edhopper: Option 3, Alan Greenspan about everything.
CR: Being a blog writer, how happy are you that Greenspan's quotes are in the public domain? There's a never-ending supply of his wondrous combination of uselessness and gratuitous exuberance for you to apply to any possible post.
Stephen Roach's piece in the Times is spot on. I loved reading him after the dot com bust on Morgan Stanley's Global Economic Forum. He was derided during the course of the recovery in 2003/05, but all of the problems he was discussing in the his weekly commentary have come into play in a powerful way.
I also have no doubt that when the economic history of the last 20 years is written, Alan Greenspan will not be treated kindly.
The olde definition of recession doesn't work anymore. The people reporting the data have changed the methodology. The MSM that dutifully regurgitates what it is told is no longer the source of pertainent information.
If we care about tracking recession or inflation for that matter then it will be a blogger making the case in a blog and subject to critical review from other bloggers.
I just wish so many people would stop mentioning the New York Times in this fine blog. It gives the NYT a form of legitimacy it no longer deserves.
All this obsession with whether the number happens to cross zero strikes me as misplaced. Am I wrong?
Not in so far as what economic policy should be in response. But in the wider sense of political and economic will, yes. People need the label to tell them what they should think about conditions. Whether those labels are valid is a whole 'nother consideration.
I watched that 'orrible man on "This Week" - he explicitly suggests that a cash infusion ( not a interest rate cut) is the answer. OKKKK, where do I line up ?
I recently re-read "The Great Crash" - by Galbraith, and have lived through the all the ameliorative measures that the Tory and Labour govts made during the stagflation of the 70s.
Its sad that the same old crap is reproduced. But I'm not surprised.
If I'm asked I'll tell them that Mellon's prescription was right - "Liquidate it all" and add ( expand food donation, Sally Army donation centres, heating donations - go full out for individual charitable behaviour ).
The longer Bushie and Congress deny a recession, the longer Bernanke & Co. can keep printing the money needed to spare no expense on our wars, without being accused of ignoring inflation.
The President's "strong economy" frame also enables him to keep cheating the so-called "entitlement" programs that will now, more than ever, be required by the working poor and middle class, while leaving state governments the political falllout of cutting their end of the bargain (e.g., California right now).
Denying recession not only has the potential to shift blame onto Bushie's successor; it changes the demeanor of every Presidential candidate right NOW. Imagine what else Huckabee, Kucinich, and all in between might be saying were we officially in recession.
In early 2000 I predicted that a recession will begin in q1 2001.It is maybe the best prediction I have ever made and I am still a somewhat proud of it.During this year my prediction has been a recession by q4 but the first quarter of 2008 is now more likely,again!
Greenspan: Cash from the government, yes.
...
I'm saying I don't know if it would work, but it would certainly help people
...
It's very critical that this thing reach a selling climax -- if I may put it in other words, exhaust itself. It's only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.
Huh?
You can believe in a bailout, or you believe it is a mistake to "prolong the agony", but you cannot believe both. Either he is directly contradicting himself in like three sentences, or I do not understand what he is proposing.
freddyinP'town --
The longer Bushie and Congress deny a recession, the longer Bernanke & Co. can keep printing the money needed to spare no expense on our wars, without being accused of ignoring inflation.
Except calling it "recession" implies the Fed should lower target rates and print more money. Aside: Try to avoid Bush Derangement Syndrome. I myself suffered Clinton Derangement Syndrome in the 90s and it was years before I recovered.
Unless you think it is time to fire up the dollar printing press, you should be happy to see lots of "no recession" happy talk.
Nice overview of the mainstream view a la NYT (which might be different from the view form the WSJ) but is thankfully not a collection from the WH press releases.
Such is my rejoinder to Robert's remarks about the (sticky, yes?) credibility of the NYT...hoping that I am one of those "critical reviewers" in this fine blog...who still needs a reference, a standard however deteriorating, you know?
From the Roach piece, the phrase "mathematically impossible" and if this isn't professional bullying, I don't know what is. Remember you professionals out there, when cruisin for clients always knock em out with "uniquely unique" et al ("and the like" won't do it any more, people can hear the difference, yes? YES?)
"Recession" is a national or international description at least as it occurs in this collection of views, but there are Midwesterners who might feel that their plight has been ignored...their might be segments (blacks) who feel the same way since the wave of undocumented workers arrived.
Last ting: when do we hear (not esp from Seb, but that would be good too) about the recovery following the recession? How far do we look ahead to get comfortable now with decisions about that future? 2041 is one date that officials site as pivotal wrt SSTF, but clearly we are not looking that far out. 2008 and the Olympics seems too close to think about speculating on that seminal recovery. It's not that we don't have personnel to recruit (think of those RE people just waiting) or the caliber ( don't forget Poland or the 6 wks of RE training...just waiting to supplement). No, it's the legacy of the last decade encapsulated in that attitude that you can get something for nothing...which has worked in the past when it was enjoyed by a few exploiting the many...but not so good now where working clients seem to be an endangered species.
Reposted from earlier dead-end thread...
From today's SF Chronicle a great article.
"More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick Information Systems. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures."
Also, go to the Chronicle's front page to find related articles
I've experienced a bunch of recessions too - as teen in early 70s and on. This doesn't feel anything like any of the recessions I remember - not yet anyway.
Not to say it can't happen but we just aren't there yet IF recessions are still being measured by output declines - declining output of goods & services with related job loss.
If they start shuttering retail outlets en masse and cut employment significantly in additional sectors like 'financial services' and manufacturing/office support - then I'll believe we are in recession.
I see how it could happen - just do not see it happening just yet.
I have to place myself in the precarious position of defending Alan Greenspan.
I saw the "This Week" show, and I think some of the excerpts from his comments are taken out of context.
In fact, I believe Greenspan broke new ground. He basically said it was wrong to try to interfere with market-clearing prices either through interest rates or by propping up home prices direcly.
His point was that, if you're going to help people, better to do it through fiscal policy rather than monetary policy or regulation. Only by allowing markets to clear at lower prices will the economy find a stronger footing.
I can't find much to disagree with in his statements. If the voters want to transfer wealth to homeowners, then fine, vote for cash payments. Just keep away from rate freezes, Fed rate cuts, foreclosure moratoriums, and all other free lunch plans that help homeowners at the expense of savers and renters. At least the fiscal cost is there for all to see -- hard even for our government to hide the resulting deficit.
... Americas central bank has mismanaged the biggest risk of our times. Ever since the equity bubble began forming in the late 1990s, the Federal Reserve has been ignoring, if not condoning, excesses in asset markets. That negligence has allowed the United States to lurch from bubble to bubble...
Over time, Americas bubbles have gotten bigger, as have the segments of the real economy they have infected. The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles.
Stephen S. Roach, the chairman of Morgan Stanley Asia.
Greenspan repeated his assessment that the probability of a U.S. recession had moved up toward 50 percent but noted that corporate America's debt levels were in good shape, which should help cushion the blow from tightening credit terms.
The recession will not begin on Jan 1st 2008. Starting on that date, and for several weeks afterwards, the retailers will begin to check in with December sales figures.. and everyone will be astounded.
Towards the end of January, the consumers will begin to open their charge card statements... and everyone will be astounded.
"Over time, Americas bubbles have gotten bigger, as have the segments of the real economy they have infected. The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles.
Stephen S. Roach, the chairman of Morgan Stanley Asia."
Just further proof that the economics profession has a vendetta against common sense, and its wanted to replace it with econometrics for the past thirty years or so. Will the ramifications of the credit crisis pierce even the fortress mentality of academia? The the one institution that is even more hopelessly blind than the ratings agencies!
according to recent stats from the new york times it isn't going to be a recession for the rich: the top 1% increased their income by huge numbers vs everyone else who barely kept up with headline inflation.
A recession is not going to put much of a dent into their conspicuous consumption.
Perhaps this is why so much of the media is doubtful that there is a recession: "but but, multi-million dollar homes are still going up in price! this years yacht catalog is a bumper edition! my private banker is very positive about my wealth in 2008! how can it be a recession when st bart's is already booked out? and the jetshare company I belong to is making record profits?"
The same reason we are getting rate cuts is the same reason why Greenspan "HAD" to say the things he did in 1990. Crowd control.
In the event of a fire, do you want people trampling over women and children?
The Fed is trying to prevent a panic. The problem is that a panic may be an unavoidable outcome at the conclusion of an asset bubble, in which case postponing the panic only means it gets more and more out of control in the end.
The Fed today may be wishing they had allowed a mild panic back in 1998.
If the voters want to transfer wealth to homeowners, then fine, vote for cash payments. Just keep away from rate freezes, Fed rate cuts, foreclosure moratoriums, and all other free lunch plans that help homeowners at the expense of savers and renters. At least the fiscal cost is there for all to see -- hard even for our government to hide the resulting deficit. David P
The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles. Roach via ac
Combine those two and you have the beginning of reasonable policy:
1) Tighten money sufficiently to mop up inflation (money supply growth)
2) If necessary use focused fiscal policy to ease 'societal pain' resulting from market clearing dislocation but let markets clear. [Think temporary rent subsidy for those losing homes they couldn't afford & help getting credit again after showing credit worthiness].
In short mop up the spilled milk but don't keep refilling the pitcher [by continuing to cut rates even though money supply is still growing].
The point being that after the bubbles pop it takes a while for markets to 'heal' and work effectively again... markets really can freeze up and fail temporarily. Most of us will manage our way through this period but many won't - if too many don't and don't get some help you'll see political pressure to do really stupid things [like promote policy that will prolong bubbles].
I'd love to see some common sense from policy makers - probably won't though.
The first indication of trouble was the yield inversion. It's an excellent forward-looking 'master alarm' because it takes about 18 months for changes in the fed funds rate to propagate into the economy as a whole.
The problems in the housing sector began to spill over to the overall economy in earnest during mid-2006. Also, it was clear by the end of 2006 that initial claims for unemployment insurance had bottomed and were on the rise again. Initial claims are an important leading indicator. Continuing claims also bottomed, then began to rise, indicating problems. It was evident that this was much more than a so-called mid-cycle slowdown.
Also,the Chicago Fed's National Activity Index dropped below zero at the beginning of this year, suggesting that growth was beginning to fall below potential. MEW was also falling.
But, every recession requires a dynamic. In this case, Conjure Bag was looking for evidence that the problems in housing would not be "contained," and he found it when the Bear Stearns funds imploded. The sector-specific credit crunch that started in housing was moving to the rest of the financial system and evidence of the shock wave could be first seen in the ABX and LIBOR. A systemic event. Now, the LEI and consumer expectations indexes are falling.
Falling house prices and reduced MEW have captured consumers' attention, and their hearts and minds will soon follow. Conjure expects consumption to soon fall off the cliff. The true Wile E. Coyote moment.
Conjure has lots of fun charts and facts. These are just a few.
By the way, Conjure's Global Financial Meltdown Clock now reads 11:58 PM because the LIBOR is saying that Uncle Ben's medicine isn't working.
Conjure stands by his August forecast. Recession Q1-08. He also wishes Uncle Ben all the luck he's going to need.
emo: Oh-oh,my nightmare of reliving econ exams is coming true...
The currently fashionable argument for flooding the market with liquidity is misplaced, for the recession will ultimately be sustained by the consumer. Inflating dollars will inflate the price of necessities in a regressive way, while deflation of non-essentials (except rents) will cause a level of unemployment in retail and other service sectors that has yet to be appreciated. Obviously, IMO.
If I weren't laughing so hard I'd be crying.
exRMBSlawyer | 12.16.07 - 2:24 pm | #
Thanks that was TOO funny. If you folks haven't read the IowaHawk link exlawyer posted, you must.
I used to live just north of there - those guys are not unlike the dudes I used to supervise at the ethanol plant.
One of the lessons learned from those years: NEVER bring the gang from the plant (like Chuck, Kyle and IowaHawk) back to the house for breakfast after going catfish fishing & drinking with them. [And ya I know - catfish fishing & drinking is redundant as one always goes with the other even if really early in the morning having just come off third shift... but that explanation is needed for folks who are not from flyover].
