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First? Whhhheeeeeeeee!
NBER jumping on the wagon, eh? Don't then know about the impending economic stimulus package?
Considering economist's collective record is heavily skewed towards the optimistic side, this should be considered extremely ominous.
Now that the majority predicts a recession, it will soon be an overwhelming majority as most economists follow the crowd (like sheep) and are afraid to make predictions outside the norm. Thankfully, Roubini is willing to say what he believes even if others doubt him.
They generally only do this after the thing has started. No one loves gloom 'n doom economists.
I was prepared to believe a recession might come. However, if economists now believe it, I will have to consider changing my mind.
Was he standing in line at my local safeway? I have overheard several people discussing how much worse the recession will get in the last week.
It's unusual for economists to be predicting a recession, which worries me that guys like this may be right:
"The recession is likely to be a serious one," said Dean Baker, co-director of the Center for Economic and Policy Research.
A recession for the "little people". The maggots will count their loot.
Elvis,
Public opinion will solidify, too. Even if there wasn't a current or impending recession, the psychological shift would guarantee it as a "self-fulfilling prophecy".
aotc,
Yes, economists are often wrong, but (as I noted earlier) they're often optimisically wrong.
BTW, loved the drug comment. Economic cycles are hugely psychological in nature, and the widespread availability of anti-depressants may lead to some interesting wrinkles. Could this lead to an Orwellian future of government-sponsored "SOMA" distribution?
--
First, in most of 2007, we had recession deniers and "no recession yet" crowd. Now, we have depression deniers. In 2009, we will have "no severe depression crowd. In 2010, ...
There are leaders and then there are followers. Economists are very bad leaders when it comes to downturns. They feel safer in herd. That is a historical fact and will be repeated this time around.
In case people here dont know less than +5.5% YoY growth in household debt = recession; negative YoY growth in household debt = depression. You decide.
Jas
Hazard,
The MSM is always late to the party, but they usually crank up the amplifiers when they arrive.
"It's unusual for economists to be predicting a recession, which worries me that guys like this may be right:
"The recession is likely to be a serious one," said Dean Baker, co-director of the Center for Economic and Policy Research."
He's pretty progressive and reform-minded, so not so very unusual. But I haven't found him to be an habitual alarmist, either.
Yes and then the MSM moves on. There is an election and OJ is going on trial soon. Once the gnashing of teeth stops (perhaps helped by a stiff dose of SSRIs), as it will, then it will be back to business as usual.
You're right tj. I was thinking of the RE cheerleaders who make that MSM claim.
Unfortunately, I expect that other sets of cheerleaders will make the same claim re recession.
If GDP doesn't keep up with inflation isn't that a recession??
Jas -
I know you are referring to me.
I have been in the severe recession crowd for some time now. I am the CFO of a company with $250 million in revenue, so we have been preparing for this downturn in 2 of our 3 operating companies. The 3rd company will thrive. The downturn in one of our companies began in the Summer of 2007 and then took another leg down in the 4th quarter. I expect another leg down this spring and the fall. However, this company still makes money and I expect that to continue.
From my perspective it's still too early to talk about a recession baked into the cake. While now the economy will probably skid into negative growth without further FED and Treasury policy action, the latter can still avoid even one quarter of negative growth - if they want. The way I understand both Mr. Bernanke and Mr. Paulson they won't let it happen. We'll get a package of monetary and fiscal stimulus that will avoid a recession and lead to another serious upturn in the economy. My forecast for 2008 is >2% growth on average with no quarter in negative territory.
O-Joe
--
Just a question
There is a woman locally who is an RE agent and wasnt getting any business (a friend worked in the same office). In the middle of 2007 she took money out of her home to buy a new SUV and nice clothes to increase her chances to sell homes. She hasnt sold any.
What is she likely to contribute to the economy in 2008?
This cant be an isolated case. There are lags in the economy for a reason, no?
Jas
At every turn for the past two years, most (with the important exception of most on this fantastic site) have underestimated the magnitude of this series of events. As such, I tend to believe that this will be a bigger event than most currently forecast.
OJ,
The FED can't stop a recession even if they try. Not just this one but any recession. If they could why did we have all the recessions between now and 1907?
Also, let's not forget what Robert Toll said -- that if the US experienced a recession the situation in housing would become "cataclysmic".
Hazard-What leads you to say that the media are cheerleaders? They are generally accused of over-emphasizing negatives, because "if it bleeds, it leads".
Your readers might find Kasriel's Table 1 of cycle lows and 3 and 6 month unemployment increases interesting. According to it we would likely have been in a recession for a little while.
Of course, employment for 2007 will be revised again and eventually NBER may be looking at quite different numbers.
Toll is just a shill looking for a handout. You didn't believe him when he was touting, yet you believe him now?
That is like Bush's lackies saying, "but the French said Saddam had WMD", when they would never believe anything the French say except that.
Welll, take a look at the RE pages in your local Sunday paper. They say:
things are great, best time to buy a house, bargains everywhere, etc, etc, etc.
Even this Sunday I saw such.
And other such editorial stuff like the economy is solid, nothing to worry about ... although I have to admit the letters to the editor are quite explicit sometimes in ripping these ideas to shreds.
--
How many people, especially, economists were forecasting decline in home prices nationally?
Here is what Bernanke said in a Q&A session during March 2007 testimony (date?): The housing prices will not decline; the increase will decline to 3-5% annual rate.
Ryan Ratcliff: "California home prices never go down unless we are in a deep recession."
You see what I mean?
Jas
These guys have been wrong and will continue to be wrong, they are not on the front lines operating compaines. They are all paid shills to the highest bidder.
Maybe I will be wrong and my severe recession prediction will make me seem too optomistic, however, at this point I still dont see it. I also, talk to other CFO in my industries and they all see a slowdown, but they are still making profits, many by slashing jobs and other costs, but still making profits.
The propaganda that the subprime debacle is not enough to derail an otherwise healthy economy fades into the distance when we see all the kings men, the Treasury, the Office of the President and the Federal Reserve banding together. Somehow this simple crisis of confidence has manifested so much momentum that our largest investment banks have to offer loan-shark deals, to hard capital sovereign countries, just to stay in business. The economy is sound they all say, its only a flesh wound keep buying.
The embarrassment is that the (government sponsored) American citizens mandate seems to be to consume, regardless of increasing debt levels or ability to pay. Businesses have grown to believe that expanding credit will always get them through tough times. Their new game plan is to offset all the bad credit by loading up the more creditworthy to carry the load; in much the same way Citi diluted its junk. I have personally received hundreds of dollars JUST to keep lines of credit open and/or float any credit balance at zero interest till the end of 2008. This is a sign of desperate times and a failed paradigm.
