I tend to side with Roubini on this.
Housing, Auto and Financial industries will or has drug every sector into the recession hole. We have never seen all three blow up together. I see the Bernarke put as the only good news.
Of course I'm short the market right now so what do I know!
I see a Z shaped recession. We will plunk along for a time in a straight line, then we will actually travel backwards in time once the super-collider the Europeans are building opens up the space time continuum this summer. Then we will continue to plod along economically until the Tulip Bubble comes along and spurs "economic growth".
I think we could very well see gains in manufacturing employment in the near future, but they will be swamped by losses in the service sector. From the low margin retail and food service sectors to the high margin Wall Street parasites.
First of all, I hate stupid generalizations(shape of recession as a letter, wtf).
And the recession could be severe if manufacturing contracts sharply
The recession can(and will IMO) be severe no matter what happens to manufacturing.
We really should collectively come up with some definition for "severe", so those of you saying we will not experience a severe recession cannot wiggle your way out of admitting you were wrong.
Of course I think CR has the integrity to admit when he is wrong. I will certainly admit that I am wrong if it doesn't turn out to be severe(actually I'm predicting an extended depression).
BTW, it seems CR's forecast has shifted ever so slightly from "mild" to "mild that doesn't feel so mild". Is that getting pretty close to a "normal" recession? Whatever that is...
I think we could very well see gains in manufacturing employment in the near future, but they will be swamped by losses in the service sector. From the low margin retail and food service sectors to the high margin Wall Street parasites.
As bullish as I am on US mfg in a cheap dollar environment - I fully agree with your analysis.
Mfg will help deaden the pain but it can't save the patient.
"But to say this will be the "most severe recession" in decades suggests job losses - and a corresponding increase in the unemployment rate - that I don't see on the horizon."
CR, I think we're already at a fairly high level of unemployment and underemployment, perhaps concealed by credit, HELOCs, increased numbers of contractors and so on. I think that a moderately robust-looking workforce is actually made of cardboard, and might collapse in size faster than conventional wisdom might conclude.
I like this article on Krugman's blog about labor market deterioration and the U6 number, which measures unemployment and underemployment: it's at 9 percent.
Do I understand you right that your (only?) arguments that the unemployment would not be severe is the weak dollar and global growth? What if the US recession spreads to the rest of the world which (at least for the developed countries) was the rule and not the exception during the last economic cycles?
Tanta - I think this was an important part of Roubini's argument you left out. This is a big part of his reason for a severe recession: "In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. The US consumer is shopped out, saving-less, debt burdened (debt being 136% of income) and buffeted by many negative shocks: falling home prices, falling home equity withdrawal, falling stock prices, rising debt servicing ratios, credit crunch in mortgages and increasingly consumer credit, rising oil and gasoline prices, falling employment (now for three months in a row), rising inflation eroding real incomes, sluggish real income growth." My comment is: Can 10% of our economy (manufacturing) support the 70% of the economy that relies on consumer spending. We all pretty much work in the service sector anymore and the strip malls across the country are our factories.
Whichever letter wins, I have serious doubts that it will be a W based on the $600 payments. It may be a W, but that won't be the cause.
"honey the $100,000 heloc is gone but Mr. Bush sent us $600 so everything is ok once again. Book the suite in vegas"
When I was young the celtics were great. It was a given that the Celtics would always be great. Then they sucked for 15 years. Now they are great again. I think the American consumer is like the late 80's celtics when Larry Bird started getting back spasms and Robert Parish was getting arrested with large amounts of weed. And then, in perhaps the best example of the American Consumer in 2008, there was an economic stimulus. The Celtics drafted Lenny Bias, one of the most exciting players I've ever watched. It was just the sort of luck the Celtics had. God smiled on them. Like God has smiled on the American consumer. Lenny Bias signed a huge sneaker deal and the Celtics were guaranteed success for another 10 years. And then he od'ed on coke.
The american consumer has od'ed. Stick a fork in them. They are done.
A global slowdown is being created so expect the US to be pulled down by other countries, kind of like a collective group of anchors falling off a ship.
If the recession turns out to be "severe," with whatever the consensus on severe is, I'll admit to being wrong. If we dip down and then start pulling out of it in 2009, that ain't that bad. And if we get the uptick this year and dip down and start pulling out of it in 2009 -- the W option -- well that really isn't too bad at all.
"The good news is that manufacturing employment is holding up better than usual in a recession due to a combination of a weak dollar (strong exports) and relatively strong global growth."
First of all the world has a bit of manufacturing overcapacity these days, the USA export business is very AG driven, other then that exactly what manufacturing products are we going to export and to whom, looking at the JP world GDP chart we are the prime world spot for those wishing to export into, not so sure there are big export markets to tap.
"Weak end markets in North America and Europe are not affecting the overall strong aluminum fundamentals," said Chuck McLane, Alcoa's chief financial officer, speaking on a conference call with analysts after the company released its earnings report.
This looks like 1930 or so, but Bernanke is playing it much differently - although congress seems to be doing its best to be Hoover.
The conceivable externalities are too numerous to mention, little less factor in, and very important. Pakistan still has a bomb after all...and that is not a particularly high probability event.
If you want firm predictions, give me a metric. Job losses? Income growth? Length until NBER calls an end? Which way do you want to measure it?
I have a lot of ideas, but no good answer to this question.
Certainly using the governments definition of real GDP is not such a great metric, since the GDP deflator has been consistently understating price inflation.
Anyway, I really don't like using GDP at all, since GDP can be growing and "unemployment" can be low while real incomes are declining. However we have to stick to something that is at least measurable.
This will be the worst recession in US history. The biggest problem that we have now is that we have no statistics that anyone can trust. For example unemployment. They now remove people from the unemployed list who run out. What they used to do is extend unemployment benefits, up to a year and half in some cases. Today these people go into the bit bucket. We could have 40% unemployment and the unemployment figures would still show 4.9%.
So for the shape, I am saying that manufacturing is no hope. The problem is that manufacturing needs customers and the customers are broke. Manufacturing needs capital. The capital has been squandered in housing and Wall street. Manufacturing needs facilities, and facilities need time. Manufacturing needs trained people and training people needs time and capital.
We are not in the days of banked steel mills that can be fired up, or dormant auto production lines that can be restarted. We are in the days of imported steel, and outmoded factories that need major capital outlays.
Then throw on the demographics of geezernation. These folks will be consuming capital to eat.
For the government to deal with the multiple interlinked crises, it will need dump trucks of speed for the bureaucrats that will have get all these programs organized.
Never mind the shape of the recession, the depression lasted 10 years, most of the lengthening of it was because of government programs. I am thinking of economic depression as way of life, not as an event.
My comment is: Can 10% of our economy (manufacturing) support the 70% of the economy that relies on consumer spending.
The only optimistic thing I can say here is that mfg activity is a HUGE driver of service activity. If mfg picks up a lot of services will follow.
Factories are NOT labor intensive - they are capital intensive. That capital needs to be sold, engineered, constructed, managed, financed, insured, litigated, and resold. For every factory stiff there is an army of suits running around making his 'productivity miracle' possible.
When more of that activity is domestic then the services associated with it are also more likely to be domestic. When those products are imported... a greater percentage of those jobs are then offshore too.
In fact the really big money from offshoring mfg was never the direct mfg labor savings - it was when you closed the offices associated with the production from those closed plants & moved THOSE jobs overseas - only when you offshore the suits does offshoring REALLY pay out.
With the weak dollar a lot of that will be put on hold... so if mfg really does have a domestic renaissance look for an up tick in associated service sector jobs too.
But it will take time - if you think its slow ramping up residential RE then compare it to building a new steel mill or chemical plant - half decade or so.
A weak dollar is a compensating factor only in the absence of higher interest rates.
So far the currency's weakness has been the proverbial "free lunch": all benefit, little discernible cost. The problem with the "free lunch" is that the bill may come in the form of unleashed inflation expectations. Ironically its not OUR inflation expectations that really matter, but those of our creditors the "dollar peggers" (China, the Gulf states, etc). The more dollar-fueled commodity inflation they face, the more political pressure for a revaluation. Of course, a mass re-val by our creditors means less demand at our Treasuries auction. One path of adjustment would be for interest rates to rise, maybe significantly, to attract more capital.
So enjoy the free lunch, America, and hope that the price of food in China does not bring it to an end.
the recession could be severe if manufacturing contracts sharply (probably due to a global recession), but I think this is less likely than Roubini
Unfortunately, I think this downturn is shaping up to be global in nature. Stock markets in China and India have already declined significantly this year alone. China, in particular, is looking more and more like a bubble economy with massive over-investments in real-estate and manufacturing, and scads of non-performing loans.
The EU doesn't look too healthy either. Spain and Ireland are in the early throws of significant real-estate busts and the UK isn't far behind. A relative of mine just visiting from France is telling me how dire things are there. And just look at how German and Swiss banks keep making bigger and bigger write-downs.
No, I fear that we are in for a massive economic downturn of global propertions. The fact that we are seeing credit contractions occur in virtually every major economy is enough to send up the flashing danger signs.
According to the CR blog consensus, the US could never be the leading economic powerhouse in the world any more; nor could it never have grown to be that. At least the last 25 years of "cheap credit" would have completely destroyed us.
Duh~ there is no other nation even close to us (although my little country of origin comes in third still ).
What a reality check for the doomsayers. I hope it works this time.
O-Joe
Are there any good statistics on the number of Americans who are vagrants?
vagrant: Wandering from place to place and lacking any means of support.
I've read there were quite a few of these during the previous two depressions. If the number of vagrants begins to climb sharply I think we can at least call the recession severe.
Another thing to look for will be breakdown of support structures. If/when food stamps can no longer provide enough food. When SS checks can no longer provide food and shelter(already here in some areas). When hospitals go bankrupt, etc. Things like that will certainly be a good indication that things have gotten "severe".
"JPMorgan share of global GDP:
US: 30.5%
Japan: 13.5%
Germany: 5.6%
China: 4.9%
what happens if the dollar drops to half of its current value? By the way what was the date of this and was it renormalized to current currency ratios?
Try this on for size with DXY at 35:
US 15%
Japan: 15%
Germany: 6.5%
China: 6%
Try letting the renminbi go to to 2 to one and now you get:
US: 15%
China: 25%
Can you explain why the falloff in manufacturing employment is the key to the severity of the recession?
About 2.5 million manufacturing jobs, or 15%, have been lost since the end of the last recession. They have gone from about 12% of all jobs to less than 10%. What makes them so key? I really can't get my head around that. The people laid off from Bear Sterns aren't going to be headed for jobs at one of dryfly's tractor factories.
I'm thinking a dubya recession. A tick upwards in Q3 on ill-founded election hopes - nothing from the stimulus pkg. Alt-A mortgage resets should be a killer if the FHA does't get in and insure every loan in existence.
what happens if the dollar drops to half of its current value?
Well, one thing that will happen is that dryfly's factories will be kicking ass. The only way the dollar will fall that precipitously is if the rest of the world is really booming. Otherwise, they'll all be cutting rates too.
poszi, I disagree with decoupling - so, yes, I think the U.S. recession will spillover into the global economy, but I don't think it will be enough to raise the unemployment rate to 8% or more. We can talk about severity in several ways - unemployment, GDP contraction, length of the recession - I keep coming back to jobs.
When Roubini says this will be the worst recession in decades, he is including '73-'75 and the early '80s. The U.S. saw double digit unemployment in the early '80s, and close to double digit in the '70s.
I don't see it happening this time. I could be wrong - there is definitely a downside possibility - and, as always, no one has a crystal ball.
--
The last two recessions were short, or mild, because of bankers' ability to push more debt on handholds via debt securitization. Now that black magic has been exposed as nothing more than a simple trick.
The era of economic witch doctors is over.
Get ready for a long L.
Jas
PS: I think that CR did use the term mild for this recession. Sorry, I don't remember the date of the thread when he did.
I disagree that manufacturing is holding up that well. In 2001, yes, manufacturing's bottom basically fell out. But manufacturing employment is dropping at a 4% annual rate, which puts us on pace for losing well over half-a-million jobs in 2008. At the start of the 2001 recession in March, manufacturing declined at a 6% annual rate, but by November employment was dropping at a 10% annual rate. This recession is very young. The steepest drop come toward the end.
The people laid off from Bear Sterns aren't going to be headed for jobs at one of dryfly's tractor factories.
No but he might be going to work for the company that arranges the funding so some of those quarter million dollar tractors and combines get sold. Not a lot different than funding houses... I just hope they do a better job this time looking at the fundamentals... if they are only looking at corn only goes up we are in for a sequel.
Bob_in_MA, yes, the nature of the U.S. economy has changed - there is less manufacturing now. In past recessions, the huge layoffs came from manufacturing. These layoffs caused kind of a vicious cycle of more economic problems, and then more layoffs.
This time we are not seeing these huge layoffs - sure there are layoffs on Wall Street and homebuilding and AMD today, etc. - but the numbers aren't the same, they are much smaller.
IMO, this is an important difference. We will see.
Are there any good statistics on the number of Americans who are vagrants?
There won't be very many vagrants again because so much of our social services infrastructure is locally based and supported. You can lose access to many valuable services, ranging from SSI to food stamps to shelters and job training, if you leave a given county, let alone state.
We have a system that ties the poorest segment of Americans to their county of need.
This is exactly the opposite of what England once did, when they created a class called "tramps" by locating shelters one day's walk apart and not allowing any two night's consecutive stay in the same place. This was to keep the tramps moving and physically fit. The story is told in George Orwell's autobiographical book "Down and Out in Paris and London."
we have become a service economy with 70% of GDP being consumption, so manuacturing jobs are a small pat of the economy.
if you look at table A-12 from the dept of labor, measure u-6, which includes the people that have supposedly stopped looking for work (a convenience of the statisticians imo) the unemployment rate is 9.5%
there ae an awful lot of mortgage brokers, realtors, day laborers, etc., all related to housing, that won't be claiming unemployment insurance and therefore won't show up in the data
CR
We have a growing foreign trade deficit. If manufacturing goes nowhere, what means do you propose to pay back our foreign exchange deficit? Send the Chinese lawyers? Export SIVs and CDOs?
I see a clusterfuck recession that the media (and the public itself) has no idea how quickly things might get weird in this country.
The ruling elites are attempting, desperately, to create a new system that will continue to bestow on them the privilege, wealth and power that capitalism has afforded but are failing dramatically. As things spin out of control, the happy endings are only going to be seen on reruns...
dryfly, Yeah, I guess it never arrived - at least it's not here on my desk.
Forecasting is fun, but we never really know what is going to happen.
The last time I disagreed with Roubini was when he forecast a recession to start in Q1 2007 (too early in my view). Now I'm disagreeing with him the severity of the recession. Maybe I'm underestimating the impact of the credit crunch. We will see.
It is kinda hard to lose manufacturing jobs when you have none to lose. Unless burger construction counts.
