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 There's been a lot of talk recently about the economy. Has it bottomed? Are we recovering? Will we see a "V" shaped bounce? Or a "U"? Or a "W"?
  Since most of the economic numbers are still negative, it seems a little premature to talk about a recovery. Nevertheless, since the cheerleaders of the economy have brought it up, let's examine exactly what is going to lead this economy out of our deep recession.

 In order to do that we must look at a topic that the Green Shoots crowd doesn't mention much - the fundamentals of the economy.

I'm going to make this as simple and uncontroversial as possible.

 Since consumer spending is more than 70% of the American economy, let's start there.

 This chart shows us clearly why the economy has contracted so much. It also shows a clear bottom in consumer spending. The question is whether than bottom is temporary or permanent?
  To answer that we must look at the fiscal health of the consumer. There are two measurements of that - money coming in and money going out.

 As you can see, workers have virtually stopped getting raises, and that assumes that people are still working.

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 Obviously the American worker's income is under incredible pressure, and this is translating to less buying. The tiny downward correction on the number of unemployed in the chart above is due to nearly half a million workers no longer being counted as unemployed despite not getting new jobs.

 There is another element to the American consumer's balance sheet, and that is savings and debt.

 While there has been a modest improvement in the debt servicing levels of the American consumer, there has been very little improvement for overall debt levels. This is a reflection of lower interest rates, not to debt actually being paid down.
The debt charts are beginning to move the right way, but they are nowhere near close to what can be considered "healthy".

 On the other side of the coin is America's saving and investment.

 These two charts are the most damning of all. Without saving and investing there can be no sustained economic recovery. Period. This is an absolute disaster.
  Not only do these charts show no bottom, they are moving in the wrong direction at a worsening rate. Until these charts reverse the fundamentals of the economy will get worse.

 Not all of the economy is domestic. America does get some economic support from foreign trade.

 There are signs that the rest of the world is starting to recover, but to benefit from that America will have to produce products that the rest of the world wants to buy. So far there has been no significant signs that this is happening.

 Of course there is one more element of the economy that I haven't covered here, and it is booming!

 Lately there has been some improved housing numbers, but there are several caveats to them. For starters, the marginal improvement in comparisons are to the disastrous selling season of mid-2008.

  Secondly, 43% of all home sales last quarter were first-time home buyers. Normally that would be a good thing, but this time it is a reflection of the government's $8,000 tax credit that people are rushing to take advantage of. Some people are even using it as a down payment.
  In case people have already forgotten, borrowers that require extraordinary help getting into a house are much more likely to default on their mortgages. It looks like an attempt at reinflating the housing bubble.

 Finally, those small signs of price increases are due entirely to more expensive homes being forced onto the market.

 The other positive economic number we've seen recently is in auto sales. This is due to the recently ended cash-for-clunkers program.

 So the spiraling government debt and the two most positive economic numbers are directly linked. With that in mind you have to ask yourself, what will the economic recovery build upon?

Originally posted to gjohnsit on Tue Aug 25, 2009 at 01:34 PM PDT.

Poll

What is your economic recovery prediction?

1%2 votes
10%17 votes
1%2 votes
4%8 votes
1%2 votes
24%41 votes
10%18 votes
19%32 votes
20%35 votes
5%10 votes

| 167 votes | Vote | Results

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Comment Preferences

    •  Thank you for the clear exposition. (1+ / 0-)
      Recommended by:
      BYw

      How any real recovery happen without the production of useful things?  And how can we produce things that are useful in the present circumstances?  What is useful in the present social/ecological/economic situation?  I sense that we have bound ourselves up into a multi source bind that will make real recovery difficult, and make any condition that is better than the present be stability and not recovery.

      Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

      by StrayCat on Wed Aug 26, 2009 at 05:55:46 AM PDT

      [ Parent ]

  •  Nice graphs. (21+ / 0-)

    The only thing that is real to me is that:

    1. I'm still out of work, over a year later.
    1. Unemployed relatives are in worse shape than me.
    1. The children/grandchildren are moving back in because they have no other options.
    1. The politicians, all gainfully employed, are playing their usual (expletive deleted) games and will be as productive as usual - they'll make out like bandits. The rest of us - probably not so much.

    Nothing changes but the labels of the people in charge.

