2011: The Year For Cautious Optimism?

by Edward Harrison

Note: Yves is out attending to a sick relative. So she asked me to contribute a post or two until she returns. This post reflects my thoughts on the economy for the coming year, updated for Naked Capitalism.

It’s high time I laid my cards on the table about 2011. I have hinted around my view in previous posts at Credit Writedowns, promising to spell it out in detail. So, here it is: I am cautiously optimistic on the U.S. and global economy for 2011. Let me explain both pieces of the puzzle – the cautious part and the optimistic part – below. I’ll start with the positive first.


Double-dip recessions are not the norm; they are the exception. Why? Here’s how I put it in September:

Recoveries by definition start from a point of diminished output because recessions are periods of diminishing output. So output in the initial period of any recovery is always lower. That’s how the math works – and also why I continue to stress that this is a technical recovery.

But, the important part to remember is how the business cycle works and how the recency effect creates self-reinforcing declines or recoveries in output.

Increases in income lead to increases in retail sales which lead to increases in output and inventories which lead to more jobs and thus a further increase in income. This is a virtuous circle that defines the upward path of a business cycle.

So, you really need to see powerful secular forces to overcome this self-reinforcing dynamic. Once a technical recovery begins, we should expect it to continue and blossom into a full-blown cyclical recovery. Obviously, I am talking about the medium-term, not the long-term here. But the point is that we have been in recovery for over one-and-a-half years in the U.S. Odds are that this will continue for some time to come (through 2011 at least).

I see the jobs picture as encouraging. Employment is lagging as it has in the last two recoveries. So the recovery looks particularly weak. Moreover, there seems to be a skew toward the upper income strata. This makes the technical recovery appear even more sluggish. But clearly, the jobs picture is improving.

What are U.S. jobless claims telling us about recovery? They are averaging about 415,000, down from almost 470,000 a year ago. And since employment is a lagging indicator, we should expect claims to drop even further as GDP has been growing. Why are jobless claims so high this week; is the government data fudging? No. This is one week’s data skewed by seasonality.

Across the board, the economic indicators show a modest but improving economic picture: industrial production, capacity utilization, personal income, retail sales. And I expect this to continue through at least the first half of 2011, probably through the whole year.


I am cautious about this outlook because I still believe the U.S. is in a cyclical upturn within a larger depression. The concept that the structural problems of excessive household indebtedness and an over-reliance on financial services and housing can be solved by money printing and fiscal stimulus leaves me cold. My thesis is that these remedies mask problems only due to the cyclical upturn. If the recovery is not used to whittle the problem away, the next recession will be as bad or worse than the last.

That said, policy makers have done a pretty good job of avoiding egregious errors so far. I think that gives us enough oomph to get over the hump so the cyclical agents like inventories and cyclical hiring can do their magic. But, here are my lingering concerns.

  1. Europe: the sovereign debt crisis refuses to go away. The European periphery is hurting but the crisis has infected the core via Belgium and Italy. I expect the crisis to get worse before decisive action is taken because that’s how politicians usually respond. There are three options for the euro zone: monetisation, default or break-up. The question is whether this – in and of itself – deals a fatal blow to recovery in Europe, infecting the global economy. If you had asked me this question early last year, I would have said yes. Today, one year more into a cyclical recovery, it is less clear.

  2. U.S. States and Municipalities: Meredith Whitney has put this crisis top of mind. My take is similar to the one on Europe: The question is whether this – in and of itself – deals a fatal blow to recovery in the U.S., infecting the global economy. Here, I have always felt that the budget issues would only become dire in a cyclical downturn as declining asset prices created public sector pension losses. In an upturn, tax revenue increases as do accounting gains from asset prices. Costs for supporting the unemployed decrease. To the degree there are budget problems, the situation is very pro-cyclical – meaning you have what MBA’s call a high degree of operating leverage on municipal and state income statements. Leverage works to magnify cyclical ups and downs. That means that, while I agree with Whitney’s alarm on munis and expect some defaults, I do not think this gets critical in 2011. I expect the next recession to bring this issue to a head.

  3. Housing: House price declines have resumed in the UK and the U.S. They never stopped in Ireland and Spain. The housing double dip is in progress. Complicating matters, clearly, fraud was a big issue not only in the origination of mortgage loans in the U.S. but also in packaging and foreclosure. There is a real possibility that a systemic legal problem develops on that front in 2011. I don’t know how this problem will be resolved. At this point, I see it as the biggest near-term risk for the U.S. in 2011.

  4. Currency Wars: a lot of good is done simply by having economic growth. It takes a lot of political heat off politicians. Just Monday I commented on RT Television that I believe the China state visit by Hu Jintao will not feature a lot of acrimonious protectionist rhetoric for that very reason. The currency wars are really a political event because they are caused by a lack of aggregate demand. When the pie shrinks, individual countries feel obliged to implement beggar-thy-neighbour policies to maintain their standards of living by taking a larger share of the pie. The developed economies have felt this pie shrinkage most acutely. So it is they who are driving the so-called currency wars forward. The emerging markets are merely reacting in kind. I say "First the rate reductions, then money printing, then the currency war, then the tariffs, then … hopefully economic recovery. But, as with the other problems, unless recovery is used to solve the issue of external imbalances created by our jury-rigged monetary system, the so-called Bretton Woods II, then tensions will return worse than before when recession hits. Only after a full-blown crisis will the underlying issues be addressed. So, wait for the next crisis for reform of the monetary system.

  5. Commodity Price Inflation: There is a real threat to recovery from commodity price inflation. Yves also mentioned the La Niña phenomenon recently as a potential black swan event for 2011. We have already begun to see signs of food price riots, food price controls and the like in emerging markets. Even resource producers are getting hit by the rise in commodity prices. Additionally, Brent crude is at 27-month highs, closing in on $100 a barrel. Just think back to 2008; this type of commodity price inflation was toxic and sowed the seeds of its on demand destruction.


I may write what I think this means for stocks or bonds in another post. But the quick data dump is that profit margins are cyclically high while P/E ratios are above their long-term levels. If firms staff up, we could see a modest rise in stocks due to an increase in aggregate demand despite these two factors.

The commodities price inflation does have me worried because this, combined with what I see in emerging markets and in technology shares, especially pre-IPO companies, suggests an economy in the mid-to-late cycle. Here we are one-and-a-half years into the economic cycle and we are facing an environment in tech that is akin to 1996 or 1997 (or later), in EM like 1996 or 1997 and in commodities like 2007 or 2008. That is worrying. It certainly dovetails with my thesis of short business cycles punctuated with bouts of recession but I would rather not see food price inflation this high, this early in the cycle. Hopefully it dissipates because, if not, there will be trouble.

Personally, I tend to overweight large cap value and I think that’s the right call for this point in the economic cycle because, while I am optimistic, I am cautious.  I expect to see a lot of M&A activity as a test of Obama’s pro-business re-election push. And you could see a few technology deals because of this. Would Apple make a big deal without Steve Jobs there on a day-to-day basis given its $60 billion cash hoard?

