Thursday, July 21, 2011

Thanks to Regulatory Burdens, We've Got Both A Creditless Recovery and A Jobless Recovery

We had "jobless recoveries" after the 1990-1991 and 2001 recessions, but they were mild compared to the current "jobless recovery" of 2009-2011. At the current rate of private job creation over the last year, about 141,000 jobs per month, it will still take roughly four more years just to replace the jobs lost during the recession. When you also consider the addition of millions of new entrants every year into the labor market, it will likely be even longer before the U.S. labor market ever approaches anything close to full employment again.

Why is this jobless recovery so much worse than the last two?  

Maybe it has something to do with a serious deficiency in the amount of credit being created, which is contributing to a "creditless recovery"?  The chart above illustrates graphically the current “creditless recovery” by displaying the quarterly ratio of total credit market borrowing to GDP back to 1952. Despite some improvements over the last year, the amount of credit available in the economy in relation to the size of the economy (GDP) remains at a critically low level, less than half of the historical average. 

Read more here at the Enterprise Blog.  


At 7/21/2011 1:50 PM, Blogger morganovich said...

well, we could look at this a couple of ways.

in 1980, this would not have been called a recovery at all. using the inflation metrics of the time, we'd still be in real contraction. whichever view you take on the correct way to calculate CPI and GDP delafator, comparing this recession to ones before the change isn't really valid.

for any given set of objective facts, recessions will look shorter and shallower using today's methodology.

regarding credit, it may be that credit availability is low (as it is to many consumers) but i think low demand for credit is playing a role as well.

many consumers are deleveraging from prior excesses.

big firms can have all the money they want. the rates at which they can issue debt are damn near, if not at all time lows.

yet few want a whole lot of money.

this shows high availability of credit, just low demand for it.

they are afraid to invest and to grow. the uncertainty created by such activist government is a very real deterrent to investment. the causality here flows both ways.

this chart is stunning:

the recovery in jobs was ended pretty much the minute obamacare passed.

correlation is not causality, but i have certainly heard an awful lot of anecdotal evidence to the effect that firms are not hiring nor expanding for fear of these new costs and the uncertainty of deficits and taxes.

At 7/21/2011 1:55 PM, Blogger Unknown said...

An entire article about current credit levels, without one reference to data about credit demand.

Nor any reference to business surveys that consistently show the number one concern of businesses is lack of customer demand.

Above-trend credit growth for a decade, leading to a balance-sheet recession with deleveraging and below-trend credit growth? Nah, that can't be true...

At 7/21/2011 2:43 PM, Blogger Benjamin Cole said...

The Fed is taking notes from the the Bank of Japan. See Japan over the last 20 years. A disaster.

You have Chicken Inflation Littles hysterically screaming about inflation, when the core CPI is at 1.6 percent, and that overstates the case.

The Fed needs to get bold, aggressive, and put some gasoline on the fire.

Bernanke is being a little too cerebral and circumspect.

At 7/21/2011 2:48 PM, Blogger juandos said...

Can you say Dodd-Frank?

At 7/21/2011 2:50 PM, Blogger Rufus II said...

What kind of a moron would want to hock their house (even if they still Had equity in their house,) and start, or expand a small business, Today?

The hinterland is broke. All their money went to Saudi Arabia, China, Multi-National Off-Shore Tax Havens, and Wall St. Scams.

Unemployment has risen 0.4% in 3 months, and the cost of driving is back to $0.20/mile, just for fuel.

As in The 1920's, Wall St., and the Politicos are the last ones to know.

At 7/21/2011 2:52 PM, Blogger Che is dead said...

An entire comment about business surveys that consistently show the number one concern of businesses is lack of customer demand, without one link to a survey about businesses concern about a lack of customer demand.

A government sponsored misallocation of credit for more than a decade, leading to a enormous real estate bubble followed by a predictable collapse, deleveraging and a knee jerk regulatory response authored by the very same people that were responsible for creating the mess to begin with? Add in a government take over of a major portion of the private economy and a trillion dollar plus raid on the treasury with the sole purpose of providing pay offs to one's political cronies? Nah, that can't be true...

At 7/21/2011 4:06 PM, Blogger Caboose said...

What exactly does credit market borrowing mean?

At 7/21/2011 4:09 PM, Blogger Benjamin Cole said...

I think I actually agree with Che is dead.

I need heavier drugs.

At 7/21/2011 4:10 PM, Blogger Mark J. Perry said...

Caboose: There is now a link to the source of "Total Credit Market Borrowing" from the Federal Reserve.

At 7/21/2011 4:33 PM, Blogger Ron H. said...


"Nor any reference to business surveys that consistently show the number one concern of businesses is lack of customer demand."

Well, If Dr. Perry won't do it, how about YOU doing it for us?

Lets see the surveys.

At 7/21/2011 4:57 PM, Blogger Ron H. said...

"What kind of a moron would want to hock their house (even if they still Had equity in their house,) and start, or expand a small business, Today?"

Gee, maybe some moron with a good idea, or a good business model and thriving small business who sees an opportunity to expand?

Just like at any other time.

At 7/21/2011 4:58 PM, Blogger Ron H. said...

"Can you say Dodd-Frank?"

Not without frowning.

At 7/21/2011 7:36 PM, Blogger Craig Howard said...

See Japan over the last 20 years. A disaster.

Disaster, really?

Well, I know that's the Keynesian explanation, but it's false. The truth is that the BOJ has maintained a (for these days) unusually stable yen. That has resulted in falling prices as productivity improves. In other words, the Yen's purchasing power is increasing.

The Japanese are living better on about the same amount of money, their export economy produces ever more goods and their unemployment rate is about 4.7%. Hardly a disaster.

Of course, Keynesians, monetarists and Supply Siders think Japan a failure, because GDP is stagnant. Well, if the money supply doesn't grow, then GDP can't either. That does not mean that economic growth has stopped, it just means that the GDP equation was designed expressly for an inflationary environment.

Would that the Fed would follow their example.

At 7/21/2011 7:38 PM, Blogger Craig Howard said...

I must add that the 4.7% unemployment is after the earthquake and tsunami that destroyed much of the Northeast.

At 7/22/2011 5:00 PM, Blogger VangelV said...

Why is this jobless recovery so much worse than the last two?

Regime uncertainty and barriers to capital formation.


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