I find some of Paul Krugman's shorter blog entries--the ones that don't actually make it to the Op-Ed page of the NY Times--to be some of his most intriguing. Such is the case with something he posted earlier this evening: "
Some call it recovery."
Some call it recovery
August 22, 2009, 5:27 pm
...I didn't invent the standard definitions of recession and recovery. The real problem here is that the standard language doesn't make much allowance for the kind of gray zone we're now in; that's because in the pre-1990 era recessions tended to be V-shaped, so that jobs snapped back as soon as GDP turned around. I don't think what we're going through is good news -- but GDP is almost surely rising, so the recession, as normally defined, is over.
And the current situation is no better -- actually, worse -- that I thought it would be when arguing that the Obama economic plan was inadequate. Read this, and bear in mind that the unemployment rate is now 9.4%.
Krugman continued...
The stimulus has helped, and the conventional recession is over. But the economy is not recovering in the most crucial area, job creation, and the stimulus won't be enough to restore prosperity.
Bold type is diarist's emphasis
Yes, the operative phrase here, in Krugman's last paragraph is: "...the conventional recession is over." In my opinion, and apparently in Krugman's mindset, as well, this is an unconventional recession, (and, one with many inconvenient truths that all dovetail with the concept that economics is as much of an art as it is a science) despite the efforts of some in this community to treat our current economic situation--specifically with regard to the failure of our economy to create jobs and also as it relates to the truth that consumers will not be spending their way out of a recession as they have in past economic crises--as if it's of the common "garden variety."
What's occurring right now is very different from recessions of the past and, in fact, it mirrors the longevity--if not quite the depths, for the moment, anyway--of the Great Depression of the 1930's.
Calculated Risk, in their coverage of this, tonight, concurs. A hat-tip to them for linking to an article that appeared this past Thursday in the latest edition of the Economist:
"U, V or W for recovery"
Aug 20th 2009
From The Economist print edition
The world economy has stopped shrinking. That's the end of the good news...
--SNIP--
...a rebound based on stock adjustments is necessarily temporary, and one based on government stimulus alone will not last. Beyond those two factors there is little reason for cheer. America's housing market may yet lurch down again as foreclosures rise, high unemployment takes its toll and a temporary home-buyers' tax-credit ends (see article). Even if housing stabilises, consumer spending will stay weak as households pay down debt. In America and other post-bubble economies, a real V-shaped bounce seems fanciful. Elsewhere, it will happen only if vigorous private domestic demand picks up the baton from government stimulus. In Japan and Germany, where joblessness has further to rise, that seems unlikely any time soon. The odds are better in emerging economies, especially China. But even there an array of reforms, from a stronger currency to an overhaul of subsidies, is needed to boost labour income and encourage consumption. Until that shift takes place, the global recovery will be fragile and probably quite feeble. A gloomy U with a long, flat bottom of weak growth is the likeliest shape of the next few years.
Fellow blogger, gjohnsit, in a comment in another diary, earlier today, provides us with even more clarity with regard to what lies ahead, and it very much aligns with my sense of the situation, as well:
What frequently gets lost in economic discussions is that the current depression is different from all other post-WWII recessions...
--SNIP--
...What little "less bad" news that we've heard with home and auto sales has been almost exclusively to do with the tax rebates for first-time home buyers and the cash-for-clunkers program. Both of these programs are limited in time and scope, and both bring future demand to the present, which will leave an even bigger gap in demand once they are finished...
As Calculated Risk closes their review of Krugman's comments, tonight, they conclude:
An immaculate recovery seems remote.
Krugman, in his blog tonight, links to one of his earlier--and quite prescient--posts which pretty much sums up my sentiments on the matter, as well: "Behind the Curve."
Behind the Curve
By PAUL KRUGMAN
Published: March 8, 2009
...So here's the picture that scares me: It's September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it's still headed up. Mr. Obama finally concedes that a bigger stimulus is needed.
But he can't get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts. And as a result, the recession rages on, unchecked.
O.K., that's a warning, not a prediction. But economic policy is falling behind the curve, and there's a real, growing danger that it will never catch up.
Yes, the truth is, as even Krugman and the Economist note, the "great" GDP numbers we're hearing about grossly misrepresent the reality that output is well below the levels this country experienced just 20, or so, months ago.
