Guest post: More thoughts on the fake recovery

Submitted by Edward Harrison of the site Credit Writedowns.

A recent post I published on both Credit Writedowns and Naked Capitalism, “Both initial claims and continuing claims now pointing to recovery,” has left the impression that I am a wild-eyed bull – for which I have been duly smacked about the head. This is far from the case. A recent post by Nouriel Roubini to which Marshall Auerback alerted me is very much in line with my viewpoint. I would like to share snippets of that post with you along with some quotes from my own past posts and updated commentary to clarify how I see the economy progressing. But, I also want to reiterate the point of NOT viewing the economy only through the lens of recent events, and of taking a measured, objective view of data.

Roubini’s post has the delightfully long title, “Green shoots or yellow weeds? A trifecta of risks to the early bottoming out of the recession and short-term economic recovery and to the medium-term actual and potential growth prospects of the global economy.” That’s quite a mouthful. He begins as follows:

Recent data suggest that the rate of economic contraction in the global economy is slowing down and we are closer than six months ago to the trough of the recent severe global recession. But while the rate of economic contraction is now lower than the free fall and near-depression experienced by many economies in Q4 of 2008 and Q1 of 2009 the recent optimism that “green shoots” of recovery will lead to the recession to bottom out by the middle of this year and that recovery to potential growth will rapidly occur in 2010 appears to be grossly misplaced. A careful assessment of the data suggests that rather than green shoots there are plenty of yellow weeds both in the short term and in the medium term. Here there are three important ways that our views differ from the current optimistic consensus.

Let me get to those three ways in one second. First, a translation of what Roubini is saying: this is no garden-variety recession, it is the D-process as outlined by Ray Dalio (see post here). Therefore, there will be no V-shaped recovery. I happen to agree with that assessment. Back in February, I said we are in a mild depression with a small ‘d.” The unwind process will be very different.

In Roubini’s post, he enumerates three reasons why he does not see an early or V-shaped recovery.

First, the current deep and protracted U-shaped recession recession in the US and other advanced economies will continue through all of 2009 rather than reaching a trough in the middle of this year as expected by the current optimistic consensus.

Second, rather than a rapid V-shaped recovery of growth to a rate close to potential US and global economic growth will remain sluggish, sub-par and well below trend growth for at least two years into all of 2010 and 2011; a couple of quarters of more rapid growth cannot be ruled out as we get out of this recession towards the end of the year and/or early next year as firms rebuild inventories and the effects of the monetary and fiscal stimulus reach a delayed peak. But at least ten structural weaknesses of the US and the global economy will cause both a below trend growth and even the risk of a reduction of potential growth itself.

Third, we cannot rule out a double dip W-shaped recession with the wings of a tentative recovery of growth in 2010 at risk of being clipped towards the end of that year or in 2011 by a perfect storm of rising oil prices, rising taxes and rising nominal and real interest rates on the public debt of many advanced economies as concerns about medium term fiscal sustainability and about the risk that monetization of fiscal deficits will lead to inflationary pressures after two years of deflationary pressures.

Please read the entire Roubini post which is linked below. It is quite thorough. In it, he references a piece by Robert Gordon regarding jobless claims signalling the end of recession that I have also covered. However, I don’t think the recession has ended or is about to end as Gordon indicates. I said when reviewing Gordon’s work:

So, jobless claims are definitely a number to watch as we head into the spring and summer. Absent claims numbers averaging 700,000 by mid-to-late summer, it will be safe to say, we are on the road to recovery. What kind of a recovery we get is another entirely different question.

So I see Roubini’s view as very much in line with what I said in my post “Both initial claims and continuing claims now pointing to recovery” – key bits are now highlighted below, but you will notice he stresses the downside risk in his post title whereas my title stresses the upside surprise.

And for the record, I have said I see a recovery happening probably in Q4 2009 or Q1 2010 (see my post “The Fake Recovery”).

