Sorry, I know it's Friday and it should be all fun and giggles, but...

[luzribeiro.livejournal.com]

Recovery in peril as double-dip threatens

Some excerpts:

"I do not believe we're heading for a whole world double-dip recession, but parts of the world certainly are," he said. "Much of Europe is and the UK has a one-in-three chance [of doing so]."
...
"Government spending cuts "will affect employment in US markets, exacerbating an unemployment rate already above 9 per cent. That will affect industrial companies [and lead to] less production, less export and less money coming in".
...
"The consequences for world trade could be huge. Trade volumes have surged back to above pre-financial crisis levels since bottoming out in 2009, according to an Organisation for Economic Cooperation and Development index, but the health of global commerce is dependent largely on demand from hard-pressed consumers in the US and Europe."
...
"Weak demand from the States is obviously negative, but intra-Asia, Middle East and Africa demand has been solid and that's making up the difference for the time being."


Time to Say It: Double Dip Recession May Be Happening

Some excerpts:

"If this is the beginning of a new double dip, it will have two significant things in common with the dual recessions of 1980 and 1981-82. In each case the first recession was caused in large part by a sudden withdrawal of credit from the economy. The recovery came when credit conditions recovered."
...
"And in each case the second recession began at a time when the usual government policies to fight economic weakness were deemed unavailable. Then, the need to fight inflation ruled out an easier monetary policy. Now, the perceived need to reduce government spending rules out a more accommodating fiscal policy."


The writing is on the wall. There are strong indications pointing to a return to crisis. S&P-500 plunged by 9% in a fortnight, and despite the drop of prices for the US government borrowing after the "Deal" was reached, there are several moments that shouldn't be overlooked. The "Deal" didn't improve the financial framework at all. It only partially dealt with some of the most pressing symptoms of the disease. Equities are still plunging. The expectations for inflation are rising. The expectations for the yields from the Treasuries were downgraded severely just within a couple of days. Commodities are dropping fast (oil), which causes concerns in OPEC. The dollar is climbing up as well, which will put a further blow on exports.

You wonder why is this all happening, why now? Many reasons. The post-crisis growth was minute, and it stopped before this year was halved. Now what the US government considers the best option is to just tighten the belts. Meanwhile, Europe is hanging over a cliff with several ulcers gaping (Greece) while most of its politicians are spending nice time on holidays. Confidence in the markets is suddenly falling again. It's all like a self-fueling spiral that leads straight back to where we were in 2009.

To add to that, basically the US has committed a seppuku with the "Deal" which will echo throughout both sides of the Atlantic in the next months, possibly affecting East Asia as well (in fact that has started yesterday), but much less the Middle East, Africa and least of all the emerging economies from the BRICS. Whether this will lead to some major shifts in the balance of power on the economic (and then the geopolitical) chessboard, is yet to be seen, but I'd say: Yes.

Comments

Not that surprising

[tridus.livejournal.com]

A double-dip wouldn't be that surprising. The "recovery" was all smoke and mirrors to begin with, created with nothing but government stimulus. The private economy didn't improve a whole lot, and the fundamental problems remain the same.

The orgy of debt building by the government over the last couple decades has become the main driver of the problem now. There's no room to act when you're already up to your eyeballs in deficit spending just to pay the day to day bills. It's kind of interesting that consumers have gotten the message on this (America's consumer debt is going down because people are trying to strengthen their financial positions) but the politicians until very recently have been blissfully ignoring it (and how serious they are now is up for debate).

The other mistake is trying to characterize it as a crisis. A recession is not a crisis. It's a recession. They happen. Trying to pretend like the economy will just grow endlessly is silly and ignores history.

Re: Not that surprising

[gunslnger.livejournal.com]

The other mistake is trying to characterize it as a crisis. A recession is not a crisis. It's a recession. They happen. Trying to pretend like the economy will just grow endlessly is silly and ignores history.

This is the main problem right now, I think.

Re: Not that surprising

[montecristo.livejournal.com]

The economy does grow almost endlessly even after setbacks like war and corrections. The capital base has risen steadilly at an average rate of about 2% since the start of the Industrial Revolution. In adition, the division of labor network is growing in its extent and its interconnections are increasing in complexity.

Even so, periods of capital consumption and even capital destruction have occurred, usually caused by either collectivist or authoritarian meddling in the market or the mass collective insanities called wars.