Especially NEVER do it when your wife is pregnant and its hot and muggy and the house doesn't have air conditioning.
And lastly double especially NEVER do it with the drunken misconception that your wife will cook up the fish for everyone.
Other than that I'm not sure how this sub-prime thing got so out of hand.
I just watched the Cramer, Ron Paul video. What a schizophrenic experience. Are they talking at cross purposes or what? Does Cramer realize that Ron Paul would have us back on the gold standard and that if the market set interbank interest rates that they would be triple what they are now?
dryfly - you point out one of my conclusions about the whole situation: things aren't going to get better anytime soon, they're going to get worse. Therefore, enjoy the drink cart with a little extra gusto (doing my best to get in a couple bottles of French Champagne this holiday season before it gets priced completely out of reach).
Falling house prices and reduced MEW have captured consumers' attention, and their hearts and minds will soon follow. Conjure expects consumption to soon fall off the cliff. The true Wile E. Coyote moment.
Hasn't CB been saying this all year? Is he surprised that the employment and consumer spending numbers have held up as well as they have? (I am.) Or does never get surprised?
By the way, Conjure's Global Financial Meltdown Clock now reads 11:58 PM because the LIBOR is saying that Uncle Ben's medicine isn't working.
Yeah, this scares the cr*p out of me. If the Fed/ECB/BoE cannot even get the banks to lend to each other... But then, the battle has only just been joined. The next few weeks should be provide quite a show.
Conjure also expects the dollar to be destroyed in 2008.
emo- "Hasn't CB been saying this all year? Is he surprised that the employment and consumer spending numbers have held up as well as they have? (I am.) Or does never get surprised?"
Conjure is never surprised because he lives in a world where the past, present, and future all merge into a single un-ending now.
nemo- "Highest-risk prediction [falling dollar] of all, IMO."
Bernanke is facing a situation where all of the policy responses are contradictory. If inflation doesn't abate, the dollar will be destroyed if he doesn't raise the fed funds rate. If he raises the fed funds rate during the forthcoming recession, he'll destroy the US economy. Conjure is betting he'll destroy the dollar in the interest of saving the economy, then turn his attention to the dollar.
dryfly - I never could understand why the pregnant wives were always so cold, we got him home in one piece (mostly) and never called them for bail money.
ewbie: "In the event of a fire, do you want people trampling over women and children?"
The more apt analogy would perhaps be that the esteemed guests on the balconies and the VIP lounges are quietly escorted from the theater first, and then the fire is announced to the rest of the crowd.
Conjure is betting he'll destroy the dollar in the interest of saving the economy, then turn his attention to the dollar.
A reasonable bet. But the bond market seems to be expecting something else.
I am not saying Conjure is wrong -- far be it from me! -- just that it is a high-risk proposition. "Making predictions is hard, especially about the future."
Exactly, and what might be even more revealing would be some decile breakouts - which would show exactly how much of the average is skewed by the top - and how strained an increasing number of J6P's have become.
"What do you do when an entire sector has a market cap less then a single large cap company? I have never invested this way, but given it some thought."
I work with the 42 Fidelity Select funds. They're sliced and diced pretty fine (like Medical Delivery - which is HMO's and the like - Paper - Wireless - Brokerage - Air Transportation - Natural Gas - etc.). And I put equal dollar amounts in all the funds I have on buys. So - it's essentially a non-market cap weighted portfolio. Obviously didn't beat buy and hold the SP500 years ago when "buy and hold the index" was the rage. But it outperforms when there are huge differences in sector performance (like there are today). Note that I've been pretty much doing the same thing for well over a decade. I realize the disadvantages and advantages of what I do - and am willing to live with them. Roby
What should I look for in the CALL reports to gauge the relative strength of my local banks ?
The one item that caught my eye was 'Total risk-based capital ratio'. The two locally-owned banks came in with 0.2253 and 0.1572 while the two regionals had 0.1173 and 0.14063. I'm presuming that higher is better there ?
Go Roach! That man's been on the right track for years. I noticed that none of the NYT "experts" count out a recession, but the boys with the models think it hasn't arrived yet. Yeah, we all have a lot of faith in models, don't we?
Do their models take into account a two-track economy: a separate economy for the top 1 percent that's doing quite well, and an economy for the rest of us that's been in decline for years, if masked up by the false wealth of credit recklessly granted to the plebes by financial predators.
The rest of the world has not "decoupled" from the American consumer economy, and will decline with us. Since we've been doing airplane analogies today, I'll harken back to one of Stephen Roach's, in which he likens the world economy to a 747 in which all but two engines have been feathered, one on each wing: American demand and cheap Asian production. Lose one of those, and the airplane falls out of the sky.
I'll harken back to one of Stephen Roach's, in which he likens the world economy to a 747 in which all but two engines have been feathered, one on each wing: American demand and cheap Asian production. Lose one of those, and the airplane falls out of the sky.
Good God, Dobbs... that would knock over the drink cart! Can't let THAT happen.
yea we will not see a recession until lots of retail closes. Keep in mind that there are 7 times the sales floor space available in the US as the next country. When the house ATM runs out and the 401K is emptied and the Credit Card runs out and the malls close, then the 'Great Unraveling' will be here.
Until then, as long as there is liquidity, and folks lend at 33% annual interest to joe6pack then there will be no recession.
"Good God, Dobbs... that would knock over the drink cart! Can't let THAT happen."
Yes, but the in-flight movie is "The Money Pit" with Tom Hanks, and they keep playing it over and over and over... CRASH THE PLANE, PLEASE! I CAN'T TAKE IT ANY MORE!
David Pearson - I agree with you in defending what Greenspan said today on TV. There is nothing inconsistent about letting markets do what they're fixing to do - and targeting fiscal relief to "worthy" people who need money now. "Worthy" is of course a term we could debate to death - but I think we can agree that it doesn't apply to people who were speculating in multi-million dollar houses but couldn't afford to. Curiously - where I live - the houses range in price from about $400,000 to about $6 million - and there are a lot more for sale signs in the most expensive areas. The names of some of the people who own the really expensive houses are ones you'd recognize - but I think a lot of people earning $250,000/year were speculating in these areas. And that's why all the "For Sale" signs are popping up there. On my relatively modest block - 30 houses - there is only 1 house for sale. And that is because the owners - who lived well under their means - couldn't stand their new neighbors across the street and decided to move.
There are a lot of things that - for example - could be done with taxes. Like fixing the AMT - yesterday - forever. I've agreed with Charlie Rangel on this one forever.
For retirees - we can fiddle with the taxation of SS benefits. For lower income younger people - we can fiddle with the earned income credit. And maybe FICA payments too. Get rid of or expand the income cap - perhaps tax things other than wages - like interest and dividends and capital gains. And perhaps exclude lower income people from paying FICA altogether - while allowing them to accrue benefits while in lower income brackets. It's pretty easy to keep Social Security on a firm financial footing while doing this (you just fiddle with the numbers - it's kind of like life insurance). It's Medicare that's really the entitlement disaster waiting to happen (although that risk seems to be subsiding now that part B payments for Medicare recipients are based on income). Still - Medicare is more like insuring coastal properties in Florida than life insurance. Who the heck knows what's going to happen with medical costs - and when.
To accomplish Paygo - for upper income people - well we can do away with preferential capital gains and dividend rates - and - of course - the infamous carried interest tax break. Although I am far from liberal - you'll have a hard time convincing me that billionaires should be in lower tax brackets than school teachers.
Apart from tax policy - I am sure there are other forms of fiscal stimulus - and perhaps some of you people who've studied economics can explain them . Robyn
P.S. I dislike Greenspan and what he did when he was fed chairman. I will hate him if for no other reason that he was responsible for "fedspeak". If he had spoken plain English while fed chairman - which we now know he refused to do solely to confuse people - perhaps we wouldn't be in the mess we're in now.
tj- "I wouldn't even call any of this Black Swan stuff. It's not like any of it is really a surprise, is it?"
No, it shouldn't be a surprise, and will not turn into a Black Swan unless Bernanke fails in his mission. Having said that, early indications are that his job is going to be much harder than he thought it would be.
If he succeeds, he will have earned what he's paid.
First, banks must start lending to each other again, as measured by a falling TED spread. The TAF might work, but it's doubtful, so Bernanke had best be working on alternatives.
Second, the junk needs to come on the books. That's one of the Conjure's major points. The transparency that everyone thought existed, but didn't, needs to be restored. By the way, anyone counting on the dollar to be buoyed in 2008 by safe haven seekers should think about this factor.
Third, there needs to be a massive review of bank capital when everything is brought on the books, and those who are deficient should be re-capitalized, merged or closed.
Fourth, the Fed must figure out a way to bail out homeowners.
Fifth, and after the smoke has cleared, the Fed and Congress must vow that this will never happen again, and take actions to ensure that it doesn't.
Conjure Bag notes that point 5 will never happen and that if there really is a Black Swan in the room it's point 4 because that's the third rail, politicaly speaking.
Conjure also notes that all of this must proceed simultaneously, and he is confident that it won't. So, be prepared for a drawn-out resolution.
Anybody catch Greenspan's commenst on giving financial aid to homeowners (owners?) today? I am convinced that guy is insane. Check out this dandy of a puzzling sentence from the maestro:
"He said the Federal Reserve should "do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer term period."
Anyone want to savage that line?
Identify them and never listen to them. E.g., Abbey Joseph Cohen is a perma-bull. Steven Roach is pretty much a perma-bear. Here was what Steven Roach said about 2003:
"Economist predicts world recession
Morgan Stanley economist cites SARS, war uncertainties as the main causes for pending recession.
April 2, 2003: 1:11 PM EST
NEW YORK (CNN) - One of Wall Street's leading economists is predicting a global recession this year, prompted in large part by fears surrounding Severe Acute Respiratory Syndrome (SARS), the "mystery illness" with cold-like symptoms that is blamed for 78 deaths in 15 countries, CNNfn has learned.
Morgan Stanley's chief economist in the United States, Stephen Roach, will formally advise clients Friday that he's forecasting a world recession in 2003. His previous forecast was for an annual growth rate of 2.5 percent..."
That's why I like charts. Just the numbers. And I can read them (like I'd read a newspaper). A stopped clock is right twice a day - and these men and women will never make you any money.
As for shopping - any women around here except me? I LOVE to shop - but - frankly - shopping is kind of boring these days. Very little that is new and exciting - things that say "BUY ME" (and no - I am not interested in a WII). My husband is holiday-shopping gift-impaired (almost all men are - see, e.g., what Dave Barry has written on this subject). Which is why so many of you guys wind up buying relatively cheap jewelry as gifts for your wives. I actually happened to need a new terry bathrobe this year. Guess almost no one makes them these days. We went shopping - everywhere - in stores and on line - and I wound up buying one at Brooks Brothers (boring - but it does the job). I would absolutely love to put a small HDTV in the kitchen - but I won't live with one of those ugly set-top boxes on the counter. Maybe I'll find a cablecard TV like that - in 2010. Anyway - if retail sales are down - perhaps it's because the stuff that's for sale is a big yawn. Roby
"do what it has to do to suppress the inflation rates that I see emerging, not immediately"
Translation:
Inflation is like a bubble of money - we can not do anything about it and we will just deal with the consequences when it bursts. For the short term the Fed should continue to pump money to avoid recession.
Atleast Greenslime is honest about this entire mirag-E, why waste the petrol on copters simply make electronic transfers to bank and brokerage accounts and buy votes directly. No point wasting-it on the overhead involved with junkets involving hookers, firearms, and barnyard animals.
(hat-tip to my 'ole political mentor Howard Jarvis).
tj- "the bursting of the housing bubble was inevitable, was it not? How about the tech bubble?"
The simple answers are: yes, yes.
You, Conjure and I are closer to agreement than you imagine. These circumstances, IMO, contain within them the seeds of a major economic collapse. Will they germinate and grow? The answer to that lies with the Fed. Until we see the Fed develop their responses, Conjure and I will remain mute on the subject.
Personally, I don't think Bernanke's appointment was a coincidence. He is one of only a few living experts on The Great Depression.
