Is the U.S. in Recession?
Submitted by
CalculatedRisk on Sun, 03/09/2008 - 10:04am (194 comments)
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It's scary to see the whole world slowly (too slowly) moving towards Roubini's view:
We started with
-goldilocks economy, and slowly moved to
-OK, maybe a recession, but short and sweet,
and now we have
-a recession, but how deep?
"A deep and long recession" view adopted by everyone will be the next step.
Every time the 10-year treasury yields less than the Fed Funds target rate, we have a recession.
The 2001 recession was caused by poor capital investment; mainly telecom and computer inventories.
This recession is also caused by poor capital investment; too many homes and at too-high prices.
In both cases, it was the investment banks that enabled and fueled the fire, bilking the public of billions.
Meanwhile, the semi-professionals are explaining how bad things can get on political sites. Firedoglake » How This Economy Is Going To Play Out
I used to try to predict when this will start. Its kind of a boring thing to do right now as everyone is on the same bandwagon. I think the more interesting question is when will the recovery start. Most importantly -- what will be the economic driver for the recovery. We know it wont be housing, and it looks like it wont be stocks. Would be nice to get some inflation to get things going -- but what else is there out there?
CR,
You are so right -- so much ink is wasted on the question of whether we have entered into a recession. What they should be asking is this: what happens when you layer job losses on top of the ongoing credit downturn?
Is it like throwing gasoline on a fire, or merely another stick of firewood?
o way, duuuude.
We started with
-goldilocks economy,
If I remember the story correctly:
Goldilocks ate up all of someone else's porridge (the one least able to defend himself, Baby Bear), broke his chair, and used all of their beds to some degree. Order was only re-established after the bears came on the scene, assessed the damage, and re-awakened Goldilocks to the devastation she had wrought.
My version ends with her running off into the woods, but it would be more satisfying if the bears had eaten her.
masaccio writes:
Meanwhile, the semi-professionals are explaining how bad things can get on political sites. Firedoglake » Page not found
Ian Welsh has been right on economic topics for a long time. He certainly is not a "semi-professional".
An official declaration of "recession" is irrelevant; a distraction, I would argue. The economy clearly is experiencing substantial stress in both the financial and nonfinancial sectors. Job and income growth have slowed markedly, consumption is weak, residential investment is in the tank, business investment has softened, the stock market has posted large, widespread declines, GDP is weak, and credit markets are still struggling with re-pricing risk. It seems immaterial whether the NBER officially declares this to be a recession.
what % of mid - upper middle Americans can still afford to maintain an inflated or abnormally high standard of living?
If a lot fewer then US is in a recession.
sdtfs- "My version ends with her running off into the woods..."
Conjure Bag says, "Guillotine her and be done with it."
I saw the video of Summer's speech and Bloomberg and he was spot on. I would feel a lot better if he were at Treasury. I really don't think Paulson has a clue.
I really don't think Paulson has a clue.
What Sec. Paulson knows and what he says in public are not necessarily the same thing.
Jim
Not in No. Va.
David Pearson said: "You are so right -- so much ink is wasted on the question of whether we have entered into a recession. What they should be asking is this: what happens when you layer job losses on top of the ongoing credit downturn?"
Or this question: What happens when the job losses are so small that they are well within the +/-100,000 margin of error and nowhere near the size they were at the beginning of most previous recessions?
Or this one: If the unemployment rate rises during recessions, why isn't the unemployment rate steadily continuing to rise?
It's not just about government data that doesn't show recession, either.
Right now, the ISM Manufacturing Index is at 50.7. (Readings above 50 indicate expansion in both manufacturing and the economy, mid-40's to 50 indicate manufacturing contraction but economic expansion, low-40's and below indicate both manufacturing and economic contraction.)
In the first month of the last recession (2001) the ISM Manufacturing Index number was 42.6.
In the first month of the recession before that (1990-91) it was 46.6.
In the first month of the recession before that (1981-82) it was 46.7.
The only place where there's clearly a recession is in the MSM headlines and the heads of people who treat MSM headlines as if they were evidence.
Sebastian
There is a recent, but universal assumption that recessions are bad. That's like saying fevers are bad. Just as a fever is a symptom of the body's attempt at recovery, a recession is a symptom of the economy's attempt at recovery. And we need a recession badly, because our economy is very, very ill.
In my 50 years I've had a chance to live through a few booms and busts, both as an employee and a business owner, and they both offer their share of pain and opportunity.
Mid to late in a recession is a great time to start a business because resources are available at low cost. It's probably not a great time to borrow big money and make big investments, but it's a great time to develop the seeds necessary for future growth. As the economy speeds up, those companies which planned ahead find opportunities for growth everywhere.
In the latter stages of a boom the established corporations become more entrenched, yet more ossified, and the value of their offerings drops as they become less hungry and more greedy. Position power dominates and competition cannot easily arise. Ever larger amounts of investment cash chase ever fewer opportunities.
Eventually the excesses of the boom tip the scales and a bust appears. The negligent behavior that was seemingly successful at the height of the boom no longer works. Many companies have built cost and pricing structures around supplier/consumer dynamics that no longer exist. Restructuring an organization to a dramatically lower price structure is like breaking every bone in your body to go from being six feet tall to four feet tall. It hurts, and few undergoing the full ordeal will survive--and they shouldn't.
Fortunately the bust releases resources and opportunities that were monopolized by inefficient organizations, and the cycle starts anew.
Of course it could always be worse--we could wait for the late boom portion of the cycle and then destroy our currency in an attempt to save the status quo. I suspect fed and government policy will give way before real destruction occurs, but perhaps my thinking is wishful.
Are we in a recession? One can only hope so. And I say this as a loyal citizen, a successful capitalist, and with best wishes for everyone.
So now it has begun.
I predict that this will finally end in ten years after we have a Volcker type put the screws to us.
Otherwise we can just keep on muddling down as we keep on collapsing our overleveraged markets and spend more at our inflated grocery and gas stations.
Stagflation will be making me wait. And wait, and wait, and wait.
The history of the 70's was replete with false dawns and renewed drops.
Inflation increases were the only constants.
Someday this war's gonna end...
Are we in a recession? If you have to ask you already know the answer. The very phrase shift gives it away. Remember when the question was "What are the chances of a recession in the next 12 months?"
Unfortunately all the attempts to avoid recession are making things worse. It's like stifling a sneeze and bursting a blood vessel.
I marvel at how much hand-wringing there has been over this "recession." It is being treated as the most awful thing to happen to the world since the Black Death. And to be equally dreaded. We have had recessions before, quite steep ones, and recovered quite nicely and those recessions in some ways were useful since they shook things up and taught lessons. Expecting no recessions is rather like expecting never to be sick. Impossible and unwise. Why all the agonizing now?
My wife's Avon Lady reported yesterday that everywhere she goes the ladies are bemoaning the losses in their 401K's. This means less lip gloss. We are in a recession!
The only place where there's clearly a recession is in the MSM headlines and the heads of people who treat MSM headlines as if they were evidence.
- Sebastian
Sebastian,
You have to admit that the majority of the people on this blog treat you with a lot more respect than you just showed them with this statement.
AllenM said: "...The history of the 70's was replete with false dawns and renewed drops."
Also replete with inflation persistently greater than 5%. Current CPI-U inflation: 4.3% and steady.
S.
Sebastian is the screen name of Hank Paulson.
The date does not justify declaring the current downturn a recession, although it could qualify as an emotional recession from the gutt feeling of the masses (rather than an economic one). The jugdement is still out.
The nasty thing is right now we're in this no-man's land in between. This is very hard to tolerate and people tend to take one position or another (mainly on the pro-recession side). We could just as well come out like in 1995 without any recession.
O-Joe
"Why all the agonizing now?"
Evidently, you didn't get the memo either.
I don't need the government or other economists to tell tell me that dog crap is dog crap. I know it when I see it, step in it, or smell it. Moreover, I don't need the government or other economists to tell me when we are in a recession. I know it when I see it, step in it, and smell it. We are definitely in a recession. I've never been in a depression, so I don't know enough about one. But, this recession sure smells unusually bad. Maybe I'll have to visit the nursing homes and talk to the old people to find out exactly how one smells.
Sebastian writes:
AllenM said: "...The history of the 70's was replete with false dawns and renewed drops."
Also replete with inflation persistently greater than 5%. Current CPI-U inflation: 4.3% and steady.
Care to recalculate our current 4.3% CPI-U using the formula in place in the 1970s? While you are at it use the 1970s methodology for reporting unemployment.
Keep in mind, Sebastion, what Euripedes said: "Speak sense to a fool and he will call you foolish."
Here @ Goldman, we like to think that manure is the fuel of the future, not just fuel to heat your homes or power your SUVs, but fuel in terms of our new derivatives, which are known across the globe as Asset Backed Manure Futures (ABMFs).
In the simplest terms manure is a free and readily available commodity which almost as common as sand flies. That's why we like ABMFs! Although you might have once thought of manure as being a totally free and useless animal (or human*) by-product the future value of manure is anticipated to increase exponentially as a result of The Commodities Exchange entry into this new and very exciting product!
Many of you may be thinking this type of invest may not have "parabolic" future value, but we think otherwise. Just read this recent study from The Fed Board, who is the co-underwriter of this new product (available soon):
Entropy can be described as the amount of disorder. When we burn fuel, we're simply moving energy from one form to another, without changing its total. What does change, however, is the amount of disorder. One of the laws of thermodynamics states that in a closed system entropy can never decrease. In other words, as time goes by, everything gets messier.
If you have a teenager in your household you probably have a good intuitive grasp of this concept.
Isn't it time you invested in manure ABMFs?
Elvis! the Cheech & Chong skit:
"Looks like dog shit, smells like dog shit, feels like dog shit, tastes like dog shit. Must be dog shit. Good thing we didn't step in it!"
Substitute recession.
Hey Sebastian, I like the way you're thinking. [Columbo]But I have just one question.[/Columbo]
What's the inflation rate if you calculate exactly the same way they did in the 1970s?
One day, we will look back at the last 20 years as "the golden age of government spending in the U.S.."
By borrowing and spending at unsustainable levels, governments at all level contributed false increments to economic growth. I think almost everybody underestimates how big those increments were.
