Quote: ... On the first question it looks like the global economy will bottom out in the second half of 2009. In many advanced economies (the US, UK, Spain, Italy and other eurozone members) and some emerging market economies (mostly in Europe) the recession will not be formally over before the end of the year, as green shoots are still mixed with weeds. In some other advanced economies (Australia, Germany, France and Japan) and most emerging markets (China, India, Brazil and other parts of Asia and Latin America) the recovery has already started.
On the second issue the debate is between those – most of the economic consensus – who expect a V-shaped recovery with a rapid return to growth and those – like myself – who believe it will be U-shaped, anaemic and below trend for at least a couple of years, after a couple of quarters of rapid growth driven by the restocking of inventories and a recovery of production from near Depression levels ... There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).
But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.
Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel. ...
Quote: ENCOURAGING economic news has been reanimating the critics of President Obama’s stimulus program. But heeding their admonition to end the program would be a grave mistake. We need more stimulus now, not less.
Even if the economy is improving, it is still very weak. Another quarter-million jobs were lost last month, and even the most optimistic economists predict that it will be many more months, if not years, before robust employment growth resumes. Now we face an ominous new threat to recovery from sharp cuts in state and local government spending.
The more than $15 billion excised from California’s budget last month was just a small fraction of recently announced cuts. Although some people object to the federal stimulus program on grounds that government spending is inherently inefficient, most recent state cuts have been for services widely viewed as essential. These cuts were mandated by laws meant to stop politicians from spending beyond their means. While such measures may be beneficial on balance, sharply reduced government spending is exactly what the economy doesn’t need right now. ... The only remaining major component of aggregate demand is government spending. Stimulus proponents, following John Maynard Keynes, believe that increased government spending — financed by borrowed funds or printing new money — is the only way to bolster aggregate demand and end the downturn quickly. Recent results suggest that this strategy is working. ... MORE important, there are good reasons for believing that stimulus spending will make people’s future tax payments lower, not higher. Yes, government borrowing adds to the national debt. But if the stimulus also hastens the downturn’s end, it will accelerate the growth of future incomes and tax revenue. In that case, the net effect would be to reduce future taxes, compared with what they would have been without the stimulus.
And even if we run with the notion that stimulus spending will increase future taxes, it doesn’t follow that consumers will cut back on spending now. After all, we know that most people already fail to save enough for their retirement. Why would they alter their behavior to hedge against uncertain future taxes?
The recent state and local spending cuts are a major setback to the stimulus program, which many economists have argued was much too small to begin with. A small minority disagrees but has not offered persuasive arguments. ...
Quote: ... The rational response to the news that the economy will be far worse than had previously been projected should be a demand for more stimulus. After all, why should millions of people lose their jobs, their homes, and their health just because the people who managed the country's economic policy over the last decade were incompetent? ... The deficit hawks who wrecked the economy will be insisting that the government cannot borrow this much money. They will do their best to scare people by talking about "trillion" dollar deficits. To be sure, these are big deficits, but there is no reason to believe that the economy cannot support them.
Japan now has a debt to GDP ratio of close to 180 percent. This would be the equivalent of a $27 trillion debt in the United States. Yet investors around the world are happy to hold yen and in fact hold 10-year Japanese government bonds at interest rates of less than 2.0 percent.
Looking back to U.S. history, after World War II, the debt to GDP ratio rose to 120 percent. This would be $18 trillion in today's economy. Yet, the three decades following the war were the period of most rapid growth in U.S. history, and the debt to GDP ratio fell to less than 30 percent.
The basic story is that we need to have large deficits now for the next several years in order to boost the economy back to full employment. Forcing a large portion of our workforce to endure a prolonged period of unemployment will inflict an enormous cost on these workers and on their children (i.e. the future generations whom the deficit hawks claim as their main concern). ...
It seems to me that the deficit hawks are more concerned that their excessively wealthy patrons will have to pay more taxes than they are with future generations.
@Mike2343 -- "I believe we didn't end the recession until after WWII when all the vets came home and started businesses."
Believe what you want, but the GDP figures indicate that the country went into a brief recession after the war when all the vets came home and had not yet transitioned into civilian life.
"I thought what I'd do was, I'd pretend I was one of those deaf-mutes." - the Laughing Man
Quote:Original post by LessBread @Mike2343 -- "I believe we didn't end the recession until after WWII when all the vets came home and started businesses."
Believe what you want, but the GDP figures indicate that the country went into a brief recession after the war when all the vets came home and had not yet transitioned into civilian life.
I'm mostly looking at the log plot of real gdp per capita. One thing I'd heard in the past is that it was WWII that finally pulled us out of the depression by providing the jobs, but, looking at the GDP, it looks like we had reached pre-depression levels by 1937, two years before cash-and-carry, which my limited knowledge of history before I was born and Wikipedia tell me is the US's first economic involvement in the war. As for the war, it does look like there was a recession from 1946-1951, right after the war GDP peaked at a value greater than the pre-depression or post-war trends.
