The Economy Ain’t Good...But It’s Not That Bad

November 20, 2008 

Rupert Murdoch must have been referring to the twits at Reuters when he commented this week that, “editors and reporters think their readers are too stupid to think for themselves.” 

Within a few hours on November 13, Reuters posted two sensationally irresponsible and disingenuous headlines: “Jobless claims reach 7-year high” and “Jobless claims hit 25-year high”. 

Probably hoping for government takeovers of their miserably failed businesses, the MSM is on a mission to convince the American public that the present economy is “the worst” since the Great Depression if not “the worst ever”.  

Maybe this might be true for MSM earnings but let’s get real. 

The U.S. Bureau of Labor Statistics reported October 2008 unemployment at 6.5%.  Twenty-five years ago, in October of 1983 unemployment was at 8.8%.  

But Reuters would prefer to use aggregate unemployment numbers for their reporting purposes.  Hence, in October 1983 there were 9,383,000 unemployed compared to 10.1 million in October 2008. 

And it would be as bad as Reuters hoped if not for the fact that the U.S. population was 233,791,994 in 1983 and had grown to 305,607,963 by October 2008.   

Whoops...the population grew by almost 31% from 1983 to 2008 but the aggregate number of unemployed only grew by 8%.  Ergo...if the idiots at Reuters, and the rest of the MSM gaggle, had any useful purpose in life aside from obfuscation, they would report that the PERCENTAGE of unemployed was just about average. 

And speaking of average.... 

American Nobel Laureate economist Milton Friedman is credited with discovering the “natural rate of unemployment” or what most contemporary economists refer to as NAIRU (Non-Accelerating Inflation Rate of Unemployment).  And that rate of unemployment is pegged at around 6%. 

Prolonged unemployment significantly less than 6% can accelerate inflationary. 

And, for history’s sake, Great Depression unemployment was 25% and the recession of 1982 gave us an unemployment rate of 9.7%.

And speaking of historical rates.... 

With all of the whining about “the worst credit crunch”, today’s 30-year fixed rate home mortgage is at 6%.  The average mortgage rate for the prior 30 years is 9.36% with a high of 16.63% in 1981 and a low of 5.82% in 2003.  Even during the supposedly wonder Clinton years, mortgage rates varied in a range from a low of 6.94% to a high of 8.4%. 

And speaking of mortgages.... 

A recent AP story has the sky falling in with the life-threatening news that, “The 19 bank failures so far this year compare with three for all of 2007 and are more than in the previous five years combined.” 

From MSM reports, one would think that the run on banks in 2008 is approaching Great Depression levels. 

The average annual number of bank failures for the prior 30 years is 99.9 per year with a low of 0 bank failures in 2006 and a high of 534 bank failures in 1989. 

And speaking of failures.... 

On October 9, 2007 the stock market (DJIA) reached its historic high at 14, 164.  Today it is around 8000 which represents a 44% decline from its all-time high.   

On September 3, 1929 the DJIA hit its pre-Depression high of 381.17.  It took until April 28, 1942 to hit its bottom of 92.92 which was a 76% decline over more than a dozen years of economic misery. 

If today’s DJIA declined another 2500 points (Dooms Day scenario) and closed around 5500 (which would be a 1996 level) it would represent a 61% decline off of its all-time high...this would still be significantly less than what happened during the Great Depression. 

Let’s face it...a Great Depression this isn’t. 

Unlike the Great Depression when the stock market crashed and never again reached its 1929 high again until 1954 and unemployment reached 25%, this economic downturn looks more like a classic 18 month “Deep V” recession similar to those experienced in 1974-75 and 1981-82.  Remember that the DJIA stayed under 1000 (with a single exception) from 1973 – 1982. 

Most economists predict that unemployment will top-out at the 7.5% to 8.5% range by mid 2009 with a gradual and sustained recovery lifting the economy back to “normal” in 2010. 

The greatest threat this economy faces would be a prolonged deflationary cycle with continued declines in asset values.  It seems more likely that with the present level of government intervention and anticipated future levels of government intervention that inflation may end up as a greater consequence of the bailout process. 

So what’s the good news? 

From a July 2008 high of $147 per barrel, oil prices have now fallen under $50 per barrel.  Which means that, in October alone, energy prices were down a record 8.6%, including a record 14.2 % decrease in gasoline prices, with even lower energy prices still expected in the coming months. 

Also, housing starts have reached their slowest aggregate rate since 1959.  This is good news because a reduced supply of housing entering the market coupled with still historically low interest rates will help to stabilize and increase the values of existing homes. 

Additionally, October consumer prices experienced their greatest decline in 61 years.  This means that the cost of everything you consume is trending down.  Short term this is good but a long term deflation of prices with no base in sight would not be healthy. 

There is no doubt that some very tough times lie ahead in the next year, but the American economy is far from terminal (only the politicians could kill the patient).  In fact, the American economy, at worst, has a bad case of the flu from which it will recover. 

Reuters and their MSM counterparts choose to see a glass half empty when, in fact, the glass is more than half full. 

And who can blame them?  Reuters’ parent company, Thomson Reuters, just experienced an 87% drop in its third-quarter net income.  And The New York Times reported a 51.4 percent decline in their third-quarter profits.  And the newspaper business as a whole is tanking.   

It’s bad times for the MSM but, as Rupert Murdoch said, “It's not newspapers that might become obsolete. It's some of the editors, reporters, and proprietors who are forgetting a newspaper's most precious asset: the bond with its readers”. 

And trying to make depressions out of cyclical recessions ain’t gonna bring the MSM back from the dinosaur age.

 

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