Even though (if I recall) I had my chip on a deep recession for July 08, I wonder if in fact it is more likely than not that we can engineer a soft landing. With near deflation and no recession.
After all, unlike Japan, we have a growing population which should support economic growth (may be not per capita but overall). Why would the US not keep on enjoying the benefit of having the world currency and one of the strongest military?
"because strength will remain in other sectors like technology and tourism."
Tourism ? I doubt that tourism will take up the slack Cal. Furthermore, tourism doesn't normally generate many good jobs. Also, if the real estate boom is based on fundamentals, you would expect to see hotel room prices go up as well, hurting tourism.
Technology: Si Valley has been losing jobs. One Google doesn't compensate for all the lost jobs. There will probably be more tech booms in the future, but
a) we don't know when
b) we don't know if they will be in technologies (nano or bio) that Si Valley does not specialize in
c) There are several other tech centers now: Seattle, Salt lake City, even Bangalore and we don't know if job growth will be in those places than Si Valley now.
I gather SoCal is doing reasonably well in entertainment and defense tech areas. I don't think it can take up construction slack.
There is probably no plan for the US to go bankrupt. China has effectively become a part of a US empire. Chinese elites are getting rich by pursuing this export led growth strategy, while trying to keep social order. If they think they will bankrupt the US, they are probably mistaken in the sense that they will be destroyed first.
The only thing that can upset this precarious synergy is that the chinese society may break down in the process.
Analyzing some local data, my best estimate is Orange County went from being 40% undervalued to nearly 30% overvalued, or a drop of a little over 50% from peak to trough and a little over a doubling from trough to peak, superimposed on a backdrop of prices doubling in 10 years. (Growth (inflation plus productivity) has been about 4.5%, rents have been about 5.5%, and prices have been about 7.1%)
A decade of stagnation would bring us back to fair value but when does anything stop at fair value, and a decade of stability seems extremely long time. A few years of stagnation, a recession with a few years of declining prices would seem far more realistic.
Sorry to say jl, but you're clueless.
We have no economy left. It's been hollowed out while all the yuppies and their kids have been playing and gorging. It's an econ of hot air, pushing papers around, including all the overpaid unneeded professionals pumped out of the univs.
Our leader is stone cold stupid. And those around him are worse.
How can you underestimate a group of people who have engineered victories in 2000, 20004, mostly controls the senate, the house, and may have the opportunity to nominate two judges on the supreme court?
Alexis,
we have no economy left
Not that I think our economy is in great shape. I believe it's much more fragile today than it was 10 years ago, because we have massive imbalances (fiscal deficit, trade deficit). I do not rule out a major recession that may follow a housing bubble bust, and that's why I follow this blog. (Incidentally, were that to happen, who can say that destabilizing political events like what happened in 33-45 could not happen? Anyway I digress.)
Now, that I've said that, let me tell you why I wonder if a soft landing can be engineered. I think some things would be necessary for this to happen. First the US and developing countries must realize that export led growth for China cannot be realized with the US being the only importer. The longer this goes on, the harder the adjustment will be. Second, the US (and international) financial system must weather the housing bubble, whether it pops fast or deflates slowly. Last, the US must strive to remain an attractive place to invest and immigrate.
AS a result, I believe, the dollar needs to devaluate relative to asian currencies. I think we will have a lower standard of living ahead of us, but that can happen slowly. And may be some of the adjustement will be for us to drive small cars and do more carpooling rather than have single occupants driving SUV around. May be also we'll save more, invest more in R&D and consume less. None of that has to be sudden.
I also believe that the fed has to look hard at the financial systemic risks, factoring in new events since 2004. Such as higher proportion of ARM, new fashionable IO loans and options ARM.
Finally, I truly think that the US has enjoyed a tremendous advantage by making it a land of opportunity for investors, immigrants, and hard working people. We should try to keep it that way. If that tide turns, we are in for a rough adjustment.
May be I'm clueless, but I really think at this point a wide range of outcomes is possible. And a soft landing would be one of them.
jl: Don't fool yourself and how much of this "working hard" is just managing of expectations and crowing. True, in (mostly) "physical" jobs how hard (which often means long, skipping breaks, off the clock, etc.) people work is quantifiable, but in more "intangible" job categories there is a good amount of just spending hours in the office or sending a bunch of emails from home on evenings or weekends.
