May 15, 2008

Are we going to have a recession now or later?

I'm reminded of the spring of 1980 when the economy nosedived (nosedove?), but then suddenly pulled out of it into modest prosperity. It didn't save Jimmy Carter in November, and we ended up getting hammered by a major recession in 1981-1982 that painfully wrung the inflation of the 1970s out of the economy.

My published articles are archived at iSteve.com -- Steve Sailer

51 comments:

Anonymous said...

Later. The Bernanke Fed was ahead of the curve on this one: cutting rates early, coming up with innovative lending facilities to keep the big banks liquid, and quickly swooping in to put the Bear Stearns fire out before it spread. They're probably done cutting rates now, but no way they'll start raising them again before the election. That's the monetary side.

On the fiscal side, the first stimulus checks only just started getting sent out. That will almost guarantee positive growth in the second quarter.

The weak dollar will continue to spur exports and foreign tourism.

Real estate hasn't bottomed yet, but the sector has shrunk so much already that further contraction will have a proportionately smaller negative impact on our economic growth.

High gas prices are a drag, but energy costs take up a smaller share of our income than they did decades ago.

- Fred

Anonymous said...

Later. We tend to have our recessions at the beginning of decades. But who cares about recessions, what's important is how to invest for, and during, them.

Anonymous said...

I think the big difference is today, we've got a lot of globalization so it makes our economy so much more flexible.

1) Housing downturn: Construction was done by lots of undocumented workers so the unemployment rate didn't rise as much as it would have. Foreignors who owned the mortgages are the real ones left holding the bag.

2) Our corporations are as lean and mean. Record profits all through the 2000s, imagine how they'll do with a cheaper dollar.

3) Tons of global money out there ready to invest in us.

4) We're probably the most efficient place to invest money in during this commodity boom.

Prediction: No recession. Not this year. Not next. Globalization has eliminated the high peaks and the low lows.

Anonymous said...

High gas prices are a drag, but energy costs take up a smaller share of our income than they did decades ago.

A gallon of energy for your car costs 80 times what it did decades ago. Are our incomes that much higher and energy that much cheaper in constant dollars? I doubt it.

The Bernanke Fed was ahead of the curve on this one: cutting rates early, coming up with innovative lending facilities to keep the big banks liquid, and quickly swooping in to put the Bear Stearns fire out before it spread.

"Innovative" = "untenable," "moral hazard," "cooking the books."

I really have to laugh when I see this scheme defended, as if we've made sure Ma Kettle's check to the power company will clear lest Bear Stearns and its cash-rich executives have to sell their vacation homes.

On the fiscal side, the first stimulus checks only just started getting sent out. That will almost guarantee positive growth in the second quarter.

What growth? That's money that's already been taken and squandered in public housing projects and the Green Zone and is now being taken again from your neighbors and your co-workers and your children's children. It's funny money. Out of whole cloth. No more real wealth has been created than if I had run off a few billion in counterfeit 100's and handed them out.

The real analogy is 1970, and the effects of a Texan president's guns-and-butter policies are just starting.

Doug.

Michael said...

FWIW, a friend in investment banking tells me he thinks the current collapse has pretty much made its way thru the financial sector, but that it'll be two to five years before it makes its way thru what he likes to call "the real economy."

Cossack in a Kilt said...

How about "took a nosedive"?

headache said...

Doubt the press, economists, Wall-Street bankers etc. are about to talk the economy down with the favourite boy Obama coming in. They'll be all over the airwaves yanking up the economy for as long as possible. Only when the Obama train starts derailing will they jump ship and let the real stuff come through. Economics is as much psychology and propaganda as hard facts.

Born Again Democrat said...

I think Fred gets it about right in the 1st comment.

But a couple of questions:

How much of the unemployment that didn't happen in the housing sector can be explained by illegals going home?

And won't the process of Americans moving from an over-consuming, importing society to an under-consuming exporting one entail a lot of dislocation, as workers move into the new exporting industries?

It will be interesting (shocking?) to compare wages in these industries -- autos, steel, machine tools, etc -- with what they used to be.

David said...

Well, at least we don't have to worry about massive deflation! (For now.)

I went to the grocery yesterday. Since when does a dozen mean eleven?

Remember Reagan's comment? "A recession is when your neighbor loses his job. A depression is when you lose yours."

