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EJ
02-15-08, 02:54 PM
http://www.itulip.com/images/wallstufo.jpgUnidentified Financial Objects

A week of strange sightings. The Debt Deflation Bear Market that started in the final week of 2007, the first bear market iTulip has called since April 2000, rallied twice this week on two items seen floating in the sky and taken as a positive omen by believers. One, rising inflation as reflected in increased retail spending is good for the economy and, two, a one week 2.9% drop in new unemployment claims means the economy is out of the woods.

Later in the week Ben Bernanke testified before Congress that the objects were nothing to get excited about. The economy is in need of further stimulus because the it's getting worse. That said, for reasons he does not explain he also said he is nonetheless optimistic. His contradictory statements sent the markets tumbling. Today a New York Federal Reserve regional manufacturing survey indicated that conditions deteriorated this month, and the preliminary Reuters/University of Michigan survey on consumer sentiment for February showed a significant decline from the prior month. A Labor Department's report found that import prices are rising precipitously.

Rising prices and falling economic activity? Stagflation. Who could have known? (http://www.itulip.com/stagflationgodzilla.htm)

Inflation is not economic growth

Retail Sales Surprisingly Strong in January (http://biz.yahoo.com/ap/080213/economy.html?.v=22)
February 13, 2008 (Martin Crutsinger, AP Economics Writer)

Retail Sales Rebound in January After Dismal December, Strength Led by Higher Gasoline Costs

WASHINGTON (AP) -- Retail sales posted a surprising rebound in January following a dismal December, although much of the strength reflected rising gasoline prices. Economists saw the increase as a temporary blip rather than a sustained recovery.

The Commerce Department reported Wednesday that retail sales rose by 0.3 percent last month after having fallen by 0.4 percent in December as retailers suffered through their worst Christmas shopping season in five years. The increase was led by higher demand for new cars and a big jump in sales at gasoline service stations that primarily reflected rising pump prices.

On Wall Street, the better-than-expected reading on retail sales helped lift spirits by easing concerns about the severity of the economic slowdown. The Dow Jones industrial average rose 178.83 points to close at 12,552.24.The first Unidentified Financial Object was inflation that stock market bulls mistook – again – for economic growth. While the January retail “growth” was reported as a “surprise” the real surprise was December 2007 when in spite of a spike in inflation nominal retail sales growth was still off. To its credit, the mainstream business press is catching on to the real versus nominal growth reality and most stories on this month’s retail numbers noted that the rise in gasoline prices that made up the bulk of the “growth” does not make a consumer rebound. In our opinion, it makes for further consumer retrenchment; inflation is a major source of the economy’s problems, not its savior, and added stimulus will further increase the burden of the Inflation Tax in consumers (see Reflation without Representation (http://www.itulip.com/forums/showthread.php?p=25295#post25295)).

Labor market is not recovering

The second UFO to appear this week was a small drop in unemployment claims that stock bulls interpreted as good news about the nation’s labor market.

Stock Prices Are Mixed on Jobless Claims (http://biz.yahoo.com/ap/080214/wall_street.html)
February 14, 2008 (Tim Paradis, AP Business Writer)

Stocks Slip As Investors Await Testimony From Bernanke, Paulson; Unemployment Claims Decline

NEW YORK (AP) -- The Labor Department's report that the number of workers seeking unemployment claims fell by 9,000 to 348,000 last week eased some concerns about the state of the labor market. Wall Street has worried that consumers are turning cautious amid a slowdown in the housing market, mounting debt loads and rising prices for fuel and food. Consumer spending is critical for economic growth.A 2.9% one week decline off of a weekly rate of 348,000 is nothing to cheer about. A much more faithful indicator of labor market strength is median duration of unemployment (MDU). We used it to help confirm our recession forecast and it’s still showing the classic signs of an early recession, so we've modified the chart to show the current recession.


http://www.itulip.com/images/durationunemployment021508.gif


MDU is a function of falling net job creation. Before businesses lay people off they freeze hiring. Early in a recession workers lose jobs at the same rate as during expansion but fewer new jobs are created so it takes the average worker longer to find a new job. The MDU spike is caused later in the cycle when the rate of job losses is rising and at the same time the rate of new job creation is falling. Offshoring that's driven during a recession by the need for companies to reduce payroll expenses without a corresponding reduction in output results in a structural change in the affected industry, to wit: the offshoring of computer hardware jobs after the 2001 recession sent jobs overseas that never came back.


http://www.itulip.com/images/computerproducts.gif

Just as some iTulipers were starting to wonder if maybe we’d gotten our Debt Deflation Bear Market call (http://itulip.com/forums/showthread.php?t=2774) wrong because the market appeared to be recovering, along comes Bernanke to throw a bucket of cold water on it.