On bonds, I have been saying for four months that they showed a poor risk/reward skew at these levels. Moreover, duration changes are pretty large when yields are low. That means you can sustain heavy losses if yields tick up. There is no reason to be a hero by moving out the curve and getting long duration. Nor is there any reason to load up on risk, especially in munis and sovereign debt. That is still my view. But U.S. sovereign debt is a lot more attractive today than it was four months ago.

On the economic front, I moved away from a multi-year recovery baseline because of the prospect of policy errors. We avoided those errors in 2010. With the technical recovery poised to become a full-blown cyclical recovery, I think it’s time to move back to the multi-year recovery baseline. Let me repeat my oft quoted phrase about the secular leveraging in the developed economies:

The problem I have with the recent history of growth in the United States, the United Kingdom, Spain and Ireland in particular is that the growth was underpinned by high debt accumulation and low savings. As debt is a mechanism through which we pull demand forward, the debt and consumption has meant we have been growing today at the expense of future growth.

Low quality growth can go on for a long time

This dynamic can continue for a very, very long time. In the United States, by virtue of America’s possession of the world’s reserve currency, an increase in aggregate debt levels has been successfully financed for well over twenty-five years. Mind you, there have been a number of landmines along the way. But, time and again, these pitfalls have been avoided through asymmetric monetary policy and counter-cyclical fiscal expansion.

So, poor quality growth can continue for very long indeed. And it is this fact which allows the narrative of easy money and overconsumption to gain sway.

The boy who cried wolf

A soothsayer who counsels against this type of economic policy, but who warns of impending collapse will surely be seen as the boy who cries wolf. Think back to 2001 or 2002. Did we not witness then the same spectacle whereby the bears and doomsayers were let out of their holes to warn of impending doom from reckless economic policy? By 2004, unless these individuals changed their tune, they were long forgotten or even laughed at – only to resurface in 2007 and 2008 with their new tales of woe. Knowing this shapes the psychology of economic forecasting and is why missing the turn is disastrous for one’s career. Efforts to avoid missing the turn are also part of a very large pro-cyclical psychological force underpinning a cyclical bull market.

The fact is: low quality growth does not lead to immediate economic calamity. It can continue through many business cycles. Even today, it is wholly conceivable that we could experience a multi-year economic expansion on the back of renewed monetary and fiscal expansion.

Marc Faber: “Don’t underestimate the power of printing money”

You will recall that I wrote a post at the depths of the market implosion highlighting a phrase by Marc Faber, “Don’t underestimate the power of printing money.” This quote has stuck with me as asset markets have soared in the intervening time. What Faber was alluding to was the fact that printing money works. It does goose the economy as intended and it can induce a cyclical recovery.

Nevertheless, the recovery is likely to be of poor quality due to significant malinvestment. Debt levels will rise and capital investment will be directed toward riskier enterprises. Look at what’s happening in China. Are you telling me stimulus is not working? It most certainly is.

In the west, stimulus is also working. It is designed to stop people from hoarding cash and to consume. It is also designed to get people out of savings accounts and into riskier asset classes. It is doing just that.

However, remember, the developed world has a lot of problems to work through. The origins of the next crisis are already apparent – and they have nothing to do with cyclical upturns and everything to do with a secular trend of rising indebtedness, now in both the public and private sectors in developed economies. If the developed economies use this cyclical upturn wisely to reduce household debt levels, to increase private sector savings, to clean up the balance sheets of weak banks, and to cautiously normalize fiscal and monetary policy, we will be in a much better position to counteract economic weakness when the next downturn hits. Will policy makers do so? I have my doubts.

I would love to here your views.



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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 http://www.creditwritedowns.com


  1. Foppe

    It sounds as though you’re ignoring the effects “austerity”-minded politicians will have and are already having on aggregate (non-discretionary) income (and thus demand). Britain is going to see a lot of that when it starts firing (has it yet? I haven’t been keeping up with UK news) Government workers, and US States are, it seems to me, in very similar straits — especially given the GOP’s intention to block them from borrowing more money on affordable terms because the former want states to renege on their pension promises (and raid whatever is left of those funds) in states like Illinois/cali/NJ etc.. Considering the fact that the recovery has not been going strong, it must be the case that agents are starting to run out of savings (or options available to them), yet so far I have so far heard very little about this being a problem.. (or is this just due to bad reporting?) Do you really think things like the Build America Bond were that unimportant to continued viability of state-level funding that it won’t matter that it isn’t available anymore?

    1. sgt_doom

      Exactly so, Foppe, exactly so!

      The next several years (2011, 2012) should be unfortunate as the negative econ indicators are reaching critical mass status (with the months, 10/12 to 12/12, indicated as the most dangerous).

      Then again, with that micro-black hole scheduled for testing at that Hadron Supercollider for December of 2012, the introduction of a quantum event in a non-quantum space (that would be the planet Earth), might solve everyone’s problems).

  2. Edward Harrison Post author

    Sorry, that was implicit in concerns one and two. I don’t talk specifically about austerity but it is part of the debt crisis for US states and municipalities. The same goes for the Euro zone.

    At the US Federal level, Rand Paul has a proposal out to slash $500 billion from the budget. So austerity is still on the table there as well.

    1. Foppe

      Well, let me paraphrase my issue a bit then.. What puzzles me about your post is that I don’t really understand why you are optimistic: where is the extra demand going to come from? China’s bubble is becoming more and more precarious, Australia will be fine (having to rebuild part of QLD is great for GDP) but doesn’t really impact the rest of the world, and you (to my ears, which are unfamiliar with business cycle theory) are somewhat vague on why this recovery should bloom — are you basing this on statistics or are there economic indicators telling you this? (A hazardous thing especially because so many of the macro indicators I know of are terrible at telling you how they affect local hiring — e.g., even if Caterpillar grows, this has almost no consequences for US-based hiring even though they’re of course listed on a US-based Stock Exchange.) Because while it may be that most recessions aren’t double-dipped, it’s also true that most recessions aren’t worldwide, so that you normally have different areas which can pick up some of the slack if needed, and it seems to me that this is not the case at the moment.

      1. skippy

        Foppe, I would look into a possible deflation / inflation nexus with regards to Australia as a hole for the next two years. Most of the used land on the east coast is flood effected / inundated, some times more than once, thrice. With many of the primary industry’s and infrastructure suffering heavy damage (must be sorted before others). CRE and RE will suffer the most with devaluing (15 years before significant recovery after the 74 flood in Brisbane, 40% over trend) on already precipitous home values, all magnified by massive private and public debt servicing. All topped off by incoming labor (pre gfc 4.7 vs. 2/3% target) and consumables inflation (30/40%ish).

        Hell we cant even do a costing till this weather stops, parts of my surrounding area revived from 76 mm to 50 mm of rain last night with wind gusts of 90 klm an hour with more to come.

        Skippy…we’ll get there but until the water recedes, the weather calms down the displaced are sorted, its just a big question mark. This is no broken window affair me thinks.

  3. Charlie

    The bottom line is this: America will not see a significant recovery until we reverse the offshore investment flow.

    1. Mike M

      Agreed. It’s ironic that investing in the S&P today pretty much spreads your bets nicely all over the developing world. Why bother with a foreign centered fund?

    2. sgt_doom

      On target — they (banksters et al.) have relocated the production assets, and the capital assets offshore.

      End of story and that’s all she wrote!