What worries me is, looking at the log of real gdp per capita, the overall trend is linear, so would it be fair to say that we or the market or whatever has become used to exponential growth? (Actually, it looks like it may be increasing even a bit faster than linear, which is even worse.) Are there any predictions on how long we can maintain exponential growth? It just doesn't sound sustainable in the long term, but how long is long term?
What's maybe a little comforting is that the GDP barely seems to notice what's going on. Other than the great depression and WWII, it's pretty uninteresting. If anything, it's more prone to booms than busts. Granted it would be nice to plot the 2009 and maybe even 2010 data points before saying anything, but 2007-2008 looks about the same as the dot-com bomb of 2000-2001 (with the bubble not having much effect, either).
@LessBread, I didn't give a specific date cause I could not recall it and didn't take the time to find it. I just knew it was after WWII. I should have stated that we returned to our negative ways after the WWII stimulus ended. Also if I remember right, GDP after the start of the New Deal increases is basically based on how much the government spent. So it was artificial indicator of a recovery.
@HostileExpanse: How many of your "creditable" economists seen this coming 2-4 years out? Peter Schiff, not everyone's favorite example called it years ago. Porter Stansberry, a young, self made millionaire warned of it about 4 years ago (the bubble bursting). I actually prefer Mr. Stansberry, as I like to listen to self made millionaires (Schiff is at least well to do, but not sure of his background). Another young self made millionaire I listen too is Chris Webber who has also called things years ago. Though he is more into currency trading that doesn't interest me much.
Too few economists/analysts are self-made millionaires and I take their thoughts and advice/opinions with a grain of salt. Actually most just report what they're told by their bosses to report, or their reports are manipulated. Heck Intel only "beat the streets" already horribly low expectations because they decided that the money owed to the EU for anti-trust "issues" is an asset taking them from way under to 1 cent over expectations.
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More thoughts:
Things are reported as up, stocks go up. Things are reported as down, stocks go up. Investor sentiment is high (anyone else seeing deja vu?). Volume is going down and the climb is sputtering out. Yes, most everyone predicts an eventual downturn again as we went up quite high quite fast (I loved it, just finished taking in my profits, made less then on the way down but I'll get a second shot haha).
Unemployment is still dropping at a rapid rate, but its not longer terminal speed (a good thing, but until we get net job growth we are in a bad way I think). I don't see how we can have a consumerless recovery, since 70% of our GDP is based on consumer spending (and NO the government cannot make up the difference without destroying us).
From LessBreads posting: <quote>MORE important, there are good reasons for believing that stimulus spending will make people’s future tax payments lower, not higher. Yes, government borrowing adds to the national debt. But if the stimulus also hastens the downturn’s end, it will accelerate the growth of future incomes and tax revenue. In that case, the net effect would be to reduce future taxes, compared with what they would have been without the stimulus.</quote>
What? The Fed (Bernenke) doesn't see any real growth in jobs over the next 5 years. Tax revenues are horribly low and falling. Government spending is increasing and looks to add 9 trillion or more over the next 10 years (though to date the Government has sucked the big one at estimating costs, low balling almost everything so far). How will it help grow incomes? They have only gone DOWN over the last 5-10 years in real terms, when inflation is factored in, we're down like 3% on average I believe the number was. The Fed also believes this will be a long and slow climb out, Japan style (likely shorter then 2 decades mind you).
So where is the magical tax breaks coming from? His imagination?
The stimulus is the governments attempt to get the past to become the future but the government cannot change the future. Not in the ways they intend or want at least. They are doing a great job at bankrupting our kids mind you. Even Warren Buffet is getting concerned about the growing threat of hyper inflation via government overspending/borrowing.
The government believes they'll just tax the rich to pay for things. The rich I believe have different ideas about that of course. We all protect the things we work for. I won't blame them for leaving. I know a few have already. The problem, the rich create jobs, not the poor. We will have a long, painful change to a new way of doing things.
Borrowing from our futures a lot less, since the future eventually (as it has just recently done) calls in your loan. We need to start making actual things we can sell to others to get real, not fiat money to spend to buy things we need. Wants will be put on the back burner and people will (hopefully) save to get what they want.
I read a good quote about stimulus spending I think fits. "Its like trying to raise the water level in a pool by filling buckets from the deep end and dumping it in the shallow end." -- S&A Digest
I don't have faith in the government, sorry. They're out to protect business as proven over and over. If we the peons benefit, that is a side bonus. If the founding fathers were to return I think they would smack us all.