The latest GDP reading of a 1% contraction included a positive 1.38% contribution from net exports. Actual exports fell 7% in the second quarter, but because imports fell 15% the "net" was a positive number. Now who really thinks shrinking imports and exports is a sign of positive economic growth?
http://www.escapethenewgreatdepression.com
-- Michael A. Kamperman
Another truth is that the July unemployment numbers were absolutely nothing to hype, when the truth was that a 1/10th percent drop in unemployment merely obfuscated some scarier realities.
A NY Times editorial from two weeks ago: "Job Market Blues."
Job Market Blues
Published: August 7, 2009
...Still, the job market is in serious decline. No one knows when it will hit bottom, but when it does the American work force will find itself in a very deep hole.
As of July, the economy was coming up short by 9.1 million jobs, including 6.7 million jobs that have been axed since the recession began 20 months ago, and 2.4 million jobs that were needed to absorb new workers, but were never created.
And that is not the only sign of labor-market weakness. At 9.4 percent, the jobless rate for July was slightly lower than in June. But the decline doesn't reflect an improving jobs picture. Rather, it is the result of a contraction in the size of the labor pool -- 422,000 people dropped out of the work force altogether last month. That is the second biggest surge of dropouts since the start of the recession.
In a strong economy, dropping out may be a lifestyle choice, like deciding to become a stay-at-home parent. In today's weak economy, it invariably reflects a deep and prolonged lack of job prospects.
Millions of out-of-work Americans need more help...
Personal incomes are down: (See: "Why The Austrian, Keynesian, Marxist, Monetarist and Neo-Liberal Economists Are All Wrong.")
Why The Austrian, Keynesian, Marxist, Monetarist and Neo-Liberal Economists Are All Wrong
Served by Jesse of Le Café Américain
Naked Capitalism
August 20, 2009
US Personal Income has taken its worst annual decline since 1950.
This is why it is an improbable fantasy to think that the consumer will be able to pull this economy out of recession using the normal 'print and trickle down' approach. In the 1950's the solution was huge public works projects like the Interstate Highway System and of course the Korean War.
Until the median wage improves relative to the cost of living, there will be no recovery. And by cost of living we do not mean the chimerical US Consumer Price Index.
The classic Austrian prescription is to allow prices to decline until the median wage becomes adequate. Given the risk of a deflationary wage-price spiral, which is desired by no one except for the cash rich, the political risks of such an approach are enormous...
Boldface type is diarist's emphasis.
And, the housing/mortgage/foreclosure crisis, like the unemployment crises, is growing, not subisiding (prices continue to plummet or hit temporary plateaus in most markets). (See: "MBA Forecasts Foreclosures to Peak At End of 2010.")
But, it all relates to historical levels of suffering that the citizens of this country are now experiencing...and this is going to get worse--not better--in coming months.
This is what's ahead, and it's bleak: "Number Of Poor In U.S. Likely Increased By 1.5M Last Year: Report"
Number Of Poor In U.S. Likely Increased By 1.5M Last Year: Report
HOPE YEN | 08/19/09 06:39 PM |
WASHINGTON -- The ranks of poor and uninsured Americans are likely increasing - with more than 38.8 million believed to be in poverty.
Rebecca Blank, the Commerce Department's undersecretary of economic affairs, spoke to The Associated Press in advance of next month's closely watched release of 2008 census data. Noting the figures are not yet final, Blank said the numbers likely will show a "statistically significant" increase in the poverty rate, to at least 12.7 percent. That would represent a jump of more than 1.5 million poor people compared with the previous year.
"There's no question that 2008 economically was a much worse year than 2007," she said Wednesday. "The question is how much and how bad."
The number of uninsured is also expected to increase notably due largely to rising unemployment and the erosion of private coverage paid for by employers and individuals, but Blank declined to say by how much. In 2007, the number of uninsured fell by more than 1 million mostly because government programs such as Medicaid for the poor picked up the slack.
The census figures, set to be released Sept. 10, could have important ramifications as Congress returns from its August recess to debate health care reform, its cost and the ways to pay for it. Republicans also have traditionally pointed to the intractable poverty rate as a sign that government programs for the poor do not work, a claim likely to be repeated often in light of the federal stimulus package.
In a 30-minute interview, Blank said the census figures released next month could possibly understate the actual number of poor people, since the poverty rate is a lagging indicator that tends to accelerate over time. As a result, the 2008 data could prove to be the tip of the iceberg, with more significant declines reflected in 2009 figures that will be released next year...
