A group of so-called financial wizards have declared that the recession will be over in less than a year and that unemployment will peak at about 10 percent:
The recession has affected every region of the country and nearly every sector of the economy, said Gus Faucher, director of macroeconomics at Moody’s Economy.com, which conducts independent research and provides economic forecasts.
“It’s really unprecedented in the U.S. to have nearly the entire country in a recession simultaneously,” he said.
The good news is there’s an end in sight.
The economy will pull out of the recession at the end of this year, marking a duration of 24 months, about twice as long as the average post-World War II recession, Faucher said.
The unemployment rate is expected to peak at nearly 10 percent in the first half of 2010. Without the $787 billion government stimulus package, he estimated job losses would have continued into the second half of the year and peaked at about 12 percent.
“That would take what is now a severe recession and actually turn it into a deep depression,” he said. “We think the fiscal stimulus package is vital in turning around attitudes toward the economy.”
This falls into the “Yeah, right,” category. It also demonstrates the total ignorance that dominates the so-called macroeconomics field. These people are clueless as to what is happening, as though there is no currency crisis on the horizon.
In other words, it is business as usual with our so-called wizards. I remember some of those “wizards” laughing at Peter Schiff. Well, Schiff and Ron Paul are much more on the mark that the typical “professional” macro crowd.
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We will see how well the economy “rebounds” when the banks start lending the fiat money after the feds have bought most of the “toxic” assets from there balance sheets.
I am pretty sure prices are bound for higher ground.
How would a contraction look? That is, how could Bernanke actually reel in the massive excess reserves “just in time” to prevent a substantial inflation of prices? I am not an economist by any stretch, but it seems like it is impossible to do this without causing a contraction that brings us right back to recession again. Especially since the whole stimulus goal is to get people out there and spending, right? Am I missing something obvious (other than this is how it has always been)?
“I am not an economist by any stretch, but it seems like it is impossible to do this without causing a contraction that brings us right back to recession again.” – Matt
I think where you are going wrong is in assuming that this is something that should, and indeed can, be avoided. The necessary economic correction has been stalled by government intervention, and the only solution to set us up for future prosperity is to allow the necessary correction (recession) to occur.
Well, looks like we’ve begun the inflation phase.
The Europeans can’t sell their debt on the open market.
Considering the number of Full Time employees that went Part Time and computing unemployment, the real rate is nearly 15%, the highest in history.
The U.S. has to beg for buyers of our debt.
The Fed will have to print more money and buy more debt to prop the economy and markets.
Credit Card defaults aren’t in full swing yet.
We haven’t had a natural disaster, hurricane season starts in July.
Now, we’re trying to gear up for WAR, not sure if that cost has been accounted for in the current Budget.
Monthly unemployment rates are leveling off, however.
Now, Washington wants to get more control of private Business.
Oh yeah, the Post Office is about $6 Billion in the hole. That’s why Govt should run a For-Profit Business.
Anything else we can think of?
To be fair to these “wizards” isn’t it likely that all the monetary stimuli of the last year or so will in fact give the economy an inflationary kick up the backside, giving us yet another boom. Yes there will be another downturn to come. But in terms of coming out of the current recession before the end of the year – well that could very well be the case couldn’t it?
I have a wild guess that we may see a small recovery, outside of the financial sector, start and then, hit the brakes as all the stimulus money, TARP, TALF, the US Gov’t new fiscal budget with $3.6+ trillion spending, etc., reaches a critical mass in the economy. It could be a double dip to remember with stagflation as its calling card. Paul Krugman will tell us more spending is needed.
I’m waiting for the day we bring back the phrase, “not worth a continental.”
This is a bit old article.
We have proverb here which exactly describes this wishful thinking – what grandma wants to see, that she would dream
.
When I see the graph of all those monthly mortgage resets I say growth is impossible before 2Q 2012 (and I don’ even count Keynesian interventionism). 2010 and 2011 will happen massacre with Option ARMs and Alt-A resets.
And even further, nobody talks about over 1 quadrillion OTC derivates!
When you see the Govt having problems selling Treasuries, that will be the time to get out of the Markets and prepare for high inflation for Starters.
Adam Frost:
“I think where you are going wrong is in assuming that this is something that should, and indeed can, be avoided. The necessary economic correction has been stalled by government intervention, and the only solution to set us up for future prosperity is to allow the necessary correction (recession) to occur.”
I agree, 100%, that we must let the recession happen. My question was asked in order to get an understanding of what the monetarists think the contraction would look like. That is, how do they propose to do it? How do they think it should work? I am already convinced they are wrong after lots of reading about ABCT, essays about free markets, etc. I’m reading ‘The Theory of Money and Credit’ and ‘A History of Money and Banking in the United States’ now. I just want to make sure I understand the monetarist idea so I can intelligently provide counter argument with solid reasoning. Thanks!
