Econ: The Forecast is...?

[Blaupanzer]

VetLegion, horses**t. The Government did not set the credit rates or use other mechanisms to set the price of money. The Bush admin didn't even manage the money supply very well, unlike the three admins before it. The deregulated banks managed credit rates, created instruments to "increase" apparent liquidity and corresponding capital, and increased apparent "churn" by lending to each other, all the while "hedging" all the loans well beyond the ability of the insurance companies (AIG) to pay.

[chequita guevara]

Actually crashes seem to be coming every 10 years roughly.

The cycle, since the very first crash in 1825, has been every 7 to 10 years. For a brief period following WWII up until the 1970s, that had halved, to 3 to 5 years, but the recessions were shorter and shallower in general. It's a normal part of the capitalist economy.

[chequita guevara]

I think you're all drawing the wrong lessons.

Agathon:
Companies aren't in trouble because of the decentralized nature of capitalist decision-making. They're in trouble because they expanded to meet a need that has disappeared overnight.

Six of one, half dozen of the other. The former caused the latter.

[Zkribbler]

Recession May Last Into 2010...Bernanke

...

US recession 'may last into 2010'


US Federal Reserve chief Ben Bernanke has warned Congress that without the right policies from the government, the US recession could last into 2010.

But he said if the Obama administration and the central bank can restore some measure of financial stability, 2010 could be a year of recovery.

Mr Bernanke made the comments to the Senate Banking Committee.

He also warned that the global nature of the downturn was a threat because exports would be hit.

In its attempts to revive the economy, the Federal Reserve has cut its key interest rate to nearly zero, while the Obama administration has recently signed a $787bn (£546bn) economic stimulus package.

Mr Bernanke said that the potential economic turnaround would hinge on the success of such measures in getting credit and financial markets to operate more normally again.


US retailers report profit falls

"Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," he said.

Mr Bernanke reassured legislators that he was, "committed to using all available tools to stimulate economic activity and to improve financial market functioning".

But he also outlined long-run predictions for the economy, which he said reflected "the view of policymakers that a full recovery of the economy from the current recession is likely to take more than two or three years".

He described a vicious circle of rising unemployment and shrinking house prices and savings forcing consumers to cut back, which would in turn increase unemployment.

"To break that adverse feedback loop, it is essential that we continue to complement fiscal stimulus with strong government action to stabilise financial institutions and financial markets," he said.

Speaking of the concern about bankers benefiting from bail-outs, he added that the country "ought not abstain from saving the financial system just because it rewards people who erred".

Sliding confidence

Mr Bernanke's testimony came shortly after data showed that consumer confidence in February had fallen to the lowest level since the Conference Board began reporting the figures in 1967.

Its sentiment index fell to a much worse-than-expected 25.0 in February from January's figure of 37.4.

"We just got the worst consumer confidence number ever on record," said Matt Esteve, a foreign exchange trader at Tempus Consulting in Washington.

"Following yesterday's awful sell-off in the stock market, it just highlights the risk that there is right now."

House prices

There were also figures showing that the decline in US house prices had accelerated.

The S&P Case Shiller house price index showed the price of a single-family home had fallen 18.5% in December, compared with the same month of 2007.

It was the biggest drop since the index began being calculated 21 years ago.

"There are very few, if any, pockets of turnaround that one can see in the data," said David Blitzer, chairman of S&P's index committee.

"Most of the nation appears to remain on a downward path."

[Naked Gents Rut]

All of what I said above is easily confirmed by a little web research.

Polytubbies seem generally averse to research in any of its forms.

[Aeson]

It's ugly, but getting better in a somewhat haphazard fashion. Looking at one measure, US government bond yields are rising, indicating that folks are moving their money from US treasury bonds to assets with some risk attached.

How much of that is the increase in supply, and how much is a (supposed) decreased demand? Where is the money going if yields are going up due to decreased demand, while the stock market goes down? (I haven't been paying attention to commodities, but they seem to be off their highs too.)

[Agathon]

All of what I said above is easily confirmed by a little web research. No need to believe me.

Research from other people with your unjustified optimism. That doesn't seem worth much to me.

[notyoueither]

VetLegion, horses**t. The Government did not set the credit rates or use other mechanisms to set the price of money. The Bush admin didn't even manage the money supply very well, unlike the three admins before it. The deregulated banks managed credit rates, created instruments to "increase" apparent liquidity and corresponding capital, and increased apparent "churn" by lending to each other, all the while "hedging" all the loans well beyond the ability of the insurance companies (AIG) to pay.

I think most people view the central banks as quasi arms of governments.

Central banks certainly do have a large amount of control over the cost of money under normal circumstances.

[Victor Galis]

Six of one, half dozen of the other. The former caused the latter.

I've seen the horrible failure of totally centralized planning. Trust me, you do not want to go there. In fact, I suspect it may be one of the principal causes for the failure of the "communist" countries.

[Agathon]

I've seen the horrible failure of totally centralized planning. Trust me, you do not want to go there. In fact, I suspect it may be one of the principal causes for the failure of the "communist" countries.

Remember they were trying to do it with pencil and paper, and for some time without universal access to telephones. You try planning an economy with those technical limitations. Despite all that the Soviet Union went from nowhere to defeating Hitler and being a superpower in 30 years.

Then ask yourself why corporations have been able to get so big recently and so diverse, when they are in many ways planned economies. Jesus, just under half the GDP of many wealthy countries comes from government spending as it is. It could easily be increased to 60-70% without many people noticing.

Resistance is useless. Join the party.