    Do what you can with what you have where you are - Guild of Maintainers

    by bablhous on Tue Aug 25, 2009 at 01:42:32 PM PDT

    •  It's going around (13+ / 0-)

      I've got a few of those stories too. But I wanted to avoid anecdotes in this diary because the Green Shooters like to show lots of graphs.
        However, they always talk about historic trends and never fundamentals. That's the same problem that caught so many economists flat-footed when the 2008 crash happened.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Aug 25, 2009 at 01:46:49 PM PDT

      [ Parent ]

      •  Well, excuse my anecdotes. I'll try to avoid them (0+ / 0-)

        in any future postings in your diaries.

        I didn't realize they were not welcome.

        Do what you can with what you have where you are - Guild of Maintainers

        by bablhous on Tue Aug 25, 2009 at 02:18:17 PM PDT

        [ Parent ]

      •  They're still ignoring fundamentals (8+ / 0-)

        in favor of the big derivative for the US economy: Wall St.  A valid enough measure when stocks and bonds were purchased on the basis of corporate performance in making and delivering real goods and services.  Not so when it makes money by trading faster than anyone else and selling junk financial derivatives.  

        "Dulled conscience, irresponsibility, and ruthless self-interest already reappear. Such symptoms of prosperity may become portents of disaster!" FDR - 1937

        by Marie on Tue Aug 25, 2009 at 03:08:33 PM PDT

        [ Parent ]

        •  what happened to dividends? dividends are REAL (4+ / 0-)
          Recommended by:
          gjohnsit, NoMoreLies, StrayCat, BYw

          money.

          one of the greatest ideas the slick sellers of slime came up with was getting people to think that buying this cuz it will go up, AND buying it, was

          HA HA HA

          smart.

          My wife works at home depot stocking shelves of shit made in china --- many of her co-workers are chucked-outta skilled makers-of-stuff we use jobs.

          how much longer can this fundemental ponzi scheme go one?

          rmm.  

          Yond Cassius has a lean and hungry look; He thinks too much: such men are dangerous

          by seabos84 on Tue Aug 25, 2009 at 08:53:32 PM PDT

          [ Parent ]

          •  Good point (4+ / 0-)
            Recommended by:
            StrayCat, seabos84, glaser, BYw

            It used to be that dividends was the reason to buy stocks. Now its an afterthought.

             Because of the lack of dividends, the 401k system, as it is designed now, is doomed to fail.

            "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

            by gjohnsit on Tue Aug 25, 2009 at 11:07:37 PM PDT

            [ Parent ]

      •  What I find fascinating about green shooters (9+ / 0-)

        on this site is that back when the Bush administration they were using the same arguments as you have on the economy. but since we now a Democrat as POTUS they seem to have done almost a 180.

        Personally, I believe the facts are the facts no matter which party is in office. And the facts for me is that Obama is much preferable to Bush or McCain, but he ain't hitting it out of the park either. In effect, there is room for much improvement. I think he has been in error putting Larry and Timmy in charge. I think Bernacke is a mixed bag and tend to agree with Bernie Sanders.

        "be a loyal plastic robot boy in a world that doesn't care" - Frank Zappa

        by Unbozo on Tue Aug 25, 2009 at 04:25:11 PM PDT

        [ Parent ]

        •  That's exactly the reason I did this diary (2+ / 0-)
          Recommended by:
          StrayCat, BYw

          You hit the nail on the head.
            I don't want to name any names, but a economic blogger here who recently announced that he would stop posting to DKos used to talk about debt levels all the time when Bush was president. It's one of the reasons I really liked to read his posts.

           But after Obama got elected that same blogger started talking about Green Shoots while completely ignoring things like debt.

           This is my reply to that thinking.

          "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

          by gjohnsit on Tue Aug 25, 2009 at 11:05:38 PM PDT

          [ Parent ]

    •  Fellow unemployed here - job offshored (8+ / 0-)

      The company is laying off 16K US workers this year to ship the jobs offshore. So no hope of rehire to this company.

      There doesn't seem to be any stats on how many of the lost jobs went offshore because companies are not forced to report it. But our congress slugs continue to support tax incentives to send the jobs overseas.

      Q: What do you call 500 Congress-slugs at the bottom of the ocean? A: Divine intervention. (with apologies to the couple dozen honest ones.)

      by CitizenOfEarth on Tue Aug 25, 2009 at 02:33:17 PM PDT

      [ Parent ]

      •  Sorry to hear that. We're making a real effort (6+ / 0-)

        to buy "Made in the USA".  As you know, it's getting tougher to do that, but we're looking hard for opportunities.  My daughter needed to buy a mattress when she got back to college the other day and I was able to find a mattress company that makes them right in Nashville (where she goes to school).  She paid about 30% more than she would have at Costco for an import, but I believe it's better quality and will last longer.

