No Way Today’s Economy is Going Back to What it Was Pre-2007

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The Dow stayed in the same place yesterday. The correction in the gold
market continued, with a $5 loss in the gold price.

The employment news on Friday was better than a poke in the eye with a
stick. But how much better? Better enough to justify higher prices on
Wall Street? Better enough to sell your gold because you believe that
it will be clear sailing from here on out?

Uh…we wouldn’t advise it.

Maybe Main Street has been misled – again – by Wall Street and the
feds. Spread around enough hot money and it begins to look like there’s
a real recovery going on. Employers – as well as consumers – are duped.
Business owners, for example, are likely to think that the recession is
over and halt the layoffs.

More likely, Friday’s announcement that unemployment has bottomed out
is bogus. A single swallow doesn’t make a spring. Nor does a single
month’s worth of jobless numbers tell us much about the underlying
trend.

Jobless rates…like other financial numbers…bounce around. One month
is insignificant. We’ll have to wait to see what happens next, just
like everyone else. But there are probably a million or so more job
cuts to come before the bottom is finally reached.

Don’t blame businessmen for being confused. The press reports make it
sound like it’s back to business-as-usual. And for the banking
industry, it DOES seem as though nothing has changed. They’re lending
to cockeyed private equity deals…aiding and abetting speculators in
the carry trade…and handing out billions in bonuses. Just like old
times.

They’re enjoying the bliss of the spotless mind…that is, the mind
that has no memory…no regrets…and no sense.

But something has changed. It’s not the same world that it used to be.
We don’t know much, here at The Daily Reckoning mobile headquarters in
Johannesburg. But we know this: there is NO WAY that today’s economy is
going back to what it was pre-2007. Business as usual? Not at all.

The bubble of the pre-2007 period was pumped up by consumer spending
financed by housing debt. Ain’t no way that can happen any time again
soon. Housing may or may not have stabilized – at 30% below pre-crash
prices. That leaves millions of homeowners underwater…and practically
all homeowners with no access to housing credit.

Out in the real economy, where these people live, the picture is bleak.
First, one in ten is officially unemployed. Six hundred thousand jobs
were lost in the last 3 months, bringing the total to 7.2 million lost
since the recession began. And if you add in all the part-time
workers…and workers who’ve given up the job search… the total is
said to be more like 1 in 5 of the labor force.

Now ask yourself: how can things get back to normal with so many people
out of a job?

And many of these jobs will never come back. Many of them were housing-
related. And housing will never go back to the bubble pace of 2005-
2007. Not in our lifetimes. And then too, many of the service and
retail jobs that existed thanks to the revenues of the housing industry
have disappeared too. They won’t come back either…not until something
comes along that is able to replace the housing income.

It will happen…but not for many years.

In the meantime, we’re in a depression…and in a depression we will
stay, until these mistakes and imbalances are worked out.

Bloomberg provides more detail on the real estate mess:

Dec. 4 (Bloomberg) – Drew Schlosser tried for two years to sell his
three-bedroom Punta Gorda, Florida, waterfront condominium for less
than he owed on its two mortgages. The deal only went through last
month when Wells Fargo & Co. agreed to take a $165,000 loss on the
loans.

Even after he had an offer of $155,000 for the property, it took five
months for the San Francisco-based lender to approve the purchase, a
so-called short sale, in which the bank accepts less than the balance
owed on a property. Schlosser said earlier offers had fallen through as
bidders lost faith the bank would take less than the $320,000 in two
mortgages.

“It was just kind of a mess,” said Schlosser, 31, a market research
company director living in Estero, Florida. “You really have to get
buyers who are patient.”

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. Hi Bill, I spotted this quote from Bertrand Russell the other day on Fullermoney. It says everything that needs to be said, explains everything that needs to be explained. If anyone I know asks for investment advice from now on I will send them this quote. I will commit it to memory or maybe write it down and keep it in my wallet, in order that I may refer to it now and again; hopefully it will stop me from making stupid decisions…one can only hope it sinks in. Anyway here it is
    “What a man believes upon grossly insufficient evidence is an index into his desires – desires of which he himself is often unconscious. If a man is offered a fact which goes against his instincts, he will scrutinize it closely, and unless the evidence is overwhelming, he will refuse to believe it. If, on the other hand, he is offered something which affords a reason for acting in accordance to his instincts, he will accept it even on the slightest evidence. The origin of myths is explained in this way.”

    ~ Bertrand Russell

    nigel isherwood
    December 11, 2009
    Reply
  2. Nigel the only reason you believe that quote is because unconsciously you accept it because it agrees with your instincts. It’s an easily understood myth.

    Reply
  3. Man desires what he believes in and believes in what he desires (Bargeass circa 1960s)

    Reply
  4. A few I read today: “Everyone who wants to do good to the human race always ends in universal bullying.” … “That men do not learn very much from the lessons of history is the most important of all the lessons of history.” and… “The propagandist’s purpose is to make one set of people forget that certain other sets of people are human.”

    All by Aldous Huxley

    “Most people are fools.” – (Me, circa now).

    Reply

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