Tuesday, November 11, 2008

Economic predictions for the coming year

Economists predict the worst recession in 25 years:
The U.S. economy is expected to shrink 0.4% in 2009 compared with 2008, according to the monthly survey of 49 economists published Monday by Blue Chip Economic Indicators. ...

The economists' median forecast calls for U.S. gross domestic product to fall by 2.8% in the final three months of 2008 and by 1.5% in the first quarter of 2009. ...

"The consensus strongly suggests that the current recession will be deeper and last longer than those of 2001 and 1990-91," said Blue Chip editor Randell Moore in his commentary.

"Some of our panelists believe it may rival the 1981-1982 downturn, but that is not yet the consensus view," he added.

The nation's unemployment rate is expected to average 7.4% in 2009; it was 6.5% in October. ...

The consensus sees the consumer price index, which tracks inflation at the retail level, rising by 1.5% in 2009 after a 4.2% gain in 2008.
Note again that although this is the worst financial crisis since the Great Depression, it is not the worst economic crisis since the Great Depression. The early 1980s recession was significantly worse than the current one. The two recessions since then—1990-91 and 2001—were both mild by historical standards, so it's not surprising that this one is worse.

Several bozos in the mainstream press keep getting this wrong. (Yes, I'm talking about you, Wolf Blitzer!) These journalists keep treating "financial crisis" and "economic crisis" as if they are synonyms. They are not synonyms! Journalists' ignorance of the difference between a financial crisis (a crisis affecting the financial system) and an economic crisis (a crisis affecting the broader economy) is causing them to mislead and scare the public.

17 comments:

  1. If this recession is only as bad as 1980, the country will be fortunate. It's ludicrous at this early stage to compare the current situation to either 1931, 1980, or 1990.

    As bad as it was in the 80s, we were not fighting a war on two fronts and the S & L crisis, in retrospect, was a blip compared to the current meltdown.

    As for the difference between a financial and economic crisis, you lack any ability to distiguish cause, symptom, and state, so, to paraphrase the Firesign Theater, join the bozos on the bus.

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  2. how I see things:

    most negative savings rate ever + highest consumer debt ever + highest mortgage debt ever + highest obesity rate ever +
    largest bailout ever +
    the stinking hideously expensive war+
    cars still packed in my local Best Buy parking lot and Starbuck's drive thru line (i.e clueless consumers still overspending) =
    THE BIGGEST DROP OFF OF A CLIFF EVER EVER EVER COMING RIGHT AT US FAST.

    Argue as you may - it's not YET the worst economic crisis, but my simple formula above (and I left out some things) is enough to assure that it will be. Economic Armageddon.

    -Fresh

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  3. James,

    You're doing a great job at covering the economic news, but how about a little "housing bubble" news. (After all, this is the "Bubble Meter" blog!)

    The MSM today are heralding the news about "Housing Agencies to Widen Homeowner Help". There was a time when whether house prices would be allowed to drop to their "natural" levels or not was very relevant to the discussions on this blog. The foregone assumption seemed to be that when people defaulted on their mortgages there would be "blood in the streets" and properties could be had for "pennies on the dollar".

    Why the silence on this subject now? Not to put down the economics stuff ... it's interesting ... VERY interesting indeed ... but it's just that the direct effects of the so-called bubble were previously the meat of this blog. I'm sure there are a lot of people out there still asking "Is now the time to buy? (if I can still qualify)" "Should I have bought while it was easier to qualify? ... See the government IS stepping in to help those that did take the chance ... " "Is it too late for me now?"

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  4. Lance - for starters shame on me for responding to your obvious trolling.

    Beyond that, if the govt is successful (which I think it will be) all it can do is provide a floor under which prices cannot further fall, until the laws of supply & demand (helped along with inflation), cause prices to rise again.

    So for those who have not bought, it certainly isnt too late. Short of a massive bulldozing campaign, there is no chance govt actions will cause prices to rise. All they will do is stagnate - meaning if the bubble sitter can afford it now, they can afford it when the program is implemented- and probably for a year or two thereafter.

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  5. ... See the government IS stepping in to help those that did take the chance ... "

    PATHETIC! Gov't bailouts for those who made bad bets? Why not set up a Fed bailout booth next to the craps table in Vegas? Lance, you suck.

    I was as bullish as housing as anyone a couple of years ago - but let's face it - the bubble has burst. Blood is not in the streets yet because people are hiding behind closed doors as it wells up. Thanks for showing your true colors, though. Your bullishness has not been based on the true value of a home, but rather on the premise that America would become more socialized to protect you from yourself. Loser.

