25% U6, here we come. Why you might ask? Well to be fair its a total SWAG.
The number we are often given is that at the height of the first Great Depression, unemployment reached 25%. Its closest corollary today is U6, total unemployment. Even though there are still differences between now and then, in terms of calculations, its fairly close.
This time around we are far more credit dependent, ie in debt. The idea that we can avoid a macro contraction that is smaller than the first depression seems silly to say the least. Again why would I go out on a limb and say that?
First both depressions are far more credit driven than any other recessions of the last 100 years.
Second policy responses though superficially different are in essence they same. All of the New Deal programs, though targeted were really about getting money out into the broader economy. Back then the FIRE economy was concentrated in New York and so not a particularly good mechanism for getting the money out there. Plus putting people to work usually involves infrastructure projects.
Third the losses have been made all we are arguing over, while we are having this fun doozy of a depression is who gets the check. Most of the real losses haven’t even been recognized and if Bush III and Geithner have anything to say about it, they never will.
Forth we tried externalizing our problems last time which led to protectionism and greater depression. We haven’t gone there overtly with trade protectionism, but we have with our monetary policy and this is the real bitch. Every major world player is engaging in the same attempt to externalize its debts by printing in one form or another. We print, though we call it borrowing, and so do all our major trading partners, at the same time that massive amounts of credit are contracting. So now we have trillions of dollars of short term money sloshing around and nowhere stable for it to go, which causes further instability in your credit markets. This leads to further risk aversion and less willingness to lend. That part is ok, because there is nothing good to lend against right now, because the govt is committed to propping up bad debt!
The playbook is shockingly similar to last time, only the names and some of the mechanisms have changed.
One of the surprises so far is that I am still employed, a fact that I am eminently greatful for.