A recession is not a crisis. This is true, but recessions can turn into crises or be turned into crises, or merely herald the onset of crises. I think the fiat currency system is getting ready to collapse. This is not something that "just happens" like weather, desptite the economy being an unpredictable chaotic system. These corrections are driven by understandable cause and effect factors. The Keynesian "animists," with their "animal spirit" beliefs are desperate to evade such knowledge and deny it.

Re: Not that surprising

[underlankers.livejournal.com]

This idea has not a historical metatarsal bone, let alone a leg to stand on. Name three specific instances where economies grew despite war and corrections.

Re: Not that surprising

[montecristo.livejournal.com]

Engage brain then comment. It works so much better that way. Over the last millenium world GDP has multiplied by a factor of about 300. That is not a controversial statement. You'd be hard pressed to find an economist who wouldn't agree with the idea that world GDP is growing and has grown for the last thousand years despite there being periods of capital consumption and capital destruction. Read what I said again, this time without being quite so eager to engage your unthinking fingers in the effort to refute me. No doubt you wanted me to have said that growth continues during recessions and wars but that is not what I actually said. I said growth has continued (long term) despite periods of capital consumption. Don't be so eager; it makes you look desperate.

Re: Not that surprising

[underlankers.livejournal.com]

Actually I would find this statistic extremely questionable. Over the last millennium almost a fifth of the human race went extinct, there have been wars since the Crusades that level repeatedly vibrant economic centers and colonialism for all areas affected by US and European rule has produced a net loss, not a neg gain. The most recent example is the Democratic Republic of the Congo, where the largest war since WWII has left the place a hellhole. Same with Afghanistan and Iraq.

Re: Not that surprising

[montecristo.livejournal.com]

Ah, now I'm hearing some reasoning that has more meat in it. I agree. The results of human activity have been marred by episodes of great theft and destruction and these have occurred disproportionately, with some people being victims and others being victimizers. Injustices have been and are being done. Nevertheless, the capital base is growing. The latter phenomenon happens despite the former, not because of it. I propose that we each work toward seeing the systemic violence, theft, and fraud is lessened or even eliminated and the capital base will grow much faster and much more equitably.

Re: Not that surprising

[montecristo.livejournal.com]

Recessions are driven. They don't just "happen." See Austrian Business Cycle Theory (http://wiki.mises.org/wiki/Austrian_business_cycle_theory).

Re: Not that surprising

[luzribeiro.livejournal.com]

You're always full of citations and references. Do you have an opinion of your own? Sometimes?

Re: Not that surprising

[montecristo.livejournal.com]

Unlike most of the "speshul snowflakes" that come out of the public education system, I don't believe an unfounded opinion is worth much. Anyone can have an opinion and most people are not shy about them. I have found that many if not most individuals though, could neither explain where they got their opinion nor why they hold it, let alone who introduced the ideas they support or what debate surrounds those ideas. When I cite something and do not specifically state that I disagree with it, it can be inferred that for the most part, if not entirely, I agree with the ideas, conjectures, theories, knowledge, or facts presented in the citation. The first sentence of my comment: "Recessions are driven," is a positive assertion. We can debate about how much of that assertion is fact, conjecture, knowledge, theory, intuition, or invalid reasoning etc. but that is not the same thing as not presenting or not having "an opinion of my own". The link is the support, the grounding for the assertion that recessions are not merely the result of Keynesian "animal spirits" but are instead driven by cause and effect phenomena operating in the economic sphere.

Re: Not that surprising

[luzribeiro.livejournal.com]

Founding one's opinion on facts is fine, but regurgitating someone else's thoughts is another thing.

Re: Not that surprising

[montecristo.livejournal.com]

Most people are regurgitating someone else's thoughts; they just don't understand that they are, don't remember that they are, or they don't care that they are and plagiarize capriciously. That isn't me.

In addition to that, I don't believe that you can achieve any kind of depth in a discussion with a 4500 word limit, so I like to provide links to the things about which I am talking so people can read more and examine the ideas in more detail for themselves.

Re: Not that surprising

[tridus.livejournal.com]

All the recessions that have happened over the past century tend to suggest that recessions are a fact of life, until someone figures out how to re-engineer the economy into something that doesn't suffer recessions.

So I don't really feel all that wrong.