[Kidlicious]

Agathon:
Companies aren't in trouble because of the decentralized nature of capitalist decision-making. They're in trouble because they expanded to meet a need that has disappeared overnight. That's not entirely their fault. Blame the easy credit of the boom times. Firms could expand to meet growing demand, or they could be left in the dust by their competitors.

You need to ask yourself why they did that. Most of the bankers making the decisions knew that eventually the thing would bust but it was in their best interest to keep making the investments that were going to make the thing go bust because otherwise they would lose out on the profit that all the others were making.

[Kidlicious]

(more should have, but it was rather clear they didn't)

It is? Why is that? They made a lot of profit off of bad investments. Everyone seems to think that they all went poor because of bad investments. Do you expect them to just leave profit on the table?

[DanS]

How much of that is the increase in supply, and how much is a (supposed) decreased demand? Where is the money going if yields are going up due to decreased demand, while the stock market goes down? (I haven't been paying attention to commodities, but they seem to be off their highs too.)

The money appears to be flowing into bonds.

http://research.stlouisfed.org/fred2/data/DBAA.txt

And into commercial paper. Here's the financial company series.

http://research.stlouisfed.org/fred2/data/CPF3M.txt

And the non-financial company commercial paper series.

http://research.stlouisfed.org/fred2/series/CPN3M?cid=120

[notyoueither]

The numbers from Japan are likely to be more grim soon, as if these are not grim enough.

http://www.bloomberg.com/apps/news?pid=20601087&refer=worldwide&sid=al5sm1ywSxoA

Japan Exports Plummet 45.7%, Deficit Widens to Record (Update3)

By Jason Clenfield

Feb. 25 (Bloomberg) -- Japan’s exports plunged 45.7 percent in January from a year earlier, resulting in a record trade deficit, as recessions in the U.S. and Europe smothered demand for the country’s cars and electronics.

The shortfall widened to 952.6 billion yen ($9.9 billion), the biggest since 1980, the earliest year for which there is comparable data, the Finance Ministry said today in Tokyo. The drop in shipments abroad eclipsed a record 35 percent decline set the previous month.

Exports to the U.S. tumbled an unprecedented 52.9 percent from a year earlier, and shipments to Asia and Europe also posted the largest-ever declines as the global recession deepened. The collapse is likely to force Japanese companies to keep firing workers and closing factories, worsening an economy that shrank the most in 34 years last quarter.

“The pressure on companies to cut jobs and investment is rising and that will make the recession deep and protracted,” said Yasuhide Yajima, a senior economist at NLI Research Institute in Tokyo.

Shipments to Europe slid 47.4 percent in January from a year earlier, the Finance Ministry said. Exports to China fell 45.1 percent and those to Asia dropped 46.7 percent.

Imports fell 31.7 percent from a year earlier. The drop in exports was in line with economists’ estimates. Analysts predicted a 1.2 trillion yen trade deficit.

Yen Relief

The yen fell to 96.91 per dollar as of 12:28 p.m. in Tokyo from 96.72 before the report. The currency is at the lowest level against the dollar in three months as the weakening economy reduces its allure as a haven.

The yen’s 23 percent gain against the dollar in 2008 eroded the value of exporters’ overseas sales, exacerbating losses at companies including Nissan Motor Corp. and Toyota Motor Corp. The exchange rate has also made Japanese exporters less competitive than their rivals in South Korea, where the won’s 16 percent drop this year has helped to shield earnings of companies including Hyundai Motor Co.

Still, the Japanese currency has weakened 7.2 percent this month, offering some relief to exporters while indicating investors’ growing pessimism about the economic outlook.

“People are coming to realize that Japan is in deep trouble,” said Hiroshi Shiraishi, an economist at BNP Paribas Securities Japan Ltd. in Tokyo. “Considering what’s happening on the export side, and the implications that has for the domestic economy, the yen is clearly not a buy.”

Falling Stocks

Japanese stocks touched a 26-year low yesterday and the government is considering buying shares to support equity prices, the Nikkei newspaper reported today, without saying where it got the information. The Nikkei 225 Stock Average has lost 17 percent of its value this year. It rose 1.6 percent in morning trading.

The world’s second-largest economy shrank at an annual 12.7 percent pace last quarter, the most since the 1974 oil shock, and analysts predict the slump will drag into next fiscal year. Japan may shrink a record 4 percent in the year starting April 1, according to economists surveyed. The worst contraction to date was fiscal 1998’s 1.5 percent drop.

Japan became more reliant on exports for growth in the past decade, making the economy more vulnerable to the global recession. Manufacturers shipped 21 percent of their goods abroad in 2008, up from 16 percent in 1998, according to the Bank of Japan.

Production Cuts

Companies cut production an unprecedented 9.8 percent in December from a month earlier and the jobless rate climbed the most in 41 years to 4.4 percent. Economists predict a report on Feb. 27 will show factory output dropped 10 percent in January.

Nissan said this month it will fire 20,000 workers and post its first loss in nine years as the global car demand plunges. Toyota, which is forecasting its first operating loss in seven decades, will halve production in the current quarter versus the same period last year.

Central bank Governor Masaaki Shirakawa said last week that the economy will remain in a “severe” state next quarter and companies will struggle to obtain financing as investors shun risk. The bank, which lowered the key overnight lending rate to 0.1 percent in December, last week said it will buy corporate bonds for the first time to stem the credit squeeze.

The government has been unable to pass a stimulus package that could help encourage domestic spending in the absence of export demand. Prime Minister Taro Aso is struggling to get approval from the opposition-controlled upper house to spend 10 trillion yen to aid companies and households, whose sentiment is near a record low.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

Last Updated: February 24, 2009 22:33 EST

[Dr Strangelove]

"The sun will come out tomorrow..."

Come on everybody! Sing it with me!