Bernanke Says Economic Outlook Is Worse (http://biz.yahoo.com/ap/080214/congress_recession_threat.html)
February 14, 2008 (Jeannine Aversa, AP Economics Writer)

Fed Chairman Bernanke Says Nation's Business Prospects Have Deteriorated

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress Thursday the economy is deteriorating and signaled a readiness to keep on lowering a key interest rate to shore things up.His comments sent the DJIA down over 170 points, but the dollar went down even more and that means more inflation in our future. Platinum, for example, hit $2,051 per ounce in response.

Quick platinum tale of woe that I hope is instructive. I purchased 100 ounces of platinum in 2001 at around $450 and cleverly – or so I believed at the time – sold 80% of it four years later in 2005 when the price spiked to $1,200. After a near 300% rise in a few short years, the general consensus at the time was: platinum is overpriced. Then the price went over $2000.

The lesson is: When declining demand for money not rising demand for a commodity is driving prices, it’s easier to make the mistake of selling too early than selling too late. That mistake only cost me $68,000 so far, and I have not made it with respect to silver and gold purchases. A friend who runs a major gold fund told me over dinner earlier this week, “In this environment if you sell too soon you can get wiped out; the purchasing power of the cash you earn from selling too soon can fall 50% in a short time, wiping out your previous gains.” He expects gold to go to $10,000. He’s a professional but as I’ve mentioned over the years, it’s just as hard for pros, especially young ones, to avoid getting caught up in the genius of their recent trades as it is for amateurs.

Maybe now platinum is "too high" or the dollar is "too low"? Depends on more buyers at higher prices in the future, of course. We are told that greed and fear drive the markets. I don't buy it. Fear and fear drive the markets: fear of losing money and fear of losing out on gains. A market is in balance when there are as many people afraid to sell as are afraid to buy at the current price.


http://www.itulip.com/images/pt92-pres-1.gif

All this talk about recession got me thinking: does it ever happen that the business media talks a lot about recession when there's no recession? Turns out that according to research by Kevin Kleisen over at the St. Louis Fed last May the answer is “no.” He did an analysis Recession Rumbings (pdf) (http://research.stlouisfed.org/publications/net/20070501/cover.pdf) to find out if a meaningful correlation exists between the incidents of stories in the business press that use the word "recession" and actual recession. Here’s the chart with his conclusions.


http://www.itulip.com/images/pressrecession.gif


There are a few things to notice in the chart: First, “recession” stories seem to exhibit normal business cycle characteristics; the number of stories rises during periods of slow growth and recession and remains low during periods of economic expansion. Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply—which suggests that this indicator might be useful in helping identify troughs, though perhaps less so for peaks. Third, although the two newspaper counts show a high degree of correlation (0.86), the number of recession stories that appear in the New York Times is usually larger than the number that appear in the Wall Street Journal. This was particularly evident in the 1973-75 and the 1990-91 recessions. Finally, despite a noticeable jump in the number of “recession stories” in the Wall Street Journal in March 2007, both series remain at levels consistent with economic expansion. —Kevin L. KliesenThat was back in May 2007. Where are we today in the recession talk cycle? Counting Wall Street Journal and New York Times mentions of the word “recession” is the old fashioned way. Let’s use google.com/trends instead.


http://www.itulip.com/images/googletrendsrecession.gif

Looks like recession to us. As unemployment rises we expect the recession talk trend to continue all year.

http://www.itulip.com/images/recession.gifMost of the stories we read now do a good job of explaining how the crashing housing market is leading this recession but do less well covering the inflation side of the story. The reason is that this is not a typical recession. It is an inflationary (monetary inflation) debt deflation (credit markets asset price deflation) and not one in a million understands what they’re looking at, including Bernanke and members of Congress.

