Study shows economy twice as bad as first reported

It looks like you weren't crazy after all. This Depression really is as bad as it seems.

(Bloomberg) -- The first 12 months of the U.S. recession saw the economy shrink more than twice as much as previously estimated, reflecting even bigger declines in consumer spending and housing, revised figures showed.

The Commerce Department’s Bureau of Economic Analysis actually went back and revised their economic figures all the way to 1929, although most of the revisions are since 1997. So as not to bore you with too many details, I'll keep this short and sweet and only touch on the highlights.

February 14th, 2008 – Paulson: (the economy) "is fundamentally strong, diverse and resilient."

February 29th, 2008 – Bernanke: "I expect there will be some failures. I don't anticipate any serious problems of that sort among the large internationally active banks that make up a very substantial part of our banking system."

Over the most recent period, the third quarter of 2008 underwent one of the biggest changes, going from a 0.5 percent decrease in gross domestic product to a 2.7 percent drop. The new reading better illustrates the effect the September collapse of Lehman Brothers Holdings Inc. had on the economy and credit markets.

Also, the first quarter of 2008, which was originally reported to have a positive GDP of 0.9%, was revised to negative 0.7%. The first quarter of 2009 was revised lower to the worse showing in post-WWII history.

May 7, 2008 – Paulson: 'The worst is likely to be behind us,”

June 9th, 2008 – Bernanke: Despite a recent spike in the nation's unemployment rate, the danger that the economy has fallen into a "substantial downturn" appears to have waned,

You will probably hear the Green Shooters focusing on reports of the economy shrinking at a slower rate. It's almost as if they are suggesting that digging a hole at a slower rate will get you closer to the surface.
What they won't tell you is what is actually in the report. For example:

Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first. Durable goods decreased 7.1 percent, in contrast to an increase of 3.9 percent. Nondurable goods decreased 2.5 percent, in contrast to an increase of 1.9 percent.

Pretty much the only numbers that are going up are government expenditures - not something a healthy economy can build upon.

Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent. Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent.

July 20th, 2008 – Paulson: "it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation."

July 16th, 2008 – Bernanke: (Freddie and Fannie) “...will make it through the storm”, "... in no danger of failing.","...adequately capitalized"

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I noted all of the downward revisions as well in the GDP report (H/T NC) but keyword Depression?

I have to go back and look at those stats but it seems from the top of my head we aren't anywhere near those statistics...

That said, I also did a little digging and our complaint, which is the damn last recession, at least for the middle class never ended, i.e. a jobless recovery is not a recovery...and saw that housing was contributing 3.5% GDP!

That's outrageous to see the economy was being built on "hot air" from 2002-2007.

Need to dig deeper but I hesitate on keyword term depression.

Yes, Depression

Do you not remember my article here?
Remember, the unemployment rate in 1930 was 8.7%, a rate we've already exceeded. Just because we haven't hit the 1932 levels yet only means that we aren't 4 years into the New Depression yet.

Granted, things might not get that bad, but we don't know for certain yet. What we do know is that we are tracking the Great Depression very closely so far.


Yes, I remember that post and you as well as others are showing some uncanny tracking. BUT! while we sure as hell do not have the policies in place we need..

we also do not have the policies in place by the Hoover administration either. i.e. UI, some Stimulus (such as it is), food stamps (such as they are)....but one thing I noticed in the GDP report is some deflationary data...

So, while I think we have long term structural problems which will keep the U.S. middle class screwed, the nation FUBAR but more stuck in the mud mess...

hmmmm, I'm have to revisit that 1930-1934 period again to jump onto the "D word" scenario.

One key difference

There are lots of reasons why this isn't your run of the mill recession, but one thing I'd like to point out is monetary policy.

First of all, every post-WWII recession until this one was caused, more or less, by the Federal Reserve tightening the money supply to cut off inflation.
This Depression wasn't caused by Federal Reserve policy.

Another, perhaps more important point, is Fed response.
The rule of thumb is that there is a 9-18 month time lag between the Fed cutting interest rates, and their impact on the economy.
Well, the Effective Federal Funds rate began dropping back in late 2007. It hit bottom in late 2008.