And, for those that ask why I link to other sources in my stories, it's because I do not pretend to be an economist. What I do know is that the numbers we're receiving from our own government don't even begin to paint the entire picture; and those that rely upon them--almost exclusively--to explain our economic reality to this community do a significant disservice to it. If nothing else, last month's convoluted government "reports" on unemployment and the GDP support this truth, moreso than almost anything else.
As Krugman all but tells us: The old rules no longer apply. Or, at the very least, they belie much greater realities.
## ## ## ## ##
UPDATE/REBUTTAL (1:00PM EST, 8/23/09):
The following is a comment I just posted in the "other" diary on the economy currently on the Rec List:
The overall FACTS undermine diarist's position...
...and this is particularly with regard to:
1.) the housing market (with 1/3 to 1/2 of all homeowners underwater, now and within the next 18 months, respectively)
2.) consumer spending
3.) unemployment
And, it's in these three areas where the diarist's argument--that this is a garden-variety recession--just does not flush.
We're not talking about "Black Swans." (Where did that come from?) We're talking about fact-based realities.
But, let's look a little closer at the diarist's out-of-context commentary...
1.) the Empire State and Philadelphia regional manufacturing index have been rising since the beginning of the year and are now in positive territory
#1: The Empire State Index was notable for two reasons: a.) for the first time in a long the index rose about a 1/2 point, b.) margins (i.e.: profits) have been eroded significantly just to achieve this modest, one-time rise in the index. As far as the Philadelphia index is concerned, they had some interesting comments about overall GDP and unemployment which you don't mention herein. (I'll leave it at: the forecast was still bleak, with the "things-are-getting-worse-more-slowly" meme underscoring overall assessments.)
2.) Single family housing starts have been increasing for the last several months
3.) Existing home sales have clearly bottomed and are now rising
4.) New homes sales are rising
#2, #3, #4: Sales are increasing, primarily with regard to foreclosed properties and short sales (owners facing foreclosure and forced to sell at a loss [in most instances]; normal sales account for but a fraction of overall sales; the critical metric here is that PRICES keep DROPPING in most markets. As noted in my most recent diary, and the comments of others, it's the end of the height of the typical real estate sales season, and the government's first-time buyer ($8,000) credit is going to be history in about 60 days.
From Naked Capitalism: "Frank Veneroso on Mortgage Armageddon"
Sunday, August 16, 2009
Guest Post: Frank Veneroso on Mortgage Armageddon
Frank Veneroso was kind enough to write as a result of seeing a guest post "Debtor's Revolt?" by his colleague Marshall Auerback. Veneroso also provided his latest newsletter and gave us permission to post it. It it pretty long (12 pages), I extracted the executive summary and other key bits. Be sure to read the final section, starting with the boldface heading "Why Resolving The Mortgage Armageddon Problem Will Be So Difficult:." (Enjoy!
From Frank Veneroso:
1. Deutsche Bank now predicts that 48% of all mortgaged American homeowners will be "under water" by 2011...
(DIARIST'S NOTE: The effect of almost half of all homeowners being underwater in their mortgages--with one-third of them in that situation already--is nothing short of stunning, in the most negative sense of the word. People will not be spending their way out of this recession as they have in recession's past; and, maybe moreso than just about anything else, this tells us that this is not a standard, garden-variety recession.)
5.) The rate of GDP decline is dropping
#5: GDP is, perhaps, one of the most deceptive numbers (in terms of how it's calculated) published by our government.
Meteor Blades and I had an interesting discussion about this over in the comments thread of my most recent diary...
Here is something I wrote in October 2003... (9+ / 0-)
...on that subject: What the GDP Doesn't Do:
This situation perfectly illustrates why we progressives must popularize a more inclusive gauge of economic well-being than the traditional GDP approach. Not to mention our overall well-being.
I'm not arguing that GDP has no value. It does. And adjustments in the past decade have made it a better measure of what it measures. So what's so bad about it? Mostly for what it doesn't measure. Even as a purely economic index, it fails.
For instance, take pollution. GDP measures as income a manufactured product which creates pollution as a byproduct. It then measures the clean-up as income. And it then measures health services to those sickened by the pollution as income.
GDP also leaves out things like income distribution, the intensity of poverty, economic security, crime costs, the economic value of civic and voluntary work, the economic value of unpaid housework and child care. It's a measure that assigns zero value to leisure time, to the depletion of resources, to the benefits of saving, to trade imbalances, to deficits and debt.
