Recession without Romance

[jk]

Re: Recession without Romance

grg, i rather enjoy the way you resurrect these older threads.

[GRG55]

Re: Recession without Romance

Recession without Romance

Even smart contrarians are confused about our predicament

Paul B. Farrell, one of my favorite economics writers at MarketWatch, published 17 reasons America needs a recession today to make the case, "Yes, America needs a recession. Bernanke and Paulson won't admit it. And investors hate them. We're all trapped in outdated 1990s wishful thinking about a 'new economy' and 'perpetual growth.'"

While I appreciate the sentiment and have expressed similar views such as in Upside Down to Right Side Up, fact is the U.S. cannot have the kind of recession Farrell describes this time around because the antecedents preclude it. The problem is rooted in both the source of our current economic challenges and the political mandate to mitigate them that far predates the 1990s. The moral hazard of reflation became embedded in U.S. economic policy after The Great Depression; the mandate became "No more Great Depressions."

The Fed, Treasury, and Congress have been fighting the recession we forecast last fall as due to start in Q4 2007, led by the housing market correction. Throwing the dollar under the bus to briefly boost exports and bring plane loads of tourists into the U.S. has helped avert a far more blatant recession from occurring than the subtle one we're already in. With inflation rising as quickly as the U.S. economy is slowing, picking the exact month or quarter when the real (inflation-adjusted) GDP growth recession starts–or started–will not be possible until after the inevitably revised GDP and inflation figures come in. We expect to see confirmation June 2008 at the earliest...

...We'll get a recession alright, but it won't improve anything. There will be nothing romantic or cleansing about it.

iTulip's recession call is finally getting more company these days...

Harvard's Feldstein Says U.S. Economy in a Recession

By Matthew Leising and Steve Matthews

March 14 (Bloomberg) -- Harvard University economist Martin Feldstein, a member of the group that dates business cycles in the U.S., said the nation has entered a recession that could be the worst since World War II.

``I believe the U.S. economy is now in recession,'' Feldstein, president of the National Bureau of Economic Research, told the Futures Industry Association conference in Boca Raton, Florida. ``Could this become the worst recession we have seen in the postwar period? I think the answer is yes. I would emphasize the word `could.' ''

Feldstein's remarks represent the first time that a member of the NBER's business-cycle dating committee has publicly described the current downturn as a recession. The economy may not respond quickly to Federal Reserve interest-rate cuts, and a package of tax rebates and investment incentives will offer only a temporary boost, he said...

...``Monetary policy is not likely to have the favorable traction in this slowdown that it has had in the past, in part because of what is happening in housing and in credit markets,'' Feldstein said...

...``We have slowed down very significantly,'' Paulson said in a National Public Radio interview yesterday. ``I'm not getting into'' whether it is a recession...

...The committee says it usually determines a recession six to 18 months after one begins...

...``There is a good chance that when all the data are in they will show that we entered a recession in the first months of 2008,'' Harvard University economics professor Jeffrey Frankel, another member of the committee, said...

http://www.bloomberg.com/apps/news?p...&refer=economy

And, from the London's Independent Strategy courtesy of the WSJ...

Recession Is Inevitable

By DAVID ROCHE
March 14, 2008;

...We estimate that nonfinancial corporate debt ultimately will have to shrink by 11%-12%. This will generate a decline of five percentage points of real U.S. GDP growth and push the U.S. into recession. Europe's real GDP growth will contract by two percentage points.
Globally, total credit losses of $1.4 trillion will cause a contraction in world GDP of 2.5 percentage points, or half the current rate of global growth. So the global economy will become a gray, dull world of semi-recession and sticky inflation that will last a long time. Without major policy blunders, however, it won't be a 1930s-style depression...
http://online.wsj.com/article/SB1205...googlenews_wsj

[Finster]

Re: Recession without Romance

I read that report on Zimbabwe saying the stock market was the best performing stock market in the world....well, before the collapse when Mugabe imposed a ban on price raising, which led to enormous losses.