Matt,
I’ve done some similar reading.
However, the one part that these theories seem to be missing is the part where the Govt has to pay interest payments on their huge debt. And the influence moral suasion tools used by Money Changers to force the Payment has on the Citizens, ergo, the Economy.
Any thoughts?
ehmoran:
That is even another step I was willing to leave out of my thoughts for now (the repayment of interest on the debt). It is a huge component, though. Which is another reason I want to understand how a monetarist thinks it would be possible to time the withdrawal of the excess reserve base. The US government pays a few billion a day right now, I think, to service debt. I thought maybe they could raise reserve requirements as an answer to my own question. Bernanke could simply state that 25% reserves are required, or something like that. But, then there is the risk of forcing the weakest of the weak banks into insolvency yet again. So, I’m still wondering about it all.
What the bankers and government officials are discounting is the titanic increase in fiat currency being used to shore up the financial system. Titanic in more ways than one. It does give us a sinking feeling.
At best I would expect the pent up inflation to be as bad as the 1970′s, and at worst the inflation could mirror Germany in the 1920′s. The government cannot print vast sums of money without forcing inflation.
If they take their medicine soon, it is 1973 redux. If they put it off until external forces instigate a collapse, we will find that the U. S. and Zimbabwe have more in common than we wish.
Matt and others,
Some interesting READING for you……
“Chief Economist of the World Bank, and former Chairman of President Clinton’s Council of Economic Advisers, goes public over the World Bank’s, “Four Step Strategy,†which is designed to enslave nations to the bankers.
Four Step Strategy summarize below:
Step One: Privatization. This is actually where national leaders are offered 10% commissions to their secret Swiss bank accounts in exchange for them trimming a few billion dollars off the sale price of national assets. Bribery and corruption, pure and simple.
Step Two: Capital Market Liberalization. This is the repealing any laws that taxes money going over its borders. Stiglitz calls this the, “hot money,†cycle. Initially cash comes in from abroad to speculate in real estate and currency, then when the economy in that country starts to look promising, this outside wealth is pulled straight out again, causing the economy to collapse. The nation then requires IMF help and the IMF provides it under the pretext that they raise interest rates anywhere from 30% to 80%. This happened in Indonesia and Brazil, also in other Asian and Latin American nations. These higher interest rates consequently impoverish a country, demolishing property values, savaging industrial production and draining national treasuries.
Step Three: Market Based Pricing. This is where the prices of food, water and domestic gas are raised which predictably leads to social unrest in the respective nation, now more commonly referred to as, “IMF Riots.†These riots cause the flight of capital and government bankruptcies. This benefits the foreign corporations as the nations remaining assets can be purchased at rock bottom prices.
Step Four: Free Trade. This is where international corporations burst into Asia, Latin America and Africa, whilst at the same time Europe and America barricade their own markets against third world agriculture. They also impose extortionate tariffs which these countries have to pay for branded pharmaceuticals, causing soaring rates in death and disease There are a lot of losers in this system, but a few winners – bankers. In fact the IMF and World Bank have made the sale of electricity, water, telephone and gas systems a condition of loans to every developing nation. This is estimated at 4 trillion dollars of publicly owned assets”.
re: ehmoran
Interesting reading would be “Confessions of an Economic Hitman” by Perkins on the IMF/World Bank, and how America uses globalization to cheat poor countries of their sovereignty and wealth:
An interview with Perkins:
http://www.democracynow.org/2004/11/9/confessions_of_an_economic_hit_man
anon,
Read some of it and others.
@ehmoran:
I’m sorry but your post reeks of conspiracy type theories that are not based on facts. Don’t get me wrong, there are signs that Bernanke, Geithner, and the rest of their colleagues in Europe and Asia are in discussion for a “new fiat” currency to shore-up the mess Greenspan and Dubya made, and that they are continuing to exacerbate. I highly doubt that these Kenysianist bureaucrats have enough insight as to follow some intricate steps outlined to control the world, before 2012.
You see, ultimately the financial mess the entire world is in, was not conjured-up by bureaucratic geniuses, but rather is a result of stupidity and arrogance of central planning.
You are giving WAY TOO MUCH credit to these goons.
Remember Jekyll Island???
And other events???
Misesian,
Do you think Enron fits into “Step Four”?
Yes, I’m quite aware of Rothbard’s book. And certainly there are conspiracies…however the current financial debacle was a result of pure and complete ignorance by people who buy into the Chicago School nonsense and Keynesianism taught at the ivy leagues. Bernanke, Geithner, et al., are not following the “Zeitgeist” script, they are following Friedman’s script.
