Do we double-dip or do we drip?

[Magox]

Sorry for the repost, it was erased yesterday with all the new changes and all... It's my most recent newsletter, about a topic that is being discussed a good bit now regarding the economy...

 

 

Do we Double Dip or do we Drip?

 

 

There has been a lot of talk of a possible double-dip recession. If you had asked me last month, I would have said that there was a low probability of that happening, maybe somewhere in the 10-15 percent range. Well, a lot has changed since then; the Labor Department's jobs numbers for the month of June were revised much lower, and July's numbers showed far less jobs created than anticipated, illustrating our anemic labor market recovery. What is even more worrisome is that the best forward indicating labor market statistic, being the weekly jobless claims numbers, just came in at a 9 month high of a whopping 500,000, and this is now the third straight week that it has come in above 480,000. Just to put this in some perspective, a number of 425,000 weekly jobless claims basically mean that we are growing jobs very slowly, so a number of 500,000 most likely indicate a contraction.

 

So what does this mean? It most likely means that you can forget about any sort of significant job growth over the next 3-6 months and that the unemployment rate will very likely climb for the remainder of the year. Without jobs you will see a weaker consumer, housing will continue to deteriorate (which has fallen off a cliff since the $8000 tax credit expired three months ago), and banks will move forward with more caution, which means even less credit will become available. There is a potential that this could have a snowball effect as the psychology of the consumer can retrench even further which would affect sales and aggregate demand for goods and services in just about all domestic based businesses. That of course would impact countries which export goods to the US, in turn weakening their domestic sales, which again would then affect our US based corporations exporting goods and services to them. You see what I mean when I say snowball effect?

 

 

 

Im not the only one who believes that the odds of a double-dip recession are rising.

 

One of my favorite macro economists who I follow very closely, Mohamed El Erian, from PIMCO, the one who coined the term The New Normal, recently estimated the possibility of deflation and a double-dip recession in America at 25 percent. The US is still able to avoid deflation. We do not think that deflation and double-dip is the baseline scenario, but we think its a risk scenario.

 

Mark Zandi, another well-respected economist, was recently asked about the possibilities of a double-dip recession and he responded by saying the odds are rising. I'd say they're uncomfortably high. But I don't think we will experience a double dip. If I had to put odds on it at this point, I'd say one in four, perhaps as high as one in three.

 

Goldman Sachs Senior U.S. Economist Ed McKelvey said, as signs of slower U.S. growth have multiplied, market participants have become worried about the possibility of a double-dip recession…We think the probability is unusually high between 25 percent and 30 percent but we do not see double-dip as the base case. Jan Hatzius who was recently awarded Wall Streets top economist recently stated We had a housing and credit boom that was unsustainable, and now this boom has turned into a bust, Mr. Hatzius said. There was too much debt, and the deleveraging process has still got a ways to go. Its going to keep private demand weak. The prospect of substantial inflation seems very remote, but the prospect for deflation is far from remote. A double-dip is certainly possible but not likely.

 

Robert Shiller, the man behind the Case-Shiller housing index, a Yale University professor and author of the best-selling book "Irrational Exuberance", pinned the probability of a double-dip recession at more than a 50-50. Shiller pointed to the nation's stubbornly-high unemployment as a root cause of lingering economic woes. With the Federal Reserve running out of bullets to fight a second recession, he urged Congress to join the battle and focus on putting people back to work.

 

David Rosenberg, former North American chief economist for Merrill Lynch whose views are widely followed on Wall Street and have often been proven to be correct, stated on CNBC the other day that the US economy is almost certainly headed back into a double dip recession and economists aren't seeing it because they're using "the old rules of thumb" that don't apply this time. Consumers focus on shedding debt rather than spending will prevent the economy from growing and bring a halt to the recovery. "The risks of a double-dip recessionif we ever got out of the first oneare actually a lot higher than people are talking about right now," he said. "I think that it's almost a foregone conclusion, a virtual certainty."