It's been more than 18 months since the Fed began cutting rates and we still can't produce positive economic growth. It's been almost 9 months since rates were lowered to zero, and we still can't get the economy moving.

None of this is like a normal recession.

Bernanke's Neo-Liberal Monetary Policy

Absolutely agree with you midtowng, this is not a normal recession and we have oodles of deleveraging still ahead. Back in February, Steve Keen wrote a terrific analysis of the current situation called The Roving Cavaliers of Credit. The implications of the Fed's monetary policies, indeed the global reaction, is to just kick the inevitable down the road a bit but, at the same time, compound the ultimate price paid.

Your analogies to the GD are also appropriate, IMO, to get a feel for how long and how far down we have to go. Like you, I just think we are only in the very beginning stages of this deflationary event. This is not just an economic or financial crisis, it is, or will soon be, a full blown political and social crisis as well.

That's when it gets scary

This is not just an economic or financial crisis, it is, or will soon be, a full blown political and social crisis as well.

We aren't there yet, but when this economy takes another sharp downturn, which I'm betting it will, that's when there will be political and social consequences. That's when people will look for scapegoats.

Early in the Great Depression the communists, and then socialists, were there to point out who was responsible for the calamity. People listened.
I remember reading that when the Bonus Marchers reached Washington they were chanting anti-Wall Street banker slogans. And these were veterans, not communists.

Today there is no communist or socialist party. And the MSM is even worse than it was then.
People need to know who the culprits were, and how they did it, otherwise they will fall for the old lies: immigrants, terrorists, and infidels. Just like Nazi Germany.


all of the anomalies is why I hope all continue to look at all of the stats and keep an open mind instead of "deciding", which is why I am almost poking fun at the green shoots/brown weeds argument.

I frankly hope you're wrong as hell but I mean I'm seeing, pointing out data that isn't matching the typical cycles too and that is what it is!

This is off topic to what you're talking about, but did you see Grayson's questioning on Ben Bernanke asking about $500B in foreign currency swaps?

Now some think this is a "huge deal" but I didn't see it that way, it was more to increase the supply of dollars but Grayson seems to imply it caused the dollar to depreciate...

anyway, did you see that and what do you make of it?

What, specifically, is the difference

Between a Homeless US Citizen and the poor of Guadalupe, Mexico living in the garbage dump?
Maximum jobs, not maximum profits.

Maximum jobs, not maximum profits.

Game Over ?

They have until October.

Politics always trumps Free Markets and it's all calculated!

If this fiasco hasn't turned-around by then, the O-Team will send in "The Cleaner" and the Election Cycle will rein.

- misallocated Capital encouraged overcapacity and the Social Contract with Labor is null & void
- End of '09, Bargaining & Hope is lost and Anger causes heads to roll (i.e., B.B., L.S. and T.G. are out as the nation moves closer to socialism)
- 2010 will bring Depression and will end with Acceptance
- 2011 re-election campaign kicks in with promises to Labor of a "Road to Recovery"
- 2012 Capital gets the backseat, Labor is in the driver's seat. O-Team is re-elected with a majority in the House

The fate of capitalism as we know it, will forever have changed!

Election Cycles:
...note election year Novembers, the February following election year Novembers has been an excellent indicator as to whether the election year November would mark[s] an important top. In every case since at least 1968, when February following election year November moves to a higher high than the January following election year November, the market has proceeded to do very well.

Conversely, when the post-election year February is unable to move higher than the post-election year January, a significant market decline has always followed. This may be coincidence but it has proved prescient for at least the past 40 years.

How about this quotes:

From 2007, regarding subprime mortgage crisis:

March 13th, 2007 – Henry Paulson: “the fallout in subprime mortgages is "going to be painful to some lenders, but it is largely contained."

March 28th, 2007 – Ben Bernanke: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,"

Either they were lying or incompetent. Take your pick. In other case we were screwed. - Financial Information for the Rest of Us.