Matt and others,
More interesting reading:
“For the battle to stop the financial vampire of private banking control over the issuance of the nations money has been going on for many years and in the days of Lincoln’s fight against the bankers the following comments were written in the London Times which give a hint of the same magnitude of the battle which we have today :
” If that mischievous financial policy, which had its origin in the North American Republic during the late war in that country, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.” ( Emphasis added ).
In Lincoln’s time the banking elite realized that interest free money, freed from the control of the parasite private banks, was a deadly and mortal threat to their existence and had to be stopped at all costs. This is why you see no discussion in the media or in academia of the issues which I have raised here. They are controlled by the vise-like grip of the banking cartel which controls our nation including you, your future, and ( especially ) the future of your children”.
More interesting:
“United States Congressional Record, March 17, 1993, Vol. 33, page H-1303
Speaker-Rep. James Traficant, Jr. (Ohio) addressing the House:
The receivers of the United States Bankruptcy are the International Bankers, via the United Nations, the World Bank and the International Monetary Fund. All United States Offices, Officials, and Departments are now operating within a de facto status in name only under Emergency War Powers. With the Constitutional Republican form of Government now dissolved, the receivers of the Bankruptcy have adopted a new form of government for the United States. This new form of government is known as a Democracy, being an established Socialist/Communist order under a new governor for America. This act was instituted and established by transferring and/or placing the Office of the Secretary of Treasury to that of the Governor of the International Monetary Fund. Public Law 94-564, page 8, Section H.R. 13955 reads in part: “The U.S. Secretary of Treasury receives no compensation for representing the United States?’”
The biggest “conspiracy” is what I call the “Banking Secret”. Simply put, the secret is that you, me and everybody else out there has two abilities that combine to form a third ability, the creation of money.
You and me and everybody else have the ability to evaluate, and the the ability to trust. Put the two together and the sum ability is the ability to create money. Money is created as a means of exchange of value, and it carries that value based on our trust. Trust in each other, trust in the currency created.
In todays modern world we have gotten used to the idea that we do not need to touch the money in order to trust it…so far. We use credit cards and Online Banking every day. Very rarely do we ever know the money to be anything other than a numeric value, added to and subtracted from a balance sheet. We don’t hold it, we don’t touch it, but we trust it. In a sense, our currency has been slowly converted from physical gold and representative paper, into the equally physical but ubiquitous electron.
Not that this is a problem, if you realize that the ability, the power, to create money, trust and value exist in and of your self.
When you sign a loan paper, you create money. The bank does not create anything except a balance on account. They back the balance, not with the puny reserves they carry, but with the paper YOU signed. That money creation was YOUR doing, not theirs.
The Fed does nothing different except that they are allowed to sign for you and me in absentia. Or the government signs for you and me in absentia. This “right” to sign in absentia for all the people of a nation is the reason they have so much power over our lives and our economy. The arguments over bailouts and bonuses are ludicrous when you realize they shouldn’t have any money to it with in the first place! They legally STOLE it! It’s legalized counterfeit!
It is possible and perhaps now even practical for us to return the money creation to our own accounts, reserving the creation to ourselves alone. This would require a system of trust to allow the transfer of value on account from one “individual account” to another. I’m not suggesting counterfeit, I’m suggesting the opposite, that the true money is the values we assign for ourselves, the ones we know we can afford, by our own estimation and evaluation of our selves and our state of being in the world. There is no need for loans. We already own the only asset we really need, our time alive and productive on this planet. Our abilities to create and help others is the Labor we sell. Our own intrinsic value. The same intrinsic value that is signed away in absentia by the government and the central bank. This value is both our life, and our liberty.
Our trust is the vehicle of exchange. Electronic balances are the currency. This is how it is now, except that we have continued to extend our trust to governments and banks instead of each other directly.
What I mean by this is that if I send you an electronic payment directly, you do not trust me. If I send you an electronic payment via a bank or bank card system, you do. Why? Because the middle man claims he can guarantee the identity of the payee. The bank guarantees the trust, not the value.
Not having a verifiable trust system of direct exchange is the only thing standing in the way of our collectively extinguishing the perceived need for central banks. It’s the only thing standing in the way of true Free-Market Capitalism.
I think I have a solution to this problem. There was a bonus in the formulating the rules and procedures of the system. The system very clearly shows the source of “Profit” and “Interest” as the difference in evaluation of the good or service traded being equal to or greater from the perspective of BOTH sides of the trade. Everything else I have read seems to dwell on the Seller’s side of a deal, and then the logic gets lost down the “rabbit hole” of exchanges.