  4. Maju

    “I would love to here your views”.

    I think you are being optimistic. This is a structural crisis like we have not seen in centuries probably.

    You cannot pretend that we are out of the crisis when the ecological disaster in the Gulf of Mexico has not been addressed for instance but just buried under the sand (yet it overflows). You will say: what does have to do? All because the costs we transfer to the ecosystem remain being costs we have to pay for somehow, we just pretend they are not (because that’s how capitalist faulty logic works). I see no advance in reducing the environmental and social costs, the overproduction and the instigation to consumerism: the general reasons behind the crisis remain unaddressed, so the crisis is going to persist – it’s difficult to heal if you remain stuck with the bad habits.

    But even if we would dare to ignore all that, there are other structural problems, namely the massive concentration of fraudster Capital in very few hands. Why the TBTF are such thing? For no other reason but because they foot the bill of all people in power in all key positions. Nothing at all would happen if they would fall, as long as the states were active in intervening and not just letting “market” (the maimed “invisible hand”, you really need faith for that, I’d rather believe in Santa!) to “rule” the economy. “Market” is just an euphemism for oligarchs. “Money markets” means big banks specially.

    So, well, focusing, as long as all Capital is concentrated in so few hands and the state apparatus, in Washington or Ouagadougou, is subservient to these mafias, there is no exit to the crisis because it’s this concentration what is causing it. Bernanke and antecessors said that they did not mind big companies, nor big banks, but what they meant is that they are faithful servants of their lords, nothing else. These big companies, this concentration of Capital in monopolistic form has just destroyed markets making the Western economy not better nor more efficient than the Soviet one was in the late 1980s.

    But in the Soviet case the state could intervene (it was neutralized in the end though). In the Western case however, the state has been neutralized and can do nothing unless there is a radical revolution first.

    So we are bound to languish in this decadent monopolistic self-destructive lack of economy. And I see no reason to expect 2011 specially being better. Rather, I expect it to be a quite turbulent year, as so many crisis are open and have to explode…

  5. mikkel

    Edward, for my money (which admittedly is negligible) you’re the best prognosticator there is when it comes to short-medium-long term dynamics. As someone that studies systems dynamics in several contexts, I can say that you do a great job interweaving core reasoning with predicted outcomes and clearly stating the uncertainties; all over multiple timeframes.

    I’m not really sure what the point of this comment is, other than general short term optimism combined with long term (and potentially rapid) devastation is the letter of the day in all our bioeconomic-sociopolitcalblahblah contexts. It seems that the people that have the long term view correct are getting frustrated by the short term and feeling betrayed to the point they are stopping the push (or alternatively going completely hyperbolic) while the people that have the long term view wrong are dancing joyously on the skeletons of the future. I wish more people had your tempered views, then maybe we could actually mitigate our problems.

    1. mikkel

      Oh I’d note one more thing that I’m noticing and supports your thesis. Because all the Big Questions that you and other people are commenting on (TBTF, oil, Euro, etc) are seen as fundamentally “unanswerable,” that is perversely making people focus on perpetuating the near term dynamics. The fact that in the long term we’re “dead” ironically makes this year more likely to be a good one. I’m getting a 2007 vibe all over again but a magnitude larger.

    2. Edward Harrison Post author

      mikkel, I agree with you wholeheartedly there. There is no reason to turn hyperbolic. Stimulus does goose up the economy (over the short/medium term). What we are seeing is an upturn within a larger depression in my view. In fact, any desire to see it as anything but will create the conditions for a worse downturn by avoiding fixing the largest structural problem – low income growth and high debt levels in the household sector in the US.

      My long-term baseline view is still the one I presented over a year ago.


      And just because we can be cautiously optimistic over the short-to-medium term doesn’t mean we should put our heads in the sand and completely miss the fact that the pre-conditions that led to crisis in 2007 are still there. My assumption is that policy makers will miss this because they are more concerned about getting to the next election.

      I hope I’m wrong.

  6. Georgann Marks

    There was lots of pontification as to “why” the Arizona shooter acted, yet nobody had the courage to call it the ‘first shot’ in a random revolt.

    It’s always the losers, miscreants and those with ‘nothing left to lose’ who begin revolutions.

    The original Tea Party was condemned by the merchant class and town fathers… as rubbish.

    Everyday the net is filled with vitriol and hyperbole about the evil of our governors and the evil oligarchs who push and pull the levers of government.

    Yet when somebody pops a couple of em… we look at each other and lament the ‘environment’ of political discourse.

    the congresswoman and judge may have been ‘real people’ to those who knew them… but in real terms… they are collateral damage [God I love that term] in a gathering storm of revolt by those with nothing to lose.

    I’ve always been a Main St Merchant – with much to lose should things deteriorate in the smaller cities…. but in all honesty, I see many many more acts of self immolation in this next revolution.

    Broken eggs and omelets is pretty much how I view last week.

    1. Tyler

      To put it mildly, that’s a stretch. The majority of Americans are losers today, living in fear of losing their jobs, homes, cars, and yes, dignity. Yet the majority of humankind lives in quiet desperation, without “losing it.” While there is an element of truth in your comment, the tragedy in Arizona is hardly the case on point.

      1. Georgann Marks

        you haven’t been alienated enough to identify with the losers and miscreants.

        You don’t have to.

        they are the ones who are gonna start shootin up the Hamptons and Wall St.

        We can only wait and watch…. like I said… I started rootin for bank robbers and John Q years ago.

    2. Elliot X

      You gotta love how every politician agreed in calling this act “senseless violence”. As opposed to what, state sanctioned violence which is supposed to make sense?

      On the other hand, if they had managed to get this kid in the army, and he’d killed a bunch of unarmed civilians in Iraq or Afghanistan, then the same people calling this act senseless would’ve claimed that the unarmed civilians were really “insurgents”, and if he’d hadn’t of taken them out then next thing you know they’d all be over here and we’d be fighting them on the streets of Manhattan.

      So at that point the kid would’ve become a hero for his 15 minutes of fame, and they would’ve given him a bunch of medals.

      1. Georgann Marks

        BINGO! when the bulk of the middle class – knows their government is now wholly owned and operated by borderless gangsters – it’s not a stretch for those with nothing to lose to start shootin up the place.

        a sizable minority know or suspect 9/11 was a fully escorted mission – fewer know that Joe Stack, Austin IRS suicide pilot co owned his hanger with Homeland Security Initiative program manager… what ever that is.

        Militia infiltrations, OKC, TWA 800, …. our governors are out of control – for our own good of course.

        I’m rootin for the next John Q.

          1. Georgann Marks

            Denzel Washington… held an entire hospital hostage because snarky administrator [Ann Heche] and demon insurance companies wouldn’t pay for his son’s heart transplant…

            he won

            but only in the movies..

            I’m waiting for the reality show

          2. counterman

            wow that Georgann Marks is beyond cold – an insane gunman “pops a couple of em” (3 seniors, a child, a judge, & a congressional staffer were murdered; a congressperson & 11 others wounded), but they are only “collateral damage” or “broken eggs and omelets” to Georgann.

            these comments disgust me, could site admins please shop Georgann’s info to the lawmen? s/he is way too creepy/scary to ignore.

