From the Daily Reckoning, September 16, 2011.
Ed
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Life in the Post-Lehman Economy
Un-Remarkable News in the Midst of a Great Correction
Bill Bonner
Reckoning today from Baltimore, Maryland...
The Lehman bankruptcy was a much more important event than 9/11. It
marked the end of a 60-year credit expansion. Maybe it marked the high water
mark for the US Empire, too. And the beginning of the end for the US
dollar-based world monetary system.
But the occasion went by yesterday without much notice.
What's most remarkable about this post-Lehman economy is that it is so
un-remarkable.
What do we mean?
Well, yesterday we reported that consumers weren't spending...and that
prices weren't rising. But that's just what you'd expect for a Great Correction.
And here comes The Wall Street Journal with another non-shocker:
The income of the typical American family - long the envy of much of
the world - has dropped for the third year in a row and is now roughly where it
was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle
fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its
1999 peak, the Census Bureau said.
The Census Bureau's annual snapshot of living standards offered a new
set of statistics to show how devastating the recession was and how
disappointing the recovery has been. For a huge swath of American families, the
gains of the boom of the 2000s have been wiped out.
Earnings of the typical man who works full-time year round fell, and
are lower - adjusted for inflation - than in 1978. Earnings for women,
meanwhile, are a relative bright spot: Median incomes have been rising in
recent years and rose again last year, though women still make 77 cents for
every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the
population, and 22% of children are now living below the poverty line, the
biggest percentage since 1993.
The WSJ goes on to provide more facts and figures. It scarcely needs to
bother. We know what's happening. The economy is contracting. And as it
contracts, it squeezes jobs, incomes, spending and prices.
We saw a note in the press yesterday. It told us that even the wages of
sin are falling. The union that represents waiters and cocktail servers at
Atlantic City casinos says the hourly base has fallen from $8.74 to only $4.50.
And tips are tumbling. Surveys of prostitutes show their earnings are a bit
limp too.
And as people get squeezed by the financial correction...they gasp for
breath. There are now 46.2 million people in America under the poverty line,
according to The Los Angeles Times. That's the most in 50 years.
But nothing extraordinary about that either. This is the biggest
correction in half a century too. And you don't have to look very far to find
more confirmation.
That's why the 10-year T-note yield has fallen to the lowest level since
right after WWII.
And it's why nearly half the people looking for a job have been looking
for more than 6 months.
And it's why a recent poll shows that 72% of Americans think the nation
is going to hell.
Now, finally, almost everyone realizes that this is not a recession-
recovery situation. Something else is going on. The Financial Times calls it a
Great Recession. Richard Koo calls it a "Balance Sheet Recession." And David
Rosenberg says we should call it what it really is - a "modern depression."
But we'll stick with our Great Correction label. Because we think there
is more going on here than even a 'depression' describes. (About which...more
below...).
So far, practically everything that has happened is about what you'd
expect - the predictable, ordinary consequences of a contraction. There is
nothing remarkable about it.
But what's this? The Dow rose 186 points yesterday. Stock market
investors don't seem to have gotten the message: this economy is in a
contraction. They're still pricing stocks as if they thought the underlying
businesses would grow. But companies don't add sales or profits in a
contraction.
At least gold investors seem to have a better idea of what is going on.
They sold the yellow metal yesterday. The price dropped $45.
And the bond market too has its feet on the ground. The yield on the
10-year note is only 2.08%. That is a level consistent with a Japanese-style
slump...
No surprises here.
<<BillBonner.jpg>>
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