We can observe the mis-comprehension at sites like http://www.howstuffworks.com that attempt to explain how recessions work. To the left is the howstuffworks graphic that shows the self-reinforcing nature of a recession as an economy spirals down. The traditional Keynesian explanation is that the recession cycle starts with a dispirited Joe Consumer losing confidence in the economy and so he stops buying so much stuff, then he gets laid off, then he spends even less as his income disappears, then his friends and neighbors hear about his plight and they start to lose confidence, too, then investors bail on the economy and stocks, the stock market goes down, leading to further loss of confidence.

The problem with this explanation is that it does not explain why Joe lost confidence in the economy in the first place. Are the newspaper stories he’s reading about recession causing him to lose confidence or did the recession that the papers are writing about cause him to lose his nerve? The Keynesian explanation is tautological.

Our take is that every recession is different and this one is more different than all of the others. It’s the result of several unique factors and some not so unique factors feeding into each other. I leave you with the iTulip version and bid you and your family an enjoyable weekend, recession or not.







http://www.itulip.com/images/recession-itulip.gif


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ssvasulu
02-15-08, 04:56 PM
EJ,

I believe that you missed mentioning rent/house payment besides gasolene and food. Media claims that spending over 50% of family income towards housing is kind of a bubble, whereas we are spending over 40% of family income towards renting an apartment.

quigleydoor
02-15-08, 05:35 PM
EJ, we are not seeing the same upward surge as is seen in the prior recessions. How does this chart bolster your argument?

http://www.itulip.com/images/durationunemployment021508.gif

FRED
02-15-08, 05:53 PM
EJ, we are not seeing the same upward surge as is seen in the prior recessions. How does this chart bolster your argument?

http://www.itulip.com/images/durationunemployment021508.gif

EJ writes in:

Quig,
Sharp MDU growth starts Q2/Q3 2008. Watch.
Eric

dbarberic
02-15-08, 06:12 PM
"Smart Investors get out at the top and send their money to Europe and Asia before the dollar goes to zero."

Sounds like this is assuming decoupling, or at least "currency decoupling" where countries outside the US devalue their currency slower than the US devalues it.

Chris Coles
02-15-08, 06:24 PM
Personally, I have been intrigued for some time now about the fact that there is a lot of evidence to show that the FIRE economy has drained away the spending power of the middle classes; yet few of these people have been able to say, for certain, that all their spending power has drained into the banking system. I belong to a gliding club, perhaps the most successful ever, Lasham www.lasham.org.uk (http://www.lasham.org.uk) Now, along with every other spare time activity imaginable, Lasham has seen a steady decline in both membership and particularly, demographics. Today, very few middle income families have any spare income to spend on these outside activities and yet, no one has been able to say why they do not have the funds any more. I believe this is because the whole process has been insidious. Very long term declines seem to act like the story of the frog placed into cold water that is brought to the boil. The frog is dead before he realises the fact is that the water is too hot.

I believe, because of the greater exposure, by the likes of EJ, people are at last waking up to the reality and that is why we are passing into perhaps the most serious depression imaginable. The decline has been so prolonged, so drawn out; the effect is the same as the frog. It is now too late to get out and so everyone is dead, financially, and it is too late to do anything about it.

Ordinary people take a sharp downturn in their stride. The breadwinners families survival always depends upon their ability to rise above the normal difficulties life throws at us all. But here, the changes have been so incremental, so tiny and also, right across the board; everyone got caught into the trap of believing they had their position covered. Instead of changes coming in weeks, these changes have come spread over several decades. Slowly but surely, everyone's spending power has declined.

Disaster theory shows a forty year upward incline that then gets steeper until try as one might, no matter what you do, you cannot make any further progress and everything reaches a plateau. The plateau suddenly declines right back to the beginning.

I believe we have now stepped, with the panicked 125 basis point interest decline by the FED, right off the edge of that plateau and this time we will have to ride the Downwave all the way to the bottom.