 

I'd like to expand on Rosenberg's view, when he stated that "the old rules of thumb" don't apply this time, I couldn't agree more. I've been talking about this very point with my clients for over a year now. What happens is that many Wall Street "experts" and analysts use certain metrics to determine their forecasts. Think of a computer program, where you tabulate and compile numbers and use certain variables to calculate your outcome, where X + Y should always = Z. Sounds good, after all these old metrics worked for them very well in the 80's, 90's and early 2000's, the problem is that the challenges we face today means that there are new variables that are missing from many of the calculations of these Wall Street analysts, hence their way off-base forecasts. What is missing in their computations are the new variables such as the massive deleveraging process that we are going through today with the consumer, the housing market, credit and state and local government jobs; the risks that government debt entails and structural unemployment problems in construction and manufacturing that we have never experienced. It's as if all common sense has been thrown out of the equation with these analysts and they over-rely on their now-failing metric summations. This is why El Erian's term, the New Normal, was an absolute stroke of genius, in which he and the crew from PIMCO forecast what to expect over the next 3-5 years, which is slower growth (1-2% GDP), heightened regulation, weaker dollar and unusually high structural unemployment.

 

So you see the odds of a double-dip recession are uncomfortably high according to some of the most well-renowned and respected economists in the world, and lets remember folks, the data that has come in since these projections were made have gotten worse. Will we see a double-dip recession? Who knows? One thing is for certain, whether we fall back into one or not, the economy will grow at a very slow pace, and the political will from our much-esteemed leaders to spend more money in order to try to artificially stimulate the economy is virtually inexistent (Thank god). So you can pretty much bank on the Federal Reserve to prime the printing presses and expect some major quantitative easing measures to flood the markets with more dollars than we ever imagined. This wont be good for the dollar or for any foreign bond investors who are holding US Treasuries in the medium to long-term.

Edited August 22, 2010 by Magox

[birdog1960]

interesting post. just wondering, do you see mortgage rates going even lower based on these hypotheses? seems very likely to me (double dip or not) but how low can they go? also if the dollar devalues, commodities priced in dollars might seem a good bet especially if demand increase disproportionately in China, India etc,yes? your post suggests significant convergence and agreement from prominent money men but in the last year my perception has been anything but that. do you feel this has recently changed then?

[Magox]

interesting post. just wondering, do you see mortgage rates going even lower based on these hypotheses? seems very likely to me (double dip or not) but how low can they go? also if the dollar devalues, commodities priced in dollars might seem a good bet especially if demand increase disproportionately in China, India etc,yes? your post suggests significant convergence and agreement from prominent money men but in the last year my perception has been anything but that. do you feel this has recently changed then?

To tell you the truth, I do see mortgage rates going even lower or at the very least remaining in this range. The Federal reserve has already made an explicit commitment to keep rates low. There is a great debate going on right now whether there is a bubble in bonds or not. There are compelling arguments for both sides and I'm thinking about writing my next newsletter on this topic. I'm on the fence on this one. Supply of debt is through the roof, but the demand is even greater. The amount of flows entering into treasury bonds do indicate a bubble. However, the economy and it's medium to long-term outlook on it support low rates. Also, usually bubbles are motivated by greed, in this case it is driven partially by fear.

 

The Federal Reserve would hate for mortgage rates to go a good bit higher than where it is today knowing that the overhang and oversupply in houses is enormous. There are many foreclosures that are going to continue to keep hitting the market plus the inventory in the shadow market is enormous. Couple this with the lack of credit-worthy borrowers and structurally high unemployment and the continuing delevering of the private and public sector it's going to take a long time to work off that excess supply. So I would expect the federal reserve to continue to intervene to keep rates artificially low.

 

You make a very good point about China and India. This is the problem with keeping rates artificially low for too long. The money that is being lent from the Federal Reserve is virtually free, some of that money gets funneled to growth projects in the Emerging markets where there growth is quite impressive. Basically our low rates can help fuel inflation to the emerging markets, of course this wouldn't be possible if the structure for growth wasn't in place in these economies.

 

There is some concern that China may bust along with other developing nations, I don't happen to fall in that camp. I believe growth world-wide will be uneven, of course there will be bumps in the roads with these growing nations but their infrastructure is improving and the demographics are on their side.

