I suspect that the numbers you're seeing are pre-indicators of a potential overreaction.
Such an overreaction could take 6-8 months to work it's way down to retail sales. Q1 prices will be deflationary, but Q2 or Q3 we're going to see hyperinflation to make it all back up and then some.
Or at least, that's my read.
Oh, and be wary of what we're reading as M1- if that isn't backed by anything other than 0% 4-week T-Bills, the hyperinflation will be followed by another, deeper crash.
(although certainly the housing bubble and bust are long-term major causes of this downturn) is that the consumer was still spending, holding up Main Street, as late as August.
Suddenly in September consumers cut back, and in terms of durable goods, if anything have cut back further since.
This diary attempts to explain why that happened, and why the cutback by consumers is the crucial factor in the sudden worsening of the downturn.
Re: 2001, remember that was primary focused on dot-bomb companies. There was no big knock to consumer confidence to go along with the stock market downturn.
I'm not going to jettison reliance on the yield curve as an important indicator of what lies ahead -- in both eras it did give useful, but differing, signals -- but I am going to correlate it with two of the most important other variables: money supply (M1 and M2), and also CPI (to determine what the "real" i.e., inflation adjusted interest rates are). I am also going to watch the rest of this year carefully to see how much our current paradigm comports with 1954-2004 vs. 1927-54.
Great post and the amount of analysis you had is excellent. Despite the recession draggin on, it is good to see another optimistic viewpoint (relatively speaking). I think the recession will be over as fast as it started, though the structural changes will last for much longer. Now is the time to make the best of the opportunities available.
I am really surprised about the poverty effect being the result of the stock market. It usually falls at least 30% in a recession and 2001 stock market crash did not result in anything but a mild recession.
The stock market is no doubt a factor, but it appears to be the housing crash that is the driving force behind the poverty effect and exceeds the trillion dollar lost in the stock market.
from October 2007 high of about $15 Trillion to October 2008 low of about $8 trillion. Still think an average loss over that period of $90,000 is less significant than 8 months of gas over $3/gallon?
The line you are referring to dealt with a minimum estimate of 10 day loss in October, which was the icing on the cake.
Also, unemployment is a lagging not leading indicator. If tops out at the very end of recessions or even after, not before.
One trillion divided by 78 million is only 12,820.52. I think job loss, lack of credit and paying off last summer's $4.50/gallon gas prices has more to do with the slow down than stock prices. Of course, if you're invested in a hedge fund or you trusted your money to a 'wealth manager' then you might be a little nervous.
about peak autos. The economy, as it is, is saying for the time being that yes we've hit such a peak. Folks are finding it hard to spend on things, obviously, so going back to 17 million cars sales is a long way off. On top of that, and I'm going to need someone to back me on this, that in terms of population growth we are peaking. It is said that, perhaps long term, we could reach 9 billion. But that bumper crop known as the Baby Boomers was "it" in terms of pop explosions. I'm not sure about that, but we must realize that the pool of potential customers is shrinking one way or another perminantly. At least, with the given price structure for autos. The developing world cannot afford a $30k automobile, and those here as well are starting to shy away from that. So if there is to be a future for automobiles, it will have to be a cost-effective model.
Robert, if my memory serves, the last time there was any kind of real attempt to talk about industrial policy in this country was in the early 1980s, particularly by Robert Reich. As the 1980s wore on, it simply disappeared from anyone's agenda.
There is an industrial policy in this country, as it may have been asserted on this site, and that is the defense department's purchasing power. But as my friend the late Professor Seymour Melman spent a career arguing, the "bad habits" learned in defense industries and the diversion of much of the engineering "best and brightest" into learning those bad habits has taken a very real toll on our manufacturing competence. So in a way, defense department spending is almost "anti-industrial policy", it's making things worse.
The flailing around about what to do with the car companies will revive discussion of the idea, if not the phrase "industrial policy". What probably should be discussed is a policy to move transportation equipment manufacturing from being centered on cars to being centered on trains; but I'm afraid that's way too far ahead of the curve (or off in left field) at this point.
Which brings me to a question: is it possible that we've hit "Peak Automobiles", that is, the world will never make as many automobiles as it did in the last year? I know that sounds unlikely with China and India growing; maybe it will be "peak automobile outside of China and India". I remember reading that the rate of sales in the US now is equivalent to 10 million sales a year, when the capacity right now in the US is for 17 million per year.
If automobile production is peaking, then the Europeans and Asians will have to readjust their industrial policies from getting their car companies "over the hump" to actually redirecting them into train manufacturing, and at the same time come up with long range plans for rail-building. or this all might not be clear until we get a whip-saw from oil, that is, as economies recover, oil prices skyrocket, then plummet as economies go into reverse from rising oil prices.
Anyway, thanks for the post, as always, very informative!
