First four consecutive quarters of real GDP decline since 1947. This is probably pretty close to a bottom turning point, stabilization, if the pulse of the postwar economy has not stopped. The next collapse, not yet visible over our one-year forecasting horizon, will probably take us into deeper depression, as we are not “liquidating” (charging off, making those who created the losses eat them) our bad debts, but piling them almost-dollar-for-bad-debt dollar onto the taxpayers, who are already staggering under a mountain of household, and state and federal government debt. This is a prescription for collapse. The “animal spirits” are still struggling upward and will do so even if unemployment goes to 12 percent. This is unfortunate, as it will encourage the authorities to do nothing. Unless there is a currency crisis that is in nobody’s interest to precipitate my models suggest the economy will expand on fiscal fumes until about 2013, plus or minus a couple of years, and then there will be a repeat debt-deflation and accompanying currency collapse. If we experience another quarter of negative real GDP growth all bets are off. The debt-deflation has gained sufficient momentum to overwhelm “animal spirits.” The next “animal spirits” update will be next Friday or Saturday.
For a discussion of how long it can take to deleverage on a national level, see Steve Keen’s discussion of the Australian case at http://www.debtdeflation.com/blogs/2009/07/27/rudds-essay-is-on-the-money/ . h/t Yves