          3. Campbeln

            RE: counterman

            > could site admins please shop Georgann’s info to the lawmen? s/he is way too creepy/scary to ignore.

            …and you wonder why Georgann Marks views AZ as “a couple broken eggs”? That comment makes me think of the East German Stasi, a naked suppression of descent. Could the comment have been worded “more politically correct”, sure but the central premise (as it came thru to me anyway) is sound; to quote JFK: “Those who make peaceful revolution impossible will make violent revolution inevitable.”

            300:1 against TARP, passed! Main Street suffering and being told by the titans of industry (the “other” Warren Buffet from Berkshire) that the little people need to suck it up while Wall Street’s bailouts were “absolutely necessary”… How else do you expect the most boken of society to react?

            I too have come to root for the bank robber. I can now see why the same (Bonnie and Clyde, et al) were revered in the 1930’s… as misplaced as it may be.

            There’s a quote that goes something like “Insane people make rational people do insane things” thatI keep coming back to. I suppose our disagreement lies in who is the rational and who is insane…


  7. Mike M

    How about demographics? As of 01/01/11, 10,000 Boomers a day will turn 65 in America, until 2020. 3.65 million a year, going into the end game with very little savings and stuck with an asset, the home, that is sinking underwater by the day? Think of the medical costs, too, if you can. Sort of an anchor to any sort of acceleration, wouldn’t you think?

    1. Paul Tioxon

      I notice that some of the empirical social scientists are gaining some traction outside of the usual consensus left leaning liberal. As they say, the owl of Minerva flies at dusk. The Catholic Church is under continual attack for its corrupt practice of shielding child rapists. Ireland, the most dyed in the wool of Catholic countries is as good as lost to the Ecclesiastical Holy See. Capitalism, suffering its 3rd major heart attack in the last 75 years, is over. And the University System is exposed as little more than eharmony for the top 20% of the stratified society they are socialized to administer for the ruling class.

      Stalinist Science has shown the pre ordained results of the intellectual class, consistent with the reigning ideology of the state that employs them. On the other side of the iron curtain, not much different. Immanuel Wallerstein rises to a wider audience as the default scholar because all of the other schools of thought have been asleep at the watch tower, exposed as lying, cronies in a revolving door of academia, government and policy making political institutes, with nothing left to peddle other than their own thin resumes.

      The radical analysis is informed by Darwinian biological insights. There is a beginning and there is an end. The processes as measured can run the course of their logic as the fuel that powers them dwindles to there is not enough of the critical inputs to sustain them. We are beyond that point. It is not historical determinism. Any more than you know that your car will stop running if you can not refill it at a gas station in time.

      This site has exposed the fraudulent operational practices, the repudiation of the structure of the nation state by corrupting the rule of law to favor property rights of corporations. This site has exposed the intellectual lies of the profession in charge of guiding our politicians and business leaders. This site has exposed the self destruction of investment banks by the very highly paid employees of the very banks that protect and expand the capitalist system. The employees and partners destroy the organizations that feed them. And they are recapitalized by the government of the society that they just wrecked, and put back into business and are even larger and more empowered to act just as destructively to their own organizations, their own industry and their ideology of capitalism. It is not deterministic history, it is the observed behavior, chronicled here and clear as day to most everyone else in America, even more so the further they are from Wall St and the further they are from an Econ class.

      Classical economics, that posited the non interference of government to allow the unfettered productive capacities of humanity to flourish, has collapsed in theory and practice, and can only be sustained outside of the system that it once initiated, by the virtue of government intervention.

      It is over. Finito. What is to come next is what is actually being discussed here. Pick a side.

  8. Jim the Skeptic

    I wish you were correct but I think you are being too optimistic.

    This is not the typical post WWII recession where manufacturers with excess inventory lay off employees until the inventory is reduced.

    This is a repeat of the Great Depression but with Roosevelt’s programs in place, the immediate damage has been reduced.

    Imagine our situation without any unemployment insurance, or Social Security benefits. Consumers would have had less money to spend. And without deposit insurance the 156 failed banks would have caused their depositors to lose all their money. Businesses would have lost their operating capital and consumers would have lost their life savings. That would have led to banks runs and additional bank failures. I am sure that I am missing other programs.

    Unemployment insurance has helped but now the unemployed are reaching the 99 week limit and are losing that check. Expect consumer spending to fall.

    The stimulus is just about a thing of the past. The federal politicians are talking up austerity. Stimulus money to the states is probably over. The weak economy will have to stand on it’s own.

    State and local governments will have to continue to reduce the number of employees and spending on programs will have to be reduced.

    Jobs and the resulting increased consumer spending will be the eventual cure. Who will soon be needing a very large number of new employees? Nobody.

    I would not bet on this situation getting much worse, but I don’t see any way it can get better.

    1. DumpTheBankInfoJulian

      I’m with you. I don’t see anything to be optimistic over. I believe this is the year that the shit starts hitting the fan. I believe the big banks will be hit with a deluge of lawsuits…some of which will be one big bank suing another.

      I don’t think it will be pretty.

    2. bear_in_mind

      @JimTheSkeptic: Very astute points!

      I think it’s clear the stock market is virtually disconnected from the broader economy, so I expect it will do what it does until enough retail investors are sucked in to provide yet another windfall for the Fat Cats… then lookout below.

      Until the U.S. reclaims a sovereign manufacturing base, be it ‘green tech’ (i.e. solar, wind, nuke) or wholesale infrastructure upgrades, the mid-to-long term looks bleak indeed. Without it, look for structural unemployment to remain stubbornly high.

      And over the next decade, changes in American demographics (read: Baby Boomers retiring) are about to serve a massive body blow to the economy: 1) institutional ‘brain drain’; 2) unfunded liabilities in medical care and pensions; 3) inadequate savings and home equity to maintain lifestyle.

      I see nothing to keep this house of cards from crashing down. The one upside is that with enough Boomers retiring, it might bring UE down some – but if Boomers can’t make ends meet without employment, they might delay retirement and exacerbate the UE dilemma.

      If America wakes up in the next few years, we might turn things around by the middle of the decade, but if policy makers stick to their “muddle through” approach, our next best hope may be the 2020’s. So, if you weren’t a ‘saver’ before, you doggone sure better start now!

    3. Greg

      Well said Jim

      The forces are definitely turning in the wrong direction now. All the revisionist efforts at discrediting the New Deal reforms have blinded average people to how much support basic programs like UE, FDIC and SS provide. Its in the trillions.

      Our phucking Tea Party geniuses are on a full frontal assault of all that the New Deal brought and they will collect a few hides. They will not get their wet dream wish of a fully privatized, no social insurance system but they will succeed in getting things reduced by 25-33% I believe. In addition I think they might succeed in getting rid of minimum wage laws. The average worker will be paying much more for much less.

      This time next year will be very ugly. I wont be back in the stock market any time soon.

  9. Brian

    The concept of “fix” must be related to something repairable. In our current situation, “fix” means direct all profits to one group, and starve the rest.
    Yes, the “fix” is in. But one can not make a whole image of the universe without taking images from a million corners of the sky. If we leave the whole image out of equation, we might look to our sun alone and see that all is well. Disregard the asteroid. It won’t be here for another 6 months. Move along.
    I must wonder from where the glue, solder, welding rods and patience will come from to fix something that has disintegrated.
    The concept we had best embrace is rebuild.