It means nothing, but I thought I'd throw it in.

Lucius Vorenus said...

Fred: On the fiscal side, the first stimulus checks only just started getting sent out. That will almost guarantee positive growth in the second quarter...

Given the obsession with IQ on this board, please don't tell me that there is anyone in the greater iSteve-verse who believes that stealing money from smart, industrious, thrifty & moral people, and handing it over to the stupid, indolent, profligate & criminal element of our society is a recipe for economic rejuvenation.

In simple GNXP numerical terms [since the libertarian crowd at iSteve will surely be nonplussed by the oblique reference to notions of morality]: Do you really think that the economy benefits when you steal money from people with IQs of 130 and hand that money over to people with IQs of 80?

Robert said...

The economy went into the tank in the early eighties because the price of oil went way up. It went up in the seventies and continued until about 1985 when it dropped considerably. This drop was probably due to OPEC, and Saudi Arabia in particular, increasing output. They had done this in order to stick it to the Soviets who were using the increase in the price of oil to fund first a great expansion of their military, and second the invasion of Afghanistan. The invasion freaked the Saudis out because they felt truly threatened. OPEC pumped all they could in order to help bankrupt the Soviets and then continued on pumping to help us with our fight with Saddam Hussein. The great economy of the nineties was driven in part by the low price of oil. I think that we have gone over the worldwide peak in oil production and that the Saudis, this time, cannot increase production to meet demand. I think that this recession will get worse and worse until some alternative is found to replace oil.

Anonymous said...

You (US) say nosedove, we (UK) say nosedived ...

Bill said...

Feels like we're in one to me. I think there will be a long, incrementally deepening recession as the energy crisis drags on. I read a study recently that showed how economic activity correlates with miles drivena. Here's the graph:

Real GDP and Total Vehicle Miles

Remarkable correlation, isn't it? Obviously, increasing energy costs will generate strong resistance to economic growth.

I predict the next bubble will be in renewable/alternative energy.

Svigor said...

Whoops, wrong thread. My bad!

William said...

How much of the unemployment that didn't happen in the housing sector can be explained by illegals going home?

And when Americans stop going on vacations, or eating out, or start mowing their own lawns and painting their own homes, that, too, will disproportonately hit the industries where illegals are employed. That provides a big buffer between slowdown and recession.

Question: When the 64% of teenagers 15-19 who did not have jobs last summer try to get them this summer, will the employers start replacing illegal foreigners with legal Americans? Politically they'd be stupid not to.

Whatever the other results of this recession (or slowdown) a big one is that America's infatuation with debt is coming to a close. To some extent that has been sustained by the federal government, especially in the form of easily obtained student loans (Hey! Wasn't Michelle Obama still complaining about those???).

That's why I don't think those federal checks are neceessarily a bad idea. Either way a lot of the borrowed money is coming from overseas. The difference is that the federal government gets it at a much cheaper rate than individuals do. Most people, I think, will use it for things they'd be buying anyway.

Titus Pullo said...

Given the obsession with IQ on this board, please don't tell me that there is anyone in the greater iSteve-verse who believes that stealing money from smart, industrious, thrifty & moral people, and handing it over to the stupid, indolent, profligate & criminal element of our society is a recipe for economic rejuvenation.

Gee thanks, Lucius. I got one of those checks and I'm neither criminal or indolent, and I would surely consider myself indurtrious.

As far as I'm concerned, for the last God-knows-how-long the folks getting these checks have been getting screwed by America's immigration policy, to the tune of a helluva lot more than $600 lousy dollars.


Do you really think that the economy benefits when you steal money from people with IQs of 130 and hand that money over to people with IQs of 80?

As I said: I got one of these checks. College grad (from a good school), 99th percentile on ACT and SAT, and over 130 on the two different IQ tests I took.

William said...

Since when does a dozen mean eleven?

Since a half-gallon of ice cream became 1.75 quarts. Not that my waistline (or wife) is complaining any...

William1066 said...

N. Americans may say dove, but no one says nosedove. BTW, dive is not a strong verb, so dived is most correct (I still say dove though).

Agree with Anon #1 and #3 except to say that I wish Ben had acted more forcefully in the summer. Much of the meltdown was contagion - with banks forced to sell the good stuff because there was no market for the bad stuff. The recent mark-to-market rules mucked things up too. Still, he's gotten it right in 2008.

mka said...

