[Note: This item comes from friend Judi Clark. DLH]
The Economic “Recovery” Feels Weak Because The Great Recession Never Really Ended
By Tyler Durden
Oct 9 2016
With the worst of the great recession, supposedly, behind us, The Real News Network’s Kim Brown notes that many economic analysts still see signs that we’re not yet completely out of the woods. A new report released Wednesday by the International Monetary Fund shows that some banks in the United States and Europe may not be strong enough to survive another downturn, even with States assistance.
KIM BROWN, TRNN: Joining us from New York is Michael Hudson. Michael is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His latest book is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Michael, thanks again for joining us.
MICHAEL HUDSON: Its good to be here. But we can’t get out of the woods.
BROWN: Okay, let’s get into that. The IMF report on financial stability says, in spite of banks being stronger now than before the economic crisis of 2007-2008, about twenty-five percent of US banks and about a third of European banks are too weak to even benefit from a potential rise in interest rates and any recovery aid, should the global economy take a downward turn. But before we get into any specific questions about the health of banks, Michael, are we still in a recession or are we firmly in a recovery now?
HUDSON: We are not in a recovery and we’re not really in a traditional recession. People think of a business cycle as a boom followed by a recession and then automatic stabilizers revive the economy. But this time we can’t revive. The reason is that every recovery since 1945 has begun with a higher, and higher level of debt. The debt is so high now, that since 2008 we’ve been in what I call, debt deflation. People have to pay so much money to the banks that they don’t have enough money to buy the goods and services they produce. So there’s not much new investment, there’s not new employment (except minimum-wage “service” jobs), markets are shrinking, and people are defaulting. So many companies can’t pay their banks.
The banks’ product is debt. They try to tell customers that “debts are good for you,” but the customers can’t afford any more debt, so there’s no way the banks can continue their current business plan. In fact, there’s no way that banks can be paid everything that they’re owed. That’s what the IMF doesn’t follow through its analysis, by saying, “Look, the banks are broke because the financial system is broke; and the financial system is broke because the whole idea of trying to get rich by running into debt doesn’t work.”
It was a false model. So really, we’re at the end of long cycle that began in 1945, loading the economy with debt. We’re not going to be able to get out of it until you write down the debts. But that’s what the IMF believes is unthinkable. It can’t say that, because it’s supposed to represent the interest of the banks. So all the IMF can say is to wring their hands over the fact that the banks won’t make money even if there is a recovery.
But there really isn’t a recovery, and no signs of it on the horizon, because people have to pay the banks. It’s a vicious circle – or rather, a downward spiral. Basically, the IMF economists are just throwing up their hands and admitting that they don’t know what to do, given the limits of their tunnel vision.
BROWN: Well, Michael, help us figure out why growth has been so weak over these past eight to six years or so.
HUDSON: If you take the average family budget – and I’ve said this on your show many times –we can go through the numbers. If you have to pay about forty to forty-three percent of your income for housing, you also have to pay fifteen percent of your paycheck for the FICA for Social Security wage withholding. You have to pay medical care, you have to pay the banks for your credit card debt, student loans. Then you only have about twenty-five or thirty-five percent, maybe one-third of your salary to buy goods and services. That’s all.
The problem here is that the way you get a job is with a company that sells goods and services. The companies aren’t hiring, because consumers don’t have enough money to buy the goods and services.
We’re in a chronic debt-deflation. There’s no way we can recover unless you write down the debts. And that’s what the IMF basically is implying (and it was explicit regarding Greece), but its not spelling it out, because that’s not what can be said in polite company.