The Worst Is Not Behind Us !

[LaoPo]

I think this is a -must read-

Doctor Doom:

The Worst Is Not Behind Us

Nouriel Roubini, Thursday 11.13.08, 12:01 AM ET

Nouriel Roubini - Professor of Economics and International Business - Stern School of Business, New York University

It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:

--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.

--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.

--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.

--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.

--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.

Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.

--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels).

If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.

And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%).

Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.

--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.

--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.

--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.

--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.

--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.

Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets.

So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).

Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.

In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.

A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.

I'll stop now.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics *, is a weekly columnist for Forbes.com.

* http://www.rgemonitor.com/

-Forbes

LaoPo

[MJP]

It's a K-Winter on Yabaa.

[LaoPo]

It's a K-Winter on Yabaa.

I'm sure you want to enlighten me...such 5-word expressions are not in my vocabulary, sorry.

LaoPo

[cclub75]

Roubini is good. Very good.

But I prefer Mike Shedlock, more sharp, more brillant, more controversial too. This guy is a real genius. And he likes to talk also about "ground" issues.

http://globaleconomicanalysis.blogspot.com/

[cclub75]

It's a K-Winter on Yabaa.

I'm sure you want to enlighten me...such 5-word expressions are not in my vocabulary, sorry.

LaoPo

You should know LaoPo.... Kondratieff Winter on amphetamines.

Edited November 13, 2008 by cclub75

[MJP]

It's a K-Winter on Yabaa.

I'm sure you want to enlighten me...such 5-word expressions are not in my vocabulary, sorry.

LaoPo

You should know LaoPo.... Kondratieff Winter on amphetamines.

Thank you, exactly that.

[LaoPo]

It's a K-Winter on Yabaa.

I'm sure you want to enlighten me...such 5-word expressions are not in my vocabulary, sorry.

LaoPo

You should know LaoPo.... Kondratieff Winter on amphetamines.

Thank you, exactly that.

Thanks for explaining to the kindergarden ..but I don't think Mr. Roubini is on Yabaa; he's too smart for that.

And, MJP, if I look at your -mostly short- answers I would welcome your thoughts about the views by Roubini, but founded answers, not so called smart-@ss answers.

LaoPo

[MJP]

It's a K-Winter on Yabaa.

I'm sure you want to enlighten me...such 5-word expressions are not in my vocabulary, sorry.

LaoPo

You should know LaoPo.... Kondratieff Winter on amphetamines.

Thank you, exactly that.

Thanks for explaining to the kindergarden ..but I don't think Mr. Roubini is on Yabaa; he's too smart for that.

And, MJP, if I look at your -mostly short- answers I would welcome your thoughts about the views by Roubini, but founded answers, not so called smart-@ss answers.

LaoPo

All answered out on economics really. Roubini has been one of my economics guru's for several years now.

I thought really that the Fed, BoE etc would have stopped the credit boom in it's tracks around 2004 as all the warning signs were there then. I called the top of the UK property market in 2005, thinking no government/finance industry would be so blind and stupid to let the madness continue.

I realised I was wrong when the MPC dropped interest rates in 2005 .

It has been the biggest credit boom in human history. Bigger than the South Seas Bubble, bigger than Tulip Mania, bigger than DotCom. Probably combined. Soro's warns of depression. I'll go with that. This is not a normal recession but as Soros' says, it's the end of the post war super-boom.

We are all in big trouble. But probably none bigger than the UK. The UK is worst placed to weather this, contrary to Brown's repitition of the opposite. The UK consumer has debts unrivaled by any other country in the history of mankind.

I would not be surprised to see the UK very quickly become the next Iceland. Don't be surprised to see Ireland and Spain (Santander can't possibly be viable) go the way of Iceland.

Not so sure regards the US. I have family there (LA) and Canada. But as I see it, their property bubble (US) was no where near the UK's.

I've attached the two most illustrative graphs/figures I know of to demonstrate that Soros is acutally correct. The first is the Kondratiev waves, the second US total debt as a proportion of GDP.

I still think 'K-Winter on Yabaa' sums it up.

[MJP]

This from a particularly well read chap on another forum I know, the difference between recession and depression. Thanks to A.Steve.