The U.S economy has been made into a voracious credit pyramid desperately needing bigger bubbles just to stay afloat. This is the consequence of the illusion we have been sold perpetual prosperity. Propping up asset bubbles with more fiat money ultimately threatens not more just inflation but a rapid deflation when the music stops. The dollar retracing the past 40 years growth is mainly due to the realization that financial engineering was accepted as organic growth. It wasnt and the jig is up. The extent of that failed paradigm finally resulted in issuing mortgages like after dinner mints and showed just how desperate we have become to simulate (no T) growth.
The mindless creation of credit bubble after credit bubble, and subsequent debasement of our currency, has willingly ceded our global economic position. The recent fire sale on our assets (to other countries no less) might someday become a liquidation sale if this practice remains unchecked. Private bank officials are held responsible for such practices because they dont have a printing press. Government bank officials sell their accolades because they do. The Federal Reserve directly oversaw each and every credit bubble and the bad loan policies that bore them. They were close enough to hear that great sucking sound of artificially inflated home equity being withdrawn and pumped into an ever more credit dependent economy. Now what? All the Reserve can do to repair their abdication of oversight is posture and print more fiat money.
Our trip deep into uncharted economic waters has sustained until now only because of the misplaced notion that all the kings men can make things better. Chairman Bernanke, Secretary Paulson and President Bush are pedaling prosperity while administering duck tape patches as fast as they can. The rhetoric we now hear certainly reminds o
Pedaling Prosperity Propaganda: Rhetoric of Depression? -- Seeking Alpha
--
"...if economists now believe it, I will have to consider changing my mind."
Yes, indeed, sir. To depression!
ECONOMISTS HAVE NEVER BEEN WRONG WHEN ENOUGH OF THEN FORECAST A RECESSION; THEY ARE ONLY LATE.
They are confirming indicator of a recession with a lag. What this means is that the economy has already been in a recession.
Jas
Having been mostly a lurker on here and other EconBlogs for 12+ months now, I've seen the extremes of opinion (the Aheadofthecurve/O-Joe/Seb's -vs- the Jas's) with quite a few of "us" in the middle-ish (Banker/MaxedOutMama/FFDIC/MP/et'la). From what I've seen, we are distinctly trending towards Jas (though were not that far over, yet?).
I personally try to soak in all of the discussions and advice, taking in the sages (MP/Banker/CR/Tanta/Winter) as voices of reason and weighing them with the extremes. But still, for what its worth from a non-economist computer programmer with an interest in macroeconomics and a hope to jump into NorCal RE and concerned about his AUD holdings the trend seems to be headed towards Jas.
Or should I simply go back to programming?
C
--
Did anyone catch Bush saying: "We can't take economic growth for granted?"
I jumped of the chair, because that was the best recession confirmation.
Jas
Nit Pick,it is pedaling if you are on a bicycle,and peddling if you are selling something."Dick Cheney peddled his mama for a nickle,and took a post-dated check".
The FED can't stop a recession even if they try. Not just this one but any recession. If they could why did we have all the recessions between now and 1907?
01/20/2009 end of an error
The FED can to a certain degree decide on whether to let the economy slide ino recession or not. They actually deliberately sometimes let it slide into one if inflation goes oout of hand. Currently, inflation is decelarating fast enough IMO so they have room to unfreeze credit markets to prevent the economy from sliding into a recession. I can't say for sure they will, but do think so. The window of oportunity is in the next 4-6 weeks roughly IMO. We'll see what they will come up with, if anything. I think we can discuss this best then.
Maybe or even probably in the next economic downturn post 2010 inflationary pressures will have become so strong they actually will let a full blown recession happen.
O-Joe
What leads you to say that the media are cheerleaders? They are generally accused of over-emphasizing negatives
The media's top 2 jobs are selling advertising and selling (their owners') POVs. This is something of an orthogonal bizness, but sometimes (eg. FOXNEWS general tilting against Clinton and GE's investment in NBC's mideast war coverage) the shafts line up to give the media owners a coherent, and profitable, message.
FBC's employment of Peter Schiff is an interesting case. Everyone with 3 brain cells knows Peter's generally correct when he lays out his case, yet by surrounding Peter with 3 or 4 idiots in the panel it makes great TV for middle america.
CR has ran a reamload of graphs illustrating how the post dotcom Bush "Goldilocks" economy was powered either by direct consumer indebtedness (HELOCs and new mortgage debt) or government sector growth (again, funded by debt issues not adequate taxation).
The Clue Train blew through the station about 4 years ago, what we've got chugging into view now is the Pain Train.
All Aboard!
--
Go Chargers!
Ex-49er fan (BIG Rice fan),
Jas
MaxedOutMama, yeah, usually on Wall Street bearish equals unemployable, unless most people are bearish. Being bearish and going with the crowd is OK.
It will be interesting to see when the NBER dates the recession (assuming we see one). I think December is a good shot.
Best to all.
I've been following this blog, Roubini's, and other(s) for almost 2 years now. I've found that these blogs are just about the only places of information that is accurate and without bias.
With that said, I've a couple questions - and I invite everyone's opinion.
Assuming that we are already in recession; and I'm quite sure that we are.
Will we then see a total collapse of the monetary system - break in the govt chain of payments, etc?
The best way to describe a Depression is as a sustained period of overcapacity.
So there's two questions we need to answer in gauging the probability of a Depression: 1) does overcapacity exist, and where? and 2) could the situation of overcapacity sustain itself?
Our economy is more dependent on services than ever. Its interesting that services are more labor-intensive than manufacturing. So is there overcapacity in the service sector? Think of financial services, real estate, retail, entertainment, hospitality: these account for the lion's share of consumer services and the lions share of this recovery's job creation. Clearly, an economy in which consumers boost savings to 5% of income is an economy with large amounts of overcapacity in these sectors. Ironic isn't it -- that the supposedly stable services economy could be capable of generating MORE excess labor than its manufacturing counterpart.
And then there's manufacturing overcapacity. No, not in the U.S., but in China. Obviously, the Chinese cannot consume what they are capable of producing. But that's another story...
On the next question. Is the overcapacity like to persist?
Well, the answer to that question is easier to formulate than it seems. The savings rate will climb, and then theoretically, income growth will eventually soak up services supply. But wait -- some portion of those services existed because of MEW. Income growth must replace that. Another, more important, part came from leverage. That debt must be repaid, and repaying it will soak up income growth for some time.
So lets say the consumer wants to increase savings by 5% of income. That means he must save much more than that if he/she want to reduce debt at the same time. Some portion of income savings will pay debt, some will replenish cash savings. How long will this process take? A long time.
But the persistence of overcapacity has more to do with "friction" in the economy. Its tough to make hospitality workers productive in other sectors (no offense -- I used to wait tables). Retail real estate is not quite fungible. Hotels tend to fall into disrepair. In short, the assets, both human and real, supporting the retail sector won't hang around, like an automobile plant, waiting for demand to return. Lots of friction in the services economy, again, ironically, perhaps more so than in the manufacturing one.
