Is it Over Yet?

by francine Hardaway on October 15, 2008

Can I open my eyes, or are we still in a free fall? Nobody knows, but the smart people are writing anyway. The two people I read a lot lately are Barry Ritholtz and Nouriel Roubini. Barry’s a smart, New York markets guy who does research and analysis for a living. Roubini is a smart economics professor at NYU who writes a global economic monitor and has predicting all this for years. Roubini aggregates information in his RGE Monitor and explains it. Barry just rants every day. I love them both because they’re both totally different in the way they come at things, but they do agree on a lot of fundamentals..

Here’s a quote from the morning email ROubini sent me today:

The process of deleveraging is still ongoing and, on the real side of the economy, the measures adopted so far might reduce the severity and the length of the U.S. (and global) downturn but will not avoid it. A recession in the U.S. likely started a long time ago. U.S. home prices are still falling and will not find a floor as long as demand for homes keeps falling faster than supply and inventories stay at record highs. U.S. personal consumption might exhibit negative growth in Q3 2008 for the first time since Q4 1991 – and with personal consumption making up over 70% of U.S. aggregate demand, Q3 2008 real U.S. GDP growth could very well turn out negative. Private investment, both residential and capex, has been falling for quite some time. Unemployment is high and rising.

The old saying that when the U.S. sneezes the rest of the world catches a cold seems to still hold. Most of the other G7 economies have already experienced a quarter of negative growth and are navigating toward recession. A G7 recession coupled with a marked slowdown of large emerging economies can realistically translate into a global recession.

….i two essential components are still missing among the measures adopted so far. The first one would be a large fiscal stimulus plan in the form of old fashioned traditional Keynesian spending to boost aggregate demand. “If such a fiscal stimulus plan is not rapidly implemented any improvement in the financial conditions of financial institutions that the rescue plans will provide will be undermined – in a matter of six months – with an even sharper drop of aggregate demand that will make an already severe recession even more severe.” The second one is a plan to reduce the debt overhang of distressed households via the institution of a new Home Owners’ Loan Corporation (HOLC) or better a Home Owners’ Mortgage Enterprise (HOME)

I think Obama is proposing both of these, so if we just limp toward Election Day without forgetting to vote for him, we will probably get help.

{ 5 comments… read them below or add one }

ursulas October 15, 2008 at 6:33 am

I’m not going to be limping to the poll, I’m going to be marching and running to the poll to vote for Obama and not just for the economy!

BTW, I believe we’ve been in a recession for months. I’ve been watching this housing/loan/derivative debacle closely for almost 3 years now. Things are playing out exactly the way it would have with the way the greedy big people set the house of cards up.

What goes up, must come down …

ursulas October 15, 2008 at 6:33 am

Forgot to add: GREAT BLOG AND POST!

Heidi Walter October 15, 2008 at 6:36 am

Hi Francine,

I think we’re going to only a consumption tax and it will be world-wide, including the net. That’s my little prediction.

Great blog.

Best,

Heidi

francine hardaway October 15, 2008 at 6:41 am

Yes, I would actually like to have a consumption tax. It would put our spending habits in perspective.

And Ursula, I already voted for Obama. I couldn’t WAIT for my ballot to arrive in the mail. I filled it out and sent it back immediately.

Michael R. Bernstein October 15, 2008 at 9:47 am

The Keynesian spending can come in various forms. One of the best would be to invest in retrofitting existing homes for greater energy efficiency, making them *inherently* more valuable as energy costs rise: Solar water heaters, low-e windows, better insulation, solar PV, etc. All fairly labor intensive to install.

At the same time, a wholesale revision of building codes to require greater energy efficiency (such as the 2030 challenge advocates) would make new construction more expensive in the short term, also helping to prop up prices.

Other ‘classic’ Keynesian programs for infrastructure improvements (national broadband, transportation including passenger rail, new powerplants, etc.) while helpful and necessary, have much longer timeframes for both completion and payback, although I’d like to see some proposals for software infrastructure proposals as well.

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