Wednesday, August 07, 2013

Real Personal Income Points to Recession

Every time real personal income goes negative, a recession occurs. Now that personal income is falling, a recession is baked in.


Frequent contributor B.C. recently submitted a long-term chart of real personal income that highlights a strong correlation between falling real income and recession. This makes sense: if real (that is, adjusted for loss of purchasing power a.k.a. inflation) income is declining, households have less income to spend and less income to leverage more debt.

Note that real personal income is per capita (per person) and that government transfer payments (checks from social programs such as welfare, Social Security, etc.) are excluded.

There are two noteworthy points in this chart. One is that real personal income has been negative for the past five years, with one tax-related spike in late 2012 as those who could do so reported income in 2012 rather than 2013 to take advantage of the lower tax rates that expired in 2012.

The second point is that every time the black line (the 6-month annualized rate of change) of real personal income fell below 0% (that is, went negative), a recession occurred:


Here are B.C.'s explanatory comments:
An important caveat: the weak 6-month annualized comparison is against the spike in income at the end of '12.Still, the year-over-year and smoothed 6-month annualized rates were already falling below the historical recession threshold in late summer '12 and again in winter-spring this year.
A similar pattern trajectory occurred after recessions had begun (as per the National Bureau of Economic Research NBER):
Aug.-Sept. '08
June-July '01
Oct.-Nov. '90
Feb.-Mar. '82, Apr.-May '80, and Sept.-Oct. '79
Mar.-Apr. '74
Nov.-Dec. '70
Nov.-Dec. '60
Of course, the recessionary implications are bullish for war and for more TBTF bank printing for their balance sheets and offshore equity index futures accounts.
Thank you, B.C. The Big Lie of the "recovery" is that it is self-sustaining. Minus government transfers, the reality that the Fed and Federal government are simply enriching the top 1/10th of 1% with access to unlimited credit at zero interest is revealed.

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." Ernest Hemingway, The Next War 



Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify or understand. We will cover the five core reasons why things are falling apart:

go to print edition1. Debt and financialization
2. Crony capitalism and the elimination of accountability
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Not accepting responsibility and being powerless are two sides of the same coin: once we accept responsibility, we become powerful.

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