The real question is how robust a recovery are we going to have and this is directly related to why the jobless claims series has been sending a false signal. Now, initial claims has been sending a recovery signal since January. Yet, continuing claims continued to rise more quickly until last week. In the past, one had seen these two series as harbingers of imminent recovery. But, I am talking Q4 here. Why? Deleveraging.

In the end, consumers are going to be forced to reduce debt and save more in this more cautious financial environment. Team Obama does seem intent on re-kindling animal spirits but the personal savings rate has gone up nonetheless. This will be a drag on GDP growth going forward and means that the economy’s rebound will be more tenuous and slower to develop. In my view, this means recovery will be delayed and once it gets going it will be weak. The potential for a double dip is very high.

So, to be clear, first derivatives are starting to turn up and since recession is a first derivative event, we are probably going to see an end to this recession soon enough. But, with structural problems still remaining, the U.S. economy will be weak for a long time to come.

Given the fact that I have over 100 articles posted on Roubini’s site, it is hardly a surprise that my viewpoint is in line with his. But, I am at pains to stress this given the negative response I received from that recent ‘upbeat’ jobless claims post.

Look, the fact of the matter is we are in depression. This is no ordinary recession. That means the negative effects of deleveraging and its drag on growth will continue for the foreseeable future until the excesses are largely unwound – recovery or not. This is the principle reason, I do not see the recession ending this Spring despite the jobless claims signal. While I wrote the jobless claims post to highlight this fact, I cannot dismiss the data out of hand. The signal is there and it has been reliable for the 40 years of data collected on jobless claims as Robert Gordon has indicated.

In my view, econobloggers and their readers are suffering from the same recency bias that created the housing bubble – viewing future events through the distorted lens of recent events only, without adequate consideration of the natural boom-bust nature of the global economy. I said as much in my post, “Through a glass darkly: the economy and confirmation bias in the econoblogosphere.” Where the recency bias caused people in 2006 to extrapolate ever increasing asset prices and a world of low interest rates and muted business cycles, today it has caused many to think we are headed straight for the Great Depression II and that financial Armageddon is upon us.

However, the picture is not as stark as this. While we may be in a mild depression, policymakers around the world have gone to great lengths to prevent a Great Depression II. In my view, the Federal Reserve has effectively demonstrated it is willing to risk hyperinflation in order to beat back the deflationary forces. And with most major economies engaging in extreme fiscal stimulus and monetary stimulus, one can only conclude that the worst is over and we will see a cyclical recovery. Moreover, the gifts to the financial sector have been large and will continue (see posts here and here) and have diminished the crisis of confidence we suffered post-Lehman. You may not like the means used to achieve this, but the effects are clear.

This is what I call The Fake Recovery. Underneath the surface, all of the problems are still there to a lesser extent: the massive debt burdens, the weak financial sector, the poor savings in the U.S.. We are likely to see the lingering effects of deleveraging to fix these problems take a percentage point away from growth for some time to come. This means the recovery in 2010 is going to be weak. Could we see jobless claims average 450,000 in recovery? Certainly. And 450,000 jobless claims was a figure that meant recession in 2001, so that is no recovery to write home about. And, while it seems increasingly likely we will get a recovery by year’s end or Q1, a double dip recession like we saw in 1980-82 is still a very distinct outcome.

The reason that recovery will come and it won’t feel like one is simply because the terms ‘recession’ and ‘recovery’ are misunderstood. Most people would define a recession loosely as ‘a period when the economy is not doing well.’ A recovery is axiomatically then ‘a period when the economy is doing better.’ But, that is a misnomer. I don’t think many people get the fact that GDP as reported is a first derivative statistic or that recession is a first derivative term (i.e. it measures the change in output, income, sales and employment). Now, I tried to make this point in “Economic recovery and the perverse math of GDP reporting,” the point being a fall from 100 in year 0 to 90 in year 1 and jump back to 92 in year 2 would be considered a deep recession followed by a weak recovery. Anyone living through such an experience would not be experiencing ‘recovery.’ And as far as the U.S. goes, the middle class has been losing ground for some 35 years. The deleveraging process is going to further this sense of loss.