        We were also able to buy t-shirts made in North Carolina when we needed to have some printed for our business last month.  Again, they cost more than imports, but we bought 130 instead of 150 and paid the same total.  These, too, I think will hold up better than the cheaper ones.

        I encourage everyone to google variants of "Made in USA" and buy local/US made as much as possible.

  •  Other: There will be no real "recovery" (18+ / 0-)

    The system can not sustain the greed and meaningless consumption that propped up the false economy of the past.  Change will come because we will have to change, even if we do not want to.

    An idea is not responsible for who happens to be carrying it at the moment. It stands or falls on its own merits.

    by don mikulecky on Tue Aug 25, 2009 at 01:44:20 PM PDT

    •  The problem is more fundamental than (10+ / 0-)

      mere greed, which can weather good times and bad.

      The problem is that capitalism is basically tapped out. I wrote about this problem here last year.

      In essence, there will not, in all probability, be a recovery, since the conjunctural problem that started in the late 60s has not been solved, and nobody knows how to solve it within the confines of capitalism.

      We cannot win a war crime - Dancewater, July 27, 2008

      by unclejohn on Tue Aug 25, 2009 at 02:24:46 PM PDT

      [ Parent ]

      •  As I have written many, many times...n/t (3+ / 0-)
        Recommended by:
        unclejohn, Lujane, BYw

        An idea is not responsible for who happens to be carrying it at the moment. It stands or falls on its own merits.

        by don mikulecky on Tue Aug 25, 2009 at 02:31:22 PM PDT

        [ Parent ]

      •  Can it really be called capitalism (3+ / 0-)
        Recommended by:
        gjohnsit, Lujane, Abra Crabcakeya

        When the market is structured by the state?

        •  Only when the state is corporatized (2+ / 0-)
          Recommended by:
          StrayCat, BYw

          and controlled by capital...

          so yes, we have capitalism.

          •  I thought capitalism (4+ / 0-)
            Recommended by:
            gjohnsit, Sandino, StrayCat, BYw

            Didn't involve using the state to achieve one's business aims?

            I thought that was a fascist economic model?  I am not using fascism as a hyperbole, just saying that most of our economy seems to be modeled on a sort of "moderate" state-corporate fusion with elements of state-owned enterprises thrown in.

            Which would make blaming capitalism for our problems rather misinformed.

            •  subtle distinction (3+ / 0-)
              Recommended by:
              gjohnsit, NoMoreLies, StrayCat

              I think of fascism (qua corporatism) as the political system that best coexists with and emerges from pure capitalism.   The natural accumulation of wealth naturally leads to a consolidation of political power.  The "state"-owned enterprises are thus corporate enterprises, since the state is just a corporate cartel for extortion and control of workers/consumers.

            •  Fascism is simply one of a number of ways (2+ / 0-)
              Recommended by:
              glaser, BYw

              that the capitalist state can structure the market.

              If capitalism "didn't involve using the state to achieve one's business aims", there would have been no need for the bourgeois revolutions that overturned the feudal way of structuring the market.

              We cannot win a war crime - Dancewater, July 27, 2008

              by unclejohn on Wed Aug 26, 2009 at 02:02:46 AM PDT

              [ Parent ]

        •  Rush, its like this...Profit..profit...profit (0+ / 0-)

          That's what structures everything.

          An idea is not responsible for who happens to be carrying it at the moment. It stands or falls on its own merits.

          by don mikulecky on Tue Aug 25, 2009 at 06:23:51 PM PDT

          [ Parent ]

        •  Capitalism can only exist if the (2+ / 0-)
          Recommended by:
          StrayCat, glaser

          market is structured by a capitalist state. The fundamental laws that govern property relations structure the capitalist market, which could not otherwise exist in its capitalist form.

          A failure to recognize this fundamental fact about capitalism leads to the erroneous ideology of free market capitalism and libertarian lunacy.

          We cannot win a war crime - Dancewater, July 27, 2008

          by unclejohn on Wed Aug 26, 2009 at 01:59:18 AM PDT

          [ Parent ]

          •  It's all about power (1+ / 0-)
            Recommended by:
            gjohnsit

            Why would I give you anything in exchange for your goods if I could just punch you out and take them? Why would I let you have perfect information about prices and costs if I could propagate lies and myths to keep you at a disadvantage? Why would I let a legislature pass laws that protect the majority fairly when I have the money to bribe lawmakers to pass laws that rig things in my favor? Why would I let you the voter have a chance to pick candidates who want fundamental changes when I can limit your choices to candidates who will always protect my interests first?