But there is a mighty big silver lining to the black cloud that has enveloped us. If the existing FIRE economy does collapse, then the greatest result will be that so many middle income families will be freed from that huge burden of all those FIRE economy payments that have so declined the natural, real economy. Moreover, with the decline in employment driving the need for completely new job creation, then there will be a strong drive towards a new industrial future for our respective nations. The "FIRE" will be extinguished and, if I have anything to do with it, there will be a new fresh breath of innovative investment into a completely new model of free enterprise with as before, at least a forty year upward incline until a new generation of complete idiots arrive to bring the whole thing down again all over again.

EJ, yes, you go enjoy your weekend, you have well and truly earned it. I am sure a great many people will be sleeping more easily today simply because they now, at last, understand what has been happening to them and, with that knowledge, comes the answers to their survival.

zmas28
02-15-08, 08:03 PM
Its interesting and a little disconcerting that the MDU appears to be significantly higher (8 weeks) at the start of this recession than at the start of previous recessions (between 5 and 6 weeks). A higher "background" level of unemployment and is this related to offshoring or outsourcong of jobs?

DemonD
02-15-08, 09:58 PM
[CENTER]http://www.itulip.com/images/recession-itulip.gif


LOL this is the most awesome image ever. I especially like the man and woman fighting. (I imagine the guy in a wife-beater with beer stains)

Slimprofits
02-15-08, 10:41 PM
All this talk about recession got me thinking: does it ever happen that the business media talks a lot about recession when there's no recession?

Whatever you do, don't ask the rightwing nutcases that run the Media Research Center.

Consumer Confidence: Only News When It's Low(er) (http://www.businessandmedia.org/articles/2008/20080213140829.aspx)

The Media’s Top 10 Economic Myths of 2007 (http://www.businessandmedia.org/specialreports/2007/toptenmyths/mediamyths_execsum.asp)


Media myth: The U.S. economy is nearly in, or is in, a recession.

Truth: The U.S. economy is NOT in a recession and has experienced strong growth.

Contrary to media assertions and CNN’s Ali Velshi suggesting that “the bottom line is to most Americans, a recession is what it feels like to you,” there is an actual, objective definition of a recession. It’s two quarters of negative economic (gross domestic product) growth, which the U.S. has not seen in the last four years.

Instead, the economy has had 51 consecutive months of job growth. The third quarter of 2007 was revised upward to 4.9 percent GDP growth – very strong indeed. Yet the media have remained negative throughout four straight years of job growth (http://www.businessandmedia.org/articles/2007/20070905135730.aspx).

And the economy has weathered oil prices. On the June 12, 2004, “CBS Evening News,” Tony Guida reported a dire prediction. “Some oil analysts see economic disaster if oil hangs around $40 a barrel,” Guida said. Oil as of early December 2007 was in the high $80s after rising above $90 per barrel, and still no recession.

Add to all that an increase in workers’ earnings, documented by Rea Hederman and James Sherk of The Heritage Foundation.

“The economy created 94,000 jobs in November, and the unemployment rate remained unchanged from October at 4.7 percent,” Hederman and Sherk wrote. “Wages grew at their sharpest rate since the middle of the summer (http://www.heritage.org/Research/Economy/wm1726.cfm), which will fatten the wallets of workers during the Christmas shopping season. The economy faces real challenges, but the evidence so far refutes the notion that it is sliding into a recession.”

Those economists aren’t alone in their analysis. “By most economists’ terms, a recession is defined as two or more consecutive quarters of GDP decline – something we haven’t seen since 1991,” wrote Fortune’s Peter Eavis on October 2. “By that narrow definition we're not even close. Of 50-plus economists surveyed by research firm Blue Chip Economic Indicators, not one is predicting a recession (http://money.cnn.com/2007/09/28/magazines/fortune/recession_chatter.fortune/). They still expect GDP to grow 2.6% next year.”

Their assorted websites are good for a laugh.

Verrocchio
02-16-08, 12:55 AM
ROFLMAO; I like the images in the downward spiral, iTulip 2008 version. My favorite image is the boss flipping off the worker who wants a raise, right before he sends his job to China.

