Thursday, June 03, 2010

Residual Bearishness: Flashback

Sound familiar?

If America’s economic landscape seems suddenly alien and hostile to many citizens, there is good reason: they have never seen anything like it. Nothing in memory has prepared consumers for such turbulent change, the sort of upheaval that happens once in 50 years.

The outward sign of the change is an economy that stubbornly refuses to recover from the recession. In a normal rebound, Americans would be witnessing a flurry of hiring, new investment and lending, and buoyant growth. But the U.S. economy remains almost comatose. Unemployment is still high; real wages are declining. The current slump already ranks as the longest period of sustained weakness since the Great Depression.

The 1930s was the last time the economy staggered under as many "structural" burdens, as opposed to the familiar "cyclical" problems that create temporary recessions once or twice a decade. The structural faults represent once-in-a-lifetime dislocations that will take years to work out. Among them: the job drought, the debt hangover, the banking collapse, the real estate depression, the health-care cost explosion, and the runaway federal deficit. "This is a sick economy that won't respond to traditional remedies," said Norman Robertson, chief economist at Mellon Bank. "There's going to be a lot of trauma before it's over."

Source.

31 Comments:

At 6/03/2010 5:15 PM, Anonymous Hydra said...

Sound Familiar?

Yeah, sounds like Juandos.

 
At 6/03/2010 5:35 PM, Blogger Jack Croww said...

My gut reaction is that the corporate world is waiting to see what happens in November before committing to cash outlays. Why spend money on something that the govt will co-opt/outlaw?

 
At 6/03/2010 6:18 PM, Blogger sethstorm said...

This is a political economy with market features. That is unemployment exists, but the calls to end or extend it are a matter of finding the least defensible group. One school of thought wants them to force this "least defensible" to sacrifice, another wants to simply get their vote. Both are wanting to practice patronage, with different consequences for the unfavored. The market no longer is used to derive decisions, but as a secondary justification.


As for citizen hostility, it's about 30-40 years in the making.

 
At 6/03/2010 6:20 PM, Blogger sethstorm said...


My gut reaction is that the corporate world is waiting to see what happens in November before committing to cash outlays. Why spend money on something that the govt will co-opt/outlaw?

Or they just fund whomever looks likely to bend to their ways.

 
At 6/03/2010 8:59 PM, Blogger W.E. Heasley said...

QE and Keynesian government deficit spending are both theories developed in low or no debt environments. Deploying the two theories simultaneously in a hyper-debt environment creates uncharted economic waters.

The normal ebb and flow and predictable events of a garden variety recession can all be categorized as unpredictable and relegated to “uncharted economic waters”. The predictable items appear to be monetary in nature (inflation, deflation, debt, and gold prices) and employment in nature (high persistent unemployment of human capital and capital).

 
At 6/03/2010 10:53 PM, Anonymous Anonymous said...

Before condemning Keynes bear in mind that his theory was not fully followed. Debt from the previous stimulus was not paid down and the part about subsidizing exports and applying tariffs to imports was not followed.

 
At 6/03/2010 11:08 PM, Anonymous Anonymous said...

OMG... we're becoming... like... Europe...

 
At 6/03/2010 11:34 PM, Blogger W.E. Heasley said...

Anonymous said...

“Before condemning Keynes bear in mind that his theory was not fully followed. Debt from the previous stimulus was not paid down and the part about subsidizing exports and applying tariffs to imports was not followed.”

Don’t recall condemning Keynes?

However, your above reference “Debt from the previous stimulus was not paid down and the part about subsidizing exports and applying tariffs to imports was not followed“ is a reference to the wonderful Keynes bucket diagram.

Lets explore that bucket diagram in regards to your assertion of …” previous stimulus was not paid down” .

Keynesian supporters love to refer to stimulus as "a jump start of the economy". That deficit government spending will jump start the private sector and hence bring an economy out of recession. Jump start the economy? Its like attempting to jump start a car by draining the remaining charge from an already low battery.

The jump start theory always comes with the lovely diagram of the "bucket". The bucket represents demand. The bucket's content is household, business, and government demand for goods and services. A recession is a bucket that is not full to the brim. The bucket is no longer full as the demand components of households and businesses has shrunk and hence its the government's responsibility to increase its expenditures (increase its component of the bucket) in order to bring the bucket back to full.

Seems like common sense. However, the increased government expenditures that attempt to fill the bucket is really draining the bucket simultaneously. Its counterintuitive. As the government increases spending, private capital formation leaks out of the bucket. Hence you try and try to fill the bucket but it remains below the brim.

Once you stop filling the bucket with government deficit spending, you now must pay for the deficit spending. Hence Keynesians raise taxes. The taxes then create another leak in the bucket. Hence the bucket goes right back to the level that you began with before you started this wasted exercise.

But Keynesians can never stop spending. You see, each time you fill the bucket with deficit government spending, the size and scope of government increases. Even when Keynesians raise taxes they just spend more on government size and scope.

Keynesians should wear the bucket over their heads.

 
At 6/04/2010 8:01 AM, Anonymous Anonymous said...