--
Crispy,
You have been very truthful to the best of my knowledge and a good reporter of the local scene. I can only thank you regardless of different conclusions that we reach based on our own knowledge and experiences.
We are all here to figure out things and there is something to learn from everyone. No one is wrong all the time and no one is right all the time. We all have biases and need to be careful at all times of those biases. I argue with my own conclusions all the time!
With most people, the problem is not the intent (CR and Tanta are beyond reproach in their good intentions, for example, and they seem highly intelligent), but biases, lack of knowledge, etc. I constantly try to lessen my ignorance, or lack of knowledge, by studying masters and reading history.
I am sorry to say that there are too many mentally lazy people on every blog but you are not one of them. I learn from you and I am sure that many other do too.
Jas
I certainly see all of the signs of a major recession in real estate in the inter mountain west. But agriculture and natural resources may keep us from crashing like some of the rest of the country. This should all become fairly obvious by mid year. Could have a major effect on the election. Time for a change is a winner.
recession/depresion/goldilocks/slowdown/positive growth, inflation, deflation does anyone really change their mind? Or is it our emotional makeup that determines our beliefs and then we rationalize the outcomes. When we are right we can say look how smart we were. When wrong we look to the next event. I am very bearish but have been often wrong in the past. Good luck to all.
With foreclosures uncontained and bloated loans highly leveraged, inflation would not be in the banks' best 'interest'
So, I repeat my 2008 prediction:
iTulip will revise their Ka-Poom Theory to Poom-Ka.
Or maybe just Ka(-Ka).
Not DH
[in the inter mountain west.] But agriculture and natural resources may keep us from crashing like some of the rest of the country.
Worked for the oil patch with their natural resources and agriculture in the 1980s. Not.
" Considering economist's collective record is heavily skewed towards the optimistic side, this should be considered extremely ominous." No sh--, I am glad that I was not crazy in saying that our economy was crazy and housing prices were way out of wack, but I like it better when a small part of me thought I was wrong.
Jas -
How could you be a BIG Rice fan?!
He's the most bullish guy in the world!!
I heard him say just the other day that there will never be another recession let alone a depression.
Also, dont you know that Optimistic Joe is Joe Montana?!
And isnt the 49ers namesake really just a group that created one of the first speculative bubbles in this country?
The other thing I dont get is how some guy who hates extension of credit as much as you do could ever root for a team called the "chargers"....
I always figured you'd be a Vikings fan - those Scandanavians are great savers and have a ton of oil....
--
"The FED can to a certain degree decide on whether to let the economy slide ino recession or not."
I apologize for not being able to recall the name but someone very well respected said, on Bloomberg, that Fed can do nothing if a recession is about to take place, or in the making.
I think that it is a common knowledge that the Fed policy works with 6-9 months lag. If the fed saw no problems at the end of July then Fed is powerless to stop the recession if it already has begun or soon to begin.
Moreover, this time Fed actually might be pushing on the string. I believe it is.
Fed IS impotent now because its past abuses have rendered it impotent. I am amazed at Americans' faith in the Fed. Worse than Russians faith in the Central Planning.
Jas
Thanks Jas.
I come here to learn also and to question my own conclusions, thanks to all who participate - even Seb and O-Joe (robyn - no)...
--
"Jas - How could you be a BIG Rice fan?!"
Only as a football player. Loved watching him play. Luckily, got some "players' tickets" few times and saw him play from the 50-yard line (on the 49-er side) and then shake hands with Rice after the game. Amazing player.
I am sure that he is not the best informed on the future of the economy.
Jas
To be clear, I have no idea whether there is now or will be a recession this year. There certainly could be. But let's look long-term.
Here is a figure showing real US GDP from 1820-present
The Two-Percent Dilution
England, Holland, Hrance, Canada, and Germany show almost identical behaviour.
Growth averages 3.6 % a year and the graph is virtually a straight line. The Depression and recovery are visible, but don't deviate greatly from the long-term averages.
What drives this growth? Simply put, scientific progress. Tell me that people have stopped making discoveries, that all laboratories have shut down and I will be as pessimistic as Jas and tj put together. But until then, you will have to convince me that this 200 year trend is broken.
Ability to track risk has shrunk forever -Moody's
| Reuters
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"It will be interesting to see when the NBER dates the recession (assuming we see one). I think December is a good shot."
This, CR, is a very good call. I take my hat off to you for not ignoring the mounting evidence.
We are only 2 months apart and e-con gods might split the difference!
In early 2009, I think that you will see enough signs of a depression. Early signs would be -- S&P500 below 1200 before Sep; home prices down more than 10%, YoY, nationally; and 10-year yield below 3% for 3 months.
Jas
No matter what the FED can not make you spend money. The BOJ has been at near zero for over a decade it didn't work there it will not work here. Here are 3 reasons why.
1)Even 0% doesn't sell cars like it used to. So if the FED went to 0% banks still need to make money on loans.
2)Mortgages are near the lows when we were last at 1% and I don't see people buying houses. Why, there aren't as many people to do it. Most people have bought their last home by 45 most baby boomers are done. Not only that but we pulled baby busters in early with the housing bubble. There aren't enough people left to sustain the bubble. What can't continue won't.
3)Last but not least the baby boomers are past their peak spending years and entering their peak savings years. With their home equity all but gone and their stocks in a ditch they will save. This is also occuring throughout Europe.
That is why I feel we will have a prolonged period of sub par growth with multiple recessions the next 15 years.
c&c,
Since you are a CFO, did you see that Duke CFO survey? You're a pessimistic bunch!!!
aotc - Got a graph for Argentina? One would hate to be fooled by survivor bias...
Jas' anecdote about the realtor lady borrowing from the future highlights a whole category of exacerbating problems. The production and finance of houses, commercial real estate, autos, and many other consumer, government and hard goods was borrowing from the future. Especially in view of the demographic shrinkage of demand for real estate due to boomer downsizing and baby bust. Federal deficits, household deficits, balance of trade deficit have been the borrowing mechanism.
I'm in the severe camp, wondering about the D word.
Crispy, you said
"many by slashing jobs and other costs"
Where do I begin? Slashed jobs = slashed future corporate income.
If every company employs your strategy Jas is underestimating the coming carnage.
I'm lost for further words.
What's more important to the survival of a company?
Stockholders or clients?
end of an error,
Not just save, they'll start selling things -- stocks, bonds, etc. You work to earn your retirement, but then in retirement you spend what you earned. The retiring boomers will be a huge negative to the stock market, which is why TPTB tried to push SS to Wall Street.
ugh,
Stockholders are clients, too. Guess they'll need to sell their stock to eat.
"But until then, you will have to convince me that this 200 year trend is broken."
during that entire period we had many deflationary busts, yet GDP growth still continued. The exception being the Great Depression where GDP actually stuttered.
It seems to me that we will have a mild deflationary bust, where GDP still grows, ahead of us. It may feel like a depression however.
