When will the recession end?

[Beet]

The recession will not end this year. By the end of the year, it will become apparent that the Obama administration will not be able to solve the country's problems, just as it became apparent that Jimmy Carter would not turn the country around by the end of 1977.

The majority of credit losses in prime housing, commercial real estate, and credit cards lie in the future. The so called "stress tests", which were supposed to predict these losses, were badly flawed for multiple reasons. They used the banks' own flawed data rather than independent auditor data; they used the wrong measure of capital; they were too generous in their assumptions of future economy activity. The government is already backtracking or changing some of the rules of the game that applied back when the results were released on May 7.

The contraction of credit lines and the return of credit card rules to pre-1980s standards, while admirable in their restriction of usury, come at a bad time and will only serve to further inflame the contraction of consumer purchasing power that is already collapsing due to the free falling jobs market and the reverse wealth effect. Of what purchasing power remains, a greater percentage will be saved. As a result, consumer spending will come in below expectations and continue to fall throughout the year. This will cause businesses to continue to cut back; which will causes more job losses in manufacturing, and so on and so on.

The monetary efforts of the Federal Reserve are a joke. While I am not necessarily opposed to quantitative easing, lower marginal interest rates in the face of collapsing income will not save the housing market, since consumers' ability to afford housing is tied at least as much to their income as it is to their ability to borrow. The idea that Bernanke does not understand this basic fact is impossible to believe, but it is also impossible to believe that the housing market can be revived solely by low interest rates in the current macroeconomic environment. Quantitative easing would be better put to use on direct job creation.

Some economists claim that weekly unemployment claims peaking is a sign that things are about to turn around. Weekly claims have dropped from about 650,000 to 625,000. Woo. Huge drop. Meanwhile, the total employment level is falling off rapidly. A 675k monthly job loss at an employment level of 135 million represents a 0.5% fall in employment. A 625k monthly job loss at an employment level of 125 million represents a 0.5% fall in employment. The lower the total employment level goes, the smaller the weekly or monthly employment loss needs to be to represent the same proportional drop. Therefore, marginal drops in claims or monthly net losses do not necessarily represent a fall in the "second derivative."

The economic stimulus package is a joke. It promises to create or save 2 to 3 million jobs over the next 2 years. But we are losing 2 to 3 million jobs every 4 to 5 months, on top of the roughly 5 million already lost, and the millions of people who join the workforce every year. We need a stimulus package that creates 5 to 10 million jobs. There are no signs we will get one.

The PPIP and TALF are jokes which are mostly by now on indefinite hold.

In short, none of the government's actions, nor any of the indicators supposedly pointing to a recovery, addresses the multiple of problems that lie ahead. We are in for a long term debt deflation unless and until more drastic actions in policy and changes in direction of policy are undertaken.

[Beet]

...the Obama administration will not be able to solve the country's problems, just as it became apparent that Jimmy Carter would not turn the country around by the end of 1977.

I don't dispute your critique of Obama, Beet, but 1977 was a fantastic year in the American economy.  Carter presided over economic troubles only at the very end of his term - '76, '77, and '78 were great years economically, and better than anything we've seen since.

Do you have anything interesting to say?