Wild action in Wm last 2 trading days. Take a look at the WM volume today, 191 MILLION shares traded compared with the average 50 Million shares! Wowza! Can there be that many shorts in the entire world? This is some wild activity and I think the FED with their new found powers should make sure Martha Stewart is not up to her old tricks again.
The U.S. saw double digit unemployment in the early '80s, and close to double digit in the '70s.
Under what measurement metric? The discouraged worker was defined away in the Clinton administration, but was not excluded from the 70s/80s statistics.
Come on CR; we know you are smarter than that. Don't take two different measurement methodologies and compare them unconverted.
The U-6 (which is much closer to the 80s and 70s numbers) broke double digits in 2003 and hovering around 9% right now. It is very likely that we will break double digits on U-6 unemployment.
When was the last time the consumer was impacted so greatly, meaning a consumer led recession? I dunno the people around me that i work with a deal with (middle class) are hurting, this seems alot different then the last recent recessions.
CR,
The only way we will avoid a severe recession is if the job losses are staggered and hence the unemployment rate never over shoots. On the other hand participation rates may drop sharply in the next 2 years.
The problem with a curve in this regard is to compare prior GDP to distorted economic metrics.
In theory, the GDP supportive historic data is all great, but how does the new distorted growth data re-shape this curve? Sorry to repost, but can this curve use geometric substitution?
Re: Chairman Ben S. Bernanke
At the Cato Institute 25th Annual Monetary Conference, Washington, D.C.
November 14, 2007
Federal Reserve Communications
Each of the participants in the FOMC meeting--including the Federal Reserve Board members and all the Reserve Bank presidents--will, as in the past, provide projections for the growth of real gross domestic product (GDP), the unemployment rate, and core inflation (that is, inflation excluding the prices of food and energy items). In addition, participants will now provide their projections for overall inflation. Both overall and core inflation will continue to be based on the price index for personal consumption expenditures (PCE).5
5: Participants will no longer provide projections for the growth of nominal GDP. These now seem relatively less useful to the public, given participants' projections for real GDP growth and overall inflation.
Re: In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. ...
No major homebuilder bankruptcies...YET.
No major bank bankruptcies...YET.
No major investment bank bankruptciesYET
No major mtg banker bankruptcies...YET.
No major credit card bankruptcies...YET.
No major insurer bankruptcies...YET.
No major hedge fund bankruptcies...YET.
No major US auto bankruptcies...YET.
If don't think any (or all) of these major events are in our near future with the credit & wealth destruction that has/is taking place in this country (see benchmarks weak $USD, record falling real estate and record oil)...then by all means....
...join the "bottom is in", ? -shaped recovery herd at your own ri$k. IMO
"Watch the food banks. Watch the charitable organizations' books. These things are unmolested and can accurately measure "how bad things get."
They're already up in my area. They've been on the upswing in my area for years, even through the "economic recovery." That's partly why I've never believed that it was real. At least, not for any but the elite.
Right now we have the Fed happily risking taxpayer dollars to insure shareholders and bondholders of private Wall Street corporations. So as the Fed balance sheet swaps government securities for Wall Street toxic waste we can expect MZM to continue its parabolic ascent. Where will it manifest itself? Likely where it is right now - inflating prices of fuel, food, healthcare, etc.
Now add the twist that the Euro block will get into the competitive currency devaluation mode as their economies slow down and pressure to reduce rates will come from the "southern states". Can the Arabs, Russians and Chinese make up for US consumers cutting back? Highly unlikely, IMO.
There's a good probability that we will see continued stagflation. Consumer getting squeezed on both sides - stagnating incomes and increasing costs for day-to-day stuff. So a scenario to consider is a global economic slowdown with increasing costs of necessities.
Maybe I'm underestimating the impact of the credit crunch. We will see.
CR,
I'm thinking the credit crunch is now of secondary importance. That's not to say it there aren't a lot of potential minefields on that front.
I think how severe our recession becomes is dependent on how much consumption in the rest of the world is effected. If internal consumption in China, Brazil, India, etc., continues to grow at a nice clip, then things might not be too bad here and most of the rest of the world will come through relatively unscathed.
But if consumption in those countries falters, then all bets are off. Commodities fall ff a cliff, everyone's exports fall, etc.
Here. So recessions do matter in that economic activity slows down, but the key point here is that there is very little difference between sluggish growth and a mild recession (my current forecast).
Granted that was 6 months ago, but I don't recall you stating that your outlook has changed for the worse.
Proponents of U.S. Rep. Barney Frank's proposal to legalize small amounts of marijuana are pointing to efforts in some states including Massachusetts to decriminalize the drug as evidence of public support for Rep. Frank's plan.
Kp writes:
Watch the food banks. Watch the charitable organizations' books.
They are singing the blues here, but I'm a little suspicious. Let's face it, they always sing the blues. Have you ever heard the director of one of those organizations say, "demand is way down from last year."
Well all I'm gonna say is this.
Cape Coral,Fl is the epitome of RE bubbles. The economy frankly "Mega Sucks". I just rented the parents last 3 rentals tonite. People have jobs here they just don't pay enough to support the needed rents. I cut the rents another 50.00 to 600.00 and they filled right up. Actually I stole em from a landlord(Bwhahahahahaahah) just up the street who was charging 950 and told them he was raising to 1050, 1May. Kinda kills all the rents around there. We are not well liked and have been informed numerous times we dont know what the hell we are doing...
I keep saying...People who have cash or access to cash and have minimal leverage are going to make out like bandits.
I have my eye on a few things,they just aren't quite cheap enough yet...
Walker, what is now U-3 (offical unemployment rate) is measured the same as in the '70 and '80s (not U-6). Yes, I agree there are probably more people marginally employed today than earlier periods. But IMO fewer hours doesn't cause the same hardship as no job. I'm not trying to minimize the impact of underemployment - it can be very painful.
Here is the BLS discussion of the changes to the alternative measures of unemployment.
This guy is holding a hearing on bear Stearns and then goes to this......
"The public is now ready for this," Rep. Frank said in a telephone interview. "I have long thought it was foolish to have these laws on the books, but now as I look at the public opinion, it's clear that this is wanted."
Rep. Frank said that although he does not support marijuana use, he believes that adults should be able to consume small amounts without facing criminal penalties. He said prosecution of marijuana charges costs federal law enforcement agencies time and resources. Rep. Frank, who said he has no experience with marijuana, added, "I think marijuana is less harmful than alcohol."
WOW! I thought the public was ready for Paulson to be busted...
Proponents of U.S. Rep. Barney Frank's proposal to legalize small amounts of marijuana are pointing to efforts in some states including Massachusetts to decriminalize the drug as evidence of public support for Rep. Frank's plan.
More reasons to go long John Deere - and how soon until we get Ganga Futures?
"They are singing the blues here, but I'm a little suspicious. Let's face it, they always sing the blues. Have you ever heard the director of one of those organizations say, "demand is way down from last year."
I talk to a guy who buys food from the local food bank and runs his own food distribution program through a local church; you get in only if you were referred by county welfare.
His custom has been climbing steadily for years, and it's gotten a lot bigger this year; 150 a week. He's funding half of it out of his own pocket and, though well-off, he's starting to feel it.
CR,
Sorry if someone has already gone over these points.
Prior to this recession we have had a basically job-less recovery from the last recession. The Birth/Death adjustment is being "adjusted" to make the numbers look much better than they truly are. As well, many more people are under-employed than in the past (settling for part-time or lesser jobs). The Jobs picture is MUCH bleaker than it looks and it is getting worse.
I'm going with NR on this one - U or W. Not light and not the end of the world.
Peace.
They're already up in my area. They've been on the upswing in my area for years, even through the "economic recovery." That's partly why I've never believed that it was real. At least, not for any but the elite.
Bob Dobbs | Homepage | 04.07.08 - 7:51 pm | #
Bob,
I am going to guess a lot of companies did like mine did...No/minimal hiring during the last few years. All expansion was overtime. Yes we had a shitload of six figure drivers but I was informed last week we could pull back another 30% and not have a single layoff.
The company will just cut ot back.
We also have a LOT of people leaving this year(retirement). I am 41 and only 2!!! people in the building are younger than me(60 employees).
I expect 2 million job losses this year alone. That is only 1 out of 15 employees. I can easily see most companies getting rid of 1 out of 15, not just the companies that are hardest hit.
Many of these losses will come from the service sector.
I also expect this recession to last at least 18 months. With all the "help" the goverment is giving it is prolonging the cycle.
Calculated Risk writes:
SweetHomeKilla, I've been consistent: Severe = 8% plus unemployment.
I don't see it.
I couldn't find it now, but Krugman makes the point somewhere that job creation recently has been much weaker than in earlier periods that were punctuated with recessions. So it may not be realistic to assume that a severe recession has to necessarily involve 8% unemployment in this period. But I have to admit I'm not sure what "severe" would mean in the present case?
Dryfly said: But it will take time - if you think its slow ramping up residential RE then compare it to building a new steel mill or chemical plant - half decade or so.
Not as much time as in the past. Northrop is gearing up to produce A330F's in an abandoned McDonell Factory. It will be retrofitted at a rapid pace.
Interesting times: In the same boat... there is zero signs of a turn around coming.
Other than printing money, I do not see any real change to the economy or its infrastructure.
I'm seeing aerospace manufacturing being sent over from Europe. Many of the plants are simply going to 3 shift operations to meet demand. Yes, quite a bit of equipment is being bought too.
So there are positive signs out there. They're just too small to matter (yet).
I believe the old quote here was "I see debt people." Until that debt is purged from the system...
In 1998 the default on Russian debt led to the collapse of LTCM. Lately we have seen BSC go bust, major currency weirdness on the Icelandic kronar, wild commodity fluctuations, imploding home prices, about 248 major US mortgage lending units gone kaput, and the fall of Britney Spears. All these wild market gyrations and things seem to be ok. Either absolutely none of any of this stuff means anything, or this is the biggest delusionary period in history. Interesting either way.
In the biotechnology/pharmacuetical space that I have a ton of experience and contacts in, hiring is basically frozen and lost positions are not being replaced. Spending has gone way down, my group alone had our budget cut 20% for this year. For what its worth.
Unrecognizably amazing. Computers will be intermediate communications completely. The web will be in our brains and we'll be reading CR sans hardware, keyboard, or mouse.
Energy will be too cheap to meter. We'll have something close to a Star Trek economy with leisure filling most of our waking hours.
Not sure what the 3rd world will look like but I bet more like South America than the disaster it is now.
We are allowed to mine and use the available coal in this country.
We get cracking on Nuke reactors and start reprocessing freakin waste to reuse...
BTW, I just saw Japan had a bid put forth for the latest generation reactor of something like 1.3B for four!! reactors. This stuff just doesn't happen overnight.
Define 'economy'... is it 'stuff' or 'activity'? And if it is 'activity' does it have to 'mechanized' or can it be 'manual'?
I think there will be a lot less stuff made in 50 years but way more activity - some of that 'more activity' will be increasingly manual due to high energy cost & resource scarcity.
Also 'manual' doesn't mean low skill or stupid or poorly paid... I can see farming being a lot more 'manual' but even more 'technical' than now... think 'micro-optimized' for maximum resource efficiency.
Same with mfg and re-mfg (which will be bigger than new product mfg in 50 years and regional if not local (as opposed to 'global')... when you want a new washing machine you turn in your old washing machine at the same time you walk out with a 'new' one... they then completely re-manufacture & sell to somebody else. Designs will be 'global' but the build & re-build will be local.
There is a lot of activity in a model like that... is that a 'weaker' or 'stronger' economy? I say stronger.
I'm going to go for an amorphous recession, because no one has said that yet
CR, I pretty much agree with your forecast, but I've developed a "Roubini Multiple" that says you take whatever he says and multiply it by .6792 to be exact. For example, on his recession call, if you use the multiple, you'll come out with December 18, 2007. Now he's saying 18 months at the longest. Use the multiple and you get 12.2256 months at the longest and 8.1504 on the brief side, which just so happens to coincide with my prediction.
There will be no W as the checks are going to only cause a slight slope change in an otherwise descending function. And unemployment will crest just over 6% in my view. Again, I'll say that the overcapcity here is not inventory as is usual in recessions, but excess money and credit. The business cycle reset this time has to do with what is happening with the money supply, and it is shrinking. It has to shrink more and that is going to take at least a couple of quarters more. I expect cutbacks in the retail segment, but like dryfly, I expect manufacturing in other areas to more than make up for that. From where I sit, I can see that happening. Financials are doa until next year, btw, and when someone says anything about contruction, builders, or RE, just say "forgeddaboutit". Come back in 5 years.
I vote (C). Unfortunately, I envision a nuclear disaster at some point in the next few decades. Not a holocaust, but at least one major city somewhere in the world suffering a catastrophic hit. There is too much nuclear material that is unaccounted for and too many nuts willing to use some of it to further their ends.
A disaster like that will usher in a new age where individual rights are secondary to security. That will result in a consolidation of economic power by the state and will lead to further economic misery.
I wonder if a measurable percentage of the population is simply not resourcefull and informed enough to actually go to the unemployment office to be counted in the statistics(please correct me if you are counted for some other reason). I also wonder if this percentage has increased over the last 30 years.
A disaster like that will usher in a new age where individual rights are secondary to security.
Oh so you saw "V for Vendetta". Perhaps you should start to cash in by making those nifty Guy Fawkes masques. Did you know that he beat the whole drawing and quatering nastiness by jumping off the hanging platform and breaking his neck before they could revive him to yank his insides out while he was still alive? I admire that.
I completely agree with your points regarding more utilization of human labor and harnessing the huge efficiency improvements available by simply embracing repair and reuse. I very much look forward to these progressions.
However I think we'll be doing these things with a smaller global population.
WW III will reduce the population by that much. China tries to take Taiwan (to distract their starving population). US retaliates (to distract our population).
We lose large metro centers on West Coast (LA, SF, SD, Seattle), large portion of Pacific Fleet. They lose Shanghai, Beijing.
BTW, the BOE will cut rates again, to be followed by the ECB before summer. That is going to stop the dollar slide and I predict the Euro will top out around 1.64. And if you think the Euro is going to be hot by the end of the year, you've got another thing coming as the EU slows down after us, and the RE issues start to crop up there as well. Oil will not recede until after the summer driving season begins, but the slow-down here and elsewhere is going to sap demand just as the dollar starts to strengthen again. Oil will fall back to beneath 60 a barrel by the end of the year.
I'm on a roll! And remember, when Roubini blows a prediction, it means his whole life's work and education is suspect. When I blow a prediction it just means I should get another hobby
The Chosin Reservoir is embedded in our national militarische psyche nearly as deeply as Stalingrad is in the Germans'.
300 million people simply can't tell 1.3B people what they can and cannot do within their own sphere of influence, no matter how many superfly stealth aircraft, UAVs, and littoral combat ships we pump out.