From my perhaps limited vantage point (in an office type environment), it seems to me that with people seeing the payoffs from going the extra mile and taking initiative decline, or perhaps more importantly see how the lion's share of the benefits goes to management or those positioning themselves as key players, behaviors are trending back from "genuine" motivation-driven hard work to not being perceived as the weakest link.
People are being pressed to deliver quicker, but you can see how inexplicably problems hampering process turn up, and instead of being fixed or worked around people proclaim "I cannot progress because of this or that". I'm not talking about deliberate sabotage, but "naturally" occurring problems that people won't make their own job to fix if they can wash their hands off it, as a defense mechanism.
Neither do I want to suggest people are deliberately doing a shoddy job, my point is rather to illustrate how the willingness to perform "above and beyond" is a function of credible positive motivators like expectations of goodies. And we are working diligently on undermining those.
Thoughtful post cm. Can I reconnect to CR's Orange County's prospects in view of the pundit's claim that the UK's housing experience will telegragh through and wait for incomes to catch up?
The UK experience is not over IMHO and in any case, it is no clear that it might be so readily transferable.
What does seem to be clear is that those new jobs which we hope will lift Orange county out of the quagmire will require far more education and far less bench work, than the last tech boom. Those days are over.
And the days cm is describing where incentives for personal performance drive this enterprise are being restricted to fewer, more qualified, candidates are more commonplace.
Why pursue those advanced degrees in EE, taking a decade or more, when you can get a realtor's licence now and retire comfortably in less time?
The downside of the successful realtor: the opportunity cost of not applying oneself to acquire knowledge and skills that have other objectives and goals than that early retirement.
The downside of the EE: having to struggle with owners who only have their profit share in mind so they too can keep up with the successful realtor.
Wellsfargo Wells Fargo is one of the premier financial institutions in the nation, with local management, personal service and more resources available to you and your banking needs will be served by Wells Fargo Bank.
Even though (if I recall) I had my chip on a deep recession for July 08, I wonder if in fact it is more likely than not that we can engineer a soft landing. With near deflation and no recession.
After all, unlike Japan, we have a growing population which should support economic growth (may be not per capita but overall). Why would the US not keep on enjoying the benefit of having the world currency and one of the strongest military?
No soft landing.
The plan is for America to go bankrupt. Alas, both our leaders and our enemies want this so we will get it...in spades.
"because strength will remain in other sectors like technology and tourism."
Tourism ? I doubt that tourism will take up the slack Cal. Furthermore, tourism doesn't normally generate many good jobs. Also, if the real estate boom is based on fundamentals, you would expect to see hotel room prices go up as well, hurting tourism.
Technology: Si Valley has been losing jobs. One Google doesn't compensate for all the lost jobs. There will probably be more tech booms in the future, but
a) we don't know when
b) we don't know if they will be in technologies (nano or bio) that Si Valley does not specialize in
c) There are several other tech centers now: Seattle, Salt lake City, even Bangalore and we don't know if job growth will be in those places than Si Valley now.
I gather SoCal is doing reasonably well in entertainment and defense tech areas. I don't think it can take up construction slack.
There is probably no plan for the US to go bankrupt. China has effectively become a part of a US empire. Chinese elites are getting rich by pursuing this export led growth strategy, while trying to keep social order. If they think they will bankrupt the US, they are probably mistaken in the sense that they will be destroyed first.
The only thing that can upset this precarious synergy is that the chinese society may break down in the process.
Analyzing some local data, my best estimate is Orange County went from being 40% undervalued to nearly 30% overvalued, or a drop of a little over 50% from peak to trough and a little over a doubling from trough to peak, superimposed on a backdrop of prices doubling in 10 years. (Growth (inflation plus productivity) has been about 4.5%, rents have been about 5.5%, and prices have been about 7.1%)
A decade of stagnation would bring us back to fair value but when does anything stop at fair value, and a decade of stability seems extremely long time. A few years of stagnation, a recession with a few years of declining prices would seem far more realistic.
Um, China has nukes and a military and powerful allies. Read my blog. I chat about it all the time.
They also have SMART LEADERS. This goes a very long ways in the world.
Our leader is stone cold stupid. And those around him are worse.