 

My forecast going back years ago was that sometime in the next 2-4 years we will see very slow growth with high commodity prices. THe high commodity prices will be because of strong demand from these economies and weaker currencies. I believe inflation is a monetary phenomenon, and it can be latent for quite some time. RIght now there is a tremendous amount of money that is out there that is basically yielding next to nothing. THe problem is that there is no velocity right now, and for good reason. When ground conditions become markedly more favorable the velocity of that money can surprise people as psychology changes and more often than not, central banks aren't able to successfuly head it off before it affects prices and wages. THe conundrum fiscal policy makers/central bankers will face is should they raise rates aggressively in a high unemployment environment. If my forecast is correct, even two years from now we should still have unemployment around 8%, which is significantly better than 10%. Most likely the velocity of money leaving banks to borrowers will be much faster than what we are seeing today and inflation expectations can rise very quickly.

 

So what should the Federal Reserve do? Fight inflation with unemployment at 8%, which could crimp growth or gradually raise rates which would most likely not alter the projected rate of inflation? My guess is the latter. Afterall, a weaker dollar and higher inflation does allow the US a more effective and efficient way to pay off our debt. Of course Foreign debt holders won't be too happy, but that's their fault for not recognizing the risks.

Edited August 23, 2010 by Magox

[Magox]

interesting post. just wondering, do you see mortgage rates going even lower based on these hypotheses? seems very likely to me (double dip or not) but how low can they go? also if the dollar devalues, commodities priced in dollars might seem a good bet especially if demand increase disproportionately in China, India etc,yes? your post suggests significant convergence and agreement from prominent money men but in the last year my perception has been anything but that. do you feel this has recently changed then?

Here's what we are facing:

 

Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. http://noir.bloomberg.com/apps/news?pid=20601087&sid=arhshZSbMhws&pos=1

 

This is what they fear:

 

Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said mortgage yields in the U.S. could rise as much as 4 percentage points without government support.

 

“Ninety-five percent of existing mortgage creation over the past 12 months were government guaranteed,” Gross wrote in a monthly investment outlook posted on Pimco’s website today. “The private market was nowhere to be found because they charged too much.”

 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=a5SCKwMQIy7k&pos=5

 

And here's why rates will most likely stay low for the short to medium-term :

 

The Federal Reserve will probably ease monetary policy further as the U.S. economy weakens, said Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York.

 

“The Fed will eventually move to additional monetary stimulus via asset purchases or other unconventional measures,” Hatzius said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” Should the Fed opt for more securities purchases, he said, there is “no point in doing anything less than” $1 trillion.

 

http://noir.bloomberg.com/apps/news?pid=20601087&sid=aWAIE6qqsoqo&pos=3

[birdog1960]

thanks magox. will be mortgage shopping soon. this helps.

[/dev/null]

So what are you thoughts on the comments by Bill Gross of PIMCO?

 

http://www.cnbc.com/id/38852316

 

Reminds me of the definition of insanity

[Magox]

So what are you thoughts on the comments by Bill Gross of PIMCO?

 

http://www.cnbc.com/id/38852316

 

Reminds me of the definition of insanity

Yes, I read about his trip to Washington yesterday. He was quite disappointed in the reception of his proposals. It appears everyone including democrats are planning on attempting to limit government involvement in the mortgage markets. At first I was surprised of his proposal because on the surface it does appear to be counter intuitive...

 

I admire Bill Gross greatly, usually his long term views are on the money. After really delving into his proposal a bit further it does make sense, not saying that I agree with him, but I understand where he is coming from. The government is backstopping 90% of all new mortgage loans, which means that the private sector is virtually non existent. So if the government were to back off, then that means that the private sector would have to guarantee those loans in which he argues and rightfully so that they are not prepared or equipped to do so without substantially raising rates.

 

If his assessment is correct, a 400 basis point increase would crush the housing markets. Home prices would probably drop another 25% which would have all sorts of aftershock effects and ripples across the broader economy.

 

Think of it this way, it's like taking away heroin from a heroin addict. Except in this case the heroin addict drugs himself 12 hours a day, 7 days a week. You quit cold turkey and the guy could die....