Re: Not that surprising

[montecristo.livejournal.com]

Interesting. From that perspective I am going to agree with you. People will naturally meddle in the economy in ways that produce boom-bust cycles and in that sense, they are rather like "natural" phenomena. Heh. Of course, politics, and the power that people allow into the political sphere, is a human problem and as such it is something about which people can do something.

[jlc20thmaine.livejournal.com]

1) The stock market has a mind of its own.

2) Double dip? I would say this is the third dip we've had. (now I want ice cream)

3) Hang on, it's gonna be a very bumpy ride for a while (now I dropped my ice cream)

4) Raising the debt ceiling to solve the financial crisis is like raising the blood alcohol level to solve drunk driving

[luzribeiro.livejournal.com]

In a sense, we could say the Gubmint is too big to fail. :)

I nominate (4) for QOTD.

[htpcl.livejournal.com]

Granted.

Strange...

[sophia-sadek.livejournal.com]

... he actually made some sense. There is hope!

Re: Strange...

[luzribeiro.livejournal.com]

Funny you should say that! :)

Quote of the day

[montecristo.livejournal.com]

Too bad it is not original. I recall seeing that in a political cartoon somewhere today....

[oslo.livejournal.com]

The writing is on the wall. There are strong indications pointing to a return to crisis.

The strongest indicator I've seen of a renewed "crisis" is the glut of airy commentary warning that a completely irrational sell-off in the public equity market means that a "double-dip recession" is now a reality. With any luck, these idiot commentators will get consumers worldwide to pull back their spending, which will help cause a true economic retraction, as opposed to all of this fluffy speculative nonsense.

To add to that, basically the US has committed a seppuku with the "Deal" which will echo throughout both sides of the Atlantic in the next months, possibly affecting East Asia as well (in fact that has started yesterday), but much less the Middle East, Africa and least of all the emerging economies from the BRICS.

I am eagerly awaiting the moment when the politicians start talking about how immediate austerity is required in order to calm the markets. Because, as we've seen in Ireland, Greece, Portugal, and now Italy, immediate and drastic cuts to government spending are the best way to signal to markets that you're going to be able to cover your debts in the future.

[luzribeiro.livejournal.com]

Your assessment of the idiotic predictions like the ones listed above has been duly noted.

I'd also agree that most processes on the markets are largely driven by irrational perceptions, often rumors (and often deliberately spread ones), i.e. by psychological factors rather than merely the technical specifics of said markets. That's a fact. The economy is not some sum of mathematical formulas, a large part of it happens in people's heads.

[oslo.livejournal.com]

I'd also agree that most processes on the markets are largely driven by irrational perceptions, often rumors (and often deliberately spread ones), i.e. by psychological factors rather than merely the technical specifics of said markets. That's a fact. The economy is not some sum of mathematical formulas, a large part of it happens in people's heads.

*Sigh* Yes, we are in total agreement on that point. I am more or less resigned to what's coming, as irrational as it seems to me. I wish I could slap some sense into the herd, but that's just now within my power.

[luzribeiro.livejournal.com]

The herd is stupid, isn't it? I guess you'll have to scream louder for the rest of the sheep to hear you! ;)

[tridus.livejournal.com]

The stock market is driven by the eternal struggle between greed and fear.

Yesterday, fear won. Give it a few days, and greed will fight back.

[htpcl.livejournal.com]

Yet another DQ winrar!

[underlankers.livejournal.com]

Unfortunately regardless of the reason the Recovery was too shallow and the cause of the problem has not been dealt with and in fact is already making a re-appearance. And this is just in the USA, this problem is a global one with different causes everywhere else and all of them together are holding lighters not yet lit in a room full of fine dust covering barrels of gunpowder and gasoline.

[mahnmut.livejournal.com]

The moment I saw who Obama appointed in his cabinet, and the way he virtually surrounded himself with the very same guys he had promised to deal with on Wall Street... Well. I knew he was only hollow words and empty promises. Nope, the cause of the problem has not been addressed and will not be.

[underlankers.livejournal.com]

US political culture doesn't lend itself to the easy or obvious solutions. People prefer partial solutions that won't or can't work for personal gain, as opposed even to the good of the United States. >.< That almost all politicians of one stripe or another get donations from the multi-nationals simply makes the solution even more a set of unwinnable situations. >.<

[badlydrawnjeff.livejournal.com]

I'm surprised it's taking this long, to be honest.