So, I have an idea which Marshall Auerback inspired. Let’s get rid of the term recovery altogether. Let’s call what we see coming an end of the recession or an end to the worst of it. My worry is that any recovery will be used to prevent true reform to our financial system, to roll back recent trends in regulatory oversight and anti-trust, or to provide sufficient relief to two-income families. Unfortunately, for most of us, it will not feel anything like a recovery. Yet, it may be used to continue business as usual.

I hope this helps to contextualize my recent post on jobless claims.

Update: I would also add that it is far from clear that we will get a recovery at all. While the balance of evidence seems to point in this direction, David Rosenberg in particular makes a good case as to why we will not. Meredith Whitney is equally compelling in arguing that the banking sector will come under more pressure than I envisage.

Overall, there are a number of data series to watch: weekly jobless claims and the employment situation report for employment. Monthly personal income and the average hourly/weeklyearnings from the employment situation report for income. GDP, ISM manufacturing, non-manufacturing, Philly Fed and Empire State survey for output. Monthly retail sales reports for sales.

I should also point out that just because we see a positive GDP number in any quarter does not mean that we are in a ‘recovery.’ We would need to see 5 or 6 months of positive numbers to really gauge this. Therefore, likely it will be Fall of 2010 before the trend is clear.


Green shoots or yellow weeds? A trifecta of risks to the early bottoming out of the recession and short-term economic recovery and to the medium-term actual and potential growth prospects of the global economy – RGE Monitor

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This entry was posted in Banking industry, Doomsday scenarios, Dubious statistics, Economic fundamentals, The destruction of the middle class, The dismal science on by .

About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward


  1. Rik

    In other words: a ten year decline (Howard Davidowitz) is as unsustainable as the original asset price bubble with non-central bank money was (my opinion).

  2. Edward Harrison

    exactly. especially in the face of quantitative easing. Don’t underestimate the power of printing money.

  3. Charles

    “The signal is there and it has been reliable for the 40 years of data collected on jobless claims as Robert Gordon has indicated.”
    Mmmh, the problem is that the last economic episode that qualified as a depression was 70 years ago, not 40. It reminds me of the ratings agencies that built their CDO rating models using rating transition matrices calibrated only with recent history, dismissing in the process the “outlier” data from the Great Depression…
    “In my view, the Federal Reserve has effectively demonstrated it is willing to risk hyperinflation in order to beat back the deflationary forces.”
    one has to be careful with words, hyperinflation only occurs in completely dysfunctional economies (usually because of a war) and/or because of big debt burden in foreign currencies. Europe and US are and have neither.
    There is certainly a danger (unless it is a goal…) of seeing price doubling in a short amount of time like in the seventies. But, as in the seventies, the world “hyperinflation” would be inappropriate. In particular, you should not underestimate structural change in the financial structure that could decrease velocity permanently (such as “narrower” banking regulations). In such case, a simple proportional rules between money aggregates and expected inflation would not be valid.

  4. Edward Harrison


    Fair enough. Hyperinflation is hyperbole. I am not expecting Zimbabwe. I imagine the Fed actually wants some inflation. Kenneth Rogoff has suggested Bernanke target a 6% rate to reduce the real burden of debt. 6-10% is not hyperinflation.

    And, you are equally correct that the velocity of money is now lower due to a less leveraged financial sector. However, that does not mean inflation is contained. Unless the excess bank reserves are sucked in without reigniting recession, inflation is a real possibility.

  5. Allen

    You can make it real easy on yourselves by watching one chart: Aggregate debt to GDP. When that falls appreciably, real recovery is possible. Unfortunately, it will first rise. Any green shoot discussion at this point is folly.

  6. frances snoot

    GEAB no 35 predicts that the leading economic indicators will go haywire, like a compass that points north when the direction one is facing is south. It would seem there would be some commentary on the effects of the dollar’s lessened role as reserve currency, what with Brazil linked to China now and not the US. The factors influencing the whole picture are more complex than in the Great Depression or Zimbawee. Mr. Harrison’s inclusion of the effect of printed money is a good call. The destination can’t be predicted because, frankly, we’ve never ridden on this train before.

