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Vail Valley Voices: The illusion of a recession ending

Bill Sepmeier
Vail, CO, Colorado
newsroom@vaildaily.com

I had a framed slogan on my wall for years, a quotation coined by John Dvorak, a computer guy who wrote for PC Magazine years ago. Mr. Dvorak said, back in the ’80s: “Perceived performance is more important than performance.”

Anyone who’s used a software product understands this, but it applies to just about everything.

For example, our economy. Have you gotten the feeling lately that things are getting better? I’ve actually heard people exclaim, “The recession is over,” and they apparently really meant it.



Real reasons for this feeling are few and far between. For example, “there were a lot of cars and people in town over the July Fourth holiday” has been one I’ve heard.

Whatever. The “perceived economy” is supposedly picking up.



Perhaps the entire economy is merely an illusion and perceptions of its state are simply that — perceptions founded in illusion. The feeling that things are looking better certainly isn’t based on any facts, so maybe the old Hollywood “it was all a dream” ending is as real as any other explanation.

If one is awake and looking around, the facts are grim and getting grimmer.

Ambrose Evans-Prichard recently wrote in the UK Telegraph, “Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity. It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed. But they have broad shoulders.”



Evans-Prichard went on to write, “Note that Total’s Jean-Jacques Mosconi said markets are awash with so much crude that almost 100 million barrels (a near record) are stored on tankers at sea. Note, too, that May electricity use fell 10 percent in China’s industrial hub of Guangdong from a year earlier. This is revealing, given that China’s fiscal boost has reached peak and will fade later this year.”

For guidance on where we are in this long-drawn saga, Evans-Prichard looked to Berkeley’s Barry Eichengreen, author of The Great Depression classic “Golden Fetters,” which avoids the error of viewing the 1930s through a U.S. prism.

“He has crunched the latest data with Trinity College Dublin’s Kevin O’Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time. The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: The global equity crash has been twice as bad. ‘It’s a depression all right. The good news is that the policy response is very different. The question now is whether that response will work,’ they said. The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50-60 percent. Companies will continue to have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.”

Trade data from Asia are flashing warning signals again. Korea’s exports were down 28.3 percent in May, reversing the April rebound. Malaysia has slipped to -26 percent, and India has touched a new low of -33 percent, year over year.

U.S. freight data is getting worse, not better. The Association of American Railroads said traffic was down 22 percent in the third week of May from a year earlier. Canadian freight was down 34 percent.

The American Trucking Association (ATA) said tonnage is down 13 percent over 12 months. Bob Costello, the ATA’s chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has “accelerated.”

“David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78 million baby boomers face the looming threat of poverty in old age. ‘The big story is that the personal savings rate hit a 15-year high of 5.7 percent in April. I believe it could test the post-war peak of 15 percent. Too many pundits are still living in the old paradigm of Americans shopping till they drop,’ he said. If he is right, this will shatter the surplus and export economies of China, Japan, and Germany, unless they adjust fast to the new world order. The velocity of money circulation has collapsed, and unemployment is rising everywhere. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade (actually, two decades). Yet, Evans-Prichard writes, ‘market makers seem to think otherwise, and this has its own awful consequences. Inflation fears have driven 10-year U.S. Treasury yields to 3.86 percent in June, a full point above levels in March when the Fed intervened to force rates down. U.S. mortgage rates have jumped to 5.29 percent.’ ”

The facts, when examined, continue to reflect a world slipping into a depression greater than anything experienced in a hundred years. Add to this, CNBC reports, “China’s sovereign wealth fund has taken about 1 percent in drinks group Diageo, in a move which an analyst said is a sign the country is diversifying away from the U.S. dollar” at a time when the U.S. government has never needed to borrow back more of them.

But in spite of the actual trends and performance of our global, national and state economy, things “feel like they are looking up.”

Is it because of the government-funded Goldman Sachs’ computer-driven program-trade Dow market “rally” that’s brought everyone’s 401-k back to 1999 values from 1996 values?

Or that a few more people have driven up from Denver for a few days of summer vacation here instead of flying somewhere as they might have done, crowding the Vail parking lots, making things look busy?

Or more likely, the result of a concerted effort in the national media to minimize the facts of the matter in the hope we the former consumers will stop this doggone saving and start borrowing again?

Perhaps we really haven’t all realized we have become economic slaves, or worse, health-care slaves, unwilling or unable to change jobs or even complain about anything because we might lose our precious bought-on-credit stuff or, worse, our precious high-deductible health plan? Even though, if you bother to check, that anti-depressant you’re taking, which also might be the reason things seem like they’re on mend, actually costs a lot less than most health plan co-pays make you pay for it? (It’s $4 a month at several local pharmacies — most co-pays are $15!)

Whatever’s going on, I am going to dig that old Dvorak plaque up and re-hang it in my office since it has never appeared more accurate.

Perceived performance is indeed, everything.

Bill Sepmeier is a Sweetwater resident.


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