This is already the deepest recession since World War II and will soon be the longest. Each new sign of hope is followed by a new setback, like this year's euro crisis or the latest tumble in shipping prices as China's import boom falters and Beijing puts the brakes on bank credit.
In the United States, retail sales fell in both May and June and the latest index from the Philadelphia branch of the Fed shows manufacturing orders and shipments dropping. The index has been positive for the past 11 months but turned down sharply in June and July.
There are 3.62 people unemployed for every advertised job vacancy and, if the federal government still measured unemployment the way it did when Bill Clinton was president, the headline rate would be 16 percent rather than today's official 9.5 percent.
The minutes of the Federal Reserve's Open Markets Committee, released this month, were grim, warning of "significant downside risks" and a possible slide into deflation, despite prolonged zero interest rates and massive deficit spending.
"The committee would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably," it said. The economy might not regain its "longer-run path" until 2016, which would mean we are just three years into a 9-year recession.
Think of the global economy as a car with a 4-cylinder engine, composed of the United States and Japan, Europe and non-Japan Asia (they account for almost 80 percent of world output). It is currently firing on 1 1/2 cylinders. Non-Japan Asia is powering ahead (although China is slowing) and the United States has a very weak recovery, which may be heading down again. Europe and Japan are stalled and world trade flows have turned down again.
Last week's economic outlook from the International Monetary Fund warns that "downside risks have risen sharply" in recent months. "The ultimate effect could be substantially lower global demand. ... Recent global stability gains are threatened by a confluence of sovereign and banking risks in the euro area that, without continued and concerted attention, could spill over."
Because of the euro fears, the announcement expected Thursday of the results of the stress tests on Europe's banks are being nervously awaited. A total of 91 banks are being surveyed for their resilience to another crisis and for their exposure to the sovereign dent of troubled eurozone countries like Portugal, Ireland, Greece, Italy and Spain.
The authorities are working hard to coordinate positive signals ahead of the publication.
"I get the feeling that what will come out will be rather reassuring and that we'll see that all the big European banks are sufficiently solid to resist any earthquake," IMF chief Dominique Strauss-Kahn (also a former French finance minister) told French TV last week.
Jean-Claude Juncker, chairman of eurozone finance ministers group, echoed these reassuring noises, telling reporters, "I am not expecting any big catastrophes."
The markets are skeptical. Mohamed El-Erian of the bond giant PIMCO warned Friday that "enough detailed information must be disseminated to allow the private sector to reverse-engineer the test. There is a sense of hesitancy among European officials when it comes to such high transparency."
"Governments must be clear as to what will happen after the test. Recapitalisation and, where needed, mergers and closures must be credibly pursued. We are yet to hear enough on this. The results must engender confidence that banks can handle the macro challenges facing Europe as a whole. This is by far the most limiting aspect when it comes to the potential effectiveness of the policy approach in Europe," he added. "European officials can do a lot to make the stress test credible; and they should. But, unfortunately, they cannot turn it into a catalyst for Europe's return to financial normality. Regrettably, this is a much bigger challenge."
If El-Erian's gloomy view takes hold when the stress tests are published, then we are in for a difficult summer. The euro will drop, interest rate spreads on sovereign bonds will rise, the U.S. trade balance will worsen and bank shares will totter, just as the world's banks are facing some $4 trillion in loan renewals.
In short, the 3-year crisis hasn't gone away. It has metastasized, taking on different forms and shifting its geographical location and moving from the housing market to the trading economy, into the financial system and now into government debt.
Three years is the length of time between the Wall Street crash of 1929 and the banking collapse in the 1930s. The combination produced the Great Depression that lasted throughout the decade until World War II changed everything.
If the Fed's gloomy fear that the United States faces six more years of sub-par growth is borne out, we could be in for a similar long travail as the world tries to craft a more durable and better-balanced global economy from the one that is still crumbling around us.
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