The definition that I like is the one offered by Chris Wood's '90s book "The Bubble Economy: The Japanese Economic Collapse".

He says that a recession is when an economic malaise arises from over-production of too many (or the wrong kind of) goods for consumption - resulting in surplus inventory. A depression arises from over-investment in too many (or the wrong kind of) capital investments.

From this, the most coherent definition I've found, it seems obvious that a depression is inevitable.

Edited November 13, 2008 by MJP

[LaoPo]

All answered out on economics really. Roubini has been one of my economics guru's for several years now.

I thought really that the Fed, BoE etc would have stopped the credit boom in it's tracks around 2004 as all the warning signs were there then. I called the top of the UK property market in 2005, thinking no government/finance industry would be so blind and stupid to let the madness continue.

I realised I was wrong when the MPC dropped interest rates in 2005 .

It has been the biggest credit boom in human history. Bigger than the South Seas Bubble, bigger than Tulip Mania, bigger than DotCom. Probably combined. Soro's warns of depression. I'll go with that. This is not a normal recession but as Soros' says, it's the end of the post war super-boom.

We are all in big trouble. But probably none bigger than the UK. The UK is worst placed to weather this, contrary to Brown's repitition of the opposite. The UK consumer has debts unrivaled by any other country in the history of mankind.

I would not be surprised to see the UK very quickly become the next Iceland. Don't be surprised to see Ireland and Spain (Santander can't possibly be viable) go the way of Iceland.

Not so sure regards the US. I have family there (LA) and Canada. But as I see it, their property bubble (US) was no where near the UK's.

I've attached the two most illustrative graphs/figures I know of to demonstrate that Soros is acutally correct. The first is the Kondratiev waves, the second US total debt as a proportion of GDP.

I still think 'K-Winter on Yabaa' sums it up.

""A deep recession is now inevitable and the possibility of a depression cannot be ruled out," Soros predicted in written testimony for a U.S. House Oversight and Government Reform Committee hearing."

From: http://www.reuters.com/article/ousiv/idUSTRE4AC6JC20081113

But, I don't think it's shocking news what Mr. Soros said and wrote during that hearing. The financial crisis-cloud has already been hanging over our heads for more than a year now, since June/July 2007 but is infecting the real economy now fast...VERY fast !

Apart from that, Mr. Soros and his other fellow most powerful hedge fund managers in the gang-of-five (see link above) were all part of the creators of this crisis with their hedge funds in the first place.

They oppose now to the new regulations.....? I'll bet they do

About your described trouble...yes, every single country on earth will be in deep trouble and the optimistic Farang in Thailand do not even realize yet what will be around the corner.

I'm not sure if the UK is worst in place above all other countries; we will see but I agree that Ireland and Spain, both for different reasons will suffer badly. Unemployment in Spain is already almost 12%.

BTW, your chart for the US total debt as proportion of GDP is 5 years old (June 30, 2003) but the total US debt is now over $ 10 Trillion or $ 10,000,000,000,000...

Hedge fund directors George Soros (L-R), chairman of Soros Fund Management LLC, James Simons, director of Renaissance Technologies LLC, John Alfred Paulson, president of Paulson & Co Inc, Philip Falcone, senior managing director of Harbinger Capital Partners, and Kenneth Griffin, CEO and managing director of the Citadel Investment Group, are sworn in to testify before a US House Oversight and Government Reform Committee hearing on the regulation of hedge funds, on Capitol Hill in Washington November 13, 2008.

Note: something strange going on with posting the image. Can't see it myself during writing/posting but the image appears within the message; strange.

LaoPo

Edited November 13, 2008 by LaoPo

[MJP]

All answered out on economics really. Roubini has been one of my economics guru's for several years now.

I thought really that the Fed, BoE etc would have stopped the credit boom in it's tracks around 2004 as all the warning signs were there then. I called the top of the UK property market in 2005, thinking no government/finance industry would be so blind and stupid to let the madness continue.

I realised I was wrong when the MPC dropped interest rates in 2005 .

It has been the biggest credit boom in human history. Bigger than the South Seas Bubble, bigger than Tulip Mania, bigger than DotCom. Probably combined. Soro's warns of depression. I'll go with that. This is not a normal recession but as Soros' says, it's the end of the post war super-boom.