            The lure of all the "isms" is that somehow a system with a fancy name can make it so we don't have to keep some individuals/families/organizations from becoming too powerful for the good of everyone else. But there is no system that can make "eternal vigilance" optional. So it comes down to political will—do we have the will to rein in (and, if necessary, overthrow) those who have gotten too powerful, meaning for the most part too rich, too much in control of the information that everyone relies on to make decisions, or too heavily armed and dangerous.

            Capitalism was one thing before the Civil War versus after, one thing before FDR versus after, one thing before Reagan versus after. We can make it whatever we want (as long as some concept of private property and mutual exchange are retained) if we have the political will to do so. There is no law of nature that requires capitalism to have certain features, like absence of state regulation or unlimited individual acquisition of money/property or lending at compound interest rates.

            One of the consequences of letting insiders gain so much power over the system is that we see constant manipulation to make it not behave the way it supposedly "naturally" would. That's why people looking at Peak Oil are always bedeviled by the way oil prices are moving, why people expecting our levels of debt to provoke huge inflation keep wondering why that isn't happening, why people who see terrible company fundamentals across the board get amazed by the way the stock market pushes higher in spite of that. It's very difficult to predict the behavior of a system that is being so heavily manipulated in order to keep all the insiders and powerful politicians on top and flourishing. All you can detect is that, as with the cartoon character trying to balance a huge stack of dishes, the gyrations to keep everything from unbalancing and landing with a big crash keep getting wilder and more spastic.

            •  "We can make [capitalism] whatever we want" (0+ / 0-)

              Well, actually, no we can't. We can not make capitalism not depend on a return on invested capital. And that, ultimately is what brings capitalism to its knees. By requiring unlimited growth of capital in a finite world, capital's demand for resources, both human and natural, must be able to grow indefinitely. This is physically impossible. Therefore, capitalism ultimately, and, I suspect, sooner rather than later, becomes unsustainable.

              I suspect that our current economic crisis may be showing us the ultimate limits to capitalism's ability to continue to grow on this planet. For details, see the diary that I wrote about this problem last year.

              We cannot win a war crime - Dancewater, July 27, 2008

              by unclejohn on Wed Aug 26, 2009 at 11:59:21 AM PDT

              [ Parent ]

              •  Agree with the analysis, but (2+ / 0-)
                Recommended by:
                gjohnsit, unclejohn

                I don't think there is any reason why we have to accept perpetually accelerating growth, guaranteed increased rates of return on investment, or maximizing profits as necessary or desirable. For the majority of us who have to labor, I mean. I can see how the people in charge want these things, but they are, as you say, in conflict with the limits of nature, and the requirements of twisting the economy out of shape in order to pretend that a few people can have those causes what would be mild corrective downtimes in the economy to be delayed until they've mutated into severe recessions and depressions. And siphons off the money that could be use to help those who would be hard hit in a given downturn.

                If there is a surplus of capital floating around that can't be invested in a socially useful way and can only get the types of the return that rich people expect by ruinous speculation, I would say confiscate it and redistribute it to the population at large. Even better, before such a situation can develop, limit the amount of wealth individuals can possess to what they can actually use on assets of real (non-speculative) worth, and limit the profits of corporations (and compensation that their executives receive) to what is needed to survive downturns and grow modestly—in both cases by taxation, fines or other government enforced mechanisms. I'm all for private property, growth and profits, but not when they take on the all-consuming nature of a cancer.

                Would this make a difference to the capitalistic interactions of 97% (or more) of the population? Probably not in a dramatic way. There would still be growth, although much slower and interrupted by mildly deflationary episodes. But people would still trade their labor for capital and capital for physical goods. Products would still come and go on the market and prices would still rise or fall based on supply and demand. But the opportunities for a small group of people and their heirs to hoard vast wealth and cause all kinds of mischief for everyone else would be drastically decreased.

                •  The problem is not that (0+ / 0-)

                  there is to great a return on capital investment, as you suggest in your reply.

                  The problem is that regardless of the ROI, the tendency will always be to exponential growth. The only difference between larger or smaller rates of return is how long the process can continue before it is limited by the finite nature of the real world.

                  If you want an economy with all the advantages of capitalism, except the growth of capital, it's no longer capitalism, and you (we) are obliged to invent a new accounting system to determine whether the economy is doing what we want it to do.

                  Perhaps we could devise some measure of how well the economy is satisfying the population's needs for food, clothing, shelter, etc.

                  We cannot win a war crime - Dancewater, July 27, 2008

                  by unclejohn on Wed Aug 26, 2009 at 01:40:16 PM PDT

                  [ Parent ]

    •  Agreed. We make nothing of value (8+ / 0-)

      and will not in the foreseeable future.