Seth-

If you spent half as much time looking for a job as you do bitching about all the evil corporations that keep unemployment high You'd be working by now.

 
At 6/04/2010 8:32 AM, Blogger VangelV said...

Sound Familiar?

Typical nonsense. First, these type of comments are written at every pullback. Second, the pessimists get it just as wrong as the optimists who pretend that the structural problems in the economy can easily be fixed without much pain if government bureaucrats just push the right buttons.

All crises are caused by meddling in the markets. While they can usually be postponed by further meddling things cannot improve unless malinvestments are liquidated by the marketplace. The interventions in 1987, 1991, 1995, 2001 and 2008 did not solve the problems that Americans were facing. They simply kicked the can further down the road and ensured the continued growth of debt, unfunded liabilities, and deferred taxes.

 
At 6/04/2010 12:04 PM, Blogger Ron H. said...

W.E. Heasley said...

"Lets explore that bucket diagram in regards to your assertion of …” previous stimulus was not paid down”

"Keynesians should wear the bucket over their heads."

Thanks for the GREAT discussion of the bucket diagram. I've never seen it refuted so completely in so few words.

 
At 6/04/2010 12:22 PM, Blogger Ron H. said...

Anonymous said...

Seth-

If you spent half as much time looking for a job as you do bitching about all the evil corporations that keep unemployment high You'd be working by now.


Sethstorm doesn't intend to look for a job. He has a very valuable skill set, but for some reason corporations don't recognize that fact, were incredibly stupid to let him slip through their fingers in the first place, and now won't offer him the high remuneration he deserves.

He intends to wait until someone recognizes his high value, and comes knocking on his door begging him to come to work for them at a high rate of pay.

He recommends invoking the force of government to make that happen.

 
At 6/04/2010 12:57 PM, Blogger juandos said...

"Yeah, sounds like Juandos"...

Thanks for NOT paying attention to reality hydra, it enhances the entertainment value of your comments...

YTD Markets Are Negative

In case you were unaware, major indices are negative YTD. The Russell 2000, and the DOW Trannies are the exceptions:

DOW…………………-3.87%
DOW Trans…………+3.25%
DOW Util…………..-11.30%
NYSE Comp………..-7.29%
NASDAQ……………-2.06%
S&P 500…………….-3.98%
Wilshire 5000……..-2.62%
Russell 2000……….+2.49

"Why spend money on something that the govt will co-opt/outlaw?"...

An excellent point!

Just ask the GM bondholders...

 
At 6/04/2010 2:23 PM, Blogger Paul said...

Ron H:

"He intends to wait until someone recognizes his high value, and comes knocking on his door begging him to come to work for them at a high rate of pay."

Heh. I also had that mental image of Sethstorm.

 
At 6/04/2010 3:37 PM, Anonymous Hydra said...

In case you were unaware, major indices are negative YTD.

I was unaare, not paying any attention, really.

All of my holdings are up.


Having you point out the negative only proves my point.

 
At 6/04/2010 3:51 PM, Blogger VangelV said...

Having you point out the negative only proves my point.

LOL. Since when is pointing out things as they are considered being negative? Is he supposed to ignore the fact that the markets are down and that the job picture is very bad?

 
At 6/04/2010 5:48 PM, Anonymous grant said...

W E HEASLEY:
Sure use a Keynesan pump prime to jump start the economy then put Milton Friedman on the job to contain it before it gets out of control if the lame brains can catch onto that.

 
At 6/04/2010 7:59 PM, Anonymous Hydra said...

Since when is pointing out things as they are considered being negative?

===============================

Good point.

I stand corrected.

Just because youroutinely point out the downward trends does n ot mean that you are always incorrect.

In spite of several thousand years of general improvement.

 
At 6/04/2010 8:01 PM, Blogger juandos said...

"All of my holdings are up"...

Hmmm, and ObamaCare is good for all of us...

 
At 6/04/2010 8:02 PM, Anonymous Hydra said...

jump start the economy then put Milton Friedman on the job to contain it before it gets out of control

===============================

My mower will not and cannot run on ether without blowing up, but sometimes it needs a shot to get started.

The laws of economics derive from the laws of physics.

 
At 6/04/2010 8:04 PM, Anonymous Hydra said...

Hmmm, and ObamaCare is good for all of us...

Red herring.

Change the subject when you have nothing to add.

 
At 6/04/2010 10:21 PM, Blogger VangelV said...

Sure use a Keynesan pump prime to jump start the economy then put Milton Friedman on the job to contain it before it gets out of control if the lame brains can catch onto that.

Both were false profits who made excuses for statist meddling in the free markets. It is clear by now to any rational observer that the Monetarist and Keynesian schools have been discredited.

 
At 6/04/2010 10:37 PM, Blogger Ron H. said...

"In spite of several thousand years of general improvement."

What do you mean? I don't believe either the DOW Transportation index or the Russell 2000 are that old.

 
At 6/04/2010 10:37 PM, Blogger VangelV said...

Just because your outinely point out the downward trends does not mean that you are always incorrect.

In spite of several thousand years of general improvement.