We are all in big trouble. But probably none bigger than the UK. The UK is worst placed to weather this, contrary to Brown's repitition of the opposite. The UK consumer has debts unrivaled by any other country in the history of mankind.

I would not be surprised to see the UK very quickly become the next Iceland. Don't be surprised to see Ireland and Spain (Santander can't possibly be viable) go the way of Iceland.

Not so sure regards the US. I have family there (LA) and Canada. But as I see it, their property bubble (US) was no where near the UK's.

I've attached the two most illustrative graphs/figures I know of to demonstrate that Soros is acutally correct. The first is the Kondratiev waves, the second US total debt as a proportion of GDP.

I still think 'K-Winter on Yabaa' sums it up.

""A deep recession is now inevitable and the possibility of a depression cannot be ruled out," Soros predicted in written testimony for a U.S. House Oversight and Government Reform Committee hearing."

From: http://www.reuters.com/article/ousiv/idUSTRE4AC6JC20081113

But, I don't think it's shocking news what Mr. Soros said and wrote during that hearing. The financial crisis-cloud has already been hanging over our heads for more than a year now, since June/July 2007 but is infecting the real economy now fast...VERY fast !

Apart from that, Mr. Soros and his other fellow most powerful hedge fund managers in the gang-of-five (see link above) were all part of the creators of this crisis with their hedge funds in the first place.

They oppose now to the new regulations.....? I'll bet they do

About your described trouble...yes, every single country on earth will be in deep trouble and the optimistic Farang in Thailand do not even realize yet what will be around the corner.

I'm not sure if the UK is worst in place above all other countries; we will see but I agree that Ireland and Spain, both for different reasons will suffer badly. Unemployment in Spain is already almost 12%.

BTW, your chart for the US total debt as proportion of GDP is 5 years old (June 30, 2003) but the total US debt is now over $ 10 Trillion or $ 10,000,000,000,000...

Hedge fund directors George Soros (L-R), chairman of Soros Fund Management LLC, James Simons, director of Renaissance Technologies LLC, John Alfred Paulson, president of Paulson & Co Inc, Philip Falcone, senior managing director of Harbinger Capital Partners, and Kenneth Griffin, CEO and managing director of the Citadel Investment Group, are sworn in to testify before a US House Oversight and Government Reform Committee hearing on the regulation of hedge funds, on Capitol Hill in Washington November 13, 2008.

Note: something strange going on with posting the image. Can't see it myself during writing/posting but the image appears within the message; strange.

LaoPo

Yeah I know on the graph being only upto 2003. I shoukd go and find the supporting data and make an up-to-date one, might be a bit of a shocker.

As much as Soros is at fault, it's no reason to ignore his message (which I know you don't).

My real fear is they [Fed/BoE etc] start or have in fact started bailing out the false economy of CDS and other derivatives with the real economy to try and prevent the inevitable meltdown of a system which is in fact ten times bigger than global GDP.

[Kf6vci]

Roubini is good. Very good.

But I prefer Mike Shedlock, more sharp, more brillant, more controversial too. This guy is a real genius. And he likes to talk also about "ground" issues.

http://globaleconomicanalysis.blogspot.com/

Well, this guy is not saying much about the economic outlook. Seems to be a chartist with his special language. Hindsight is a wonderful thing. Those who can predict the movement of markets will become obscenely rich very quickly.

How on earth can you compare Professor Roubini to this guy?! For starters, your hero should be talking about the same time horizon, not just analyzing this week's stock market action with 20 / 20 sight.

[cclub75]

Roubini is good. Very good.

But I prefer Mike Shedlock, more sharp, more brillant, more controversial too. This guy is a real genius. And he likes to talk also about "ground" issues.

http://globaleconomicanalysis.blogspot.com/

Well, this guy is not saying much about the economic outlook. Seems to be a chartist with his special language. Hindsight is a wonderful thing. Those who can predict the movement of markets will become obscenely rich very quickly.

How on earth can you compare Professor Roubini to this guy?! For starters, your hero should be talking about the same time horizon, not just analyzing this week's stock market action with 20 / 20 sight.

