Our view of the next 12 months no longer appears to be unconventional, at least not on the surface. Now everybody thinks the economy is in a recession, and many think it will be long and severe. People make comparisons to the 1930s all the time. Everyone thinks consumer spending is in big trouble. Lots of people think the Fed will ease. Financial instability, a theme we harped on ad nauseam during the past three years, is now the primary economic topic of discussion.
Still, conventional wisdom leaves out much that is important about the economic situation, and it encompasses much that is wrong. . . .
Most investors, businesses, and analysts, despite their deep pessimism about the consumer outlook, will be surprised by the length and severity of the consumer pullback.
The public is starting to discover the seriousness of the state and local fiscal position, but the magnitude and fallout of the developing nonfederal government crisis will prove shocking.
Many fear that the present financial mess is setting the stage for surging Treasury yields, and most will be surprised by how low yields will fall. . . .
House prices will probably fall another 20%. . . .
The emerging market sector of the global economy is facing more than a financial crisis; it is facing a depression, which unfortunately is likely to be uncontained and severe in many countries. . . .
Lending is not going to be fixed by recapitalizing banks. The underlying problem is not just that aggregate private loans are too large relative to bank capital; it is that they are too large relative to aggregate private income. Thus, the problem is with the borrowers, not just the lenders, and households need to lower their debt relative to income while corporations need to lower their debt relative to revenue. . .
Even if the recession does end before 2010, employment will continue to decline. It is likely to fall for another year or two as downsizing and restructuring persist. The unemployment rate is likely to reach 8.5% by the end of 2009 and will be near 10% before it reverses.
WTF? Liberal media bias! Why is Obama not mentioned? A crack reporter from US News has received some skittish emails and is blaming this on a fear of Obama’s future policies- how can we possibly square these two positions? Is it possible one of them is wrong?