Robyn,
Re: Alt-min
Congress never indexes anything to inflation as it gives them a future forum to bloviate for or against whathaveyou. Keep in mind that the taxes from Alt-min are INCLUDED in the national budget for the next 10 years. That is, even though Congress puts a patch on it each year, the future assumptions are predicated on an assumption that they will never have the patch again (and tax revenues will be substantially higher).
The stealth tax impacts are another issue. The just revoked part of the kiddie tax recently (changed the ground rules after half-time). This may provide precedent to tax withdrawals from Roth IRA's in the future.
On Sunday, Cheney said there was "growing evidence" that the economy was slowing.
"We're seeing it in automobile sales and a lot of other areas, earnings falling off for corporations. And we may well be on the front edge of a recession here," he said on NBC's "Meet The Press."
White House blasts Cheney for recession remark
From CNN White House Correspondent Major Garrett
December 4, 2000
As a bitter renter who tired long ago of subsidizing home "owners", and given that the mortgage interest deduction helped fuel the housing insanity, I have trouble feeling sorry for my upper-middle-class cohorts "caught" by the AMT. (I never cared much for tax deductions, anyway.)
perhaps tax things other than wages - like interest and dividends and capital gains
So you want to discourage savings and investment, and thereby encourage consumption? Not sure that is what the patient needs at present...
Agree with most of the rest, esp. taxing carried interest and worrying about Medicare, not SS. But we have serious problems coming to a head in weeks or months, not decades.
I don't think Bernanke's appointment was a coincidence. He is one of only a few living experts on The Great Depression.
First, the expert answers are far above my pay grade but this is just nonsense. There just plain old isn't anything left of the economy of pre-WW-II America. We were on the gold standard fer heavens sake.
Perhaps we can get a Naval tactician with expertise in the use of dreadnoughts to fight our next war for us.
I actually happened to need a new terry bathrobe this year. Guess almost no one makes them these days.
I haven't been able to find one for 10 years. I don't want luxurious chenille. I don't want cozy fleece. I want terrycloth, dammit - like a towel - so I can step out of the shower and dry myself off. Is that so hard for manufacturers to understand? But it's kind of hard to make a terrycloth bathrobe into something high-status and luxurious, so I guess that's why no one's bothered to sell them any more.
Another thing is that even in electronics, the stores are filled with endless iterations on the same theme. There are 1000 new products and none of them are really new. Really, how many music-playing devices does one need? How many different forms of digital camera? How many choices of MP3-playing HDTV wireless Internet PlayStation phones will we be offered this season? Does anyone care?
did anyone notice that costco missed their number? there's a reason. they only take cash. people are using their credit cards to buy groceries. it's over!
Roach was very wrong on that one, but let's not forget that he is a very, very bright guy and has put his neck on the guillotine--every week--for years. Just like a lot of other bright economists have done. His macro analysis has been dead on, but his timing has sometimes been horribly off. Like Nouriel Roubini, for example.
Let's put it into perspective, shall we?
Roach--any economist--is like the guy in the passenger seat, pointing out to the driver that guage reads 'empty.' Do you expect him to tell you--every time--when the engine will begin to sputter?
I know we're very close in our thinking here, but... I feel that the Fed is trapped in Zugzwang.
Over the past few years I've attempted to think through all of the potential mitigating actions that TPTB could undertake (as presented here and elsewhere), and so far I fail to see one that doesn't create as many (if not more) problems than it solves.
Everyone likes to throw out the easy arguments like "bailout" and "monetization", but these things have huge costs and consequences of their own. I'm willing to debate these things with anyone, but they better damn well be loaded for this bear. [Don't even get me started about Seb & co.; he's all about effect, nothing about cause.]
Barring the arrival of aliens bearing Star Trek like technology, we're toast.
"Another thing is that even in electronics, the stores are filled with endless iterations on the same theme. There are 1000 new products and none of them are really new. Really, how many music-playing devices does one need? How many different forms of digital camera? How many choices of MP3-playing HDTV wireless Internet PlayStation phones will we be offered this season?
The reason is that all the Asian governments are subsidizing their export industries by pegging their currencies to the dollar at fraudulently low rates. So they have far more consumer electronic product exporters than an unsubsidized market would bear, all desperate to somehow differentiate their products with trivial "features".
The survey showed asking prices for houses were 3.2 pct lower in December than in November, the biggest fall since the data series began in January 2002 and a much sharper fall than last month's 0.7 pct decrease.
Rightmove's survey is considered somewhat unreliable in the short-term, but nevertheless with all the talk of the credit crunch here the UK, this is going to hit sentiment hard - especially just before Christmas.
Devaluing the dollar 41% like FDR? You can only go off the gold standard once. Just exactly what would a currency devaluation do this time anyway? Ben has allowed inflation to slip its collar. It is no longer his to control. He's right that perception of inflation is more important than actual inflation. Show of hands on that one? Thought so.
What is or isn't a Black Swan is even confusing to Taleb.. I'm not really sure it's fully fleshed out. (Even after writing a book with the title "The Black Swan")
With that said, I think that what is happening now could turn into a Black Swan if all of this led to the total annihilation of our global financial system. (Granted, I don't think that's possible.. but this is one of the pre-requisites of a Black Swan).
I think Taleb would call what's happening now just sort of stupid. He could see this coming. I am sure he's made a lot of money the past 6 months, but he's smart enough not to show up in the newspapers like John Paulson.
No matter our viewpoint.. I think everyone figures we will make it through this and the financial markets will continue to function. The Black Swan would be if this just totally borked everything and all the OTC and exchange traded derivatives just ceased to trade. And then, the stock markets ceased functioning.. and we reverted back to protean financial landscape that involved bartering for goods.
Back in early 2003(?) he called for the Fed to raise the FFR 200 basis points, precisely to forestall future speculative bubbles. They didn't listen, and we all know exactly what has transpired since.
My first impulse is to say that "none of us could have foreseen the total abandonment of credit standards"; however, in retrospect it's a perfectly logical extension of human bubble mentality. [Note: I know I risk Taleb's wrath on 20/20 hindsight, but we've seen irrational exuberance before, have we not?]
No matter our viewpoint.. I think everyone figures we will make it through this and the financial markets will continue to function.
eli,
Agreed (although I've made the necessary arrangements to protect against a systemic meltdown).
One thing I always try to remind people is that even a depression isn't an apocalypse; heck, for most it isn't even a real hardship. A certain level of economic activity and employment is simply unavoidable.
Some simple truths are unavoidable, though. J6P and all levels of government have been "overconsuming", and due to accumulated debt will now have to "underconsume" for a while. A lot of that debt, especially of the federal variety, is simply unpayable and will default (hence mp's point about the eventual failure of the dollar).
Robert, it seems to me that Mr. Market is well on its way to doing that for us.
mp | 12.16.07 - 8:10 pm | #
Yup. A trillion dollars worth of current account deficit a year (or there abouts) over the better part of a decade will do that to one's currency. Fed was just the messenger bringing the news we all decided to shoot.
The amazing thing is the party went on this long - I was expecting the dollar to correct big time 5-6 years ago.
I think everyone figures we will make it through this and the financial markets will continue to function.
I think that depends on how you define 'function'. There are those who might say the function of a market is to 'go up'. They might be disappointed. But maybe that's just me.
Roach--any economist--is like the guy in the passenger seat, pointing out to the driver that guage reads 'empty.' Do you expect him to tell you--every time--when the engine will begin to sputter?
No, but if he constantly yells that we are about to crash every time he sees a blinker or some brake lights...
Even a stopped clock is right twice a day. Those who have been predicting recession every year for the past ten are not suddenly impressive when they are finally right. Beyond a certain point, there is no distinction between "early" and "wrong". (Of course we will have a recession eventually...)
If perma-bears like Roach and Roubini were the only ones calling for recession next year, I would actually find it pretty easy to dismiss. Much more concerning is to see Richard Berner -- Roach's compatriot at MS -- switching his call to the downside.
I do give them all credit for putting their calls out there for everyone to see, especially given how bad all of their track records are. (No shame in that; it is, frankly, an impossible task.) What's the old quip? "Economists have predicted 9 of the past 5 recessions"?
Me, I foresee market lockup, when downgrades and mark-to-markets force insurance calls, and 'insurers' refuse, or cannot take, the call.
I look forward to making my SDS gain here in the next few months (by April!), moving to gold and gold mining stocks housed in a private bank in Switzerland, and sitting on the sidelines as debtors and creditors go for each others' throats.
Yeah, well, good luck with that. IMO we have the architect of the Maginot Line in charge.
tj & the bear | 12.16.07 - 8:25 pm | #
LOL - ya well not all 'last war' plans are so good.
On the other hand if Ho Chi Mihn were running Operation Baghdad for AQ I'm not sure he'd do much different than he did in the mid-70s in Nam (after the disaster that was Tet). Some stuff hasn't changed since before Hannibal.
But then who says Bernanke REALLY learned the lessons of the Great Depression? The lesson where spending to fund a major war pulled the countries out of deflation for good.
I wouldn't mind if he (and the other policy wonks) slept through that class. There are worse things than depressions.
Not unlike my strategy. I've got VIX calls & index LEAP puts that I'll transition to miners & energy calls when the time is right. If played correctly I'll be set for life.
moving to gold and gold mining stocks housed in a private bank in Switzerland
Could you please give me the names of some good private banks in Switzerland? I don't know any. But I'm sure they would take me because I have a lot of credit cards. Thanks.
Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh, said Greenspan's proposal for a cash bailout might cost ``hundreds of billions'' of dollars and would be counterproductive.
It is not a good idea for the government to bail out people who make mistakes,'' said Meltzer, the author of a 2002 book on the early history of the Fed.The markets are beginning to come to grips with this and bailing them out is a mistake, not a small one but a big one.
Nemo- "No, but if he constantly yells that we are about to crash every time he sees a blinker or some brake lights..."
And that's why even Conjure Bag and I were extremely reluctant to come forth with a Q1-08 recession call. We could be wrong and our credibility on this blog, even though we're anonymous, could suffer. Credibility is important. Especially here.
The reason is that all of you are terrific and always thought-provoking. That's why Conjure and I like to hang out here.
And that's why what you're getting from us, at the end of the day, is the cutting edge of our opinion. It's our best guess. You'll never see it anywhere else, but we're sticking our necks out in this forum because we thought our opinion might be thought-provoking and useful.
But then who says Bernanke REALLY learned the lessons of the Great Depression? The lesson where spending to fund a major war pulled the countries out of deflation for good.
I've seen a lot of contradictory statements about what we 'really' should have learned.
It is not a good idea for the government to bail out people who make mistakes,'' said Meltzer, the author of a 2002 book on the early history of the Fed.The markets are beginning to come to grips with this and bailing them out is a mistake, not a small one but a big one.'
No a complete bail out would not be good. But helping people 'transition' to the new reality (without a lot of suffering) wouldn't be terrible. Again - things like rent assistance and helping getting their credit back in shape AFTER the market clearing.
Ellen & Robyn-
My wife got me a Frette terry robe last Xmas, I know you can google a supplier. Of course, it is a man's robe, it's dark blue and it's heavier than sin, but that's how I like it.
dryfly- "No a complete bail out would not be good. But helping people 'transition' to the new reality (without a lot of suffering) wouldn't be terrible."
And that's why what you're getting from us, at the end of the day, is the cutting edge of our opinion. It's our best guess. You'll never see it anywhere else, but we're sticking our necks out in this forum because we thought our opinion might be thought-provoking and useful.
It is!
And same from my side. I love shooting the bull (er, so to speak) with you all. I always find spirited debate helps to crystallize -- and sometimes change -- my own thoughts.
I apologize if my adversarial tone ever comes across as a lack of respect. This is the best financial blog and community on the Net. Hope I'm not detracting from it.
Lets say that that congress passes a bill mandating no more than 12% interest on any loan.
A bill mandating that foreclosed families have the option pay some standardized rent for 12-18 months.
And a welfare type credit card good for food and medical care to the unemployed for say 12-18 months.
Plus UE benefits for 12-18 months.