MLM-I don't have the identical graph for Argentina. They had 5 %/year growth from 1870 to WW I. I know they were among the least affected by the Depression. Recently they had very bad periods (1999-2000) and periods of very rapid growth (2003-2007). I honestly don't know what their overall picture would look like. Perhaps same trend as others but much more deviation from the trend line?
Jas -
The Jerry Rice post was a joke.
Trying to make you and others crack a smile.
Clearly failed miserably.
Not sure this audience laughs or even smiles that much...
Actually old-man Hilton came-up with the name "Chargers" back in the day when credit-cards were becoming popular; has nuttin to do with bolts.
Very boring win today, they will loose next week (never should have traded Breeze).
--
"What drives this growth? Simply put, scientific progress. Tell me that people have stopped making discoveries, that all laboratories have shut down and I will be as pessimistic as Jas and tj put together. But until then, you will have to convince me that this 200 year trend is broken."
Ah, but we did have the Great Depression. Not to mention what happened to the great nation of Germans, the most advanced, scientifically, hundred years ago.
What happened to investors in the stock markets in Germany, Spain, and many former great nations during the 20th century? People simply got wiped out. What difference does it make what happened later.
Then, there are long-term cycles than the period you refer to. Human irrationality trumps scientific progress every time, at least once in a lifetime, usually twice. Can you give a single example of no depression in a lifetime in any of the nations you mention? I thought not. You, obviously, have a blind spot or two, or three. I am here to point out.
Jas
What drives this growth? Simply put, scientific progress
Reading that article, I see no accounting for population growth. There is nothing in those numbers that support your claim that scientific progress outweighs population growth in effects on GDP.
Furthermore, as was mentioned in the previous thread, studies over this long a period of time are always suspect. The GDP measurement methodology has changed significantly over the years. While the chart claims 1990 dollars, it is not clear how inflation and CPI is being included in this GDP measurement, nor whether the adjustment is uniform.
Anonymous,
Again, if you won't put in a "Name:" please at least add an alias to your posted text.
FTR, I see most of us here as being quite similar to those people portrayed in the movie & series "MAS*H" -- intelligent and witty people in seriously unfunny circumstances.
FWIW, I believe that the Fed is basically impotent to STOP a recession from occurring. But they are not impotent to START a recession. IMO, this is exactly what it is doing. The sequential rate hikes under Bernanke, and now the intentional shrinking of the adjusted monetary base (despite all the talk of liquidity injections, lowering rates, etc.) confirm it.
Why is the Fed engineering a recession (note, however, the recession would have come anyway - it's just now that the Fed has decided that it MUST come)?
It recognizes that we have reached the zero point of debt. At something like 400% debt-to-GDP ratio (and that's just what's accounted for - to say nothing of what's unfunded), the economy cannot service the debt at a positive real rate of interest. The Austrian monetarists are right on this. Either a hyperinflationary blowout of the currency ensues, and the debt is defaulted in toto, or the Fed tries to engineer a deflation and hopefully moderate its effects through fiscal policy and/or gov stimulus projects.
In a hyperinflation, the Fed loses its job, as Congress takes back the reins. In a deflation/depression, the system lives on, and (just as in the 1930s) the Fed and the Government come out stronger. The standard of living of the US is going to severely decline in either case, so which do you think they will choose? I'm with Jas on this.
I'll post my sketch equation answer to Aheadofthecurve's interesting graph on GDP growth shortly.
--
Anon,
Thanks for clarifying. I thought that my beloved Jerry was really a bull. But, I can't hold that against him.
What I really want to know is: Is Dalai Lama bullish or bearish?
We have a local Korean Buddhist Temple where a Harvard (or MIT) educated white guy is the monk (very very smart and a wonderful human being). He says that his guru agreed with my forecast of the bad times. It would be nice to get a confirmation from Dalai Lama.
Jas
Walker-Your point on population is a good one. Growth in GDP/capita would be < 3.6 %, but still significantly positive. As far as I know, population would have grown more rapidly prior to 1900 than after and is very low in these countries today. Thus on a per capita basis, the performance is better in the more recent era. It is worth considering, as population growth slows, and in many countries, goes negative, will lower GDP growth rates be much more tolerable than they were in the past?
aotc - Not sure if you're familiar with the book "Triumph of the Optimists", but if you like Bernstein, I think you'd appreciate it.
If you're talking about GDP, and not any particular stock market, then I happen to agree with you that scientific progress is the name of the game. Just think about what has happened in the last 100 years. -- truly amazing.
If you're talking about stock markets over the past 200 years, there have been a lot of wipeouts (as Jas points out), even while long-term progress was being made.
What drives this growth? Simply put, scientific progress. Tell me that people have stopped making discoveries, that all laboratories have shut down and I will be as pessimistic as Jas and tj put together. But until then, you will have to convince me that this 200 year trend is broken.
Aheadofthecurve | 01.06.08 - 9:16 pm
The Republican's front runner (this week anyway) is one of the three jackasses that raised their hand when asked last year who doesnt believe in evolution! One of the top what, six people in the country that will be chosen to lead for the next four years doesnt believe in evolution!?! If that doesn't show contempt for scientific progress on a national scale, I have no idea what does!
If science in America isn't dead, it will be soon...
Ahead of the curve,
Lower GDP is hard to tolerate because you still have the same or more debt per capita with less earnings to tax. Japan and most of Europe are in deep kaka as their populations shrink but debt increases for the caring of the aged. Italy will have 1 person working for every person retired soon.
--
"Why is the Fed engineering a recession (note, however, the recession would have come anyway - it's just now that the Fed has decided that it MUST come)?"
That part is simple -- Fed has a "controlled inflation" regime around 3%+-. It must create a recession to insure inflation remains below 3%. However, at some point it will lose control of the "controlled inflation" regime and the real question is: In which direction? My read of history says, towards deflation.
Jas
Campbeln- Sadly, true. Of course science in the US survived Reagan who thought trees cause pollution and Bush who never thought. And, fortunately, scientific progress doesn't depend solely on the US.
Given the 2.5:1 turnout for the Dems vs Repubs in Iowa, it's hard to see any of those Neanderthals winning, but who knows?
Jas - That's funny, because my cynical read of human nature says that your representatives in Congress will do whatever it takes to keep the gravy train running. And that means no deflation. Better to take as slim shot at inflation without blowing up the dollar than having to go get a real job.
But first, they'll have to wake up. Thus the ka before the poom.
Not sure this audience laughs or even smiles that much...
Dumbest thing posted on this blog EVAH!
(I'll spot you that today's most active poster is a humourless git.)
--
"Jas - That's funny, because my cynical read of human nature says that your representatives in Congress will do whatever it takes to keep the gravy train running."
Gosh, how stupid of me to forget the powers of our "representatives in Congress" and the Fed to forestall deflation. I knew that I must be stupid to hold a view not shared by 99.9% of Americans.