    Also: how can bank reserves be ‘sucked in’? I thought the only way to reduce inflationary risks was through increased taxation.

  7. Terry Maynard

    Ed–Thank you for this clarification and expansion of your earlier remarks on your website which, frankly, were more narrowly focused (on unemployment & its meaning) and more upbeat than your expectations stated here.

    I think this piece points out the need to avoid appearing to make major judgments on the basis of a single (or 2 or 3) lines of data. Certainly, this deep recession is more complex than the employment situation. Both the "green shoots" crowd and the Armageddonists usually find their single data series to support their views–and usually they are both wrong.

    I am generally in the Roubini-Harrison camp in terms of our economic outlook. NTL, I see the possibility of a temporary economic upturn in Q4 as holiday shopping & the stimulus actually produce some positive results. After that, it's back to decline through mid-2010 when the broader impact of the stimulus finally catches up with the ebbing decline in economic activity. Maybe that's a "W", maybe not. In any case, the right hand side of that W is going to be very weak and prolonged.

    Thanks for your post & keep it up.

  8. lineup32

    As someone with a limited economic perspective I appreciate your attempt to educate regarding the meaning of the word “recovery” as professional economist view the term. Hopefully your are recovering from the verbal beating administrated by the blogging community as your viewpoint is always appreciated.

  9. Edward Harrison

    lineup, Yves says ‘I must be popular’ if you all are beating me up. So thanks for keeping me honest. Frances, I was referring toopen market operations.

    Bernanke says he can sell assets (treasurys?) once recovery is manifest to get those deposits back. But, there are multiple problems with this. First, when does he plan to do it? If he goes to early, he’ll smother a recovery and we get a double dip. If he waits too long, you get inflation. I think he’ll rather wait than act pre-emptively given the structural problems. This means inflation. And judging from the yields on the ten year, I am not alone.

    But, also remember, the Fed now has tons of so-called toxic assets on its balance sheet. How are they going to sell these? If they sell treasurys and are left only with the other assets, their balance sheet would look even worse. I see this a a real problem.

  10. avd

    You cannot have recovery until after sound business takes over phony business. What Fed is doing is proping up the pillars of phony economy. This might work short term but longer term it only works for a more profound failure. Expect a few months of less-bad and even good news to end with a brutal crash.

  11. Leo Kolivakis

    Hi Edward,

    As you know, I have written extensively on the D-process and W-recovery. What people need to understand is that there are nearly 10 million out of work. Even if these people eventually find jobs, they will likely settle for less income, and in some cases, substantially less.

    I am hopeful on certain sectors of the economy – health care, infrastructure and alternative energy – but I doubt they will be able to absorb the job losses from the auto sector and FIRE (finance/real estate/ insurance) sector.

    What people need to understand, however, is that the stock market will gyrate in between, with huge bear market rallies.

    Here is a part from a recent comment of mine:

    While I respect David Rosenberg, I strongly doubt Asia will lead us out of this global downturn and I don’t buy the bullish Canada story.

    The way I read the markets is that risk appetite has increased as hedge funds put risk trades back on: long stocks, long corporate bonds, long commodities, long commodity stock indexes, long commodity currencies, long emerging markets.

    It’s not fundamentals driving stocks higher; it’s the big hedge funds that are playing the momentum trades. Andy Kessler is right, it’s another sucker’s rally:

    The stock market still has big hurdles to clear. You can have a jobless recovery, but you can’t have a profitless recovery. Consider: Earnings are subpar, Treasury’s last auction was a bust because of weak demand, the dollar is suspect, the stimulus is pork, the latest budget projects a $1.84 trillion deficit, the administration is berating investment firms and hedge funds saying “I don’t stand with them,” California is dead broke, health care may be nationalized, cap and trade will bump electric bills by 30% . . . Shall I go on?

    Until these issues are resolved, I don’t see the stock market going much higher. I’m not disagreeing with the Fed’s policies — but I won’t buy into a rising stock market based on them. I’m bullish when I see productivity driving wealth.