Now, governments will have to cut back spending at the same time that they raise taxes. These are enormous sustaining headwinds to growth, not just for the next year but the next decade.
It's amazing how people like Sebastian cherry pick little bits of data that support their cheerful views. Look at the big picture. School teachers are being laid off.
We are entering a long era of sluggish growth and recurring recessions.
Wow this is awesome! A Sunday morning tag-team match. I hadnt seen one of these since Hulk teamed up with Hacksaw Jim Dougans and the WWF was still called the WWF.
In this corner we have Seb & O-Joe and their opponents _____________....
Who wants to tag in first?
Rob Dawg said: "You have to admit that the majority of the people on this blog treat you with a lot more respect than you just showed them with this statement."
Sorry, I don't understand. I was simply offering data that doesn't prove recession.
Are you saying that I'm disrespecting posters here because they do look at all the data and attach equal weight to the positive and the negative? Because they make their comments and decisions based solely on the objective evidence?
I'll gladly apologize to any poster you believe I've slighted, just name them.
Sebastia
We could just as well come out like in 1995 without any recession.
One big difference, O-Joe, is that in 1995 we were on the threshold of widespread rollout of a new technology that changed everything - the web. Now, not only do we not seem to have any similar kind of technological event (and those types of events are very rare - once or twice in a lifetime), we're also seeing $Billions of debt and credit destroyed.
"Right now, the ISM Manufacturing Index is at 50.7."
According to the ISM website, the Manufacturing Index for February was 48.3.
The Non-Manufacturing index was 49.3.
For the Manufacturing Index, seven of the categories are described as contracting or slowing. Two are described as growing.
For Non-Manufacturing, 7 categories are described as contracting or "too high." One is in the growing category, and two are listed as unchanged.
We've all heard the definition of "recession" ... 2 consecutive quarters of blah blah quackety quack. For you wonks ... what's the definition of a "depression" - how do we know?
Look at John Williams shadowstats and assert the current CPI is accurate as a real measure of inflation.
My ire is compounded by a political employer that will give a 0% raise this year after years of meager raises.
Imagine how happy it makes to hear you assert 4.3%- btw the NSA number was 0.5%- from the BLS.
A rate of over 6% if run out annually.
Someday this war's gonna end...
rich said: "...It's amazing how people like Sebastian cherry pick little bits of data that support their cheerful views. Look at the big picture. School teachers are being laid off."
If there was really a recession, the cherry-picking you suggest wouldn't be possible.
S.
It will take about another six months for my predication of recession starting in November 2007 to come true. But it really doesn't matter if it started in November, December, or January; as it has started to register on the public and joe 6 pack. I wonder how long before everyone panics about their 401K money as losses build up. I guess it is a recession to some except for those
currently in:
1) textiles
2) housing
3) automobiles
followed by:
1) finance
2) local government
3) state government
4) retail
and on. Ad the job losses grow, it will grow from a recession to a depression for individuals as they lose their jobs.
Scary Biscuits, a commenter on the Ambrose Evans-Pritchard column on scare mongering in the Daily Telegraph, is capable of comparing aspects of our current problems to the fall of Carthage. I like to read the comments from the United Kingdom because it makes me so jealous of their educational system. After reading this I asked one of my high school aged granddaughters if she knew about Carthage and thougt it had to do with a knee injury. Conjure is right, the clock is at 12.
My wife's Avon Lady reported yesterday that everywhere she goes the ladies are bemoaning the losses in their 401K's.
Losses or withdrawals???
Whether we are in a recession is less important than whether a preponderance of the people making economic decisions make them on the assumption that we are (or aren't). It's a little bit like the difference between the spot price of West Texas Intermediate and the long term pricing assumptions major oil producers use making their capex decisions. One is a transitory trading factoid with immediate but passing effects, the other tends to shape the energy future.
My sense, though I'm not sure, is that the operating assumption has shifted from slowdown to recession. Of course, it depends on your position. If I'm a homebuilder, I'm probably managing to cash, real clean. If I'm in another kind of business, I'm probably shifting my concerns from market share and the topline to the credit quality of my receivables and controlling my cost structure. If I'm a major financial institution, I'm desperately managing my balance sheet. If I'm Jim Cramer, I'm tweaking my rant . . .
Bottom line, ink spilled is ink wasted. Ditto pixels. But if my guess about shifting operating assumptions is right, in the future we will be judged to have been in a recession.
bluestatedon said: "According to the ISM website, the Manufacturing Index for February was 48.3."
The number I quoted was for January, but I take your point.
Nevertheless, this is still not a clearly recessionary number.
Sebastia
Avon lady feedback was on losses reported on statements.
I wonder how long before everyone panics about their 401K money as losses build up.
People should be concerned, if not in a panic. I mostly bailed on stocks, sold my company's stock at a nice little peak, and now it's time to watch and wait.
Predictions:
S&P 500 ~1000
Dow
Good lord Sebastien.
- NFP Payrolls are declining.
- The labor force is shrinking (per the Household survey).
- Weekly jobless claims (new & continuing) are marching up (in exactly the same fashion they do in every recession).
But hey, the unemployment rate ticked down in one month - within the margin of error, one may note.
You're really whistling loudly as you cherry pick data out of the grave yard.
Is the U.S. in Recession?
At this point we're of arguing whether it's 89.9F outside or 90F.
It's amusing but kind of a pointless diversion.
Seb,
You've had time enough to see two people ask you to use mid 1970s inflation calculations to adjust the 4.3% CPI-U you report as not recessionary as in the 1970s. You've had the time and you clearly know methods. I even reposted the shadow stats url in the previous post. Why the reticence?
After reading this I asked one of my high school aged granddaughters if she knew about Carthage and thougt it had to do with a knee injury.
I am a product of MD public schools. I have an intaglio print of the Dido in Carthage, and I look at it every day. I didn't know about Carthage out of high school, but I found out when George C. Scott mentioned it in Patton.
I wonder how long before everyone panics about their 401K money as losses build up.
When this happens it's important for people to understand what's really going on so they don't try to solve the wrong problem.
The problem isn't that they're losing their wealth. The problem is that the market is basically like a scale that weighs asset values, and that scale has been broken since the mid 90s.
It's like the butcher has a scale that says 1/2 pound of beef weighs 1 pound. He stands to make a lot of money until people figure out the scam.
But no beef has been stolen. Likewise when asset prices decline, no wealth is being stolen from peoples' 401k plans.
The loss occured back when they paid 10 dollars for a 5 dollar stock.
Part of this is Wall Street's fault for running the scam. Part of this is the investors fault for not knowing what a pound of beef looks like.
My personal belief is that if people lack the knowledge to see through these scams, then it's inevitable that they'll be taken advantage of.
I don't think regulation is sufficient protection because then it will just be the regulators, like Greenspan, running the scams instead of Wall Street.
I'm impressed with MD Public Schools then. I have to drop out and go plow for a couple of hours. The frost is out and I get giddy when I smell the new dirt. I'll leave the deep thinking to the rest of this incredible group!
Conjure Bag says, "Guillotine her and be done with it."
Tell conjure that we can legally still waterboard her. We'll make a reality tv series out of it so the masses will have entertainment during the recession. They can vote to keep going with the waterboarding or proceed directly to the beheading.
Cherry-picking is about the judgement of the pickers, not the size of the cherries. You're picking cherries in your mind.
Like I said, Sebastian, I feel sorry for people who lose money, jobs or heart in a recession.
But I don't feel sorry for you.
1995 is when sweeps took over and basically removed the reserve requirments from the banking system. We do not have that type of opportunity this time around.
The loss occured back when they paid 10 dollars for a 5 dollar stock.
lol...that's a great way to look at it. frankly i tell everyone that if they thought that they'd get double digit growth, or even positive returns over the life of the investment, they obviously don't look into the markets too deeply.
At the worst you should keep pace with inflation. At the best you have no higher expectation than the return of the dow over the last 20 years adjusted for inflation. Unless you have an appetite for risk, and we're seeing how that is turning out.
I'm 55 years old, and I have the same feeling I had back in the 70s. This is bad. I certainly didn't feel like that in the early 90s, and I always felt we'd bounce back from the dot com bust.
The political similarities between the 70s and 00s are eerie. In both cases, the U.S. became was stuck in a quagmire of a war, and in both cases our national confidence and international prestige has plummeted.
Politically, I think we are in worse shape now. When Nixon resigned in disgrace, the country was able to move on.
In both cases,the root problem is that the U.S. is not competitive internationally. Worker benefits have been reduced, hollowing out the U.S. economy and setting us up for a massive implosion, which is in progress...
Sebastian writes:
"AllenM said: "...The history of the 70's was replete with false dawns and renewed drops."
Also replete with inflation persistently greater than 5%. Current CPI-U inflation: 4.3% and steady."
is CPI data (even if it did come close to reflecting the true nature of inflation) from 30 years ago relevant to CPI data from today? is it even measured in the same way? the very nature of the goods that are sold and where they are manufactured has changed quite a bit..... hardly anything is manufactured in the U.S. anymore. 30+ years ago, there was still a good bit of manufacturing left in the U.S.
not that it really matters for the CPI, i'm sure it's heavily manipulated to keep the numbers in the right places, and thus to keep the government's payments of Social Security and inflation-indexed treasury notes lower .
1995 is when sweeps took over and basically removed the reserve requirments from the banking system. We do not have that type of opportunity this time around.
1995 is also when stocks began to lift off their historical trend and head into orbit.
That's when the US first became a bubble economy.
It's no coincidence that period was associated with the magical "soft landing" so many people are endeared too.
Life is a lot of fun when you spend all your retirement money ahead of time.
Soft landings as far as the eye can see. Just ignore the giant brick wall and all the black clouds on the horizon.
In the 80s we had trickle down. The trickle has eaten away the substrate an we're facing collapse...
Rob Dawg said: "You've had time enough to see two people ask you to use mid 1970s inflation calculations to adjust the 4.3% CPI-U you report as not recessionary as in the 1970s."
What reason do I have to believe that those changes aren't valid, honest attempts to reflect 3-4 decades of economic and consumer change? What reason do I have to believe that any method employed by you, Shadow Stats or anyone else is superior, when the government employs tens of thousands of people and spends billions of dollars to measure inflation and other economic measures?