Verrocchio
02-16-08, 11:01 AM
UFOs
[D]oes it ever happen that the business media talks a lot about recession when there's no recession? Turns out that according to research by Kevin Kleisen over at the St. Louis Fed last May the answer is “no.” He did an analysis Recession Rumbings (pdf) (http://research.stlouisfed.org/publications/net/20070501/cover.pdf) to find out if a meaningful correlation exists between the incidents of stories in the business press that use the word "recession" and actual recession. Here’s the chart with his conclusions.


http://www.itulip.com/images/pressrecession.gif


There are a few things to notice in the chart: First, “recession” stories seem to exhibit normal business cycle characteristics; the number of stories rises during periods of slow growth and recession and remains low during periods of economic expansion. Second, recession stories seem to peak toward the end of the recession, or shortly after, and then fall sharply—which suggests that this indicator might be useful in helping identify troughs, though perhaps less so for peaks. Third, although the two newspaper counts show a high degree of correlation (0.86), the number of recession stories that appear in the New York Times is usually larger than the number that appear in the Wall Street Journal. This was particularly evident in the 1973-75 and the 1990-91 recessions. Finally, despite a noticeable jump in the number of “recession stories” in the Wall Street Journal in March 2007, both series remain at levels consistent with economic expansion. —Kevin L. Kliesen
A .86 correlation is strong, but it shouldn't surprise anyone that newspapers publish stories about recessions during recessions. The time dimension of Theissen's graph isn't fine enough to allow me to identify his "noticeable jump" in the number of 'recession stories' in the Wall Street Journal in March 2007." Presuming it's at the extreme right, it isn't as noticeable as mini-spikes in 1988, 1995, and 1998. These are increases in "newspaper chatter," but they don't correspond to the shaded "recession" bars.

It may be worth pointing out that the top line in the Google Trends graph indicates the number of Google searches on "recession," while the bottom line indicates the number of news references (an extension of Theissen's analysis). The two lines are nearly parallel.

To see how "chatter" about recession compares to other economy-related concerns, iTulip readers can enter multiple terms, separated by commas. For example, try entering recession, gold, oil, global warming. I used recession, fashion, climate. Search volume shows far greater interest in fashion than climate and somewhat greater interest in global warming over recession. The news reference volume shows that volumes for fashion and global warming have been higher since January 2004; however, there was a sharp spike in early 2008 in references to recession, with recession far surpassing the other two topics.



The problem with this explanation is that it does not explain why Joe lost confidence in the economy in the first place.

Another problem with the howstuffworks explanation is that it supposes that the consumer is the pivotal factor in the economy and that all other factors are static, ignoring the dynamic role of governments, currency rates, trade relations, wars, natural disasters, and so forth.

Yet another problem in this explanation is the centrality of confidence. The current consumer may not lack confidence at all, but the combination of falling home equity and tightening lending standards, inflating prices, and stagnant incomes may well have left the consumer without the means to continue consuming at high levels.

FRED
02-16-08, 11:50 AM
Personally, I have been intrigued for some time now about the fact that there is a lot of evidence to show that the FIRE economy has drained away the spending power of the middle classes; yet few of these people have been able to say, for certain, that all their spending power has drained into the banking system. I belong to a gliding club, perhaps the most successful ever, Lasham www.lasham.org.uk (http://www.lasham.org.uk) Now, along with every other spare time activity imaginable, Lasham has seen a steady decline in both membership and particularly, demographics. Today, very few middle income families have any spare income to spend on these outside activities and yet, no one has been able to say why they do not have the funds any more. I believe this is because the whole process has been insidious. Very long term declines seem to act like the story of the frog placed into cold water that is brought to the boil. The frog is dead before he realises the fact is that the water is too hot.

I believe, because of the greater exposure, by the likes of EJ, people are at last waking up to the reality and that is why we are passing into perhaps the most serious depression imaginable. The decline has been so prolonged, so drawn out; the effect is the same as the frog. It is now too late to get out and so everyone is dead, financially, and it is too late to do anything about it.

Ordinary people take a sharp downturn in their stride. The breadwinners families survival always depends upon their ability to rise above the normal difficulties life throws at us all. But here, the changes have been so incremental, so tiny and also, right across the board; everyone got caught into the trap of believing they had their position covered. Instead of changes coming in weeks, these changes have come spread over several decades. Slowly but surely, everyone's spending power has declined.

Disaster theory shows a forty year upward incline that then gets steeper until try as one might, no matter what you do, you cannot make any further progress and everything reaches a plateau. The plateau suddenly declines right back to the beginning.