    For now, the market appears dependent on a hand cranking out dollars to help fund banks. I’d rather see rising expectations for corporate profits.

    My only warning to portfolio managers who share this view is that this sucker’s rally still has legs so be careful thinking that it’s bound to break down anytime soon. In fact, it might go a lot higher from here.

    Longer term, I agree with Paul Krugman, rising unemployment, which is expected continue after the recession ends, could lock the U.S. into a “depressed economy” for as long as five years:

    Krugman said he would not be surprised if the U.S. recession, which began in December 2007, ended in August or September this year. Deteriorating labour markets, however, are likely to continue into 2011, meaning “the period of a depressed economy” could last until 2013 or 2014.

    Krugman, who teaches at Princeton University, won the Nobel Memorial Prize in Economic Sciences last year for his analysis of how economies of scale can affect international trade patterns. He also writes columns for the New York Times newspaper.

    The U.S. economy, the world’s largest, contracted a worse-than-expected 6.1 per cent annualized drop in the first quarter. Americans increased purchases of cars, furniture and appliances but businesses cut back spending and exports had their biggest drop in 40 years. The U.S. unemployment rate hit 8.9 per cent in April and many economists expect it to reach 10 per cent by year’s end.

    Krugman said while economic indicators from around the world are improving, they suggest the pace of economic decline has only slowed.

    “I share the optimism that the worst of this may be over,” he said, also noting a stabilization in financial markets.

    “What’s really hard, however, is to say when does this go beyond stabilization to an actual recovery.”

  12. DownSouth

    @Edward Harrison

    I sense that the malaise is much more deeply rooted than what you believe. What can we call it? A postmodernist funk? But I think what you are seeing is your entire Enlightenment and, speaking more specifically of economics, neoclassical, worldviews coming under increased scrutiny.

    Turning back the clock to four centuries ago, many Americans undoubtedly now find themselves in a mood not unlike that which pervaded early 17th-century Spain. “There are many things here that seem to exist and have their being, and yet they are nothing more than a name and an appearance,” the Spanish satirist Quevedo wrote. Or as J.H. Elliot wrote in Imperial Spain: 1469-1716:

    It was in this atmosphere of desengaño, of national disillusionment, that Cervantes wrote his Don Quixote, of which the first part appeared in 1605, and the second in 1614. Here, among many other parables, was the parable of a nation which had set out on its crusade only to learn that it was tilting at windmills. In the end was the desengaño, for ultimately the reality would always break in on the illusion. The events of the 1590s had suddenly brought home to more thoughtful Castilians the harsh truth about their native land–its poverty in the midst of riches, its power that had shown itself impotent.~

    So who are some examples of modern-day arbitristas, as the 17th-century Spanish skeptics came to be known? First and foremost I would put President Carter, who on July 15, 1979 pretty well doomed his political career with his “Crisis of Confidence” speech in which he spoke of a less materialistic, more self-reliant democracy.

    Then there was Robert L. Heilbroner, who in 1988 published Behind the Veil of Economics in which he wrote:

    [C]ontemporary mainstream economists are largely uninterested in questions of historic projection, regarding capitalism as a system whose formal properties can be “modelled,” whether along general equilibrium or more dynamic lines, without any need to attribute to these models the properties that would enable them to be perceived as historic regimes and without pronouncements as to the likely structural or political destinations toward which they incline. At a time when the need for institutional adaptation seems pressing, such a historic indifference to the fate of capitalism on the part of those who are professionally charged with its self-clarification does not augur well for the future.~

    You can add to these those criticisms that fall more into a Malthusian vein, such as John Gray who in Al Qaeda and What it Means to be Modern has a chapter on “Geopolitics and the limits of growth.” Then there’s Herman Daly who wrote a scathing critique of neoclassical economis in “A Steady-State Economy.”