Cobradriver
Bad news on the reactor front. The US sold its two reactor companies to Japan. Toshiba owns Westinghouse and Hitachi owns GE. The French are the best.
Lots of opportunity here for third world manufacturing. Can you pound iron?
We'd better hope that no one seals our burger flippin' technologies.
Lots of my high school friends worked at burger manufacturing plants.
Also, months ago, on this very blog, I called for the legalization and taxation of The Bubonic Chronic (with laws to keep the manufacture and distribution at a cottage level, so that the corporate criminal f*cks don't get their nicotine-stained fingers into the brownies).
If we are going to have a new bubble, this is it.
There should be little or no stigma involved in the cultivation and use of this ever-so-beneficial vegetable.
One thing that the article and CR fails to mention is that Japan had a booming export economy (compared to the rest of the world) all through the 90's. This did not limit job losses in the corporate and service sectors. Also we are assuming that no other country will compete with the US on product or price. Also some fail to recognize the wage pressures on the existing manufacturing sector which still may send jobs elsewhere. CR I respectfully disagree with you. I see a long deep recession and a slow recovery.
The Education Resources Institute Inc, which calls itself the largest not-for-profit guarantor of U.S. private education loans, on Monday filed for Chapter 11 bankruptcy protection, saying rising defaults and credit market problems have damaged liquidity.
The company, known as TERI, filed for protection from creditors with the U.S. bankruptcy court in Boston, where it is based. It has more than $1 billion of assets, and between $500,000,001 and $1 billion of liabilities, court papers show.
IMF plans gold sale to raise $6bn that will be used to buy US government and corporate bonds to generate income and plug a $400m shortfall in funds that is projected over the next two to three years.
It follows a decision last month to move voting power away from traditional industrial powers including the US, the UK and Germany to powerful emerging countries, including China, India and Brazil, which are playing a growing role in the world economy.
How does: a massive contraction in credit, consumers (70% of the economy) making secular changes in spending patterns, government already running a huge deficit, etc. etc. = MILD recession? Seems very naive.
Note: Exports are not a large % of the economy and will tail-off. Also, when talking about current job losses and in the future realize those statistics do not capture illegal immigrants (+10mn)!! Job losses among this group are undoubtedly very high.
Cool. Glad someone is doing it. Best to ya.
PrintFaster | 04.07.08 - 8:55 pm | #
Hey I'll say this. Nothing like having a really shitty day and then saying "That bolt looks rusted". Break out the torch. Big hammers. Bigger hammers. Sledges. Nothing like a bunch of fire to spice up the day.
And if that fails we get the water balloons outta my toolbox and make...
OXYACETYLENE BOMBS.
Yes I am nuts.
Chris
I sill can't believe the parents did't shoot me growing up...
I just dont see the decoupling happening at all. You can pretty much bank on it that once the US really starts pitching down, which Id say, is right around now, soon to follow will be Japan, which is already on the brink. Add to this the UK and Spain, which are going to crater just like the US as their housing busts are in full motion now. That's 50% of GDP right there. And you can bet that when US, Spain, Japan, and the UK are in trouble, the rest of the EU is going to feel it.
"I am thinking of cashing in when interest rates rise to 12 percent by 2009."
I would give you ten to one odds that 12 percent will not happen. The banking system, and society for that matter, simply could not handle it. The fiat system woud collapse.
Whenever I hear someone talk about imminent, U.S. double-digit interest rates, I realize how clueless they are about the severity of what we are currently experiencing.
I just don't understand your call for a mild recession (with mild unemployment).
You and others have illustrated that this was a historic housing bubble, and that it is popping. You have cited studies (Baker?) indicating that housing is a key (if not THE key) driver of economic cycles.
More important, in my view, the implosion of a historic credit bubble (extending well beyond housing alone) cannot possibly have a mild downturn as its consequence.
I'm with tj & the bear in thinking that this will be much more severe than anybody is envisioning.
Add to this the UK and Spain, which are going to crater just like the US as their housing busts are in full motion now.
I really hate to sound like seb but, by the numbers, we aren't cratering in the US, not by a long shot. The numbers, ex-financials, aren't really bad yet. Unemployment isn't bad, there is contraction but not bad, RE issues are regional, and retail is off, but not spectacularly. In fact, everything is just looking blah, but not really in a funk. I would have expected to see more on the downside in the numbers by now. That's why I'm on the shallow but longer side. Everyone keeps preaching doom, but it isn't happening. Yet. I don't have one of them crystal balls either, so that's why I'll say yet.
I think the worst thing to happen to the American people is how the lobbyist/wall street/congress complex and elitists pseudo intellectuals complex have divided us.
Dwight David Eisenhower warn us about the military industrial complex.
We now have two additional complexes.
The lobbyist/wall street/congress complex steals our money for their benefit.
The Elitist pseudo intellectual tells us how they want to spend our money.
Both are self centered and forget the needs of the whole.
OT - Back to rental housing issue:
We heard from Denver a few posts back about their lack of affordable rental housing. Conn. is having the same issue. While some areas of the country may find a glut of rental housing, in a lot of areas that's just not the case.
You and others have illustrated that this was a historic housing bubble, and that it is popping.
But short, I have to say that the bubble popped here in August of 2005 and we're now below 2003 prices and heading down below 2002. And the local economy is pretty good. No evidence of catastrophe. Stores are a bit slower, restaurants a bit less crowded, but overall, not much evidence of what people say on here. We'll see how the summer tourism goes, but I can already tell you I see more Euros around than usual. So if the Americans stay home, we'll get Euro-dollars it looks like.
So I don't know what to say. I'm just not seeing anything on the ground on the order of what people here seem to say.
The damage is being done at the banking infrastructure right now. Give it time.
Just like cutting interest rates take almost a year to be felt in the real economy, the credit freeze (or crunch as MSM puts it) will have a major impact.
(and remember, Bridgeport is one of the poorer cities in the state)
Outsider | 04.07.08 - 9:18 pm | #
Outsider,
Any chance down the road FC's get turned into rentals?? Everybody here is Florida is a Landlord! now. Frankly it sucks for the people who have been at more than 1 day. Newbs really try and screw over renters. I have helped more than one tennant get a substantial deposit back.
the severity of this recession will have nothing to do with whether manufacturing holds up. The service economy is crashing and the loss of jobs there will be depressionary
As Christina Ricci said in the Addams Family movie, when asked why she was dressed like somebody had died,
"Wait".
I'm not trying to be the ultra-bear here. I just really do think it will take time for the job losses to hit. They are starting in earnest right now. No way our export industries can overcome the loss of service jobs (and poss/probably government jobs too). As someone else pointed out, there's a bit of manufacturing overcapacity in the world right now.
Marcus, you know in my heart of hearts i'm on the bearish side. And I realize the debt problem, but honestly, if people buy less cheap imported crap is that an issue? Less flat screens? A cheaper car? No Hummers? Less airline travel and 10k vacations to Disney? Less chain restaurants that use imported help anyhow?
Isn't this what is supposed to happen? The business cycle will reset as people spend less and payoff debt. In fact, they'll just create less debt by spending less. It won't even come out of real money. I'm not sure this is going to be as broad-based as people think.
Earlier comment by PrintFaster regarding the impact of a continuing trade deficit and the response by CR...
Put in its best light, the future of the trade deficit can only be described as "less bad." Excluding petroleum, the 2007 deficit was $0.5T, based on January 2008, it appears that the 2008 deficit ex-petroleum will be ~$0.35T. It is unlikely that the petroleum trade deficit will be much different than last year, about $0.3T.
Even though the rate of the deficit is dropping, the cumulative amount is still increasing at about $0.7T/year or ~$7,000 per US household. This isn't a one-time cost, it's the nominal amount year after year after year.
We've made a very uncomfortable bed for ourselves, but it's the one we'll have to sleep in for a long time to come.
Are you so sure treasury yields cannot go to double digits because you know that the fed will support treasury prices or because real demand will never falter?
ipodius - someone is impersonating your name. I'll pretend you're serious
The thing is I keep waiting...for Godot it seems. Things just keep limping along. First the financial sector was going to blow and western capitalism was doomed. The Fed stepped in and that was that.
Now we're expecting the consumer to fall. But evidence is that the fall is just a trip and stumble. And payback? What that means is a lot of writeoffs against profits, just like what has happend so far. And CC debt defaulting is not going to be anywhere near what housing has done.
So we'll see. But I'm thinking this is going to be shallow too. At least by the evidence so far. It could change. I'll just have to be alert.
Maybe you should look into units there?
Outsider | 04.07.08 - 9:27 pm | #
My mom and dad have been at the rental game since they sold the last of the farmland.
Rule number one...
All rentals local.
It's enough of a bitch to keep up and they are only 20 minutes away. I can not imagine trying to run something myself from that distance.
My dad and I got many a laugh from watching "Flip this house" and the out of staters buying single/small properties. I probably wouldn't want anything less than 50 units in one location out of state.
All I can say is I hope CR is right....and that Roubini multiplier Theory sounds good. Couple that with CR's call for some optimism in new housing numbers (reducing inventory etc), mp's call for a bottom in Financials, ECB soon cutting rates (watch for a monster rally in both stocks and dollar on that one) and damn.. Seb may be off but not by much.
Hoocoodanode?????
Personal opinion: I think Roubini is a very smart guy and I have been following his comments. He has been almost dead on on quite a few things. As CR indicates clearly - and I agree - this is a Consumer led recession. Businesses (mine included) have only now begun to feel a little squeeze (one of our board directors is at a big 3 consulting firm - he says business has never been better - record Q1 at consulting). Layoffs are coming. layoffs = even lesser spending (Cascade down). Analysts are still overestimating Q2, Q3 and Q4 EPS numbers - look for nasty surprises this earnings season. Oracle and Alcoa are the harbingers of what's to come. I will be very, very surprised if this recession ends by this year. If it does, as CR predicts end then the time to get into the stock market should be around May or June. The market will predict who is right - CR or Roubini almost 6 months ahead. CR, I am rooting for you.
I'm not trying to be deliberately argumentative, ipod, but
The business cycle will reset as people spend less and payoff debt.
By all accounts wages have been holding still or in retreat for some time. Credit has been used just to maintain. So spending less (even if it's credit) is problematic.
Where does the "payoff debt" come from?
When "outsourcing" first reared its ugly head, I saw the eventual outcome. My thoughts then were, "when you brainiacs have accomplished this marvelous feat of innovation (and farmed all the jobs overseas, how are people going to pay for all this fine new junk?"
I guess easy credit was the answer and that appears to be all spent up.
This is a global ponzi. If we go down, they all go down. The global banking system is so inter-twined that if a few international banks collapse simultaneously, the system might fail.
We will have low interest rates globally until the fragility of the system is stabilized. Lower yield rates will to a certain extent uphold asset prices and buy the system time for an orderly unwind.
Calculated Risk, I think that the differences in perception are largely due to the question of whether there will or will not be wider war. There's a misperception that war is good for the stock market. War tends to accelerate spending into the present, which produces higher earnings and temporarily higher stock prices. But it also produces distortions in the economy that cause long-term damage to the market. Failed wars like Vietnam are especially bad for markets.
If the US were to close down shop in Iraq over the next year, I think the economy would dodge the worst damage. But there is a very high risk that the US will widen the war to Iran. If that happens, there will be serious damage to the economy, with inflation likely to increase into the danger zone. A U-shaped is probable and an L-shaped recession is not impossible.
With the prospect of war as the major factor deciding the future of the economy and of the market, uncertainty is at extraordinary highs. I lean toward pessimism now, but if someone could persuade me that war with Iran is out of the question, I'd be much cheerier.
I am more and more convinced that the general public is picking up on what is happening. More and more people volunteer horror stories about business dropping off suddenly and drastically. Layoffs are spreading. Panic is starting to show in the faces of friends and neighbors. The next sixty days are going to be grim.
How Ironworkers Solve Problems: Get a bigger hammer.
The fitters I knew must have had bigger problems than yours... they often resorted to cheater bars & come-a-longs too... BF cheater bars & MF come-a-longs.
while CR does an excellent job analysing domestic US economy (esp the RE part) his grasp on world economy leaves much to be desired.
The credit crunch has affected largely, so far , the US financial market and the broader economy. But the credit bubble/asset bubble has been rampant worldwide and its roots and effects have been very deep. The progression of the bursting bubble will, in time, throw the entire global economy into a swoon...even a global growth of 2% would be a great achievement.
Once seen in that light, it is easy to see why a U/L type recession is very likely...
I did some plumbing in college (mostly upgrading 100+ y.o. boiler systems - talk about some stuck nuts and cheater bars). Always in demand. Maybe I'll end up there again.
Heh, when I drilled water wells for a summer we used a very large pipe wrench that was powered by a large hydrolic(sp?) ram. Had to watch out when that thing would occasionally spring off the pipe.
CR
several points
1 From Doug Noland
"
No substitute
Government backing of our debt does not substitute for a sound economic structure. And it is the current structure that is incapable of the necessary economic output to satisfy domestic needs and to generate sufficient exports to exchange for our huge appetite for imported goods and energy resources. Todays services-based economy will no longer suffice. Examining last weeks job data, one sees that 93,000 "goods producing" jobs were lost in March after dropping 92,000 in February and 69,000 in January. At the same time, Education, health, leisure and hospitality jobs increased 178,000 during the first quarter. Yet it is more obvious than ever that we need to consume less and produce much more."
ATIMES
2.Do you have a good hold on the number of undocumented workers? And do you have a good hold on the number of undocumented no unemployed.
Are these then not shall be say the undocumented unemployed. Does Labor Statistics have a way of correcting for them?
If not then your data has a reasonable sized level of uncertainty in it and should be presented with an error bar, confidence limit etc.
3. I know the NBER is the declarer of recession, and I know nothing about them. But how much is their definition updated for our current economic structure. For instance Elizabeth Warren posits that in a two income family the loss of one income devastates and de facto puts the family into recession. What about the family that has gone to the wall trying to get the mortgage paid and failed. Does this not have a severe effect on their finances as the loss of job? Etc Etc.
plschwartz - doug noland of prudent bear has been calling the excesses for what they are for a very, very, very long time. He is a very smart man - so is this guy
What is needed is a more nuanced look at the problem then just a raw number.
Krugman gas a piece on using a difference measure "U6" as more applicable here.
And of course I trust nothing coming from this administration.
There is going to need to be a fumigation of Bush appointees clear across the government.
And many are probably tenured civil servants by now.
Luckily they have least seniority. So maybe the next administration can open branch offices in say Gitmo and Fairbanks and transfer them there
The FDIC has added 60% to their staff that handles bank failures. They are preparing for a bust in that sector, which indicates they think this recession is going to be serious. If banks start failing, it could mean a protracted recession.
I don't care how long the recession lasts, just so it lasts long enough that my irritating neighbor loses his job and has to move. I'm voting for McCain just to make him mad and burn my trash in the open to give his enviro-heart a nice burn.