I'm also wondering if one can create a book from a blog. On here I have it disabled, but there is a "book mode" to have multiple contributors create a large document, but now I'm wondering if there is a way to go from blog to true book copy.
He is, he's documenting these events in real time and it's one hell of a study.
Redemptions from clients of hedge funds pushed the market even further down than even what the fundamentals were implying they should go. Folks wanted cash or cash equivalents, and we were running into that deadline in the late Fall when the window gets closed. If I had to gauge how much pressure on redemption sales were on the downswing on the market, I would say about 45% or so. There was just so much money being requested at such a short amount of time, rolled up in fear. It was one of those Black Swan events.
Would be better than racist- after all, there are now plenty of "Native Americans" of all races out there (and the further back the archeologists and sociologists go, the more it appears to be "same as it ever was", with Viking genes showing up in Iroquois populations and Asian genes showing up in West Coast tribes).
I still don't understand what is wrong with protectionism of one's own economically- seems to be yet another religious dogma among some economists who don't understand or discount tribal culture and evolved economics.
I understand why we don't do this right now, but it occurs to me that a car that is able to hook up to a commuter train on the rail for intercity use, then disconnect for in-city use, would be a darn good idea given the relative fuel/mile/ton ratio between the two modes. Heck, you could even use a variant of Michellin's Active Wheel tech to make it an NEV that recharges when on the rail.
And for an even fuller tracing, Mr. TomP, how's about: (1) Gramm-Leach-Bliley Act, (2) Commodity Futures Modernization Act (the blueprint), (3) creation of the InterContinentalExchange (resultant purchase of International Petroleum Exchange, with name change to ICE Futures), (4) TradeSpark, (5) Markit and creation of SwapsWire, later purchased by Markit (that "independent" which decided arbitrary values on deritives, albeit financed by JP Morgan Chase, Citigroup and BofA) --- resulting in stolen trillions, the speculation of energy/oil (and connected feed-in commodities) along with "soft" commodities.
And all the above with the same group of individuals from the same corps responsible for their financing/backing: Goldman Sachs, Morgan Stanley, Deutsche Bank, JP Morgan Chase, Citigroup, BofA, BP, Royal Dutch/Shell, et al.
I suspect that the numbers you're seeing are pre-indicators of a potential overreaction.
Such an overreaction could take 6-8 months to work it's way down to retail sales. Q1 prices will be deflationary, but Q2 or Q3 we're going to see hyperinflation to make it all back up and then some.
Or at least, that's my read.
Oh, and be wary of what we're reading as M1- if that isn't backed by anything other than 0% 4-week T-Bills, the hyperinflation will be followed by another, deeper crash.
(although certainly the housing bubble and bust are long-term major causes of this downturn) is that the consumer was still spending, holding up Main Street, as late as August.
Suddenly in September consumers cut back, and in terms of durable goods, if anything have cut back further since.
This diary attempts to explain why that happened, and why the cutback by consumers is the crucial factor in the sudden worsening of the downturn.
Re: 2001, remember that was primary focused on dot-bomb companies. There was no big knock to consumer confidence to go along with the stock market downturn.
I think I wrote this diary back in March. In July I backed off based on a look at pre-WW 2 yield curves writing that, Surprise! Positive Yield curves haven't always been positive for the economy, and noted:
Great post and the amount of analysis you had is excellent. Despite the recession draggin on, it is good to see another optimistic viewpoint (relatively speaking). I think the recession will be over as fast as it started, though the structural changes will last for much longer. Now is the time to make the best of the opportunities available.
I am really surprised about the poverty effect being the result of the stock market. It usually falls at least 30% in a recession and 2001 stock market crash did not result in anything but a mild recession.
The stock market is no doubt a factor, but it appears to be the housing crash that is the driving force behind the poverty effect and exceeds the trillion dollar lost in the stock market.
from October 2007 high of about $15 Trillion to October 2008 low of about $8 trillion. Still think an average loss over that period of $90,000 is less significant than 8 months of gas over $3/gallon?
The line you are referring to dealt with a minimum estimate of 10 day loss in October, which was the icing on the cake.
Also, unemployment is a lagging not leading indicator. If tops out at the very end of recessions or even after, not before.
One trillion divided by 78 million is only 12,820.52. I think job loss, lack of credit and paying off last summer's $4.50/gallon gas prices has more to do with the slow down than stock prices. Of course, if you're invested in a hedge fund or you trusted your money to a 'wealth manager' then you might be a little nervous.
about peak autos. The economy, as it is, is saying for the time being that yes we've hit such a peak. Folks are finding it hard to spend on things, obviously, so going back to 17 million cars sales is a long way off. On top of that, and I'm going to need someone to back me on this, that in terms of population growth we are peaking. It is said that, perhaps long term, we could reach 9 billion. But that bumper crop known as the Baby Boomers was "it" in terms of pop explosions. I'm not sure about that, but we must realize that the pool of potential customers is shrinking one way or another perminantly. At least, with the given price structure for autos. The developing world cannot afford a $30k automobile, and those here as well are starting to shy away from that. So if there is to be a future for automobiles, it will have to be a cost-effective model.