    But perhaps the critic of the neoclassical economic paradigm who has garnered the most attention has been Nassim Nicholas Taleb, who in The Black Swan, after relating his pleasant boyhood days in the “stable paradise” of Lebanon, wrote:

    The Lebanese “paradise” suddenly evaporated, after a few bullets and mortar shells. A few months after my jail episode, after close to thirteen centuries of remarkable ethnic coexistence, a Black Swan, coming out of nowhere, transformed the place from heaven to hell…

    I had been told in highschool that the planets are in something called equlilibrium, so we did not have to worry about the stars hitting us unexpectedly. To me, that eerily resembled the stories we were also told about the “unique historical stability” of Lebanon. The very idea of assumed equlibrium bothered me. I looked at the constellations in the sky and did not know what to believe.

  13. frances snoot

    Mr. Harrison:

    Where do you think the two trillion dollars went that the Fed lost in open market operations? If the official story is ‘we don’t know’, then the collateral for the loans must be toxic at best, or nonexistent.

    No wonder capital is fleeing America.

    Seems like the only thing keeping the structure of the banking system standing is the bankers shaking hands.

    No mention in Mr. Kolivakis reply about a bond market dislocation. It is happening; isn’t it?

  14. Edwardo

    At this stage, because of the status of the marginal productive capacity of debt, which as of 2003 was zero, QE, and all the other reflation endeavors will do quite the opposite of what they are intended to do, namely, spark economic activity.

    Allow me to put forward a different metaphor than green shoots, yellow weeds, etc. We are in the eye of the Hurricane. The second half of this year, and into 2010 are going to be worse than ’08.

    Buckle up!

  15. Edward Harrison


    Interesting comments. You could be right that this rally has legs. By the way, the 2002-2007 rally was a bear market rally that lasted 5 years. Just because stocks are rallying doesn’t mean they won’t collapse lower. Generally, I find it hard to believe a bull market is at hand given the P/E ratio never reached secular bear market lows. Add in the structural problems you and Krugman are referencing and you can see why renewed weakness brings us lower just like this last recession has done.

    By the way, Leo, don’t you think pension issues will come to the fore if the market goes lower? I was surprised they had not become a major issue this year.

    By the way, I intend to right a post that we could see a massive upside surprise in GDP due to less bad inventory de-stocking and a less bad capital investment number by Q4. It really is amazing that we are not seeing more savings here given the debt levels, but the Obama team is encouraging a return to the previous growth dynamic. Not encouraging for a sustainable recovery.

  16. Red Pill

    “especially in the face of quantitative easing. Don’t underestimate the power of printing money.”

    I am deeply troubled by this idea that the Fed “printing money” does not have downside risks comparable or worse than letting the “D process”
    work out. People buy our debt with the expectation that we will be SOMEWHAT sane regarding our currency. We already have a farce of a mortgage market. Even with the Fed supporting housing prices sales go down with reductions in employment and salaries. And they will continue to go down even with “smaller increases” in unemployment.

    Am I the only one who thinks this whole discussion is insane!

    Why don’t we just print money all the time!

    Tell me how Fed actions turn into inflation in salaries.

    Tell me how Fed actions turn into inflation in salaries.

    Tell me how Fed actions turn into inflation in salaries.

    Until that happens it will be a D process as people will not be able to service outsized debts. I agree with an earlier comment that the debt/GDP ratio is the most important graph. Any discussion of recovery that does not address this problem is fluff in my opinion. Extending more credit does not help a D process. The only thing I see the Fed doing that even has a remote chance of increasing salaries and employment is massively buying treasuries and then government hiring people and overpaying them relative to the weak labor market. But, then I guess if you don’t work for the gov your screwed. Proceed to torches and pitchforks.

    I see the end game of the current course as falling wages and employment with possible milder US deflation (in US RE, US stock, discretionary purchases made in the US) due to Fed “printing” but there will be a dollar collapse and inflation in everything imported.

    The Fed is playing a very dangerous game and debasing our currency or proceeding to the final death spiral of issuing treasuries to pay interest on treasuries is not a better outcome in my opinion than a full on depression.

