This Recession, It's Just Beginning

Truth be told, that was always more of a wish than a serious forecast, happy talk from the Fed and Wall Street desperate to get things back to normal.

This thing's going down, fast and hard. Corporate bankruptcies, bond defaults, bank failures, hedge fund meltdowns and 6 percent unemployment. We're caught in one of those vicious, downward spirals that, once it gets going, is very hard to pull out of.

Only this will be a different kind of recession -- a recession with an overlay of inflation. That combo puts the Federal Reserve in a Catch-22 -- whatever it does to solve one problem only makes the other worse. Emerging from a two-day meeting this week, Fed officials signaled that further recession-fighting rate cuts are unlikely and that their next move will be to raise rates to contain inflationary expectations.

Since last June, we've seen a fairly consistent pattern to the economic mood swings. Every three months or so, there's a round of bad news about housing, followed by warnings of more bank write-offs and then a string of disappointing corporate earnings reports. Eventually, things stabilize and there are hints that the worst may be behind us. Stocks regain some of their lost ground, bonds fall and then -- bam -- the whole cycle starts again.

It was only in November that the Dow had recovered from the panicked summer sell-off and hit a record, just above 14,000. By March, it had fallen below 12,000. By May, it climbed above 13,000. Now it's heading for a new floor at 11,000. Officially, that's bear market territory. We'll be lucky if that's the floor.

RE #73 I agree....I saw that immediately in Jeff's comments. I figure 'he' doesn't get out much from in front of the monitor other than to conduct business and go shopping and a dinner and a movie.

I know plenty of blue collar workers and believe me, they are hurting.

NC's RTP area is showing a significant downturn in the economy and housing starts. Auto dealers are trying to sell cars with 1 year's free gas based on 12k miles of driving. Plus our Dim governor and the state Dim controlled legislature with local governments see no other means of the way out for their increased costs other than to keep raising taxes. "It's for the chillzdwens.", ya know.

Personally, I am happy for Jeff's success, however, he needs to look at the big picture.

The cost of oil, energy and food skyrocketing will have a tremendous impact on this country's economy very very shortly.

Congress and the Administration are deaf to what is happening....the bank write downs and the housing bust are all they're interested in now as to 'save the banks'. Ben Ben has screwed this economy even more with a dumb move to do what he and the The Reserve did to save the banks by printing more money (lowering the rate). It's all going to make the inevitable that much more painful.

The GOP will lose the White House in November because of their being asleep at the wheel when they were in control. The RINO's made sure of that.

Lets say the number of gallons of gasoline sold in the USA stays the same, but the price of gasoline doubles, then the amount of money people spend on gasoline has doubled. Is this increase in money spent on gasoline considered an increase in GDP? My understanding is that it is. Next... Since the cost of gasoline (energy) is not included in core inflation, the inflationary rise in spending due to the doubling of gasoline prices is not used to downwardly adjust GDP. Therefore, when gas prices soar, GDP is reported up and is not adjusted for inflation since energy is outside the core inflation.

If the government does not increase the money in circulation to pay for gas, then folks spending more on gas must spend less on something else, so gross price levels might not change.

In fact, you are correct about this in one sense. If volatile prices (oil) increases, but things making up core inflation decrease then there will be deflation on rising oil prices, and thus GDP will go up.

Bubbles are only burst when there is rising supply (tech stock bubble, housing bubble, tulip bulb bubble).

Due to peak oil, supplies will be falling over time, not rising.

There will be pullbacks, but oil will grind relentlessly higher.

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