September 25, 2012 · 0 Comments
So you’ve seen us run this chart a bunch of times. We call it The Scariest Jobs Chart Ever, as it shows the depth of the US jobs downturn post-financial crisis compared to past recessions, and it shows that it’s far worse than any previous experience the US has had since WWII. The chart was invented by Bill McBride at Calculated Risk.
But as everyone should know by now, this recession was unique (compared to other post-WWII recessions) in that it has involved a financial crisis and a mass deleveraging.
And so that makes the comparisons somewhat apples-to-oranges.
Rather than comparing the US jobs downturn to recent recessions, it compares the downturns to other post-crisis economic busts.
By this measure, the US jobs recovery is easily one of the best in history.
The worst jobs recovery?
Finland and Sweden are tied.
Why is that interesting?
Because all during the crisis, we heard so much about how great the “Swedish Model” of financial crisis cleanup was. Basically, the idea was that we make everyone take bigger haircuts, do nationalizations, clean up the balance sheets of banks and so forth. This is different than the US model, which preserved the bondholders of major banks via capital injections and so forth. Equity still got demolished in the US, but the basis structure of the vast majority of US banks was left intact.
There was a point in February 2009, when it looked like the US was going to go down the Swedish path.
As the chart above shows: Thankfully we didn’t do that.
We took the model most favored by Japan (zombie banks) and — oh look! — Japan had the best post-crisis jobs recovery of any nation on the chart.
Japan > Sweden.
The premise of “cleaning up the banks’ balance sheets” via nationalization never made any sense.
The reason banks weren’t lending for a long time was because demand wasn’t really there, and the economy were incredibly weak. The bottleneck in credit was not the result of of bank balance sheets encumbered with bad debts.
If the bottleneck in credit had been with bank balance sheets, we would have seen foreign banks gobble up market share in the US, stepping into fill the role of hobbled us banks. We didn’t see that.