    We need to have grown up discussions in the US because I think the dollar is getting tired. We were very irresponsible. I do not think there is some magic solution to get out of paying the consequences.

  17. kingcalvin

    To even discuss inflation in this environment is to show your lack of any sort of grasp of reality. Read Mish’s post on Deflation and his 16 points. We are 16 for 16. Deflation has set in. Falling asset prices, falling wages, falling employment and a banking system that is contracting wildly. Credit is not increasing in any way shape or form. I am a veteran of the credit industry for the last 20 years, and even now underwriting standards are getting tougher… this is real-time, folks. The “money” the feds are providing to backstop our system is still being hoarded, as the banks are preparing for bigger and bigger losses down the road. For ANY economist to ignore the second wave of foreclosures combined with rising credit card defaults and CMBS defaults and say there is any reason to believe that we are laying a foundation for a bottom, or to mention inflation at all is unbelievable. Unbelievable. Where is your HEAD!?! This credit crisis is far from over. Far from over. I’m a realist… Deflation is here and if the Fed thought for a milli-second that inflation would be a problem ANY time in the next 5 year, they wouldn’t have done ANY of the things they’ve done recently. Quantitative easing??? COME ON…. look at the 10 Yr-Tbill yield… steady climb since they’ve announced it. The FED knows deflation is here to stay…. they are throwing everything they possibley can at it and it continues. Wake up… my goodness the current economic conventional “wisdom” is so yesterday.

  18. frances snoot


    I consider the hard-line deflationists in the same regard as foot-washing Baptists: one in whom dogma is personified into action. August 2009…we should all know real in a really different way by then.

  19. mmckinl

    Many More shoes to fall …Just take a look at California, the 6th or 8th biggest economy in the world. Washington DC told Arnold there is NO money; services, payrolls will have to be slashed … Is there anybody that thinks many other states won’t follow California into drastic service, pay cuts or huge tax hikes?

    Then there are the mortgages yet to reset and recast. We are barely half way through the foreclosure as Prime, AltA and other mortgages go very bad …

    What about CRE, CC’s, Student Loans? All signs point to more huge losses …

    Red Pill is right IMO. How does the economy re-inflate in the face of trillions in bad loans and massive layoffs which will accelerate this fall.

    The Fed is printing Zombie Money for Zombie Banks, just like Japan did. There is no way for this money to get into the real economy. This Zombie money to support Zombie Banks will only suck new capital out of the system. Japan was lucky with a trade surplus in a growing world economy that brought in bucket loads of capital and supplied enough jobs for a 4% unemployment rate most of the 90’s … We will not be so fortunate …

  20. smwillett14771

    This is all about false statistics supplied by governments desperate to construct their best bet… The Tinkerbell recovery… (if the children will only believe, the stricken fairy will get better).

    Western standards of living have been built on debt, that prop has been destroyed… nobody now believes that re-mortgaging your home, flipping credit et al, to realise spending ambitions is wise or desirable, never mind possible… so where will recovery come from?

    The West could be about to swop its standard of living with that of workers in Asia… the guys who lent while we borrowed.

    The markets have not got near to considering how bad things could get
    for an arrogant and complacent Western civilisation grown soft and greedy.

    Look.. i’m just a piano mover in the UK wondering what to do to stay ahead.

    I believe that, as individuals, we can maintain our standards of living at a fraction of previous expenditure…for example, the joy of slow cooked cuts of beef in place of fillet…but that covers reduced income, and does not address nill income.

    In the UK, we forgot the rule that those who can work, must work, and we are going to slow cook down to nothing as a result of government spraying money in all directions…in vain – like an unpopular millionaire trying to buy friends.

  21. Hugh

    There is quite a diversity of views here. I think this reflects a US and world economy in considerable flux.

    What we have is team Obama throwing a lot of money at the problem without addressing any of the fundamental issues: homeowners, high unemployment, insolvent financial institutions of all kinds, indebtedness, weak regulation, and over-securitization to name a few. So all of this money being made available to the financial sector is having peripheral effects without solving anything.