I beg to differ. Take time to read his posts. Unlike Roubini, Mike Shedlock writes a lot (2 posts per day in average).

And as I said, he's very eclectic. He can do post on charts, yes, but many other on various issues.

For instance, he's very sharp to analyse the jobs situation in the US... When Roubini says "unemployement will go up"... Shedlock shows you why, which sector, why the birth death model is absurd etc.

http://globaleconomicanalysis.blogspot.com...ight-month.html

He's talking also about the real estate bubble of course (here a post from october... 2005)

http://globaleconomicanalysis.blogspot.com...zle-or-pop.html

He's top notch to analyse GDP reports

http://globaleconomicanalysis.blogspot.com...ne-numbers.html

And he writes also about currencies, money supply, commercial real estate, corporates bonds, the FED, interest rates etc. etc.

And he's very opiniated about the deflation/inflation dispute. He's a hard core deflationist.

His call for deflation came in... april 2005 when the entire world was celebrating unlimited growth, eternal prosperity etc...

http://globaleconomicanalysis.blogspot.com...s-in-cards.html

Edited November 14, 2008 by cclub75

[Mattchu9999]

Imagine people not having credit cards.

Not having second or third mortgages.

Not having liens on cars.

Big screen tv's

$3700 couches

Rolex watches

[Scott]

This just can't be true. I read my astrological sign and it said that everything is going to be just fine!

I also read that Recession is when your neighbor loses his job. Depression is when you lose your job.

[benjamat]

Well it is clear that there are even bigger shocks in store for the world economy and these will affect thailand greatly. The political and financial structures are just not solid enough to do what Brown and co is doing, but this may be a good thing, and of course the average thai person has no where near the debt ratio that the average brit has.

I feel extremely sorry for uk based brits especially those like me who plan to leave within the next 2 years. Our assets are being hammered.

Brown is swanning around the world with a smile on his face pretending to be the guru of finance while the ordinary brit is in desperate trouble. He has been chancellor/PM for more than 11 years but of course none of this is his fault, yeehhh, no more boom and bust. All he is doing is setting his self up for a big high pay job when they lose office in 18 months, its all going his way now but its not going the way of the ordinary brit.

[LaoPo]

Doctor Doom

Twenty Reasons Why We're Not Consuming

Nouriel Roubini 11.20.08, 12:00 AM ET

This week's news about October retail sales (-2.8% relative to the previous month and now down in real terms for five months in a row) confirm that the U.S. has entered its most severe consumer-led recession in decades. At this rate of free fall in consumption, real gross domestic product growth could be a whopping 5% negative or even worse in the fourth quarter of 2008. And this is not a temporary phenomenon: Almost all of the fundamentals driving consumption are heading south on a persistent and structural basis.

Consider the many severe negative factors affecting consumption. One can count at least 20 separate or complementary causes that will sharply reduce consumption in the next several years:

1. The U.S. consumer is shopped-out, having spent for the last few years well above his means.

2. The U.S. consumer is savings-less, as the already low household savings rate at the beginning of this decade went to zero/negative by 2006 and now has to rise to more sustainable levels.

3. The U.S. consumer is debt-burdened, with the debt-to-disposable-income ratio having increased from 70% in the early 1990s to 100% in 2000 and to 140% in 2008.

4. Not only are debt ratios high and rising, debt-servicing ratios are high and rising, too, having gone from 11% in 2000 to almost 15% now, as the interest rate on mortgages and consumer debt is resetting at higher levels.

5. The value of housing wealth is now falling by over $6 trillion, as home-price depreciation will soon be 30% and reach a cumulative fall of over 40% by 2010. Recent estimates of this wealth effect suggest that the effect may be closer to 12%-14% rather than the historical 5% to 7%. And with home prices falling over 30%, about 40% of all households with a mortgage (or 21 million out of 50 million who have a mortgage) will be under water (negative equity in their homes) with a huge incentive to walk away from their homes.

6. Mortgage equity withdrawal (MEW) is collapsing from the $700 billion annualized in 2005 to less than $20 billion in the second quarter of this year. Thus, with falling housing wealth and collapsing MEW, U.S. households cannot use their homes anymore as ATM machines.