The RE bubble, bubbles away. A significant part of the financial stocks take a big hit. The RE sector is also hit bad. The economy as a whole remains a bit stable.
All in all not much damage and not that much cost.
Wishful thinking, Vader. Print money or raise taxes to pay for it? Either way, reduced purchasing power for folks of means --> drops in consumption --> drops in employment --> drops in national income; repeat again and again.
And, the whole slew of new 'welfare' cases won't be buying much --> drops in consumption --> drops in employment --. drops in national income; repeat again and again.
Depression (drop in GDP of >=10%) coming soon to the U.S.
rich, in case you are not kidding, the folks at SafeWealth are the ones that I have been chatting with: The Safewealth Group
They serve as intermediary for two private banks in Switzerland.
jg
I often wonder if the authorities watch boards like this looking for subversives, tax-evaders and money launderers. I think so.
So, even if I was interested in any of those things, I wouldn't say so on this board.
In fact, I am definitely not interested in any of those things. Everything I do is legal. There is no reason to put any tags or filters on my posts. Thank you.
I shan't run or hide, rich. I'll just have my money overseas, in case of attempted government overreach, again.
Purportedly, Joseph Kennedy and J.P. Morgan got their gold on oceanliners heading overseas shortly before FDR's order outlawing the personal holding of gold.
This is the one lesson that I will ever learn from a Kennedy.
Swiss banks - like UBS? That's a real tower of strength these days (FWIW - I have accounts at UBS - the US brokerage firm).
Also - the Swiss were so wonderful with Jews who put items in their "safe-keeping" during the Holocaust. Now you see them - now you don't.
And please note - when you look at banks outside the US - that their insurance protection is a lot different than ours. UK bank failure insurance is less than ours in the US - and subject to a deductible to boot. That's why the Northern Rock problems had people lined up around the block.
The United States isn't wonderful. But just don't assume automatically that any other place is better. Robyn
P.S. Ellen and others - the Brooks Brother woman's robe is fine (as a winter robe in Florida). There was a nice looking Frette robe I saw on line - but it seems to have been discontinued. You can buy some nice robes from hotels like FS and RC - but they are "one size fits all" (which doesn't work for a 5 foot tall woman like me).
"As for the Fed itself, it's a great gift to offer people hope, but a great disservice to offer people false hope, and I think that's what the Fed is doing. What's going on in the mortgage market is not a crisis of confidence that we can talk ourselves out of it's a problem of structural insolvency, where many borrowers literally don't have the means to service their debt over the long-term, because many of them were counting on rising home prices over the short-term. By acting as if a few billion in repos will substantially change this equation, the Fed is raising hopes, and setting the markets and the economy up for disappointment that will be far worse as a result. Bernanke would be better off admitting that the Fed has no chance of providing meaningful liquidity when the Federal government is issuing Treasuries at ten times the rate the Fed can absorb them. At that point, Americans would see better that the resources we need to invest, compete and become a financially sound nation are being hoarded by the Federal government and sent up in flames."
Credit spreads remain wide, and the potential for further loan losses does have the tendency to mitigate inflation pressures. That said, commodity prices and a generally weak dollar, combined with continued federal deficits are putting up a good fight to keep inflation pressures alive. My impression is that the default pressures will ultimately win out, but we've got a good chance of seeing a run on the dollar first. Again, the recent rebound in the dollar appears to be mostly a clearing rally from an oversold low, with the modest quarter-point Fed cut serving as the occasion.
In defence of Roach: there was no way to predict how irresponsible the Fed would be. Even by late 2003, it was clear real estate was starting to bubble up, and yet the Fed persisted with its idiocy another full year. And then they took the "measured" steps, giving speculators full cover.
It sometimes feels that the entire "growth" of 2003-2006 is phantom growth. Real estate prices surely look to trace their way back to 2002-3. Stock prices could go all the way back too.
If those things happened, and Steve Roach had said in 2003 to stay away from stocks, was he right or wrong?
I moved out of stocks in 1998, and in 2002, was feeling pretty good, because the prices were at 1997 levels. Yeah, I "missed" the run-up, but missed the run-down too - all without any stress.
Ivy League - I worked on financial chat boards starting in the late 80's - and one important thing I learned from that is no private investor should ever have to justify his or her approach to investing to anyone. We all have different life situations - goals - comfort levels. And - as long as what we're doing doesn't result in disaster (in which case we need more help than we can find on-line) - and we're comfortable with it - that's ok as far as I'm concerned. I've never had a large exposure to equities. That's just me.
OTOH - professionals who prognosticate in public are fair game IMO - particularly when they always say the same thing. Note that the perma-bulls will usually be right more of the time than the perma-bears (just because of the way our markets have worked since the end of WWII). But they will cost you a lot of money if you follow them blindly.
JG - I don't know who you are - how old you are - or how much money you have. But if I saw a "money manager" called Church Trust - I would run very very fast in the opposite direction (I also run very very fast from money managers with single digit golf handicaps). There have been a lot of financial shenanigans committed in the name of religion over the course of decades. A lot of fraud - and general mismanagement (e.g., one of our largest retirement communities here - church run - went belly up a while back - leaving a lot of elderly people holding the bag). So be very careful. There are many things that are worse than parking money in federally insured US bank accounts during financial storms.
By the way - there is an old saying about physical gold. Always hold a little (which I do) - and hope it always loses money (which I have in general done). Heck - I would have made more money buying gold Rolex watches than physical gold! I would also go long bathrobes - so we don't freeze when the power goes off (smile). Roby
first
and, yes we are in a recession
Fl, check
CA, check
CO, check
MI, check
OH, check
MD as well??
Jay Hancock's blog: Maryland November retail sales nearly flat - Economic navigation and sightseeing - baltimoresun.com
Who was wrong more? Neocons about the outcome of invading Iraq, or conservative economists about the housing bubble and it's impact on the economy?
edhopper: Option 3, Alan Greenspan about everything.
CR: Being a blog writer, how happy are you that Greenspan's quotes are in the public domain? There's a never-ending supply of his wondrous combination of uselessness and gratuitous exuberance for you to apply to any possible post.
The same reason we are getting rate cuts is the same reason why Greenspan "HAD" to say the things he did in 1990. Crowd control.
In the event of a fire, do you want people trampling over women and children?
Stephen Roach's piece in the Times is spot on. I loved reading him after the dot com bust on Morgan Stanley's Global Economic Forum. He was derided during the course of the recovery in 2003/05, but all of the problems he was discussing in the his weekly commentary have come into play in a powerful way.
I also have no doubt that when the economic history of the last 20 years is written, Alan Greenspan will not be treated kindly.
Is there anybody arguing "it doesn't matter"?
Would a protracted period of sub-trend growth be so much better than a brief but deep recession?
All this obsession with whether the number happens to cross zero strikes me as misplaced. Am I wrong?
The olde definition of recession doesn't work anymore. The people reporting the data have changed the methodology. The MSM that dutifully regurgitates what it is told is no longer the source of pertainent information.
If we care about tracking recession or inflation for that matter then it will be a blogger making the case in a blog and subject to critical review from other bloggers.
I just wish so many people would stop mentioning the New York Times in this fine blog. It gives the NYT a form of legitimacy it no longer deserves.
greenspan-
Bail em out-
Greenspan Favors Government Bailout for Homeowners (Update1) - Bloomberg.com
Tell you what, Alan, you feel free to use your OWN money to bail out the homedebtors.
But don't use ONE CENT of my tax dollars, sir.
All this obsession with whether the number happens to cross zero strikes me as misplaced. Am I wrong?
Not in so far as what economic policy should be in response. But in the wider sense of political and economic will, yes. People need the label to tell them what they should think about conditions. Whether those labels are valid is a whole 'nother consideration.
More Greenspan:
http://blogs.wsj.com/economics/2007/12/16/greenspan-consumer-spending-reasonably-good/
I watched that 'orrible man on "This Week" - he explicitly suggests that a cash infusion ( not a interest rate cut) is the answer. OKKKK, where do I line up ?
I recently re-read "The Great Crash" - by Galbraith, and have lived through the all the ameliorative measures that the Tory and Labour govts made during the stagflation of the 70s.
Its sad that the same old crap is reproduced. But I'm not surprised.
If I'm asked I'll tell them that Mellon's prescription was right - "Liquidate it all" and add ( expand food donation, Sally Army donation centres, heating donations - go full out for individual charitable behaviour ).
-K
Greenspan sees early signs of stagflation
Greenspan sees early signs of U.S. stagflation
| Reuters
"We are beginning to get not stagflation, but the early symptoms of it," Greenspan said.
o yeah, forgot to sign off
-Stagflationary K
We will know we are in a recession about when it is over.
Yet more Greenspan.
Eschaton
What a total POS, that Greenspan.
Nemo:
It couldn't matter more.
The longer Bushie and Congress deny a recession, the longer Bernanke & Co. can keep printing the money needed to spare no expense on our wars, without being accused of ignoring inflation.
The President's "strong economy" frame also enables him to keep cheating the so-called "entitlement" programs that will now, more than ever, be required by the working poor and middle class, while leaving state governments the political falllout of cutting their end of the bargain (e.g., California right now).
Denying recession not only has the potential to shift blame onto Bushie's successor; it changes the demeanor of every Presidential candidate right NOW. Imagine what else Huckabee, Kucinich, and all in between might be saying were we officially in recession.
In early 2000 I predicted that a recession will begin in q1 2001.It is maybe the best prediction I have ever made and I am still a somewhat proud of it.During this year my prediction has been a recession by q4 but the first quarter of 2008 is now more likely,again!
A CALIFORNIA courthouse auctioned 1,336 foreclosed properties ( Modesto, Merced and Stockton ) but.....only 17 sold.\t
Bargain houses largely unsold - Local - Modbee.com
Is this a vote for already being in recession ?
Greenspan: Cash from the government, yes.
...
I'm saying I don't know if it would work, but it would certainly help people
...
It's very critical that this thing reach a selling climax -- if I may put it in other words, exhaust itself. It's only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.
Huh?
You can believe in a bailout, or you believe it is a mistake to "prolong the agony", but you cannot believe both. Either he is directly contradicting himself in like three sentences, or I do not understand what he is proposing.
freddyinP'town --
The longer Bushie and Congress deny a recession, the longer Bernanke & Co. can keep printing the money needed to spare no expense on our wars, without being accused of ignoring inflation.
Except calling it "recession" implies the Fed should lower target rates and print more money. Aside: Try to avoid Bush Derangement Syndrome. I myself suffered Clinton Derangement Syndrome in the 90s and it was years before I recovered.
Unless you think it is time to fire up the dollar printing press, you should be happy to see lots of "no recession" happy talk.
The inflation numbers, on the other hand...
Nice overview of the mainstream view a la NYT (which might be different from the view form the WSJ) but is thankfully not a collection from the WH press releases.
Such is my rejoinder to Robert's remarks about the (sticky, yes?) credibility of the NYT...hoping that I am one of those "critical reviewers" in this fine blog...who still needs a reference, a standard however deteriorating, you know?
From the Roach piece, the phrase "mathematically impossible" and if this isn't professional bullying, I don't know what is. Remember you professionals out there, when cruisin for clients always knock em out with "uniquely unique" et al ("and the like" won't do it any more, people can hear the difference, yes? YES?)
"Recession" is a national or international description at least as it occurs in this collection of views, but there are Midwesterners who might feel that their plight has been ignored...their might be segments (blacks) who feel the same way since the wave of undocumented workers arrived.
Last ting: when do we hear (not esp from Seb, but that would be good too) about the recovery following the recession? How far do we look ahead to get comfortable now with decisions about that future? 2041 is one date that officials site as pivotal wrt SSTF, but clearly we are not looking that far out. 2008 and the Olympics seems too close to think about speculating on that seminal recovery. It's not that we don't have personnel to recruit (think of those RE people just waiting) or the caliber ( don't forget Poland or the 6 wks of RE training...just waiting to supplement). No, it's the legacy of the last decade encapsulated in that attitude that you can get something for nothing...which has worked in the past when it was enjoyed by a few exploiting the many...but not so good now where working clients seem to be an endangered species.