Anonymous said...
You (US) say nosedove, we (UK) say nosedived ...


Nope. It's nosedived here in the US, too. Or more often "took/did a nosedive".

steve wood said...

I think that we have gone over the worldwide peak in oil production and that the Saudis, this time, cannot increase production to meet demand. I think that this recession will get worse and worse until some alternative is found to replace oil.

OK, but I really would like to understand why prices have risen so fast. Sure, demand is going up, but if I hear one more pundit blame soaring gas prices on demand from India and China, I'm going to throw something at the TV. Those countries did not just start growing in 2006. Every other explanation I've heard is either transient, like weather events or refineries undergoing seasonal conversions, or everlasting, like trouble in the Middle East. None of them explains how 20 years of low, stable prices turned into wild and sustained inflation almost overnight.

So what's the story? Was there some magic tipping point that we crossed where prices went into overdrive? Is rampant speculation driving up oil futures in anticipation of eventual shortages? Or maybe the public has been stunned into numb acceptance of endlessly soaring oil prices, and the oil companies are taking advantage of that. I'm not a conspiracy theorist, nor do I have anything particularly against Big Oil, but it's so odd that prices keep rising dramatically with no obvious cause ... and no one seems to ask why.

SKT said...

I don't foresee any recession happening either. Q1 exports were strong, and they're going revise growth upwards to 1.1%. Growth should be positive in the second quarter as well. Housing prices may be decline, but that doesn't affect production.

The biggest problems that I can see are all self induced, like the American Axle strike that's idled 30 GM plants from New York to Texas. Other than that, the economic fundamentals are all pretty good.

Tino said...

Oil CONSUMPTION as a share of GDP was much higher in the late 70s than now.

Oil IMPORT is going to be near the all time high at 3-4% of GDP if average 125 dollar oil continues for a year.

I don’t understands Sailors post. He takes for granted that some sort of deep recession will inevitably come? Why? If anything people are way too hysterical about the economy. Given all the anxiety in the media the last couple of years the slowdown was remarkably small, and the real economy remarkably resilient. It took a real estate shock AND an oil shock, and still produced positive growth.

Today’s oil prices are impossible to maintain in the long run, both for supply and demand reasons oil is guaranteed to go down in price sooner or later.

Anonymous said...

"A gallon of energy for your car costs 80 times what it did decades ago. Are our incomes that much higher and energy that much cheaper in constant dollars? I doubt it."

This interactive graphic about consumer spending and inflation from the NY Times is helpful. The average consumer is spending 26% more on gasoline over the last year, which is a big jump, but gasoline only represents 5.2% of his overall spending.

"Innovative" = "untenable," "moral hazard," "cooking the books."

How does the Term Auction Facility "cook the books"?

"How much of the unemployment that didn't happen in the housing sector can be explained by illegals going home?"

I don't know. The odd thing about today's sluggish economy (even if we don't have recession this year, we're probably looking at 1.5%-2% growth for the year, if we're lucky) is that it's mainly while collar folks getting laid off: employees of mortgage companies, investment banks, etc. Business is booming for the guys working at Monsanto or at the Deere plant.

"And won't the process of Americans moving from an over-consuming, importing society to an under-consuming exporting one entail a lot of dislocation, as workers move into the new exporting industries?"

It will, but fortunately a lot of those exporting industries offer relatively high-paying manufacturing jobs. Those wages may not be as high (in constant dollars) as they were in the 1950s, when the rest of the world was in rubble and our manufacturing companies had virtually no competition, but the average low-end private sector worker will make more in manufacturing than he did in the service sector.

"Given the obsession with IQ on this board, please don't tell me that there is anyone in the greater iSteve-verse who believes that stealing money from smart, industrious, thrifty & moral people, and handing it over to the stupid, indolent, profligate & criminal element of our society is a recipe for economic rejuvenation."

Whether or not this stimulus plan was a good idea is a separate question from whether or not it will stimulate growth in the second quarter. It will almost certainly boost growth in the short term.

- Fred

Henry Canaday said...

Steve Wood:

Check out this paper, http://www.pirinc.org/pdf/uf.pdf, for a quick tour of the supply conditions that have driven oil prices up.

Briefly, by late 2007 there were about 3.5 million barrels per day of crude oil that were expected to be available, that were not available. That represents about 5%of world crude supplies.