7. The value of the equity wealth of U.S. households has fallen by almost 50%, another ugly wealth effect on consumption.

8. The credit crunch is becoming more severe as the recent second quarter flow of funds data and the Fed Loan Officers' Survey suggests: It is spreading from sub-prime to near prime to prime mortgages and home equity loans; and from mortgages to credit cards, auto loans and student loans. Both the price and the quantity of credit are sharply tightening.

9. Consumer confidence is down to levels not seen since the 1973-75 and 1980-82 recessions.

10. Real wage growth and real income growth have been stagnant in the last few years as income and wealth inequality has been rising. And now with GDP and real incomes falling, real consumption will fall sharply.

11. The Fed is reaching zero-bound on interest rates as the economy gets close to deflation, given the slack in goods, labor and commodity markets. Deflation means consumers will postpone consumption as future prices are lower than current prices, as real rates are positive and rising and as debt deflation increases the real value of households' nominal debts

12. Employment has been falling for 10 months in a row and the rate of job losses is now accelerating. In the last recession in 2001, which was short and shallow (eight months from March to November 2001, with a cumulative fall in GDP of only 0.4%), job losses continued all the way until August 2003--with a job-loss recovery and a total cumulative loss of jobs of over 5 million from the peak. In this cycle, job losses have, so far, been "only" slightly over a million, while labor market conditions are severely worsening based on all forward-looking indicators such as initial and continuing claims for unemployment benefits. Massive job losses and concerns about job losses will further dampen current and expected income, and further contract consumption.

13. Tax rebates of over $100 billion failed to stimulate real consumption earlier in 2008. Only 25% of the rebate was spent as U.S. consumers are worried about jobs and needed to use funds to pay off their credit cards and mortgages. The tax rebate was supposed to boost consumption all the way through September 2008: In reality, real retail sales and real personal spending rose only in April and May, while starting in June and all the way into July, August, September, October and now the holiday season, real retail spending and real personal spending have been down month after month. Thus, another general tax rebate would be as ineffective as the first one in boosting consumption.

14. The 1990-91 and 2001 recessions were not global; this time around, the IMF is forecasting a global recession for 2009.

15. The recent rise in inflation--that is only now slowing down--reduced real incomes even further for lower-income households who spend more than the average households on gas, transportation, energy and food. The recent sharp fall in gasoline and energy prices will increase real incomes by a modest amount (about $150 billion), but the losses of real disposable income and thus falling consumption from other sources (wealth, income, debt servicing ratios) are much larger and more significant.

16. The trade-weighted fall in the value of the U.S. dollar since 2002 has worsened the terms of trade of the U.S. and reduced further real disposable income and the purchasing power of U.S. consumers over foreign goods.

17. With consumption being over 71% of GDP, a sharp and persistent contraction of consumption all the way through at least the fourth quarter of 2009 implies a more severe recession than otherwise. Consumption did not fall even a single quarter in the 2001 recession and one has to go back to 1990-91 to see a single quarter of negative consumption growth. But the worsening balance sheet of U.S. consumers in 1990-91 (debt ratios, debt servicing ratios, employment contraction, wealth effects of housing and stock markets) was much less severe than the current downturn.

18. Monetary easing will not stimulate durable consumption and demand for residential housing, as demand for such capital goods becomes interest-rate insensitive when there is a glut of capital goods; monetary policy becomes like pushing on a string. In the previous recession, the Fed cut the Fed Funds rate from 6.5% to 1% and long rates fell by 200 bps. In spite of that, capital expenditure in the corporate sector fell by 4% of GDP between 2000 and 2004 as there was a glut of tech capital goods and it took years to work out such a glut. Today, there is a glut of housing, consumer durables and autos/motor vehicles; so it will take years to work out this glut and monetary policy is becoming ineffective to resolve that glut.

19. While policy rates are sharply falling, the nominal and real rates faced by households are rising rather than falling: rising mortgage rates, rising rates on credit cards, auto loans and student loans, together with less availability of credit are severely dampening the ability of households to borrow and spend.