Robert, if my memory serves, the last time there was any kind of real attempt to talk about industrial policy in this country was in the early 1980s, particularly by Robert Reich. As the 1980s wore on, it simply disappeared from anyone's agenda.
There is an industrial policy in this country, as it may have been asserted on this site, and that is the defense department's purchasing power. But as my friend the late Professor Seymour Melman spent a career arguing, the "bad habits" learned in defense industries and the diversion of much of the engineering "best and brightest" into learning those bad habits has taken a very real toll on our manufacturing competence. So in a way, defense department spending is almost "anti-industrial policy", it's making things worse.
The flailing around about what to do with the car companies will revive discussion of the idea, if not the phrase "industrial policy". What probably should be discussed is a policy to move transportation equipment manufacturing from being centered on cars to being centered on trains; but I'm afraid that's way too far ahead of the curve (or off in left field) at this point.
Which brings me to a question: is it possible that we've hit "Peak Automobiles", that is, the world will never make as many automobiles as it did in the last year? I know that sounds unlikely with China and India growing; maybe it will be "peak automobile outside of China and India". I remember reading that the rate of sales in the US now is equivalent to 10 million sales a year, when the capacity right now in the US is for 17 million per year.
If automobile production is peaking, then the Europeans and Asians will have to readjust their industrial policies from getting their car companies "over the hump" to actually redirecting them into train manufacturing, and at the same time come up with long range plans for rail-building. or this all might not be clear until we get a whip-saw from oil, that is, as economies recover, oil prices skyrocket, then plummet as economies go into reverse from rising oil prices.
Anyway, thanks for the post, as always, very informative!
JR on Grist
I can easily turn a XHTML (hey man, this site is XHTML, not HTML. I allow HTML but it doesn't always display right on mobile devices) into PDF here.
I personally hate PDF but in the case of a print publication I can add it.
or anything in the national economic interest as well.
As far as I know the U.S. is the only major nation which doesn't have as part of it's government a manufacturing, industrial policy.
I do believe various Congressional members have introduced bills which have been immediately ignored and sent to committee to die.
I think we need to start pushing for policy objectives and bills here, try to get some public demand and interest.
Can accept HTML formatted work, though they prefer PDF or .DOC.
I'm also wondering if one can create a book from a blog. On here I have it disabled, but there is a "book mode" to have multiple contributors create a large document, but now I'm wondering if there is a way to go from blog to true book copy.
He is, he's documenting these events in real time and it's one hell of a study.
Redemptions from clients of hedge funds pushed the market even further down than even what the fundamentals were implying they should go. Folks wanted cash or cash equivalents, and we were running into that deadline in the late Fall when the window gets closed. If I had to gauge how much pressure on redemption sales were on the downswing on the market, I would say about 45% or so. There was just so much money being requested at such a short amount of time, rolled up in fear. It was one of those Black Swan events.
a book forming! NDD, I think you have the start of something good here. A chronology of the New Depression perhaps?
Would be better than racist- after all, there are now plenty of "Native Americans" of all races out there (and the further back the archeologists and sociologists go, the more it appears to be "same as it ever was", with Viking genes showing up in Iroquois populations and Asian genes showing up in West Coast tribes).
I still don't understand what is wrong with protectionism of one's own economically- seems to be yet another religious dogma among some economists who don't understand or discount tribal culture and evolved economics.
I understand why we don't do this right now, but it occurs to me that a car that is able to hook up to a commuter train on the rail for intercity use, then disconnect for in-city use, would be a darn good idea given the relative fuel/mile/ton ratio between the two modes. Heck, you could even use a variant of Michellin's Active Wheel tech to make it an NEV that recharges when on the rail.
And for an even fuller tracing, Mr. TomP, how's about: (1) Gramm-Leach-Bliley Act, (2) Commodity Futures Modernization Act (the blueprint), (3) creation of the InterContinentalExchange (resultant purchase of International Petroleum Exchange, with name change to ICE Futures), (4) TradeSpark, (5) Markit and creation of SwapsWire, later purchased by Markit (that "independent" which decided arbitrary values on deritives, albeit financed by JP Morgan Chase, Citigroup and BofA) --- resulting in stolen trillions, the speculation of energy/oil (and connected feed-in commodities) along with "soft" commodities.
And all the above with the same group of individuals from the same corps responsible for their financing/backing: Goldman Sachs, Morgan Stanley, Deutsche Bank, JP Morgan Chase, Citigroup, BofA, BP, Royal Dutch/Shell, et al.
Awaiting the Great Collapse of 2009.....
It looks almost like forensic economics. Great timeline, overview.
People write such exceptional posts and that is really what is making EP. Every day I'm surprised, better than a lot of financial news sites.
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