Myth #4 is just so laughable. When rates are low and debt high, the effects of even a small change in rates is large.
There's little difference between 1,000% and 1,001% interest. There's a huge difference between 4% and 5%.
If noone has debt, who cares about rates. If people have a collective debt of 3 years worth of GDP, interest payments are going to be very substantial.
SoCal Chris, Rosenberg obviously believes the job market isn't really tight. I'm always amazed at the people that point to the unemployment rate and are concerned about wage inflation - for precisely the reason you noted - i.e. the relatively low participation rate.
Yartrebo, myth #4 is laughable, and I'm not sure if anyone really believes that or if Rosenberg is thrashing a straw man.
This bit: In other words, the level of net worth is a pretty useless leading economic indicator, and the notion that households will draw down their level of savings savings hopefully intended to fund retirement to satisfy current consumption instead sounds pretty spurious to me.
sounds more than a little disingenious, especially after all that work ("Well, we went back into the history books and found that U.S. household net worth hit a RECORD level in the quarter before every recession in the post-war era.") to establish that it is in fact a contra-indicator: the 'net-worth' pennants are actually warnings.
Seriously, he needs a smarter secretary so he doesn't just trash his own work.
I can volunteer. I must.
Regarding "Misperception #2 'dont worry about the consumer; the level of household net worth is at a record high.'," and the statement that it's always been at a record just before recessions, and usually keeps on rising right on through them: There are still many people in this nation who live well within their means and save 10%, 20% or even more of their income. The record high level of net worth is likely due more to these people's saving than to the evanescent upward spikes in the home values of the profligate.
But the frugal don't drive the consumption booms, and aren't going to suddenly start spending like mad when the boom ends. Indeed, since one phenomenon seen in every recent bust has been the Fed lowering interest rates to below the inflation rate to bail out the banks, the frugal are driven to save even more.
The coming carnage in the real estate markets is going to preferentially wipe out the big spenders, and the many young people who have been induced to overextend themselves by the "you've gotta buy now or you'll be shut out forever!" panic-mongers. (Home ownership is at record highs among under-30s.) The young will be in a pitiable state.
Here in Chicago and its suburbs, condo construction has been running at an astounding pace, with many projects clearly on track for spring completion. The coming glut will be a wonder to behold.
rosenberg is wrong about #2. the fed just came out with this:
"After totaling up both sides of the ledger, the median net worth of American households rose just 1.5 percent over the three years measured, to $93,100, according to the Fed's report, which is compiled every three years to provide a portrait of family finances.
By comparison, median family wealth rose 10.3 percent in the previous survey period, from 1998 through 2001, and shot up 17.4 percent from 1995 to 1998, during an economic boom that pushed up stock prices and wages.
The only weaker gain in wealth recorded by the Fed was in its first such survey, for 1989 to 1992, when median household net worth dropped 5.2 percent during a period that included the recession of 1990-91."
ote in my previous post, that rosenberg was totally off the mark, when he stated:"Not only that, but in every recession outside of the 2001 episode when the equity market melted, household net worth rose throughout the entire period of negative GDP growth."
Rosenburg is a bright fellow- and he along with Rich Bernstein from ML have been among the most honest and realistic economists on the street. You may add to these two guys Ian Shepherdson of High Frequency Economics; who says qutright there will be a recession- Rosenberg predicts a 'Hard Landing'- which is one in the same.
vi The world imbalances are sustainable and the rise in interest rates in Europe, Japan, and probably China, will not destroy the current carry trades, devalue the dollar, and explode everything
JUST LIKE IN 1929
Realist: the median net worth of American households rose just 1.5 percent over the three years measured ...
I saw the articles from that survey, too; I thought it painted a pretty sad portrait of American wealth, actually. But most striking to me was a chart PGL linked to on Tom Bozzo's blog, showing household net worth over the past 10 years broken down by percentage groups. Even the people in the top 10% of net worth had a virtually flat line for the past 3 years -- and those are the people who are supposed to be benfiting from Bush administration policies. What does that say about wealth-building in this country?