      All perception is reference-dependent. -Daniel Kahneman

      by cityvitalsigns on Tue Aug 25, 2009 at 02:40:06 PM PDT

      [ Parent ]

  •  There are several components to GDP. (9+ / 0-)

    Consumer spending is just one of them. I've been trying to look at data on the change in individual components and relate them to the changes in the rate of decline that could turn around and become slight growth. The only one of the components that is possitive at this point is government spending.

    •  That's what the Q2 GDP report showed (11+ / 0-)

      If it wasn't for government spending the Q2 2009 GDP report would have looked much worse. I have to wonder if government spending is properly weighted.

       It's too bad so few people here on DKos will ever read this.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Aug 25, 2009 at 01:50:26 PM PDT

      [ Parent ]

    •  However, if we are caught in a multi (0+ / 0-)

      source bind where every attempt to change one element creates more limits in other elements of the economy, then are we stuck in a situation where government spending is the only long term response to economic cohesion?  Such is, of course, not sustainable, and the green shoots will die off before flowering.  Unless we tax heavily the offshoring of jobs, and more importantly, industries, and require that all military goods and services be manufactured and serviced here in the U.S, as two examples, then there will be no "recovery".

      Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

      by StrayCat on Wed Aug 26, 2009 at 06:09:12 AM PDT

      [ Parent ]

  •  As an undergrad, (14+ / 0-)

    I studied electrical engineering -- lots of math, lots of science.  Predictable outcomes -- unlike economics.

    Classic EE problem:  You know the input to a black box.  You want a certain output.  Design the black box.

    Economics is a kind of black box problem.  Pretty much everyone agrees on what the output should be.  Jobs, rising wages, etc.

    One problem is agreeing on what constitute inputs.

    The Obama economic team appears to agree that the inputs are what they've always been.  So no need to change the black box.

    I disagree.  One of the major economic inputs is natural resources.  That input has changed radically over the last 100 years.

    I also disagree as to outputs.  It used to be completely OK to pollute the air, soil, and water.  Not so today.

    So we need a new design for the black box.

    But first we must agree on outputs.  And then we must be honest as to inputs.

  •  What about a & shaped recovery? n/t (2+ / 0-)
    Recommended by:
    screaming target, polar bear
  •  Credit card rates have been jacked (8+ / 0-)

    up in some cases as much as 20% over the past couple months. I guess the CC companies have decided they want to maintain current revenue levels even as consumer pay down debt.

    Lucky we (the taxpayers and consumers) were nice guys and lavished them with Bailout money. Apparently they are not ready to reciprocate.

    Q: What do you call 500 Congress-slugs at the bottom of the ocean? A: Divine intervention. (with apologies to the couple dozen honest ones.)

    by CitizenOfEarth on Tue Aug 25, 2009 at 02:16:27 PM PDT

    •  Banks don't want us to pay down debt (11+ / 0-)

      The CC companies are usually banks as well. For the economy to recover we need to either pay down or default on this overwhelming amount of debt in the economy.
        In the long run it will be better for everyone. But in the short run it will be bad for the banks.

       Guess who gets their way?

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Aug 25, 2009 at 02:23:20 PM PDT

      [ Parent ]

    •  lack of reciprocity (6+ / 0-)

      I've thought about that too.  We bailed out large private banks, by buying up their toxic securities and giving them money that they could, among other uses, loan right back to us at interest while paying 1% on our CDs and savings accounts.  But large private banks never will bail out the United States or its citizens.

      A terrible beauty is born. --W.B. Yeats

      by eightlivesleft on Tue Aug 25, 2009 at 02:37:28 PM PDT

      [ Parent ]

      •  Of course the truth is that Goldman Sux (3+ / 0-)
        Recommended by:
        Lujane, BYw, polar bear

        TOOK the money from us by virtue of their stranglehold on the US govt financial team (Gietner, Paulsen, et al).

        If it were up to the taxpayers, I think they'd still be twisting in the wind. But would be a different world where 'life is fair'.

        Q: What do you call 500 Congress-slugs at the bottom of the ocean? A: Divine intervention. (with apologies to the couple dozen honest ones.)

        by CitizenOfEarth on Tue Aug 25, 2009 at 02:45:52 PM PDT

        [ Parent ]

      •   Reclaim your TARP dollars yourself. (3+ / 0-)
        Recommended by:
        StrayCat, Lujane, BYw

        Everyone with a credit card should be aware of their current interest rates (should be printed on every statement, mine definitely are).  You should be putting new charges onto the lowest purchase rate card you have.