Reposted from earlier dead-end thread...
From today's SF Chronicle a great article.
"More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick Information Systems. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures."
Also, go to the Chronicle's front page
to find related articles
there have been a lot recessions it's not the problem.
but you'd better start to worry about the rebound that should come after.
I've experienced a bunch of recessions too - as teen in early 70s and on. This doesn't feel anything like any of the recessions I remember - not yet anyway.
Not to say it can't happen but we just aren't there yet IF recessions are still being measured by output declines - declining output of goods & services with related job loss.
If they start shuttering retail outlets en masse and cut employment significantly in additional sectors like 'financial services' and manufacturing/office support - then I'll believe we are in recession.
I see how it could happen - just do not see it happening just yet.
I'd feel a whole lot better about Chauvet's no-recession call if his co-author didn't happen to be Mr. Dow 36,000.
This is like hearing Paul Wolfowitz declare that the war in Iraq has been won.
I have to place myself in the precarious position of defending Alan Greenspan.
I saw the "This Week" show, and I think some of the excerpts from his comments are taken out of context.
In fact, I believe Greenspan broke new ground. He basically said it was wrong to try to interfere with market-clearing prices either through interest rates or by propping up home prices direcly.
His point was that, if you're going to help people, better to do it through fiscal policy rather than monetary policy or regulation. Only by allowing markets to clear at lower prices will the economy find a stronger footing.
I can't find much to disagree with in his statements. If the voters want to transfer wealth to homeowners, then fine, vote for cash payments. Just keep away from rate freezes, Fed rate cuts, foreclosure moratoriums, and all other free lunch plans that help homeowners at the expense of savers and renters. At least the fiscal cost is there for all to see -- hard even for our government to hide the resulting deficit.
At least somebody gets it:
... Americas central bank has mismanaged the biggest risk of our times. Ever since the equity bubble began forming in the late 1990s, the Federal Reserve has been ignoring, if not condoning, excesses in asset markets. That negligence has allowed the United States to lurch from bubble to bubble...
Over time, Americas bubbles have gotten bigger, as have the segments of the real economy they have infected. The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles.
Stephen S. Roach, the chairman of Morgan Stanley Asia.
Greenspan repeated his assessment that the probability of a U.S. recession had moved up toward 50 percent but noted that corporate America's debt levels were in good shape, which should help cushion the blow from tightening credit terms.
Greenspin is smoking some really good stuff !
Expired
Iowahawk weighs in on the subprime bust: iowahawk: Please Don't Destroy My American Dream
If I weren't laughing so hard I'd be crying.
The recession will not begin on Jan 1st 2008. Starting on that date, and for several weeks afterwards, the retailers will begin to check in with December sales figures.. and everyone will be astounded.
Towards the end of January, the consumers will begin to open their charge card statements... and everyone will be astounded.
Thats when the recession will begin.
Nice close Stephen:
"Over time, Americas bubbles have gotten bigger, as have the segments of the real economy they have infected. The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles.
Stephen S. Roach, the chairman of Morgan Stanley Asia."
BTW, on the Chauvet "recession risk model":
Just further proof that the economics profession has a vendetta against common sense, and its wanted to replace it with econometrics for the past thirty years or so. Will the ramifications of the credit crisis pierce even the fortress mentality of academia? The the one institution that is even more hopelessly blind than the ratings agencies!
I think the green wienie should pump another trillion into the CA economy, since they did so much good with the last trillion.
according to recent stats from the new york times it isn't going to be a recession for the rich: the top 1% increased their income by huge numbers vs everyone else who barely kept up with headline inflation.
A recession is not going to put much of a dent into their conspicuous consumption.
Perhaps this is why so much of the media is doubtful that there is a recession: "but but, multi-million dollar homes are still going up in price! this years yacht catalog is a bumper edition! my private banker is very positive about my wealth in 2008! how can it be a recession when st bart's is already booked out? and the jetshare company I belong to is making record profits?"
The same reason we are getting rate cuts is the same reason why Greenspan "HAD" to say the things he did in 1990. Crowd control.
In the event of a fire, do you want people trampling over women and children?
The Fed is trying to prevent a panic. The problem is that a panic may be an unavoidable outcome at the conclusion of an asset bubble, in which case postponing the panic only means it gets more and more out of control in the end.
The Fed today may be wishing they had allowed a mild panic back in 1998.
If the voters want to transfer wealth to homeowners, then fine, vote for cash payments. Just keep away from rate freezes, Fed rate cuts, foreclosure moratoriums, and all other free lunch plans that help homeowners at the expense of savers and renters. At least the fiscal cost is there for all to see -- hard even for our government to hide the resulting deficit. David P
The Fed needs to rethink its reckless, bubble-prone policy. Once the current crisis subsides, the economy will require the tight money of higher interest rates the only hope America has for breaking the lethal chain of endless asset bubbles. Roach via ac
Combine those two and you have the beginning of reasonable policy:
1) Tighten money sufficiently to mop up inflation (money supply growth)
2) If necessary use focused fiscal policy to ease 'societal pain' resulting from market clearing dislocation but let markets clear. [Think temporary rent subsidy for those losing homes they couldn't afford & help getting credit again after showing credit worthiness].
In short mop up the spilled milk but don't keep refilling the pitcher [by continuing to cut rates even though money supply is still growing].
The point being that after the bubbles pop it takes a while for markets to 'heal' and work effectively again... markets really can freeze up and fail temporarily. Most of us will manage our way through this period but many won't - if too many don't and don't get some help you'll see political pressure to do really stupid things [like promote policy that will prolong bubbles].
I'd love to see some common sense from policy makers - probably won't though.
The first indication of trouble was the yield inversion. It's an excellent forward-looking 'master alarm' because it takes about 18 months for changes in the fed funds rate to propagate into the economy as a whole.
The problems in the housing sector began to spill over to the overall economy in earnest during mid-2006. Also, it was clear by the end of 2006 that initial claims for unemployment insurance had bottomed and were on the rise again. Initial claims are an important leading indicator. Continuing claims also bottomed, then began to rise, indicating problems. It was evident that this was much more than a so-called mid-cycle slowdown.
Also,the Chicago Fed's National Activity Index dropped below zero at the beginning of this year, suggesting that growth was beginning to fall below potential. MEW was also falling.
But, every recession requires a dynamic. In this case, Conjure Bag was looking for evidence that the problems in housing would not be "contained," and he found it when the Bear Stearns funds imploded. The sector-specific credit crunch that started in housing was moving to the rest of the financial system and evidence of the shock wave could be first seen in the ABX and LIBOR. A systemic event. Now, the LEI and consumer expectations indexes are falling.
Falling house prices and reduced MEW have captured consumers' attention, and their hearts and minds will soon follow. Conjure expects consumption to soon fall off the cliff. The true Wile E. Coyote moment.
Conjure has lots of fun charts and facts. These are just a few.
By the way, Conjure's Global Financial Meltdown Clock now reads 11:58 PM because the LIBOR is saying that Uncle Ben's medicine isn't working.
Conjure stands by his August forecast. Recession Q1-08. He also wishes Uncle Ben all the luck he's going to need.
emo: Oh-oh,my nightmare of reliving econ exams is coming true...
The currently fashionable argument for flooding the market with liquidity is misplaced, for the recession will ultimately be sustained by the consumer. Inflating dollars will inflate the price of necessities in a regressive way, while deflation of non-essentials (except rents) will cause a level of unemployment in retail and other service sectors that has yet to be appreciated. Obviously, IMO.
CR -- minor point: the '01 recession started in March, not July, and lasted through November.
Page Missing
CR -- oops; my mistake; wrong decade! You wrote '90 and I read '01.
Greenspan about stagflation
"Fundamentally, inflation must be suppressed," he added
how dare he can say that, this guy is unbelievable.
Stephen Roach for Secretary of the Treasury, please, whomever gets elected!
Conjure also expects the dollar to be destroyed in 2008.
Finance and economics. Fun stuff.
If I weren't laughing so hard I'd be crying.
exRMBSlawyer | 12.16.07 - 2:24 pm | #
Thanks that was TOO funny. If you folks haven't read the IowaHawk link exlawyer posted, you must.
I used to live just north of there - those guys are not unlike the dudes I used to supervise at the ethanol plant.
One of the lessons learned from those years: NEVER bring the gang from the plant (like Chuck, Kyle and IowaHawk) back to the house for breakfast after going catfish fishing & drinking with them. [And ya I know - catfish fishing & drinking is redundant as one always goes with the other even if really early in the morning having just come off third shift... but that explanation is needed for folks who are not from flyover].
Especially NEVER do it when your wife is pregnant and its hot and muggy and the house doesn't have air conditioning.
And lastly double especially NEVER do it with the drunken misconception that your wife will cook up the fish for everyone.
Other than that I'm not sure how this sub-prime thing got so out of hand.
Not in recession yet, but soon.
The Fed is trying to land the plane softly, without a stall.
But I think it's going to be more like "controlled flight into terrain".
I just watched the Cramer, Ron Paul video. What a schizophrenic experience. Are they talking at cross purposes or what? Does Cramer realize that Ron Paul would have us back on the gold standard and that if the market set interbank interest rates that they would be triple what they are now?
The Fed is trying to land the plane softly, without a stall.
But I think it's going to be more like "controlled flight into terrain".
Yup - but the drink cart* hasn't been put away yet so have a Merry Christmas courtesy of Visa & Master Card...
*Those little booze bottles are so cute - kinda like fed rate cuts!
dryfly - you point out one of my conclusions about the whole situation: things aren't going to get better anytime soon, they're going to get worse. Therefore, enjoy the drink cart with a little extra gusto (doing my best to get in a couple bottles of French Champagne this holiday season before it gets priced completely out of reach).
mp --
Falling house prices and reduced MEW have captured consumers' attention, and their hearts and minds will soon follow. Conjure expects consumption to soon fall off the cliff. The true Wile E. Coyote moment.
Hasn't CB been saying this all year? Is he surprised that the employment and consumer spending numbers have held up as well as they have? (I am.) Or does never get surprised?
By the way, Conjure's Global Financial Meltdown Clock now reads 11:58 PM because the LIBOR is saying that Uncle Ben's medicine isn't working.
Yeah, this scares the cr*p out of me. If the Fed/ECB/BoE cannot even get the banks to lend to each other... But then, the battle has only just been joined. The next few weeks should be provide quite a show.
Conjure also expects the dollar to be destroyed in 2008.
Highest-risk prediction of all, IMO.
Hey Al, why doesn't the government just give cash to all of us. Aren't there stresses on all of us due to high oil prices, high food prices, etc..
Oh wait, because there's no such thing as a free lunch. You just can't give money away you doofus. It comes from somewhere else.
The model is broken, therefore all output is not accurate
emo- "Hasn't CB been saying this all year? Is he surprised that the employment and consumer spending numbers have held up as well as they have? (I am.) Or does never get surprised?"
Conjure is never surprised because he lives in a world where the past, present, and future all merge into a single un-ending now.
nemo- "Highest-risk prediction [falling dollar] of all, IMO."
Bernanke is facing a situation where all of the policy responses are contradictory. If inflation doesn't abate, the dollar will be destroyed if he doesn't raise the fed funds rate. If he raises the fed funds rate during the forthcoming recession, he'll destroy the US economy. Conjure is betting he'll destroy the dollar in the interest of saving the economy, then turn his attention to the dollar.
Not in recession yet, but soon.
The Fed is trying to land the plane softly, without a stall.
I think the Fed realizes that landing the plane softly requires going back in time.
Now I think their goal is to meet expectations sufficiently to keep their jobs.
The Fed needs an introduction to Conjure Bag. If anyone could send them back in time, it's him.
More of Greenslime on America's disaster capitalism
Bloomberg - Greenspan Favors Government Bailout for Homeowners speaking on ABC's This Week
Greenspan Favors Government Bailout for Homeowners (Update1) - Bloomberg.com
dryfly - I never could understand why the pregnant wives were always so cold, we got him home in one piece (mostly) and never called them for bail money.