Jas
Here is my simple-minded intuition, and I would love comments on it if anyone thinks it's interesting.
First, forget about inflation, and only think in real terms (inflation mucks up the thinking but conceptually doesn't change the thinking).
Then, the growth of a country consists of productivity + population growth. Productivity is strongly correlated with scientific progress, as many have noted, but it also incorporates ideas of progress in civil institutions (freedom, rule of law, clarity of property relations, etc.), and probably a lot else in there too.
Fill in whatever numbers you like, but I'll go with long-term productivity (real, of course) of 2% and population growth of 1%. The true numbers do not matter too much for the intuition IMO, and these are close enough.
Year 1 GDP = index 100
Year 2 GDP = 100 + 2 + 1 = 103
(GDP is a very troubled term - I mean it here as the "productive output" of the country, but fill in as you see fit.)
Add debt to the equation. Since debt requires a real interest rate return (or else it is cut off), let's call that required return 2%. At 400% debt-to-GDP, the equation is now
100 + 2% + 1% - 8% debt service costs (2% * 100 * 4) = 95.
GDP available to the population has gone down! And so have living standards, even though productivity was positive.
Unless of course, you plug that hole with MORE debt. And that's all it is! Minsky and von Mises of course recognized this. Debt creation must accelerate in order to maintain living standards. At some point debt can no longer be forced into the system because the potential lenders recognize impending insolvency.
Are we there yet - at that point? Who really knows, but the Fed does not want to find out. Safer to try to deflate the debt now, and stuff the losses to the population wherever possible (although there will obviously be plenty of losses to bankers and other lenders).
It's very interesting that in Aheadofthecurve's chart, the rampant addition of debt to the US system (from 120% of GDP as recently as the early 1980s to just about 400% now) did NOT improve trend real growth! But the debt must be repaid (or defaulted) and serviced still. So, living standards must go down, as productive output is diverted into debt retirement.
--
Breaking news...
Pakistani President Musharraf is accusing Americans of misperceptions (on CBS 60 Minutes)
Let us bomb Pakistan! Let us leave no misperceptions.
Jas
I think a 2008 recession (if it happens) will be very mild. Bernanke, Paulson and Co. are revving up the B-52's right now, ready to shower the world with money. We'll see double digit inflation (as signalled by the commodities markets) before we see a recession, but inflation reported by the BLS will of course be under 3%.
Very scary to think what might happen this year and next. Savers, prudent investors and non-gamblers could be in for a very rough ride.
We will get a depression (not a recession) at some point, but that won't happen until Bush, Paulson, Bernanke and Co are safely out of office. By which time, the dollar would have depreciated another 25% or more (against Gold and other commodities).
K Morgenstern,
My answers (actually, guesses) to your questions:
3 & 4. I don't think the Fed can really re-inflate, and I don't think it has enough power to single-handedly trash the dollar. IMO, people almost always overstate the Fed's influence over economic events.
ba_lurker,
First, they could raise conforming limits to $100 million but it wouldn't do a damn for housing. The problem is a-f-f-o-r-d-a-b-i-l-i-t-y; J6P can't even realistically afford a $417K house.
Second, "it's not illiquidity, it's insolvency". Rate cuts don't change that.
James,
The real wildcards are demographics and peak oil. Could be that we get kicked when we're already down.
ba-lurker raising the conforming limit to $1MM will not reinflate the housing bubble because YOU HAVE TO HAVE THE INCOME AND PROVE IT TO QUALIFY.And lowering rates to zero won't do it either.The median family income in Sonoma County is about $53k and the median home is still $500k.Most importantly,the general populace has been hit over the head with a large clue,and it no longer believes in the house fairy.game over.
Aheadofthecurve: your attribution of economic growth to advances in science is true, but I would also attribute much of it to cheap energy.
Dave Pierson: Could a depression be described not as an overcapacity of production, but as an undercapacity of consumption? Given consumer debt levels, won't consumer buying capacities be impaired for quite a while?
Jas > Let us bomb Pakistan! Let us leave no misperceptions.
Why noone asked candidates which country they would bomb first? And you call it journalism...
Does anyone one have a link showing the historical relationship between economic growth and debt added to the economy?
I recall seeing one a while ago. It showed that we have been getting much, much less growth per increment of debt in recent decades than in the past.
Serious diminishing marginal returns to more debt.
Maybe we need to take our medicine now, reboot the system, purge the debt, and start over.
NorkaWest -
Try this link:
hit the zero hour
I have a chart of historical debt-to-GDP from Ned Davis Research but it's a pdf and I've never found a link to it. But maybe you can google around. It's interesting that the rampant introduction of debt in the 1920s (from about 100% to about 300% ratio) also did not improve trend productivity, but the fallout as the debt was destroyed really walloped us!
I marvel at how hysterical the country is about the possibility of a recession. We have had them before and recovered without falling apart. The way this coming one is a topic of dread makes me wonder if people suspect it will be the recession of all recessions, worse than any before.
Best medicine is to have fixed income holders pay for debt of CDO speculators. First, this encourages enterpreneurship, which in itself is a good thing. Second, this can be blamed on oil producers, which is not far from truth. Inflation is linked to oil after all although weak dollar kind of influences oil price. Third, TV just begs for good programming as writers are on strike, next war campaign is long overdue.
aotc: What drives this growth? Simply put, scientific progress. Tell me that people have stopped making discoveries, that all laboratories have shut down and I will be as pessimistic as Jas and tj put together. But until then, you will have to convince me that this 200 year trend is broken.
Aheadofthecurve | 01.06.08 - 9:16 pm
Just curious about the scientific labs that concoct notions like Modigliani Miller and Black Scholes, assume infallibility, and from them construct weapons of financial destruction.
More seriously, history shows that great empires are defeated from within by duplicity, greed and hubris. Seen any of that around lately? I grant you that some of the scientific advances seen in my lifetime are miraculous, and their absence would make our lives less rich in all senses of the word. But the same human failings that bedeviled the ancients will come to haunt us again.
These are old questions: Why do the nations rage so furiously together? Any why do the people imagine and devise a vain and futile thing?
I knew that I must be stupid to hold a view not shared by 99.9% of Americans.
I can't imagine why you are under the impression that Congress will be unable to inflate the hell out of the currency. It's not a question of stupidity, it's a question of lack of imagination.
MLM: Members of Congress aren't normal people. Most are quite wealthy. You think they'll destroy their own wealth? Now if I see reports of them loading up on gold...
aotc,
On the other thread you stated it was impossible to disprove my "bold conjecture". Not so. All you have to do is identify economic sectors that are generating jobs & income at a pace sufficient to eventually (a) outpace losses accelerating elsewhere and (b) overcome our monstrous debt load without cutting spending, and all within the next year or so.
The trend is decidedly down, and we haven't even really felt the secondary effects. Wait until the job losses really mount, the stock market really tanks, etc.