I believe we have now stepped, with the panicked 125 basis point interest decline by the FED, right off the edge of that plateau and this time we will have to ride the Downwave all the way to the bottom.

But there is a mighty big silver lining to the black cloud that has enveloped us. If the existing FIRE economy does collapse, then the greatest result will be that so many middle income families will be freed from that huge burden of all those FIRE economy payments that have so declined the natural, real economy. Moreover, with the decline in employment driving the need for completely new job creation, then there will be a strong drive towards a new industrial future for our respective nations. The "FIRE" will be extinguished and, if I have anything to do with it, there will be a new fresh breath of innovative investment into a completely new model of free enterprise with as before, at least a forty year upward incline until a new generation of complete idiots arrive to bring the whole thing down again all over again.

EJ, yes, you go enjoy your weekend, you have well and truly earned it. I am sure a great many people will be sleeping more easily today simply because they now, at last, understand what has been happening to them and, with that knowledge, comes the answers to their survival.

EJ writes in:

Chris,
Thanks for the kind words. Below is an additional piece of evidence of what is happening that will be included in next week's commentary. It's an animation of the year over year change in the unemployment rate in CA as the recession deepens there. The official measure of unemployment, U-3, is at 6%. Note that over the past year unemployment is rising in every county and has increased by 1.1% to 40% in all but eight. CA is with respect to job creation "going dark."
Eric


http://www.itulip.com/images/CAunemploymentmap0208.gif
Lights Out in California

dauphiné
02-16-08, 03:13 PM
EJ, we are not seeing the same upward surge as is seen in the prior recessions. How does this chart bolster your argument?

http://www.itulip.com/images/durationunemployment021508.gif
Why don't we see unemployment surge ? May be because of more and more babyboomers retire at the same time... first recession in the mist of a massive wave of retirement... that's my guess. Same phenomena occuring in Europe as far as I can tell.

FRED
02-16-08, 03:31 PM
Why don't we see unemployment surge ? May be because of more and more babyboomers retire at the same time... first recession in the mist of a massive wave of retirement... that's my guess. Same phenomena occuring in Europe as far as I can tell.

Another hypothesis: the MDU spike is delayed during in the case of inflationary recessions. Note that during the three recessions that occurred during high inflation periods in the 1970s MDU did not rise until the end of the recession. Based on the by-state and by-county analysis we're doing now, it looks like the surge in MDU will start midway through the recession. Assuming a nine to 12 month recession we expect MDU to start to spike in Q2 08 or Q3 08 at the latest.

FRED
02-16-08, 03:37 PM
Its interesting and a little disconcerting that the MDU appears to be significantly higher (8 weeks) at the start of this recession than at the start of previous recessions (between 5 and 6 weeks). A higher "background" level of unemployment and is this related to offshoring or outsourcong of jobs?

MDU is a function of falling net job creation. Before businesses lay people off they freeze hiring. Early in a recession workers lose jobs at the same rate as during expansion but fewer new jobs are created so it takes the average worker longer to find a new job. The MDU spike is caused later in the cycle when the rate of job losses is rising and at the same time the rate of new job creation is falling. Offshoring that's driven during a recession by the need for companies to reduce payroll expenses without a corresponding reduction in output results in a structural change in the affected industry, to wit: the offshoring of computer hardware jobs after the 2001 recession sent jobs overseas that never came back.


http://www.itulip.com/images/computerproducts.gif

FRED
02-16-08, 03:46 PM
Sounds like this is assuming decoupling, or at least "currency decoupling" where countries outside the US devalue their currency slower than the US devalues it.

The iTulip position on "decoupling" is that with respect to trade that Asia and Europe are more independent than during previous recessions but not 100% decoupled. If they were 20% decoupled before they are, say, 50% now. With respect to currencies, we (global central banks) hang together or hang separately, as they say.

FRED
02-18-08, 06:35 PM
EJ,

I believe that you missed mentioning rent/house payment besides gasolene and food. Media claims that spending over 50% of family income towards housing is kind of a bubble, whereas we are spending over 40% of family income towards renting an apartment.

Asset price deflation (numerator) will help reduce rent and house payments where the denominator (the global purchasing power of dollars) does not matter; at least until the credit markets begin to price in inflation risk and mortgage rates rise along with long bond rates.