  10. tim the salad shooter

    Sure would like a swig of whatever it is you’re drinking. Large Fortune 500 company just announced they’re laying off 2,000 workers today and closing a call center. Yep, no depression here. move along f0lks, nothing to see here.

  11. George Balanchine

    Dear Mr. Harrison,

    “I still believe the U.S. is in a cyclical upturn within a larger depression…My thesis is that these remedies mask problems only due to the cyclical upturn.”

    If this is your view, on what basis are you optimistic? I agree that we’ll muddle through 2011, but after? As you would probably agree, none of the underlying problems, zombie banks, collapsing aggregate demand, the hundreds of trillions of dollars debt overhang, the danger of exotic derivatives, etc. etc. have been dealt with at all, and it’s been 3 years. Suddenly, policymakers are going to get serious? What makes you believe this?

    “…to clean up the balance sheets of weak banks…”

    This is not going to happen, period. Maybe after the next financial crisis, which I would put at 3 years or so away, but not before.

    This dawn of sudden optimism in the Anglo-American financial press is truly baffling, incomprehensible. The world economy came within a hair’s breadth of complete destruction during 2007-2009, none of the problems have been dealt with, but because there’s a cyclical upturn, somehow we’re all optimistic?
    Many people are forgetting the even larger issue, that mainstream, academic neo-classical economics is ENTIRELY DISCREDITED. It has shown itself to be UTTERLY WORTHLESS in every way. Joan Robinson should have been listened to 30 years ago when she called for the whole thing to be “chucked out” and for economists to start over.
    So, yes economists can go back to tweaking their models, shifting marginal revenue curves around, running econometric time-series, or whatever, but the models, for the most part, are completely broken.

    George Balanchine

  12. Cynthia

    The only reason why many of us are feeling somewhat optimistic about the US economy is because the stock market has surged back to pre-Lehman crash levels. I say this as I’m looking through the rear-view mirror with the road ahead not looking so bright and rosy. Seeing that broad-based gains have occurred in the stock market over the past year and a half or so, it’s only natural to think that there are plenty of more gains to occur down the road.

    But as I’ve said before, there seems to be something very phony about these gains on Wall street. With the combination of bailing out the banks, dropping interest rates to near zero, and pumping even more money into the banks under the guise of quantitative easing, not once but twice, the market is bound to rebound. But I see this as giving the economy several bags of intravenous fluids to correct critically low blood pressure. If the problem with the economy was merely dehydration, then we should be well on the road to recovery. But I sense that there is an underlying problem that has yet to be diagnosed and treated — something as debilitating as heart failure or bacterial sepsis or internal bleeding. I could be wrong, but I doubt it.

    1. Jackrabbit

      And it seems that a lot of the job gains that Harrison lauds have been low-paid, part-time, temporary, or 1099.

  13. Alex Sebastian

    Mr. Harrison,

    Interesting that you stated that “the recovery is likely to be of poor quality due to significant malinvestment.” I am interested if you could spell out your reasoning here.

    I only ask because one thing I have been considering is the massive issuance of high yield debt of late. I have neither the time nor the capacity to run the numbers, but I suspect that investment-grade issuers don’t see a lot of good investment opportunities (and therefore are reducing debt issuance because they have as much cash as they will need). On the other hand you have non-IG companies with unprecedented market access who are in all likelihood putting every dime they get (from pension funds starved for yield) to work. This is probably what’s driving the large rises in business investment we are seeing.

    While I must admit, there is a fair amount of speculation here, somebody should run some numbers, because if my suspicions are confirmed, these inherently cyclical companeis (along with the broader economy) will take a drubbing the next time things get nasty.

    Just a little food for thought.

  14. Jim Haygood

    ‘Commodities price inflation does have me worried because this, combined with what I see in emerging markets and in technology shares, especially pre-IPO companies, suggests an economy in the mid-to-late cycle. Here we are one-and-a-half years into the economic cycle and we are facing an environment in tech that is akin to 1996 or 1997 (or later), in EM like 1996 or 1997 and in commodities like 2007 or 2008.’

    Nicely stated, Ed. This mid to late-cycle backdrop acts in opposition to the standard transition from technical to cyclical recovery. Thus the likelihood of a double-dip recession, though still not the most probable outcome, is higher than usual.

    High commodity prices also rhyme with late 1980 and early 1981, as the last double-dip recession commenced. What doesn’t match is that back then, Sheriff Volcker was willing to confront those persistent price pressures in a high-noon showdown. This time round, Bensane Bernanke says his QE2 monetization program will grind on, regardless of what happens. And if record-high food prices and $90/barrel oil don’t register in the CPI or the PCE index, then they don’t exist, avers Airman Ben, as he scarfs down another coffee cake from the Eccles Building tea trolley.

    Meanwhile, on the political front, New York’s demagogic Senator Schumer announced Monday that he plans to reintroduce his punitive tariff bill aimed at China. Unfortunately, thanks to the aforementioned Chairman Bensane, the United States has publicly positioned itself as a manipulator nonpareil of Treasury prices, and indirectly of the dollar, stock indexes and commodity prices, as it exports inflation via its reserve currency role.

    A War of the Master Manipulators looks to be a thoroughly unappetizing and unedifying spectacle. The only predictable result is that plenty of innocent bystanders will get hurt.

    Thanks for your insights, Ed.

    1. Edward Harrison Post author

      Thanks for the comments, Jim. I remember meeting Shumer at the US Open when he was running for Senate the first time. I think it was 98. He was out glad-handing, trying to shake everyone’s hand and I was wondering who this guy was.

      Let me repeat something from another recent post which puts my comments here in a broader context. This is based on something Randy Wray wrote about New Keynesian solutions:

      In any event, the US is in a cyclical upswing, predicated on fiscal and monetary stimulus. I think this upturn demonstrates that stimulus works. But, to what effect? Are we experiencing a sugar high that will lead to more malinvestment and a worse hangover when the high wears off? I would suggest that this is a strong possibility – and I assume Randy and Marshall agree. I am not at all convinced policy is geared to those things that will make this upturn sustainable: increased employment and personal income, increased household savings, reduced financial sector leverage, and capital formation. Is the US just trying to get through the next election cycle by any means necessary? Or despite historic partisanship, is there a discernible and coherent economic policy guiding the US?


      This is a golden opportunity to get things sorted. Personally, I think Obama IS just trying to get through the next election cycle and his economists are just figuring out how to help him do that. There doesn’t seem to be any longer-term framework in mind (except export more). And if you follow MMT, you would argue that exports are a cost and imports a benefit (hard to explain here, but that’s the problem with mercantilist export-orientation).

      Let’s see what the President has to say in the SOTU. I expect to hear more pro-export, pro-free trade, pro-incumbent, pro-big business platitudes and how America is in the midst of a sustainable recovery. Needless to say, this is exactly the kind of mindset I am saying is going to make the next downturn very difficult.