20. To bring back the household savings rate to the level of a decade ago (about 6% of GDP) consumption will have to fall--relative to current GDP levels--by almost a trillion dollars. If all of this adjustment were to occur in 12 months, GDP would contract directly by 7% and indirectly (including the further collapse of residential and corporate capital expenditure in a severe recession) by 10%, an exemplification of the Keynesian "paradox of thrift." If such an adjustment were to occur over 24 months rather than 12 months, you would still have negative GDP growth of 5% for two years in a row with a cumulative fall in GDP from its peak of 10%. (Note that in the worst U.S. recession since WWII, such cumulative fall in GDP was only 3.7% in 1957-58). One can only hope that this adjustment of consumption and savings rates occurs slowly over time--four years, say, rather than two.

Even in that scenario the cumulative fall of GDP could be of the order of 4% to 5%, i.e., the worst U.S. recession since World War II. Note that the cumulative fall in GDP in the 2001 recession was only 0.4%--and in the 1990-91 recession only 1.3%. So, the current recession may end up being three times as long and at least three times as deep (in terms of output contraction) than the last two.

Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.

LaoPo

Edited November 20, 2008 by LaoPo

[cclub75]

I've got only one thing to say : the market is healthy.

This as been the official motto for several years. And it will remain for 1000 years.

I think I'm going to buy a few condos to celebrate.

Edited November 20, 2008 by cclub75

[flying]

Imagine people not having credit cards.

Not having second or third mortgages.

Not having liens on cars.

Big screen tv's

$3700 couches

Rolex watches

Did John Lennon say that

Imagine all the people living for the today

[wrathfultalon]

This just can't be true. I read my astrological sign and it said that everything is going to be just fine!

I also read that Recession is when your neighbor loses his job. Depression is when you lose your job.

Exactly! I was consulting my tea leaves when a saw a cloud which everyone knows means financial growth!

[lannarebirth]

The global economy requires lots of shipping. Shipping rates have plunged. I have never seen a chart this dire:

[LaoPo]

The global economy requires lots of shipping. Shipping rates have plunged. I have never seen a chart this dire:

UNBELIEVABLE....

From close to 12,000 to in the lower 800's or so ??? unbelievable.

Thanks LR ! Does this count also for container shipping rates ? Asia> Europes or OZ or USA ? Any charts for those ?

LaoPo

Edited November 26, 2008 by LaoPo

[lannarebirth]

The global economy requires lots of shipping. Shipping rates have plunged. I have never seen a chart this dire:

UNBELIEVABLE....

From close to 12,000 to in the lower 800's or so ??? unbelievable.

Thanks LR ! Does this count also for container shipping rates ? Asia> Europes or OZ or USA ? Any charts for those ?

LaoPo

Those are dry bulk rates Lao Po. For things like coal, bauxite, corn rice, etc.

http://tuckerreport.com/articles/baltic-dry-index/

Tanker and containerized rates have fallen precipitously as well, but I don't have those rates. I'll look around.

Maybe here:

http://www.investmenttools.com/futures/bdi...c_dry_index.htm

[LaoPo]

The global economy requires lots of shipping. Shipping rates have plunged. I have never seen a chart this dire:

UNBELIEVABLE....

From close to 12,000 to in the lower 800's or so ??? unbelievable.

Thanks LR ! Does this count also for container shipping rates ? Asia> Europes or OZ or USA ? Any charts for those ?

LaoPo

Those are dry bulk rates Lao Po. For things like coal, bauxite, corn rice, etc.

http://tuckerreport.com/articles/baltic-dry-index/

Tanker and containerized rates have fallen precipitously as well, but I don't have those rates. I'll look around.

Maybe here:

http://www.investmenttools.com/futures/bdi...c_dry_index.htm

Thanks ! I didn't find any lower container prices yet but the freight %'s are still up in the first 7, 8 months from Asia>Europe; as I noticed in the last link (bottom details).

That will however change fast from October onwards.

Cheers

LaoPo

[AlexLah]

I can highly recommend "The Crash Course"

Mentioned by Flying.

http://www.chrismartenson.com/crashcourse

The only weak part in his presentation is the energy part, the rest is very clear and true.

It will make things very clear, specially about inflation, GDP and CPI, what a scam!