There's no savings left to divert to spending, no extra debt capacity to explore, no more widely held assets to inflate, etc.
I marvel at how hysterical the country is about the possibility of a recession. We have had them before and recovered without falling apart. The way this coming one is a topic of dread makes me wonder if people suspect it will be the recession of all recessions, worse than any before.
James | 01.06.08 - 11:06 pm | #
Exactly. Just check the post by Satchel directly above this one. The coming recession will likely be worse since the system cannot but throw a larger portion of debtors off the servicing treadmill, with attendant suffering by all of us.
Fisher identifies nine factors, which together describe the development of a depression. These factors are
(1)over-indebtedness of the private sector leading at some point to debt liquidation,
(2)a reduction of the money supply (deposits are reduced by loan liquidation),
[3] a reduction of the general price level (triggered by the reduction in the money supply and distress selling of assets),
(4)a reduction of the net-worth of firms and consumers,
(5) a reduction of profits,
(6) a contraction of output,
(7) a general loss of confidence,
(8) a reduction in the velocity of currency circulation,
(9) an increase in real interest rates.
"By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law ... The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." -- Mark Twai
Could this lead to an Orwellian future of government-sponsored "SOMA" distribution?
Soma is from Huxley's "Brave New World". Much happier than Orwell's "1984", where people had to console themselves with Victory Gin.
James,
Yes, recessions are a normal and necessary part of economic cycles. Malinvestment must be purged, those involved take their medicine, and the economy moves forward with corrected priorities.
Very much like how getting a little sick here and there builds up immunities so as not to have a stronger errant bug kill you. However, since the politicians feel the need to bail out everyone, they've applied heavy doses of antibiotics every time there's a hiccup. Consequently, we've systematically rendered all those antibiotics ineffective, and now we're really sick.
As hinted above, we're reaching the "Minsky Moment" wherein no amount of debt growth will result in GDP growth.
Satchel: Thank you.
yogurt,
Damn, you're right! Thought I might have screwed that up when I wrote it, but didn't check it anyway. Thanks for the correction.
Twain tought us many things:
It isn't the sum you get, it's how much you can buy with it, that's the important thing; and it's that that tells whether your wages are high in fact or only high in name.
Jesus! Conjure and I just finished an excellent dinner with surf and turf action. My cardiologist would not be pleased, but to hell with him. We've been enjoying cigars, some Grand Marnier, espresso, then we come here for some late night enlightenment.
Seriously, some of you people need to find a warm beach and lie down until the feeling goes away. We've never seen you so, so, NEGATIVE.
Look, if you want to talk about something truly cataclysmic, talk about the asteroid that's headed towards our planet--and possibly your backyard.
Is there one out there headed towards us? Sure there is, it's a no-shit mathematical certainty.
Will it hit Jas Jain's backyard? Jesus, I hope so.
AZ Cowboy -
I don't believe that members of Congress as a group are incredibly wealthy (many millionaires, but very few deca or centi-millionaires). Here's a couple links that at least point towards this conclusion:
Google Answers: average income of members of the u.s. congress
- and -
But those numbers are deceiving, since a few very wealthy members can greatly skew the numbers. A more reliable yardstick is the median income, the amount that's halfway between the richest member of Congress and the poorest. Measured that way, House members had a median net worth of $385,000. Senators had a median net worth of $1.1 million. Again, those are averages of the minimum amounts members reported.
from BRUSHFIRES OF FREEDOM: Why do lawmakers pass themselves off as "common folk"?
My take is that they're in it for the power and the free hors d'oeuvres (ignoring those that have stacks of $100 bills in their freezers).
So, they may put some of their money in gold, but the main effort will be to keep getting elected and keep the perks rolling in. That means all kinds of mindlessly idiotic programs to get money into the hands of constituents and campaign contributors.
Apologies to Crispy & Cole, who is always a valued contributor but I am in agreement with Tanta on the weekend comments.
mp - I just got back from two weeks on the beach this morning. It was great.
But, the numbers are somewhat troubling, and knowing that exactly how things turn out is now largely in the hands of the same general crowd that ran the Katrina relief effort is enough to make me jittery.
TJ+bear/Tom Stone
Isn't it possible that the US Treasury (indirectly via the GSEs) becomes the lender of last resort to FBs ?
Raising the conforming limit to 1M (with a more explicit guarantee on MBS's issued by the GSEs), could potentially jumpstart speculative lending. If that happens in concert with the Fed dropping rates to where real rates are hugely -ve, it is possible that yield hungry investors come back in and buy Fannie/Freddie bonds with a Govt guarantee.
The party could go on, at least for a while.
The latest reports in MSM are that the street is clamoring for a 50bp cut in the fed funds rate. I have no doubts Bernanke will oblige again (damn the soaring commodity prices). Today's FT has an OpEd piece which says Bernanke authored a paper which argued that high oil prices were not responsible for inflation
These are possibilities that we probably can't dismiss.
MLM,
Agreed. In fact, IMO the rich and the politicians both don't see the train coming at them BECAUSE they're so far removed from the main street effects.
Ever read "Hedgehogging"? Only one of Barton Bigg's friends, "the crazy one", even owned gold, and only $50K of it at that.
They've been the chief beneficiaries of this false boom, so why should they worry?
The uber-rich do quite well in a genuine recession, that is what "disaster capitalism" is all about says Naomi Klein in her new book. While 95% of the population is deleveraging, the masters of the universe go whole-hog darwin on your ass. That 5% is about the entire constituency Shrub has left.
mp > Is there one out there headed towards us? Sure there is, it's a no-shit mathematical certainty. Will it hit Jas Jain's backyard? Jesus, I hope so.
MP, you stole my thunder, that's what I've been saying all along. We are all doomed and need to take it easy, get cigar, etc in last few minutes. Jas is just one of them, there are many more as you know.
"My take is that they're in it for the power and the free hors d'oeuvres (ignoring those that have stacks of $100 bills in their freezers).
So, they may put some of their money in gold, but the main effort will be to keep getting elected and keep the perks rolling in. That means all kinds of mindlessly idiotic programs to get money into the hands of constituents and campaign contributors."
They're basically bag men for the powers that be. They make sure the easy money passes from the public pocketbook to the private interest, and throw a spare million now and then to the folks at home for a flood control project or something to prove that they're "working for them in Washington."
They also want lucrative lobbying jobs after they 'graduate.' Some of them are there for the power, but the most of them are time-servers and wardheelers.
MLM:
"I can't imagine why you are under the impression that Congress will be unable to inflate the hell out of the currency"
Then later: "they're in it for the power and the free hors d'oeuvres "
Doesn't take much imaginaton to see why the former won't happen in 2008; 1600 pennsylvania
is up for grabs so nothing meaningful will come from the inside the beltway this year.
The uber-rich do quite well in a genuine recession,
Isn't that the real definition of wealth? Some protection from the slings and arrows of outrageous fortune?