You're trying to argue your point using your own set of facts because an objective data-set that everyone else uses (like (CPI-U) doesn't fit your viewpoint.
Tell me this: Do you go to the same effort to properly adjust CR's data for things like population rate, major changes in tax law, etc.?
I'd have a lot of respect for someone who did that, someone who was a true skeptic.
Sebastia
Measured the old way current inflation is 7.7%. I was hoping Sebastian would admit this himself so that someone he believes could convince him by his own standards that a current recession is likely.
Sebastian, I agree with you that the CPI skeptics are being overdramatic, but it's also true that the Boskin Commission reforms of the CPI were probably not realistic. Over the long term, I think those reforms have understated inflation by about 1.4% annually.
I think this position is supportable by comparing the US CPI numbers with the Canadian Statistics Canada numbers. They use a different methodology, but their result has been much closer to the pre-Boskin Commission CPI.
In this corner we have Seb & O-Joe and their opponents
I'll be on O-Joe's side but not because he's right.
Despite the massive drop in stock market and house prices and frighteningly prescient runup of precious metals which refute Joe's entire world view, he retains his cheery outlook.
Clearly, he needs someone like me on his side to infuse some reality.
Tell me this: Do you go to the same effort to properly adjust CR's data for things like population rate, major changes in tax law, etc.?
Actually I have but like I said your selective bias is preventing you from listening to anyone who differs on any particular subject.
You cannot claim that 5% 1970s era unemployment is sufficient for a recession and 7.7% today by the same measure you picked is not.
rich said: "...But I don't feel sorry for you."
No, but I have genuine empathy for people who are confused or even frightened about economic, stock market or other financial issues. They can regain confidence by being given objective facts and historical perspective, but be made to feel worse and make worse decisions by having their ignorance compounded and their fears inflamed.
Whose side of the fight are you on?
Sebastia
I am curious about what the connection is between the short-term treasury bill and federal funds rate as Prof. DeLong mentioned On Bloomberg TV that "What the federal reserve is doing is cutting interest rates, but their problem is they are starting to run out of room. The short-term treasury bill rates are down [to] 1.5% and they cannot be cut below zero. They only have 1.5% worth of cutting to do -- less if they want to maintain the treasury bill market as we know it."
Would you please to give some clue that I can follow? Millions Thanks
Sebastian
"The gap between what you know and what you think you know is always dangerously wide."
Nassim Talib
Shorter Sebastian: "REMAIN CALM ... ALL IS WELL!" Cf. Animal House.
What reason do I have to believe that any method employed by you, Shadow Stats or anyone else is superior...
Seb, it's like arguing with a fundie, you can't make any progress because they twist everything to fit their viewpoint. It's about being better than someone else, not being true to a differing economic philosophy. And some people really like to glory in other's misery, as a read through these comments will sometimes show you.
It's the same with the ones that scream about gold or fiat currency. Instead of looking for ways to explain where we are, and how we move forward, they wish to return to some idea of the past that never existed...you know, the same Leave it to Beaver-land. I, for one, don't want to return to the pre-fiat days and days of no credit. I like having credit, buying things when I feel like it, and having access to markets like never before.
Having said that, however, with all that comes responsibility. We swung too far one way, Seb, and now we're about to swing back. The days of high returns and easy moeny are over. RE is dead for a generation, and so is the derivatives market. For the next couple of years, returns will be minimal, if not negative for most.
So what comes out of this? That's the interesting question. People who want to live in the doom will stay there. Find the soluitons.
The political similarities between the 70s and 00s are eerie. In both cases, the U.S. became was stuck in a quagmire of a war, and in both cases our national confidence and international prestige has plummeted.
Some things are the same, some are different, this won't be a repeat of the '70s show...
Inflation hurts only americans living abroad.(according to uncle Ben) If thats also true about recession, we dont have anything to worry about. Just don`t travel too much!
Shorter Sebastian: "REMAIN CALM ... ALL IS WELL!" Cf. Animal House.
Let me ask you a question blogenfreude. Who survives the fire? The ones that keep calm, stay low, and look through the smoke for the exit sign, or the ones that are screaming and telling everyone else where the exit sign ought to be?
Don't know if this has been posted yet.
Marketwatch story on FBI linky investigation into whether or not CFC management misrepresented the quality of its mortgages.
Does a trojan horse have a wooden d!&k?
Rob Dawg said: "You cannot claim that 5% 1970s era unemployment is sufficient for a recession and 7.7% today by the same measure you picked is not."
Now you're arguing about numbers that I never even mentioned? Weren't we talking about inflation?
In the Spring of 1973 CPI-U inflation crossed above 5% and continued to rise pretty much in a straight line to 12.3% in late-1974, summoning a recession. (BTW, oil prices quadrupled in one year's time back then.)
Now the CPI-U is at 4.3%, but it's taken years for oil prices to quadruple, which doesn't have nearly the same inflationary effect, and it isn't.
CPI_U is not nearly as flawed as you believe...if you go to the time and effort to understand the why the economy behaves as it does.
Sebastia
I thought, Geoff, that a Trojan horse would have a latex one...BADABING!
Anonymous, quoting Nassim Taleb, said: "The gap between what you know and what you think you know is always dangerously wide."
Exactly. Which is precisely why I focus on what the objective data is telling me. I already know how deceptive what I think I know can be.
S.
Sorry. unemployment == inflation, substitute. I was typing too fast because you won't calculate either on an equivalent basis and now you are using a typo to negate an absolute assertion. By your own standards you are ignoring current inflation that is by consistent measure much higher than you deem necessary for there to be a recession.
Sebastian,
Not to get OT, but I seem to recall that you are a believe in the Wright B model for predicting recessions. Some cursory research shows a paper by Mr. Wright dated in Feb. 06. Is this when the the Wright B model was developed?
"Every time the 10-year treasury yields less than the Fed Funds target rate, we have a recession.
The 2001 recession was caused by poor capital investment; mainly telecom and computer inventories.
This recession is also caused by poor capital investment; too many homes and at too-high prices.
In both cases, it was the investment banks that enabled and fueled the fire, bilking the public of billions."
While I'm not one for the government subsidizing everything, I think there's a lot to be said for limited-term subsidies to encourage capitalists to develop technologies, businesses or infrastructure that are of long-run value to socity. Left to themselves, too many follow the herd towards the supposedly easy money. And you can see where that gets us.
Rob Dawg said: "By your own standards you are ignoring current inflation that is by consistent measure much higher than you deem necessary for there to be a recession."
No, by your standards, which you claim are superior.
Question: If inflation is genuinely as high as you claim, sufficient to cause recession, why are so many other indicators not confirming it? Many of the basic economic indicators are created by different methods and by government offices independent of each other.
Some indicators (like from the ISM) don't come from the government at all.
Yet a great many of them don't confirm your view that we're in/near recession. How do you account for that?
Sebastia
sharkbait writes:
"I used to try to predict when this will start. Its kind of a boring thing to do right now as everyone is on the same bandwagon. I think the more interesting question is when will the recovery start. Most importantly -- what will be the economic driver for the recovery."
I think it will be rebuilding and improving the infrastructure. Building nuclear power plants, solar power plants, desalination plants, sewer systems, highways, railroads, etc.
Mike-
Let's hope they atake a hard look at 10b5-1's and those involved here in particular
Folks,
Oil may go to $200, so isn't it time to begin looking at our new cross linked manure hedges; we can cover you either way the wind blows, which will help you relax; manure, better than gold!
"We characterized the upper end of the band as more likely to be driven by geopolitical turmoil and that recession was a key risk to our view," the analysts said. "In fact, oil prices have reached $100 a barrel without extraordinary turmoil, and the U.S. currently appears to be in recession."
Tacking on $15 a barrel to all of its oil estimates, Goldman now sees average selling prices of $95 a barrel for 2008, $105 a barrel for 2009 and $110 a barrel for 2010. The high end of its range is now $135 a barrel -- but Goldman hinted that prices could be headed even higher.
"As the lack of supply growth and price-insulated non-OECD demand suggest a future rebound in U.S. gross domestic product growth or a major oil supply disruption could lead to $150-$200 a barrel oil prices," Goldman said.
transient asked: "Not to get OT, but I seem to recall that you are a believe in the Wright B model for predicting recessions. Some cursory research shows a paper by Mr. Wright dated in Feb. 06. Is this when the the Wright B model was developed?"
That sounds about right, but I definitely wouldn't characterize my confidence in the indicator as "belief.":) Wright captures an important factor in his yield-curve model, the level of interest rates, not just the spread between long and short.
Sebastia
Building nuclear power plants, solar power plants, desalination plants, sewer systems, highways, railroads, etc.
Non-petroleum energy development is the next segment as is the return of some manufacturing. That is the lift out, in my opinion.
I believe the recession predictor graph at Political Calculations: Reckoning the Odds of Recession
is based on Sebastian's beloved Wright Model B. It shows the recession probability as of 28 Feb as 4.2%.
Personally, I agree with the forecasts of the firedoglake link posted by masaccio near the top of this thread.
Thanks CR for working over the weekend and providing these fun editions.
The commentors in the blog are the most funniest (and erudite) I have seen. Thanks for sharing folks....gr8 gng
Sebastian,
Regardless of whether you think the current or "classic" calculations of CPI are correct, you cannot compare apples to oranges.
Therefore, instead of recalculating today's CPI using the classic method (as SGS does), why not simply recalculate the 70's inflation using today's methodology? My guess is that it would show lower inflation numbers than you're fond of quoting, plus milder (if not entirely missing) recession(s).
The numbers aren't more accurate now, simply much more politically expedient.
I marvel at how much hand-wringing there has been over this "recession." It is being treated as the most awful thing to happen to the world since the Black Death. And to be equally dreaded. We have had recessions before, quite steep ones, and recovered quite nicely and those recessions in some ways were useful since they shook things up and taught lessons. Expecting no recessions is rather like expecting never to be sick. Impossible and unwise. Why all the agonizing now?
On a theoretical level, you are right. On a practical level, this comment betrays a certain level of comfort and security that a lot of people don't have. People agonize over recessions, because recessions can destroy their lives. Someone who is out of work and facing continuing mortgage payments and other bills can't afford to be sanguine about the long term benefits of a recession. There are some short run concerns that can't be ignored.
The US hasn't dug itself a hole.
It has dug itself a grave.