 

Government in my view will have to gradually back away. This is something that I hope the GOP doesn't push too hard, in trying to totally back away from the mortgage industry. The ramifications are too dire and they have to be careful that they don't become driven by populist tea party measures. Taking the government away from the GSE's I'm sure polls very well, however the reality is a move like this could be disastrous, as Bill Gross points out. I'll trust Bill Gross over a politician when it comes to bonds and mortgages, he is after all the king of bonds... And those bond guys are usually the sharpest tools in the economic box.....

[GG]

So what are you thoughts on the comments by Bill Gross of PIMCO?

 

http://www.cnbc.com/id/38852316

 

Reminds me of the definition of insanity

 

As for investment, Gross said he is currently interested in Treasury Inflation Protected Securities and both government- and nongovernment-backed mortgages.

[Magox]

http://www.cnbc.com/id/38863025

 

The chances of a double-dip recession are now more than 40 percent and policymakers have options to stimulate the economy, Nouriel Roubini of Roubini Global Economics told CNBC Thursday.

 

Second-quarter gross domestic product growth will be revised down to an a annual rate of 1.2 percent from an initial reading of 2.4 percent, Roubini said, adding that any improvement recently was due to inventory adjustments.

 

Roubini, who is often referred to as "Dr. Doom," also said that a "series of tailwinds in the first half of the year ... are going to be essentially headwinds" in the second half.

 

The fiscal stimulus will become a drag on growth in the second half of the year, inventory adjustment will have run their course, and there won't be a favorable comparison with the "awful" first half of 2009, Roubini said.

 

 

 

In addition, the employment boost from the census survey will disappear, and there will no longer be "a number of tax policies that stalled demand and growth for the future," he said, citing the cash-for-clunkers program and first-time homebuyer tax credits.

 

Growth for the rest of the year will be closer to zero than 1 percent, he said.

 

No More Bullets

 

From a monetary policy perspective, the scenario is worse than last year, Roubini said, as all of the Fed's policy bullets will pretty much be gone.

 

The U.S. can't run a budget deficit of 15 to 20 percent of GDP, he said. In addition, quantitative easing is unlikely to have any effect in prompting banks to lend.

 

"Banks today are sitting on $1 trillion of excess reserves that they are not lending out" and earning 0.25 percent on, he said. "Why would they want to lend more if we do more QE?"

 

 

The U.S. is facing a "liquidity trap," which is when financial and credit systems get stuck, Roubini said.

And with companies discounting prices and a glut in the labor market, the biggest threat to the economy is deflation, he said.

 

"In the short run we may end up like Japan," he said.

 

This is what is going to be debated now between the Federal Reserve board members, "LIQUIDITY TRAP". As of right now, 7 out of the 17 Fed members are either dissenting or having serious doubts about moving forward with additional QE.

 

I've argued that the problem isn't liquidity provided from the Fed or rates, which are at all-time lows and that additional QE most likely wouldn't appreciably spur lending. If corporations and small business don't feel comfortable about the ground conditions, which include Tax policy, government nonsensical over-regulation, national debt concerns and lack of domestic demand for goods and services, then it doesn't matter how low the rates are, they simply won't invest or borrow. Which the record $1.8 Trillion that corporations are sitting on supports this argument.

 

I expect to hear the term "Liquidity trap" to be the main focus of attention between the decision makers. Bernanke is in charge and he is a scholar of the great depression and he did heavily criticize the Japanese for not doing enough QE to solve their "Lost Decade", and considering that Janet Yellen who is more dovish than Bernanke was appointed by Obama to be second in charge and a voting member, my guess is that QE will be the route they pursue. I don't believe it will be as successful as they'd hope for it to be, maybe we will see an artificial short-term boost, but I believe that's where it ends.

[Dave_In_Norfolk]

Paul Krugman was saying from the beginning that this would be a long, long recession. I don't see how we climb out of this with home values so disasterously low. Remember when all the bailouts, TARP, stimulous, etc. were going on and people were screaming about inflation? Wow

[Magox]

Paul Krugman was saying from the beginning that this would be a long, long recession. I don't see how we climb out of this with home values so disasterously low. Remember when all the bailouts, TARP, stimulous, etc. were going on and people were screaming about inflation? Wow

I've debated with an economist friend of mine regarding Krugman. Krugman is a genius when it comes to asessing the markets, his fundamental flaw are his prescriptions to solving THIS sort of downturn and his political leanings which in SOME cases holds him prisoner to his idealogy.

