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The Great Recession
Old 08-06-2009, 10:38 AM   #1
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The Great Recession

Wow, I guess it really was bad.
finalsalescpi080809.png
from:
http://jessescrossroadscafe.blogspot.com/2009/08/us-consumer-demand-off-cliff.html

Edited to add:
I should say that I do NOT agree with Jesse's rant on how to fix things. I just thought the chart was important.
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Old 08-06-2009, 10:57 AM   #2
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That chart looks like my heartbeat....
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Old 08-06-2009, 11:26 AM   #3
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Yes, this recession has been the worst since the Great Depression - the longest, the deepest. Way worse than 1973-74 which seems hard to believe.

Here is a chart from ECRI (Economic Council Research Institute - ECRI | Home). Look at the top line - the monthly leading indicator growth rate, and you see it dropped way lower than in 1974.



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reference page: http://www.businesscycle.com/resources/
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Old 08-06-2009, 02:41 PM   #4
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That chart looks like my heartbeat....
What are you doing?
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Old 08-06-2009, 03:40 PM   #5
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What are you doing?
ahhhh...just learning the fine art of consuming a banana......
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Old 08-06-2009, 04:00 PM   #6
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I personally am finding way too much agreement by the general public on the expectation of future inflation when all the major indicators are presaging deflation.

I know most do not believe deflation with this Federal Reserve is possible but we have real wage and salary reductions in the last year approaching 8 percent. Look at many of the positive results of major corporations that occurred becasue cost cutting or selling of lower priced profits have led the way. Not even included in lost salaries and wages is the fringe benefit cuts in pensions and 401K. As a result state and federal receipts are falling by about 18 percent and there is no way to maintain the present level of spending at the govermental level, which is supporting a great swath of wages - hence spending
.

25 percent of mortages in the US today are on houses worth less than the mortgage and a study by Deutsche Bank, shows up to 25 million American homeowners could eventually owe more than their house is worth by 2011. This is a major major problem not easily solved by cash for clunkers. The reduction of spending is compounded by the lack of flexibility of available home equity loans another deflationary point.

Dividends paid by companies have been shrinking at record rates. Indexes such as dividend achievers and international dividend achievers have staged absolute collapses in dividends.

The signs that deflation is still a strong possibility are also showing in the current interest rates issued by the US government. In coming months as the reality of needed taxes begin the cycle of implemention at the state and federal level to just maintain basic services the deflationary forces will become very evident.

In the last month the BDI index has fallen over 25 percent. This to fall again from such a historic collapse last year is showing a lack of pricing pressure. The BDI has been a great leading indicator for a 2-3 month early period throughout this cycle on both the upside and the down side.
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Old 08-06-2009, 04:33 PM   #7
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ahhhh...just learning the fine art of consuming a banana......
TAl. I wouldn't touch that comment with your banana.
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Old 08-06-2009, 05:59 PM   #8
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ahhhh...just learning the fine art of consuming a banana......
This post is DEFINITELY no good without pictures!
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Old 08-06-2009, 06:10 PM   #9
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Here ya go...I'm learning from Mr. Hammi Pants...
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Old 08-06-2009, 06:37 PM   #10
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Sharp pointy teeth have always scared me.
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Old 08-06-2009, 06:39 PM   #11
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But so far, never scarred me.
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Old 08-06-2009, 07:04 PM   #12
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Here is another chart for you
90-day-chart-big.jpg
from
Calculated Risk: Foreclosures: One Giant Wave, Still Building
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Old 08-07-2009, 06:00 PM   #13
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Originally Posted by Running_Man View Post
I personally am finding way too much agreement by the general public on the expectation of future inflation when all the major indicators are presaging deflation.

I know most do not believe deflation with this Federal Reserve is possible but we have real wage and salary reductions in the last year approaching 8 percent. Look at many of the positive results of major corporations that occurred becasue cost cutting or selling of lower priced profits have led the way. Not even included in lost salaries and wages is the fringe benefit cuts in pensions and 401K. As a result state and federal receipts are falling by about 18 percent and there is no way to maintain the present level of spending at the govermental level, which is supporting a great swath of wages - hence spending
.