Just as a matter of logic, wouldn't we expect things that rise in tandem with GDP (taking into account leads and lags) always hit a peak of some kind around the time of the output peak? It may be a local peak or an all-time high, but the same sort of argument can be made with regard to home sales, credit, money supply and the like. Aren't we taught to look at first differences or first derivatives or some such thing in the process of tackling growing series like GDP and net wealth?
On misconception #2 - real wealth per capita is indeed barely above its 2001 level and is still below its end of 1999 level. Over at Angrybear, I noted this excellent piece - especially David's comments per the labor market.
Peter: Rosenburg ... and ... Rich Bernstein from ML have been among the most honest and realistic economists on the street. You may add ... Ian Shepherdson of High Frequency Economics ...
Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of MBG Information Services, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you dont know what worry is.
Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. Thats one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.
Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.
US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.
The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is the envy of the world. Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.
The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized new economy never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.
In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers h
Can a tight labor market accelerate inflation with such a low labor participation rate? Has it ever happened before?
Myth #4 is just so laughable. When rates are low and debt high, the effects of even a small change in rates is large.
There's little difference between 1,000% and 1,001% interest. There's a huge difference between 4% and 5%.
If noone has debt, who cares about rates. If people have a collective debt of 3 years worth of GDP, interest payments are going to be very substantial.
SoCal Chris, Rosenberg obviously believes the job market isn't really tight. I'm always amazed at the people that point to the unemployment rate and are concerned about wage inflation - for precisely the reason you noted - i.e. the relatively low participation rate.
Yartrebo, myth #4 is laughable, and I'm not sure if anyone really believes that or if Rosenberg is thrashing a straw man.
Best Wishes.
This bit:
In other words, the level of net worth is a pretty useless leading economic indicator, and the notion that households will draw down their level of savings savings hopefully intended to fund retirement to satisfy current consumption instead sounds pretty spurious to me.
sounds more than a little disingenious, especially after all that work ("Well, we went back into the history books and found that U.S. household net worth hit a RECORD level in the quarter before every recession in the post-war era.") to establish that it is in fact a contra-indicator: the 'net-worth' pennants are actually warnings.
Seriously, he needs a smarter secretary so he doesn't just trash his own work.
I can volunteer. I must.
Regarding "Misperception #2 'dont worry about the consumer; the level of household net worth is at a record high.'," and the statement that it's always been at a record just before recessions, and usually keeps on rising right on through them: There are still many people in this nation who live well within their means and save 10%, 20% or even more of their income. The record high level of net worth is likely due more to these people's saving than to the evanescent upward spikes in the home values of the profligate.
But the frugal don't drive the consumption booms, and aren't going to suddenly start spending like mad when the boom ends. Indeed, since one phenomenon seen in every recent bust has been the Fed lowering interest rates to below the inflation rate to bail out the banks, the frugal are driven to save even more.
The coming carnage in the real estate markets is going to preferentially wipe out the big spenders, and the many young people who have been induced to overextend themselves by the "you've gotta buy now or you'll be shut out forever!" panic-mongers. (Home ownership is at record highs among under-30s.) The young will be in a pitiable state.
Here in Chicago and its suburbs, condo construction has been running at an astounding pace, with many projects clearly on track for spring completion. The coming glut will be a wonder to behold.
rosenberg is wrong about #2. the fed just came out with this:
"After totaling up both sides of the ledger, the median net worth of American households rose just 1.5 percent over the three years measured, to $93,100, according to the Fed's report, which is compiled every three years to provide a portrait of family finances.
By comparison, median family wealth rose 10.3 percent in the previous survey period, from 1998 through 2001, and shot up 17.4 percent from 1995 to 1998, during an economic boom that pushed up stock prices and wages.
The only weaker gain in wealth recorded by the Fed was in its first such survey, for 1989 to 1992, when median household net worth dropped 5.2 percent during a period that included the recession of 1990-91."
ote in my previous post, that rosenberg was totally off the mark, when he stated:"Not only that, but in every recession outside of the 2001 episode when the equity market melted, household net worth rose throughout the entire period of negative GDP growth."