I believe in free markets. Not the thing we have now, which is highly manipulated and distorted. I think we the government had just let things go, it would have hurt, hurt bad but we'd be out of it already. Healthy businesses would have acquired bad ones.
Now we have raising foreclosures. Subprime is over, but now its prime mortgages (and jumbos but who needs/wants a 6000 sq ft house?). The top tier borrowers are defaulting. We have increasing credit card delinquencies. Hotels turning over properties to the banks (I think we should take a note from the Canadian market, you return the keys you owe the bank the difference in what you borrowed and what the bank got at auction), commercial properties defaulting on loans, malls closing up, etc. BDI (Baltic Dry Index) is not recovering, I cross the Canadian/US border daily and the officer on the US side today said truck traffic is down 70% from 2 years ago (since I see him often we chit chat). Manufacturing is down. Corporate profits are down. *sighs* god I sound like a dooms and gloomer lol
I don't see a recovery until the fundamentals recover. My father pointed out today, GM/Ford and others are ramping up production now because of the rush of sales. But its doubtful sales will hold up. So the people they just rehired will be laid off again in a short time again.
[Edited by - Mike2343 on August 26, 2009 11:35:19 PM]
"Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety." --Benjamin Franklin
Quote:Original post by Mike2343 I believe in free markets. Not the thing we have now, which is highly manipulated and distorted. I think we the government had just let things go, it would have hurt, hurt bad but we'd be out of it already. Healthy businesses would have acquired bad ones.
With who left to underwrite any big acquisitions? With stock values in the tank, who would even have sold out for anything other than cash? Even now, all of the US investment banks are gone, and following your "let things go" strategy, there likely wouldn't have been many (if any) commercial banks standing either. With banks gone (thanks to the proposed 'free market' solution), a hell of a lot of people would have suffered quite a rude awakening when they found their bank accounts were gone, too.
That "let 'em fail" strategy helped lead the US to 25% unemployment last time, and assuming only that much in the present situation would probably be excessively generous, given today's dependence on credit. But even if we assumed only 25% unemployment, I have no idea how you figure "we'd be out of it already."
And that's just one of the more obvious implications of your "solution." Seems beyond unreasonable to me...
[Edited by - HostileExpanse on August 27, 2009 2:46:06 AM]
Quote:Original post by LessBread @Mike2343 -- "I believe we didn't end the recession until after WWII when all the vets came home and started businesses."
Believe what you want, but the GDP figures indicate that the country went into a brief recession after the war when all the vets came home and had not yet transitioned into civilian life.
I'm mostly looking at the log plot of real gdp per capita. One thing I'd heard in the past is that it was WWII that finally pulled us out of the depression by providing the jobs, but, looking at the GDP, it looks like we had reached pre-depression levels by 1937, two years before cash-and-carry, which my limited knowledge of history before I was born and Wikipedia tell me is the US's first economic involvement in the war. As for the war, it does look like there was a recession from 1946-1951, right after the war GDP peaked at a value greater than the pre-depression or post-war trends.
WWII involved massive stimulus spending that ultimately brought the depression to an end. New Deal spending laid the ground work for that. Did you notice the dip in 1938? As the economy began to recover, FDR was pressured into reducing the deficit through spending cuts that resulted in that dip (Krugman addresses the subject here and here). For specifics see The lessons of 1937. There was a recession from 46 to 51 as the economy retooled, as soldiers came home, took advantage of the GI Bill and went to college. It began to pick up as they started families and so on. I don't think this recession made a mental impact on people the way the Great Depression did or the way the Great Recession is now.
Quote:Original post by Way Walker What worries me is, looking at the log of real gdp per capita, the overall trend is linear, so would it be fair to say that we or the market or whatever has become used to exponential growth? (Actually, it looks like it may be increasing even a bit faster than linear, which is even worse.) Are there any predictions on how long we can maintain exponential growth? It just doesn't sound sustainable in the long term, but how long is long term?
Economic growth should track with population growth (which is exponential). When it comes to long term environmental sustainability, I think we've already exceeded our limit (Earth Overshoot Day, Living Planet Report).
Quote:Original post by Way Walker What's maybe a little comforting is that the GDP barely seems to notice what's going on. Other than the great depression and WWII, it's pretty uninteresting. If anything, it's more prone to booms than busts. Granted it would be nice to plot the 2009 and maybe even 2010 data points before saying anything, but 2007-2008 looks about the same as the dot-com bomb of 2000-2001 (with the bubble not having much effect, either).
Quote:Original post by Mike2343 @LessBread, I didn't give a specific date cause I could not recall it and didn't take the time to find it. I just knew it was after WWII. I should have stated that we returned to our negative ways after the WWII stimulus ended. Also if I remember right, GDP after the start of the New Deal increases is basically based on how much the government spent. So it was artificial indicator of a recovery.
You couldn't recall the year WWII ended? Really?