.
My aren't we a ray sunshine, don't you know happy days are here again.
In all seriousness you raise excellent and sober points, and continued deflation is a real and scary possibility.

But confidence is increasing and the market has risen significantly, increasing the wealth effect. I know I am far less nervous about spending money than I was back last year or March.

I'd also add that with everyone expecting future high inflation, we maybe in a situation of self-fulfilling prophecies. Once people see higher pricing in houses, commodities etc. people may rush in to bid the prices up higher.

Alternatively, I wish Obama would appoint a housing Czar. His first (and hopefully only) act would be to simply decree that starting tomorrow all asking prices/appraisals for houses are 10% higher. Hey it might work LOL.
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Old 08-07-2009, 06:57 PM   #14
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Alternatively, I wish Obama would appoint a housing Czar. His first (and hopefully only) act would be to simply decree that starting tomorrow all asking prices/appraisals for houses are 10% higher. Hey it might work LOL.
Congress is never slow to jump on an idea that will buy them votes (with your kids money) - Cash for Clunkers has worked so well, stay tuned for Funds for Foreclosures. If you have owned your house for at least a year and it's worth less than your loan, Congress will give you $35,000 to $45,000 more than your appraised value if you buy a smaller, more energy efficient home. It doesn't have to be much smaller or much more efficient, just a little bit will be fine. But your old house has to be destroyed. Realtors make money, builders make money, banks loan money, and the next generation pays for it - what's not to like. Of course if you've been responsible and own your home, or your loan is less than the value of the house - you get squat. Wait until Congress comes back from vacation, you heard it here first...
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Old 08-07-2009, 07:13 PM   #15
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LOL. While I actually think that if house prices appreciated 10% tomorrow it would really help the situation. I can easily see Funds for Foreclosures making it out of this Congress.
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Old 08-08-2009, 05:11 PM   #16
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What will happen to the housing market when the Fed stops buying agency MBS (mortgage backed securities)? They've been the only buyer this year, adding 20 billion to the fed's balance sheet every week.

Agency Mortgage-Backed Securities Purchase Program - Federal Reserve Bank of New York


What sort of mortgage interest rates would we have to pay in order to gain the interest of outside (non-US government) MBS investors?

Looking at my tea leaves, I see that higher interest rates would be deflationary in the housing market.
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Old 08-08-2009, 09:13 PM   #17
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I have to wonder how much auto and home prices skew the overall deflationary numbers?
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Old 08-09-2009, 02:19 PM   #18
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I personally am finding way too much agreement by the general public on the expectation of future inflation when all the major indicators are presaging deflation.
In the near term there are certainly deflationary pressures due to declining asset values, deleveraging and demand destruction. None of these are inflationary indicators at this time and I don't see much catalyst for a significant turnaround in those areas.

However, inflation can come from more than just leverage or increased demand. It also comes from a declining dollar in an economy largely dependent on imports. And I see no way that all the government borrowing and money-printing can NOT be inflationary eventually.

Yet again I'll trot out the example I use: If I had a magic printing press that cranked out $100 bills which were indistinguishable from real U.S. currency, the mere act of printing $5 trillion of them would not be inflationary if I stashed it all in my (very big) closet or buried it somewhere. But if I placed it all into commerce in a short period of time, the "velocity of money" suddenly takes a spike upward and then you'd have many more dollars chasing the same basket of goods and services -- inflation.

As long as much of the created "wealth" and printed dollars are not entering commerce -- they are either being saved or used for debt reduction and deleveraging -- the money from the printing presses aren't likely to be inflationary since they aren't increasing the velocity of money. But when it starts entering commerce -- once the destruction of demand starts turning around -- that's when I think you may start seeing inflation.