Should governments start to clamp down on inflation, that is when the "recession" will officially start! :p

Your Zimbabwe comment reminds me of a story on Bloomberg earlier this week, reporting that "cyber-Monday" holiday sales had reached a record $733M. Guess we are supposed to celebrate. But there was time when you could have spent that much on a single bag of groceries ... if you were counting Reichmarks in the Wiemar Republic. I doubt their business media were touting how wonderful it was that retail sales were up 73,333% over the prior year!

[touchring]

Re: Recession without Romance

The US is ALREADY in a recession. The only question left is when it will be officially recognized as such. Remember the last time the NBER declared a recession was after it was already (officially) over.

And let's not forget that "real GDP" - a contraction of which is used as the basis for declaring a recession - is a damn fuzzy number to begin with. It's calculated by backing out inflation from nominal GDP. So error in that rate transmutes directly to error of the same size in "real GDP". Use a rate 1% too high, "real GDP" is understated by 1%. Use a rate 1% too low, "real GDP" is overstated by 1%.

Anyone care to guess whether the government is overstating or understating inflation, and if so, by how much?

The US has not been in recession solely by virtue of choice of the bonar - under-adjusted for inflation - as the unit for measuring product. Measured in virtually any other unit - barrels of oil, bushels of wheat, ounces of gold, pounds of copper - all real world things, the US economy has already contracted sharply over the past twelve months. Why anyone would give primacy to a mere piece of paper ahead of real stuff for measurement purposes is a question only they could answer. And no one ever asks.

I read that report on Zimbabwe saying the stock market was the best performing stock market in the world....well, before the collapse when Mugabe imposed a ban on price raising, which led to enormous losses.

Should governments start to clamp down on inflation, that is when the "recession" will officially start! :p

[Finster]

Re: Recession without Romance

The US is ALREADY in a recession. The only question left is when it will be officially recognized as such. Remember the last time the NBER declared a recession was after it was already (officially) over.

And let's not forget that "real GDP" - a contraction of which is used as the basis for declaring a recession - is a damn fuzzy number to begin with. It's calculated by backing out inflation from nominal GDP. So error in that rate transmutes directly to error of the same size in "real GDP". Use a rate 1% too high, "real GDP" is understated by 1%. Use a rate 1% too low, "real GDP" is overstated by 1%.

Anyone care to guess whether the government is overstating or understating inflation, and if so, by how much?

The US has not been in recession solely by virtue of choice of the bonar - under-adjusted for inflation - as the unit for measuring product. Measured in virtually any other unit - barrels of oil, bushels of wheat, ounces of gold, pounds of copper - all real world things, the US economy has already contracted sharply over the past twelve months. Why anyone would give primacy to a mere piece of paper ahead of real stuff for measurement purposes is a question only they could answer. And no one ever asks.

[Chris Coles]

Re: Recession without Romance

What happened is that the North Sea came online. Alaska came online. The OPEC embargo has ended.
Today 5-8 billion barrels is a "giant" find - the Brazil Tupi field. If you calculate it, that is only 100 days of world supply - a drop in the sea. Nothing short of a miracle could avert an energy crisis now. Or a serious worldwide depression. Either way, it is not going to be nice.

1. North Sea Oil production is already reducing by 10% per annum.

2. We had a commentator on BBC Radio 4 Today, the UK's flagship radio news service telling us that OPEC 30 years ago notionally trippled their reserves and are now about to tell the truth, that they are at "Peak Oil".

3. This turned up over the weekend.

The dwindling dollar takes toll on Europe

Strong pounds and euros are great for shoppers, but at what cost?

http://business.timesonline.co.uk/to...cle2935804.ece

Also this on the 21st:

Saudi Arabia ready to ditch the dollar to protect value of riyal

http://business.timesonline.co.uk/to...cle2910189.ece

[BlackVoid]

Re: Recession without Romance

devil's advocate...

chart below... what happened at the point at the blue arrow to push the peak oil deadline off by years?

What happened is that the North Sea came online. Alaska came online. The OPEC embargo has ended.
Today 5-8 billion barrels is a "giant" find - the Brazil Tupi field. If you calculate it, that is only 100 days of world supply - a drop in the sea. Nothing short of a miracle could avert an energy crisis now. Or a serious worldwide depression. Either way, it is not going to be nice.

