Dead cat bounce..................
Posted on 04/21/2010 5:04:59 AM PDT by expat_panama
Commentators, including the egregious Federal Reserve chairman Ben Bernanke, are increasingly claiming that the United States is in the process of a V-shaped recovery from the Great Recession. Certainly first-quarter gross domestic product (GDP), to be announced next week, is likely to show a substantial bounce, albeit not quite the inventory-driven 5.6% annualized growth of the fourth quarter. Yet commentators should be careful what they wish for: a V-shaped recovery is likely to lead not to a prolonged period of healthy growth, but to an economic explosion and collapse.
This may seem counter-intuitive. You would normally expect a period of above-normal growth after such a deep recession, whatever the political environment. After all, even in 1934, a year in which the federal government was taking a hatchet to the banking system and capital markets through the Glass-Steagall Act and was micro-managing wages, prices and product specifications through the National Recovery Administration, US GDP, it is now estimated, rose by an extremely healthy 10.9
[snip]
The recovery may be V-shaped in the next quarter or two, but it is very doubtful indeed whether it can continue to be so for long enough to define itself as a true recovery rather than merely an intermediate bump in a "double-dip" recession.
[snip]
In other words, a true V-shaped recovery is impossible, at least without some very unpleasant consequences indeed. Presumably in the latter stages of a rise in inflation towards 20-25%, even Bernanke would be forced to recognize its existence and raise short-term interest rates from their present derisory levels - which would itself cause a crisis in the financial and housing sectors.
[snip]
(Excerpt) Read more at atimes.com ...
Good read; too bad the excerpt requirements made me cut out a lot of the good stuff but hey, that’s what links are for.
Obomba is like a bomb going off under your keel then lifting the ship out of the water and when it drops beaking in two.
Dead cat bounce..................
When 1/3 of the GDP formula is government spending and the private spending is propped up by the spending of 6 million people who have simply stopped paying their mortgage and are buying “stuff” instead, it’s easy to jack up the GDP.
It does not mean the economy is rebounding, however.
“The recovery may be V-shaped in the next quarter or two, but it is very doubtful indeed whether it can continue to be so for long enough to define itself as a true recovery rather than merely an intermediate bump in a “double-dip” recession. On unemployment, for example, since 8.4 million jobs have been lost in the recession, a US recovery that lasted two years from now would have to create 350,000 jobs per month to restore the jobs lost, and that would still leave unemployment much higher than in December 2007, at 6.5-7%, because over 5 million more people would have been added to the labor force between December 2007 and April 2012. “
“So what are the chances of 5% US annual GDP growth for the next two years and commensurate growth in international markets? To see the problems involved, consider the question of commodity and energy prices. In the last 12 months, while the global economy has been operating far below capacity, the Organization for Petroleum Exporting Countries benchmark crude oil price has risen from $50.20 to $81.52 per barrel, a 62.4% increase. Yet US GDP, which bottomed out last April/May, has risen no more than 5% in the last 12 months, probably less. Thus two years of 5% GDP growth would imply energy prices rising at least as quickly as in the last 12 months, as Chinese and Indian growth continued rapid and US oil consumption rebounded towards historic trends. “
“Two more years of 62.4% price rises would take oil prices to $215 per barrel. Given that $147 per barrel oil was a major contributor to the 2008 crisis, do we really think the US economy capable of bearing $215 oil in 2012 without caving in on itself? I don't think so. At least, not unless the dollar has collapsed and inflation has taken off to a level of perhaps 20-25% per annum, which is certainly a possibility”
I am scratching my head a bit. A year ago or so, it was Armageddon. Then mark to market was halted and presto everything is fine with financial stocks. At some point somebody is going to start caring again about the bad debt. It looks to me like financial institutions were successful on off loading it to the Fed, Fran and Fred. If that is the case, it would be like a home owner refinancing his home to pay off a credit card spending spree.
~~Ludwig Von Mises
Everyone knows that things aren’t right and that we’re being lied too.
economy bump for later........
Scariest of all are the politicians. As I often say:
Obama lies to us.
We know that he is lying to us.
Obama knows that we know, that he is lying to us.
He doesn't care.
Politicians who care about the electoral process don't act like that.
Hold on to your hats, fellow Freepers, the ride has begun!
Who, when they get to thinking about it, will carry their gains in the stock market over to 2011 when the capitol gains rate changes? How much more will the market have to go up after December 31, 2010 in order to pay for the change in the tax rate?
I find it interesting that we can all see the financial problem, we can all see the democrat election problems and we ponder the question of, "Why?"
Why don't they seem to care? I truly fear that by the time it becomes fully evident to us, it will be way too late. There are days already I believe it is too late.
When what they say and do doesn't makes any sense, no common sense, it is then that we have crossed into the danger zone.
“Why don’t they seem to care?...”