Have a look here and scroll down to the bottom.

https://www.cia.gov/library/publications/th...r/2187rank.html

We are very "lucky" to see this happening.

This total collapse is an historical event, like the first man walking on the moon.

In the past few hundred of years many countries have gone bankrupt, and guess what followed after?

WAR

I really hope that this whole financial system that is based on lies will die.

The truth will always win.

[MJP]

Not sure how many of you are in the UK at the moment, but the collapse of Woolworths has woken even the most financially unaware to the dire condition of the UK economy.

The government had the Shadow Minister for Immigration arrested tonight as well. We are heading for real problems in the UK. Both socially, financially and democratically.

The true state of UK affairs is starting to broadcast internationally.

http://www.iht.com/articles/2008/11/27/business/col28.php

"It's looking as if the fall in British house prices will be further than expected. Britons simply do not save enough to supply their banks with enough to lend to fund the debt requirement implied by their housing prices. You have to wonder which potential house buyer is out there who a) is a good credit risk has a 20% down payment c) is willing to buy an asset depreciating at 2% a month. Bank liabilities in the US amount to 20% of the size of the economy. In Britain, the figure is 285%. Ask yourself then what might happen to Britain."

[BlackJack]

On November 7, 2008, Bloomberg News requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit seeking to force disclosure. According to a Bloomberg News article:[125]

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

having said that i want to bounce off others the following:

where to put your savings and investments (long term low risk):

gold normally follows oil = oil is down

term deposits = not like the old days of 8.5% - now 5.5% and dropping

shares = most at an all time low and many not paying dividends / with holding as they need the liquidity

funds = most at an all time low

currency = wild rides and high risk

All financial advisors i have spoke to - once you cut through the BS - all agree that this has not happened to the markets before - and that things will get worse once the Federal Reserve Bank of USA comes clean with their massive debts and "print more money" policies.

DOES ANYONE have any alternative investment strategies for us kick around.

[midas]

On November 7, 2008, Bloomberg News requested details of Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit seeking to force disclosure. According to a Bloomberg News article:[125]

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

having said that i want to bounce off others the following:

where to put your savings and investments (long term low risk):

gold normally follows oil = oil is down

term deposits = not like the old days of 8.5% - now 5.5% and dropping

shares = most at an all time low and many not paying dividends / with holding as they need the liquidity

funds = most at an all time low

currency = wild rides and high risk

All financial advisors i have spoke to - once you cut through the BS - all agree that this has not happened to the markets before - and that things will get worse once the Federal Reserve Bank of USA comes clean with their massive debts and "print more money" policies.

DOES ANYONE have any alternative investment strategies for us kick around.

Blackjack surely this has to be one of the most important issues that is currently

facing the American public ? i.e To force the Federal Reserve to disclose everything

about themselves and what is going on?

They should be taking to the streets and demanding it because by accepting the

status quo the public will be no more than little hamsters on the wheel - work sleep work sleep work sleep

to pay more more taxes for the benefit of their masters at the Federal Reserve I'm not American

but it's disgusting to me even

Edited November 30, 2008 by midas

[Hairy]

Blackjack surely this has to be one of the most important issues that is currently

facing the American public ? i.e To force the Federal Reserve to disclose everything

about themselves and what is going on?

They should be taking to the streets and demanding it because by accepting the

status quo the public will be no more than little hamsters on the wheel - work sleep work sleep work sleep

to pay more more taxes for the benefit of their masters at the Federal Reserve I'm not American

but it's disgusting to me even

There ARE protests, but they're pretty small. FedUpUSA (with an eponymous dot-com website) is the organizing group.

[misterman21]

This from a particularly well read chap on another forum I know, the difference between recession and depression. Thanks to A.Steve.

The definition that I like is the one offered by Chris Wood's '90s book "The Bubble Economy: The Japanese Economic Collapse".

He says that a recession is when an economic malaise arises from over-production of too many (or the wrong kind of) goods for consumption - resulting in surplus inventory. A depression arises from over-investment in too many (or the wrong kind of) capital investments.

From this, the most coherent definition I've found, it seems obvious that a depression is inevitable.

Following the 1929 crash - it wasn't untill 1931/2 that people were queing outside soup kitchens. However, things happen a little faster these days!