 

His prescriptions are that we should of put in place a "Stimulus" bill twice as large as the one the OBama administration enacted. Yes, a stimulus bill twice as large would of made the "recovery" sustain longer. There is little doubt of that. Where he misses on is that our problems are structural rather than temporary run of the mill economic challenges. Much of the money that he proposes would of been to continue bailing out State and local governments and having a huge PUBLIC WORKS program. The problem with continuing to bail out state and local "TEACHER, POLICE AND FIREMAN" jobs is that when we went through the tremendous 30 year credit and housing bubble, that it wasn't only the private sector that was experiencing this bubble, but state and local governments benefited as well. Their tax revenues swelled along with the mortgage markets, and when their revenues were rising, state and local jobs rose along with the tide. So when the bubble burst, the bubble burst for everyone including state and local government jobs (even though pension agreements between Union bosses and politicians definitely has made this a much more precarious problem). So if we continue to keep bailing out "Teacher" jobs, it only bails them out for a short time period. Readjustments have to be made, and all this does is prolong the inevitable unless of course state and local governments all of a sudden start receiving tax revenues comprable to the Bubble era, which of course won't be the case. What liberal politicians want to do is instead of enact cuts they would rather raise taxes. THis isn't fair, because this means that the private sector has to fund BUBBLE era over-bloated government spending, which is exactly what is happening. This is why you see Governor Christie who is vowing not to raise taxes and fighting the Unions is the route to go, his approval rating over his disapproval rating in the DEEP BLUE state of NJ is 51-36%.

 

The other area where Krugman misses is that he wants to install a PUBLIC WORKS program. Yes, it would provide jobs in the short to medium-term, therefore adding to our growth. But this growth is 100% artificial, and most of those jobs don't get a good return back because the jobs really don't promote a sustained recovery. So when the artificial stimulus wears off, the structural problems in our labor force which mainly are in manufacturing and construction will still remain.

 

In regards to the Inflation argument. Inflation is a monetary phenomenon, and it can remain latent for quite some time. The fuel is there for inflation, the problem is that it is sitting on the sidelines. When psychology changes and the economy starts showing signs of improvement, inflation expectations WILL RISE, and they WILL RISE RAPIDLY, too fast for policy makers to do anything meaningful about it. It will present a connundrum for Bernanke, because he will have to make the decision to raise rates aggressively in a high-unemployment economy or allow inflation to take hold. He will choose the latter.

Edited August 26, 2010 by Magox

[erynthered]

The Hindenburg Omen???

 

 

 

http://finance.yahoo.com/tech-ticker/the-hindenburg-omen-is-scary-but-so-are-the-fundamentals-535367.html?tickers=^DJI,^GSPC,XLF,FXE,XHB,TLT,GLD

[Dave_In_Norfolk]

I've debated with an economist friend of mine regarding Krugman. Krugman is a genius when it comes to asessing the markets, his fundamental flaw are his prescriptions to solving THIS sort of downturn and his political leanings which in SOME cases holds him prisoner to his idealogy.

 

His prescriptions are that we should of put in place a "Stimulus" bill twice as large as the one the OBama administration enacted. Yes, a stimulus bill twice as large would of made the "recovery" sustain longer. There is little doubt of that. Where he misses on is that our problems are structural rather than temporary run of the mill economic challenges. Much of the money that he proposes would of been to continue bailing out State and local governments and having a huge PUBLIC WORKS program. The problem with continuing to bail out state and local "TEACHER, POLICE AND FIREMAN" jobs is that when we went through the tremendous 30 year credit and housing bubble, that it wasn't only the private sector that was experiencing this bubble, but state and local governments benefited as well. Their tax revenues swelled along with the mortgage markets, and when their revenues were rising, state and local jobs rose along with the tide. So when the bubble burst, the bubble burst for everyone including state and local government jobs (even though pension agreements between Union bosses and politicians definitely has made this a much more precarious problem). So if we continue to keep bailing out "Teacher" jobs, it only bails them out for a short time period. Readjustments have to be made, and all this does is prolong the inevitable unless of course state and local governments all of a sudden start receiving tax revenues comprable to the Bubble era, which of course won't be the case. What liberal politicians want to do is instead of enact cuts they would rather raise taxes. THis isn't fair, because this means that the private sector has to fund BUBBLE era over-bloated government spending, which is exactly what is happening. This is why you see Governor Christie who is vowing not to raise taxes and fighting the Unions is the route to go, his approval rating over his disapproval rating in the DEEP BLUE state of NJ is 51-36%.