Functionally, emotionally...they are children.
It the old keys to the Corvette...a bottle of Jack Daniels...and the 16yr old thing.....sad.
A gamma-shaped recovery may look fairly unattractive, but it's a lot better than the alternative of rapid recovery followed by blowout. It could also be engineered so that the gamma-ization of 5% growth into 1.5% growth did not become apparent until after November's midterm elections, thus allowing the Obama administration to present simple folk in the electorate with the impression of a vigorous and sustainable recovery.
I am ashamed to admit that I did not visit the Mises Collection again on my recent visit to Hillsdale. I thought it was too cold to walk across campus.
Somehow, somewhere in there, there's an analogy for the coming crisis...Simple folk happily staying warm and snug, never bothering to educate themselves.
Have a good day!
Two things leap out at me from that piece:
1. “First, it would remove the subsidy for banks to “borrow short and lend long” by investing their balance sheets in Treasury securities and housing bonds, thus starving small business of funding. With commercial and industrial loans now down 25% from their October 2008 peak, small business is starving for working capital at the same time as the banks make record profits.”
While I agree with the author, the removal of the subsidy-by-yield-curve would end up causing more problems in the financial sector that we’re clearly not dealing with. If we’re going to raise rates, then we have to confront the bank fraudsters head-on and get the crap on their books priced as crap, take the hit, clean up the balance sheets and go forward to achieve the lending the author wants. As it stands now, the banks don’t want to lend because they can’t take on more risk, and they’re happy to sit on the sidelines, borrow short and buy long risk-free paper to create profits out of nothing.
2. “Higher interest rates would also reduce stock market speculation, returning the market to its sustainable level of around 8,000 or below on the Dow. It would also, by reducing bank enthusiasm for housing bonds, begin to remove the excessive subsidization of housing, diverting capital back into more productive channels. “
(insert emulation of a blubbering politician here) “But, bbbbuuut... buut... if we bring down the start market, then the LEI comes down, and it looks like we’re going back into recession!”
I don’t see the Kenyan and his tribe goin’ for any of this anytime soon. Oh, and BTW — leveling the yield curve would also crunch the LEI in and of itself, and suddenly you’d have all stripes of economic idjits clamoring for another stimulus plan.
To be certain, I agree with the author and his aims. I’m just pointing out how the deck is stacked against any plausible sanity being introduced into the economy or markets just now. Just about any sane plan to restore the US economy has to start with a precondition that we’ve exiled all economists to a gulag in the frozen north to mine gold in their BVD’s, and that we’ve put all graduates of Harvard Business School into forced labor camps somewhere in Africa so we never hear from them again.
Absent that, we ain’t getting from here to there anytime soon.
ping
Greg ----- is the owner of over 50 fast food restaurants.........
It matters not if you are liberal or conservative...We all had better start to pay attention to this lesson.....
I was in Washington DC yesterday. With 20 other restaurateurs we visited with the Louisiana congressional delegation. We had an enlightening talk with United States Senator Mary Landrieu, if you're interested in what a member of the Democratic leadership of the Senate had to say to her constituents, then read on.
Talking directly to me because of a question I asked her, concerning the fact that we will be forced to shrink our workforce and lay off several hundred employees if Obamacare takes effect she put me in my place. She said the following:
We are paying for your employees health insurance now, if you cannot stay in business and pay for them, then we will just continue to pay for them after you are out of business. I think she really believes she is paying for it...she forgets that we...you and I are paying for it.
We believe people need insurance more than jobs. I seriously doubt the folks I will have to terminate will agree with that, especially since I pointed out to her that many employees in hospitality are otherwise unemployable since they are unskilled and their alternative is welfare.
The law does not differentiate between companies in industries with single digit profit margins like hospitality and industries with much higher profit margins...you have to learn to deal with it.
If you don't like the bills we are passing then elect others.
The bill is law, I do not want to discuss it, deal with it.
As God be my witness that is what she told us...of course I am not quoting her, we were all in too much shock to remember her exact words. But this is from a Senator with 5 more years in office, and the arrogance was unbelievable.
Everyone is for Health Reform, but if the cost is putting hundreds of thousands of Americans out of work, surely we can find a better way.
Everyone is for helping our environment, but if the cost is putting hundreds of thousands of Americans out of work, surely we can find a better way.
If you believe the cost being forced on businesses by our current regime in power is not going to be passed on to the consumers---and that is you and I--- then you need to stop and take another look.
When government action causes the things I buy to go up, they may not call it increasing taxes...but the effect is just the same.
I hope you will find the item below informative...because you had better believe that is where the Democratic Party is trying to take us. And if you believe as I believe that what they are doing is going against what America stands for, then you have one final chance to stop this madness and it comes in November. Go out and vote for a Conservative so they can first STOP the madness and then begin to curb it.
Greg
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.