I actually see recovery starting next year if we get a change in the management of the country.
If we don't get that change, I think McCain will be the next Hoover. It will get really bad unless we change direction and get out of the patterns we're in.
Goldman is now searching for Chief Risk Officers in our new Manure Commodity & Underwriting Business. If you or someone that you do know, is qualified or just looking for a rewarding carreer, give us a buzz!
RE: "Taking intelligent risk is the core of our business. As our industry grapples with one of the most difficult periods in market history, we at Citi are moving aggressively to transform our risk management culture into a significant competitive advantage," Mr. Pandit said. "Brian is a widely respected industry risk veteran, and I am confident that he and our Risk team will lead an independent, best-in-class risk management function that exercises prudent judgment in managing the risks inherent in our business and plays an important role in Citi's capitalizing on emerging growth opportunities."
Jorge Bermudez, a 33-year veteran of Citi, has decided to retire. Over the last three months, Mr. Bermudez has worked closely with senior management on assessing and developing a plan for the risk function going forward.
"I would like to thank Jorge for his excellent stewardship during a difficult transition time for all of us," Mr. Pandit said. "Last October, Jorge informed senior management of his intention to retire, and given the challenges facing the Risk organization, he agreed to take on the leadership of the function. He will apply the same dedication as he works with Brian over the coming months on a new governance structure for the Risk organization."
"Non-petroleum energy development is the next segment as is the return of some manufacturing. That is the lift out, in my opinion."
Yes, it might be nice to have an economy based on actually producing something rather than being based on the endless shifting around of money by a bunch of clowns with MBA degrees.
If we don't get that change, I think McCain will be the next Hoover.
This is unfair to Herbert Hoover, whose accomplishments prior to being president far outstrip John McCain's, or any of the other candidates, for that matter. It's also doubtful that anyone has been as successful as an ex-president than Hoover was. It's disappointing to me that he gets such a negative vote from history.
Non-petroleum energy development is the next segment as is the return of some manufacturing. That is the lift out, in my opinion.
ipodius | 03.09.08 - 5:40 pm | #
If folks are looking for nuclear to save the day they better think again... from what I understand 'Peak Uranium' is only about 30-40 years behind 'Peak Oil'... the capital spending & investment required to stretch it is worse than for stretching oil reserves.
BTW - I am not scared of nuclear - just think before you embrace it & ask yourself are you comfortable with waste stored in your back yard. Nuclear works only when NIMBY ends.
I am comfortable with nuclear waste near me - at least I then know where it is - and I do have some stored at a plant not too far from me. Better there than God only knows where.
Point is there are a lot of hidden costs that are almost as difficult to make go away as 'bio-fuel'.
The next 'revolution' in energy will be ways for us to actually 'enjoy' conservation. Aggressive conservation makes Peak Oil, Peak Nuclear & biofuels sustainable long term 'solutions'.
It will be a huge economic growth opportunity once we get our heads around that concept - I do not fear Peak Oil.
Oh - an as for is this a recession? Maybe - but it doesn't feel anywhere near as bad as either the 70s 'rust belt' implosion or the 80s 'farm crisis'... both of which I lived through. It might get that bad but so far it isn't even close.
JMHO.
ipodius,
You're again promoting the false assumption that people seeing the bad times ahead are somehow cheerleading it and are not interested in addressing the problems therein. Nothing could be further from the truth. We're calling things as we see them, and we've also discussed at length what's needed to right things, too. BTW, have you read Denninger's letter? Wouldn't be surprised if he & CB aren't pen pals.
Unfortunately, the hole we've dug rivals the Marianas Trench, and there's no way out that doesn't involve lots of hard work and suffering.
p.s.: I'm still convinced there's a depression ahead, and I believe it's better to note the danger so that people can prepare themselves accordingly. Better to prepare for the worst and have it not happen, then have it happen and not be prepared.
Let me ask you a question blogenfreude. Who survives the fire? The ones that keep calm, stay low, and look through the smoke for the exit sign, or the ones that are screaming and telling everyone else where the exit sign ought to be?
A simple fire might be the wrong metahphor, but I don't know. If it's more like Nagasaki, the heavy tile roofs will collapse on those not incinerated by the flames.
Wolfgang Munchau - Central Bankers Cannot Stop This Contagion
FT.com / Columnists / Wolfgang Munchau - Central bankers cannot stop this contagion
\tI actually see recovery starting next year if we get a change in the management of the country.
donna,
What will a change in the management do to fix the people's balance sheets? Debt levels already far exceed that of the Great Depression, and (as noted on a prior thread) real incomes are down this century.
"The next 'revolution' in energy will be ways for us to actually 'enjoy' conservation. Aggressive conservation makes Peak Oil, Peak Nuclear & biofuels sustainable long term 'solutions'."
I don't disagree that conservation should be part of the energy solution. Let's face it, the US "produces" an incredible amount of waste.
However, I think it's a false choice of conserve vs alternative energy production. We need both.
The ones that keep calm, stay low, and look through the smoke for
the exit sign, or the ones that are screaming and telling everyone else where the exit sign ought to be?
ipodius,
That particular statement annoyed the heck out of me. A number of us have been calmly talking about the extreme fire danger for years now, all the while telling everyone to stick close to those very exits. The fact that you had to wait until you can't even see the exits for all the smoke speaks volumes for your prior awareness of the overall circumstances.
layperson writes:
I am curious about what the connection is between the short-term treasury bill and federal funds rate ...
Would you please to give some clue that I can follow? Millions Thanks
Fed funds is the rate targetted by the Fed; it is an overnight rate between domestic banks. The funds themselves are excess reserves (working from memory) and thus the loan can be viewed as credit risk free (the reserves are at the Fed).
T-Bills are alternative credit risk instrument; hence Fed funds and T-Bills are competitors and the rates are linked. However, since only domestic banks have access to the Fed Funds market, it is typical for T-Bill rates to be below Fed Funds.
total debt, household, business and government used to be about twice national income 30 years ago.
then slowly that ratio grew till now total debt is more than 4 times national income and accelerating.
most families spend most of their disposable income on food, transportation (incl cost of vehicle and fuel),housing, (incl heat elect) and medical dental. all these expenses taken together are accelerating at double digit rates while median family income has been on average, nearly flat this decade. (screw CPI u)
Seb and O joe...I'm glad you , and others who try to put an optimistic spin on the numbers, or deny we are fead false numbers, are here to make the argument...that keeps us thinking...go ahead fire away.
But most here, and now, come lately, the vast majority of Americans realize the jig is up. It's time to pay the piper.
dryfly,
What do you think of the idea of making Chuck Prince go into the corner against Stu Bickel?
Dryfly,
As to a answer to the Uranium question...2 things. Breeder reactors to reprocess waste and using Thorium.
The French have been using reprocessing for years to cut down on the amount of waste.
Here is a link to Thorium use...
Thorium
On a different note,A friends wife just got handed 50 something REO's to make go away for Coldwell Banker. No price floor same as the guy you know. A flat 25% to do with as she pleases on each house. FYI she sold the 4/3/3car on a gulf canal for 105k in 3 days. Needed about 50-60k of finish work. I am pretty sure this sale got her all the subsequent listings.
Chris
P.S. - She was supposed to get damn near 80 listings but for some reason they are holding about 30 for right now.
If folks are looking for nuclear to save the day they better think again... from what I understand 'Peak Uranium' is only about 30-40 years behind 'Peak Oil'... the capital spending & investment required to stretch it is worse than for stretching oil reserves.
Doubt it...
All that "nuclear waste" becomes fuel if the US would build breeder reactors and reprocess fuel. The only reason we avoid it currently is that the US believes it encourages proliferation. Newer reactor designs may alleviate that concern.
Burning thorium is much more interesting. There's a lot of Thorium around (about 550x the amount of uranium-235).
And there is about 4.5B tons of uranium disolved in seawater.
ANS / Publications / Journals / Nuclear Technology
There is no shortage of energy out there.
Kicker | 03.09.08 - 6:14 pm |
Thanks for the confirmation!!! Now we just have to convince the public that the danger is very minor...It still pisses me off all the hand wringing about nuclear energy.
Chris
France reprocesses waste, but still doesn't know what to do with the reprocessed waste. So France as thousands of tons of reprocessed fuel in storage, and 50 tons of plutonium. 12 pounds of plutonium is enough to make a nuclear bomb with no protective gear and plans available on the internet. Think twice about reprocessing.
I am all for nuclear energy -- the day they open a waste repository or complete cycle reprocessing system with sufficient capacity to handle the waste stream. After 40 years of nuclear energy, we aren't there yet and never will be.
Lots of info at
404 Error - File Not Found | Union of Concerned Scientists
-- just K
I actually see recovery starting next year if we get a change in the management of the country.
If we don't get that change, I think McCain will be the next Hoover. It will get really bad unless we change direction and get out of the patterns we're in.
Maybe I'm getting cynical, but I see no material difference between any of the candidates running for office.
Politicians these days are experts on telling people what they want to hear. That's about it as far as I can tell.
"Can anyone here tell me what the hell is keeping ten year treasuries at 3.5% yield? I understand the short end of the curve is a hideout as the credit markets shut down but why is the long end attracting any bids? That seems like the worst place to hide as inflation rips our society apart and the dollar gets shredded daily.
It is not a question about losing to inflation over the long run, investors don't want to lose principal in stocks, real estate, or bonds that are not backed by USA. A 3.5% guaranteed return beats possibly losing 10-75% a year.
fireinthehole"
Basically - the 10 year is a hedge that is the inverse of the action in the MBS market (don't ask me to explain the details of the trade - because I don't understand them). When people are selling/shorting the MBS market - they are buying the 10 year - and vice versa. When people start to get interested in buying MBS again (who knows when that will be?) - expect the 10 year to drop like a rock. Roby
So France as thousands of tons of reprocessed fuel in storage, and 50 tons of plutonium. 12 pounds of plutonium is enough to make a nuclear bomb with no protective gear and plans available on the internet. Think twice about reprocessing.
France built its nuclear fuel cycle as part of a covert nuclear weapons program. They also played a large part in Israel's nuclear weapons program. It's an interesting story, look it up.
I'm guessing that France has a lot of excess plutonium was the result of an intentional choice to build reactors that produced lots of plutonium.