The United States ranks No. 1 worldwide in GDP and per capita GDP, and this has been the case for more than half a century. So when it rises 7.2% (or whatever the adjusted figures show in a couple of months), we're talking a big deal.
But America doesn't rank No. 1 when it comes to infant mortality. We're 34th.
We don't rank No. 1 in health care, either. We're 37th.
Nor do we rank No. 1 in literacy. We're No. 6.
And we're not No. 1 in life expectancy. We're 20th.
We are No. 1 when it comes to putting in the hours at work. In 1980, the average American was at work 1,887 hours a year; in 1990, it was 1,942 hours; and in 2000 it was 1,978 hours. And we're No. 1 in overall productivity, though not in efficiency per hour.
(We've also got the toughest military machine on the planet, with expenditures at 43% of the worldwide total, more than the combined total of the next 14 nations.)
Other gauges exist. But they get little media play. GDP can be explained in a sentence. Nuances required to understand other indexes don't make for good sound bites.
Some people would be better off not reading diaries they comment on, since they already have all the answers.
by Meteor Blades on Sun Aug 23, 2009 at 03:31:02 AM EDT
Outstanding! And, here's something from a wk. ago (11+ / 0-)
US economic myths bite the dust
America is not the internationally competitive land of small businesses that politicians love to tout
Mark Weisbrot
guardian.co.uk, Thursday 13 August 2009 20.00 BST
The Great Recession is allowing some widely held beliefs about the US economy - which were the source of much evangelism over the last few decades - to run up against a reality check. This is to be expected, since the United States has been the epicentre of the storm of policy blunders that caused the world recession.
This month my CEPR colleagues John Schmitt and Nathan Lane showed that the United States is not the nation of small businesses that it is regularly dressed up to be for electoral campaign speeches and editorials. If we look at what percentage of our overall labour force is self-employed, or what percentage of manufacturing workers or high-tech workers are employed in small businesses - well, the US ranks at or near the bottom among high-income countries.
As economist Paul Krugman noted after reading the study: "One more American myth bites the dust." Indeed it has. And as both the authors of the paper and Krugman note, there is a plausible explanation for the US's low score in the small business contest: our lack of national health insurance. There are enough risks associated with choosing to start a business over being an employee, but the Europeans don't have to worry that they will go bankrupt for lack of health insurance.
A number of other alleged advantages of America's "economic dynamism" are also mythical. Most people think that there is more economic mobility in America than in Europe. Guess again. We're also near the bottom of rich countries in this category, for example as measured by the percentage of low-income households that escape from this status each year.
The idea that the US is more "internationally competitive" has been without economic foundation for decades, as measured by the most obvious indicator: our trade deficit, which peaked at 6% of GDP in 2006. (It has fallen sharply from its peak during this recession but will rebound strongly when the economy recovers).
And of course the idea that our less regulated, more "market-friendly" financial system was more innovative and efficient - widely held by our leading experts and policy-makers such as Alan Greenspan, until recently - collapsed along with our $8tn housing bubble...
Definitely worth reading the entire thing, btw!
by bobswern on Sun Aug 23, 2009 at 03:42:50 AM EDT
And, then there's this...
The latest GDP reading of a 1% contraction included a positive 1.38% contribution from net exports. Actual exports fell 7% in the second quarter, but because imports fell 15% the "net" was a positive number. Now who really thinks shrinking imports and exports is a sign of positive economic growth?
http://www.escapethenewgreatdepression.com
-- Michael A. Kamperman
Here's more on the harsh reality of what our "new normal" really means, going forward: "New Normal of 2% GDP Growth Coincides With Bullish Biggs..."
New Normal of 2% GDP Growth Coincides With Bullish Biggs
By Matthew Benjamin
May 26 (Bloomberg) -- Americans may have to get used to unemployment greater than 8 percent for the first time since 1983 and an economy that won't grow much beyond 2 percent as a consequence of the lost confidence in consumer credit that shattered financial markets.
By this time next year, "the market will realize that potential growth for the U.S. is no longer 3 percent, but is 2 percent or under," Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said in an interview with Bloomberg Radio.
"We are transitioning to what we call at Pimco a new normal," El-Erian said. Pimco, in Newport Beach, California, is the biggest bond fund manager with about $756 billion in assets.