[metalman]

Re: Recession without Romance

metalman, what will you call yourself then?

lessee... ex-metalman or wasmetalman or paperman or...

Re: Recession without Romance

Metalman -

You wrote:

<< chart below... what happened at the point at the blue arrow to push the peak oil deadline off by years? fed withdrew billions in global dollar liquidity and emand and prices plunged. won't a global financial and economic crash and recession do what the fed has so far failed to do? >>

Actually, no. When you get close enough to parity between global all hydrocarbon liquids production and global demand, even a massive global recession will not provide your paradigm with more than 3-5 years of further grace.

What is also a misconception is equating demand destruction for fuel in mature industrial economies with demand destruction for fuel in economies just entering the sharpest part of their growth inflection.

Look around and you'll note by far the larger demographic today in petroleum consumption growth is in the countries just entering the steep part of their growth inflection. Those who are banking on a "nuclear destruction" of petroleum demand if the world enters a bad recession are going to be shocked by how soon thereafter we re-approach the severe constraints we are approaching right now.

And if you imagine a "global depression" does not occur for another 3-5 years, these fundamental issues will only intrude even more.

"The larger the numeric base of the petroleum consumption population, the more rapidly it progresses relative to it's fixed asset base". Hence the "recession factor" which played so devastatingly upon oil consumption and prices in the late 1980's is an inapplicable paradigm to evaluate our future prospect.

[jk]

Re: Recession without Romance

that's the "ka" i want to time to get out of metals.

metalman, what will you call yourself then?

[metalman]

Re: Recession without Romance

The oil price is not stable in Euros either, it is at an all time high too.

And it is not a conspiracy of big oil companies. It is supply and demand. There are more buyers than sellers and this will not change anytime soon. Oil is still cheap now, it will go MUCH higher.

devil's advocate...

chart below... what happened at the point at the blue arrow to push the peak oil deadline off by years?



fed withdrew billions in global dollar liquidity and emand and prices plunged.

won't a global financial and economic crash and recession do what the fed has so far failed to do?

that's the "ka" i want to time to get out of metals.

Re: Recession without Romance

Nice of you to come back and grace us with your posts Blackvoid. I was beginning to think you had expired and gone up to the great cirrus cloud in the sky.

[BlackVoid]

Re: Recession without Romance

The oil price is not stable in Euros either, it is at an all time high too.

And it is not a conspiracy of big oil companies. It is supply and demand. There are more buyers than sellers and this will not change anytime soon. Oil is still cheap now, it will go MUCH higher.

[GRG55]

Re: Recession without Romance

It is my understanding from here in Europe that one of the primary reasons for the White House pushing the idea of an attack on Iran is that Iran has hinted that it will move to only accept Euro's for payment for oil. Further, that a number of OPEC countries have also hinted they might follow through and set up a completely new exchange mechanism based upon the Euro for marketing oil on the international marketplace.

The Euro is founded upon the strongest currency; the old German Mark and remember Germany is always in export surplus through their strong INDUSTRIAL base. I think a lot of people are going to see that it is better to hold the strong currency during a prolonged downturn, rather than watch the weaker currency sift through their fingers with no immediate end in sight.

Finster's graph is great and makes my point. It is one thing to hold until tomorrow when the market might turn in my favour, it is another thing when there seems to be no end in sight.

Chris: jk posted an interesting perspective on this topic of currencies from someone in your locale:
http://www.itulip.com/forums/showthread.php?t=2519

Excerpt:

Ambrose Evans-Pritchard on 23 Nov 2007

[Airbus CEO] Mr Enders said the company's business model is "no longer viable", and "massive losses" are on the horizon. So much for all those currency hedges that analysts like to cite. Have they ever tried to buy a currency hedge? They would discover how expensive these instruments are. Hedges cannot protect a company with $220bn in delivery contracts priced in dollars, when the euro/sterling cost-base is leaping into the stratosphere..."