Think about this. Is there any reason, beyond your inability to trust someone you do not know personally, to have a central bank?
Since I quit my job 25 years ago and started my own business, I NEVER listen to economic experts. Especially those that take a single line position and beat it to death. Just like your friend Peter Schiff! Listen to him, you will miss the upswings and not be in position to survive the downswings. Just like the past 3 weeks, had you invested in BAC, GM, GE, AA, USG, F, JPM and C you would be up over 100%!
You are putting too much emphasis on money. It is just another commodity that you can trade. While in the short term, money supply can effect the cost of other commodities, in the long run they all fall into a relationship of supply and demand.
The world is what the world is and I get up every morning and work within it. As a swing trader I look to see where the masses are heading and choose a different path. And I just love the masses that are following the advice of Schiff and Roubini, they hold the market down by getting people to short the market and it is easy to profit off the short squeeze.
@greg
What you are doing is professional gambling. What Peter Schiff is doing is Long Term Investment. He is helping people protect their assets in the long term, in spite of market swings in the short term. Peter provides a service to others that has proven valuable to them.
There is no comparison. I’m not saying there is anything wrong with what you do. I do it too. I trade currencies on the FOREX for fun. Better than the slots at the indian casino! But I would never consider the trading of the markets to be anything beyond speculative risk. For some it is a living. Like playing high stakes poker. For others it is no more than a giant slot machine. Peter Schiff advises people on where to put their chips so that they still have chips at the end of the day. You specialize in placing chips on winning numbers. No comparison.
Interest on the debt will become a problem, regardless of whether there is a conspiracy or no conspiracy. Currently, we are doing what mortgage borrowers did, when certain folks couldn’t afford loans where they paid principal and interest, they eventually went to interest only loans. After the loans got so big, they couldn’t even afford the interest only portion. I believe we are getting dangerously close to that position today with the immense amounts of debt being incurred under the previous and current administrations.
The US gov’t, however, has a “nuclear” option that the individual borrowers did not, cheat. Debase the currency, but this will only go so far, especially on the import markets. Interest rates will rise to partially offset the debasing, although the value of the principle will decline. Presently, and for quite some time, we have been increasing the total debt principle. I definitely don’t want to be buying US Treasuries. Previous to the 1970s when we were still somewhat on a “gold” standard, it was much harder to cheat. But now we’ve been cheating for the past 40 years. Gov’t spending and debt accumulation has little effective restraints.
And all those folks trying to depend on Social Security / Medicare in 10-15 years are going to be in for a rude awakening. The amount of that unrecorded liability is staggering. The gov’t is going to have to cut the benefits (maybe not nominally cut them, but effectively cut them through inflation or raising age requirements, etc.).
Personally, I don’t see how the US treasury can ever extricate itself from this mess without 1) defaulting, 2) ceasing almost all discrentionary spending and using it to make repayment on the debt. I’m not sure what the overall average annual interest rate on the debt currently is, but with each additional dollar borrowed, it moves the US closer to total insolvency where we can’t even repay the interest and then to total tyranny. Thomas Jefferson was right, we’re going to find ourselves as paupers and slaves to a central bank before it’s all over with.
I’m trying think of a way to protect what meager amounts of wealth I can accumulate. I am wary about buying gold/silver, since the gov’t can come and confiscate it at gun point or make it illegal to transact business with it. I’m sure hard assets of some sort will work, and maybe its a combination of various hard assets. Maybe I should buy farm land and invest in a power plant. At least, I’ll have some food to eat and some heat/electricity.
@ Deefburger
I agree with you concerning not having a need for central banking. And that we can trust each other with transactions when we have a sound currency. Sound currencies arise out of need in the free market. The more sound the currency, the more it gets used, eventually pushing unsound currencies out. It is amazing that almost all sound currencies in history have been based upon hard commodities, such as gold/silver.
The real problem in any society’s banking system is the extent and involvement of its government. Gov’t is heavily involved in ours because it is the mechanism it uses to cheat its citizens (and the world’s citizens because they use the US dollar as the world’s reserve currency) to extricate extra funds to spend. I’ll go one step further in stating that any society that has theft on a grand scale will eventually fail. Whether the theft was legal or illegal, makes little difference to the end result.
Here you go:
“U.N. ‘Climate Change’ Plan Would Likely Shift Trillions to Form New World Economy”
http://www.foxnews.com/story/0,2933,510937,00.html
“UN panel touts new global currency reserve system”
http://www.breitbart.com/article.php?id=CNG.18e9e5692442aa61d7510553b5ffc14e.8b1&show_article=1
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