2007. Indeed, there were many bears who did exactly that. I don't see a sequel emerging in 2009, and I'm placing my bets mostly on China rather than the US, so I'm just suggesting that bears on the US market expecting instant gratification may be disappointed.

Jun 13 11:10 AM

[Prudent Inv...:]

I did not know the USA has such a long history. Tell me more.


On Jun 13 09:28 AM markincorsicana wrote:

> "Longest in History" ? Longer than the one that started in 410? Certainly
> more global and likely to be painful for more people. And more profitable
> for more people as well.

Jun 13 12:11 PM

[No1:]

Shouldn't "consumer led" recessions be measured separately? Those tend to last longer because it takes time for people to recover and change their habits.

But I'm no expert, just an opinion from a peon.

Jun 13 12:36 PM

[carey_jim:]

If you look at the first chart a little more closely you will notice that until about 1960, recessions occurred closer together.

During the 11 year period from 1902-13 there were 4 recessions, 3 long recessions and one fairly long recession.

During the 14 year period from 1920 to 1934 there were 4 recessions, 3 long recessions and one record setting recession.

But during the very long 29 year period from 1980 to 2009 there were only 5 recessions, three of them short but with this latest one almost certain to be at least the second longest in our history.

Also interesting are the external "guns and butter" shocks during the time of the recessions, such as World War I, World War II, the Korean War, Vietnam War, the Cold War and the Iraq wars.

Other interesting correlations occur with such events as the the rise of fascism in Europe and Japan during the 1930's, the Chinese revolution in 1948, various revolutions in Latin America after the Vietnam War, the Iranian revolution and the collapse of the Soviet Union.

It would take a very long article, or even a book, to analyze the effects of these events, but it's arguable that the United States cashed in on the collapse of the Soviet Union and our new role as sole superpower, during the long boom from 1980 to 2008 but that we are now, ironically, paying the price for our uncontested military supremacy with the moral and financial price tag of the wars in the Middle East.

America's future prosperity will depend on how well we manage our new role as world leader, after our victory in the Cold War, and especially how well we manage our new relationship with China and the rest of Asia.

Recessions are a natural part of our economic system and we've had a very, very long spending spree accompanied by a huge amount of debt, as the second chart shows.

It seems that a long recession is almost unavoidable. How long is the only question. Tweaking the financial system will be necessary but no amount of tweaking can solve our immense financial problems overnight.

Jun 13 12:50 PM

[jambo:]

Dear Wizard
Truly a giant stretch to imagine how raising income taxes by %20 is the medicine this economy requires. We wont even touch the world destabilization created by the power vacuum that would be the result of unilateral disarmament. -If it is simpler times you crave- hey dont we all! But the changes you suggest would be a fast forward to the stoneage.

How bout this?: We stop printing bogus money, let the economy mark to its rightful level GDP-wise, suffer some deflation (OMIGOD, the D word!!), and pull ourselves out of this like grown-ups, you know, hard work and sacrafice ... Why must we insist that surely the damn government must do something to make it all right for us.. and right for us all.
Hey, I'm no wizard but the energy of our founders was the determination to do it for themselves and say goodbye to feudalism. The same feudalism that will be the result of the socialism so many are begging for today.


On Jun 12 01:48 PM conceptwizard wrote:
>...." We are taking about core
> changes that really will save us. A 60% cut in military spending,
> Bring the 746 bases home. End the wars. Increase income taxes by
> 20%. Invest in private businesses. These are all hard, career wrecking
> decisions that have to be made. Instead we get the status quo that
> got us here to start with.

Jun 13 01:23 PM

[AndrewBaker:]

Again I find an article on here that I totally agree with, and find most commentators do so also, yet we still have a market that is being talked up by those ever present talking heads, politicians, and vested-interest businesspeople, and there are still people out there buying the story.

This rally will last a while longer than I thought it would or could, and I shall trade it 'cos that's just me, but at some point later in the year, or maybe even not until January if the ramping can hold things up 'til then, the truth that no-one is spending, that homes and jobs are still being lost, that stagflation is pushing up prices whilst pay is pushed down, that future liabilities of pensions etc, as mentioned in the article, will be realized by many more: then the next drop will come, and it will that much bigger than it should be due to the rosy outlook being painted now by those who should know better.

Jun 13 01:39 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:47 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:47 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:48 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:48 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:48 PM

[Fred Voetsch:]

We seem to be getting back to that point where we need to remember that someone like te author is not calling for the end of the world, he is simply pointing out the facts and that we are likely in a for a long, tough recession based on all the leverage we have built up.

The world has not ended but the world as we have known it has.

Jun 13 07:48 PM

[Swashbuckler:]

Fred--Maybe SA needs to fine tune the site. I'm sure you didn't intentionally post this comment six times, and I've read recently other posters who said this happened to them.


On Jun 13 07:48 PM Fred Voetsch wrote:

> We seem to be getting back to that point where we need to remember
> that someone like te author is not calling for the end of the world,
> he is simply pointing out the facts and that we are likely in a for
> a long, tough recession based on all the leverage we have built up.
>
>
> The world has not ended but the world as we have known it has.

Jun 13 09:37 PM

[Swashbuckler:]

What is this sh#t?


On Jun 13 09:28 AM markincorsicana wrote:

> "Longest in History" ? Longer than the one that started in 410? Certainly
> more global and likely to be painful for more people. And more profitable
> for more people as well.

Jun 13 09:39 PM

[Roman_Fiddler:]

Sadly, I'm convinced it will be much longer and worse than the previous 'Great' depression. I wish I could believe otherwise. I don't think we've really seen anything yet, this is the tip of the iceberg.

As for a fix, there are so many areas that need a massive overhaul in the US and beyond that it is just overwhelming to say the least. But it has to happen. I think this will definitely span many generations. It is tied in with our survival as a species. We think we're so smart, but we miss the most obvious connections all the time. Every economist should study ecology, and see how interlinked we all are, how the repercussions flow on and the entire system can collapse.

So many people don't seem to realise our economy is not in a vacuum, they still don't get it. They still see this time as purely an opportunity to buy the right stock and make a killing and laugh at how all the other suckers fared so badly.

They still don't get that all economies are reliant upon resources, and pretty much everything we have is on this this fragile little planet, and you can only suck the life out of it for so long.

We need an enormous paradigm shift. We need to create an eco-economy, where resources are truly valued, not just for a quick buck, but for the long-term impact their use can have. We need to revere the natural world in ways that neolithic cultures did, instead of worshiping a metaphor of 'money', or our own selfish gain. We need to use technology to get back to our most basic needs. People need to get back in touch with nature, instead of conquering it in a 4WD now and then. We need to have less people on this planet and actually value those that are left.

Enough, my head hurts.

Jul 13 05:01 AM