Krugman predicted all of this

[telemann.livejournal.com]

Most of the stock market slide yesterday was due to the Italian premier's comments and a lot of doubts about Italy's financial well-being dragging down the EU. And today, new job numbers were unexpectedly higher. As for the double-dip recession: Paul Krugman said it would happen and it would mirror exactly what happened with Roosevelt (financial conservatives convinced FDR to lower government spending in 1937/1938, and the depression worsened.) In fact, Krugman warned a few days after the 2008 election, the new incoming administration needed to be bold in its approach to the stimulus:

But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself.

Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”

This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?

Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.

And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs. This history offers important lessons for the incoming administration.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

Krugman also makes mince-meat (http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics/) of the opt-repeated Libertarian and right wing conservatives that FDR's policies made the depression worse (Krugman is following-up Eric Rauchway's article on that same subject).

Re: Krugman predicted all of this

[mrbogey.livejournal.com]

Krugman predicted nohing right.

Putting forth an argument then ending it with "or maybe not" doesn't get you the ability to claim accuracy when "maybe not" occurs. He did the same thing with his "Great" NASDAQ prediction. Talked about how there was no tech bubble and how the future was not in big businesses like Apple and IBM but in plucky young companies. To which he ended it with "or maybe not" which led to him apparently calling the tech bubble.

All he did in the selected portion you cited was restate his argument about the Great Depression while still glossing over how the austerity slide was expected because FDRs critics were rift that the private sector still had not recovered. Keeping in mind the whole point of he New Deal was to get the private sector recovered.

I wish he'd let military Keynesianism just die already. It's a tired canard that leads us to the military budget we have today.

[rasilio.livejournal.com]

I would not rely on the stock market as much of an indicator of anything, it is a trailing indicator, not a leading one but you are correct, a "double dip" is almost inevitable because government intervention prevented the necessary price corrections.

The fact is Housing probably needs to fall another 10 - 15% and instead of putting together all kinds of plans to prevent foreclosures they should have had plans to accelerate the process so all those upside down homes could have been properly valued and we could start climbing from the bottom.

Instead what we have is a prolonged mass of uncertainty, 3 years in we still don't know where the floor on housing prices is or what demand will look like going forward, We still don't know what impacts Obamacare or the Financial Reform will will have because all of the regulations for them have either not been written or implemented yet, we still don't know where government spending or taxes are going, we just know that the current structure is not sustainable for much more than another 5 - 7 years, and so on and so forth.

Realistically the BEST we can hope for is a prolonged period (multiple decades) of stagnation, more realistically within the next 18 months we will see another recession that will be at least as bad as the one in 2008 - 09.


As far as Geopolitical alignments, not sure. The military power of the US won't evaporate, nor will it's natural resources and even in a debt crippled state we'll still have one of the strongest markets in the world and lets face it even in the BRICs they have their own problems, Russia and India have severe corruption problems to deal with, China has no internal consumer market (and no real desire to develop one as it would mean granting too much freedom to the people) and so is entirely dependent on exports, their economy will collapse with the US and Europe's, and that leaves Brazil and South Korea, Turkey, and Indonesia will probably stand to gain quite a bit of geopolitical influence in the wake but even in some of those countries case it is hard to see them doing much more than becoming dominant regional powers.

[policraticus.livejournal.com]

Markets have to correct. We've been artificially over valuing almost everything for at least the past 4 years, maybe much longer than that. It has been a drunken binge fueled by cheap credit, deficit spending and wishful thinking. Time to get sober. That process, unfortunately, requires a hangover. Of course, we could opt for the old hair of the dog and double (triple? quadruple? quintuple?) down on stimulus. LOL, just kidding. It is Friday Funnies, after all.

[nairiporter.livejournal.com]

This enormous panic and the games with the credit ratings downgrading of Portugal and now possibly Italy... it all just doesn't make any sense. It's all in the minds of the investors, and the moment someone whispers some rumor in their ears, they jump into one direction or another. In a way free and interconnected markets have made countries more vulnerable than they used to be.

[tridus.livejournal.com]

It's also exaggerated due to high frequency trading systems (IE: full automated ranks of computers that buy and sell stock in milliseconds). Those things can react in unpredictable ways to minor things which can cause larger issues as other HFT systems respond in kind.

It's a pretty terrible perversion of what the stock market was originally intended to be (a place where people go in order to raise capital and buy into ownership of a company).

As for credit rating downgrades... well the US was just downgraded, so comparatively Italy probably won't be that big a deal.