IMO the rich and the politicians both don't see the train coming at them BECAUSE they're so far removed from the main street effects.
Yep. That's why I think things could get pretty deflationary for a while. The time lag between now, and the feds really getting a clue and doing something about it could be fairly long.
But eventually, my I think they will find many many popular ways to get money into the hands of hard working Americans that are just a bit down on their luck.
mp, lol, and off to lunch. Intend to follow with a montecristo #5 (it would be a #3 but it is Monday afternoon after all).
MLM, the "crowd" that is going to handle this is not going to be the same crowd that handled the Katrina relief effort.
Although Conjure and I are, at times, disparaging of the Fed, there are some EXTREMELY competent people there and Uncle Ben will undoubtedly tap that resource.
Kou Jie, Montecristo Churchill. Yum!
ba_lurker,
I'm with Tom Stone, the jumbo limit will not make a difference until real estate has bottomed. By definition then, it will not be a "temporary" lift to $1m. On the other hand, that does not mean that the administration won't steamroll the OFHEO head and ram it through anyway.
The GSEs are having second thoughts about the limit, I don't think they want to put their balance sheets at risk for the same bankers that tried to get Congress to yank their charters 5 years ago. Remember, they are model driven, and they don't have jumbo historical data all sliced up yet.
mp - I don't think the Fed can do anything (until things get really bad on Main St.) except provide first class life support for the banking system. I can't imagine they are politically in a position to give everybody long term low interest loans on their 2 year old speedboats next week.
Getting money into the speedboat crowd's hands will fall to Congress. And as r0m30 points out, they are distracted this year.
MLM, there is an old saying that has been oft repeated here:
If you're out of a job, it's a recession. If I'm out of a job, it's a depression.
To many, this IS going to be a depression. To others, it will be a recession.
The Fed CANNOT pinpoint its response. The response will be IN AGGREGATE.
Sorry.
r0m30: No legislation this year is the prediction. House passes legislation, Senate Republicans filibuster & Shrub threatens veto, ergo no conference committee action. That is common practice today.
The Dems are not exactly saddened by the situation. More gridlock means they will win more seats in Congress in November. And so it goes.
OT -
BTW, I hope an asteroid doesn't hit Jas's back yard, because he would then be unable to attend my Calculated Risk fantasy cocktail party. To be held at dotcommunist's fancy NYC loft, with guests of honor to include Jas and Robyn.
Token appearances hoped for by Conjure Bag and the Mortgage Pig, who are likely to be spotted together later in a SOHO jazz bar drinking fine Armagnac and heading outside once and a while to swap stories over cigars.
Clyde: Exactly, no response will be comming out of washington so that leaves us with the FED (yikes!!!). If as the FED itself believes there is a 6-9 month action to effect lag then IMO the recession is a done deal and so that only leaves asking how bad and speculating on the "D" word.
MLM!, WOW!, WE WILL BE THERE! NAME THE DATE AND TIME!
MLM: ROTFL! but conjure and the Mortgage Pig will have to swap more than cigars to get thier pictures in the tabloids.
mp - I'm pretty certain that this is one of those things that sounds better than it turns out to be (kind of like that girl I finally managed to date in college). Still, it truly is a pretty picture...
mp -
Uhh, struggling to get back on topic. What do you think the Fed can do to provide adequate cushion for the fact that there are a whole bunch of homeowners that can't afford their houses? It seems to me that the money is gone.
ba_lurker,
Median household income for 2006 was $48,201. Max DTI of 36% allows $1,446/mo for PITI.
At 1%, a 30yr FRM for $417K runs $1,344/mo just for P&I (no T&I). T&I will be a LOT more than $112/mo.
Again, raising the limits doesn't do a damn when J6P can't afford the existing limit -- even at 1%, and rates will never get that low even if the FFR is zero.
Yeah, what tj said, more eloquently and with figures to back it up.
MLM,
Yes, that's my problem with mp's (& CB's) outlook. How can we expect the people that got us into this mess to get us out? Government generally functions best when it just gets out of the way.
p.s.: I'm not anti-regulation, just dead set against central planning.
tj - I agree on regulation, and I'd even be willing to take all the temporary central planning I can get if it means we avoid an economic catastrophe. I just struggle to come up with a plausible chain of events that keeps things from getting a lot worse before they (hopefully) eventually get better.
I haven't sat down and done a back of the envelope on how bad things could get, but when you've already got a negative savings rate and some pretty hefty federal deficits, the way out looks pretty much uphill to me.
tj&tb,
I guess I'm leaning your way on this, I'm beginning to believe that Greenspan's famous "soft landing" will soon become infamous as we live through the unintended consequences.
tj- "How can we expect the people that got us into this mess to get us out?"
The people who got us into this mess are not going to get us out. They're now working at McDonalds and used car lots. Conjure and I, by the way, met many. They're where they belong.
MLM- "What do you think the Fed can do to provide adequate cushion for the fact that there are a whole bunch of homeowners that can't afford their houses?"
At the end of the day, the GSEs will be tasked to refinance those who qualify. They will experience a recession. The ones who don't qualify are going to experience a depression.
A yet-to-be-created Federal "fund" could absorb the difference.
As mp stated earlier, it all sounds so negative, but I approach it from more of a pragmatic, analytical perspective. Well, I try to, but I'm well aware of the hardship this will place on family and friends.
It's not the rapture ahead, just bad times for an unusually large minority. I would expect that most of us here will do just fine (although Seb & O-Joe's portfolio's may take a severe beating).
tj -- the term is now "ocular penetration"
mp,
IMHO the REIC didn't get us there, the clowns at the Fed, in DC and on Wall Street did. Don't see any significant differences there.
mp,
tj shows the math above, half of america cant afford the current GSE limit @ 1%. So higher DTI ratios are in the cards too?
mp - Hope you're right. I don't know the numbers well enough to do more than venture an uneducated guess.
My take is that it's going to come down to how fast these things can be put into action (in an election year). As you know, trouble is already showing up in CRE, and high yield bonds are going to be the next shoe. There's a lot of money teed up for the evaporator between those two (not to mention derivative losses that will pop out of nowhere as the money evaporates).
I sincerely hope some of those central planners are out there thinking more than one move ahead.
tj, don't lay all of this at Greenspan's doorstep. I AM NOT a Greenspan defender. The fact is, if I could go long on GREED, I would be a principal holder.
What's needed is REGULATION. The Fed needs to tackle this IMMEDIATELY to ensure that it NEVER happens again.
r0m30, I don't see higher DTIs or LTVs in the cards. I see a BAILOUT for those who are "deserving," and a short shrift for those who don't.
Re: Never Happens Again
Christ, look at the history. Citibank figured out how to do this and taught everyone else, and that's one of the reasons why I'd VAPORIZE Citibank and their goddamned culture.
They did it in the '80s with housing, got bailed out, then did it again with mobile homes and got bailed out, now they've done it with housing again. They're certain they'll be bailed out yet again.