  15. ron

    Thanks for your update Mr. Harrison: The economy from my retired spot looks worn around the edges with leverage fueling various markets. The advertising for new automobiles is filled with nothing down, no interest,or lease for x per month, haven’t seen any indication that the average household income of say 60K can really afford one or more 25K Plus cars other then on some very extended payment plans which means the present pool of buyers will be exhausted and lower credit scores will be offered similar deals to keep inventory moving but it doesn’t have a good smell to it.

    Housing sales are driven by government loans using 3 1/2 percent down payments in a deflationary housing market makes no sense for buyers or investors as the government is instantly creating negative equity homeowners that have little skin in the game and if history is a guide will default in large numbers rather then bring money to the table at closing.

    The tax base continues to decline for all levels of government and sharply for SS receipts bringing into focus the Federal Governments past and present use of spending excess SS payments to fund whatever special interests could dream up,in 2010 the SS trust needed to borrow 76B double its projection and SS receipts continue to decline which means greater government borrowing in 2011 to make up these shortfalls which will be significantly scaled up due to the recent tax package.

    Local bond offerings to fund transportation/schools/sewer/ and other projects that has been a significant source of revenue for commercial building projects are going to find fewer taxpayers willing or able to vote in favor to fund further weakening local job economies.

  16. Jim the Skeptic

    Jim Haygood said: “Meanwhile, on the political front, New York’s demagogic Senator Schumer announced Monday that he plans to reintroduce his punitive tariff bill aimed at China.”

    Sir, Senator Schumer is a piker, unsuited for the task at hand. If the Democrats were serious they would have done this while they controlled the House of Representatives.

    We need more balance in our foreign trade. The exporting countries will not willingly consent to that, it will have to be imposed. Tariffs are the surest way to get more balance.

    Or we can play around the edges of the problem as the trade imbalances worsen. In that case our economy will continue it’s downward slide. Unemployment will not be reduced, instead it will slowly rise as young people come of working age.

    The only solution to our current economic problem is JOBS.

    1. Jim Haygood

      You are probably right that tariffs are the surest way to get more balance in trade. But there’s a cost: if Senator Schumer puts a 25% tariff on most of the goods sold at WalMart, it would produce an ugly inflationary kick on top of what we’ve already got. And it would hit low income people the hardest.

      Yes, tariffs would encourage some jobs to return to the US. But that’s a multi-year, even multi-decade process involving capital investments in plants and equipment, and worker training. So tariffs mean short-term pain for (possibly) long-term gain, if you assume that ol’ David Ricardo was out to lunch about comparative advantage.

      Imposing tariffs on China also would provoke a financial crisis, I suspect. Likely the dollar would pop, and stocks would crash hard.

      Commenters here seem very bearish. It reminds me of 1992 and 1993, when there was a widespread view that the recovery which the NBER dated to March 1991 was fake. But this is always the case: the news, particularly about jobs and government finances, stays dismal in the first years of recovery. So the early recovery, like the early bull market, is widely disbelieved.

      Just to put some probabilities on it, I’d say Ed Harrison’s ‘cautiously optimistic’ scenario is 70% likely, while double-dip recession is 30% likely. That’s a pretty bearish stance, since double-dips happen less than 10% of the time — a long-shot bet.

      But if Schumer passes his tariff bill, I’d change the odds to 50/50 that the economy gets sick and pukes its guts out. Schumer, a lawyer, is no more qualified to dabble in economics than I am to dabble in brain surgery.

      1. Jim the Skeptic

        I understand that putting on tariffs will hurt low income earners but I don’t see any alternative way to get large numbers of jobs. And I agree that it will be a multi year proposition.

        This is similar to the raise taxes and hurt the economy issue. Sure it will but we don’t have a choice. Taxes will have to be increased and government services will have to be reduced.

        Now is the time when we have to select the best of all the bad alternatives. American politicians are not good at this, they default to inaction.

        The financial industries have received a lot of taxpayer help, it is time for them to stand on their own. Currently they are doing much better than the rest of the economy and that disparity can not go on forever. The stock market is a joke, surely no one can believe that these prices are based on the fundamentals of the companies represented.

        You are more optimistic than I am, so you are more prepared to wait and see. At least that is the way I am reading, what you are writing. :^)

  17. Hugh

    Is cyclical upturn the new cargo cult? You know we really don’t have to do anything, recovery will just drop from the heavens.

    As others have noted, this is not your average recession. Quantitatively, it is deeper and wider, and qualitatively, it has its roots in deflation, not inflation, something even Ed acknowledges in placing it in a depression. So if it is atypical, what is the relevance of telling us how recessions normally play out, or implying that this one will?

    Avoiding egregious errors? What does that even mean? That policymakers haven’t managed to blow everything up yet? Is that even true? Things blew up in 2007 when the housing bubble burst and again in 2008 with the meltdown. Does throwing trillions of dollars at a corrupt banking sector no strings attached not qualify as an egregious error?

    Left out of Ed’s analysis is the kleptocratic nature of our elites and the massive inequality in wealth that has resulted from it. This is my beef with virtually all current economics. It presupposes that the foundations of the economic system are intact and much as they have been in the past. But what if those foundations have been rotted out and stove in by overgreedy financiers and their too easily bought politicians?

    It is also confusing because what Ed describes as slow growth sure looks like a euphemism for Japanification. That really is the big question facing us. The best case scenario is Japanification. The worst case is another crash. My own view is that those that opt for Japanification critically underestimate the incompetence, greed, and self-destructiveness of our kleptocratic elites. It took them about 6 months to return to business as usual after the 2008 collapse. It has taken them about 2 years to forget it ever happened.

    On a final note, the “boy who cried wolf” is a strawman. You see market followers want you to tell them that markets are going to dive say in September 2011 so they can get their money out, but the problem is having such knowledge and acting on it would change the timing. But more than this it completely misunderstands the nature of real economic prediction. Economic prediction can give you a spectrum of probabilities across a range of time. For example, market conditions, that is the bubble in stocks and commodities, has been mature since the end of 2009. It could have gone at any point since. The probabilities over that range aren’t the same but the idea is that say a failure of a Citi, a war with Iran, the collapse of the euro, civil unrest in China could have pushed the markets over the edge and into a crash. And too you have to understand that the odds aren’t static but are constantly changing as new events and action occur, various Fed bailouts, crumbs for the rubes, etc. Finally, you have the great imponderable of irrational investors. Who will decide that they don’t want to be the greater fool, and when? This picture is further complicated by the fact that the ultimate fool so far has been reliably the taxpayer.

    None of this means that prediction is impossible. It just means that it is not about beating the market and getting out at the last minute but rather understanding it, with the idea that action can be taken to keep a bubble from forming or a crash from occurring. That said, 6 months to a year out from a crash, there are usually worrying signals. About one month out, there is a precursor event, a clear signal that the party is just about over. Then you get either a whole series of events leading up to an explosion or just the explosion itself.

    It is not crying wolf to say we are headed for another crash. Nor is it a failure or weakness not to be able far out to pinpoint when such an event will take place. That simply misunderstands the nature of markets, the influences on them, and the nature of prediction.

    1. Edward Harrison Post author

      Hugh, the “boy who cried wolf” is most certainly NOT a strawman. It is very much THE problem. People telling us over and over that things are going to collapse every time we hit a cyclical downturn make themselves impotent because it is easy to dismiss them.