        Bankrate.com Shows several offers for credit card with very low introductory rates, some requiring only "good" credit.

        Anyone who qualifies can start some deleveraging of their own.  This can be worth as much as $20/thousand per month.
        The USMint will even ship you $250 lots of dollar coins.  A way to do a balance transfer without paying fees, and often gain a grace period month's worth of interest in the process.

        People who are in debt, especially with bad credit, need to determine if their situation can be helped with a couple of hundred dollars per year.  If not, declare bankruptcy and get it over with.  Yes, it's a stigma, but now is the time.
        If you can be helped, find a relative or friend who will help.

        Economic stimulus begins at home.  If you can get a 0% loan, do it.  Pay down higher interest debt and solidify your own situation.

        -7.75 -4.67

        "Freedom's just another word for nothing left to lose."

        There are no Christians in foxholes.

        by Odysseus on Tue Aug 25, 2009 at 08:40:58 PM PDT

        [ Parent ]

        •  The stigma of bankruptcy is overrated. (0+ / 0-)

          Large corporations use bankruptcy filings as a common business practice to shed the corporate businesses of unwanted debt, union contract, health care and pension obligations and much. much more.  If a substantial number of people were to go online to their district bankruptcy court websites and downloaded the forms and filed pro se bankruptcy petitions, the relative bargaining power of the individual would shift within weeks.

          Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

          by StrayCat on Wed Aug 26, 2009 at 06:18:58 AM PDT

          [ Parent ]

  •  What will the economic recovery build upon? (9+ / 0-)

    Don't you know, it will be revived with Bernanke's Magical Money Making Machine!

  •  This is the new normal (3+ / 0-)
    Recommended by:
    AnnCetera, StrayCat, Cassiodorus

    We'll be lucky to hold on to this level of unemployment and housing prices. The bubble can never be re-inflated. The economy of the past 10 years was never real.

  •  From Roubini (8+ / 0-)

    There are several arguments for a weak U-shaped recovery. Employment is still falling sharply in the US and elsewhere – in advanced economies, unemployment will be above 10 per cent by 2010. This is bad news for demand and bank losses, but also for workers’ skills, a key factor behind long-term labour productivity growth.

    Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest.

    Third, in countries running current account deficits, consumers need to cut spending and save much more, yet debt-burdened consumers face a wealth shock from falling home prices and stock markets and shrinking incomes and employment.

    Fourth, the financial system – despite the policy support – is still severely damaged. Most of the shadow banking system has disappeared, and traditional banks are saddled with trillions of dollars in expected losses on loans and securities while still being seriously undercapitalised.

    Fifth, weak profitability – owing to high debts and default risks, low growth and persistent deflationary pressures on corporate margins – will constrain companies’ willingness to produce, hire workers and invest.

    Sixth, the releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending. The effects of the policy stimulus, moreover, will fizzle out by early next year, requiring greater private demand to support continued growth.

    Seventh, the reduction of global imbalances implies that the current account deficits of profligate economies, such as the US, will narrow the surpluses of countries that over-save (China and other emerging markets, Germany and Japan). But if domestic demand does not grow fast enough in surplus countries, this will lead to a weaker recovery in global growth.

    There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

    But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

    Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

    In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.

    ---------------------------

    mysterious cash buyers are now crowding out first time home buyers who need loans in much of the country.  Rumors are that hedge funds are involved.  If this turns out to be our taxpayer money recycled through Fed windows to hedge funds, to push qualified borrowers out fo the home market, hell will pay.  Just a CT rumor, but stay posted.

    The Shock Doctrine by Naomi Klein -- best book ever, I nominate for a Nobel Prize!

    by xaxado on Tue Aug 25, 2009 at 03:55:05 PM PDT

    •  given the track record (4+ / 0-)
      Recommended by:
      AnnCetera, xaxado, Lujane, BYw

      of financial institutions so far, this

      mysterious cash buyers are now crowding out first time home buyers who need loans in much of the country.  Rumors are that hedge funds are involved.  If this turns out to be our taxpayer money recycled through Fed windows to hedge funds, to push qualified borrowers out fo the home market, hell will pay.

      would not surprise me in the least.

      Roubini is interesting, and the more I read people like him, the more I think this is, indeed, going to be a double-dipper. Appropriate, yes?, that it should be a W recession.