Please, would someone important please, please, please tell Greenspan to STFU? Please?
I'll give up all my Xmas presents if he does.
ewbie: "In the event of a fire, do you want people trampling over women and children?"
The more apt analogy would perhaps be that the esteemed guests on the balconies and the VIP lounges are quietly escorted from the theater first, and then the fire is announced to the rest of the crowd.
Conjure is betting he'll destroy the dollar in the interest of saving the economy, then turn his attention to the dollar.
A reasonable bet. But the bond market seems to be expecting something else.
I am not saying Conjure is wrong -- far be it from me! -- just that it is a high-risk proposition. "Making predictions is hard, especially about the future."
We are definitely entering the "popcorn" phase.
Washington Post - Financial Statement of the Average American Household
Graph:
Financial Statement of the Average American Household - washingtonpost.com
Narrative:
State of the Household - washingtonpost.com
FFDIC - would love to see the same thing done for the median American household. That would be an entirely different (and more depressing) story.
It's easy to report GDP grwoth when inflation is under reported.
The Fed is trying to land the plane softly, without a stall.
But I think it's going to be more like "controlled flight into terrain".
That can happen when you run into a flock of black swans.
MLM,
Exactly, and what might be even more revealing would be some decile breakouts - which would show exactly how much of the average is skewed by the top - and how strained an increasing number of J6P's have become.
FFDIC - would love to see the same thing done for the median American household. That would be an entirely different (and more depressing) story.
Yes, that graphic is a fairly egregious example of figures lying.
MLM, Tanta could whip that out in 10 minutes...
Youtube.com
Petula Clark & Peggy Lee: I'm a woman
YouTube
- Petula Clark & Peggy Lee: I'm a woman
I'm with MLM re median vs average. Whole different outcome.
Although I can't verify, I recently read that the net worth of the median American family was negative.
Dear FFDIC
Just curious...do you have any idea what the heck are they claiming as "Government social benefits?"
Best regards,
Kett82 - Social Security would be my first guess. This is the Washington Post!
FFDIC - I've always imagined Tanta to look exactly like Petula Clark....but to have the same voice as the gps system in my car...
Re: "Government social benefits"
I imagine that would be a combination of Social Security, Medicare, Medicaid, welfare payments, etc.
For Fed gawkers:
Econbrowser has some interesting (as usual) musings on the Fed's balance sheet and the TAF.
Dump Treasuries; buy mortgages. It's a Cunning Plan that Cannot Fail.
Ziggurrat - You asked in a previous thread:
"What do you do when an entire sector has a market cap less then a single large cap company? I have never invested this way, but given it some thought."
I work with the 42 Fidelity Select funds. They're sliced and diced pretty fine (like Medical Delivery - which is HMO's and the like - Paper - Wireless - Brokerage - Air Transportation - Natural Gas - etc.). And I put equal dollar amounts in all the funds I have on buys. So - it's essentially a non-market cap weighted portfolio. Obviously didn't beat buy and hold the SP500 years ago when "buy and hold the index" was the rage. But it outperforms when there are huge differences in sector performance (like there are today). Note that I've been pretty much doing the same thing for well over a decade. I realize the disadvantages and advantages of what I do - and am willing to live with them. Roby
OT for FFDIC,
What should I look for in the CALL reports to gauge the relative strength of my local banks ?
The one item that caught my eye was 'Total risk-based capital ratio'. The two locally-owned banks came in with 0.2253 and 0.1572 while the two regionals had 0.1173 and 0.14063. I'm presuming that higher is better there ?
TIA, Ray
Finally some closure for you, Sebastian.
New Century to shareholders: You get nothing.
New Century to shareholders: You get nothing. - Mortgage Insider : The Orange County Register
FFDIC,
Another article from the same author written early last year.
Our Financial Failings - washingtonpost.com
Regards,
Go Roach! That man's been on the right track for years. I noticed that none of the NYT "experts" count out a recession, but the boys with the models think it hasn't arrived yet. Yeah, we all have a lot of faith in models, don't we?
Do their models take into account a two-track economy: a separate economy for the top 1 percent that's doing quite well, and an economy for the rest of us that's been in decline for years, if masked up by the false wealth of credit recklessly granted to the plebes by financial predators.
The rest of the world has not "decoupled" from the American consumer economy, and will decline with us. Since we've been doing airplane analogies today, I'll harken back to one of Stephen Roach's, in which he likens the world economy to a 747 in which all but two engines have been feathered, one on each wing: American demand and cheap Asian production. Lose one of those, and the airplane falls out of the sky.
I'll harken back to one of Stephen Roach's, in which he likens the world economy to a 747 in which all but two engines have been feathered, one on each wing: American demand and cheap Asian production. Lose one of those, and the airplane falls out of the sky.
Good God, Dobbs... that would knock over the drink cart! Can't let THAT happen.
yea we will not see a recession until lots of retail closes. Keep in mind that there are 7 times the sales floor space available in the US as the next country. When the house ATM runs out and the 401K is emptied and the Credit Card runs out and the malls close, then the 'Great Unraveling' will be here.
Until then, as long as there is liquidity, and folks lend at 33% annual interest to joe6pack then there will be no recession.
Until then, as long as there is liquidity, and folks lend at 33% annual interest to joe6pack then there will be no recession.
Vader | 12.16.07 - 5:53 pm | #
I rent, own the truck and have only the normal bills, credit cards payed every month.
I do know people that have done what you wrote, scary.
jo6pac
This is semi-OT:
"Retailers Face an Ominous Holiday Sign"
- NY Times
It may not be a recession yet, but when women stop buying new clothes, something's going on
This is the top story on the front of the NY Times website (even bigger than Mitt's tears, I guess).
"Good God, Dobbs... that would knock over the drink cart! Can't let THAT happen."
Yes, but the in-flight movie is "The Money Pit" with Tom Hanks, and they keep playing it over and over and over... CRASH THE PLANE, PLEASE! I CAN'T TAKE IT ANY MORE!
"When the house ATM runs out and the 401K is emptied and the Credit Card runs out and the malls close, then the 'Great Unraveling' will be here. "
As Eli pointed out to me -- they can also sell their life insurance policies.
There'll be a whole lot of digging for the last quarters in the bottom of the household pocketbook before people give in.
The destination's never been in question, only the path and the timing.
I wouldn't even call any of this Black Swan stuff. It's not like any of it is really a surprise, is it?
David Pearson - I agree with you in defending what Greenspan said today on TV. There is nothing inconsistent about letting markets do what they're fixing to do - and targeting fiscal relief to "worthy" people who need money now. "Worthy" is of course a term we could debate to death - but I think we can agree that it doesn't apply to people who were speculating in multi-million dollar houses but couldn't afford to. Curiously - where I live - the houses range in price from about $400,000 to about $6 million - and there are a lot more for sale signs in the most expensive areas. The names of some of the people who own the really expensive houses are ones you'd recognize - but I think a lot of people earning $250,000/year were speculating in these areas. And that's why all the "For Sale" signs are popping up there. On my relatively modest block - 30 houses - there is only 1 house for sale. And that is because the owners - who lived well under their means - couldn't stand their new neighbors across the street and decided to move.
There are a lot of things that - for example - could be done with taxes. Like fixing the AMT - yesterday - forever. I've agreed with Charlie Rangel on this one forever.
For retirees - we can fiddle with the taxation of SS benefits. For lower income younger people - we can fiddle with the earned income credit. And maybe FICA payments too. Get rid of or expand the income cap - perhaps tax things other than wages - like interest and dividends and capital gains. And perhaps exclude lower income people from paying FICA altogether - while allowing them to accrue benefits while in lower income brackets. It's pretty easy to keep Social Security on a firm financial footing while doing this (you just fiddle with the numbers - it's kind of like life insurance). It's Medicare that's really the entitlement disaster waiting to happen (although that risk seems to be subsiding now that part B payments for Medicare recipients are based on income). Still - Medicare is more like insuring coastal properties in Florida than life insurance. Who the heck knows what's going to happen with medical costs - and when.
To accomplish Paygo - for upper income people - well we can do away with preferential capital gains and dividend rates - and - of course - the infamous carried interest tax break. Although I am far from liberal - you'll have a hard time convincing me that billionaires should be in lower tax brackets than school teachers.
Apart from tax policy - I am sure there are other forms of fiscal stimulus - and perhaps some of you people who've studied economics can explain them . Robyn
P.S. I dislike Greenspan and what he did when he was fed chairman. I will hate him if for no other reason that he was responsible for "fedspeak". If he had spoken plain English while fed chairman - which we now know he refused to do solely to confuse people - perhaps we wouldn't be in the mess we're in now.
vader- "Until then, as long as there is liquidity, and folks lend at 33% annual interest to joe6pack then there will be no recession."
Vader, one can have a recession without falling consumption.
tj- "I wouldn't even call any of this Black Swan stuff. It's not like any of it is really a surprise, is it?"
No, it shouldn't be a surprise, and will not turn into a Black Swan unless Bernanke fails in his mission. Having said that, early indications are that his job is going to be much harder than he thought it would be.
If he succeeds, he will have earned what he's paid.
"If he succeeds, he will have earned what he's paid."
Can CB define success???
anon- "Can CB define success???"
First, banks must start lending to each other again, as measured by a falling TED spread. The TAF might work, but it's doubtful, so Bernanke had best be working on alternatives.
Second, the junk needs to come on the books. That's one of the Conjure's major points. The transparency that everyone thought existed, but didn't, needs to be restored. By the way, anyone counting on the dollar to be buoyed in 2008 by safe haven seekers should think about this factor.
Third, there needs to be a massive review of bank capital when everything is brought on the books, and those who are deficient should be re-capitalized, merged or closed.
Fourth, the Fed must figure out a way to bail out homeowners.
Fifth, and after the smoke has cleared, the Fed and Congress must vow that this will never happen again, and take actions to ensure that it doesn't.
Conjure Bag notes that point 5 will never happen and that if there really is a Black Swan in the room it's point 4 because that's the third rail, politicaly speaking.
Conjure also notes that all of this must proceed simultaneously, and he is confident that it won't. So, be prepared for a drawn-out resolution.
Anybody catch Greenspan's commenst on giving financial aid to homeowners (owners?) today? I am convinced that guy is insane. Check out this dandy of a puzzling sentence from the maestro:
"He said the Federal Reserve should "do what it has to do to suppress the inflation rates that I see emerging, not immediately, but clearly over the intermediate and longer term period."
Anyone want to savage that line?
Turn into a Black Swan? Afraid I don't follow. A depression is a totally predictable outcome given the circumstances and human nature.
Regarding perma-bulls and perma-bears -
Identify them and never listen to them. E.g., Abbey Joseph Cohen is a perma-bull. Steven Roach is pretty much a perma-bear. Here was what Steven Roach said about 2003:
"Economist predicts world recession
Morgan Stanley economist cites SARS, war uncertainties as the main causes for pending recession.
April 2, 2003: 1:11 PM EST
NEW YORK (CNN) - One of Wall Street's leading economists is predicting a global recession this year, prompted in large part by fears surrounding Severe Acute Respiratory Syndrome (SARS), the "mystery illness" with cold-like symptoms that is blamed for 78 deaths in 15 countries, CNNfn has learned.
Morgan Stanley's chief economist in the United States, Stephen Roach, will formally advise clients Friday that he's forecasting a world recession in 2003. His previous forecast was for an annual growth rate of 2.5 percent..."
That's why I like charts. Just the numbers. And I can read them (like I'd read a newspaper). A stopped clock is right twice a day - and these men and women will never make you any money.
As for shopping - any women around here except me? I LOVE to shop - but - frankly - shopping is kind of boring these days. Very little that is new and exciting - things that say "BUY ME" (and no - I am not interested in a WII). My husband is holiday-shopping gift-impaired (almost all men are - see, e.g., what Dave Barry has written on this subject). Which is why so many of you guys wind up buying relatively cheap jewelry as gifts for your wives. I actually happened to need a new terry bathrobe this year. Guess almost no one makes them these days. We went shopping - everywhere - in stores and on line - and I wound up buying one at Brooks Brothers (boring - but it does the job). I would absolutely love to put a small HDTV in the kitchen - but I won't live with one of those ugly set-top boxes on the counter. Maybe I'll find a cablecard TV like that - in 2010. Anyway - if retail sales are down - perhaps it's because the stuff that's for sale is a big yawn. Roby
tj, the only things that are inevitable are death and taxes. All of the problems I pointed out above lend themselves to solution.
