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It was just over one year ago that WND Books published “The Return of the Great Depression.” In that book, I articulated six possible scenarios and explained which scenario I considered to be most likely. I also made a number of predictions, some of which can now be profitably analyzed to see how accurate they were. Keep in mind that at the time the book was published, the end of October 2009, the scenario which most of the mainstream economists were declaring to be in effect was the Green Shoots scenario.

1) Green Shoots: This scenario involved a V-shaped economic recovery beginning in 2009. Despite the announced end of the recession and the fact that the stock market has rallied strongly through 2010, it is obvious that the economy is not fully recovered, and the market action is little more than the result of increased federal debt and the quantitative easing of the Federal Reserve. Summary: This scenario was incorrect.

2) Jobless recovery: This scenario envisioned low rates of GDP growth combined with high rates of unemployment. It superficially describes current events, but does not take into account the extraordinarily high levels of government spending and public debt that have been required to keep them there. It is possible that this scenario is correct, but more time will be required to determine this. Summary: This scenario is probably incorrect, but a booming recovery in 2011 would indicate that it was the right call after all.

3) Whiskey Zulu India: This is the inflation scenario. The prices of stocks, commodities and gold make it look superficially credible, especially in light of the Federal Reserve’s announcement last week that it will be printing $600 billion, and using it to purchase U.S. Treasury bonds. While gold prices are getting closer to the $1,500 level that I wrote would “be a strong indicator that the Whiskey Zulu scenario is unfolding,” I remain somewhat skeptical that this is in fact the case due to the Herculean efforts presently being required to prevent the level of debt from collapsing. Summary: This summary may be correct, but it is too soon to tell.

3) The Great Recession: There is no question that the post-crisis economy is still struggling, as the leading proponents of this scenario predicted. While the GDP numbers and official declaration of an end to the 2008-2009 recession directly contradict this scenario, the intrinsic unreliability of the oft-revised GDP statistics and the combination of high unemployment rates combined with a declining percentage of the population represented by the employed – the latter two statistics are related but not synonymous thanks to the peculiar definition of “unemployment” by the Bureau of Labor Statistics – means that this scenario is still a distinct possibility. Summary: It’s still too soon to tell.

4) Great Depression 2.0: As with the Great Recession, it is simply too soon to tell. However, the fact that the Federal Reserve has not only launched a second quantitative easing program, but one that is larger than its predecessor is a sign that the public recognition of one single, large-scale economic contraction is on its way. However, it would appear that I was incorrect in concluding that “it will take about a year for the consensus opinion to cycle through the various scenarios in descending order of optimism before the grim reality finally becomes apparent to even the casual observer.” To the extent that there is a consensus opinion, it is concentrated on the Whiskey Zulu scenario and there is less talk of a second Great Depression than I expected at this point. Summary: We can’t tell until the Fed abandons its “extend-and-pretend” strategy.

5) Fallout IV Live: No apocalypses or Armageddons to date, nor do any appear imminent upon the horizon – unless, of course, you happen to be a Democratic congressman. Summary: Incorrect and was never a reasonable concern.

The intriguing thing about looking at what scenarios remain in play and which do not is that despite the political and financial fireworks, not very much of economic import has happened in the last year for either good or ill. Unemployment has neither risen nor declined. Existing home prices are pretty much where they were one year ago. Total credit market debt outstanding was reported at $52.5 trillion one year ago, and it is $52 trillion now. What will ultimately determine which of the still-valid scenarios is correct is the level of debt; if it begins to increase again, then we will know Whiskey Zulu is in effect.

If, on the other hand, it declines, then it depends on how fast the decline takes place. A continued minor decline of the sort we have seen indicates that the Great Recession is continuing, whereas a collapse will almost surely catapult the economy into the Great Depression 2.0. I believe in the latter case due to the way in which the composition of the $52 trillion in date has changed in the last year.

Overall debt is only down 0.87 percent in the last year. But the household and financial sectors are down by 6.8 percent while the federal government debt has grown 20.4 percent. In other words, merely holding the line required the government to run record deficits that are in excess of 10 percent of the size of the entire economy. Since the newly Republican House is less likely to sign off on continued deficit spending of this magnitude, the Obama administration’s game cannot continue, and the next stage of the contraction should become apparent in the first half of 2011.

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