      We live in media world driven by cable idiots and Murdoch minions.--Eric Alterman, in The Nation

      by Mnemosyne on Tue Aug 25, 2009 at 08:46:27 PM PDT

      [ Parent ]

    •  My daughter has been looking for a condo in (3+ / 0-)
      Recommended by:
      AnnCetera, xaxado, BYw

      Irvine, CA, and apparently there are a lot of Chinese coming over and paying cash for places as an investment.  She put in one offer for $10,000 OVER the asking price and it wasn't accepted.

      As a potential first time home buyer, she's having a tough time finding anything decent that's reasonably priced, and when she does, there are lots of offers within hours of it going on the market.

  •  things will never be the same (3+ / 0-)
    Recommended by:
    AnnCetera, Lujane, BYw

    we have an unsustainable lifestyle and now unsustainable government debt. things will never get better as measured by these parameters.

    Patriotism consists not in waving the flag, but in striving that our country shall be righteous as well as strong. ~James Bryce

    by california keefer on Tue Aug 25, 2009 at 05:24:18 PM PDT

  •  Other (6+ / 0-)

    We now have a fully bifurcated economuy in this country, one economy for those who earn their money by labor (wages and salaries) and a different economy for those who earn their money from capital (dividends, interest and rents).  The economy of that second group, the "capitalist" class as it were, is either poised for a robust recovery or is in the early phases of that recovery.  The economy for the 'laboring" class remains severely depressed, and when a recovery does get underway, it is likely to be feeble, jobless, and extremely precarious.  There is absolutely nothing that precludes the possibility that the capitalist class will enjoy a v-shaped recovery while the laboring class experiences a w-shaped double-dip recession.

    "99% of the battles and skirmishes that we fought in Afghanistan were won by our side." ~ Marshall Akhromeyev

    by ActivistGuy on Tue Aug 25, 2009 at 08:41:22 PM PDT

  •  My Permutation My Subset of Gov't Data PROVES (2+ / 0-)
    Recommended by:
    gjohnsit, AnnCetera

    that I deserve a job selling pantyhose !

    Wsa it the Aztecs who increased their human sacrifice rate to appease their gods when the Spanish showed up with guns and slaughtered the Aztecs?

    The Highly Paid Highly Credentialed Synchophants for Gov't Debt Personal Debt Corporate Piggery,

    called ... academic / professional economists ??

    really can't start reading chicken entrails instead of goat entrails, cuz

    then they'd have NO credibility!

    Why do you need all those big ivy degrees to be a fucking cheerleading scum?

    rmm.

    Yond Cassius has a lean and hungry look; He thinks too much: such men are dangerous

    by seabos84 on Tue Aug 25, 2009 at 08:48:46 PM PDT

  •  Yup (4+ / 0-)
    Recommended by:
    gjohnsit, AnnCetera, Lujane, BYw

    Housing up because the government is giving folks up to 8,000 and insuring homes through FHA that may only have a 3.5% deposit. (guess who guarantees FHA?)

    Cars up because government is giving folks up to $4,500.

    All this money given by the government has been borrowed, so effectively the new house owners may have 100% mortgages, and the new car owners too.

    The only way out of this is to reduce debt (which will take time).

    Everyone wants a silver bullet to cure the pain, but there isn't one after 30 years of overspending.

    I can live with doubt and uncertainty and not knowing. I think it is much more interesting to live not knowing than to have answers that might be wrong- Feynman

    by taonow on Tue Aug 25, 2009 at 08:51:41 PM PDT

  •  No Problem... (0+ / 0-)

    "I won't have to work out how to put gas in my car, I won't have work out how to pay my mortgage. If I help him, he's gonna help me."

    Obama save us!

  •  Later than 2012 for the recovery. (2+ / 0-)
    Recommended by:
    gjohnsit, BYw

    In the meantime there's likely to be another Wall Street bubble (which the current administration is doing it's damnedest to produce), another collapse, another bailout, and a serious political crisis, if not a revolution.

    "Americans are a wonderful people: They will always do the right thing--after exhausting every other possible alternative."--Winston Churchill

    by keikekaze on Tue Aug 25, 2009 at 09:11:06 PM PDT

  •  The economy will only recover if there is -- (2+ / 0-)
    Recommended by:
    NoMoreLies, BYw

    public pressure put upon the government to grant average people the same sort of bailout given to the banks.  The other option is to secede, like the Zapatistas...

    "The freeway's concrete way won't show/ You where to run/ Or how to go" -- Jorma Kaukonen

    by Cassiodorus on Tue Aug 25, 2009 at 09:27:25 PM PDT

  •  what we know as "the economy" (2+ / 0-)
    Recommended by:
    AnnCetera, BYw

    can never recover. The sooner we shoot it dead, the better off we will be.

    the more interesting question is what will replace it?  and how can we shape that decision without starting a civil war or a revolution?