Short-term demand for oil is extremely inelastic, about 0.1. So it takes a 50% rise in prices, at the retail level, to balance out a 50% deficiency in supply. But crude prices were, on very rough average, half of retail prices, so that balancing meant a 100% increase in crude prices.

All this is very crude, so to speak. For instance, world crude prices have not gone up as much as dollar-denominated prices, because the dollar is down. But the bottom line is that quite small changes in crude oil supply, or departures from expected trend, can yield dramatic movements, up or down, in crude oil prices.

And the Saudis did not have to do anything, except decline to increase supplies, to make it happen.

nzconservative said...

Some factors that don't get talked about much regarding oil demand.

1.Is economic growth in commodity producing countries, eg, Russia, Argentina , Saudi Arabia, Thailand etc also having a significant impact on oil demand?

2. How much oil has China got left and has it peaked?

3. Is the quality of oil declining, and if so is that affecting refining capacity?

4. Is the oil and gas business itself contributing much to oil demand?(Infrastructure development must use a fair amount of diesel).

assetmgmt said...

>>As I said: I got one of these checks. College grad (from a good school), 99th percentile on ACT and SAT, and over 130 on the two different IQ tests I took.

To paraphrase, Lucius: don't tell me there's anyone in the greater iSteve-verse who doesn't understand the concept of *group averages*?

I'm sure you're smart, titus, but what result do you think would obtain if we compared the average IQ of those who received stimulus checks with those who, b/c of their higher income, were phased out of receiving a check?

David said...

steve wood said,

OK, but I really would like to understand why prices have risen so fast.

The dollar is cratering. Meaning, a dollar ain't worth a nickel (colloquially speaking, not literally).

The rise in dollar prices does not mean a relative scarcity of goods, but the growing worthlessness of the dollar.

The media and government don't want you to know this. The media, because it only gives the "China-India-growth" explanation, which is mostly nonsense; and the government, which took the unusual step of hiding some data on much money is in supply. (More money in supply means each unit of it is relatively worth less; inflation.)

In short, it's the Revenge of the Ever Shrinking Dollar.

mq said...

Given the obsession with IQ on this board, please don't tell me that there is anyone in the greater iSteve-verse who believes that stealing money from smart, industrious, thrifty & moral people, and handing it over to the stupid, indolent, profligate & criminal element of our society is a recipe for economic rejuvenation.

If you actually are facing a serious shortage in aggregate demand, then taking money from thrifty people and giving it to profligate people is precisely what you want to do.

Over the long run, it depends on a lot of things, like whether the income effect outweighs the substitution effect for the smart people. Which will vary depending on the exact level of taxation and the culture of the people you're dealing with.

Your ravings are always entertaining, but I hope nobody mistakes them for actual economics.

Bill said...

So what's the story? Was there some magic tipping point that we crossed where prices went into overdrive?

-Steve Wood


Yep. It's called "Peak Oil."

It's laughable that the Saudis are saying they aren't increasing production because there's no demand. It's because they can't. Given the current prices, odds are the Saudis are running their pumps at full steam. They have huge social welfare costs and to maintain social stability they need all the cash they can get.

We're not getting out of Iraq any time soon, I don't think.

Lucius Vorenus said...

Titus Pullo: As I said: I got one of these checks. College grad (from a good school), 99th percentile on ACT and SAT, and over 130 on the two different IQ tests I took.

So WTF are you? A performance artiste with a day job at Starbucks?

PS: I hope to Hades that you had the strength of character to throw the damned check in the garbage.

Fred: It will almost certainly boost growth in the short term.

It'll boost growth if you're in the business of selling lottery tickets, menthol-flavored cigarettes, Thunderbird, or Night Train.

But it won't do a damned thing for the productive sectors of the economy.

C'mon people: You've got to have the strength of your convictions and follow your observations & ideas through to their logical conclusions.

Titus Pullo said...

I'm sure you're smart, titus, but what result do you think would obtain if we compared the average IQ of those who received stimulus checks with those who, b/c of their higher income, were phased out of receiving a check?

Your comment was a blanket statement.

But beyond that, the phase-out begins at $75,000 for those with no children. There are alot of intelligent, industrious people making less than that amount. In fact the majority of people eligible for these checks would qualify as either/or.