Plutonium can be burned in some reactors. It's also being looked at as a source of neutrons to kick-start the thorium fuel cycle. A non-weapons biased program would both produce and burn plutonium.
Still, after 30-40 years of generating electricity and the total amount of waste fits in an area the size of two tennis courts. I'd take that over the millions of tons of fly ash, sulfur-dioxide, and CO2 that coal burning has produced over the years (not to mention the tremendous amounts of radioactive elements released)
All energy sources require trade-offs.
"You're again promoting the false assumption that people seeing the bad times ahead are somehow cheerleading it and are not interested in addressing the problems therein."
Of course there's nothing wrong with anyone making a huge profit off of this fiasco. You don't have to volunteer for poverty to be a hero.
Basically - the 10 year is a hedge that is the inverse of the action in the MBS market (don't ask me to explain the details of the trade - because I don't understand them). When people are selling/shorting the MBS market - they are buying the 10 year - and vice versa. When people start to get interested in buying MBS again (who knows when that will be?) - expect the 10 year to drop like a rock.
Oh, come on!
You can't drop a tidbit like that and not dive into the details a bit.
The package is a great New Year's surprise. We'll be raising our economic and equity outlooks and lowering our unemployment rate expectations."
(David Malpass, Bear Stearns & Co. Inc.)
President Bush's proposal on dividends ameliorates the double-taxation of corporate profits, ending the incentives in our tax code #1 to over-leverage business, with the consequence of too much debt and vulnerability to the business cycle, and #2 to over-rely on accounting numbers rather than the pay-out of cash. His proposal on expensing of capital expenditures will help invigorate our economic recovery."
(Clifford F. Thies, Professor of Economics and Finance at Shenandoah University, and member of the Board of Directors of the American Association of Small Property Owners (AASPO))
The President's proposal eliminates unfairness in the tax code, distributes the gains widely to Americans who pay income taxes, and creates incentives for growth. What more can we ask?
(Don Booth, Professor of Economics, Chapman University)
Once again, President Bush is demonstrating his strong leadership ability. This stimulus package is just the type of measure this economy needs to get back on track. Just upon hearing about it the markets have reacted wildly in response. Imagine how it'll be when it's enacted."
(Horace Cooper, Centre for New Black Leadership)
George Bush
I know what I believe. I will continue to articulate what I believe and what I believe - I believe what I believe is right.
George Bush
It's very important for folks to understand that when there's more trade, there's more commerce.
Keeping taxes low and restraining spending leads to a vibrant economy; it leads to new jobs; it leads to better opportunities; and it leads to a shrinking deficit.
George Bush -
TJ is absolutely right on the cpi calculation. It doesn't really matter HOW you calculate it, as long as the data series is consistent over time. For much of its existence the cpi-u had that consistency, barring an occasional change in basket weights. In the early 90's, the method of calculation changed substantially, rendering historical comparisons useless.
The solution is as TJ says -- merely re-run the series using today's methodology. The problem with that gets at the root of the problem with hedonic adjustments: it would take a great deal of work, and a big dollop of subjective "judgment", to go back and calculate quality improvements for the items in the cpi basket.
A much better solution was for the government to have introduced a "hedonic" cpi parallel to the existing one. That was not done for a specific reason: the very basis of Greenspan/Boskin was to come up with a way to reduce COLA increases. Leaving the "old" cpi would have made it obvious to seniors just how much they were being given the shaft.
blogenfreude- "If it's more like Nagasaki, the heavy tile roofs will collapse on those not incinerated by the flames."
And their crushed carcasses will be food for carrion and maggots, so life goes on.
--
The last Shoe to Drop, Employment, CONFIRMS Recession
Employment is known to be lagging-to-coincident indicator of the economy. Hence, it cannot be used to forecast recessions, but it is by far the best confirmatory signal of economy being in recession.
Here is what Guru Lakshman Achuthan of ECRI had to say:
December 2007: Any two months in a row of negative job growth -- meaning there were job losses -- is usually the key indicator that a recession is around the corner, asserts Lakshman Achuthan, of the ECRI, a private organization that keeps the most intensive watch over all statistical indicators of the economy.
January 2004: But Achuthan of ECRI said he worried that focusing on GDP could give less importance to a critical sector of the economy -- the job market. Moore and other founding members of the NBER committee focused on jobs, he said, because they often influence the other indicators -- if unemployment is rising, then incomes, output and sales typically fall, as well. 'That vicious cycle is the definition of a recession, and that's why it's important that the definition of a recession captures that cycle, 'Achuthan said. 'GDP alone doesn't do that.'
OK, let us look at the recent Non-farm Employment (000):
Month Change
Dec-07\t+41
Jan-08\t-22
Feb-08 -63
\t
3-Month Total = -44
And here is the historical fact:
Since 1960, When the 3-Month Total Went Below ZERO (After the Full Recovery) The Economy Was Already In Recession For 2-11 Months.
First, Guru Lakshman ignored his own indicator, WLI, which is shouting that the economy is already in recession, and now he is ignoring a critical sector of the economy -- the job market. He has proven himself to be a pompous self-promoter and only his cult followers still rely on him for the recession forecast. There is nothing to forecast when something has already taken place.
My forecast: The recession began in November 2007. I cannot overemphasize how important it is to figure out if the us economy is in recession or not and if yes since when.
Jas
PS: I hope that Sebastian doesn't keep on misleading about the 3-Month change in Employment. He claims that it doesn't indicate recession when in fact is does.
k | Homepage | 03.09.08 - 6:21 pm |
Anything put out by Union of Concerned Scientists goes straight to file 13,sorry.
Chris
--
"It's scary to see the whole world slowly (too slowly) moving towards Roubini's view"
bZb,
The real scary time will come when "the whole world slowly (too slowly) moves towards" my view of Greater Depression. We will get there by 2010.
Jas
Basically - the 10 year is a hedge that is the inverse of the action in the MBS market (don't ask me to explain the details of the trade - because I don't understand them). When people are selling/shorting the MBS market - they are buying the 10 year - and vice versa. When people start to get interested in buying MBS again (who knows when that will be?) - expect the 10 year to drop like a rock.
Maybe an unwinding of MBS Arbitrage?
It looks like MBS investors hedged interest rate risk by selling short Treasuries.
Institutional Benchmarks Series
If we are entering an era of credit deflation and rough economic times, the new battle of the Jones may become who has the least amount of debt. Imagine that! Imagine if people looked at debt as an enemy to be eradicated and a sound balance sheet as something to brag about? What would America look like? What if Americans in general looked to develop solid balance sheets and started to save money for the future? Things would be very different indeed. I believe it is this very thought that keeps Bernanke and company up at night. An America that is not on spending steroids would cause massive damage to the very financial institutions that are our economy. It makes you wonder about the validity of a financial system that depends on the masses spending themselves broke just to keep things going forward. Maybe that has been the plan all along. Something to think about.
George Bush
I know what I believe. I will continue to articulate what I believe and what I believe - I believe what I believe is right.
George Bush
It's very important for folks to understand that when there's more trade, there's more commerce.
Keeping taxes low and restraining spending leads to a vibrant economy; it leads to new jobs; it leads to better opportunities; and it leads to a shrinking deficit.
George Bush -
Ignoramus.
Thinking out loud here.
Is there sufficient incentive for sovereign wealth funds e.g. Dubai, China, etc. to start their own banks here? And not lend to Blackstone, not to Citicorp.
If there were investors who decided to launch regional-sized banks, domiciled here, strictly dedicated to commercial lending, not CRE, not construction but industrial or technology or services...
...a new entity with a clean slate. An entity that would not lend to other banks (for now) but just to businesses. If your another bank, or the FRB, you wouldn't have to worry that this entity would be holding the Queen of Spades. It's new to the table. You'd have the transparency necessary for confidence to lend to this entity. The entity would be readily able to lend to Main Street.
If sovereign wealth funds could be persuaded, or large cap industry decided to pool its money, or Walmart was allowed to get into the game: Industrial Bank and Trust. Then you get the capital to Main Street.
Start this now, overtly nationalize in a few months, maybe right after the November elections, so that the surviving banks would be confident enough to lend to one another. There needs to be moral hazard, we've got to stop running from the Queen of Spades. The greater the number of failures at containment, the less confidence Main Street will have in the banking system and the higher the likelihood overt nationalization will trigger bank runs en masse.
I'm starting to like Buffett's idea about import certificates. I'm starting to lean towards "protectionist" policies because here we all are with "free trade."
Big Lots CEO on their latest CC talked about nascent "wage inflation" in China. Specifically, workers were demanding overtime if they worked more than 40 hours a week. That global labor arbitrage is narrowing. Commodity inflation is going to create global demand for higher wages (or maintenance of subsidies).
Several posters have grumbled about having to pay for someone else's speculation in residential RE. I would ask if such speculation would be as prevalent if wages had not been so stagnant. The lower middle to middle class is incentivised to chase investment returns because the pendulum of power has swung from labor to capital.
Nobody gets paid what they deserve. You get paid what you negotiate.
How do we save money as a country? What do we sell? To whom do we sell?
JJL- "...a financial system that depends on the masses spending themselves broke just to keep things going forward. Maybe that has been the plan all along."
Uh oh. You also didn't get the memo.
anon 7:27 was me. Sorry.
blowncue- "What do we sell?"
Financial weapons of mass destruction.
blowncue- "To whom do we sell?"
The Whole World.
mp,
Yes, yet another bubble that the koolaid drinkers thought would never end.
I don't know if it's a recession yet, but my long term index put options seems to think it is.
Seriously, Sebastian, I recall you using stock market as an evidence some six to twelve months or so ago that there is no recession coming.
Do you recall writing this:
"It's not that hard to see what's most likely to happen next, you simply analyze the conditions in an objective way.
Gather the appropriate historical data, identify the conditions that trigger major stock market corrections and recessions, then look for them to occur again. Until they return, no major stock market correction and no recession.
No 400k-600k in residential construction job losses this year, no recession this year, no housing "crash" this year."
Don't want to argue with you whether it was in year 2007, but how about right now with the evidence that stock market is sending us as well?