    -Fresh

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  6. fresh, lance, hey guys,

    Ya'all have 80% of it.

    This is morphing into the bubble-economy-blog because the housing bubble is over, done, old news. Manassas has tanked, Arlington won't. Manassas tanked because it overbuilt on acres and acres of cheap land. There aren't acres and acres of open land in Arlington, and the jobs are in Arlington.

    Who wants to wonder and argue about SFH in Arlington stubbornly holding their value when GM's stock fell below $3.00/share today.

    Remember when the stock market crashed in 2000? Money rotated into housing.

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  7. "Arlington won't"

    hahahahahahahahahahahahahaha....god, I love the denial, it's just too damn funny.

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  8. Fresh,

    From the start, the premise of the housing bubble was based on what should happen, not on what past experience indicated would happen. I never said I supported the bailout. I didn't two years ago, and I still don't now. But it's reality. Accept it ... and move on.

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  9. It may have started in the financial world, but it is rapidly spilling over into the rest of the economy. Credit is tight everywhere, and is only starting to loosen up a little. And people are nervous, so they aren't buying big ticket items and all that.

    In reality the U.S. is over-retailed. Too many stores, selling too much useless crap. People put it all on credit cards, or they use a HELOC and just borrow to buy more crap. Ultimately people wanted ever larger homes in which to store all of the crap. But without cheap and easy credit the whole thing falls apart.

    I expect that after Christmas we will see any number of retailers go out of business. In addition there is a real danger of one or more of the big-3 automakers going under (they are lining up for a bailout, but their management is so corrupt and incompetent that it would be more merciful to euthanize them and be done with it).

    It is only when all of these shoes have dropped that we can get a sense of how bad this is in comparison to other historical events.

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  10. "But it's reality. Accept it ... and move on."

    Awwwww, lancey-lance, don't get all miffed.

    You know the government intervention isn't working and won't work.

    Accept it, and move on.

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  11. Yes you all are seeing increase in sales Year over Year for Fairfax and the outlying counties. Let's see what spring brings.

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  12. Neil down and prayNovember 11, 2008 7:17 PM

    Anon said...

    "Arlington won't"

    hahahahahahahahahahahahahaha....god, I love the denial, it's just too damn funny."

    I agree Anon - dont the bulls know that Sizzle-Lien shall soon invade and make Arlington (i.e. Sizzlington) his own personal fiefdom? People are in denial about what will happen to Arlington - give it time.

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  13. "Note again that although this is the worst financial crisis since the Great Depression, it is not the worst economic crisis since the Great Depression. The early 1980s recession was significantly worse than the current one."

    Echoing a previous response that should be "than the current one is now."

    Recessions caused by crises of confidence in the credit markets are severe. The fact that this is the most severe credit crisis, as evidenced by the huge bailout and other attempts to get the market going not just in the US but in markets around the world. Big credit crisis, big bubbles (assets, including real estate, stocks, and on and on) will likely mean a deep recession. We hope we have learned lessons from the past. But attempting to put a floor under the housing market will result in stagnation in that market, since the fundamental issue of affordability will not be at any stable equilibrium until inflation in salaries (in particular) makes it so. This will prolong recovery and may prolong recovery of the overall economy.

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  14. Anonymous said...
    Echoing a previous response that should be "than the current one is now."

    Agreed. As things currently stand, this is not the worst recession since the Great Depression. Also, based on the forecasts of the economists surveyed in the article it will not be the worst since the Great Depression. I can't and won't do any economic forecasting of my own, so I won't make any claims regarding the future of this recession.

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  15. Lance said...
    The MSM today are heralding the news about "Housing Agencies to Widen Homeowner Help". There was a time when whether house prices would be allowed to drop to their "natural" levels or not was very relevant to the discussions on this blog.

    Sorry Lance. I do my posting in the evenings and schedule them for the next morning (or sometimes several mornings in advance to ensure a steady stream of blog posts). Hopefully my Wednesday morning posts will satisfy you.

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  16. Once again,

    Remember when the stock market crashed in 2000? Money rotated into housing.

    SFH are holding up well in Arlington and GM stock closed at $2.82, market cap 1.65 billion dollars.

    BH = denial

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  17. James said: "Agreed. As things currently stand, this is not the worst recession since the Great Depression. Also, based on the forecasts of the economists surveyed in the article it will not be the worst since the Great Depression. I can't and won't do any economic forecasting of my own, so I won't make any claims regarding the future of this recession."

    And the deleveraging process from a credit crisis can be particularly painful.

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