 

 

Great points. Let's look at it from another point of view though. If the bubble sustained local jobs, where will the jobs come from in the new normal? Really, how much more can the middle class take, with automation, outsourcing and now elimnation of local government jobs. 11% of all workers in the country work for local governments. We want to eliminate those, too? If the implied argument is that cutting local jobs will help create more jobs elsewhere, would you blame me if I were a little skeptical? In the end, people need jobs, and if that means taxing the wealthy, well, what must be done, must be done

[Magox]

Great points. Let's look at it from another point of view though. If the bubble sustained local jobs, where will the jobs come from in the new normal? Really, how much more can the middle class take, with automation, outsourcing and now elimnation of local government jobs. 11% of all workers in the country work for local governments. We want to eliminate those, too? If the implied argument is that cutting local jobs will help create more jobs elsewhere, would you blame me if I were a little skeptical? In the end, people need jobs, and if that means taxing the wealthy, well, what must be done, must be done

Well, it's not going to be easy, as a matter of fact it will be painful no matter how you slice it.

 

You can either go for the long-term solution which will mean more pain in the short-term.

 

Or you can go for the quick fix short-term solutions that only exacerbate and pro-long a sustained recovery.

 

We can argue that there should of been more money put into the stimulus bill and we can argue whether it would of worked or not, but the fact of the matter is that there is no way to absolutely prove it. What we can more easily prove is the effectiveness of the current Stimulus Bill. I predicted that in the second half of the year, (and no I don't just mean my second half of the year thread, I made this prediction back in 2009) that the stimulus would fade and the natural inventory replenishment cycle would diminish and that we would go through a big slow-down in the second half of this year. I know you don't like hearing this, but all you have to do is turn on CNBC and they interview Business owners of all sizes, small and large and EVERY DAY (no exaggeration) the growing calls from business owners, CEO's, marco economists even POLICY makers all argue that our presidents policies are inhibiting job growth. I think the proof of that or supporting this argument David is the $1.8 Trillion sitting on the corporate sidelines. Also corporate yields are super low, they are able to get financing at next to nothing interest rates and they aren't borrowing.

 

So one thing is for sure, they don't feel comfortable enough to invest in hiring.

 

Also, I am not implying that the SOLUTION for the labor market is to cut jobs, but it is a part of it. We have to trim the fat, and by trimming the fat, we lower future taxes on the public.

 

I do have solutions. I will save that for another day...

[Dave_In_Norfolk]

Well, it's not going to be easy, as a matter of fact it will be painful no matter how you slice it.

 

You can either go for the long-term solution which will mean more pain in the short-term.

 

Or you can go for the quick fix short-term solutions that only exacerbate and pro-long a sustained recovery.

 

We can argue that there should of been more money put into the stimulus bill and we can argue whether it would of worked or not, but the fact of the matter is that there is no way to absolutely prove it. What we can more easily prove is the effectiveness of the current Stimulus Bill. I predicted that in the second half of the year, (and no I don't just mean my second half of the year thread, I made this prediction back in 2009) that the stimulus would fade and the natural inventory replenishment cycle would diminish and that we would go through a big slow-down in the second half of this year. I know you don't like hearing this, but all you have to do is turn on CNBC and they interview Business owners of all sizes, small and large and EVERY DAY (no exaggeration) the growing calls from business owners, CEO's, marco economists even POLICY makers all argue that our presidents policies are inhibiting job growth. I think the proof of that or supporting this argument David is the $1.8 Trillion sitting on the corporate sidelines. Also corporate yields are super low, they are able to get financing at next to nothing interest rates and they aren't borrowing.

 

So one thing is for sure, they don't feel comfortable enough to invest in hiring.

 

Also, I am not implying that the SOLUTION for the labor market is to cut jobs, but it is a part of it. We have to trim the fat, and by trimming the fat, we lower future taxes on the public.