      What I am trying to say at Credit Writedowns is that it’s not about the individual business cycles, it’s about secular generational trends that lead inexorably to a diminished standard of living for most Americans. I am actively trying to dispel the notion that the ‘wrong’ policies lead to immediate doom because they don’t. They lead to EVENTUAL economic collapse – and focussing people on that longer-term while admitting that these brief upturns are real underscores how deceptive it is to look only at individual business cycles.

      It is important from an investing, business planning, retirement planning perspective or purely for understanding what is happening to separate business cycles from secular trends.

      And, I see you invoked the word “kleptocracy. As far as I know, I am one of the first finance bloggers to also invoke that word during this crisis, so give me some credit for recognizing the big picture, please:


      1. Hugh

        I would agree we are headed toward a collapse. This is a function of kleptocracy. The reason that I hammer so much on kleptocracy (and wealth inequality) is because they establish the context in which everything is happening. It is rather like during the Bush years. I suggested that every Administration news story to establish context should begin “Bush, the worst President in our history, said today…”

        We are in uncharted territory, or at least territory that hasn’t been seen since the 1920s. It’s dicey to talk business cycles because everything is so distorted. As for economic planning, the markets are rigged. Any small investor thinking to enter this late in the market shouldn’t, and anyone of them who is in and can get out should. For those who can’t, I would say they are looking at losses of 40%-50% from where markets currently are, more if there is leveraging involved.

        As for myself, I’ve been saying that 2011 has a strong likelihood of a crash in it for two years now. I see it as the crossing of two trend lines, destructive kleptocratic economic policy and really awful political leadership from both sides of the aisle. I emphasize more than most liberal economists the political component. I think they see Japanification in our future. For me, this would be more likely if we had mediocre political leadership, but the political situation and its stupid quotient is far worse than this. Consequently, my economic prediction is more dire. Barring an external trigger, I have said that around April represents one possible time for a crash with a much higher probability in the August-October range. We’ll see how it plays out. If I’m wrong, I will admit it, but it will be on the timing, not on the inevitable collapse on which we both agree.

  18. Jackrabbit

    The economic numbers paint an encouraging picture. But as described in the comments here, almost every number that you look behind reveals troubling aspects that do not bode well for a sustainable recovery. Would a crisis spark the political will to deal with underlying problems? So far we have seen crisis used only as a device for power aggregation. Heads we win, tails you lose at every turn.

    Neo-liberal thinking seems to be that a return to a social-darwinistic, winner-take-all economy will give the US economy a fantastic competitive advantage that eventually raises all boats. But for the most part that thinking seems to be translating into coddling entrenched “special interests” (corporate and moneyed interests), leading to a Japanese-style stagnation (up years, down years but on the whole, going nowhere for a long period of time).

  19. MyLessThanPrimeBeef

    The Decade For Reluctant Pessimism vs. The Year For Cautious Optimism – that seems to be the general sentiment here from what I can tell reading the comments.

  20. Economist Recovers

    2011 – the year for 3 Million more foreclosures? That’s not the recovery that the author speaks of, but let’s not get carried away – is any of this scientifically based or is it hot air speculation like most economists usually do with a dash of political slant?

  21. emca

    Your views, minus the broader analysis, mirror what I read a few days ago by a commentator in FT. His topic was the U.S. stock market in 2011, which he predicted would equal or better this year.

    I’m not sure this, or your post, is so off the mark given the FED’s support of market players.

  22. decora

    “multi-year economic expansion on the back of renewed monetary and fiscal expansion.”

    what if, you know, we, maybe had economic expansion based on producing better goods and services at lower cost? oh, and without using slave or child labor and pouring toxic chemicals into our backyards?

    i know it sounds old fashioned.

  23. mmckinl

    Cautious Optimism …

    Unless and until oil prices spike … Then it’s a whole new ball game …

    Peak oil is here folks so it’s all a matter of supply …

  24. d shatin

    Our national economy is exponentially worse than the Great Depression. Structurally so weak it will collapse. All of this created by 24/7 electronic trading, the International Commodities Exchange, immorality and lack of conscience throughout our culture of greed; love of youth and perfection and hatred of anything less than and the elderly and all for whom the accumulation of wealth is not the most important act in life. Eight million jobs gone; auto industry and union decimated; Detroit a bombed out shell of the greatest manufacturing center on earth; a grave years; no Federal urban policy for decades; so where are we now?

    All across America; a plague of lawlessness and violence. Thanks to liberal immigration policies, the USA has every gang group in the world operating within its borders spreading misery and death across the country; drug addiction alone is costing the US $261 bi annually between law enforcement, rehabilitation etc. plus unacceptable loss of life thanks to NAFTA. Government workers are being assassinated not by bullets but by cruel governors scapegoating them and impoverishing them overnight…
    and this is but modest evidence of the disintegration of America. 20% of US children live in poverty. Our Federal and State Governments are nothing more than one interconnected corporate fascist state. Billions going to IT contractors who build IT systems that DO NOT WORK.
    The 1% Goldman Sachs and business sectors massively enriched by paving the way for former US businesses to set up shop in China and export their goods into the U.S., with the right labels but hideously poor quality sold for the same price as the best excellent goods made in America.

    It is over. There is no escaping the facts.
    A handful of men with a poisonous philosophy and lack of conscience destroyed America. I will always believe in American Exceptionalism because I am old enough to have been a part of it.

    I am sickened to death at how readily a small group of elite MBAs sucked the life out of our country and then gave it away. Treason without punishment. And in its place we are left with Dickensian economics: debtors prison, child labor, theft, chaos, worthless coinage and currency,…
    and destitution in our old age; gangs of unemployed youth looking for fun and treasure; get the picture?

    A pox on all their houses. Time to reclaim the people’s treasure stolen and staged in Swiss bank accounts and Canary Island banks. Time to imprison the bond fraudsters and their ilk who sold local, county, state governments down the tubes and those in government who sold the people into economic slavery. The sorry and the pit of it; there is no leader with the courage and intellect to do what is necessary. Instead, more of the same and no way out.

    1. jonboinAR

      You say the fraudsters should be imprisoned. I see that a lot on these boards. But isn’t that sentiment sentimental, basically blowing off steam? Have the bulk of those who have sold out the interests of the US actually broken the law, as far as we know? They’re self-interested, maybe, unpatriotic, destructive, but have they broken the law, in the main? Is there any actual chance of prosecuting them for breaking any laws. Maybe they followed a more patient strategy, by making conditions good for themselves through the legal system, and maybe so should we.

      In other words, I see a lot of gloom and doom and kind of helpless rage without offered solutions. What about old-fashioned political involvement? Is that too old fashioned? Look at the Tea Party movement? Yes, it’s kind of documented that it was co-opted early on, but I don’t think it began or got it’s initial boost as “astroturf”. I think it’s popularity started among people genuinely fed up with the way things currently are, controlled by a few for their benefit. Several of us are starting a party dedicated to economic and financial reform. We’re not settled yet on whether we want to be a party like the Greens who try to submit their own candidates or more of an advocacy group/movement like the Tea Party movement.

