Pigs with Lipstick

Swine are very much in the news these days. But I’d like to talk about the non-fluish, but probably equally deadly, kind. I’ve been watching the numbers, as you all know. The stock market has enjoyed a bear rally. Unemployment numbers, while still rising, show signs that the rate of job-loss is slowing, people are buying a bit more (reducing inventory, a precursor to job growth). And there is evidence that, notwithstanding a lack of credit particularly in markets where the median home price is over Freddie Mac and Fannie Mae lending limits, home prices are beginning to hit bottom. Chrysler looks like it will emerge from bankruptcy and become a… well… Fiat? That’s the nice way of looking at this meltdown – you can even call it a recession under some of this rubric.

But since there is no formal definition of a “depression,” savvy politicians avoid using that word. I never have shied away from this truth; I have referred to this horror as a “managed depression” for quite a while now. My view of the above statistics is somewhat more jaded. We’ve not seen collapses at this level in GDP, housing and employment since the Great Depression. Sure unemployment has been higher, but we’re getting there. And if you use the government’s own “alternative measurement” (by adding those wanting full time jobs but able to get only part-time/occasional work or who simply given up to the basic unemployment number), the nation is getting dangerously close to 20%.

Since the stock market – a leading economic indicator – trades on expectations, our government is working hard to create positive expectations. The Federal Reserve tells us that the government will not let any of the big 19 banks that have undergone the “stress test” (the results are to be officially announced on May 4^th) fail; they are confident that survival is in the cards. CitiGroup, among the weaker banks in the group (with lots of TARP money on its books), has even petitioned the government to allow it to pay some hefty executive bonuses in order to retain specialists in higher performing trading groups.

Sure, government is supposed to paint a better picture, to be our cheerleader. But as Commerce Secretary Tim Geithner has recently admonished, we really can’t confuse the slowing of the bad numbers with the beginning of a “recovery,” which, in my opinion, have yet to provide any confident basis to guess as when that might occur. Right now, we’re just looking for bottom.

Aside from the fact that there are no obvious “recovery drivers” on the horizon and that the “recovery” to pre-collapse levels after both the Panic of 1837 and the Great Depression came decades later after wars and the following period of rebuilding and reconstruction (the Civil War and World War II, respectively), we have not seen shrinkage in the Gross Domestic Product (the general metric of the economy as a whole) like this since the Great Depression. The worst GDP contraction, since 1939, occurred in the mid-1970s – 4.9% to be exact – until this crisis.

We had a 6.3% contraction in the last quarter of 2008, but the reports for the first quarter of 2009 are almost as bleak, and, most importantly, show an overall trend that looks a whole lot more like the numbers from the Great Depression than any economic contraction since that debacle. The Los Angeles Times (April 29) doesn’t mince words: “The economy shrank at a worse-than-expected 6.1% pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending…The Commerce Department's report, released [April 29^th], dashed hopes that the recession's grip on the country loosened in the first quarter. Economists surveyed by Thomson Reuters expected a 5 percent annualized decline.” Over 12% of GDP contraction since the beginning of the fourth quarter of 2008! Add that to housing prices and unemployment, factor in that commercial real estate and credit card debt are reaching new default levels, and maybe the picture is not as rosy as some would want you to believe.

I mean what are you going to do with those thousands and thousands of “community developments” – abandoned tract homes far from city centers that only those who really couldn’t afford homes would buy – or all those folks who spent their Wall Street careers based on the weakest segment of the derivatives market? Do the rust belt auto parts suppliers ever get close to the volume of business they enjoyed before the meltdown and the collapse of two of the big three automakers? Where do bankrupt newspapers go for resurrection? They can’t allow make money on the Web. Do any of these segments really “recover”? I’m sure you can think of a lot more.

With this level of stagnation clinging to this economy, America needs its entrepreneurs, its dreamers and thinkers who can’t find jobs out there anyway, to redesign and invent our way out of this mess. We need new ideas, new companies and new plans, and we need them now. Looking for traditional solutions is a necessity – the capital and credit markets must be thawed and operating again – but our future lies in the new and the innovative. Its heart sits in engineering schools and with those who have obsessive ideas for a new future. We don’t have a war and reconstruction to bail us out of this one; we only have us. Some of us won’t recover, while others will reinvent the future.

I’m Peter Dekom, and I approve this message.