I think that you are mixed up. There is little doubt that over time humanity will improve its standard of living and that things will get better. But that does not mean that people and societies that are well off today will be the same ones that will experience most of those gains.

I would clearly be receptive to an argument that suggests that parts of Asia will grow rapidly over the next several decades. But that does not mean that I should be positive on Japan's prospects as they are today. And while Americans might be much better off in a few decades that does not mean that the structural problems that are obvious will allow them to coast through the next few years without much pain.

If I were forced to make a bet I would argue that the most likely outcome over the next year is a great deal of pain for average Americans, the USD and the US financial system. I do not see any material improvement in the US labour markets. Clearly the US real estate markets are still too high in real terms and should see a significant adjustment downwards. And as much as I like base metals going forward I can see a contraction cutting down prices in half over the short term. The same is true in energy but not to the same extent. While it is clear that over the longer term we will see prices that are much higher than what we see today, it is possible to cut 20% of so off the average price if we see a contraction that causes demand to fall without a supply response. And let us not look at the possible issues in the grains markets. While prices are nice and low now it is very possible to see some event (think Katla) that causes a problem with harvest yields that could result in major increases in prices.

Of course, a good result in November that leads to a decrease in the size of government and a rejection of Obama's call for meddling in markets could lead to a very positive outcome in the markets that could minimize the damage. But I do not see the political will to reject meddling among the electorate.

 
At 6/05/2010 1:48 AM, Anonymous grant said...

VangelV:
Not where I come from Keyes and Friedmam are still top shelf. And their top shelf for me too personally.
Don't forget we have just gone through recent times run by the fruit loop generation who got nothing right except how to spend money they didn't have and bust the whole economy including the financial sector, banks,and retirees savings.
Discredited yes by the IDIOTS!who wouldn't have a clue.

 
At 6/05/2010 10:23 AM, Blogger VangelV said...

Not where I come from Keyes and Friedmam are still top shelf. And their top shelf for me too personally.

That explains your overall ignorance of economics. Keynes and Friedman were popular because they provided cover for politicians who wanted to meddle in markets for political purposes. If you want to read a Friedman who makes the case for the markets try David, not his father Milton.

Don't forget we have just gone through recent times run by the fruit loop generation who got nothing right except how to spend money they didn't have and bust the whole economy including the financial sector, banks,and retirees savings.

They only did what Keynes advised. Their failure only went to discredit Keynes' muddled and inconsistent theories.

Discredited yes by the IDIOTS!who wouldn't have a clue.

You are in no position to call anyone else an idiot. Your economic understanding is juvenile and superficial at best.

 
At 6/05/2010 10:33 AM, Blogger sethstorm said...


Blogger Ron H. said...

Anonymous said...

You do things by the book, and the unemployment office is more likely to tell you to just keep collecting. Seeing that there are those whom don't mind making it worse off with temporary work makes it that much worse off.

Why should I be the one that takes the haircut instead of you (or ideally, neither of us)? Are the unemployed really that expendable?




...high rate of pay

You seem to want to echo the same excuse that was used in the dotcom era. This excuse rings just as hollow now as it has then.

 
At 6/05/2010 10:34 AM, Blogger VangelV said...

Sure use a Keynesan pump prime to jump start the economy...

Things do not work that way. Government spending squeezes out the private sector and means higher taxes or a weaker currency.

...then put Milton Friedman on the job to contain it before it gets out of control if the lame brains can catch onto that.

Things do not work that way either. Politicians will always choose to do what is politically necessary and that means the continued destruction of the purchasing power of the USD.

The bottom line is that you are really proposing the destruction of the fiat currency. That would be good for those of us who own gold but not very good for the average voter who is not prepared for the unintended consequences of your proposals.

 
At 6/05/2010 5:11 PM, Anonymous grant said...

WE HEASLEY:
"the part about subsidizing exports and applying tariffs to imports was not followed"
Yes! but in Japan Germany [eu]and many Asian countries it is today and contributes in LARGE trade imbalances.
Isn't this a burglar approach to gaining a share of world trade. Get the jemmy bar out and smash your way in.

 
At 6/06/2010 12:30 AM, Anonymous Hydra said...

"In spite of several thousand years of general improvement."

What do you mean? I don't believe either the DOW Transportation index or the Russell 2000 are that old.

================================

We need a more durable yardstick.

You don't think your life is better off now than it would have been several thousand years ago?
In 5000 BC was there less government interference, or more?

 
At 6/06/2010 3:45 PM, Blogger Ron H. said...

Hydra said...

"In spite of several thousand years of general improvement."

Ron H. said... "What do you mean? I don't believe either the DOW Transportation index or the Russell 2000 are that old."

You need to get a better feel for when someone is making fun of you.

You have accused others in this thread of using "red herring", or changing the subject, but have a look in the mirror. What would you call your above sentence, out of the clear blue, completely unrelated to the subject of the current thread?

Hydra said..."We need a more durable yardstick.

You don't think your life is better off now than it would have been several thousand years ago?
In 5000 BC was there less government interference, or more?"


On a post and comment thread discussing current economic conditions, This is too far OT even for me.

 

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