    I think this is why we see a few scattered positive signs and so much pessimism.

  22. Leo Kolivakis

    Edward wrote:

    "By the way, Leo, don't you think pension issues will come to the fore if the market goes lower? I was surprised they had not become a major issue this year."

    >>>I am surprised you are not aware that the pension time bomb has exploded everywhere. Just go back and read some of my archived daily comments on Pension Pulse.

    When it comes to pension deficits, two things to keep in mind: 1) lower stock markets means lower asset prices and 2) lower interest rates means lower discount rate of future liabilities, which means higher liabilities for the future.

    As I wrote a while back, if the deficits from the Iraq war was Bush's legacy, the pension deficits will be Obama's legacy.

    President Obama and his economic team are trying to reflate the securitization, stock market, hedge fund and private equity bubbles by reigniting inflation. It's their only hope of dealing with this mess.

    The trillion dollar question: Will it work or will this lead to an even more disastrous outcome?



  23. 42

    Well, I don’t know much about de/inflation or bonds and stuff, but I do know that I’ve been out of work since February and have applied for about a gazillion jobs, but getting nothing. Yeah I could probably flip burgers or load freight but that’d pay me less than what I get from state UI, so there’s no incentive for me to take any job. I know I’ll probably never make nearly what I made at the last job ever again, and I’ve been prepared for that for a few years (no debt, nice savings account), but still, when I see and hear these bloviating asses claiming that everything’s going to be OK, green shoots, oh look at the price of GS (after getting $10bil in tax money funneled to them via AIG), blah blah blah, it’s comically obvious that this is a sucker’s rally.

    Basically, if you have a job now, you are extremely lucky, and you’d better realize that ASAP because there are NO jobs out there other than low-wage scut work.

  24. Keopele1991

    The problem with most predictions is that they are based on a narrow perspective or a view of one aspect of the economy! Most experts don’t have an understanding of more than one area relating to the economy. I see the “experts” make statements that only take into account their area of expertise and are unaware of factors outside there realm of expertise. This is a very narrow veiw and is the # one problem I see with most opinions.
    I have done objective research in many diiferen’t area’s that affect our economy and have come to some conclusions that are pretty dire.


  25. Keopele1991

    Sorry for all my typos in my last post!
    I want to be more clear and specific than my last post. First I want to identify what area’s I have researched.
    1. History of U.S. Monetary and fiscal policy.
    2. Human psychology on the macro scale as it relates to the economy and history of civilization.(this one is key and most important)
    3.Global developement and use of non-renewable resources.
    4.Global distribution and control of natural resources.
    5.Production and use of non-renewable resources.
    6.Economic dependence on non-renewable resources.
    7.Understanding the switch to sustainable resources and the infrastructure requirements to do so!
    8.Global population growth and distribution of resources as it realates to growth.
    9.I worked in banking and finance for 10+ years and saw the insanity of the people in control of this system and it’s obvious problems. (Classic Sociopathy created a very unstable system)
    10.Global warming and understanding the non-linear physics of nature on a broad scale based on statistical info from our past.

    When you take into consideration all these factors I have spent thousands of hours researching over the last two years, you soon realize we are screwed no matter what we do. There will be pain and suffering. We are just at the begining of this unprecidented cycle in human history. I think if people spent the time doing the research I have done they would be terrified! I have come to terms with the reality I see and just have come to the understanding that it is inevitable.
    The only thing I am not sure of is how fast our demise will be! 2 years or 20 years.
    I worry for our children, but not myself.


  26. moslof

    This bust has nothing to do with resources, although you could have sold the 30 DOW stocks in the fall of 29 bought gold with the proceeds and the the gold would have been worth more in early March 09 than the stocks you sold in 29! Can you imagine a greater deception (scheme?) that was fooling people for 80 years? So much for buy and hold….. People are not wired for stepping away from the herd and figuring out these financial games. The market with all the built in inflation, dilution, insider looting, and manipulations has gone as far as natural laws allow. The social mood trend change that began in 2000 was all that was needed to end it.

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