    "Rules must be binding. Violations must be punished. Words must mean something." President Obama in Prague on April 5

    by jlynne on Tue Aug 25, 2009 at 10:34:24 PM PDT

    •  We need to go back to pre-1980 (3+ / 0-)
      Recommended by:
      jlynne, AnnCetera, BYw

      economics. Back then the financial system was regulated. The government thought the way to wealth was to give people good paying jobs, and to balance the budget.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Tue Aug 25, 2009 at 11:19:56 PM PDT

      [ Parent ]

      •  yabbut (1+ / 0-)
        Recommended by:
        AnnCetera

        the good paying jobs have all been shipped out and we don't have the infrastructure to create more and we already spent every dime we could borrow on CEO bonuses.  I guess we could regulate DC parking meters . . . or something. ;)

        "Rules must be binding. Violations must be punished. Words must mean something." President Obama in Prague on April 5

        by jlynne on Tue Aug 25, 2009 at 11:22:24 PM PDT

        [ Parent ]

  •  Interesting... (1+ / 0-)
    Recommended by:
    gjohnsit

    And thank you for the diary.  I've had a terrible nagging thought for years now, even when the economy was supposed to be "good."

    That thought?

    "Upon what are we supposed to build our economy?  In the past, it used to be that one adult wage earner, employed in a middle-class manufacturing or service job, was enough to support a middle-class family of four (figure two adults, two children).  What happened to that?  And what kinds of jobs are supposed to replace all those well-paying, full-benefits jobs that have move overseas?"

    Usually, the various answers I've been given have been such that, extrapolated, there's no way to sustain a middle class in the US.

    I'm not sure when or if the middle class in this country will recover, so my survey choice was 2012 and weak.  (Ever the closet optimist, I wasn't quite willing to say that I have no idea.)

    My anecdotal measure, BTW, is the flat-tire-in-the-driveway measurement.  I'm a TE postal carrier in what used to be solidly middle-class neighborhoods; lots of single-family housing, few bus routes, nearly everyone with a car.  I can't tell you how many not-ancient-clunker cars I see parked in single-family home driveways that have a flat tire - week after week, month after month.

    Either the car is kaput and not running at all, languishing due to lack of money for repairs, or the person can't afford a new tire.  (Nearly impossible to buy an intact used tire in these parts.)

    As long as I continue to see at least 4-6 of these on a typical route per day, I'll consider the economy to be struggling.  When it gets down to 1 or 2, I'll consider the economy to be recovering.

    "You can't teach an old dogma new tricks." Dorothy Parker

    by AnnCetera on Wed Aug 26, 2009 at 12:38:43 AM PDT

  •  For some values of "recovery" (0+ / 0-)

    we may see a "recovery"/end-of-recession declared in Q4. There is still some likelihood that consumer spending and debt can be rejuvenated via "market psychology" (improved 401(k) balances) and whatever effects that has on the willingness of businesses to hire more people—and also by government spending, of course, which is basically more debt creation (and was Bush's answer to the dot-com bust recession).

    Will the recovery be perceived as anything to celebrate by most working people? Probably only in that it stops things from getting visibly worse for a while. Some businesses will do a bit better, some people who lost their jobs will get rehired, and maybe some people who consider their stock holdings critical to their retirement will feed better for a while.

    It just seems to me like the recovery will be very shallow and barely last into next summer. I have a hard time believing that all the brain power Obama has assembled would think otherwise, but I can't quite figure what the overall strategy is, like how they plan to respond to the next downturn that is pretty much a lock to happen on their watch.

    •  End of recession (0+ / 0-)

      we may see a "recovery"/end-of-recession declared in Q4.

       Chances are, because of all the federal government spending, we will see positive GDP in our present quarter. Thus the Green Shooters will declare the recession over...but it won't be.

        Remember that Q1 of 2008 was a recession quarter eventhough it had a positive GDP. Plus, all of 2008 was revised downward last month, with the currently quarter likely to see the same at some later date.

       But most importantly, there is nothing for growth to build on. Thus Q4 is likely to drop back into recession. Or, if not, Q1 of 2010.

      "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

      by gjohnsit on Wed Aug 26, 2009 at 11:13:43 AM PDT

      [ Parent ]

  •  Another angle? (0+ / 0-)

    Could you do a story (and graphs) that look at the last year or two at the most in more detail - paired with relevant events.

    The information that covers a decade or two is interesting and important, but I think it would also be nice to get a more micro look.

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