The unthinkable has happen in a member of the European Union and the eurozone: an outright Great Depression. Ekathimerini reports from Greece in an English language e-newspaper:
Greece’s stores had their worst Christmas in decades, with retail sales dropping by 30 percent compared with the same period last year as the economic crisis shattered consumer confidence, the ESEE retail federation said on Tuesday.
“Nine out of 10 Greeks are less generous, not out of choice but out of necessity,» ESEE said. «Retailers endured a Christmas gloom that chipped away any optimism they had before the holidays.”The sharp drop in sales came despite widespread discounts by retailers in the run-up to Christmas.
Greeks have been suffering wage and pension cuts, rising inflation and a recession now into its fourth year, which has slashed living standards and forced them to cut spending.Clothing and footwear sales dropped 40 percent, electrical goods by 30 percent, and sales in the food and drinks sector by 15 percent compared with the same period last year, ESEE said.Let us recall that from 2007 peak to 2009 trough in the U.S., retail sales probably fell about 15% after some price inflation is accounted for, which given all the transfer payments that keep demand elevated that were absent in the early 1930s implies that the U.S. also suffered a “non-great” depression. Greece’s year-on-year debacle, though, comes after several year of recession, not a sort of boom as in the U.S. leading up to 2007.
The question about Greece that I do not hear asked or see answered is: what happened to the money that the government borrowed? Was it dropped into the Aegean Sea? Did it rapidly make its way to Swiss bank accounts?Back in the U.S., matters are less clear. The 10-year T-note remains at 2%, amazingly still a bit below its lowest panic low of 2008 post-Crash despite over two months of better than expected economic news. The Case-Shiller housing index was updated today. The 20-city index was estimated as showing a 3.4% year-on-year price decline. This implies that a couple that took out a new mortgage at 5% a year ago has experienced a more-or-less record “real” interest rate of about 8.4%- probably worse than at almost any time since the Great Depression.Other signs of “deflation” can be seen. Third quarter gross domestic income without the government’s inflation adjustment is basically flat on a per capita basis. This is a meaningful recession signal (hardly a guarantee, though). Today the DOT reported on a further acceleration downward in yoy vehicle miles driven (see LINK to CR’s blog with chart). Then there’s the volume of foreign trade passing through the busiest port system in the United States, Los Angeles and Long Beach, also from CR:On a rolling 12 month basis, inbound traffic is down 0.3% from October, and outbound traffic is down 0.2%.
Inbound traffic is “rolling over” and outbound traffic has stopped increasing. . .For the month of November, loaded inbound traffic was down 4% compared to November 2010, and loaded outbound traffic was down 2% compared to November 2010.All the above data are non-governmental and thus strip away price changes. I also monitor Gallup’s interviews with real people. The hiring-not hiring ratio remains at recession levels and the proxy for discretionary spending remains unchanged yoy in nominal dollars and therefore suggests a decline in constant dollars. Given all this sluggishness in the economy, it is no surprise that the Fed is making noises that it is looking at ZIRP continuing through 2014- at least.
It is my contention that as the global superpower in so many ways, the U.S. can “go Japanese” financially with generally positive price inflation and negative real short-term interest rates for a very long time. I first began predicting a Japanese-type scenario on January 6, 2009 in Land of the Setting Sun (first line: ”We are Japan”; last line: ”We deserve better than it looks like we are going to get”) and don’t see any reason to revise that view now.