Quote:Original post by Mike2343 ... the Government has sucked the big one at estimating costs, low balling almost everything so far). ...
Actually, this last report of the deficit showed that the administration overestimated it by more than $200 billion. In other words, they high balled it. The 2009 deficit was expected to be $1.58 trillion, $263 billion less than projected in May.[1]. The rest is the usual deficit hysteria conditioning. What was it that Cheney used to say, Reagan proved that deficits don't matter? It looks like as far as the corporate media is concerned they matter when the President is a Democrat...
Quote:Original post by Mike2343 So where is the magical tax breaks coming from? His imagination?
He wasn't talking about tax breaks. He was talking about avoiding higher taxes in the future.
"I thought what I'd do was, I'd pretend I was one of those deaf-mutes." - the Laughing Man
Interest rates are crazy low in the UK (and US I think) and still people aren't buying property. When rates inevitably rise, that should depress sales more as people can't afford the larger mortgage payments, prices then fall. Meanwhile the horde of unhappy landlords who bought at the top of the price boom will find their mortgage payments exceed the rent they can bring in. But they can't sell without making a huge loss on what they paid; either way a huge number of houses go on the market at rock-bottom prices from desperate sellers or bank reposessions, and many people are left in debt.
Plus, unemployment in the UK continues to rise sharply which reduces money available to spend on luxury items - squeezing those industries harder - and housing, depressing that market from another direction.
And of course, taxes are going to have to go up in the UK. That seems to be a given, whichever political party you look at. Those tens of £billions have to be paid back somehow.
Quote:Original post by d000hg And of course, taxes are going to have to go up in the UK. That seems to be a given, whichever political party you look at. Those tens of £billions have to be paid back somehow.
Gordon Brown's solution to everything is to tax it or ban it. The taxes were rising slowly but surely anyway but now the recession has laid bare the true dire state of this country's fiscal position and he seems to be using it as some kind of excuse. Retirement age is increasing because the Government know fine well everybody's going to angle for a state pension after the private sector came crashing down, and it doesn't take Le Chiffre to figure out that the country is flat broke and can't afford it.
I am honestly scared and worried about my future when I leave University next year. If I get a job, can I afford to live comfortably on a pathetically low graduate salary especially after ridiculous property prices/rents, rising energy bills and ridiculous tax bills in return for fuck all? The Government say "Save for a pension, do this, do that" but who apart from benefit scammers and embezzling politicians can actually afford it? Now that even the biggest fatcats are being screwed by the taxman after all...
The only positive thing to come out of this is that the public sector have been told in no uncertain terms that their glory days are over, given that a large portion of our tax money goes towards propping up that mess. Public sector redundancies will come after the next General Election (Salmond has promised it in Scotland, and Alisdair Darling has publically suggested and alluded to it too) followed by pay cuts and restructuring. Note that I say after the G.E. because Labour are finished as it is without the public sector holding a mutiny.
Quote:
Still so optimistic?
No, this country has no jobs and I can see living costs getting well out of my reach within my lifetime. Emigration is a serious possibility for me (question is where?) because we work longer hours than the rest of Europe, earn less, get fewer holidays and have far higher living costs. It's not comfortable and it's certainly not healthy with everyone constantly rushing around and stressing about work to levels I have never seen anywhere on continental Europe. "Work to live", not "Live to work" folks.
Quote:Original post by d000hg Interest rates are crazy low in the UK (and US I think) and still people aren't buying property. When rates inevitably rise, that should depress sales more as people can't afford the larger mortgage payments, prices then fall. Meanwhile the horde of unhappy landlords who bought at the top of the price boom will find their mortgage payments exceed the rent they can bring in. But they can't sell without making a huge loss on what they paid; either way a huge number of houses go on the market at rock-bottom prices from desperate sellers or bank reposessions, and many people are left in debt.
Not sure how you would have missed it, but the "people buying at the top of the boom and then having to flood the market with homes and foreclosures" thing has kinda already happened...
Quote:Original post by d000hg Still so optimistic?
Me? Eternally. But, in this case, there is tentative justification for it.
Quote:Original post by Mike2343 I believe in free markets. Not the thing we have now, which is highly manipulated and distorted. I think we the government had just let things go, it would have hurt, hurt bad but we'd be out of it already. Healthy businesses would have acquired bad ones.
You should do some more research on how OTC derivatives markets are designed. With no central clearing agency, and members being non-neutral, you end up with issues of spiraling liquidity crunches -- i.e. a system, that without bailouts, would have ended up collapsing absolutely every business involved. Given how much of the economy relies on the financial sector (the financial sector lubricates the pipes and gears of the economy), the U.S. would have been in dire straits.
Do I like bailouts? Absolutely not. But I consider them a necessary evil. All we can hope is that we learned enough to avoid the situation next time.
