Today, the National Bureau of Economic Research announced that the recession that began in December of 2007 officially ended in June of 2009, some 14 months ago. I’m sure relieved to hear that. I’ll bet you are too.
According to the Wall Street Journal, the NBER goes on to “warn” that any future downturn would be a new recession and not a continuation of the last recession. I’m going to take that warning to heart and head straight to the nearest army surplus store for some hip waders.
This kind of miss-the-forest-for-the-trees analysis drives me nuts. It would be nice if respected publications like the Journal called it for the nonsense that it is. Whether the economy is still shrinking or simply not growing is beside the point. And nothing could be less important than a microscopic distinction as to whether a new downturn is or is not a separate recession.
The important point is this: What we’ve been going through for the past three years is the first wave of reckoning for having lived beyond our means as a nation for the past 35 years. 1975 was the last year in which the United States ran a trade surplus. Ever since then, we’ve been net importers, and our imports have been growing at an alarming rate. That means dollars have been leaving. In order to get them back (so we could import more stuff), we’ve been borrowing like crazy, both as a nation and as individuals.
The national debt is now $12 trillion, $8 trillion of which we’ve borrowed from overseas. Personal and mortgage debt combined amount to another $13 trillion. US GDP is a little under $15 trillion, so we owe about twice as much as we produce every year. Since you can only repay debt with surplus cash, it’s going to take us a long time to pay those bills.
Actually, we’ll never pay them. We will devalue the dollar until our debts become bearable – but that will make future borrowing much harder. Think Greece, but much larger and without the olives.
We’ve also been conducting a national garage sale, selling off US assets to foreign interests. That began in earnest in the 1980s, with Japanese companies snapping up US businesses and, especially, real estate. It’s not the Japanese any more, but the trend continues. Also in today’s Journal: an announcement that an Indian company is looking at buying MGM.
Deleveraging is slow and painful. There is no easy way around it. It calls for hard choices, and it will require sacrifice. That, not whether a new recession would be separate or a continuation of the last one, is what we need to focus on. Next month, I imagine that the National Bureau of Economic Research will finally tell us how many angels can dance on the head of a pin. I don’t know where they’ll find the angels, but it seems to me that they have no shortage of pinheads.