Saturday, November 12, 2005

The Coming Recession

As the housing market continues to weaken it will have serious ramifications for the overall US economy. "The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession," warned a July report by the Center for Economic and Policy Research. Furthermore, Lehman Brothers report, "[A] turn in the housing market is central to our economic forecast. " As reported by the AP:

A downturn in housing could mean more than 1.3 million lost jobs, Goldman Sachs Group Inc. predicts, bumping up the national unemployment rate by 1 percent and the unemployment rate in house-mad California by 2 percent. Those numbers don't include likely job cuts in housing-dependent businesses, such as banking, furniture and building materials.

The Center for Economic and Policy Research predicts worse, saying a bubble burst would mean the loss of 5 million to 6.3 million jobs.

The housing run-up has financed consumer spending, creating more than $5 trillion in bubble wealth, the center estimates. Consumers have used "cash-out" mortgages to pay for everything from new kitchens to college tuition.

On August 12th and then Septmeber 29th, this blog warned about the coming recession. The current economic predicament is simply unsustainable. The double digit price appreciation of the housing boom years has come to an abrupt end. Once the housing bubble pops, a recession is almost inevitable. Here are the factors that will contribute to a future recession:

  • High Energy Costs
  • Federal Debt & Deficit
  • Coming Housing Bust
  • High Consumer Debt
  • Large Trade Deficit
  • Continued Offshoring
  • Security Costs
  • Rising interest rates
For the past 4 years the US economic 'recovery' has been too dependent on cheap credit and the housing boom. The boom is fast becoming a bust. The convergence of the housing bust with other important factors will almost certainly put the US into a recession by late 2006.

3 comments:

  1. Hi

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  2. I still see David
    many mainstream economists who are paid whores by their respectivr brokerage firms- or mouthpieces of the Bush regime saying that the economy next year will pick up steam and housing will still be strong. David Rosenberg Mark Zandi, among a few others have been far more honest. I want to see in March or April of 2006 to see how strong housing is- and if this huge record breaking inventory will be reduce-or grow. I feel confident there will be a recession starting mid year 2006.

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  3. Hey gang... there's more than one piece that gets factored into the GDP equation. Investment and inventories are two VERY large pieces that have been muddling along and are just now showing signs of life. I think it's a bit early to sing the death knell for the US economy.

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