 

I do have solutions. I will save that for another day...

I watch CNBC also, and I'm not so sure "they all" are blaming the President. They really speak out of both sides of their mouths. Half the time they say there should be more stimulous. As to the money sitting on the sidelines, I have a hard time believing haelth care reform here is making multi-national companies not hire. It's the housing market. Consumer spending has taken a kick to the groin and will not recover anytime soon. I'm sure the business owners see profit in that by blaming Obama who wants to see their taxes go back up. Oh, and by the way, the financial sector wants Obama to do more for housing, not less

 

 

As to where do we go from here, I'm open to hearing anything at this point

[Peace]

I watch CNBC also, and I'm not so sure "they all" are blaming the President. They really speak out of both sides of their mouths. Half the time they say there should be more stimulous. As to the money sitting on the sidelines, I have a hard time believing haelth care reform here is making multi-national companies not hire. It's the housing market. Consumer spending has taken a kick to the groin and will not recover anytime soon. I'm sure the business owners see profit in that by blaming Obama who wants to see their taxes go back up. Oh, and by the way, the financial sector wants Obama to do more for housing, not less

 

 

As to where do we go from here, I'm open to hearing anything at this point

 

As a business owner, I see a lack of confidence driving things down at the moment. Higher taxes coming. Health care reform and more spending coming. New financial reform. An election bloodbath (perhaps). All this leads to uncertainty. Couple that uncertainty to a fair amount of bad macroeconomic news and you won't see too many businesses (or people) sticking their necks out.

 

What to do? Probably need the government to start tackling some of the big macro problems that only it can (coming up with a real plan to pay down the debt, simplifying tax system, fixing immigration to allow more tech savvy people in and let them stay, increase writeoffs for business R&D).

Edited August 26, 2010 by Peace

[Rob's House]

Great points. Let's look at it from another point of view though. If the bubble sustained local jobs, where will the jobs come from in the new normal? Really, how much more can the middle class take, with automation, outsourcing and now elimnation of local government jobs. 11% of all workers in the country work for local governments. We want to eliminate those, too? If the implied argument is that cutting local jobs will help create more jobs elsewhere, would you blame me if I were a little skeptical? In the end, people need jobs, and if that means taxing the wealthy, well, what must be done, must be done

It's easy to get caught up in the esoteric jargon and complex financial structures, but if you keep to the fundamentals it's clear. All the wealth in our society is created by the private sector. The only way government can provide a job is by syphoning off some of that wealth. Sure SOME government is productive in that law and order (property rights and contract enforcement) facilitate efficient business and schools and cops provide utility, but the overwhelming majority of government functions and jobs fall into the catagory of inessential government expenditures.

 

In short, the more you raise the % of government workers the lower you make the ratio of productive to non-productive people.

[Magox]

I watch CNBC also, and I'm not so sure "they all" are blaming the President. They really speak out of both sides of their mouths. Half the time they say there should be more stimulous. As to the money sitting on the sidelines, I have a hard time believing haelth care reform here is making multi-national companies not hire. It's the housing market. Consumer spending has taken a kick to the groin and will not recover anytime soon. I'm sure the business owners see profit in that by blaming Obama who wants to see their taxes go back up. Oh, and by the way, the financial sector wants Obama to do more for housing, not less

 

 

As to where do we go from here, I'm open to hearing anything at this point

I'm not quite sure why you quoted "they all", what I said was "EVERYDAY (no exaggeration) the growing calls from business owners, CEO's, marco economists even POLICY makers all argue that our presidents policies are inhibiting job growth"

 

There has to become a point in time when you look at the facts, listen to the opposing arguments from these entitites and observe the evidence that there actually may be merit to these objections.

 

You are right, it's not just health insurance reform or Wall Street or looming tax increases that are soley to blame, I'd actually argue that it's a lack of SUSTAINED demand for domestic goods and services. However, burdensome ineffective regulations, mandates and tax increases only serves as an additional weight. It's like trying to get up from the ground after getting knocked down and now someone adds a fifty pound dumbell on top of your chest. It just makes it more difficult. What makes it even more challenging is that we are going through an on going deleveraging process that will serve as a headwind for quite some time. THis is a direct result of the prior 30 year credit/housing bubble. It's just going to take some time.