The U.S. financial crisis and recession have produced lasting shifts in consumer spending and savings reminiscent of the 1950s that may crimp profits and productivity, said David Rosenberg, chief economist at Gluskin Sheff & Associates Inc. in Toronto and former chief North American economist at Bank of America Corp.
"This is going to be a new era of frugality," Rosenberg said. "This isn't some flashy two- or three-quarter deal. This is a secular change in household attitudes."
The last time U.S. gross domestic product grew at an annual rate of under 2 percent over a decade was the 1930s, when it expanded at an average 1.3 percent. In the 30 years before the recession that began in December 2007, the average was 2.9 percent. Over the past 15 years, it was 3 percent.
6.) The pace of jobs losses is easing
#6: As long as we "accept" the reality that unemployment will remain quite high for a very long time, then this is great news. As many will agree, unemployment remaining very high for a very long time is really not acceptable.
7.) The rate of initial jobless claims are decreasing
#7: As Meteor Blades also pointed out the other day, the economy would have to create roughly 300,000-400,000 more jobs per month than it's currently losing over approximately a 60-month period, nonstop, to regain any type of normal, sustained unemployment level (i.e.: 4.5%-5%) that's in line with reasonable levels of economic growth.
8.) The index of leading indicators has been rising for fouir months at a strong pace.
#8: This is another convoluted measurement hyped by many. It's too significantly influenced by an intensively flawed GDP, as many have noted in the past; see my--and others'--comments regarding GDP, above.
9.) The chicago PMI is increasing and has been since the beginning of the year.
#9: Another things-are-getting-worse-more-slowly meme:
"Chicago PMI Jumps, but Still Contracting."
Chicago PMI Jumps, but Still Contracting
Briefing.com with the details:
According to the Institute of Supply Management-Chicago and Kingsbury International, Ltd., the Chicago Purchasing Mangers Index increased to 43.4 in July (consensus 43.0) from 39.9 in June. The July reading is the highest reading all year and is comfortably above the 6-month average of 37.3; however, a reading below 50 still signifies contraction. The message once again, then, in the July number is that the rate of decline in manufacturing activity in the Chicago Fed region has slowed. The main point of encouragement with this report is the new orders component. It jumped to 48.0 from 41.6 in June as the region recovers from the depths of the auto industry downturn/restructuring.
10.) The stock markets have rebounded
#10.: This is something I'm not even going to comment upon. The current market upswing is nothing short of a farce, IMHO. But, here's a very interesting and quite recent observation that speaks to the issue, at least in part: "Five Financial Stocks Dominating Market Volume." Additionally, folks like Taibbi and others have had plenty to say about this; and it's been publicized for many months.
11.) Short term interest rates are back in line at a traditional risk profile
#11: This relates to interbank lending and LIBOR. As far as Main Street's concerned--at least right now--this is somewhat meaningless. Consumer credit has dried up, and that relates to credit for mortgages as much as it does for everyday goods.
12.) The rate of decline in industrial production has diminished since the beginning of the year and the industrial production number printed a positive number last month further adding to the bottoming argument.
#12: It's a widely accepted fact that American industrial production--sans the military-industrial complex--is nothing more than an empty shell of what it was just a few decades ago.
In other words, all of the things that should happen at the end of a recession are happening and signs are emerging that a recovery is starting. Now a new group of people are arguing that we are in a new paradigm and the old methods of analysis don't apply. In other words, despite the increasing statistical evidence against their argument, they continue to make it. The old methods of analysis are only practiced by old-fashioned people who don't recognize the new paradigm. As such, the previous analysis is moot.
You're right, however, in some ways things are returning to normal: "The Quick Buck Just Got Quicker."
Fair Game
The Quick Buck Just Got Quicker
By GRETCHEN MORGENSON
Published: August 15, 2009
WITH outsized and corrupting corporate pay packages under scrutiny, you might think that companies would be rushing to tamp down their compensation plans. Making sure that pay actually rewards long-term performance, for example, seems a fairly obvious way to allay shareholder fears that managers are lining their pockets rather than safeguarding their companies.
But a study of changes made in pay practices by 191 of the nation's largest companies this year shows that where pay is concerned, enlightenment remains a long way off. In other words, meet the new pay, same as the old.
