Econbrowser assembles some bits of good economic news and the NYT offers a related report. Is there any chance the worst is over?
The rosy scenario is that in a highly connected, internet-intensive world, the bad news travels far more quickly and far more convincingly than before. The early stages of the downturn are like falling off a cliff. We bottomed out maybe two weeks ago. That said, the rebound also comes much more quickly. Wages are more flexible than before. Bad inventory policies are avoided through information technology. The Fed responds to changing conditions ever more quickly. Overall, economic time accelerates on both the downswing and the upswing.
I do not believe the rosy scenario, as I think there are still other "shoes to drop," most of all internationally. I also think we will see a double-dip or triple-dip recession, as the Fed must eventually withdraw some of new money from the system. Good news is then, in fact, simply a sign that some bad news is on the way, sooner or later.
Still, if you are looking for something to believe in, I offer you the rosy scenario.
I don’t see how the U.S. can come back without California, and I don’t see how California can come back until real estate at least stabilizes. With the huge oversupply here, and the large number of loans still to go bad, I don’t see real estate bottoming soon. And we still have commercial real estate failures rising, and the fallout on small banks of those bad loans.
I doubt we’ve seen the bottom, regardless of what happens internationally.
Good news is then, in fact, simply a sign that some bad news is on the way, sooner or later.
Well, duh.
I believe there is hope! Unlike much of the news we hear and what others would say. Bad news travels fast and we constantly hear a one-sided argument that dissuades consumers from participating in the market. This happens in terms of investment and consumption. This quickness and desire to ‘nip it in the bud’ is a mentality that has gotten us into trouble in the first place. Business and corporate entities got greedy and wanted to make money fast. They gave loans to people who could not afford them and committed to practices that have resulted in some of the problems we have now. Couple that with a recession as is natural in the business cycle, you have a downward trend that is mistakingly being called a ‘crisis’. Sure the situation looks bleek as is, but any recession does have a point where it bottoms out (trough) and starts to recover. Now this recovery process may take a little while and may get worse before it gets better, but it will happen. Overall, the quick fix attempt by the government is likely to cause more problems and delay recovery, as opposed to helping it. So this negative view that the sky is falling is counterintuitive to the success of the market. Furthermore the way the government is intervening while good in intentions is being done with more impromptu and less rationality then is good for our economy. So there is a sunny side amidst all that is bad now.
still other “shoes to drop,”
Yes, that’s basically the problem. One shock came in the collapse of the residential housing boom, and that alone was enough to put the world financial system on the ropes. Now to follow on we’ll have
– commercial real estate defaults rising
– credit card defaults rising
– corporate bond defaults rising
– a second round of residential real estate defaults working their way through the system as a result of unemployment
So about four more shoes. And if we muddle through that, we should have rising oil prices due to lack of investment and gradually decreasing global supplies within a couple of years.
Bottom line: more bailouts on the way. Since we aren’t going to pay for them with taxes, we’ll print the money. At first we won’t have inflation (thanks to the deflationary effects of the credit regime collapsing). This will result in our central bank overestimating the extent to which they can get away with printing money, and end in a kind of inflationary nova…
Now in your rosy scenario the upturn is rapid, but one might relax this somewhat to when the upturn occurs it is rapid, but it may not occur promptly. In this less rosy scenario, the economy ends up rising and falling dramatically, and languishing in between, becoming less stable and less controllable. That may be a better idea of where we are. Just hope an explosion or implosion doesn’t destroy everything.
How can there be inflationary pressures with perhaps 15-20 million people looking for work?
Figure the people graduating from school who have stayed in school as long as possible hoping for the job market to improve. Then add in the kids graduating from high school who can’t afford college. Then figure the boomers who won’t leave their jobs willingly because their 401Ks are no longer big enough to allow them to retire. Then the people who reluctantly retired because they were laid off and couldn’t get a similar job at age 58, nor a lower wage related job because he was too experienced, the boss figured the boomer would take his job, now looking at their retirement funds and looking for the mid-level professional job for five years for which he’ll take a lower wage than his qualifications require as long as the work is interesting and not overly demanding.
The eight years of the Bush administration resulted in one-fifth the net job creation as during the Carter administration.
And on the other hand, there is a lot of demand for energy that can’t be met today within the US with the productive capital that exists in the US. I know that lots of people say we can be energy independent in the US without government policy as long as the government gives away the land and the mineral wealth under it away to the corporations, because private enterprise is the solution. Hmmm, then the private enterprise system doesn’t need the land that We the People own, and rather than borrowing money from China to import oil that is equivalent to cash to be burned, why not borrow money from China to hire people in the US to produce negawatts that will be repaid in energy not burned, and also megawatts from the free sun and earth which can be sold to repay the loans with interest, not to mention employ people here in the US, instead of employing people elsewhere in the world.
For the first term of the Reagan years, the energy efficiency programs of Nixon and Carter cut oil imports to one quarter of total oil consumption, cutting consumption in half, and cutting the money sent outside the US to buy the oil. After a quarter century of letting the free market solve the problem of energy independence, a major part of the trade deficit is the result of importing 60% of the oil we send up in smoke, which then come back into the US to fund debt at low interest rates so we buy more imports.
How can there be inflationary pressures with perhaps 15-20 million people looking for work?
What David said. Look at the history of inflation in Brazil; did lots of unemployed people slow it down? No. Did the growth of the American economy, 1780-1910, unleash it? No, prices were stable over that timeframe.
Your points about our energy infrastructure are good, but we actually *could* do a lot better producing our own energy if the government weren’t so focused on maintaining existing allocation of human capital. 8% of GDP in the financial sector (up from 3%). Those people should probably be finding more productive things to do, and gradually would if we had let the market kick them in the ass instead of bailing them out via welfare for bankers. Unfortunately the Obama administration is more focused on maintaining the existing social order than on letting these misallocations get sorted out.
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