I think we have basically two recessions going on in the United States. One is a standard recession in which the rate of inflation is too low and the real interest rate is two high.

This is causing the accumulation of capital and durables goods to be depressed from their long term equilibrium.

Why do I say depressed and not a return to normal?

Well, because as of the last few years the auto fleet in the United States has begun to shrink. That is, we are scrapping cars at a faster rate than we are producing them.

Unless something changes in the next 18 months, our scrappage rate will begin to exceed new cars sales by the millions of units per year. In a country that is still growing in population and still adding drivers every year its hard to explain why the optimal path is suddenly for the vehicle fleet to shrink.

The same thing is becoming true with houses. New homes starts are roughly were demolitions are. We are scrapping about as many new homes every year as we are creating.

It will be a while before the stock of new homes appreciably declines but it will not be too long before homes per person in the United States falls to multi-decade lows.

Now maybe something radically changed and we all decided that actually we had too many cars and too many homes but an alternative explanation is just that the real interest rate is too high.

At the same time there is also a balance sheet recession going on that looks a little different. What we see here is a decline in retail sales ex-autos that is truly historic. Don’t pay attention to people waving graphs of PCE.

PCE is fine for what it is, but what it is not, is a measure of what consumers purchasing decisions. It is dominated by either third party payments, imputed expenditures or what most people would call “bills” things like electricity, heat and rent.

What you really want to look at his retail sales ex-autos. Those are in the dumps. They are in the dumps in large part because people saw their home values decline and are now pulling back.

These two recessions are happening at the same time but they are not quite the same.