Monday, June 9, 2008

Worse than we think?

Daniel Gross has an epiphany and it's covered in newswek. Now this guys is another economist that has made some shockingly poor predictions over the last year or two. I generally don't pay much attention to most of these quacks but this article is probably closer to reality than most.

Why It’s Worse Than You Think

For months, economic Pollyannas have looked beyond the dismal headlines and promised a quick recovery in the second half. They're dead wrong.

The forgettable first half of 2008 is stumbling to a close. On Friday, the Labor Department reported that American employers axed 49,000 jobs in May, the fifth straight month of job losses—an event that signals a recession sure as the glittery ball dropping on Times Square augurs a New Year. The report, which inspired a 394-point decline in the Dow Jones Industrial Average Friday, was the latest in a run of bad news. Auto sales, the largest retailing sector in the U.S., were off 10.7 percent in May from the year before. And housing? Ugh. Nationwide, according to the Case-Shiller Index, home prices in the first quarter fell 14 percent.

Yet hope springs eternal that the second half will be better than the first. Economists polled by the Federal Reserve Bank of Philadelphia in May believe the economy will grow at an annual rate of 1.7 percent and 1.8 percent in the third and fourth quarters, respectively. Lawrence Yun, chief economist at the National Association of Realtors, tells NEWSWEEK that "home sales and prices in most of the country will improve during the second half of 2008." (Yun is the Little Orphan Annie of forecasters. He's always sure the sun will come out tomorrow.) Last month, Treasury Secretary Henry Paulson said, "We expect to see a faster pace of economic growth before the end of the year."

But this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm— a housing and credit crisis, and rising energy and food prices—have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news—a credit crunch and the global commodity boom—are blunting the stimulus efforts. As a result, the consumer-driven economy may not bounce back as rapidly as it did in the fraught months after 9/11.

The difficulties today start—as they began last year—with housing and housing-related credit. Last Thursday, the Mortgage Bankers Association quarterly report showed that the percentage of mortgage borrowers behind on their payments—6.35 percent—was the highest since the MBA began tracking the number in 1979. It's not just subprime. In the first quarter of 2008, 36 percent of all foreclosures initiated were on prime adjustable-rate mortgages in California. Mark Zandi, chief economist of Moody's, says the decline in home prices has slashed $2.5 trillion from household wealth, or about $25,000 per homeowner. The fall has also removed an important source of support for consumer spending, as Americans who grew accustomed to borrowing against rising home equity to finance car purchases or vacations now find themselves bereft. Banks are extricating themselves from the home-equity-line-of-credit business in the same way college students get themselves out of relationships gone bad: abruptly. Judi Froning, a second-grade teacher in San Diego, was surprised last week when she received a letter from Chase informing her that it was terminating her untapped HELOC. "In the light of declining home values, they said they are stopping, effective May 31, any draw on my line of credit," she says.

Unemployment up, Check!
Household wealth down, Check!
Retail sales tanking, Check!
Prices skyrocketing, Check!


Martin Burtin said...

The good thing is, once the elections are over this fall, we'll have a strong new leader who we can count on to bolster our spirits and has a head for business and can direct sound foreign policy and create new sources of energy for our Country. This will start an immediate turn-around in the economy and we can look forward to a strong 2009.

Oh wait a minute... We have to vote for that old white guy that might have gotten whacked once too often while locked in a bamboo cage and doesn't look like he'll make it through his first term. Or, we can vote for that black guy that hangs out in questionable churches and takes contributions from Oprah; all while Susan Sarandon threatens to leave the country if we choose incorrectly.

Ya, we're F'd.

ButterMonkey said...

But, but, but, I thought things were supposed to be turning around???


Stepherz said...

All of this is so unbelievably depressing and unfortunate. My "prediction" is that we're headed for another great depression.

The banks can't take everyone's homes if there's no one left to buy them.

Stepherz said...

And Burtin... If all you have against Obama is his church, you should spend more time thinking and less time talking. My pastor doesn't represent me, why does Obama's represent him?! I agree with half of my pastor's views and go to the church he sermons at but his beliefs are not MINE! When you, or anyone else, find a religious leader that represents every cell in your body and speaks/thinks/acts in the all knowing manner that you EXPECT Obama's religious leader to... Perhaps Jesus himself has returned...

Seriously... when will it be OK for Obama to be an independent entity than Farrakhan, and for Farrakhan to be a separate, though idiotic, entity than Obama?

I recently read this point better worded by an unknown source...

"I'm a Democrat. My pastor and most of my congregation are clearly Republicans. Does this mean that I cannot get my spiritual guidance from them, while rejecting their political overtones? The acceptance of what is contained in the bible, TO ME, comes across as universal, and is spoken with one voice, which indicates that religion is an INDIVIDUAL relationship with God. I, therefore, cannot get to heaven either because of, or IN SPITE OF, you. On the basis of this wholly singular, individual interpretation, I should recognize how to live my life. Your interpretation may, and will, be different than mine. That does not mean we agree in lock step on everything...or anything for that matter. It's PERSONAL. I contend that the same thing applies to the Senator and Rev. Wright. Because he finds spiritual guidance from Wright, it does not imply a tacit endorsement of every position that Wright holds.

Perhaps a biblical reminder about separating the wheat from the chaff is important to point out here.

It's possible to take what you find as good from something while abandoning what you disagree with..."