But I always get it wrong. Sold my tech stocks two years early, sold my rental houses way back in 2004. Sad to say, am sitting on a pile of cash when interest is near zero and only sufficient Campbell's soup to last a decade without income and so old the soup is likely to outlive me.
Woe is me. well..at least I like the other neighbor.
It will be "O" shaped, as in O My God! This is really bad and it's lasting a long, long time!
And as in, the circle is complete: boom, bust, boom, bust. Lower and lower at the end of each cycle while the rich build higher towers and point more guns over the parapets.
The only way a war with Iran would be financed is through hyper-inflation leading to ultimate cataclysmic collapse of the entity known as the United States.
"But to say this will be the "most severe recession" in decades suggests job losses - and a corresponding increase in the unemployment rate - that I don't see on the horizon. The good news is that manufacturing employment is holding up better than usual in a recession due to a combination of a weak dollar (strong exports) and relatively strong global growth."
But strong global growth is going to hit the wall. Britain is a year behind the U.S. in terms of a collapse in housing, and France is about two years out (meaning it's just starting in France). So while the U.S. benefits today from strong global growth, that won't be the case in a year, weak dollar or no weak dollar.
I believe we will have an L shaped recession. This is due to an imploding massive debt bubble that has taken decades to build.
I agree that we have not seen the full strength of this recession and I believe this is due to the lack of layoffs because of overly optimistic business managers.
I hope I'm wrong but I think this is equivalent to 1990 JApan or 1929 US.
Deflating debt bubbles lead to long recessions and bear markets.
dryfly writes: The fitters I knew must have had bigger problems than yours... they often resorted to cheater bars & come-a-longs too... BF cheater bars & MF come-a-longs.
Son, bring me the "gentle persuader." - My dad circa 1969.
W-shaped at first, but with no real recovery. It'll go up and down, with each peak being lower and lower until America is reduced to 2nd-rate status at best. Assuming politicians "help" and continue their subversion of the law of the land (maybe we can get the Amero, open borders to let in even more illegals, etc.)
IMF Says Financial, Economic Losses May Swell to $945 Billion
By Christopher Swann
April 8 (Bloomberg) -- The International Monetary Fund said financial losses stemming from the U.S. mortgage crisis may approach $1 trillion, citing a ``collective failure'' to predict the breadth of the crisis.
Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released today in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.
The forecast signals the worst of the credit crunch may be yet to come, because banks and securities firms so far have posted $232 billion in asset writedowns and credit losses. Policy makers, concerned that lenders' deteriorating balance sheets will hobble economic growth, are pushing companies to raise capital.
The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,'' the report said. The fund warned of the risk ofa serious funding and confidence crisis that threatens to continue for a significant period.''
Today's report comes days before finance ministers and central bank governors from the IMF's 185 members gather in Washington for spring meetings of the fund and World Bank. Group of Seven policy makers meet April 11.
Casting Blame
The fund, which predicted a year ago that any ripple effects from a subprime mortgage crisis would be limited, blamed lax regulations and a lack of understanding about the risks in structured financial products for the crisis.
Today's estimate exceeds those by other economists, including analysts at UBS AG, who projected in February that financial firms may lose $600 billion.
While financial innovations have brought some benefits, the events of the past eight months have also shown that there are costs,'' the IMF said. At the same time, the fund urged governments against a rush to increase regulation, especially changes thatunduly stifle innovation or that could exacerbate the effects of the current credit squeeze.''
Banks should improve disclosure and take writedowns ``as soon as reasonable estimates of their size can be established,'' the fund said. It also urged stronger supervision of capital adequacy, and said policy makers should prepare for further disruptions, the IMF said.
`Contingency Plans'
``Authorities may wish to prepare contingency plans for dealing with large stocks of impaired assets if writedowns lead to disruptive dynamics and significant negative effects on the real economy,'' the report said.
The fund added that policy makers should ``stand ready to promptly address strains within troubled financial institutions.''
Federal Reserve officials prevented a disorderly failure of Bear Stearns Cos. last month by agreeing to lend against $30 billion of the company's assets, as part of a takeover agreement with JPMorgan Chase & Co.
The fund noted in the report that while risks to financial stability remain elevated'' worldwide, emerging market economieshave been broadly resilient.'' Still, the lender highlighted the risk of faster inflation should the subprime rout cause the dollar's slump to accelerate.
Further downward pressure on the dollar, particularly if it'' comesfrom subprime or similar shocks, could boost liquidity and lead to an intensification of inflationary pressures in some emerging markets,'' the fund said.
Strauss-Kahn
IMF Managing Director Dominique Strauss-Kahn, who took office in November, has conceded that the fund wasn't as vocal as it could have been about the risks that a subprime collapse posed for the global financial system.
In April 2007, the fund said there was little risk of a serious systemic threat.'' It also said thatstress-tests conducted by investment banks show that, even under scenarios of nationwide house price declines that are historically unprecedented, most investors with exposure to subprime mortgages through securitization will not face losses.''
At least 14 banks and securities firms have sought cash from outside investors in the past year.
Since credit markets seized up in the U.S. in August, the Standard & Poor's 500 stock index is down about 7 percent, the trade-weighted dollar index has dropped more than 9 percent and the yield on two-year U.S. Treasury notes has fallen to 1.88 percent. Home prices tracked by S&P Case-Shiller have slumped in every month.
``There was a collective failure to appreciate the extent of leverage taken on by a wide range of institutions -- banks, monoline insurers, government-sponsored entities, hedge funds -- and the associated risks of a disorderly unwinding,'' the IMF concluded in the report.
To contact the reporters on this story: Christopher Swann in Washington
The only way a war with Iran would be financed is through hyper-inflation leading to ultimate cataclysmic collapse of the entity known as the United States.
Original Frank, I doubt that a tax rise would stave off the damage from war with Iran. War with Iran is a very big deal, much bigger than most people seem to realize.
In addition to the price of oil and the effect on our economy, there are other things to consider. Probably the most important is our army, which is stretched very thin, at the end of fragile supply lines. It wouldn't take too much to sever those supply lines.
If our army is seriously occupied, there are a lot of other regions in the world that would like to settle matters. China with Taiwan, for example. By the time we extricated our army, the world might be a very different place, and our power would be greatly diminished.
We Americans are so used to being the big kid on the block. But we've squandered our strength and created a lot of enemies.
I guess Roubini wasn't paying attention to the 1990-91 recession, when the entire U.S. banking system was valued as if it were bankrupt--and an entire sector (thifts) essentially disappeared.
All this "worst crisis since the Great Depression" talk makes me think of the tallest lilliputian standing next to Gulliver...
There is some validity to your concern with overextensions, of course. Time is an enemy of success on the battlefield and it would take substantial time to reposition Iraq-based forces to address emergencies elsewhere. Perhaps time we wouldn't have.
However, the assertions that
1) it wouldn't take much to sever our supply lines and that 2) we could not attend effectively to crises elsewhere do not match well my acquaintance with US military capabilities. Short of nuclear strikes on Iraqi ports, I see little that would be able to effectively hamper our supply lines. And even that would simply raise the cost as we shifted more logistics to air.
China/Taiwan could be reasonably dealt with with US (or Japan) based air strikes on invading assets. The strait makes a nice targeting background for ALCM. Several standoff carriers could easily provide effective air (and anti-surface) support for the entire island. Granted, I am not plugged into senior military strategists but I wouldn't expect that there are many war plans dependent on placing sizeable numbers of troops on the ground in either Taiwan or ML China.
On the other hand, I agree with your perception that our commitments and the threats to our country outsize our current force levels. Time to undo the Bush I and Clinton 'peace dividend' and return the force structure to a size appropriate to the times.
It looks like Roubini was right about the severity. An L shaped recession is a big question mark, I think Roubini is leaning towards a U shaped recession.
It wont be that bad.
Definitely "W" shaped.
heh heh
I tend to side with Roubini on this.
Housing, Auto and Financial industries will or has drug every sector into the recession hole. We have never seen all three blow up together. I see the Bernarke put as the only good news.
Of course I'm short the market right now so what do I know!
I see a Z shaped recession. We will plunk along for a time in a straight line, then we will actually travel backwards in time once the super-collider the Europeans are building opens up the space time continuum this summer. Then we will continue to plod along economically until the Tulip Bubble comes along and spurs "economic growth".
Or maybe not...
I think we could very well see gains in manufacturing employment in the near future, but they will be swamped by losses in the service sector. From the low margin retail and food service sectors to the high margin Wall Street parasites.
Except for lawyers, of course.
I'll go with an I shaped recession..straight downhill
Judging by Rosengren's surprise at the lack of a housing turnaround, I see a pee-shaped recession.
First of all, I hate stupid generalizations(shape of recession as a letter, wtf).
And the recession could be severe if manufacturing contracts sharply
The recession can(and will IMO) be severe no matter what happens to manufacturing.
We really should collectively come up with some definition for "severe", so those of you saying we will not experience a severe recession cannot wiggle your way out of admitting you were wrong.
Of course I think CR has the integrity to admit when he is wrong. I will certainly admit that I am wrong if it doesn't turn out to be severe(actually I'm predicting an extended depression).
BTW, it seems CR's forecast has shifted ever so slightly from "mild" to "mild that doesn't feel so mild". Is that getting pretty close to a "normal" recession? Whatever that is...
I'll vote for a staircase. See the
opening paragraph of Winnie the Pooh.
I guess the Wile E Coyote shape is already taken.
cd, what's your target on the S&P?
OT: Anecdotal Inflation Alert:
Checkout lady at Wal-Mart this morning said everything in the store has just been marked way up!
She said socks she bought yesterday that were $5 are now $10.
I think we could very well see gains in manufacturing employment in the near future, but they will be swamped by losses in the service sector.
IIRC, isn't consumption 90% of GDP now? That's expecting a lot from the manufacturing sector.
I think we could very well see gains in manufacturing employment in the near future, but they will be swamped by losses in the service sector. From the low margin retail and food service sectors to the high margin Wall Street parasites.
As bullish as I am on US mfg in a cheap dollar environment - I fully agree with your analysis.
Mfg will help deaden the pain but it can't save the patient.
"But to say this will be the "most severe recession" in decades suggests job losses - and a corresponding increase in the unemployment rate - that I don't see on the horizon."
CR, I think we're already at a fairly high level of unemployment and underemployment, perhaps concealed by credit, HELOCs, increased numbers of contractors and so on. I think that a moderately robust-looking workforce is actually made of cardboard, and might collapse in size faster than conventional wisdom might conclude.
I like this article on Krugman's blog about labor market deterioration and the U6 number, which measures unemployment and underemployment: it's at 9 percent.
Labor market deterioration - Paul Krugman Blog - NYTimes.com
CR,
Do I understand you right that your (only?) arguments that the unemployment would not be severe is the weak dollar and global growth? What if the US recession spreads to the rest of the world which (at least for the developed countries) was the rule and not the exception during the last economic cycles?
Checkout lady at Wal-Mart this morning said everything in the store has just been marked way up!
I get mfg mat'l price alerts from purchasing.com (trade rag) and they have ALL been going up - stuff imported the most.
We will see a W - tracking the sub-prime, Alt-A, and Option ARM resets, but there will be no up leg to complete the W.
We're going to be flat from 2012 until 2020, as there will be no new bubble and the global economy will stop funding our deficits.
No soup for us.
Tanta - I think this was an important part of Roubini's argument you left out. This is a big part of his reason for a severe recession: "In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. The US consumer is shopped out, saving-less, debt burdened (debt being 136% of income) and buffeted by many negative shocks: falling home prices, falling home equity withdrawal, falling stock prices, rising debt servicing ratios, credit crunch in mortgages and increasingly consumer credit, rising oil and gasoline prices, falling employment (now for three months in a row), rising inflation eroding real incomes, sluggish real income growth." My comment is: Can 10% of our economy (manufacturing) support the 70% of the economy that relies on consumer spending. We all pretty much work in the service sector anymore and the strip malls across the country are our factories.
SweetHomeKilla,
If you want firm predictions, give me a metric. Job losses? Income growth? Length until NBER calls an end? Which way do you want to measure it?
No soup for us.
Marcus Aurelius | 04.07.08 - 7:03 pm | #
Stone soup.
Sorry I meant CR. Cheers
Whichever letter wins, I have serious doubts that it will be a W based on the $600 payments. It may be a W, but that won't be the cause.
"honey the $100,000 heloc is gone but Mr. Bush sent us $600 so everything is ok once again. Book the suite in vegas"
When I was young the celtics were great. It was a given that the Celtics would always be great. Then they sucked for 15 years. Now they are great again. I think the American consumer is like the late 80's celtics when Larry Bird started getting back spasms and Robert Parish was getting arrested with large amounts of weed. And then, in perhaps the best example of the American Consumer in 2008, there was an economic stimulus. The Celtics drafted Lenny Bias, one of the most exciting players I've ever watched. It was just the sort of luck the Celtics had. God smiled on them. Like God has smiled on the American consumer. Lenny Bias signed a huge sneaker deal and the Celtics were guaranteed success for another 10 years. And then he od'ed on coke.
The american consumer has od'ed. Stick a fork in them. They are done.
It was one hell of a run.
A global slowdown is being created so expect the US to be pulled down by other countries, kind of like a collective group of anchors falling off a ship.
If the recession turns out to be "severe," with whatever the consensus on severe is, I'll admit to being wrong. If we dip down and then start pulling out of it in 2009, that ain't that bad. And if we get the uptick this year and dip down and start pulling out of it in 2009 -- the W option -- well that really isn't too bad at all.
"The good news is that manufacturing employment is holding up better than usual in a recession due to a combination of a weak dollar (strong exports) and relatively strong global growth."
First of all the world has a bit of manufacturing overcapacity these days, the USA export business is very AG driven, other then that exactly what manufacturing products are we going to export and to whom, looking at the JP world GDP chart we are the prime world spot for those wishing to export into, not so sure there are big export markets to tap.
JPMorgan share of global GDP:
US: 30.5%
Japan: 13.5%
Germany: 5.6%
China: 4.9%
UK: 4.5%
France: 4.0%
Italy: 3.2%
Spain: 1.9%
Brazil: 1.9%
India: 1.7%
I see a (!) recess... uh... whatchamacallit.
Used to be fun, then the financials started smelling fishy. The only thing left is the stink at the black hole.
Where's Neal's popcorn?
"Weak end markets in North America and Europe are not affecting the overall strong aluminum fundamentals," said Chuck McLane, Alcoa's chief financial officer, speaking on a conference call with analysts after the company released its earnings report.
Would strong end markets affect the fundamentals?
Nothing to see here, move along please.
It won't be G-Shaped... The Maestro had nothing to do with it.
The Fed is blameless on the property bubble
FT.com / Comment / Opinion - The Fed is blameless on the property bubble
Nanya- 1300-10 range
disclaimer-Software VP = unqualified opinion..
I am partial to "R" myself.