The question is: are the proposed solutions politically acceptable?
mp,
You (& CB) note a bunch of things that must happen for the U.S. to recover from the coming depression, but not to prevent it.
Greenspan:
"do what it has to do to suppress the inflation rates that I see emerging, not immediately"
Translation:
Inflation is like a bubble of money - we can not do anything about it and we will just deal with the consequences when it bursts. For the short term the Fed should continue to pump money to avoid recession.
mp,
I'd rather not argue absolutes, but (for example) the bursting of the housing bubble was inevitable, was it not? How about the tech bubble?
Atleast Greenslime is honest about this entire mirag-E, why waste the petrol on copters simply make electronic transfers to bank and brokerage accounts and buy votes directly. No point wasting-it on the overhead involved with junkets involving hookers, firearms, and barnyard animals.
(hat-tip to my 'ole political mentor Howard Jarvis).
tj- "the bursting of the housing bubble was inevitable, was it not? How about the tech bubble?"
The simple answers are: yes, yes.
You, Conjure and I are closer to agreement than you imagine. These circumstances, IMO, contain within them the seeds of a major economic collapse. Will they germinate and grow? The answer to that lies with the Fed. Until we see the Fed develop their responses, Conjure and I will remain mute on the subject.
Personally, I don't think Bernanke's appointment was a coincidence. He is one of only a few living experts on The Great Depression.
Robyn,
Re: Alt-min
Congress never indexes anything to inflation as it gives them a future forum to bloviate for or against whathaveyou. Keep in mind that the taxes from Alt-min are INCLUDED in the national budget for the next 10 years. That is, even though Congress puts a patch on it each year, the future assumptions are predicated on an assumption that they will never have the patch again (and tax revenues will be substantially higher).
The stealth tax impacts are another issue. The just revoked part of the kiddie tax recently (changed the ground rules after half-time). This may provide precedent to tax withdrawals from Roth IRA's in the future.
On Sunday, Cheney said there was "growing evidence" that the economy was slowing.
"We're seeing it in automobile sales and a lot of other areas, earnings falling off for corporations. And we may well be on the front edge of a recession here," he said on NBC's "Meet The Press."
White House blasts Cheney for recession remark
From CNN White House Correspondent Major Garrett
December 4, 2000
Robyn --
Like fixing the AMT - yesterday - forever.
As a bitter renter who tired long ago of subsidizing home "owners", and given that the mortgage interest deduction helped fuel the housing insanity, I have trouble feeling sorry for my upper-middle-class cohorts "caught" by the AMT. (I never cared much for tax deductions, anyway.)
perhaps tax things other than wages - like interest and dividends and capital gains
So you want to discourage savings and investment, and thereby encourage consumption? Not sure that is what the patient needs at present...
Agree with most of the rest, esp. taxing carried interest and worrying about Medicare, not SS. But we have serious problems coming to a head in weeks or months, not decades.
P.S. Nice take-down of Roach.
libor libor bo-bibor banana-fanfa-fo-fibor
I don't think Bernanke's appointment was a coincidence. He is one of only a few living experts on The Great Depression.
First, the expert answers are far above my pay grade but this is just nonsense. There just plain old isn't anything left of the economy of pre-WW-II America. We were on the gold standard fer heavens sake.
Perhaps we can get a Naval tactician with expertise in the use of dreadnoughts to fight our next war for us.
I actually happened to need a new terry bathrobe this year. Guess almost no one makes them these days.
I haven't been able to find one for 10 years. I don't want luxurious chenille. I don't want cozy fleece. I want terrycloth, dammit - like a towel - so I can step out of the shower and dry myself off. Is that so hard for manufacturers to understand? But it's kind of hard to make a terrycloth bathrobe into something high-status and luxurious, so I guess that's why no one's bothered to sell them any more.
Another thing is that even in electronics, the stores are filled with endless iterations on the same theme. There are 1000 new products and none of them are really new. Really, how many music-playing devices does one need? How many different forms of digital camera? How many choices of MP3-playing HDTV wireless Internet PlayStation phones will we be offered this season? Does anyone care?
did anyone notice that costco missed their number? there's a reason. they only take cash. people are using their credit cards to buy groceries. it's over!
"We were on the gold standard fer heavens sake."
And one of Bernanke's chief conclusions was that the sooner a nation went off the gold standard, the sooner its economy began to recover.
Nemo- "P.S. Nice take-down of Roach."
Roach was very wrong on that one, but let's not forget that he is a very, very bright guy and has put his neck on the guillotine--every week--for years. Just like a lot of other bright economists have done. His macro analysis has been dead on, but his timing has sometimes been horribly off. Like Nouriel Roubini, for example.
Let's put it into perspective, shall we?
Roach--any economist--is like the guy in the passenger seat, pointing out to the driver that guage reads 'empty.' Do you expect him to tell you--every time--when the engine will begin to sputter?
mp,
I know we're very close in our thinking here, but... I feel that the Fed is trapped in Zugzwang.
Over the past few years I've attempted to think through all of the potential mitigating actions that TPTB could undertake (as presented here and elsewhere), and so far I fail to see one that doesn't create as many (if not more) problems than it solves.
Everyone likes to throw out the easy arguments like "bailout" and "monetization", but these things have huge costs and consequences of their own. I'm willing to debate these things with anyone, but they better damn well be loaded for this bear. [Don't even get me started about Seb & co.; he's all about effect, nothing about cause.]
Barring the arrival of aliens bearing Star Trek like technology, we're toast.
Robert- "Perhaps we can get a Naval tactician with expertise in the use of dreadnoughts to fight our next war for us."
Robert, I didn't say that Bernanke was going to fight the last war, now did I?
"Another thing is that even in electronics, the stores are filled with endless iterations on the same theme. There are 1000 new products and none of them are really new. Really, how many music-playing devices does one need? How many different forms of digital camera? How many choices of MP3-playing HDTV wireless Internet PlayStation phones will we be offered this season?
The reason is that all the Asian governments are subsidizing their export industries by pegging their currencies to the dollar at fraudulently low rates. So they have far more consumer electronic product exporters than an unsubsidized market would bear, all desperate to somehow differentiate their products with trivial "features".
Rightmove's UK December survey is out:
UK Dec house prices slump 3.2 pct from Nov - Rightmove
The survey showed asking prices for houses were 3.2 pct lower in December than in November, the biggest fall since the data series began in January 2002 and a much sharper fall than last month's 0.7 pct decrease.
Rightmove's survey is considered somewhat unreliable in the short-term, but nevertheless with all the talk of the credit crunch here the UK, this is going to hit sentiment hard - especially just before Christmas.
Devaluing the dollar 41% like FDR? You can only go off the gold standard once. Just exactly what would a currency devaluation do this time anyway? Ben has allowed inflation to slip its collar. It is no longer his to control. He's right that perception of inflation is more important than actual inflation. Show of hands on that one? Thought so.
mp & tj,
What is or isn't a Black Swan is even confusing to Taleb.. I'm not really sure it's fully fleshed out. (Even after writing a book with the title "The Black Swan")
With that said, I think that what is happening now could turn into a Black Swan if all of this led to the total annihilation of our global financial system. (Granted, I don't think that's possible.. but this is one of the pre-requisites of a Black Swan).
I think Taleb would call what's happening now just sort of stupid. He could see this coming. I am sure he's made a lot of money the past 6 months, but he's smart enough not to show up in the newspapers like John Paulson.
No matter our viewpoint.. I think everyone figures we will make it through this and the financial markets will continue to function. The Black Swan would be if this just totally borked everything and all the OTC and exchange traded derivatives just ceased to trade. And then, the stock markets ceased functioning.. and we reverted back to protean financial landscape that involved bartering for goods.
Nemo- "P.S. Nice take-down of Roach."
I have to defend Roach, too.
Back in early 2003(?) he called for the Fed to raise the FFR 200 basis points, precisely to forestall future speculative bubbles. They didn't listen, and we all know exactly what has transpired since.
My first impulse is to say that "none of us could have foreseen the total abandonment of credit standards"; however, in retrospect it's a perfectly logical extension of human bubble mentality. [Note: I know I risk Taleb's wrath on 20/20 hindsight, but we've seen irrational exuberance before, have we not?]
Robert- "Devaluing the dollar 41% like FDR?"
Robert, it seems to me that Mr. Market is well on its way to doing that for us.
FFDIC, thanks for the link to the Clark and Lee video. What gorgeous voices.
I keep a running list of songs that I want to buy. On the list was 'Will You Marry Me.' I searched and searched to no avail.
So, the correct name of the song was 'Wedding Bell Blues.' Beautiful song, I'll buy that Clark duets CD that has it.
What a pleasant coincidence. Thanks!
Cargo traffic statistics are out at the Los Angeles and Long Beach ports.
Los Angeles and Long Beach Trade v.2
Someone keeps trying to stick a fork in the consumer. He was done a long time ago in my opinion.
Robert, I didn't say that Bernanke was going to fight the last war, now did I?
mp | 12.16.07 - 7:55 pm | #
Fighting the last war is just fine - as long as you don't lose.
No matter our viewpoint.. I think everyone figures we will make it through this and the financial markets will continue to function.
eli,
Agreed (although I've made the necessary arrangements to protect against a systemic meltdown).
One thing I always try to remind people is that even a depression isn't an apocalypse; heck, for most it isn't even a real hardship. A certain level of economic activity and employment is simply unavoidable.
Some simple truths are unavoidable, though. J6P and all levels of government have been "overconsuming", and due to accumulated debt will now have to "underconsume" for a while. A lot of that debt, especially of the federal variety, is simply unpayable and will default (hence mp's point about the eventual failure of the dollar).
Robert, it seems to me that Mr. Market is well on its way to doing that for us.
mp | 12.16.07 - 8:10 pm | #
Yup. A trillion dollars worth of current account deficit a year (or there abouts) over the better part of a decade will do that to one's currency. Fed was just the messenger bringing the news we all decided to shoot.
The amazing thing is the party went on this long - I was expecting the dollar to correct big time 5-6 years ago.
Fighting the last war is just fine - as long as you don't lose.
Yeah, well, good luck with that. IMO we have the architect of the Maginot Line in charge.
I think everyone figures we will make it through this and the financial markets will continue to function.
I think that depends on how you define 'function'. There are those who might say the function of a market is to 'go up'. They might be disappointed. But maybe that's just me.
There are those who might say the function of a market is to 'go up'.
So true, and so indicative of how far out of whack everything has gotten.
mp --
Roach--any economist--is like the guy in the passenger seat, pointing out to the driver that guage reads 'empty.' Do you expect him to tell you--every time--when the engine will begin to sputter?
No, but if he constantly yells that we are about to crash every time he sees a blinker or some brake lights...
Even a stopped clock is right twice a day. Those who have been predicting recession every year for the past ten are not suddenly impressive when they are finally right. Beyond a certain point, there is no distinction between "early" and "wrong". (Of course we will have a recession eventually...)
If perma-bears like Roach and Roubini were the only ones calling for recession next year, I would actually find it pretty easy to dismiss. Much more concerning is to see Richard Berner -- Roach's compatriot at MS -- switching his call to the downside.
I do give them all credit for putting their calls out there for everyone to see, especially given how bad all of their track records are. (No shame in that; it is, frankly, an impossible task.) What's the old quip? "Economists have predicted 9 of the past 5 recessions"?
Me, I foresee market lockup, when downgrades and mark-to-markets force insurance calls, and 'insurers' refuse, or cannot take, the call.
I look forward to making my SDS gain here in the next few months (by April!), moving to gold and gold mining stocks housed in a private bank in Switzerland, and sitting on the sidelines as debtors and creditors go for each others' throats.