Doesn't anyone get the message?
You can't loan on ACTUARIAL principles. You have to lend on CREDIT principles. OK?
ACTUARIAL is CHEAP. CREDIT is EXPENSIVE.
THINK TANTA. GOT IT?
End of rant. Sorry.
mp,
Totally agree on regulation. Just thinking it's closing the barn door after the horses are long gone as far as current circumstances are concerned.
No doubt in my mind though that the Fed is complicit, though. For one, they've systematically gutted banking reserve requirements these past 20 years.
mp,
Re: Never Happens Again
I think it has to go deep enough that no one ever speaks the words "to big to fail"; vaporizing Citi would be a good start but only a start.
Tanta came to mind when you spoke of the GSEs being forced to refi, she ranted that any investor who thought the GSEs wouldn't have to take one for the team was a fool (or close to that)
ps - I enjoy your rants
Look, guys, we live in what's supposed to be a represenative democracy. If, fifteen years ago, the Fed had proposed regulations prohibiting what has just occurred, Joe Sixpack and his buddies would have been loading their shootin' irons, no?
Goodnight all. Got to noodle what other asset types are currently comprised of "actuarial" loans. You aren't making me feel any better.
mp,
Not so sure, could J6P have even understood what was being regulated? Hell I don't think I really understand it on more that a superficial level today. Hasn't he shown that he didn't understand it as he was lead (greedily) to slaughter? That was certainly before "we are all subprime" became the meme and up until very recently this was about "them". The Banks and IB's would have had a fit but I don't think J6P has any affinity for that crowd at all.
mp,
Something else that we have to factor in is the glacial pace of government response, too. Housing topped in 2005, yet to date we have one initiative wherein the government was simply exhorting lenders to proactively explore workouts.
What's my point? Even if they do the right thing (which I find highly unlikely), it'll likely be too late to matter -- at least for this go-round.
Of course, they'll fix it for another 70 years or so thereafter, until the people inhabiting that era completely forget and repeat the same mistakes all over again.
Joe Sixpack is a hell of a lot smarter than you think he is, especialy when it comes to greed. Lie on a loan app? Why not? "Everyone" was doing it. Remember, 'If you have a pulse, you can get a loan.'
Joe was like everyone else. He thought he'd stay and enjoy, but take leave of the party moments before the four horsemen came crashing through the ballroom windows.
He discovered otherwise. Sorry. It's called 'capitalism.
IMO the crises will hit so fast & furious from here on out that the folks in DC will be paralyzed like a deer in the headlights.
For example, by the time they figure out exactly how they want to use the GSE's to save housing the GSE's themselves will likely be insolvent.
p.s.: IMO the GSEs are already insolvent, since they're on the hook for more MBS than all the bond insurers combined.
tj, in July 2005, I was standing in front of a piece of real estate in Los Gatos, California talking to a 'realtor,' who was trying to persuade me to buy it. The guy was, in every sense of the word, delusional, and I told him so.
He finally admitted to me that what he was doing was "bullshit," but he had to "make a living." His employer had persuaded him to mortgage his house, then buy a Mercedes and two Armanis. He had to pay for them, yada, yada.
What can I say? Some folks know what time it is, some don't.
Regulation is always "reactive." People have to learn the error of their ways. And, yes, 70 years from now it will happen again, and that's why history repeats itself.
That's why Glass-Steagall was repealed, but I'm not going there, not now.
Sorry, I forgot to mention the Zig Zigler (sp?) tapes he bought.
Poor guy, he's probably using that beautiful Mercedes to deliver pizzas.
mp,
Yep, the koolaid was powerful stuff. When you're hearing NAR talking points from relatives (like I did), you know it's bad.
Thank heaven we have functioning BS detectors!
mp,
The "Realtor" reminds of car salesmen. Boss always wants 'em up to their eyeballs in debt so they're desperate to sell. Of course the economy tanks and they're bankrupt. With the new bankruptcy rules, now they'll still in debt up to their eyeballs....
--
Recession, Recession, Recession...
I watch quite a bit of CNBC-World. No matter where the business broadcast was originating from last night, East Asia and Europe, the talk of the town was US recession. This morning a strategist on CNBC, as soon as I turned on the TV, said that we will barely avoid recession. We know what the last comment means coming from a stock-promoter.
Recession IS here and it is here to stay for a very long time. Here is why.
Americans can live well on consuming 70-80% of the new products, i.e., use the old homes, old cars, etc., than they did in 2007. What I mean is that the US households have excess inventory to work off. Therefore, we will have a major consumer led recession, which will easily slide into a depression. What would a 5% drop in the GDP, YoY mean? 8-10% drop in employment (think restaurants, hospitality & leisure, etc.). And how about 10% drop in the GDP? Sorry, I forgot that the Fed wouldnt allow that kind of drop. People wanting to cut back on consumption based on new purchases, because they already have lot of stuff they need, has no place in our economy.
Jas
NoVa
IRS pub 936 is all about mortgage interest.
Publication 936 (2008), Home Mortgage Interest Deduction
My read on this was that if you borrow money for something beyond acquisition of the residence, that interest is not deductible. The wording was all about acquisition, not subsequent decline in value. No marking to market here.
Then, the growth of a country consists of productivity + population growth.
Satchel
Satch,
Actually it is productivity * hours worked. Hours worked is related to, but not the same as population growth. A good part of the economic growth from 1970-2000 was due to an increase in the emp/pop ratio. Mostly that was due to the 2 earner family, women entering the labor force etc. That demographic force is pretty well spent. From 1948 (start of data series) through 1976 the employment population ratio was generally between 56% and 58%, with a dip down to 55% in a recession. Climbing out of the 74-75 recession from the 56% level it proceeded to rise to a high of 64.9% in lSept 2000. It never really recovered from falling durring the last recession when it fell to 62.0% as of 9/03. The best that it could muster was 63.3% in March of 07. It has been slipping since and now stands at 62.7%. As the BB starts to retire, look for this ratio to continue to decline, and with it hours worked. If productivity does not pick up, then economic growth must BY DEFINITION be lower.
The rest of your post about the injection of debt etc. was on target and interesting.
"Token appearances hoped for by Conjure Bag and the Mortgage Pig, who are likely to be spotted together later in a SOHO jazz bar drinking fine Armagnac and heading outside once and a while to swap stories over cigars."
Salacious rumors of a hot and steamy romance between Conjure Bag and Mortgage Pig start to fill the ubernerd tabliods...move over Brittany, Paris
1-07-08 as the norm,great read here on current economic matters, espec.,pertaining to mortgages and the way over the top leverage put on by the big boys.yes leverage is ugly in reverse as we are seeing.any comments as to the mass mob problem of just pulling in all spending and hoarding of money if the sheeple get really scared?like in the 1930s?could be real real ugly if it ever gets started in eanest.