Dave Wrixon

Forget the 1930s; We're Reliving 1975 (Part II)

There are similarities and differences.

I think the main problem is Debt which was not such a massive problem in the 1970s, or indeed in the 1930s.

The Magnitude of the problem is probably more similar to the 1930s but there are elements that do bear resemblance to the 1970s.

However, I feel it is simplistic to jump to conclusions about how this will unwind. The event is triggered by Debt on an unprecidented scale, and was initially depressive in nature, but Bernanke has made sure that the it will be a primarily an inflationary contraction.

My guess is that upward pressure on interest rates and inflation will trigger a reversal of the stimulus recovery resulting in an even bigger second leg down. The underlying cause is probably due to one super-power supplanting another, as may possibly been partially the cause in the 1930s. Those that think we are out of the woods or this is mainly everyone else's problem are in for severe shock.

Will Capacity Utilization Tell Us the Recession Is Over?

If production capacity is being permanently removed from the system, as surely it must, then even if you get an improvement in utilization, it does not mean that there is necessarily any improvement in output. All it shows it that corporation are responding by cutting costs. I guess we knew that?