Comments on: The NYT asks six people whether the US is in a recession

The NYT asks six people whether the US is in a recession

Kwantsar — Sun, 16 Dec 2007 13:02:18 -0800

You Can Almost Hear It Pop, by Stephen S. Roach
The Facts Say No, by Marcelle Chauvet and Kevin Hassett
Bet the House on It, by Laura Tyson
Not if Exports Save Us, by Jason Furman
Nobody Knows, by James Grant
Wait Till Next Year, by Martin Feldstein

Stolen, HTML and all, from Calculated Risk.

By: Malor

Malor — Sun, 16 Dec 2007 13:15:41 -0800

In the thread from a few days ago, delmoi was a little annoyed with me. I was saying that recessions are good for us, and the fact that we haven't had a meaningful recession in the last 25 years is a gigantic problem. He wanted supporting links, for that opinion, but I didn't have any handy. Well, lo and behold, Kwantsar did my homework for me. The "Nobody Knows" link sums up my opinion almost exactly. Not having recessions is bad for an economy, just like not exercising is bad for your body. We haven't worked out for 25 years.

By: telstar

telstar — Sun, 16 Dec 2007 13:17:07 -0800

I think you can see the predicament we face: One part of our economy demands lower interest rates to bail out the housing debacle, and foreign investors who finance our massive spending habits demand higher interest rates to forestall the dollar's demise.

By: SeizeTheDay

SeizeTheDay — Sun, 16 Dec 2007 13:39:48 -0800

Good post Kwanstar. I mean that. But if one op-ed is a no-no on the front page of the blue, I'm not sure how six wrongs make a right.

By: mrzarquon

mrzarquon — Sun, 16 Dec 2007 13:44:00 -0800

Now for the askme questions: How do I survive a recession? I CAN HAZ SOUP?

By: ibmcginty

ibmcginty — Sun, 16 Dec 2007 13:46:33 -0800

Sounds like you're pining for the days of the wise oversight of Andrew Mellon, Malor. STD: This is informative, to present differing views on a situation. It's "SLOE," not "OE," that breaks the rules here.

By: EatTheWeak

EatTheWeak — Sun, 16 Dec 2007 13:52:27 -0800

Nice FPP. Depressing damn subject, but nicely presented. So, which catastrophe do you think'll hit first? Total economic collapse, peak oil or a global-warming driven barrage of natural disasters that cripples infrastructure beyond repair? Or will it be some combination? I picked the wrong day to stop sniffing glue.

By: delmoi

delmoi — Sun, 16 Dec 2007 13:57:32 -0800

The whole concept of your house as your 'lifetime investment' is flawed, IMO. It ties people to a single investment, which, as we've seen, can go bad. And it distorts the value and cost of homes, which now need to both provide shelter as well as provide a good ROI. IMO, people should be limited in the amount of their personal wealth they can put into a home. They would then have to invest the rest of their money elsewhere.

By: delmoi

delmoi — Sun, 16 Dec 2007 14:06:58 -0800

In the thread from a few days ago, delmoi was a little annoyed with me. I was saying that recessions are good for us, and the fact that we haven't had a meaningful recession in the last 25 years is a gigantic problem. He wanted supporting links, for that opinion, but I didn't have any handy. Malor, in that thread you were saying that something "TERRIBLE" was going to happen, worse then the great depression. What's being described above sounds like the recession of '91 at worse, although they also say that the dollar values we're talking about are much lower. For example in the "Not if Exports Save Us" link

But in the current turmoil, the banking sector (which started out with very healthy capital balances) seems to be incurring losses that, while large, appear to be far lower than those in previous crises. The losses are spread across a range of poorly understood entities and investors, such as hedge and pension funds, around the globe. It is far from inevitable that this bad financial news, the equivalent to the loss in assets seen in a typical bearish day on Wall Street, will translate into a sustained reduction in economic activity.

What's being described isn't anything like what you were predicting in the other thread, except in the other thread you didn't predict anything except that you could use all sorts of awful sounding adjectives to describe it. Then at the end of the thread you finally said that you thought it, let me see...

I can tell you with absolute certainty that it will be terrible, and that the longer we try to put off the crunch, the worse it will be

Then later you defined terrible as

As far as 'terrible'... I mean economic catastrophe, something on the order of the Great Depression.

I don't think any of the articles linked indicate anything that dire. Obviously no one knows what will really happen, but I would be very surprised if the 2010s were like the 1930s.

By: SeizeTheDay

SeizeTheDay — Sun, 16 Dec 2007 14:18:14 -0800

I don't think any of the articles linked indicate anything that dire. Obviously no one knows what will really happen, but I would be very surprised if the 2010s were like the 1930s. - emphasis mine Of course you'd be surprised. We'd all be surprised, because unlike what one of the op-eds "claims" (with respect to statistically forecasting recessions), no one can actually predict these things with any real degree of accuracy. Our analysis is based upon a mosaic of information we come across, and everyone's mosaic is different, and lacking significant information. (And trusting statistical methodologies that prove themselves correct for historical recessions is a suspect method, as we never actually know the true drivers of the recession (and they're constantly changing, and evolving) until AFTER the recession is over.) And feel free to correct me if I'm wrong, but I don't know of too many self-respecting economists who go around claiming that the second coming of the Great Depression is near. I'd wager that it'd be the equivalent of career suicide. (Of course that doesn't stop us non-public self-proclaimed pundits, because we have nothing to lose if we're proven horribly incorrect.)

By: EatTheWeak

EatTheWeak — Sun, 16 Dec 2007 14:31:30 -0800

I do find the notion of a docked dollar propping our export market back up a bit encouraging. Now, if we coupled that with some useful green technology, then that would be a rather elegant solution to multiple problems.