This looks like 1930 or so, but Bernanke is playing it much differently - although congress seems to be doing its best to be Hoover.
The conceivable externalities are too numerous to mention, little less factor in, and very important. Pakistan still has a bomb after all...and that is not a particularly high probability event.
If you want firm predictions, give me a metric. Job losses? Income growth? Length until NBER calls an end? Which way do you want to measure it?
I have a lot of ideas, but no good answer to this question.
Certainly using the governments definition of real GDP is not such a great metric, since the GDP deflator has been consistently understating price inflation.
Anyway, I really don't like using GDP at all, since GDP can be growing and "unemployment" can be low while real incomes are declining. However we have to stick to something that is at least measurable.
This will be the worst recession in US history. The biggest problem that we have now is that we have no statistics that anyone can trust. For example unemployment. They now remove people from the unemployed list who run out. What they used to do is extend unemployment benefits, up to a year and half in some cases. Today these people go into the bit bucket. We could have 40% unemployment and the unemployment figures would still show 4.9%.
So for the shape, I am saying that manufacturing is no hope. The problem is that manufacturing needs customers and the customers are broke. Manufacturing needs capital. The capital has been squandered in housing and Wall street. Manufacturing needs facilities, and facilities need time. Manufacturing needs trained people and training people needs time and capital.
We are not in the days of banked steel mills that can be fired up, or dormant auto production lines that can be restarted. We are in the days of imported steel, and outmoded factories that need major capital outlays.
Then throw on the demographics of geezernation. These folks will be consuming capital to eat.
For the government to deal with the multiple interlinked crises, it will need dump trucks of speed for the bureaucrats that will have get all these programs organized.
Never mind the shape of the recession, the depression lasted 10 years, most of the lengthening of it was because of government programs. I am thinking of economic depression as way of life, not as an event.
My comment is: Can 10% of our economy (manufacturing) support the 70% of the economy that relies on consumer spending.
The only optimistic thing I can say here is that mfg activity is a HUGE driver of service activity. If mfg picks up a lot of services will follow.
Factories are NOT labor intensive - they are capital intensive. That capital needs to be sold, engineered, constructed, managed, financed, insured, litigated, and resold. For every factory stiff there is an army of suits running around making his 'productivity miracle' possible.
When more of that activity is domestic then the services associated with it are also more likely to be domestic. When those products are imported... a greater percentage of those jobs are then offshore too.
In fact the really big money from offshoring mfg was never the direct mfg labor savings - it was when you closed the offices associated with the production from those closed plants & moved THOSE jobs overseas - only when you offshore the suits does offshoring REALLY pay out.
With the weak dollar a lot of that will be put on hold... so if mfg really does have a domestic renaissance look for an up tick in associated service sector jobs too.
But it will take time - if you think its slow ramping up residential RE then compare it to building a new steel mill or chemical plant - half decade or so.
CR,
A weak dollar is a compensating factor only in the absence of higher interest rates.
So far the currency's weakness has been the proverbial "free lunch": all benefit, little discernible cost. The problem with the "free lunch" is that the bill may come in the form of unleashed inflation expectations. Ironically its not OUR inflation expectations that really matter, but those of our creditors the "dollar peggers" (China, the Gulf states, etc). The more dollar-fueled commodity inflation they face, the more political pressure for a revaluation. Of course, a mass re-val by our creditors means less demand at our Treasuries auction. One path of adjustment would be for interest rates to rise, maybe significantly, to attract more capital.
So enjoy the free lunch, America, and hope that the price of food in China does not bring it to an end.
the recession could be severe if manufacturing contracts sharply (probably due to a global recession), but I think this is less likely than Roubini
Unfortunately, I think this downturn is shaping up to be global in nature. Stock markets in China and India have already declined significantly this year alone. China, in particular, is looking more and more like a bubble economy with massive over-investments in real-estate and manufacturing, and scads of non-performing loans.
The EU doesn't look too healthy either. Spain and Ireland are in the early throws of significant real-estate busts and the UK isn't far behind. A relative of mine just visiting from France is telling me how dire things are there. And just look at how German and Swiss banks keep making bigger and bigger write-downs.
No, I fear that we are in for a massive economic downturn of global propertions. The fact that we are seeing credit contractions occur in virtually every major economy is enough to send up the flashing danger signs.
"JPMorgan share of global GDP:
US: 30.5%
Japan: 13.5%
Germany: 5.6%
China: 4.9%
UK: 4.5%
France: 4.0%
Italy: 3.2%
Spain: 1.9%
Brazil: 1.9%
India: 1.7%
Anonymous"
According to the CR blog consensus, the US could never be the leading economic powerhouse in the world any more; nor could it never have grown to be that. At least the last 25 years of "cheap credit" would have completely destroyed us.
).
Duh~ there is no other nation even close to us (although my little country of origin comes in third still
What a reality check for the doomsayers. I hope it works this time.
O-Joe
Are there any good statistics on the number of Americans who are vagrants?
vagrant: Wandering from place to place and lacking any means of support.
I've read there were quite a few of these during the previous two depressions. If the number of vagrants begins to climb sharply I think we can at least call the recession severe.
Another thing to look for will be breakdown of support structures. If/when food stamps can no longer provide enough food. When SS checks can no longer provide food and shelter(already here in some areas). When hospitals go bankrupt, etc. Things like that will certainly be a good indication that things have gotten "severe".
O-Joe, you gave me a big laugh with:
"JPMorgan share of global GDP:
US: 30.5%
Japan: 13.5%
Germany: 5.6%
China: 4.9%
what happens if the dollar drops to half of its current value? By the way what was the date of this and was it renormalized to current currency ratios?
Try this on for size with DXY at 35:
US 15%
Japan: 15%
Germany: 6.5%
China: 6%
Try letting the renminbi go to to 2 to one and now you get:
US: 15%
China: 25%
That is where we are headed.
SweetHomeKilla, I've been consistent: Severe = 8% plus unemployment.
I don't see it.
When did I ever use the word "mild"? Not severe does not equal mild.
Best to all.
CR,
Can you explain why the falloff in manufacturing employment is the key to the severity of the recession?
About 2.5 million manufacturing jobs, or 15%, have been lost since the end of the last recession. They have gone from about 12% of all jobs to less than 10%. What makes them so key? I really can't get my head around that. The people laid off from Bear Sterns aren't going to be headed for jobs at one of dryfly's tractor factories.
SweetHomeKilla
Are there any good statistics on the number of Americans who are vagrants?
Have you noticed the number of articles talking about how many people are moving back with their parents? Are these folks the modern day vagrants?
I'm thinking a dubya recession. A tick upwards in Q3 on ill-founded election hopes - nothing from the stimulus pkg. Alt-A mortgage resets should be a killer if the FHA does't get in and insure every loan in existence.
Here's my humble prediction on shape:
____________________/
(2010) (2012)
Big U.
what happens if the dollar drops to half of its current value?
Well, one thing that will happen is that dryfly's factories will be kicking ass. The only way the dollar will fall that precipitously is if the rest of the world is really booming. Otherwise, they'll all be cutting rates too.
poszi, I disagree with decoupling - so, yes, I think the U.S. recession will spillover into the global economy, but I don't think it will be enough to raise the unemployment rate to 8% or more. We can talk about severity in several ways - unemployment, GDP contraction, length of the recession - I keep coming back to jobs.
When Roubini says this will be the worst recession in decades, he is including '73-'75 and the early '80s. The U.S. saw double digit unemployment in the early '80s, and close to double digit in the '70s.
I don't see it happening this time. I could be wrong - there is definitely a downside possibility - and, as always, no one has a crystal ball.
Best to all.
--
The last two recessions were short, or mild, because of bankers' ability to push more debt on handholds via debt securitization. Now that black magic has been exposed as nothing more than a simple trick.
The era of economic witch doctors is over.
Get ready for a long L.
Jas
PS: I think that CR did use the term mild for this recession. Sorry, I don't remember the date of the thread when he did.
I disagree that manufacturing is holding up that well. In 2001, yes, manufacturing's bottom basically fell out. But manufacturing employment is dropping at a 4% annual rate, which puts us on pace for losing well over half-a-million jobs in 2008. At the start of the 2001 recession in March, manufacturing declined at a 6% annual rate, but by November employment was dropping at a 10% annual rate. This recession is very young. The steepest drop come toward the end.
bush administration has been artificially creating the appearance of a gasoline supply shortage to save speculators:
There Is No Gas Shortage - BusinessWeek
The people laid off from Bear Sterns aren't going to be headed for jobs at one of dryfly's tractor factories.
No but he might be going to work for the company that arranges the funding so some of those quarter million dollar tractors and combines get sold. Not a lot different than funding houses... I just hope they do a better job this time looking at the fundamentals... if they are only looking at corn only goes up we are in for a sequel.
Bob_in_MA, yes, the nature of the U.S. economy has changed - there is less manufacturing now. In past recessions, the huge layoffs came from manufacturing. These layoffs caused kind of a vicious cycle of more economic problems, and then more layoffs.
This time we are not seeing these huge layoffs - sure there are layoffs on Wall Street and homebuilding and AMD today, etc. - but the numbers aren't the same, they are much smaller.
IMO, this is an important difference. We will see.
Best Wishes.
I don't see it happening this time. I could be wrong - there is definitely a downside possibility - and, as always, no one has a crystal ball.
I thought you ordered one from Ebay? You might ought to call their customer support - see where that thing is.
There won't be very many vagrants again because so much of our social services infrastructure is locally based and supported. You can lose access to many valuable services, ranging from SSI to food stamps to shelters and job training, if you leave a given county, let alone state.
We have a system that ties the poorest segment of Americans to their county of need.
This is exactly the opposite of what England once did, when they created a class called "tramps" by locating shelters one day's walk apart and not allowing any two night's consecutive stay in the same place. This was to keep the tramps moving and physically fit. The story is told in George Orwell's autobiographical book "Down and Out in Paris and London."
3 points on employment:
CR
We have a growing foreign trade deficit. If manufacturing goes nowhere, what means do you propose to pay back our foreign exchange deficit? Send the Chinese lawyers? Export SIVs and CDOs?
The jig is up.
I see a clusterfuck recession that the media (and the public itself) has no idea how quickly things might get weird in this country.
The ruling elites are attempting, desperately, to create a new system that will continue to bestow on them the privilege, wealth and power that capitalism has afforded but are failing dramatically. As things spin out of control, the happy endings are only going to be seen on reruns...
I disagree that manufacturing is holding up that well.
It isn't if you look at automotive & building supplies - and in both industries it will get a lot worse before it gets better.
Aerospace, commodity based capital equipment, infrastructure related mfg is going nutz. Seriously nutz.
"We're going to be flat from 2012 until 2020"
Mayan calender ends on December 21st, 2012 A.D
dryfly, Yeah, I guess it never arrived - at least it's not here on my desk.
Forecasting is fun, but we never really know what is going to happen.
The last time I disagreed with Roubini was when he forecast a recession to start in Q1 2007 (too early in my view). Now I'm disagreeing with him the severity of the recession. Maybe I'm underestimating the impact of the credit crunch. We will see.
I'll have to shop for another crystal ball!
Best Wishes.
Watch the food banks. Watch the charitable organizations' books. These things are unmolested and can accurately measure "how bad things get".
It is kinda hard to lose manufacturing jobs when you have none to lose. Unless burger construction counts.
Wild action in Wm last 2 trading days. Take a look at the WM volume today, 191 MILLION shares traded compared with the average 50 Million shares! Wowza! Can there be that many shorts in the entire world? This is some wild activity and I think the FED with their new found powers should make sure Martha Stewart is not up to her old tricks again.
The U.S. saw double digit unemployment in the early '80s, and close to double digit in the '70s.
Under what measurement metric? The discouraged worker was defined away in the Clinton administration, but was not excluded from the 70s/80s statistics.
Come on CR; we know you are smarter than that. Don't take two different measurement methodologies and compare them unconverted.
The U-6 (which is much closer to the 80s and 70s numbers) broke double digits in 2003 and hovering around 9% right now. It is very likely that we will break double digits on U-6 unemployment.
PrintFaster, we have a shrinking trade deficit - at least according to the Census Bureau numbers.
That is an important change in trend that shouldn't be ignore. The trade deficit would be falling even faster except for petroleum imports.
Best to all.
When was the last time the consumer was impacted so greatly, meaning a consumer led recession? I dunno the people around me that i work with a deal with (middle class) are hurting, this seems alot different then the last recent recessions.
CR,
The only way we will avoid a severe recession is if the job losses are staggered and hence the unemployment rate never over shoots. On the other hand participation rates may drop sharply in the next 2 years.
Is this the scenario you envision?
JJL
It is kinda hard to lose manufacturing jobs when you have none to lose. Unless burger construction counts.
Sad as it seems, the BLS did exactly that: Put burger flippers into manufacturing. As are uniform laundries. Yikes.
The problem with a curve in this regard is to compare prior GDP to distorted economic metrics.
In theory, the GDP supportive historic data is all great, but how does the new distorted growth data re-shape this curve? Sorry to repost, but can this curve use geometric substitution?
Re: Chairman Ben S. Bernanke
At the Cato Institute 25th Annual Monetary Conference, Washington, D.C.
November 14, 2007
Federal Reserve Communications
FRB: Speech--Bernanke, Federal Reserve Communications--November 14, 2007
Each of the participants in the FOMC meeting--including the Federal Reserve Board members and all the Reserve Bank presidents--will, as in the past, provide projections for the growth of real gross domestic product (GDP), the unemployment rate, and core inflation (that is, inflation excluding the prices of food and energy items). In addition, participants will now provide their projections for overall inflation. Both overall and core inflation will continue to be based on the price index for personal consumption expenditures (PCE).5
5: Participants will no longer provide projections for the growth of nominal GDP. These now seem relatively less useful to the public, given participants' projections for real GDP growth and overall inflation.
Re: In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. ...
The
No major homebuilder bankruptcies...YET.
No major bank bankruptcies...YET.
No major investment bank bankruptciesYET
No major mtg banker bankruptcies...YET.
No major credit card bankruptcies...YET.
No major insurer bankruptcies...YET.
No major hedge fund bankruptcies...YET.
No major US auto bankruptcies...YET.
If don't think any (or all) of these major events are in our near future with the credit & wealth destruction that has/is taking place in this country (see benchmarks weak $USD, record falling real estate and record oil)...then by all means....
...join the "bottom is in", ? -shaped recovery herd at your own ri$k. IMO
"Watch the food banks. Watch the charitable organizations' books. These things are unmolested and can accurately measure "how bad things get."
They're already up in my area. They've been on the upswing in my area for years, even through the "economic recovery." That's partly why I've never believed that it was real. At least, not for any but the elite.
Right now we have the Fed happily risking taxpayer dollars to insure shareholders and bondholders of private Wall Street corporations. So as the Fed balance sheet swaps government securities for Wall Street toxic waste we can expect MZM to continue its parabolic ascent. Where will it manifest itself? Likely where it is right now - inflating prices of fuel, food, healthcare, etc.