Besides, the primary "deflation" in today's economy is in discretionary items. There are lower prices for our "wants" but for the most part (and recognizing a few exceptions) the price of our "needs" is rising. The deflation caused by demand destruction obviously hits "wants" harder than "needs."

Realistically even as the economy stabilizes and the destruction of asset values starts to bottom out, it's hard for me to see anything but a stagflationary environment for a few years -- maybe not a technical recession, but one with slow growth, little if any job growth and inflation numbers that are higher than one would expect with that level of economic activity.
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Old 08-09-2009, 03:41 PM   #19
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The deflation caused by demand destruction obviously hits "wants" harder than "needs."
Well put. While we see prices of luxury or discretionary goods and services dropping, the more essential ones are going up in price. Last week, I paid $8.97 at Home Depot for a 20-lb bag of ammonium sulfate. I expected to pay $4 or $5. Perhaps my memory is faulty or it's been several years since I bought the last time, but I got sticker shock. Same with several other items.

Forum members tend to have more room in their budget for discretionary items, and so are more impressed by price drops of luxurious things like hotels, cars, cruises and travels. The more mundane goods are not getting cheaper. In fact, in another thread, it was quoted from a government report that CPI went up a bit in the last 12 months, DESPITE a drop of 25% in energy.
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Old 08-10-2009, 12:17 AM   #20
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In the near term there are certainly deflationary pressures due to declining asset values, deleveraging and demand destruction. None of these are inflationary indicators at this time and I don't see much catalyst for a significant turnaround in those areas.

However, inflation can come from more than just leverage or increased demand. It also comes from a declining dollar in an economy largely dependent on imports. And I see no way that all the government borrowing and money-printing can NOT be inflationary eventually.

Yet again I'll trot out the example I use: If I had a magic printing press that cranked out $100 bills which were indistinguishable from real U.S. currency, the mere act of printing $5 trillion of them would not be inflationary if I stashed it all in my (very big) closet or buried it somewhere. But if I placed it all into commerce in a short period of time, the "velocity of money" suddenly takes a spike upward and then you'd have many more dollars chasing the same basket of goods and services -- inflation.

As long as much of the created "wealth" and printed dollars are not entering commerce -- they are either being saved or used for debt reduction and deleveraging -- the money from the printing presses aren't likely to be inflationary since they aren't increasing the velocity of money. But when it starts entering commerce -- once the destruction of demand starts turning around -- that's when I think you may start seeing inflation.

Besides, the primary "deflation" in today's economy is in discretionary items. There are lower prices for our "wants" but for the most part (and recognizing a few exceptions) the price of our "needs" is rising. The deflation caused by demand destruction obviously hits "wants" harder than "needs."

Realistically even as the economy stabilizes and the destruction of asset values starts to bottom out, it's hard for me to see anything but a stagflationary environment for a few years -- maybe not a technical recession, but one with slow growth, little if any job growth and inflation numbers that are higher than one would expect with that level of economic activity.
TheHill.com - Deficit grew by $181 billion in July

For a macro view of the deflationary situation, the current budget deficit ytd is about 1.2 trillion. 529 billion of that increased is caused by increased government spending, primarily giving Freddie Mac and Fannie May funds to give to the Chinese government to keep the bonds from blowing up. Tax revenues meanwhile fell by 350 billion of which 100 billion is stimulus money from tax reductions. That leaves about 250 billion of tax shortfall from a government assume a 40 percent tax rate and you get a reduction of 600 billion of income, despite the federal goverment spending an additional 529 billion. You can mulitply this problem across 50 states as well.

There simply is no view in sight yet of any inflation, indeed I contend deflation is beginning to accelerate. With the tax cuts that are sure to pass this fall (you can't keep spending more and getting in less forever else the Feds will go belly up as well), you'll see economic activity get crushed. Nothing appears in sight that is going to prevent this catastrophe. The Fed surely sees this problem which are why short term rates are still near zero.
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