Regarding the economy, it's hard not to notice this stark contrast: The "real economy" of spending, production and jobs -- though weakening -- is hardly in a state of collapse, but much of today's semi-hysterical commentary suggests that it is. Financial markets for stocks and bonds are described as being "in turmoil." People talk about a recession as if it were the second coming of Genghis Khan. Some whisper the dreaded word "depression." Meanwhile, Americans are expected to buy about 15 million vehicles in 2008; though down from 16.5 million in 2006, that's still a lot.(via Assistant Village Idiot)
There's a disconnect between what people see around them and what they're told is happening. The first is upsetting (rising gas prices, falling home prices, fewer jobs) but reflects the normal reverses of a $14 trillion economy. The second ("panic," "financial meltdown") suggests the onset of something catastrophic and totally outside the experience of ordinary people. The economy, the New York Times said last week, may be on "the brink of the worst recession in a generation" -- an ominous warning.
Perhaps, but so far the concrete evidence is scant.
Friday, March 28, 2008
QOTD
Robert Samuelson in Wednesday's Washington Post:
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6 comments:
To answer your question below, there is now a decent chance (above 15%) that the Fed can't stop deflation from taking hold.
It's not turmoil in the financial markets. It's bloody Armegeddon.
To prevent deflation, the Fed is going to have to keep being very creative. And the Fed governors are now explaining that in Fed speak. See Mishkin's remarks, and pay particular attention to the comments on debt deflation (which is where we already are). Also see Bernanke's now much-discussed 2002 speech.
I'm not ready to start appraising the silverware, just yet.
(from Carpe Diem):
The price of a median home divided by the median income just hit a 4-year high.
30 states posted a net increase in jobs last month, 15 had unemployment below 4%.
New Mexico and texas posted a record low unemployment figure, Washington (state) posted one .1% above the record.
The "housing meltdown" is restricted to a handful of (admittedly big) states:
http://bp1.blogger.com/_otfwl2zc6Qc/R-CKfLtDt_I/AAAAAAAAEA0/xn-shiY1VyQ/s1600-h/mba4.bmp
http://bp2.blogger.com/_otfwl2zc6Qc/R-CKfbtDuAI/AAAAAAAAEA8/z7xdJ9AcSE0/s1600-h/mba5.bmp
also:
"Subprime borrowers (6.5 million) make up the rest, or only 8.64% of all homeowners, and only 4.65 out of every 100 homeowners has a subprime ARM, which make up almost half of the foreclosures started."
and
"Of the 75.2 million American homeowners, 25.6 million, or 34% of the total, own their homes free and clear."
Most critically, for January:
Total industrial production was 1.0% above its year-earlier level
All that's a recipe for a slowdown, not a meltdown. There's some adjustments to be made as malinvestments are liquidated., but that's an unavoidable part of the business cycle.
M_O_M:
I actually read Bernanke's speech last week--indeed, it was going to be a QOTD this week. But his promise was not to repeat the 1929 mistake of credit tightening, as least as I understand it. Today, the Fed is acting consistent with this vow, via interest rates. And we're not on the gold standard anymore, so we don't have to defend the dollar (and indeed, the declining dollar seems to be a semi-official policy of the Administration). So, especially in light of the figures quoted by OBH, "where's the Armageddon"?
The Armageddon is in the financial markets. The chief worry I have is "progressyve" (a la BlameBush) policies in Europe and the US which might recreate the global conditions of the Great Depression.
Specifically, biofuels and carbon tariffs would do it. The Fed could not fight that.
I completely agree that we have a nascent industrial recovery. If we go carbon tariff, it blows up because world growth collapses too severely.
Europe is dysfunctional, Carl.
M_O_M:
First-rate point! I never thought of looking at biofuel subsidies and carbon caps/taxes as credit tightening measures. I see you've posted your analysis, and I recommend it to readers.
I agree that they could be significant, but
a) They are not big enough yet to be a full on driver -- the most they can do is shift a trend slowly in the wrong direction.
b) If the economy does take a downturn anytime in the next five years, anything that is a drag is going to go out the door. This includes crap like you've noted, including Cali's anti-tar BS and those idiots in Illinois. In both cases, if they insist on crap like that the companies will just not sell the stuff there, and let them pay jacked up prices for their stupidity.
Three reasons for b:
1) The f***ing hippies are going to start dying off, slowly, but surely, and those that aren't are also going to slide into real 'old age'. I don't see AARP becoming an environmental lobby.
2) The remainder of enviro support comes from college-age idiots. They're likely to begin to be relevant in about 20-odd years, but not now. They don't vote -- Election 04 showed that hasn't changed, despite a massive effort, the college-age turnout was less than it was in 1972, at its peak.
3) The ones taking power over the next decade and more are Gen-Xers. They smoke. And they have no patience with PETAfools.
I believe the real reason, if there is one, why tar sands are not being exploited heavily yet is because oil prices are still down 25% from about where they need to be on a consistent basis (ca. $105 a barrel in real, long term prices... which they are but, as you both well know, only due to a speculative bubble that is about to burst) for wide-scale extraction to be profitable. Yes, they would be far more logical to subsidize than "Gasohol", since tech developments might bring the prices down still further, but "Green fuel" just sounds so much sexier than "Tar Fuel"... so the poliweenies push what sounds good.
BTW, I'd also point out that oil spec bubble is about to burst. If it doesn't hurt the economy directly, it could drop oil prices down to ca. $30-50 a barrel, I'm told. What do you think *that* would do to the economy? Hmm?
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