Now add the twist that the Euro block will get into the competitive currency devaluation mode as their economies slow down and pressure to reduce rates will come from the "southern states". Can the Arabs, Russians and Chinese make up for US consumers cutting back? Highly unlikely, IMO.
There's a good probability that we will see continued stagflation. Consumer getting squeezed on both sides - stagnating incomes and increasing costs for day-to-day stuff. So a scenario to consider is a global economic slowdown with increasing costs of necessities.
Maybe I'm underestimating the impact of the credit crunch. We will see.
CR,
I'm thinking the credit crunch is now of secondary importance. That's not to say it there aren't a lot of potential minefields on that front.
I think how severe our recession becomes is dependent on how much consumption in the rest of the world is effected. If internal consumption in China, Brazil, India, etc., continues to grow at a nice clip, then things might not be too bad here and most of the rest of the world will come through relatively unscathed.
But if consumption in those countries falters, then all bets are off. Commodities fall ff a cliff, everyone's exports fall, etc.
The only way we don't have a severe recession is if the last 4 years didn't occur. Oh, the did. We're screwed.
CR:
When did I ever use the word "mild"?
Here.
So recessions do matter in that economic activity slows down, but the key point here is that there is very little difference between sluggish growth and a mild recession (my current forecast).
Granted that was 6 months ago, but I don't recall you stating that your outlook has changed for the worse.
Proponents of U.S. Rep. Barney Frank's proposal to legalize small amounts of marijuana are pointing to efforts in some states including Massachusetts to decriminalize the drug as evidence of public support for Rep. Frank's plan.
As Frank prepares marijuana bill, states make own efforts | SouthCoastToday.com
Kp writes:
Watch the food banks. Watch the charitable organizations' books.
They are singing the blues here, but I'm a little suspicious. Let's face it, they always sing the blues. Have you ever heard the director of one of those organizations say, "demand is way down from last year."
Well all I'm gonna say is this.
Cape Coral,Fl is the epitome of RE bubbles. The economy frankly "Mega Sucks". I just rented the parents last 3 rentals tonite. People have jobs here they just don't pay enough to support the needed rents. I cut the rents another 50.00 to 600.00 and they filled right up. Actually I stole em from a landlord(Bwhahahahahaahah) just up the street who was charging 950 and told them he was raising to 1050, 1May. Kinda kills all the rents around there. We are not well liked and have been informed numerous times we dont know what the hell we are doing...
I keep saying...People who have cash or access to cash and have minimal leverage are going to make out like bandits.
I have my eye on a few things,they just aren't quite cheap enough yet...
Chris
Walker, what is now U-3 (offical unemployment rate) is measured the same as in the '70 and '80s (not U-6). Yes, I agree there are probably more people marginally employed today than earlier periods. But IMO fewer hours doesn't cause the same hardship as no job. I'm not trying to minimize the impact of underemployment - it can be very painful.
Here is the BLS discussion of the changes to the alternative measures
of unemployment.
Best to all.
This guy is holding a hearing on bear Stearns and then goes to this......
"The public is now ready for this," Rep. Frank said in a telephone interview. "I have long thought it was foolish to have these laws on the books, but now as I look at the public opinion, it's clear that this is wanted."
Rep. Frank said that although he does not support marijuana use, he believes that adults should be able to consume small amounts without facing criminal penalties. He said prosecution of marijuana charges costs federal law enforcement agencies time and resources. Rep. Frank, who said he has no experience with marijuana, added, "I think marijuana is less harmful than alcohol."
WOW! I thought the public was ready for Paulson to be busted...
Proponents of U.S. Rep. Barney Frank's proposal to legalize small amounts of marijuana are pointing to efforts in some states including Massachusetts to decriminalize the drug as evidence of public support for Rep. Frank's plan.
More reasons to go long John Deere - and how soon until we get Ganga Futures?
"They are singing the blues here, but I'm a little suspicious. Let's face it, they always sing the blues. Have you ever heard the director of one of those organizations say, "demand is way down from last year."
I talk to a guy who buys food from the local food bank and runs his own food distribution program through a local church; you get in only if you were referred by county welfare.
His custom has been climbing steadily for years, and it's gotten a lot bigger this year; 150 a week. He's funding half of it out of his own pocket and, though well-off, he's starting to feel it.
SweetHomeKilla, OK, thanks for finding that. Yes, I'm probably a little more pessimistic than 6 months ago.
Best Wishes.
I have my eye on a few things,they just aren't quite cheap enough yet...
Chris
Cobradriver | 04.07.08 - 8:01 pm | #
In the same boat... there is zero signs of a turn around coming.
Other than printing money, I do not see any real change to the economy or its infrastructure.
And I am starting to discount the first term on the next administration as "clean up phase"
And boy what a mess there is to clean up.
I am thinking of cashing in when interest rates rise to 12% by 2009.
Housing prices will not recover until the system is cleansed... thoroughly.
Hiya dryfly, nice to see you're still kicking it around. Best to you!
CR,
Sorry if someone has already gone over these points.
Prior to this recession we have had a basically job-less recovery from the last recession. The Birth/Death adjustment is being "adjusted" to make the numbers look much better than they truly are. As well, many more people are under-employed than in the past (settling for part-time or lesser jobs). The Jobs picture is MUCH bleaker than it looks and it is getting worse.
I'm going with NR on this one - U or W. Not light and not the end of the world.
Peace.
They're already up in my area. They've been on the upswing in my area for years, even through the "economic recovery." That's partly why I've never believed that it was real. At least, not for any but the elite.
Bob Dobbs | Homepage | 04.07.08 - 7:51 pm | #
Bob,
I am going to guess a lot of companies did like mine did...No/minimal hiring during the last few years. All expansion was overtime. Yes we had a shitload of six figure drivers but I was informed last week we could pull back another 30% and not have a single layoff.
The company will just cut ot back.
We also have a LOT of people leaving this year(retirement). I am 41 and only 2!!! people in the building are younger than me(60 employees).
Chris
I forgot:
Has anyone mentioned this?
Definitely a W recession either way (George W).
Manufacturing employment itself has been falling quite steadily since the W recession of the early 80s.
It may be an engine of GDP growth, but it's only half the size it was back in the day.
We've got a lot more service-sector superstructure bolted onto our economy now than the 80s or even early 90s.
Here's a quick poll to gauge the long term fundamental outlook of the readers here.
In 50 years will the global economy be...
A) significantly(25%) larger than now.
B) about the same size as now.
C) significantly(25%) smaller than now.
I vote C due to energy(and food indirectly) production capabilities.
I expect 2 million job losses this year alone. That is only 1 out of 15 employees. I can easily see most companies getting rid of 1 out of 15, not just the companies that are hardest hit.
Many of these losses will come from the service sector.
I also expect this recession to last at least 18 months. With all the "help" the goverment is giving it is prolonging the cycle.
Oh, I definitely think it's W-shaped. And W-caused.
Calculated Risk writes:
SweetHomeKilla, I've been consistent: Severe = 8% plus unemployment.
I don't see it.
I couldn't find it now, but Krugman makes the point somewhere that job creation recently has been much weaker than in earlier periods that were punctuated with recessions. So it may not be realistic to assume that a severe recession has to necessarily involve 8% unemployment in this period. But I have to admit I'm not sure what "severe" would mean in the present case?
Professor Roubini writes: The US Recession: V or U or W or L-Shaped?.
What about ?
Dryfly said:
But it will take time - if you think its slow ramping up residential RE then compare it to building a new steel mill or chemical plant - half decade or so.
Not as much time as in the past. Northrop is gearing up to produce A330F's in an abandoned McDonell Factory. It will be retrofitted at a rapid pace.
Interesting times:
In the same boat... there is zero signs of a turn around coming.
Other than printing money, I do not see any real change to the economy or its infrastructure.
I'm seeing aerospace manufacturing being sent over from Europe. Many of the plants are simply going to 3 shift operations to meet demand. Yes, quite a bit of equipment is being bought too.
So there are positive signs out there. They're just too small to matter (yet).
I believe the old quote here was "I see debt people." Until that debt is purged from the system...
Got Popcorn?
Neil
In 1998 the default on Russian debt led to the collapse of LTCM. Lately we have seen BSC go bust, major currency weirdness on the Icelandic kronar, wild commodity fluctuations, imploding home prices, about 248 major US mortgage lending units gone kaput, and the fall of Britney Spears. All these wild market gyrations and things seem to be ok. Either absolutely none of any of this stuff means anything, or this is the biggest delusionary period in history. Interesting either way.
Damn I hate Haloscan. What about an infinitely down pointing backslash?
In the biotechnology/pharmacuetical space that I have a ton of experience and contacts in, hiring is basically frozen and lost positions are not being replaced. Spending has gone way down, my group alone had our budget cut 20% for this year. For what its worth.
In 50 years will the global economy be...
Unrecognizably amazing. Computers will be intermediate communications completely. The web will be in our brains and we'll be reading CR sans hardware, keyboard, or mouse.
Energy will be too cheap to meter. We'll have something close to a Star Trek economy with leisure filling most of our waking hours.
Not sure what the 3rd world will look like but I bet more like South America than the disaster it is now.
SweetHomeKilla | 04.07.08 - 8:14 pm |
A,with 2 caveats.
We are allowed to mine and use the available coal in this country.
We get cracking on Nuke reactors and start reprocessing freakin waste to reuse...
BTW, I just saw Japan had a bid put forth for the latest generation reactor of something like 1.3B for four!! reactors. This stuff just doesn't happen overnight.
Chris
C) significantly(25%) smaller than now.
But much more efficient and based on clean electricity than fossil fuels.
Think of the transitions from horses to cars as a crude (no pun intended) example.
How about Y-shaped, where the letter Y represents a drain.
Or a black hole...
In 50 years will the global economy be...
Define 'economy'... is it 'stuff' or 'activity'? And if it is 'activity' does it have to 'mechanized' or can it be 'manual'?
I think there will be a lot less stuff made in 50 years but way more activity - some of that 'more activity' will be increasingly manual due to high energy cost & resource scarcity.
Also 'manual' doesn't mean low skill or stupid or poorly paid... I can see farming being a lot more 'manual' but even more 'technical' than now... think 'micro-optimized' for maximum resource efficiency.
Same with mfg and re-mfg (which will be bigger than new product mfg in 50 years and regional if not local (as opposed to 'global')... when you want a new washing machine you turn in your old washing machine at the same time you walk out with a 'new' one... they then completely re-manufacture & sell to somebody else. Designs will be 'global' but the build & re-build will be local.
There is a lot of activity in a model like that... is that a 'weaker' or 'stronger' economy? I say stronger.
I'm going to go for an amorphous recession, because no one has said that yet
CR, I pretty much agree with your forecast, but I've developed a "Roubini Multiple" that says you take whatever he says and multiply it by .6792 to be exact. For example, on his recession call, if you use the multiple, you'll come out with December 18, 2007. Now he's saying 18 months at the longest. Use the multiple and you get 12.2256 months at the longest and 8.1504 on the brief side, which just so happens to coincide with my prediction.
There will be no W as the checks are going to only cause a slight slope change in an otherwise descending function. And unemployment will crest just over 6% in my view. Again, I'll say that the overcapcity here is not inventory as is usual in recessions, but excess money and credit. The business cycle reset this time has to do with what is happening with the money supply, and it is shrinking. It has to shrink more and that is going to take at least a couple of quarters more. I expect cutbacks in the retail segment, but like dryfly, I expect manufacturing in other areas to more than make up for that. From where I sit, I can see that happening. Financials are doa until next year, btw, and when someone says anything about contruction, builders, or RE, just say "forgeddaboutit". Come back in 5 years.
Vagrants? How PC. They are Hobos.
I vote (C). Unfortunately, I envision a nuclear disaster at some point in the next few decades. Not a holocaust, but at least one major city somewhere in the world suffering a catastrophic hit. There is too much nuclear material that is unaccounted for and too many nuts willing to use some of it to further their ends.
A disaster like that will usher in a new age where individual rights are secondary to security. That will result in a consolidation of economic power by the state and will lead to further economic misery.
Vagrants? How PC. They are Hobos.
I thought they were "shelter-challenged".
Another point that I don't think has been made.
I wonder if a measurable percentage of the population is simply not resourcefull and informed enough to actually go to the unemployment office to be counted in the statistics(please correct me if you are counted for some other reason). I also wonder if this percentage has increased over the last 30 years.
A disaster like that will usher in a new age where individual rights are secondary to security.
Oh so you saw "V for Vendetta". Perhaps you should start to cash in by making those nifty Guy Fawkes masques. Did you know that he beat the whole drawing and quatering nastiness by jumping off the hanging platform and breaking his neck before they could revive him to yank his insides out while he was still alive? I admire that.
How hard is it to pinkslip 4 out of the 6 baristas once they outnumber customers per hour?
Without spending, all sorts of service sector jobs disappear in an instant...these aren't sticky jobs with extensive training.
I bet lots of people will lose both of their jobs (or maybe all three).
(yes, very pessimistic...)
Dang. I forgot to put TM after the Roubini Multiple (TM). There.
Gentlemen of the Road, Marcus.
Theme music
dryfly-
I completely agree with your points regarding more utilization of human labor and harnessing the huge efficiency improvements available by simply embracing repair and reuse. I very much look forward to these progressions.
However I think we'll be doing these things with a smaller global population.
C) significantly(25%) smaller than now.
WW III will reduce the population by that much. China tries to take Taiwan (to distract their starving population). US retaliates (to distract our population).
We lose large metro centers on West Coast (LA, SF, SD, Seattle), large portion of Pacific Fleet. They lose Shanghai, Beijing.
Anonymous Bosch | 04.07.08 - 8:36 pm
How about the Leo Sayer Song "Long tall glasses"?
"I am a man of the road -- a hobo by name
I dont seek entertainment, just poultry and game
But if its all the same to you, then yes I will try my hand
If you were as hungry as me then Im sure you would understand..."
To CR:
What about us subsribers?
BTW, the BOE will cut rates again, to be followed by the ECB before summer. That is going to stop the dollar slide and I predict the Euro will top out around 1.64. And if you think the Euro is going to be hot by the end of the year, you've got another thing coming as the EU slows down after us, and the RE issues start to crop up there as well. Oil will not recede until after the summer driving season begins, but the slow-down here and elsewhere is going to sap demand just as the dollar starts to strengthen again. Oil will fall back to beneath 60 a barrel by the end of the year.
My recall of "modern" musicians is very sketchy, Marcus. I appreciate the lyrics though.
OTing... I see a new meme forming...
Old National: Rogue Loan Officer Drove $17 Million Loss
Whocoodanode? or Mistakes were made.
I'm on a roll! And remember, when Roubini blows a prediction, it means his whole life's work and education is suspect. When I blow a prediction it just means I should get another hobby
US retaliates (to distract our population)
The Chosin Reservoir is embedded in our national militarische psyche nearly as deeply as Stalingrad is in the Germans'.
