Economies throughout the world, including ours, are suffering. Gold, silver, oil, copper and other commodities are falling in price, and China's export and infrastructure dependent model won't last much longer without a successful transition to a consumer oriented economy. Then there's Japan and its twenty year 'slowdown.'
Thus, we have a boatload of economic headwinds, as the pundits like to call our challenge with reigniting economic growth. But there's so much debt in the world that getting growth going again won't be easy. How hard it will be can be seen in reviewing Europe's condition, so let's do that as an example of why 'this time is different.'
Q -- Admittedly, Europe's economy as a whole is deep trouble, but just how bad is it?
A -- The outlook for Europe is just plain awful and there's no end in sight. That's how bad it is.
To cite just a few examples of why in Europe "this time really is different," new car sales on the continent are at 1990 levels (New Car Sales Fall 10.2% in Europe, Continuing Slump), Spain's and Greece's unemployment rates are higher than 25% and the so-called strong countries of England, France, and even Germany are showing troubling signs as well.
Thus, it's not just the countries in southern Europe that have serious long term fiscal and growth issues to overcome. It's pretty much a problem everywhere, including the northern European economies as well. Unfortunately, the end to all these enormous economic issues throughout the continent is nowhere in sight.
So is Europe headed for a depression? Well, probably not but it's an extremely high probability that the continent has entered some kind of 'new normal' that will last for another decade. And while not a high probability outcome, it's also possible that a serious depression is on the horizon as well. It's that serious.
First, let's review the "ten years" of expected bad economic conditions as forecast in Europe Recovery Could Take Decade:
"Germany's top central banker warned that Europe's debt crisis will take as much as a decade to overcome, dismissing the view expressed by some political leaders that the worst of the crisis is over. . . .
Bundesbank President Jens Weidmann signaled that the European Central Bank could reduce interest rates if incoming economic and inflation data suggest it is warranted. But he warned that such a move wouldn't turn around the euro bloc's economic fortunes, instead pinning responsibility on elected leaders to find ways to kick-start growth and channel money to small businesses. . . .
"Overcoming the crisis and the crisis effects will remain a challenge over the next decade," he said . . . .
Mr. Weidmann spoke ahead of this weekend's meetings of the International Monetary Fund, which is attended by finance ministers and central bankers from around the world.
The German banker has for months fretted that central banks are under too much pressure from politicians to spur growth in their economies through ultralow interest rates and other stimulus, citing Japan and Hungary, a message he plans to carry to Washington.
"A point that I think is important to make—perhaps less for my central bank colleagues than for finance ministers—is that the medication monetary policy makers administer only cures the symptoms and that it comes with side-effects and risks," Mr. Weidmann said."
Ten years of trouble for Europe would be bad enough, but a depression? Is that really a genuine possibility? Yes, it is.
Europe faces threat of full-fledged depression offers this "bad" news outlook about the chances for the "D-Word" taking place in Europe:
"“Depression” isn’t the word usually used to describe the euro-zone economy, but it may become increasingly appropriate as hopes for a recovery give way to fears of an extended and destructive downturn that policy makers seem unable to halt.
“Unemployment is at a record high, credit is going down, banks are failing…what do you call an economy like that?” said Carl Weinberg, chief economist at Valhalla, N.Y.-based High Frequency Economics and an unabashed user of the ”D-word” to describe Europe’s economic situation.
There is no uniformly accepted definition of a depression, but economists generally agree that depressions last two or more years and are accompanied by a big jump in unemployment, falling credit, and a massive slump in economic output.
That’s certainly been the case for parts if not all of Europe. The Greek unemployment rate hit a once unfathomable 27.2% in January. In Spain, 26% of workers are jobless. Across the euro area as a whole, more than 19 million people are out of work while the unemployment rate stands at a record 12%.
Euro-zone GDP is widely expected to have contracted for a sixth consecutive quarter in the first three months of 2013, and forecasters are penciling in another year of modest contraction for the euro zone as a whole in 2013.
The euro-zone economy is “experiencing two shocks at once: a financial crisis and fiscal drag,” said Bill Adams, senior international economist at PNC Financial Services Group. . . .
Prolonged pain on the so-called periphery of the euro zone is now spilling into the core, with activity slowing in France and even Germany, the region’s No. 1 economy. . . . the euro zone and the U.K. run the risk of becoming a “sort of sideshow, cut off from the global upswing” . . . .
That doesn’t mean U.S. companies are immune. American exporters are feeling the pinch, something likely to act as a drag as U.S. earnings season moves into full swing. U.S. monthly exports to the European Union fell to a two-year low of $20.1 billion in February. . . .
Risk of ‘almost endless depression’
For the overall euro zone, a look at a chart of quarterly gross domestic product or industrial production paints a bleak picture. After a steep contraction in 2008 and 2009, growth returned in 2010 and 2011, only for the economy to begin shrinking again in the first quarter of 2012. Total economic output has yet to return to its 2008 level.
Germany has largely avoided the weaker trend, but the region’s largest economy is showing signs of stagnating. . . . France, the second-largest economy, has taken a turn for the worse, with purchasing-managers data pointing to a steep fall in first-quarter GDP. . . .
“In view of this outcome, it is clear that the euro-area orthodoxy implies further austerity and almost endless depression,” he said in a note."
The U.S. isn't doing all that well, but we're sure not anywhere close to a depression.
Nor are we likely to have to endure anything like another ten years of getting our act together, both financially and politically. But with the troubles in Europe, Japan and even those brewing in China today, we're pretty much going to be left to our own devices here in North America.
Accordingly, unless we stop all this "progressive" government knows best nonsense soon and begin to emphasize things like energy independence, private sector growth, public sector productivity, and entitlements reform, we could follow Europe right off the cliff in a few short years.
Here's what I say. Let's not do that.
In fact, let's not even think about coming close to doing that. And let's hope that the hapless Europeans, the Japanese and the Chinese all get their "self reliant" acts together, too.
The European social-democratic welfare state is a failure, and it's time for them to acknowledge it. And Japan's and China's export dependent models for economic growth have failed as well.
And here in the U.S., it's time for both citizens and political leaders to relearn and act on the lessons taught by our predecessors of long ago about the virtues of capitalism, limited government and individual freedoms in a self governing society. It's the only way.
Big and intrusive government simply won't get the job done, because it can't.
That's my take.