Rosenburg is a bright fellow- and he along with Rich Bernstein from ML have been among the most honest and realistic economists on the street. You may add to these two guys Ian Shepherdson of High Frequency Economics; who says qutright there will be a recession- Rosenberg predicts a 'Hard Landing'- which is one in the same.
ANother macro misperception :
vi The world imbalances are sustainable and the rise in interest rates in Europe, Japan, and probably China, will not destroy the current carry trades, devalue the dollar, and explode everything
JUST LIKE IN 1929
Realist: the median net worth of American households rose just 1.5 percent over the three years measured ...
I saw the articles from that survey, too; I thought it painted a pretty sad portrait of American wealth, actually. But most striking to me was a chart PGL linked to on Tom Bozzo's blog, showing household net worth over the past 10 years broken down by percentage groups. Even the people in the top 10% of net worth had a virtually flat line for the past 3 years -- and those are the people who are supposed to be benfiting from Bush administration policies. What does that say about wealth-building in this country?
Just as a matter of logic, wouldn't we expect things that rise in tandem with GDP (taking into account leads and lags) always hit a peak of some kind around the time of the output peak? It may be a local peak or an all-time high, but the same sort of argument can be made with regard to home sales, credit, money supply and the like. Aren't we taught to look at first differences or first derivatives or some such thing in the process of tackling growing series like GDP and net wealth?
see setser for this 6th macro misconceptio
On misconception #2 - real wealth per capita is indeed barely above its 2001 level and is still below its end of 1999 level. Over at Angrybear, I noted this excellent piece - especially David's comments per the labor market.
Peter: Rosenburg ... and ... Rich Bernstein from ML have been among the most honest and realistic economists on the street. You may add ... Ian Shepherdson of High Frequency Economics ...
What about Roach? What's his angle?
Nuking the Economy
By PAUL CRAIG ROBERTS
Last week the Bureau of Labor Statistics re-benchmarked the payroll jobs data back to 2000. Thanks to Charles McMillion of MBG Information Services, I have the adjusted data from January 2001 through January 2006. If you are worried about terrorists, you dont know what worry is.
Job growth over the last five years is the weakest on record. The US economy came up more than 7 million jobs short of keeping up with population growth. Thats one good reason for controlling immigration. An economy that cannot keep up with population growth should not be boosting population with heavy rates of legal and illegal immigration.
Over the past five years the US economy experienced a net job loss in goods producing activities. The entire job growth was in service-providing activities--primarily credit intermediation, health care and social assistance, waiters, waitresses and bartenders, and state and local government.
US manufacturing lost 2.9 million jobs, almost 17% of the manufacturing work force. The wipeout is across the board. Not a single manufacturing payroll classification created a single new job.
The declines in some manufacturing sectors have more in common with a country undergoing saturation bombing during war than with a super-economy that is the envy of the world. Communications equipment lost 43% of its workforce. Semiconductors and electronic components lost 37% of its workforce. The workforce in computers and electronic products declined 30%. Electrical equipment and appliances lost 25% of its employees. The workforce in motor vehicles and parts declined 12%. Furniture and related products lost 17% of its jobs. Apparel manufacturers lost almost half of the work force. Employment in textile mills declined 43%. Paper and paper products lost one-fifth of its jobs. The work force in plastics and rubber products declined by 15%. Even manufacturers of beverages and tobacco products experienced a 7% shrinkage in jobs.
The knowledge jobs that were supposed to take the place of lost manufacturing jobs in the globalized new economy never appeared. The information sector lost 17% of its jobs, with the telecommunications work force declining by 25%. Even wholesale and retail trade lost jobs. Despite massive new accounting burdens imposed by Sarbanes-Oxley, accounting and bookkeeping employment shrank by 4%. Computer systems design and related lost 9% of its jobs. Today there are 209,000 fewer managerial and supervisory jobs than 5 years ago.
In five years the US economy only created 70,000 jobs in architecture and engineering, many of which are clerical. Little wonder engineering enrollments are shrinking. There are no jobs for graduates. The talk about engineering shortages is absolute ignorance. There are several hundred thousand American engineers who are unemployed and have been for years. No student wants a degree that is nothing but a ticket to a soup line. Many engineers h