300 million people simply can't tell 1.3B people what they can and cannot do within their own sphere of influence, no matter how many superfly stealth aircraft, UAVs, and littoral combat ships we pump out.
Cobradriver
Bad news on the reactor front. The US sold its two reactor companies to Japan. Toshiba owns Westinghouse and Hitachi owns GE. The French are the best.
Lots of opportunity here for third world manufacturing. Can you pound iron?
In the past two weeks I've had 4 people email me their resumes. All of these people were working various government contracts.
We'd better hope that no one seals our burger flippin' technologies.
Lots of my high school friends worked at burger manufacturing plants.
Also, months ago, on this very blog, I called for the legalization and taxation of The Bubonic Chronic (with laws to keep the manufacture and distribution at a cottage level, so that the corporate criminal f*cks don't get their nicotine-stained fingers into the brownies).
If we are going to have a new bubble, this is it.
There should be little or no stigma involved in the cultivation and use of this ever-so-beneficial vegetable.
Phew!
We lose large metro centers on West Coast (LA, SF, SD, Seattle), large portion of Pacific Fleet. They lose Shanghai, Beijing.
Once again Filthadelphia escapes undue attention.
One thing that the article and CR fails to mention is that Japan had a booming export economy (compared to the rest of the world) all through the 90's. This did not limit job losses in the corporate and service sectors. Also we are assuming that no other country will compete with the US on product or price. Also some fail to recognize the wage pressures on the existing manufacturing sector which still may send jobs elsewhere. CR I respectfully disagree with you. I see a long deep recession and a slow recovery.
The Education Resources Institute Inc, which calls itself the largest not-for-profit guarantor of U.S. private education loans, on Monday filed for Chapter 11 bankruptcy protection, saying rising defaults and credit market problems have damaged liquidity.
The company, known as TERI, filed for protection from creditors with the U.S. bankruptcy court in Boston, where it is based. It has more than $1 billion of assets, and between $500,000,001 and $1 billion of liabilities, court papers show.
Big US student loan guarantor files for bankruptcy
| Reuters
Lots of opportunity here for third world manufacturing. Can you pound iron?
PrintFaster | 04.07.08 - 8:48 pm
Ermmm,
Not to sound like a smartass but I do that already...I have a evil maual labor job(That I enjoy!).
Chris
Anonymous Bosch
I'm an html neophyte.
Cut and paste this:
YouTube -
I'm sure you'll like it (after your link to Big Rock Candy Mountain).
Tres apropos.
Cobradriver
Cool. Glad someone is doing it. Best to ya.
Damn. It's automatic! Look out, y'all!
"We lose large metro centers on West Coast (LA, SF, SD, Seattle), large portion of Pacific Fleet."
If we have to lose anything how about 35,000 lobbyist.
Better to pound out trinkets and baubles when the rich foreigners come to gape at the aborigines.
Not that "me love you long time" wouldn't go a long way if you didn't have a few hand tools or some eptitude.
IMF plans gold sale to raise $6bn that will be used to buy US government and corporate bonds to generate income and plug a $400m shortfall in funds that is projected over the next two to three years.
It follows a decision last month to move voting power away from traditional industrial powers including the US, the UK and Germany to powerful emerging countries, including China, India and Brazil, which are playing a growing role in the world economy.
Promised Land or Clusterfuck Nation ?
Calculated Risk:
How does: a massive contraction in credit, consumers (70% of the economy) making secular changes in spending patterns, government already running a huge deficit, etc. etc. = MILD recession? Seems very naive.
Note: Exports are not a large % of the economy and will tail-off. Also, when talking about current job losses and in the future realize those statistics do not capture illegal immigrants (+10mn)!! Job losses among this group are undoubtedly very high.
Cool. Glad someone is doing it. Best to ya.
PrintFaster | 04.07.08 - 8:55 pm | #
Hey I'll say this. Nothing like having a really shitty day and then saying "That bolt looks rusted". Break out the torch. Big hammers. Bigger hammers. Sledges. Nothing like a bunch of fire to spice up the day.
And if that fails we get the water balloons outta my toolbox and make...
OXYACETYLENE BOMBS.
Yes I am nuts.
Chris
I sill can't believe the parents did't shoot me growing up...
Oh! OH! I know this song. (I just can't remember who sung what any more.) lol.
Not that "me love you long time" wouldn't go a long way if you didn't have a few hand tools or some eptitude.
Anonymous Bosch | 04.07.08 - 8:58 pm | #
I am a cheap whore
.
At least I admit it..
Chris
I just dont see the decoupling happening at all. You can pretty much bank on it that once the US really starts pitching down, which Id say, is right around now, soon to follow will be Japan, which is already on the brink. Add to this the UK and Spain, which are going to crater just like the US as their housing busts are in full motion now. That's 50% of GDP right there. And you can bet that when US, Spain, Japan, and the UK are in trouble, the rest of the EU is going to feel it.
IMF plans gold sale to raise $6bn that will be used to buy US government and corporate bonds to generate income
Thanks for all that help for Argentina, Brasil, Russian...
How Ironworkers Solve Problems: Get a bigger hammer.
I used to say, "pass me the four-pound fine tuner."
Now:
a = consumer spending
available cash + access to debt + wages1 = a
Wages1
current income
percieved future income
b = pc of GDP tied to consumer spending
c = breakpoint
breakpoint
if a < 2005 then
\tfigure ratio
else
popmsg "party on"
endif
benchmark
total gdp = 2005
available cash = avg equity 2005
avg wage = 2005
Available cash(equity - because there is no savings) drops by x
Wages1 = 0 or -y
then GDP will drop by z
All I get is a downward spiral...
I did this in about 10 minutes just to work out the logic. This would be a cool
program to write. Just figuring out the varibles would be fun.
I just dont see the decoupling happening at all
The 2.5 billion residents of Chindia smirk in your general direction.
"I am thinking of cashing in when interest rates rise to 12 percent by 2009."
I would give you ten to one odds that 12 percent will not happen. The banking system, and society for that matter, simply could not handle it. The fiat system woud collapse.
Whenever I hear someone talk about imminent, U.S. double-digit interest rates, I realize how clueless they are about the severity of what we are currently experiencing.
CR,
I just don't understand your call for a mild recession (with mild unemployment).
You and others have illustrated that this was a historic housing bubble, and that it is popping. You have cited studies (Baker?) indicating that housing is a key (if not THE key) driver of economic cycles.
More important, in my view, the implosion of a historic credit bubble (extending well beyond housing alone) cannot possibly have a mild downturn as its consequence.
I'm with tj & the bear in thinking that this will be much more severe than anybody is envisioning.
Add to this the UK and Spain, which are going to crater just like the US as their housing busts are in full motion now.
I really hate to sound like seb but, by the numbers, we aren't cratering in the US, not by a long shot. The numbers, ex-financials, aren't really bad yet. Unemployment isn't bad, there is contraction but not bad, RE issues are regional, and retail is off, but not spectacularly. In fact, everything is just looking blah, but not really in a funk. I would have expected to see more on the downside in the numbers by now. That's why I'm on the shallow but longer side. Everyone keeps preaching doom, but it isn't happening. Yet. I don't have one of them crystal balls either, so that's why I'll say yet.
Quincy k:
First of all, rates for many forms of debt are already in double digits.
Second, if foreigners begin to sell US treasuries, you will either have double digit rates or hyperinflation.
Good of the whole.
I think the worst thing to happen to the American people is how the lobbyist/wall street/congress complex and elitists pseudo intellectuals complex have divided us.
Dwight David Eisenhower warn us about the military industrial complex.
We now have two additional complexes.
The lobbyist/wall street/congress complex steals our money for their benefit.
The Elitist pseudo intellectual tells us how they want to spend our money.
Both are self centered and forget the needs of the whole.
Quincy k | 04.07.08 - 9:13 pm | #
lol. I wish I was serious when ever I write here...
Most of what I say should have a sarcasm tag... but haloscan filters that now.
It's all such a joke, that I am left with absurdities to at least try to laugh about it.
Ya 12 percent won't happen in the next 5 years... proverbial DUH.
But I'll make the money else where.
OT - Back to rental housing issue:
We heard from Denver a few posts back about their lack of affordable rental housing. Conn. is having the same issue. While some areas of the country may find a glut of rental housing, in a lot of areas that's just not the case.
County, state renters squeezed - The Connecticut Post Online
County, State Renters Squeezed
(and remember, Bridgeport is one of the poorer cities in the state)
ipodius:
The doom is in the debt level, personal and national. The tires left the pavement some time ago, but we haven't hit the bottom of the canyon.
Yet.
Maybe it won't be that bad...
I'm in what?
Could you be a bit more succinct, doom?
You and others have illustrated that this was a historic housing bubble, and that it is popping.
But short, I have to say that the bubble popped here in August of 2005 and we're now below 2003 prices and heading down below 2002. And the local economy is pretty good. No evidence of catastrophe. Stores are a bit slower, restaurants a bit less crowded, but overall, not much evidence of what people say on here. We'll see how the summer tourism goes, but I can already tell you I see more Euros around than usual. So if the Americans stay home, we'll get Euro-dollars it looks like.
So I don't know what to say. I'm just not seeing anything on the ground on the order of what people here seem to say.
ipodius:
That there has been only a mild correction indicates that credit - not income - is still driving consumption. The feedback loop is almost unavoidable.
ipodius - someone is impersonating your name.
I'll pretend you're serious.
The damage is being done at the banking infrastructure right now. Give it time.
Just like cutting interest rates take almost a year to be felt in the real economy, the credit freeze (or crunch as MSM puts it) will have a major impact.
It will be a nice perfect storm.
Interesting times-
Sorry about that. But you would be amazed at the amount of people that actaully believe in double digit treasury rates.
Could you be a bit more succinct, doom?
Anonymous Bosch
Sorry, bad joke. Just responding to the previous post.
(and remember, Bridgeport is one of the poorer cities in the state)
Outsider | 04.07.08 - 9:18 pm | #
Outsider,
Any chance down the road FC's get turned into rentals?? Everybody here is Florida is a Landlord! now. Frankly it sucks for the people who have been at more than 1 day. Newbs really try and screw over renters. I have helped more than one tennant get a substantial deposit back.
Chris
...we'll get Euro-dollars it looks like.
Cobra can get his ace torch. We can make glass beads to sell to the Yurpeans. They can give us a handful of silver coins,
and they can have Manhattan back, complete with bankers and swindlers.
the severity of this recession will have nothing to do with whether manufacturing holds up. The service economy is crashing and the loss of jobs there will be depressionary
Quincy k | 04.07.08 - 9:24 pm | #
I also wish I a still believed in Santa Clause.
Nothing on this planet would make me happier than double digit interest rates.
ipodius,
As Christina Ricci said in the Addams Family movie, when asked why she was dressed like somebody had died,
"Wait".
I'm not trying to be the ultra-bear here. I just really do think it will take time for the job losses to hit. They are starting in earnest right now. No way our export industries can overcome the loss of service jobs (and poss/probably government jobs too). As someone else pointed out, there's a bit of manufacturing overcapacity in the world right now.
Marcus, you know in my heart of hearts i'm on the bearish side. And I realize the debt problem, but honestly, if people buy less cheap imported crap is that an issue? Less flat screens? A cheaper car? No Hummers? Less airline travel and 10k vacations to Disney? Less chain restaurants that use imported help anyhow?
Isn't this what is supposed to happen? The business cycle will reset as people spend less and payoff debt. In fact, they'll just create less debt by spending less. It won't even come out of real money. I'm not sure this is going to be as broad-based as people think.
Any chance down the road FC's get turned into rentals??
From what I understand, there have been many FCs in Bridgeport, yet rents are still high.
Maybe you should look into units there?
ipodius:
it's not in the purchasing - it's in the paying back.
SweetHomeKilla-
Obvioulsy, there is a huge difference between corporate debt and treasury yields.
I see two-year treasuries at two percent for an indefinate period until the next bubble can be blown.
There is a reason for double-digit corporate yields. The market believes that they are 3 to 4x's at greater risk of default than treasuries.
A lot of paper is actually worhtless right now and has more value to banks as a non-perfoming asset as opposed to having to mark-to-market.
Earlier comment by PrintFaster regarding the impact of a continuing trade deficit and the response by CR...
Put in its best light, the future of the trade deficit can only be described as "less bad." Excluding petroleum, the 2007 deficit was $0.5T, based on January 2008, it appears that the 2008 deficit ex-petroleum will be ~$0.35T. It is unlikely that the petroleum trade deficit will be much different than last year, about $0.3T.
Even though the rate of the deficit is dropping, the cumulative amount is still increasing at about $0.7T/year or ~$7,000 per US household. This isn't a one-time cost, it's the nominal amount year after year after year.
We've made a very uncomfortable bed for ourselves, but it's the one we'll have to sleep in for a long time to come.
D
Denial, delay, de-leverage, dilute, default.
Quincy k:
Are you so sure treasury yields cannot go to double digits because you know that the fed will support treasury prices or because real demand will never falter?
Intersting Times-
You and me both. Three percent sucks.
ipodius - someone is impersonating your name. I'll pretend you're serious
The thing is I keep waiting...for Godot it seems. Things just keep limping along. First the financial sector was going to blow and western capitalism was doomed. The Fed stepped in and that was that.
Now we're expecting the consumer to fall. But evidence is that the fall is just a trip and stumble. And payback? What that means is a lot of writeoffs against profits, just like what has happend so far. And CC debt defaulting is not going to be anywhere near what housing has done.
So we'll see. But I'm thinking this is going to be shallow too. At least by the evidence so far. It could change. I'll just have to be alert.
Maybe you should look into units there?
Outsider | 04.07.08 - 9:27 pm | #
My mom and dad have been at the rental game since they sold the last of the farmland.
Rule number one...
All rentals local.
It's enough of a bitch to keep up and they are only 20 minutes away. I can not imagine trying to run something myself from that distance.
My dad and I got many a laugh from watching "Flip this house" and the out of staters buying single/small properties. I probably wouldn't want anything less than 50 units in one location out of state.
Chris
All I can say is I hope CR is right....and that Roubini multiplier Theory sounds good. Couple that with CR's call for some optimism in new housing numbers (reducing inventory etc), mp's call for a bottom in Financials, ECB soon cutting rates (watch for a monster rally in both stocks and dollar on that one) and damn.. Seb may be off but not by much.
Hoocoodanode?????
Personal opinion: I think Roubini is a very smart guy and I have been following his comments. He has been almost dead on on quite a few things. As CR indicates clearly - and I agree - this is a Consumer led recession. Businesses (mine included) have only now begun to feel a little squeeze (one of our board directors is at a big 3 consulting firm - he says business has never been better - record Q1 at consulting). Layoffs are coming. layoffs = even lesser spending (Cascade down). Analysts are still overestimating Q2, Q3 and Q4 EPS numbers - look for nasty surprises this earnings season. Oracle and Alcoa are the harbingers of what's to come. I will be very, very surprised if this recession ends by this year. If it does, as CR predicts end then the time to get into the stock market should be around May or June. The market will predict who is right - CR or Roubini almost 6 months ahead. CR, I am rooting for you.