You can find this comment of yours here:
Calculated Risk: Fed Hearing: Home Ownership and Equity Protection Act
We have now that lower band 400k unemployed persons from RE construction and will probably be getting a whole lot more with CRE slowing down. I'm not saying that indexes have crashed either, but they are considerably lower and volatility is quite high. Indexes have, BTW, entered official bear market in terms of declines in Japan already with Nikkei and Topix down more than 30% from their peaks in H2/2007.
Imagine if people looked at debt as an enemy to be eradicated and a sound balance sheet as something to brag about?
Hmmmm... then that would make me the bodhisattva of debt avoidance. hehehe
dryfly,
With breeding reactors and seawater extraction, nuclear power is renewable. The rate of usage of uranium in breeder reactors is (with current energy usage) lower than the amount of uranium flushed from the Earth crust by the rivers. Both technologies are available. The cost of the fuel in reactors is so low that the technologies becomes economically feasible before it starts to significantly impact the final electricity prices. Nuclear power has undoubtedly some disadvantages but fuel supply is none of them.
--
"It's amazing how people like Sebastian cherry pick little bits of data that support their cheerful views."
Rich,
In case you don't know this is Sebastian's specialty. I have known him for 2-3 years in a forum. He was clueless when I first read him and he is clueless today about the reality of the US economy and the Scam Market.
What has the Scam Market done for the past 2-3 years? S&P500 futures are trading up 70 points, or 1.8% a year rate. Pretty soon they will be negative for 10-year period.
Jas
I will also bite on Sebastian's trolling.
The reason growth and inflation numbers are important is because they are supposed to tell us whether people in a country are living better. The idea is that if economic growth minus inflation outstrips population growth, the quality of life increases. In the last ~10 years the price inflation that a vast majority of American households experienced was far, far greater than the official CPI or even PCI rate. American families that are poor spend most of their money on food, and food index went up 30% in last year alone. So in fact, quality of life is deteriorating horribly.
The reason why this can go on without official statistics indicating recession is because for business the inflation rates were generally smaller than for people (for them it's taxes and wages, and things like rents, hardware and cars - except for rents, most of these didn't change). And businesses were on the receiving end of the monetary expansion so they could take advantage of it before it seeped into the price inflation rate. In essence, for about a decade, money was siphoned from the middle class to the very rich. But of course, middle class isn't a renewable resource, so the process is breaking down as we speak.
--
The s&P gain above was for 3 years. For the past 2 years it is negative.
Jas
A number of us have been calmly talking about the extreme fire danger for years now, all the while telling everyone to stick close to those very exits.
Yes tj, but nothing is more tedious than reading "i told you so" posts. I had this great b school prof whose line was "so what?". In other words, great call, now what? It's like standing on the deck of the Titanic and screaming "I TOLD you we were going to hit an iceberg!"
And this theater is still playing out. Is it total financial destruction? It is crippling but not fatal? No one can even agree if we are in recession...not all numbers point to it. Hell, I live in a state that started the housing downturn over two years ago and where prices in real terms are now down over 20% and we're all surviving. In fact, things aren't all that bad ex housing and the foreclosure numbers seem to be stabilizing.
So what does it all add up to? You know, I don't really know, but I'm trying to figure it out. And I saw it coming too. I saw the tech bubble when it was happening also. So what? These events still happened and now we all have to deal with it.
The mother of all unwinds has started. I got that memo. It's 12:00 conjure time. Now what?
ipodus writes "In other words, great call, now what? It's like standing on the deck of the Titanic and screaming "I TOLD you we were going to hit an iceberg!""
Here's the thing. When economy finally enters a recession some things will change. Until then it's just waiting and markets possibly pricing some risk in equities. However, the important thing to realise is that during recessions the contracting force in economy grow stronger than those expanding it.
Growth feeds more growth, contraction feeds more contraction. That's why recessions tend to be short lived and wild. They are also dangerous, because you will never know beforehand how deep they might turn. Things will began to occur in a fast pace once you enter it.
ipodius,
Sorry, but you wouldn't hear "I told you so" if you didn't keep mischaracterizing people's motives here.
In fact, things aren't all that bad ex housing and the foreclosure numbers seem to be stabilizing.
That's the grand illusion. The truth is that we have a society built up for decades on an unsustainable model, and now it's finally catching up with us. It's not just housing, it never was.
The mother of all unwinds has started.
This we can all agree on.
The mother of all unwinds has started. I got that memo. It's 12:00 conjure time. Now what?
tj was just defending himself against idiots who came into his playground and started to accuse him of being in an upbeat mood. Basically if you stop telling him that he is a cruel mean gloater, he will stop telling you that you are a retard who hasn't listened, looked, or thought for the last 10 years.
Data Point - A good friend in semi-rural Connecticut called an electrician to upgrade an old house from fuses to circuit breakers on Friday. Response? We'll be there Monday morning at 9:00. This was not an area that had real estate hype. Recession? I'm sure....
BTW - I am not scared of nuclear - just think before you embrace it & ask yourself are you comfortable with waste stored in your back yard
In the sixties and seventies when they said nuclear was safe, I worried. After Three Mile Island and Chernobyl I'm more re-assured they realize the danger and will monitor it; nuclear is okay by me.
And to add one more comment to my previous post - the thing that makes the next recession (that we have probably already entered) dangerous is the same thing that made the previous one so omnious despite it's small effect on GDP. It's the level of debt.
If you do a little bit of studying on previous recessions you will find some quite interesting things in the previous one.
1) Stock markets bottomed out well after the recession had ended. Extremely rare.
2) Yield curve bottomed out well after the recession had ended, about two years later, just like the stock markets. Very rare.
3) Fed was very much afraid of deflation and Bernanke wrote the famous helicopter article in 2002 November, year after the recession had ended, still taking the FFR down to 1.00% in 2003. Very rare.
So what happened? Recession ended much before all the other things seemed to show that? Take a look into the Feds flow of funds and you will find something very interesting indeed. The net worth of private households kept on declining until bottoming out in 2003. Decline began in late 2000. Now that is a deflationary force.
And now we have a way more debt, with much higher leverage in houses and higher prices. Good thing is we don't have that extreme stock market valuations, but we do have high adjusted P/E:s still. So stock prices might no be in a bubble, but the profits well could be. Talk about a risk..
sdtfs,
Not to be sarcastic -- I'll leave that to MI -- but how many people have died from nuclear reactor accidents vs. oil & gas refinery accidents?
p.s.: I lived near a nuke plant for years. Every time someone there farted we had neighbors freaking out. Still cracks me up thinking about it.
Kicker - I was being honest. I know that the trade exists - but I don't understand the details. If you google "treasury MBS hedge" - you come up with a lot of stuff. This is the first thing I found:
The handbook of financial instruments - Google Books
Sometimes it's enough to know that something exists - without knowing exactly how it works. It's not like I have to worry about hedging my huge MBS portfolio anytime soon
.
OTOH - I do own some STRIPS in the 10 year maturity range which I bought a long time ago at higher yields - and I probably should keep an eye on how the MBS market is doing. Like I said - when it's "safe to go in the water again" - there may be a massive unwind in the 10 year. Roby
blogenfreude wrote -
"what's the definition of a "depression" - how do we know?"
I don't think there is any formal economic definition of a depression but I've heard that it is a 20%+ decline in real GDP. Real GDP for the US during the Great Depression declined by over 30%.
Basically if you stop telling him that he is a cruel mean gloater, he will stop telling you that you are a retard who hasn't listened, looked, or thought for the last 10 years.
lol...and here I was thinking I was doing pretty well for the last 20 years. Who knew I wasn't? I'm still trying to figure out what wasn't sustainable over the timeframe.
I prefer to think about the last decade or so as about experimentation. The tech bubble burst, but left a lot of good things in it wake (hey we wouldn't have this blog). Some ideas proved to be crap. Financial innovation was next, and there will be good things left over from that. If the credit markets survive the unwind, which in some capacity they will.
The contraction is needed. I'm not on the side of any depression (just not in any cogent analysis of the numbers) nor do I think that everything is wrong. Some innovation deservedly are failing. Others will take their place.
It's 12:00 conjure time. Now what?
Well, the Titanic hit the iceberg, you were on the bridge and are aware, what about everyone else? There are still so many unanswered questions that won't be answered until we get everyone on deck and see what's there. A lot of people were asleep, a lot of people are incredulous, not that many are saying get in the lifeboats and go.
Or maybe a better analogy is the EXXon Valdez. The captain's drunk, the hull is torn, the oil is spilling out. What to do? What's the best way to mitigate damage. Call the head honcho. Wind up the PR machine and deny there's a problem? Spend an ungodly amount on floating barriers. Will that work? Is it too costly? What if the weather turns? What then?
I agree we need to look forward, but there's no way to know when we'll have the knowledge of the damage currently happening, so how will we know the best way out?
Ipodius- "Now what?"
You wait for the water to boil, and that can be frustrating. If you're a real bear, you ride it down. Personally, I think there's still money to be made in the financials and I feel comfortable doing it. I'm also comfortable with the euro, and have been since the end of 2005.
As the saying goes, a watched pot never boils, so just let it happen. The most important thing, it seems to me, is to have the cash available when opportunities develop, and they will.
As an old Italian friend used to say, "Pazienza!"
I'm still trying to figure out what wasn't sustainable over the timeframe.
You've got to be kidding.
but how many people have died from nuclear reactor accidents
Let's be clear: I am for nuclear power plants.
But the accidents are so much more spectacular and long lasting. Incidentally I like the idea that there's a huge wildlife preserve in Russia now, not the way you'd like to establish it, but at least it's not a total loss. Unfortunately categorizing the damage to human life from the fallout is going to be extremely difficult. But that's the price you pay for modern life. We've got so many other lingering problems, heavy metal, PCB's, etc.; I'm pretty sanguine about adding another incremental potential cost given the benefits.
sdtfs,
I believe we're of like minds on nukes. IMHO the accidents aren't so much spectacular as wildly overblown, though. Hollywood's made a fortune out of scaring people witless with radioactivity, and it shows.
I'm not saying there isn't danger there, but the perceptions are simply out of line with reality.
In a crisis only the 90 day tbill is safe. Everything else is not currency: may be legislated into something less valuable, or is a bet vs inflation that you may lose.
I think the more interesting question is when will the recovery start. Most importantly -- what will be the economic driver for the recovery."
I think it will be rebuilding and improving the infrastructure. Building nuclear power plants, solar power plants, desalination plants, sewer systems, highways, railroads, etc.