 

The current administration isn't making it easier to get through this mess, and that's the point that I'm trying to drive home.

 

Yes, many economists do want government to continue to play a role in housing. THe question is what role? The steps that this administration took in the $8000 home tax credit and Foreclosure prevention program have both been ineffective. The Foreclosure prevention program didn't address the underlying problem of reduction of principal. They rather focused on rates. If you are an owner of a home and you don't have a job, it doesn't matter what you do, you can't make the payment. Another problem is that home values went down tremendously, so many people were so underwater and upside down on their mortgages that they'd rather just let go of the home as opposed to holding on to it knowing that it would take over a decade to break even on their investment.

 

The $8000 tax credit did boost demand for homes during that period. If you look on my prediction thread, it was obvious that once the $8000 tax credit expired there would be a tremendous lul in housing demand. All the program did was FORWARD future sales and syphon it to that time period. Most of those sales were going to happen regardless as evidenced in the lates housing numbers. So basically in my view it was a pretty big waste of money for the government and taxpayer and it distorted the bottoming process for housing prices. There was a fake bottom put into place, and YOU WILL see housing prices beging to decline again, which is very bad news. Hopefully the decline will be no more than 5%, if it goes to 10%, then you can forget about it.

 

Also, I was talking about the key phrase "LIQUIDITY TRAP"

 

Here is EL Erian's take on it:

 

http://www.cnbc.com/id/38863109

 

"I think Nouriel is correct when he says the 'US has no spare tire' to fix the economy if something happens," El-Erian said. "I put the risk of deflation at 25 percent and the latest figures show it may be even higher."

 

And in regard to policies of the Federal Reserve, whose members are meeting for their annual symposium on Jackson Hole, Wyoming, El-Erian said that he'd like to hear them talk about the so-called liquidity trap, or the idea of using monetary policy to get companies and banks to take more risks with their money when they don't want to.

 

"I'd like to know know if they (the Fed) have any idea of how close we are to a liquidity trap," said El-Erian. "I think we are close to one, and if so, we would have to look beyond the Fed to help move the economy. They (the Fed) won't be to force people to use their money and we'll have to look elsewhere to solve our problems."

 

Bernanke is going to have his hands full. This will be heavily debated and I expect more dissention in the future amongst voting federal reserve members.

[IDBillzFan]

The $8000 tax credit did boost demand for homes during that period. If you look on my prediction thread, it was obvious that once the $8000 tax credit expired there would be a tremendous lul in housing demand. All the program did was FORWARD future sales and syphon it to that time period. Most of those sales were going to happen regardless as evidenced in the lates housing numbers. So basically in my view it was a pretty big waste of money for the government and taxpayer and it distorted the bottoming process for housing prices.

This simple truth is this is just one in a long list of miscalculations this administration has made which adds to the narrative about their lack of business experience. Anyone with even the slightest bit of sales sense knew that the housing credit was, for the most part, doing nothing other than expediting sales from one time period to another. It's a sales managers quintessential quest for a "blue sky bonus" with the understanding that what he'll make on the carousel this quarter will surely be lost on the merry-go-round the next quarter. So you look smart for a moment, but the truth will always find its way up for air, as it did with the recent housing report.

 

The only things more ridiculous than this are the Conners_in_Norfolk who try to defend it.

[/dev/null]

The $8000 tax credit did boost demand for homes during that period. If you look on my prediction thread, it was obvious that once the $8000 tax credit expired there would be a tremendous lul in housing demand. All the program did was FORWARD future sales and syphon it to that time period. Most of those sales were going to happen regardless as evidenced in the lates housing numbers. So basically in my view it was a pretty big waste of money for the government and taxpayer and it distorted the bottoming process for housing prices. There was a fake bottom put into place, and YOU WILL see housing prices beging to decline again, which is very bad news. Hopefully the decline will be no more than 5%, if it goes to 10%, then you can forget about it.

 

Well, then to quote Donnie Brasco (among other mob flicks)...

Fuhgidaboudit

 

A new wave of foreclosures are going to hit the market in a couple months. The current 12.5 month supply will feel like the good old days