Governments can reduce rents relative to income via the debt markets.

Now readers are starting to see how we arrived at the Frankenstein Economy: one non-market, politically motivated, government band-aide heaped on top of the last, with entrepreneurs asked to bail out these errors each time.


http://www.itulip.com/images/EconFrank.gif

Chris Coles
02-19-08, 03:36 AM
Asset price deflation (numerator) will help reduce rent and house payments where the denominator (the global purchasing power of dollars) does not matter; at least until the credit markets begin to price in inflation risk and mortgage rates rise along with long bond rates.

Governments can reduce rents relative to income via the debt markets.

Now readers are starting to see how we arrived at the Frankenstein Economy: one non-market, politically motivated, government band-aide heaped on top of the last, with entrepreneurs asked to bail out these errors each time.



http://www.itulip.com/images/EconFrank.gif


I had posted this on the London Times yesterday. The final indignity being the UK the government nationalising Vapour-ware production. http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3386895.ece

"High streets are full of shops selling mortgages. Not one provides access to equity capital with a firm commitment to see an inventor safely capitalised for the long term development of his or her business vision. £100 billion invested in new entrepreneurs and inventors would have transformed our industrial base. In concentrating upon a failed bank, the government shows that it has no interest in the difficulties the British inventor faces with no access to capital from reliable LONG TERM national sources. Venture capital takes control of inventions so they can be rolled forward as fast as possible into a Merger or Acquisition, M&A. The VC refuses to invest for the long term so that the VC’s exit strategy can work fast and profitably as also the M&A. It has been precisely this that has driven the creation of the unstable financial condition of the “Northern Rocks” who create vapour-ware funds to keep the whole thing going. Nationalising vapour-ware production is the final stupidity.":o

vinoveri
02-20-08, 01:11 PM
Originally Posted by FRED
Asset price deflation (numerator) will help reduce rent and house payments where the denominator (the global purchasing power of dollars) does not matter; at least until the credit markets begin to price in inflation risk and mortgage rates rise along with long bond rates.


What will cause this to happen; seems to me it should already have happened?

Maybe I'm missing something, but the 10yr treasury is yielding < 4% while headline (by the U.S. gov's own metrics) CPI > 4%. The bond buyers are either in it for another reason, or they think inflation will recede dramatically.
The other reason: the result of foreign nations with account surpluses recycling their net savings into the U.S.?

Does anyone have any stats on who the buyers are of US bonds (e.g. % foreign vs % domestic)?

FRED
02-20-08, 06:10 PM
[/INDENT][/COLOR]A .86 correlation is strong, but it shouldn't surprise anyone that newspapers publish stories about recessions during recessions. The time dimension of Theissen's graph isn't fine enough to allow me to identify his "noticeable jump" in the number of 'recession stories' in the Wall Street Journal in March 2007." Presuming it's at the extreme right, it isn't as noticeable as mini-spikes in 1988, 1995, and 1998. These are increases in "newspaper chatter," but they don't correspond to the shaded "recession" bars.

It may be worth pointing out that the top line in the Google Trends graph indicates the number of Google searches on "recession," while the bottom line indicates the number of news references (an extension of Theissen's analysis). The two lines are nearly parallel.

To see how "chatter" about recession compares to other economy-related concerns, iTulip readers can enter multiple terms, separated by commas. For example, try entering recession, gold, oil, global warming. I used recession, fashion, climate. Search volume shows far greater interest in fashion than climate and somewhat greater interest in global warming over recession. The news reference volume shows that volumes for fashion and global warming have been higher since January 2004; however, there was a sharp spike in early 2008 in references to recession, with recession far surpassing the other two topics.




Another problem with the howstuffworks explanation is that it supposes that the consumer is the pivotal factor in the economy and that all other factors are static, ignoring the dynamic role of governments, currency rates, trade relations, wars, natural disasters, and so forth.

Yet another problem in this explanation is the centrality of confidence. The current consumer may not lack confidence at all, but the combination of falling home equity and tightening lending standards, inflating prices, and stagnant incomes may well have left the consumer without the means to continue consuming at high levels.

“There is the dangerous cliché in the financial world [that] everything depends on confidence. One could better argue the importance of unremitting suspicion.” - J.K Galbraith