Yeah, well, good luck with that. IMO we have the architect of the Maginot Line in charge.
tj & the bear | 12.16.07 - 8:25 pm | #
LOL - ya well not all 'last war' plans are so good.
On the other hand if Ho Chi Mihn were running Operation Baghdad for AQ I'm not sure he'd do much different than he did in the mid-70s in Nam (after the disaster that was Tet). Some stuff hasn't changed since before Hannibal.
But then who says Bernanke REALLY learned the lessons of the Great Depression? The lesson where spending to fund a major war pulled the countries out of deflation for good.
I wouldn't mind if he (and the other policy wonks) slept through that class. There are worse things than depressions.
jg,
Not unlike my strategy. I've got VIX calls & index LEAP puts that I'll transition to miners & energy calls when the time is right. If played correctly I'll be set for life.
There are worse things than depressions.
AMEN! I am really concerned that a country with a faltering economy and skyrocketing energy costs could easily engage in "resource wars".
Could you please give me the names of some good private banks in Switzerland? I don't know any. But I'm sure they would take me because I have a lot of credit cards. Thanks.
Allan Meltzer thinks Greenspan is an old fool that's trying to mask his true image as perpetrated fraud when he ran the Fed.
Greenspan Favors Government Bailout for Homeowners (Update2
Greenspan Favors Government Bailout for Homeowners (Update2) - Bloomberg.com
Allan Meltzer, professor of political economy at Carnegie Mellon University in Pittsburgh, said Greenspan's proposal for a cash bailout might cost ``hundreds of billions'' of dollars and would be counterproductive.
It is not a good idea for the government to bail out people who make mistakes,'' said Meltzer, the author of a 2002 book on the early history of the Fed.The markets are beginning to come to grips with this and bailing them out is a mistake, not a small one but a big one.
Nemo- "No, but if he constantly yells that we are about to crash every time he sees a blinker or some brake lights..."
And that's why even Conjure Bag and I were extremely reluctant to come forth with a Q1-08 recession call. We could be wrong and our credibility on this blog, even though we're anonymous, could suffer. Credibility is important. Especially here.
The reason is that all of you are terrific and always thought-provoking. That's why Conjure and I like to hang out here.
And that's why what you're getting from us, at the end of the day, is the cutting edge of our opinion. It's our best guess. You'll never see it anywhere else, but we're sticking our necks out in this forum because we thought our opinion might be thought-provoking and useful.
Take it that way.
But then who says Bernanke REALLY learned the lessons of the Great Depression? The lesson where spending to fund a major war pulled the countries out of deflation for good.
I've seen a lot of contradictory statements about what we 'really' should have learned.
tj, may your tack yield you fair winds and following seas, and may you be set for life, sir.
rich, in case you are not kidding, the folks at SafeWealth are the ones that I have been chatting with:
The Safewealth Group
They serve as intermediary for two private banks in Switzerland.
It is not a good idea for the government to bail out people who make mistakes,'' said Meltzer, the author of a 2002 book on the early history of the Fed.The markets are beginning to come to grips with this and bailing them out is a mistake, not a small one but a big one.'
No a complete bail out would not be good. But helping people 'transition' to the new reality (without a lot of suffering) wouldn't be terrible. Again - things like rent assistance and helping getting their credit back in shape AFTER the market clearing.
Trying to avoid the clearing is pretty pointless.
Ellen & Robyn-
My wife got me a Frette terry robe last Xmas, I know you can google a supplier. Of course, it is a man's robe, it's dark blue and it's heavier than sin, but that's how I like it.
dryfly- "No a complete bail out would not be good. But helping people 'transition' to the new reality (without a lot of suffering) wouldn't be terrible."
Uncle Ben, are you listening?
mp --
And that's why what you're getting from us, at the end of the day, is the cutting edge of our opinion. It's our best guess. You'll never see it anywhere else, but we're sticking our necks out in this forum because we thought our opinion might be thought-provoking and useful.
It is!
And same from my side. I love shooting the bull (er, so to speak) with you all. I always find spirited debate helps to crystallize -- and sometimes change -- my own thoughts.
I apologize if my adversarial tone ever comes across as a lack of respect. This is the best financial blog and community on the Net. Hope I'm not detracting from it.
Have a good evening.
Ah, the jousting enroute to the market lockup begins:
CDO Battles: Royal Pain Over Who Gets What - WSJ.com
Hmmm
Lets say that that congress passes a bill mandating no more than 12% interest on any loan.
A bill mandating that foreclosed families have the option pay some standardized rent for 12-18 months.
And a welfare type credit card good for food and medical care to the unemployed for say 12-18 months.
Plus UE benefits for 12-18 months.
The RE bubble, bubbles away. A significant part of the financial stocks take a big hit. The RE sector is also hit bad. The economy as a whole remains a bit stable.
All in all not much damage and not that much cost.
Wishful thinking, Vader. Print money or raise taxes to pay for it? Either way, reduced purchasing power for folks of means --> drops in consumption --> drops in employment --> drops in national income; repeat again and again.
And, the whole slew of new 'welfare' cases won't be buying much --> drops in consumption --> drops in employment --. drops in national income; repeat again and again.
Depression (drop in GDP of >=10%) coming soon to the U.S.
rich, in case you are not kidding, the folks at SafeWealth are the ones that I have been chatting with:
The Safewealth Group
They serve as intermediary for two private banks in Switzerland.
jg
I often wonder if the authorities watch boards like this looking for subversives, tax-evaders and money launderers. I think so.
So, even if I was interested in any of those things, I wouldn't say so on this board.
In fact, I am definitely not interested in any of those things. Everything I do is legal. There is no reason to put any tags or filters on my posts. Thank you.
Ha, ha!
I'm a registered member of the Republican party, so I get a pass, rich.
Things may change come Nov. '08. But, I will be fully overseas by then.
jg,
you can run from the U.S. govt. but you can't hide (unless your name is Osama)
I shan't run or hide, rich. I'll just have my money overseas, in case of attempted government overreach, again.
Purportedly, Joseph Kennedy and J.P. Morgan got their gold on oceanliners heading overseas shortly before FDR's order outlawing the personal holding of gold.
This is the one lesson that I will ever learn from a Kennedy.
Swiss banks - like UBS? That's a real tower of strength these days (FWIW - I have accounts at UBS - the US brokerage firm).
Also - the Swiss were so wonderful with Jews who put items in their "safe-keeping" during the Holocaust. Now you see them - now you don't.
And please note - when you look at banks outside the US - that their insurance protection is a lot different than ours. UK bank failure insurance is less than ours in the US - and subject to a deductible to boot. That's why the Northern Rock problems had people lined up around the block.
The United States isn't wonderful. But just don't assume automatically that any other place is better. Robyn
P.S. Ellen and others - the Brooks Brother woman's robe is fine (as a winter robe in Florida). There was a nice looking Frette robe I saw on line - but it seems to have been discontinued. You can buy some nice robes from hotels like FS and RC - but they are "one size fits all" (which doesn't work for a 5 foot tall woman like me).
Almost all the Asian markets opened gap down and has continued to fall from there.
I don't understand why the Santa Claus rally isn't working in Asia.
It must be some kind of discrimination.
His name isn't Santa Claus in Asia. It is something I cannot pronounce.
You can buy some nice robes from hotels like FS and RC
And I thought they were free to take home
-K
Robyn, absolutely NOT like UBS; I want a bank that has no U.S. presence, so it is not subject to U.S. laws, such as forced repatriation.
Here's one: http://swissfirst.li/index.htm
This bank serves (legally, rich!) as IRA custodian for accounts set up through Church Trust in Texas:
The page cannot be found
Our money will go to a single branch bank that has been around for decades and does not do fractional reserve banking.
His name isn't Santa Claus in Asia. It is something I cannot pronounce.
Elvis
Ho Ho Ho Chi Minh
Follow the Ho Chi Minh trail. All your wishes will be granted.
Curiously, I started an old copy of Schlesinger's 3 part history of the Depression and Roosevelt yesterday.
Let's back up a second.
What about banning the possession of gold? Is that solely in safety boxes or what? Would that also pertain to other precious metals?
Uff da.
hd, gold and gold certificates, in whatever form (unless pre 1933 coins, which were deemed to have numismatic value), wherever held.
The Roosevelt Gold Confiscation Order Of April 3 1933.
It will happen again during this upcoming depression.
Bush Sr and then DoD Cheney made certain that defense spending was suddenly added to GDP as a measure of hiding how deep that recession was.
Iraq and Aghanistgone are no exception to that policy...
Can the FED print money? I thought Congress controlled the Tresury.
From John Hussman:
"As for the Fed itself, it's a great gift to offer people hope, but a great disservice to offer people false hope, and I think that's what the Fed is doing. What's going on in the mortgage market is not a crisis of confidence that we can talk ourselves out of it's a problem of structural insolvency, where many borrowers literally don't have the means to service their debt over the long-term, because many of them were counting on rising home prices over the short-term. By acting as if a few billion in repos will substantially change this equation, the Fed is raising hopes, and setting the markets and the economy up for disappointment that will be far worse as a result. Bernanke would be better off admitting that the Fed has no chance of providing meaningful liquidity when the Federal government is issuing Treasuries at ten times the rate the Fed can absorb them. At that point, Americans would see better that the resources we need to invest, compete and become a financially sound nation are being hoarded by the Federal government and sent up in flames."
Ah, recession calls. From stats at 30,000 feet, hard. For those that have walked the shops/markets/suks for decades, easy.
and finally from John Hussman:
Credit spreads remain wide, and the potential for further loan losses does have the tendency to mitigate inflation pressures. That said, commodity prices and a generally weak dollar, combined with continued federal deficits are putting up a good fight to keep inflation pressures alive. My impression is that the default pressures will ultimately win out, but we've got a good chance of seeing a run on the dollar first. Again, the recent rebound in the dollar appears to be mostly a clearing rally from an oversold low, with the modest quarter-point Fed cut serving as the occasion.
In defence of Roach: there was no way to predict how irresponsible the Fed would be. Even by late 2003, it was clear real estate was starting to bubble up, and yet the Fed persisted with its idiocy another full year. And then they took the "measured" steps, giving speculators full cover.
It sometimes feels that the entire "growth" of 2003-2006 is phantom growth. Real estate prices surely look to trace their way back to 2002-3. Stock prices could go all the way back too.
If those things happened, and Steve Roach had said in 2003 to stay away from stocks, was he right or wrong?
I moved out of stocks in 1998, and in 2002, was feeling pretty good, because the prices were at 1997 levels. Yeah, I "missed" the run-up, but missed the run-down too - all without any stress.
Ivy League - I worked on financial chat boards starting in the late 80's - and one important thing I learned from that is no private investor should ever have to justify his or her approach to investing to anyone. We all have different life situations - goals - comfort levels. And - as long as what we're doing doesn't result in disaster (in which case we need more help than we can find on-line) - and we're comfortable with it - that's ok as far as I'm concerned. I've never had a large exposure to equities. That's just me.
OTOH - professionals who prognosticate in public are fair game IMO - particularly when they always say the same thing. Note that the perma-bulls will usually be right more of the time than the perma-bears (just because of the way our markets have worked since the end of WWII). But they will cost you a lot of money if you follow them blindly.
JG - I don't know who you are - how old you are - or how much money you have. But if I saw a "money manager" called Church Trust - I would run very very fast in the opposite direction (I also run very very fast from money managers with single digit golf handicaps). There have been a lot of financial shenanigans committed in the name of religion over the course of decades. A lot of fraud - and general mismanagement (e.g., one of our largest retirement communities here - church run - went belly up a while back - leaving a lot of elderly people holding the bag). So be very careful. There are many things that are worse than parking money in federally insured US bank accounts during financial storms.
By the way - there is an old saying about physical gold. Always hold a little (which I do) - and hope it always loses money (which I have in general done). Heck - I would have made more money buying gold Rolex watches than physical gold! I would also go long bathrobes - so we don't freeze when the power goes off (smile). Roby
Robyn, Church Trust is the paperwork holder (administrator); the Swiss bank holds the funds.
As a Texas Catholic, I trust Texas Baptists (Church Trust is located in Waco).