The study was conducted by James F. Reda & Associates, an independent compensation consultant in New York, and it looked at proxy filings issued by almost 200 companies in the first half of 2009. The firm analyzed changes these companies made to their pay plans that take effect this year.
The biggest shock? Instead of seeing a greater reliance on long-term incentive programs, the Reda report found that changes in these companies' plans made short-term incentive pay a bigger part of the compensation pie. Let me say that again: The plans -- despite the calamities that short-term profiteering has visited on our economy -- made short-term incentives a bigger component of compensation...
"US Economic Myths Bite The Dust"
US economic myths bite the dust
Mark Weisbrot
guardian.co.uk, Thursday 13 August 2009 20.00 BST
America is not the internationally competitive land of small businesses that politicians love to tout
The Great Recession is allowing some widely held beliefs about the US economy - which were the source of much evangelism over the last few decades - to run up against a reality check. This is to be expected, since the United States has been the epicentre of the storm of policy blunders that caused the world recession.
This month my CEPR colleagues John Schmitt and Nathan Lane showed that the United States is not the nation of small businesses that it is regularly dressed up to be for electoral campaign speeches and editorials. If we look at what percentage of our overall labour force is self-employed, or what percentage of manufacturing workers or high-tech workers are employed in small businesses - well, the US ranks at or near the bottom among high-income countries.
As economist Paul Krugman noted after reading the study: "One more American myth bites the dust." Indeed it has. And as both the authors of the paper and Krugman note, there is a plausible explanation for the US's low score in the small business contest: our lack of national health insurance. There are enough risks associated with choosing to start a business over being an employee, but the Europeans don't have to worry that they will go bankrupt for lack of health insurance.
A number of other alleged advantages of America's "economic dynamism" are also mythical. Most people think that there is more economic mobility in America than in Europe. Guess again. We're also near the bottom of rich countries in this category, for example as measured by the percentage of low-income households that escape from this status each year.
The idea that the US is more "internationally competitive" has been without economic foundation for decades, as measured by the most obvious indicator: our trade deficit, which peaked at 6% of GDP in 2006. (It has fallen sharply from its peak during this recession but will rebound strongly when the economy recovers).
And of course the idea that our less regulated, more "market-friendly" financial system was more innovative and efficient - widely held by our leading experts and policy-makers such as Alan Greenspan, until recently - collapsed along with our $8tn housing bubble...
This is a good article; read the entire piece!
And, finally, another excellent analysis: "Weak consumer spending will last for years."
Weak consumer spending will last for years
Sunday, August 16, 2009
Submitted by Edward Harrison of Credit Writedowns.
It has been my thesis for some time that we are seeing a secular change in consumption patterns in the United States. This will have grave implications for a world economy used to seeing the American consumer as an economic growth engine and consumer of first choice. Retail sales in the United States have fallen 10% since peaking in November 2007. Much of this decline represents a permanent fall in consumption by overly indebted American consumers.
Having finally had a chance to dissect the retail sales data from last week, I wanted to show you a few graphs which indicate how much consumption has fallen in the present downturn and what the implication is for the future global economy. But, first, I want to start with a broader discussion as to why the fall in US consumption is a longer-term change and not a cyclical one.
The Balance Sheet Recession
Numerous economies seem on there way to recovery: Germany and France, Singapore, and Hong Kong, to name a few, have all posted positive economic growth. China looks likely to hit its 2009 growth target of 8%. But, the U.S., generally assumed to be a leader in recovery, is looking like a laggard. Mind you, there are other laggards like Spain and Ireland too. Why are these countries lagging? The Balance Sheet Recession.
Nomura's Chief Economist Richard Koo wrote a book last year called "The Holy Grail of Macroeconomics" which introduced the concept of a balance sheet recession, which explains economic behaviour in the United States during the Great Depression and Japan during its Lost Decade. He explains the factor connecting those two episodes was a consistent desire of economic agents (in this case, businesses) to reduce debt even in the face of massive monetary accommodation.
When debt levels are enormous, as they are right now in the United States, an economic downturn becomes existential for a great many forcing people to reduce debt. Recession lowers asset prices (think houses and shares) while the debt used to buy those assets remains. Because the debt levels are so high, suddenly everyone is over-indebted. Many are technically insolvent, their assets now worth less than their debts. And the three D's come into play: a downturn leads to debt deflation, deleveraging, and ultimately depression. The D-Process is what truly separates depression from recession and why I have said we are living through a depression with a small `d' right now...