I did some more digging around, and found out that this chart was developed by Australian Economist Steve Keen. Mr. Keen is one of the few economists who called this entire crisis correctly from the beginning.
He is more of a debt economist then your classical supply/demand/output theorists. You can search on www.youtube.com, and find many interviews with Steve Keen.
Historically from looking at the above graphic, there was never a correlation between debt and unemployment till very recently. Most sane economies that are not addicted to debt/consumption will have no correlation between jobs and deleveraging, but in our Ponzy Scheme Economy, when the bill comes due, you have seen what the end result is. Japan went through similar pain, and still going through the emotions 20 years later.
If your economy is built sensibly, you should not have this type of forced deleveraging that has hammered output.
Like I said most economists didn't see this coming for many reasons. They are either classically trained or come from the Neo-Classical School Of Economic thought. They are so obsessed with supply/demand/output, they fail to realize the level of debt in the system that hampers peoples buying behavior.
The entire green shoots theory thought of by neo classical economist like Ben Bernanke actually believe the following:
-A Hard landing has happened, but a softer landing going forward is whats in store for the US Economy.
-A strong and sustained recovery in Europe and Asia.
-Solid Growth in Japan
-China And India kicking on all cylinders.
They base all of this on static modeling of integers that are no longer very important in formulating a thesis. They come up with output theories based on models that have the same level of debt that is needed to keep the consumption going. Wake Up!!!! The credit/debt game is over! The only ones who are in the debt game are banks and governments. Governments fail when the common people lose patience with their elected officials. This is what happened in France and Russia.
Not once have I ever read about global deleveraging and containing debt levels from economists other then Steve Keen and a select group who don't have skin in the game.
There was a study done, and only some 12 economists out of 10,000 adhere to the Steve Keen philosophy, which further leads me to believe that we are in for some serious pain as I just don't believe things are OK.
These neo classical economists still believe we are exiting a inventory led recession, that consumer buying patterns are coming back. The simple failure to realize the obvious puts the whole system in peril.
Going back to Static Modeling. You see models are all about historical data that even though has been back tested, still its historical data. On top of that, all risk measurements and a like are static in nature, meaning they re not dynamic as they are in real life. This is why VAR is a fraud. Totally ignoring time is self serving. Now some models do have dynamic output, but they are all based on the past data and make assumptions about convergence in the future. But all of these models don't take into account liquidity and the role of leverage/debt/credit.
In 1930, we saw deleveraging take place, it took some 10 years and a World War to get rid of it. But today, we have almost 375% more debt then total GDP! I am not even getting into the shadow banking world and $700 Trillion in Derivative exposure out there.
tradersutra.blogspot.com/2009/08/this-crisis-is-truly-different.html"
tradersutra.blogspot.com/2009/08/reasons-why-market-does-header-this.html"
There is a big tug of war between governments need to print and spend so that Wall Street executives can have one more private jet for themselves on the tarmac and normal common citizens need to deleverage. Consumers are feeling the pain to reduce consumption, save more, and get rid of debt, this is in direct opposition to the governments plan for the economy. Its very obvious that Obama wants business as usual, lets go back to the halcyon days of 2004-2007. That is why we are seeing cash for clunkers and the like. Consumers cant act responsibly because the government isn't, this is the ultimate conflict that will destroy the governments stimulus plans.
The whole problem was caused by irresponsible lending and the only way out of this ultimately is to eliminate that debt. The debt has to be written off.
tradersutra.blogspot.com/2009/07/whats-recession-anyway.html"
When will we stop this chicken and egg game of consumption and credit? Its like the creepy 30 year old who keeps showing up alone at high school dances. Its over BRO! Get on with the healing.
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