By: enn

enn — Sun, 16 Dec 2007 14:46:19 -0800

This is the one that scares me. I'm less sanguine than the Economist. Excessive inflation (once you factor those pesky "volatile" housing, food, and energy costs back in) + plummeting asset values + a tightening in the credit markets = lots of new risky, expensive consumer debt. (On the other hand, perhaps Americans will instead cut back on their consumer spending and learn to livin within— ah, fuck, I crack myself up.) Look at the trends in this number since 2002 — in other words, during the heydey of easy, cheap real-estate-backed credit (which is not included here). Now imagine what's going to happen to that trend line when other forms of credit are neither easy nor cheap, and then imagine what's going to happen when it turns out that, well golly, the risk models employed by the credit card companies weren't any better than those employed by the subprime lenders, whoda thunk it?

By: caddis

caddis — Sun, 16 Dec 2007 15:35:32 -0800

Nicely done Kwantsar

By: Thorzdad

Thorzdad — Sun, 16 Dec 2007 17:49:48 -0800

Now imagine what's going to happen to that trend line when other forms of credit are neither easy nor cheap, and then imagine what's going to happen when it turns out that, well golly, the risk models employed by the credit card companies weren't any better than those employed by the subprime lenders, whoda thunk it? Lately, I've been seeing a ton of tv ads from private lenders aimed at college students. Ads singing the praises of easy-to-get $40,000 school loans. These loans are, typically, high-variable-rate products. I can easily see this market blowing-up in the near future (with students, who had to take the loans to afford ever-more-costly college, discovering, upon graduation, that those well-pating jobs they were training for simply don't exist) And mom and dad, who had to co-sign on the loans, being pulled along for the ride.

By: Thorzdad

Thorzdad — Sun, 16 Dec 2007 17:50:48 -0800

pating=paying

By: paul_smatatoes

paul_smatatoes — Sun, 16 Dec 2007 19:30:00 -0800

maybe reading The Great Wave at the beginning of the year overly colors my thinking, but i keep connecting this whole mess to inflation. in the absolutely most simplified sense, we're just going to stealth-tax our way out of trouble with inflation to create a real amount of money to match the amounts we have on the paper. housing prices won't go down as far as they'd have to in order to line up with historical data and average rents, since the dollar will end up worth less, and the usual gang of cable jerks and syndicated half-wits will carp about how wrong everyone was about the housing bubble. you won't think twice about tipping with a dollar bill when you get your coffee, but at least there was no bubble. and "core inflation" never went up that much, so everything's fine: we have the numbers to prove it. everyone gets an asterisk.

By: Slack-a-gogo

Slack-a-gogo — Sun, 16 Dec 2007 19:30:34 -0800

When I saw the " "title" by _____ ______ " I just assumed that these were going to be MP3s of new artist I wasn't familiar with. I was looking forward to hearing "You Can Almost Hear It Pop".

By: telstar

telstar — Sun, 16 Dec 2007 20:09:30 -0800

paul_smatatoes, after reading up on the issue, I agree. There's really not much that can be done except inflating away the debt and hoping the shock is slow enough not to overturn the financial system. As an added bonus, as you point out, that suddenly customary $10 tip at a restaurant will make me feel all rich and shit.

By: rouftop

rouftop — Sun, 16 Dec 2007 21:01:53 -0800

Article summaries: #1. A recession is coming. #2. "...it is certainly possible that the economy is headed for dark times," but we are not in a recession at the moment. #3. A recession is coming. #4. "Even if the economy avoids a recession, the road ahead will be rocky." (Not sure what the difference between a rocky road and a recession is.) #5. Fed will cut interest rates ad infinitum but eventually our indebtedness will catch up to us. #6. We are not in a recession now, but we will be next year. Summary of summaries: A recession is either a) here now, or b) coming next year. Summary of summary of summaries: EVERYBODY PANIC

By: ikkyu2

ikkyu2 — Sun, 16 Dec 2007 21:34:27 -0800

Thanks. I love James Grant and I would have missed this otherwise.

By: Civil_Disobedient

Civil_Disobedient — Mon, 17 Dec 2007 18:10:57 -0800

The whole concept of your house as your 'lifetime investment' is flawed, IMO. It ties people to a single investment, which, as we've seen, can go bad. It's also flawed because a house is not an investment. It's a recurring expense. Unless you got one of those "never have to fix" houses.

By: IndigoJones

IndigoJones — Mon, 17 Dec 2007 20:02:41 -0800

Anything by James Grant is worth reading for the prose alone. If economics depress you (and these days how could they not?), you might want to take a look at his biography of John Adams. Or any of his other books.

By: SeizeTheDay

SeizeTheDay — Tue, 18 Dec 2007 14:55:51 -0800

It's also flawed because a house is not an investment. It's a recurring expense. Many assets require periodic maintenance to perform their given task. Just because you put more money into it, that doesn't make it "not an investment". It simply makes the hurdle rate higher.

By: ysabet

ysabet — Tue, 18 Dec 2007 23:50:15 -0800

Accomodation is an expense. That's regardless of whether it's a roof you own or a roof you rent. It may be an expense which you (or more likely, your inheritants) get money back on - but in terms of investments, it's rather long-term, with poor returns, given the overhead expenses (primarily interest). Not that I'm bitter that despite earning a more-than-decent salary, it's unlikely I'll be able to in good conscience buy a house in the next decade ...

By: Civil_Disobedient

Civil_Disobedient — Wed, 19 Dec 2007 18:00:29 -0800

Not that I'm bitter that despite earning a more-than-decent salary, it's unlikely I'll be able to in good conscience buy a house in the next decade ... Don't be so sure. In five-ten years the average home will have dropped 30-50% of its value. You might yet get your own home!