Yes--this is what needs to happen. I'm a little worried about how we pay for it. If we really have vaporized too much wealth, we won't have the financial capacity to make these investments and pull ourselves up again, at least not for a long time.
--
Mr. Bail Out,
Agree with what you said about the last recession that was aborted by the Housing Bubble. Employment bottomed in 2003, or two years after the end of the recession. Very rare.
What happened? THE GREATEST DEBT-PUSH IN US HISTORY. And it has barely begun to unwind.
The Scam Market is toast once you see thru the unwinding of private debt, e.g., RRE and CRE, and its affects on all types of businesses. The whole global economy will go into recession once the US is in severe recession. So, dont count on the export earnings that are driving the multinationals.
Jas
I wanted to echo the recommendation of
Ian Welsh's article at FireDogLake
One of the things he talked about is how Peak Oil will intersect with this housing disaster. What if increasingly expensive petroleum renders the exurbs less worthwhile? And the prices continue going down?
Or if the drought in Atlanta continues to have side effects. (Example- a friend of mine there had to close their non-profit there because their biggest donor was a green landscaper, and landscape companies there are going bust.
No water>>no landscape company>>more unemployment & less non-profit services)
We talked a bit on this blog about the bankruptcy of Vallejo, CA. What if this is the first? Anyone want to start implode-o-meters for banks and cities in California?
The question isn't when the recession begins? It is when it ends, and how.
I appreciated what Zero had to say- recessions are like winters, they come and go all the time.
But what if it's a one in three hundred year blizzard, or the summer of 1812?
What to do next?
I think it will be rebuilding and improving the infrastructure. Building nuclear power plants, solar power plants, desalination plants, sewer systems, highways, railroads, etc.
EngineerJim | 03.09.08 - 5:31 pm | #
I'd agree, but nuclear power plant can't survive on the free market, and subsiziding it is just like the dumb housing subsidies that are the core of this blog. We need railroads and bike paths more than highways; tens of millions of domestic hot water setups, insulation of our leaky housing stock (now that would have been a good use of a MEW), water conservation retrofits.
On the theme of looking forward,
a few posts on how this might play out:
Book Review- The Transition Handbook Book Review: The Transition Handbook « Reviews « Ethical Pulse
Book Review- Word Made By Hand Life after oil | MNN - Mother Nature Network
ipodius,
As mp states (and I'm sure you'll do) we just need to ride this thing down -- profitably. I'm hoping everyone here does the same. It's not too late for people to position themselves appropriately; i.e., get rid of debt, trim spending, diversify (e.g., mp's Euros)., etc.
Meanwhile, it's also imperative to hold TPTB's feet to the fire. Again, I reference Denninger's letter -- everyone has to lay their cards on the table and let the chips fall where they may. Gotta be a few perp walks, too. The alternative is to let them make all the same mistakes again, thereby exacerbating the problems
John Stark,
Agreed, infrastructure is it. Regardless of how it's paid for it's simply gotta happen -- the future rides on it.
Yes--this is what needs to happen. I'm a little worried about how we pay for it. If we really have vaporized too much wealth, we won't have the financial capacity to make these investments and pull ourselves up again, at least not for a long time.
How did the government pay for WPA and CCC in the 1930's ?
--
"How did the government pay for WPA and CCC in the 1930's?"
We have had pre-emptive policies to avoid depression and in the process have built up debt in advance. Furthermore, Japanese govt has spent lot of money on many projects over the past 18 years without much success.
BTW, in 1939 the economy was back to where it was before the New Deal. It was the WW II that saved the US economy.
Jas
RayOnTheFarm,
The company credit card wasn't nearly maxed out then.
Jas Jain writes: "Employment bottomed in 2003, or two years after the end of the recession. Very rare."
That was too, although the same thing happened in 1990 recession, but not in five previous ones. (if you mean unemployment rate rising)
Now look at the Fed, 225 basis points slashes in a few months. While that might not sound so much compared to 1980's for example, but it's a lot given the low level of inflation and interest rates to begin with. And Fed funds futures predict at least 50 basis points cut in the next meeting. As a matter of fact there was an article in Bloomberg just some days ago saying that traders now expect Fed funds rate to end up 1.75% later this year.
De-ja-vu.
It's extreme conditions right now with commodities going sky high and dollar plunging, stock markets seems to have lost map drifting somewhere in the middle. Not a perfect place for the debt relaying consumer and as we can see, not so good environment for the banks either. When last did we see conditions anywhere close to this and what do this conditions imply? Bank runs, what the heck, are we back at 1930's? This was never supposed to happen in a civilized world, not in this decade. Not in this millenium. But here we are..
--
"De-ja-vu."
Indeed.
"It's extreme conditions right now with commodities going sky high and dollar plunging..."
I believe that we are in a Commodities Bubble and dollar's decline is connected with it. I think that wea re near a bottom (I am a long time bull on Swissie, but am currently short June 101 calls).
Jas
Meanwhile, it's also imperative to hold TPTB's feet to the fire.
I absolutely agree with you...perp walks and all. mp has slightly more balls (i know conjure does) than i do when it comes to the financials at this point. There need to be a few ritual executions to drive the points home.
You see tj I do think that leverage, used appropriately, is a good thing. 32x in a hedge fund is not an example of that. As far as the consumer goes, I don't believe that credit is a bad thing at all either. People should use it as they see fit. It becomes a problem when people mistake it for income.
I am mostly parked on the sidelines now waiting. I have a feeling a few surprises will be revealed by summer (which is going to be a long, steamy one). I am not in the depression camp at all...in fact I am in the "shallow but dragging across the bottom for a while" crowd. I have this feeling that as soon as the credit markets unstick, a lot of money is going to come into play that is, like me, parked.
There is NO reason to think that the present inflation rate (4.3%) is "steady." It has been going UP steadily, if that is what is meant. New CPI will be out March 16th. Then we can see how "steady" it is. Not very, I suspect.
Jas Jain writes: "Furthermore, Japanese govt has spent lot of money on many projects over the past 18 years without much success."
There is one thing about the deflationary forces in Japan that might play out differently in U.S. (Note here that "deflationary force" doesn't mean there should be deflation, it's just a direction of a force, other force could still offset it)
What they had in Japan was that after stock market and real estate market collapsed, many loans turned sour and couldn't be paid back. Banks tried to collect the collateral and sell it, but they didn't manage at reasonalbe prices. They decided to wait for better times.
The Japanese banking system allowed a process called "maintaining an unrealized loss", which meant that banks could keep the bad loans on their balancesheets without ever writing them down, or selling to markets and realizing the loss. This continued to be a deflationary force, because people knew the losses were there, they were afraid of the banks being insolvent after all, which prolonged the deflation in Japan.
In U.S. it seems so far that banks actually do write down securities that have gone down in their value, bad loans and do realize losses on the markets. In a sense, that is a good thing. It's a right thing to do. It could make downturn sharper, but not that long.
Let me clarify another remark tj. As sustainable, I'm assuming you mean debt burdens, asset price inflation, savings rate decline, etc. Those items, however, did not hockey stick themselves up until the tech bubble...which was a legitmate speculation bubble of the classic sense in the capital markets. But the aftermath of that left positive residue, even if people lost money. What happened afterwards was different.
I believe that some of the technical advances of the internet phase allowed the proliferation of the financial innovations in the same way. Unfortunately this time, the aftermath has the possibility of causing much greater damage as it unwinds. I think everyone is doing the best they can in uncharted waters. These financial instruments didn't exist in the past to this extent. The markets weren't as inter-connected.
But some parts will be salvaged. What follows the hedge fund? Who will the new financial players be? Interesting...
JJL writes:
If we are entering an era of credit deflation and rough economic times, the new battle of the Jones may become who has the least amount of debt. Imagine that! Imagine if people looked at debt as an enemy to be eradicated and a sound balance sheet as something to brag about? What would America look like? What if Americans in general looked to develop solid balance sheets and started to save money for the future? Things would be very different indeed.
---------------------------------------------------------------------------------------------
Amen to that.
I have thought about rough economic times ever since I left home many years ago. I have been obsessed with having no debt, increasing savings (40% a year), and a better standard of living. I have done this. It isnt as hard as it sounds. America looks great when you live within your means and save!
Yes, leverage (as well credit in general) can be a good thing when used wisely and in moderation. We're seeing what happens when it isn't.
Sounds like your in Mauldin's "muddle through" camp. I would be there myself if it weren't for all the underlying problems that the current problems will expose, particularly the monstrous debt levels. Throw in peak oil and the negative implications in boomer demographics and I just can't see how we simply muddle through.
ipodius,
Actually, by sustainability I meant:
1) "Consumer-based" society.
2) Dependency on infinite amounts of cheap energy.
3) Ever growing debt levels.
4) Ever expanding government.
5) etc.
Too much of our basic economic model is built on relatively short-term phenomena. There are limits, and we're reaching them.
The ponzi scheme that is Social Security is just one glaring example.
Jas Jain writes: "I believe that we are in a Commodities Bubble and dollar's decline is connected with it. I think that wea re near a bottom"
This is an extremely interesting matter. Every time it seems that Fed needs to lower the interest rate, there is a series of bad news for example, the dollar tends to go down and commodities up same time. This is now roughly true for the last six months. At the same time the commodity prices do not rise that much in euros or yens for example.
This could be related to the fact, that over the short term (at least) the real interest rates are going to be negative. Every time there is information that interest rates may need to be pushed lower, commodities rise. This makes sense, because if the real rates are negative, why would one invest in say, 2yr non-inflation indexed treasury, when you can be quite sure that you will not get your lost purchasing power back after two years anyway. Almost certain loss. So what's the option? A commodity of course. Commodity doesn't go bad over time and better buy today if your purchasing power is going to be down even with the interest rate collected. This again feeds inflation further on it's behalf.
Now however, you are totally right that this cannot go on for a very long time. So at some point the commodities cannot go up this fast in value when recessionary forces are building. Instead, they are likely to come down. Some of them could even crash.
There is one more thing on dollar plunging against euro, it makes sense at the moment, because interest rate differences now favor euro over dollar and euroarea economy is in a better shape - at least for the moment. The strong euro is, however, damaging the region already and, besides, there are housing bubbles just a like, even worse. Look at Spain for example.