Now can I have some of that popcorn?
I'm not trying to be deliberately argumentative, ipod, but
The business cycle will reset as people spend less and payoff debt.
By all accounts wages have been holding still or in retreat for some time. Credit has been used just to maintain. So spending less (even if it's credit) is problematic.
Where does the "payoff debt" come from?
When "outsourcing" first reared its ugly head, I saw the eventual outcome. My thoughts then were, "when you brainiacs have accomplished this marvelous feat of innovation (and farmed all the jobs overseas, how are people going to pay for all this fine new junk?"
I guess easy credit was the answer and that appears to be all spent up.
SweetHomeKilla-
This is a global ponzi. If we go down, they all go down. The global banking system is so inter-twined that if a few international banks collapse simultaneously, the system might fail.
We will have low interest rates globally until the fragility of the system is stabilized. Lower yield rates will to a certain extent uphold asset prices and buy the system time for an orderly unwind.
Oops. didn't mean to holler. forgot to close bolds.
Calculated Risk, I think that the differences in perception are largely due to the question of whether there will or will not be wider war. There's a misperception that war is good for the stock market. War tends to accelerate spending into the present, which produces higher earnings and temporarily higher stock prices. But it also produces distortions in the economy that cause long-term damage to the market. Failed wars like Vietnam are especially bad for markets.
If the US were to close down shop in Iraq over the next year, I think the economy would dodge the worst damage. But there is a very high risk that the US will widen the war to Iran. If that happens, there will be serious damage to the economy, with inflation likely to increase into the danger zone. A U-shaped is probable and an L-shaped recession is not impossible.
With the prospect of war as the major factor deciding the future of the economy and of the market, uncertainty is at extraordinary highs. I lean toward pessimism now, but if someone could persuade me that war with Iran is out of the question, I'd be much cheerier.
Denial, delay, de-leverage, dilute, default.
Anonymous | 04.07.08 - 9:32 pm | #
Wow. Succinctly done.
Take credit for that post.
I am more and more convinced that the general public is picking up on what is happening. More and more people volunteer horror stories about business dropping off suddenly and drastically. Layoffs are spreading. Panic is starting to show in the faces of friends and neighbors. The next sixty days are going to be grim.
When I blow a prediction it just means I should get another hobby
Or just change your handle... you can be as smart as your last call that way.
How Ironworkers Solve Problems: Get a bigger hammer.
The fitters I knew must have had bigger problems than yours... they often resorted to cheater bars & come-a-longs too... BF cheater bars & MF come-a-longs.
while CR does an excellent job analysing domestic US economy (esp the RE part) his grasp on world economy leaves much to be desired.
The credit crunch has affected largely, so far , the US financial market and the broader economy. But the credit bubble/asset bubble has been rampant worldwide and its roots and effects have been very deep. The progression of the bursting bubble will, in time, throw the entire global economy into a swoon...even a global growth of 2% would be a great achievement.
Once seen in that light, it is easy to see why a U/L type recession is very likely...
Used all those too, dryfly. And 8' sched40 cheater pipes and 3' crescent wrenches.
Charles II-
I agree that making prediction about the economy without also predicting the scope of future war is pretty pointless.
I too think a war with iran is at least possible, if not highly probable.
crescent wenches? Can I have one?
Oh you meant wrenches,... darn...
I did some plumbing in college (mostly upgrading 100+ y.o. boiler systems - talk about some stuck nuts and cheater bars). Always in demand. Maybe I'll end up there again.
Flat line, like road kill.
You'll need a spatula to scrape the economic remains off the road.
Heh, when I drilled water wells for a summer we used a very large pipe wrench that was powered by a large hydrolic(sp?) ram. Had to watch out when that thing would occasionally spring off the pipe.
CR
several points
1 From Doug Noland
"
No substitute
Government backing of our debt does not substitute for a sound economic structure. And it is the current structure that is incapable of the necessary economic output to satisfy domestic needs and to generate sufficient exports to exchange for our huge appetite for imported goods and energy resources. Todays services-based economy will no longer suffice. Examining last weeks job data, one sees that 93,000 "goods producing" jobs were lost in March after dropping 92,000 in February and 69,000 in January. At the same time, Education, health, leisure and hospitality jobs increased 178,000 during the first quarter. Yet it is more obvious than ever that we need to consume less and produce much more."
ATIMES
2.Do you have a good hold on the number of undocumented workers? And do you have a good hold on the number of undocumented no unemployed.
Are these then not shall be say the undocumented unemployed. Does Labor Statistics have a way of correcting for them?
If not then your data has a reasonable sized level of uncertainty in it and should be presented with an error bar, confidence limit etc.
3. I know the NBER is the declarer of recession, and I know nothing about them. But how much is their definition updated for our current economic structure. For instance Elizabeth Warren posits that in a two income family the loss of one income devastates and de facto puts the family into recession. What about the family that has gone to the wall trying to get the mortgage paid and failed. Does this not have a severe effect on their finances as the loss of job? Etc Etc.
That's what the torch is for, Marcus. All else fails, burn the nuts off.
hydraulic, no i didn't have to look it up, but it took me a while to remember.
G-night all.
Time for me to conduct a prolonged eyelid inspection.
plschwartz - doug noland of prudent bear has been calling the excesses for what they are for a very, very, very long time. He is a very smart man - so is this guy
Will Rahal: The Precipice
Thanks Noble
What is needed is a more nuanced look at the problem then just a raw number.
Krugman gas a piece on using a difference measure "U6" as more applicable here.
And of course I trust nothing coming from this administration.
There is going to need to be a fumigation of Bush appointees clear across the government.
And many are probably tenured civil servants by now.
Luckily they have least seniority. So maybe the next administration can open branch offices in say Gitmo and Fairbanks and transfer them there
The FDIC has added 60% to their staff that handles bank failures. They are preparing for a bust in that sector, which indicates they think this recession is going to be serious. If banks start failing, it could mean a protracted recession.
How Ironworkers Solve Problems: Get a bigger hammer.
I used to say, "pass me the four-pound fine tuner."
Back in my steel mill days, they would drop a ten ton mold on the what-ever-needed-to-be-fixed. If it weren't broke before, it sure was after!
I don't care how long the recession lasts, just so it lasts long enough that my irritating neighbor loses his job and has to move. I'm voting for McCain just to make him mad and burn my trash in the open to give his enviro-heart a nice burn.
But I always get it wrong. Sold my tech stocks two years early, sold my rental houses way back in 2004. Sad to say, am sitting on a pile of cash when interest is near zero and only sufficient Campbell's soup to last a decade without income and so old the soup is likely to outlive me.
Woe is me. well..at least I like the other neighbor.
It will be "O" shaped, as in O My God! This is really bad and it's lasting a long, long time!
And as in, the circle is complete: boom, bust, boom, bust. Lower and lower at the end of each cycle while the rich build higher towers and point more guns over the parapets.
"L" The Oil Drum | The Expected Economic Impact of an Energy Downturn
The only way a war with Iran would be financed is through hyper-inflation leading to ultimate cataclysmic collapse of the entity known as the United States.
"But to say this will be the "most severe recession" in decades suggests job losses - and a corresponding increase in the unemployment rate - that I don't see on the horizon. The good news is that manufacturing employment is holding up better than usual in a recession due to a combination of a weak dollar (strong exports) and relatively strong global growth."
But strong global growth is going to hit the wall. Britain is a year behind the U.S. in terms of a collapse in housing, and France is about two years out (meaning it's just starting in France). So while the U.S. benefits today from strong global growth, that won't be the case in a year, weak dollar or no weak dollar.
I believe we will have an L shaped recession. This is due to an imploding massive debt bubble that has taken decades to build.
I agree that we have not seen the full strength of this recession and I believe this is due to the lack of layoffs because of overly optimistic business managers.
I hope I'm wrong but I think this is equivalent to 1990 JApan or 1929 US.
Deflating debt bubbles lead to long recessions and bear markets.
This is a secular crisis.
I believe the recession will be shaped by the symbol of the artist formerly known as Prince. When it ends, we will party like it's 1999.
Which is to say, when we were all earned much less money and had to ask other people to buy beer for us.
dryfly writes:
The fitters I knew must have had bigger problems than yours... they often resorted to cheater bars & come-a-longs too... BF cheater bars & MF come-a-longs.
Son, bring me the "gentle persuader." - My dad circa 1969.
Thanks for the laugh and the memories.
W-shaped at first, but with no real recovery. It'll go up and down, with each peak being lower and lower until America is reduced to 2nd-rate status at best. Assuming politicians "help" and continue their subversion of the law of the land (maybe we can get the Amero, open borders to let in even more illegals, etc.)
IMF Says Financial, Economic Losses May Swell to $945 Billion
By Christopher Swann
April 8 (Bloomberg) -- The International Monetary Fund said financial losses stemming from the U.S. mortgage crisis may approach $1 trillion, citing a ``collective failure'' to predict the breadth of the crisis.
Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released today in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.
The forecast signals the worst of the credit crunch may be yet to come, because banks and securities firms so far have posted $232 billion in asset writedowns and credit losses. Policy makers, concerned that lenders' deteriorating balance sheets will hobble economic growth, are pushing companies to raise capital.
The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,'' the report said. The fund warned of the risk ofa serious funding and confidence crisis that threatens to continue for a significant period.''
Today's report comes days before finance ministers and central bank governors from the IMF's 185 members gather in Washington for spring meetings of the fund and World Bank. Group of Seven policy makers meet April 11.
Casting Blame
The fund, which predicted a year ago that any ripple effects from a subprime mortgage crisis would be limited, blamed lax regulations and a lack of understanding about the risks in structured financial products for the crisis.
Today's estimate exceeds those by other economists, including analysts at UBS AG, who projected in February that financial firms may lose $600 billion.
While financial innovations have brought some benefits, the events of the past eight months have also shown that there are costs,'' the IMF said. At the same time, the fund urged governments against a rush to increase regulation, especially changes thatunduly stifle innovation or that could exacerbate the effects of the current credit squeeze.''
Banks should improve disclosure and take writedowns ``as soon as reasonable estimates of their size can be established,'' the fund said. It also urged stronger supervision of capital adequacy, and said policy makers should prepare for further disruptions, the IMF said.
`Contingency Plans'
``Authorities may wish to prepare contingency plans for dealing with large stocks of impaired assets if writedowns lead to disruptive dynamics and significant negative effects on the real economy,'' the report said.
The fund added that policy makers should ``stand ready to promptly address strains within troubled financial institutions.''
Federal Reserve officials prevented a disorderly failure of Bear Stearns Cos. last month by agreeing to lend against $30 billion of the company's assets, as part of a takeover agreement with JPMorgan Chase & Co.
The fund noted in the report that while risks to financial stability remain elevated'' worldwide, emerging market economieshave been broadly resilient.'' Still, the lender highlighted the risk of faster inflation should the subprime rout cause the dollar's slump to accelerate.
Further downward pressure on the dollar, particularly if it'' comesfrom subprime or similar shocks, could boost liquidity and lead to an intensification of inflationary pressures in some emerging markets,'' the fund said.
Strauss-Kahn
IMF Managing Director Dominique Strauss-Kahn, who took office in November, has conceded that the fund wasn't as vocal as it could have been about the risks that a subprime collapse posed for the global financial system.
In April 2007, the fund said there was little risk of a serious systemic threat.'' It also said thatstress-tests conducted by investment banks show that, even under scenarios of nationwide house price declines that are historically unprecedented, most investors with exposure to subprime mortgages through securitization will not face losses.''
At least 14 banks and securities firms have sought cash from outside investors in the past year.
Since credit markets seized up in the U.S. in August, the Standard & Poor's 500 stock index is down about 7 percent, the trade-weighted dollar index has dropped more than 9 percent and the yield on two-year U.S. Treasury notes has fallen to 1.88 percent. Home prices tracked by S&P Case-Shiller have slumped in every month.
``There was a collective failure to appreciate the extent of leverage taken on by a wide range of institutions -- banks, monoline insurers, government-sponsored entities, hedge funds -- and the associated risks of a disorderly unwinding,'' the IMF concluded in the report.
To contact the reporters on this story: Christopher Swann in Washington
I'm curious: on what does Messr. Roubini base his assertion that this will be "the worst US housing recession since the Great Depression"?
Manufacturing will pick up..especially when we enter Iran...the new 100,000 plus job market coming to a summer near you.
"Tom writes:
The only way a war with Iran would be financed is through hyper-inflation leading to ultimate cataclysmic collapse of the entity known as the United States.
Well, yes.
Or the gov could raise taxes.
Sheesh.
Original Frank, I doubt that a tax rise would stave off the damage from war with Iran. War with Iran is a very big deal, much bigger than most people seem to realize.
In addition to the price of oil and the effect on our economy, there are other things to consider. Probably the most important is our army, which is stretched very thin, at the end of fragile supply lines. It wouldn't take too much to sever those supply lines.
If our army is seriously occupied, there are a lot of other regions in the world that would like to settle matters. China with Taiwan, for example. By the time we extricated our army, the world might be a very different place, and our power would be greatly diminished.
We Americans are so used to being the big kid on the block. But we've squandered our strength and created a lot of enemies.
I guess Roubini wasn't paying attention to the 1990-91 recession, when the entire U.S. banking system was valued as if it were bankrupt--and an entire sector (thifts) essentially disappeared.
All this "worst crisis since the Great Depression" talk makes me think of the tallest lilliputian standing next to Gulliver...
Charles,
There is some validity to your concern with overextensions, of course. Time is an enemy of success on the battlefield and it would take substantial time to reposition Iraq-based forces to address emergencies elsewhere. Perhaps time we wouldn't have.
However, the assertions that
1) it wouldn't take much to sever our supply lines and that 2) we could not attend effectively to crises elsewhere do not match well my acquaintance with US military capabilities. Short of nuclear strikes on Iraqi ports, I see little that would be able to effectively hamper our supply lines. And even that would simply raise the cost as we shifted more logistics to air.
China/Taiwan could be reasonably dealt with with US (or Japan) based air strikes on invading assets. The strait makes a nice targeting background for ALCM. Several standoff carriers could easily provide effective air (and anti-surface) support for the entire island. Granted, I am not plugged into senior military strategists but I wouldn't expect that there are many war plans dependent on placing sizeable numbers of troops on the ground in either Taiwan or ML China.
On the other hand, I agree with your perception that our commitments and the threats to our country outsize our current force levels. Time to undo the Bush I and Clinton 'peace dividend' and return the force structure to a size appropriate to the times.
It looks like Roubini was right about the severity. An L shaped recession is a big question mark, I think Roubini is leaning towards a U shaped recession.