      We sure could use the involvement and the intellectual power that I see expressed here. I feel that many if not all of you are miles beyond me in terms of education, experience, breadth and depth of knowledge. The only thing I don’t see you do much of is suggest anything we can try to do. I wish some of you would join us. We really need to develop strategy and goals. Personally, I don’t feel quite qualified. I’m not going to include a way to contact us in this post as the last time I did that the post was deleted right away, as spam, I guess. I don’t know what I need to do in that regard. We have posts at Baseline Scenario with our email address. I’d dearly love to see some give and take discussion about this idea in the comments section if anyone’s interested in commenting.

      I hope I’m not offending with this post.

      1. Georgann Marks

        Paulson’s TARP one – on a single sheet of paper – passed without questions – was to cover the backsides of his buddies who sold worthless bundles of paper to foreign investors and banks.

        When congressman Alan Grayson asked the Fed chairman WHERE the money went – Bernanke LIED. He said he didn’t know. He did know.

        Our Federal Reserve printed money and gave it to foreign governments and banks so Norwegian fisherman wouldn’t be storming the halls of Washington – looking for their pension monies.

        Paulson and Bernanke should be in JAIL – roomies with a gal named Darnell.

        When people ask “where are the crimes”? — they are not looking.

        This is not capitalism. American runs on cronyism. And Government – left and right – is owned by men and women who use government taxation, regulation and largesse – to enrich themselves at the expense of everybody else.

        Behind every great fortune – there are great crimes.

        Never more true than today. You do not become enormously wealthy in America without f+cking everybody along the way… and then purchasing a few of our governors to destroy any competition you may have encountered.

        And you wonder why I use the word POP when describing the assassination of a congresswoman? a Judge?

        This is war… and so long as I’m working and eating, I won’t be taking up arms. Many more will be looking at our bought and paid for governors through cross hairs. Its’ a fact… not speculation

        1. Michael H

          It’s amazing how smooth the entire looting operation has been. And leaving the two-party system in Washington is a brilliant move, as this enables the Rubi-nized insiders to keep robbing the country, while at the same time many Americans either insist they have not been swindled, or they don’t mind being swindled. And so please, keep stealing hundreds of billions from us while we the people get all worked up over whatever lie this Republican said versus whatever lie this Democrat responded, as if there was any difference between them.

          1. jonboinAR

            It’s because they organize, and we don’t, blast it! They’ve followed a patient strategy. That’s why I question their literal, not figurative, but literal criminality.

            Everyone keeps crying, “It’s going to take complete breakdown. It’s going to take civil war.” How do you know that? The alternative, working within the legalized political system, but with directed, targeted propaganda, and a concerted effort to appeal to the general public as the Right does, rather than talking over their heads or in condescending dismissive terms, I don’t think it’s been tried in quite a long time.

            It’s time for us, who at least think we know what’s going on, to become active. If you don’t want to join me, y’all, YOU start something I can join with. You may see me as callow, or something. That’s all right. You do something then.

            We need a sophisticated program that can turn the Ship of State to what we think is a better route, then we need to be able to sell it in fairly simple terms to the general public. That’s a strategy that the NeoConservs and NeoLibs followed to great advantage, I think.

            And THEN see how that goes.

      2. Trillium Fortnight

        joinboinAR said: “I wish some of you would join us. We really need to develop strategy and goals….”

        Listen, it’s good that you’re trying to organize something but wouldn’t it be better if you developed a strategy and goal first, *before* asking people to join you? Do you even have a website or a blog or is an email address all you have at this point?

        Because when it comes to dealing with strangers on the Internet, most people are going to be very reluctant to give up their email address or their real name without having a lot more information than what you’ve provided so far.

        1. jonboinAR

          Umm, I dig the second part. I understand folks not wanting to give up their email address to a “handle” on a blog. I guess we need to create a web site. Others have advised me that. As to the first, no, I need your help to develop a strategy. The most obvious initial objective to me is to reform campaign finance. But as to whether the wisest strategy is, say, to campaign to open a Constitutional Convention and have corporations declared to not be persons, I don’t begin to have the background to decide things like that. What I really want is to get the smart (more educated, experienced, at least they seem like they are) people to DO something, and to be there to help them.

          The very few people that are with me already are a lot more politically experienced than I am. They’ve been active. I haven’t, but I’m more brazen, I guess, so I’m the one that heckles my fellow blog readers the most.

          1. Trillium Fortnight

            Okay, I believe that you’re sincere and well-intentioned, and I wasn’t criticizing you. I can’t personally help due to my situation which requires me to work full-time and to raise two children alone, but I’m sure you’ll find others willing to help and good luck.

  25. hermanas

    Yes, I would like to see more analysis of the concentration of wealth on all these prognostications.

      1. hermanas

        I see Wall Street and they’re oblivious, I’ld like to see it published and discussed on Main Street and as “all politics are local”, in Congress.

        1. Ellen Anderson

          Most of the pols in Washington started running for crummy offices at the local level. I wonder how many of the the people writing here would be willing to run for local offices where they will have to interact with real people who may not agree with them. That is where real change starts – bottom up not top down. If you want to change the world get involved in your neighborhood, city or town.

          By the way, watch out for the odd agent provacateur on the web and in real life. People who pull out guns and shoot politicians (and the people who cheer for them) are loosers. If the shoe fits….

  26. Philip Pilkington

    Now for an antidote of ‘cautious pessimism’:

    “Increases in income lead to increases in retail sales…”

    What increase in income? Evans-Pritchard shows that increased retail sales are taking place in high-end stores:


    This suggests – to me, at least – that high-end income/retail sales are being floated, through QE2, on overinflated stock prices.

    “I see the jobs picture as encouraging.”

    That statement is followed by what appears to me as reasonably pessimistic statements:

    “Employment is lagging as it has in the last two recoveries. So the recovery looks particularly weak. Moreover, there seems to be a skew toward the upper income strata [yup, see above]. This makes the technical recovery appear even more sluggish.”

    I’m with Baker on this one – employed is f’ed:


    “Across the board, the economic indicators show a modest but improving economic picture…”

    I’d say: Across the board, the economic indicators show a picture a forced attempt to recover a stagnant economy. By using magic tricks like QE2, the Fed hopes to postpone the inevitable so that their leaders can continue to grace the front of Time magazine.

    Bernanke is clearly continuing the inflation of a bubble-economy, that Greenspan started when he assumed the position of Fed chief. However, Bernanke’s attempts will be far more short-lived than Greenspan’s – and their effectivity in the short-run will be mediocre for everyone that doesn’t own 7 Porsches…

      1. Philip Pilkington

        If you’re lucky it might – as a side-effect – devalue the dollar and increase exports and hence reduce unemployment. But that’s a side-effect.

        It might also increase inflation – and this might inflate away some of your private debt.

        On the other hand, it will destroy the economy by inflating asset bubbles that will inevitably burst. So, those positive side-effects it might have will likely be eclipsed by disaster after disaster…

  27. Allen C

    Insolvency recognition avoidance can theoretically continue to hyperinflation. Maybe another year or more. Maybe six months. Proceed accordingly. You better be well through the exit once a critical mass gets it.

    1. hermanas

      I can take a hint. Sounds like it’s time to go, ’till some hero smokes himself under “The Bull” on Wall Street.

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