Sorry to say jl, but you're clueless.
We have no economy left. It's been hollowed out while all the yuppies and their kids have been playing and gorging. It's an econ of hot air, pushing papers around, including all the overpaid unneeded professionals pumped out of the univs.
Elaine,
Our leader is stone cold stupid. And those around him are worse.
How can you underestimate a group of people who have engineered victories in 2000, 20004, mostly controls the senate, the house, and may have the opportunity to nominate two judges on the supreme court?
Alexis,
we have no economy left
Not that I think our economy is in great shape. I believe it's much more fragile today than it was 10 years ago, because we have massive imbalances (fiscal deficit, trade deficit). I do not rule out a major recession that may follow a housing bubble bust, and that's why I follow this blog. (Incidentally, were that to happen, who can say that destabilizing political events like what happened in 33-45 could not happen? Anyway I digress.)
Now, that I've said that, let me tell you why I wonder if a soft landing can be engineered. I think some things would be necessary for this to happen. First the US and developing countries must realize that export led growth for China cannot be realized with the US being the only importer. The longer this goes on, the harder the adjustment will be. Second, the US (and international) financial system must weather the housing bubble, whether it pops fast or deflates slowly. Last, the US must strive to remain an attractive place to invest and immigrate.
AS a result, I believe, the dollar needs to devaluate relative to asian currencies. I think we will have a lower standard of living ahead of us, but that can happen slowly. And may be some of the adjustement will be for us to drive small cars and do more carpooling rather than have single occupants driving SUV around. May be also we'll save more, invest more in R&D and consume less. None of that has to be sudden.
I also believe that the fed has to look hard at the financial systemic risks, factoring in new events since 2004. Such as higher proportion of ARM, new fashionable IO loans and options ARM.
Finally, I truly think that the US has enjoyed a tremendous advantage by making it a land of opportunity for investors, immigrants, and hard working people. We should try to keep it that way. If that tide turns, we are in for a rough adjustment.
May be I'm clueless, but I really think at this point a wide range of outcomes is possible. And a soft landing would be one of them.
jl: Don't fool yourself and how much of this "working hard" is just managing of expectations and crowing. True, in (mostly) "physical" jobs how hard (which often means long, skipping breaks, off the clock, etc.) people work is quantifiable, but in more "intangible" job categories there is a good amount of just spending hours in the office or sending a bunch of emails from home on evenings or weekends.
From my perhaps limited vantage point (in an office type environment), it seems to me that with people seeing the payoffs from going the extra mile and taking initiative decline, or perhaps more importantly see how the lion's share of the benefits goes to management or those positioning themselves as key players, behaviors are trending back from "genuine" motivation-driven hard work to not being perceived as the weakest link.
People are being pressed to deliver quicker, but you can see how inexplicably problems hampering process turn up, and instead of being fixed or worked around people proclaim "I cannot progress because of this or that". I'm not talking about deliberate sabotage, but "naturally" occurring problems that people won't make their own job to fix if they can wash their hands off it, as a defense mechanism.
Neither do I want to suggest people are deliberately doing a shoddy job, my point is rather to illustrate how the willingness to perform "above and beyond" is a function of credible positive motivators like expectations of goodies. And we are working diligently on undermining those.
Thoughtful post cm. Can I reconnect to CR's Orange County's prospects in view of the pundit's claim that the UK's housing experience will telegragh through and wait for incomes to catch up?
The UK experience is not over IMHO and in any case, it is no clear that it might be so readily transferable.
What does seem to be clear is that those new jobs which we hope will lift Orange county out of the quagmire will require far more education and far less bench work, than the last tech boom. Those days are over.
And the days cm is describing where incentives for personal performance drive this enterprise are being restricted to fewer, more qualified, candidates are more commonplace.
Why pursue those advanced degrees in EE, taking a decade or more, when you can get a realtor's licence now and retire comfortably in less time?
The downside of the successful realtor: the opportunity cost of not applying oneself to acquire knowledge and skills that have other objectives and goals than that early retirement.
The downside of the EE: having to struggle with owners who only have their profit share in mind so they too can keep up with the successful realtor.
Wellsfargo Wells Fargo is one of the premier financial institutions in the nation, with local management, personal service and more resources available to you and your banking needs will be served by Wells Fargo Bank.
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