So by the time euroarea economy begins to slow, bubbles popping (which has actually began already), ECB will be forced to slash rates probably already later this year. That should be the end of euro rally and latest then, I believe, the commodities rally is over if not sooner.
WWF RINGMAN :
IN THIS CORNER , WE HAVE O-JOE AND
SEBASTIAN !! BOO / CHEER !
AND IN THE OTHER CORNER WE HAVE
ROB DAWG AND
JAS (LOTTA TATS/ MEXI STYLE MASK)
GET READY TO R-R-R-R-RUMBLE !!!!!!
I.T.
Chernobyl alone!
tj, i'm not sure i'm with you on peak oil. I think we have a way to go there. And I think the price will come down, but not to previous levels at all. That brings up interesting implications for globalization.
And I am firmly in the muddle-through camp for SS. There is no way that the government will ever let it fail or cut it in any way...especially with at least 8 years of democratic rule. Whatever needs to be done will be done, including higher taxes. It is the absolute third rail of politics. I just wish everyone would be up-front about it and just say that we'll be taxed to support it.
And muddle through in general? Probably. I'm going to wait to see this week's numbers before I make any predictions or plans. Although I do see we're heading for where I think the dow will bump along soon.
I'm now taking a frontrow seat for the unwind of the hedgies. I hear the ending is pretty intense. It's a double feature. The next one is "fall of an investment bank".
All this talk of nuclear power is giving me a hard on. I love it; the fusion of chemistry, particle physics, thermodynamics and good old fashioned engineering.
There is plenty of nuke fuel out there. We've got LOTS of bombs we can mine for fuel (once the stupid nuke weapons programs are finally killed off), and we can turn bland, non-fissile U-238 (which comprises the VAST majority of naturally occuring U) into Pu-241 with the help of 2 neutrons and a little beta-minus decay.
As for subsidies, some of the massive costs associated with nuke plants are the various regulations and inevitable licensing delays (running into the years) due to the regulatory process. Hey, the feds are going to subsidize some stupid s***. I'd rather have them subsidize nuke plants (which can generate terra-watts) than ethanol, which is a net energy loss.
jm:
The recession probability odds you cited and linked to over at Political Calculations
are for a leading indicator of recession. Wright's Model B looks ahead one year in time - that 4.6% probability of recession you saw last week represents the likelihood that the U.S. will be in recession in first week of March in 2009.
That's why we created and provide the Recession Probability Track showing the trend over the past four years. You can see that the probability of recession peaked at 50% on 4 April 2007. Since we're still within the one-year window that Wright's method provides, those are the odds that apply to today.
Not bad for an early warning system!
ipodius,
Peak oil is happening. Worldwide production appears to have already peaked, the supergiants are in decline, and demand marches forward. Some demand destruction will occur, but given that the greatest demand growth is within the producing countries themselves you have a situation that virtually guarantees no significant price declines.
Regarding SS (as well as municipal pensions and Medicare), the government may not have a choice.
we use too much oil anyway. US households can easily cut its energy use in half and more, without sacrificing necessities. Oil is too cheap! So peak oil - so far - is not a disaster. It will only become a disaster if we make it into one, like starting resource wars etc. Don't let your politicians do it!
ipodius - you're wrong. IN FACT, the people most likely to survive a fire are those who save themselves first, by whatever means possible, including running to the exit before everyone else does and stepping on a lot of toes on the way.
Sebastian,
You are amazing. Still in denial.
3 months ago it was show me employment losses. Well now you have em. So now you change your metric. Unemployment rate? Dig below the headlines and you will find record numbers of people in part time positions. ISM index? Lagging....just like employment.
Banks are making margin calls on holders of solid portfolios. The banking system is in danger of seizing up. The problems in the real sector in the 30s started with banks.
I'm not against nukes if they do it right. Problem is, in this country, people cut corners.
My dad worked construction on Rancho Seco, the Babcock and Wilcox N-plant that was built for Sacramento Municipal Utilities District back in the '70s, the one that never worked right and which they finally decommissioned. Few years later I took him to see the China Syndrome, not usually the kind of movie he liked to see. But he agreed with every part of it, even the goon squads that tried to intimidate whistlerblowers. He'd seen it.
Oddly enough, I'm friends now with the guy who was the technical advisor for that movie, guy name of Dale Bridenbaugh. He was a GE nuke engineer who blew the whistle on safety issues on operating reactors that weren't being addressed. He worked as a consultant afterwards for citizens groups that were questioning new nuke developments, but he was never anti-nuke. But he was a safety guy, and he felt that many of them were accidents waiting to happen. He still does.
I'm afraid we gonna need more Sebastians and O-Joes to keep the charade going.
Bob Dobbs,
Does your friend have any opinion on Navy nukes?
Lots of bickering over the CPI measurement here. I'm not sure that it is too important anyways...most of the monetary inflation over the past 5 years went into asset prices. And now most of the monetary deflation is going to hit asset prices.
Seems fair to me. Of course, it won't seem fair to people like Seb who will be crushed by it.
Politicians these days are experts on telling people what they want to hear.
That's because it gets them elected.
The last president who told people what they needed to hear, as opposed to what they wanted to hear, was Jimmy Carter. And look what happened to him.
Viewing with alarm writes:
Scary Biscuits,etc...
I know many Americans that have no idea where Canada can be found on a world map.Or knowledge of how many timezones there are in the US. Not to be critical, but your point on the US education system is more than valid VWA.
"Nova writes:
Not in No. Va."
If you mean, Nova, that there are no signs of recession in NoVA, I guess we aren't looking at the same things. Some indicators for me:
Sure, this is all anecdotal. But pretty reasonable signs to me.
Amen, yogurt. I recently watched Miracle, the 1980 US Olympic Hockey team drama. Carter was showcased telling Americans what they didn't want to hear, positioned in the movie as more of a gloomy spectre than a truth-teller.
So as we all know the team beats the Soviets on the ice. What I did not know was that many of the players went on to careers in the financial industry. These same fine fellows then help propogate the myths that lead to overspeculation and kool-aid drinking. "If you just believe in yourself, all good things will happen."
Paul Volker is becoming popular again...I don't think he was popular when he was doing the right thing. Alan Greenspan was very popular, so long as the steroid fixes were feeling good to the financial industry and speculators.
Speculators like ipodius, who is, at this critical time in our economic and social history, still talking about making money and getting his, as if that is the definition of clear-eyed sensibility. What you will never see, my friend, is that it is your mentality that is putting this economy at such high risk.
What exactly do you do for a living anyway, besides write 5-10% of the messages per thread? What's your "real story," and how do you feel about it each day?
And I am firmly in the muddle-through camp for SS. There is no way that the government will ever let it fail or cut it in any way ... especially with at least 8 years of democratic rule. Whatever needs to be done will be done, including higher taxes.
Unfortunately, I'm in total agreement with you.
At current SS tax rates and at steady state (after the mirage that we call the 'SS trust fund' is wiped out), the taxes coming in to SS are sufficient to fund roughly 70% of what's owed out.
There's a lot of dickering, and sniping, and comparing and contrasting of mathematical models behind how to get from there to 100%, but the ugly truth is that a large chunk of that 30% gap could be wiped away in a single stroke, by repealing the wage cap on SS earnings while keeping the payout cap in place.
If conditions in middle America 12 months from now are still getting worse, I can almost guarantee that a Dem White House and Dem Congress would team up to fire that shot, and IMO that would be the Fort Sumter of a new, ugly class war.
The libertarian in me grates his teeth in frustration at "solutions" like these, but, in the long run, I'm more likely to have millions in assets than millions in income, so I'm all for Washington focusing on the latter and not the former.
Mook: the problem is this: most boomers haven't saved enough to retire comfortably; social security @ 100% payout isn't going to be enough to make up the difference; ergo, even @ 100% payout it'll be "not enough", and so the boomers will try to find some more money somewhere to actually get that comfortable, lazy retirement.
(Talk about irony: monkeying with how CPI is calculated to keep COLA adjustments small have kept social security taxation low for decades, but the shoe's about to be on the other foot.)
So, "shortfall" or no in terms of specific obligations, there's going to be a huge shortfall in terms of expectations; expect that shortfall to grow if the 401k and real estate valuations keep dropping / losing to inflation over the next few years.
Agreed on raising the SS cap and the political implications of doing so, but you're underestimating it; what do you think the SS tax rate is going to have to be to give the boomers the retirement they deserve, in the gap between when the boomers retire and gen y starts to have actual earning power?
"what do you think the SS tax rate is going to have to be to give the boomers the retirement they deserve"
Now there is a loaded question!
Loaded question, indeed.
Short answer: By the time boomer retirement peaks, the notion of the "three-legged stool" will have been common knowledge for nearly 50 years, so anyone who's relying on SS in and of itself to fund "the retirement they deserve" is gonna get no sympathy from me.
And understand that I don't think for a second that repealing the wage ceiling would be anything more than a short-term populist stopgap to an intractable set of problems. As long as life expectancy keeps outpacing population replacement rates, and real inflation keeps outpacing COLA, the SS issue is going to keep getting worse and worse, caps or no caps.
Plus, I'm laughing as I type this, because it's the first time I've ever been told I'm "underestimating" the SS crisis. Normally I get called "alarmist", "scare-monger", and much worse besides. I think (and have often said before, though maybe only once or twice on this board) that the entire model is an unsustainable Ponzi scheme and I'd feel much better if it were just blown up once and for all.
And the scariest part of all? I'm FAR less worried about the "expectations gap" with regard to Social Security than with regard to Medicare. Look at how quickly advances in medicine go from being considered experimental to luxuries to necessities, and then tell me Washington is going to be able to "define down" expectations for Medicare ... even if they ever succeed in doing it for SS.
Mook: I wanted to avoid being shrill, but the Medicare expectations gap (or, broadly) the medical care expectations gap are the same (large) problem...
I figure many mcmansions will wind up having second lives as multigenerational homes; they've not been designed for such use -- and may not have been built to last for even a single generation -- but people will make do with what's available.
As a caveat: there's the issues of those whose "retirement plan" amounted to "social security", and then there's the issue of those whose plans were unrealistic, failed, or both; the latter category might prove to be much larger, and much more disappointed, than predicted by some of the more common models.