Moreover, it is the people below the $75,000 stimulus cutoff who have been getting screwed the most by our current immigration policy, while those above are more likely to benefit from it (group averages, you know). So fair is fair.

Lucius Vorenus said...

mq: If you actually are facing a serious shortage in aggregate demand, then taking money from thrifty people and giving it to profligate people is precisely what you want to do.

Right, because all those geniuses in government know better what to do with the money than the smart, industrious, thrifty & moral people who earned it in the first place.

Jesus Christ, it's depressing to see this much Keynesian statism so deeply engrained in a place like iSteve.

If iSteve is this corrupt, then what hope is there for the population at large?

Anonymous said...

"3. Is the quality of oil declining,"

No, there have always been different grades of crude.

"and if so is that affecting refining capacity?"

What's driving high gas prices this time isn't a lack of refiners but the high cost of crude. Refiners that can handle the heavy, sour grades of crude (e.g., FTO) stick with it, because it's about 20% cheaper than light, sweet crude. But since oil prices have risen so much faster than gas prices, their margins have been squeezed.

"Yep. It's called "Peak Oil.""

Read this Lex column from the FT earlier this year: Peak No Evil. The world has plenty of oil. The problem is getting access to it. Usually the way things work, when demand increases, production then increases, and, after a lag time, you get more supply. Two problems are slowing down that bit of Econ 101 this time around.

The first is that about 90% of the world's oil reserves are controlled by governments or government-owned oil companies. Governments, often make uneconomic decisions because they are influenced by ideology or short-term thinking. One example of uneconomic behavior on the part of a government is Venezuela's threats to expropriate foreign oil companies' assets, as they did with Exxon. This has scared off a lot of the foreign investment needed to increase Venezuela's production. Another example, right at home: Ten years ago, the US Geological Survey estimated that there were about 7.7 billion recoverable barrels of oil in one subsection of ANWR -- that's about as much oil as we'll import from Saudi Arabia over the next 14 years, at our current rate. Ten years later, and our oil companies are still blocked by Congress from pumping this oil. 85% of our outer continental shelf is also still off-limits to exploration.

The second problem is that oil companies remember the last oil bust, and do not engage in the multi-year, multi-billion dollar engineering projects needed to extract new sources of oil unless they think such projects will be profitable with, say, $60 per barrel oil prices.

The bottom line: Oil prices will eventually come down from these levels, as consumers get more efficient and additional supplies come online, but that may take several years. I'm an oil bull in the meantime.

"Given the current prices, odds are the Saudis are running their pumps at full steam."

That's generally not how it works. Producers want to pump an optimal amount of oil, at which point they can maximize profits. Historically, if oil prices got too high (from the exporters' prospective) they would try to increase production lest sustained high oil prices encourage investment in alternatives (e.g., oil sands, etc.)

"They have huge social welfare costs and to maintain social stability they need all the cash they can get."

The Saudis have enormous amounts of cash saved from this current boom. Remember all the headlines you've read about Sovereign Wealth Funds?

- Fred

SKT said...

A couple of decades ago, oil used to operate on a boom bust cycle based upon American demand. People started driving huge cars in the 1960's, so in the 1970's the price of oil spiked. This resulted in a shift to more efficient cars in the 1980's, which caused demand and the price of oil to bottom out. In the 1990's though, cheap oil allowed the SUV boom.

Today, it's a little different though, because there's many more big players like India and China buying up oil. America also has much less of its own domestic production. Therefore, the price of oil tends upwards now constantly, just because demand keeps growing, and global supply has essentially peaked. Whether Americans drive big cars or small cars matters less, than the fact that growth in India and China is constantly pushing the demand curve to the right.

And you're right that the recent decline of the U.S. dollar has exacerbated this price increase.

That said though, I think the U.S. can weather this storm of higher oil prices, and there won't be an economic melt down like there was in Jimmy Carter's time.

I'm not an oil hysteric, but I think that by the end of this century the economically viable oil that's in the ground will be mostly be gone. Recently it's become fashionable to knock corn ethanol, biodiesel, etc. but in the long term that's where the fuel is going to come from whether you like it or not.

Scrutineer said...

Steve Sailer: ... we ended up getting hammered by a major recession in 1981-1982 that painfully wrung the inflation of the 1970s out of the economy.

robert: The economy went into the tank in the early eighties because the price of oil went way up.

IANAE, but I thought that Volcker killed inflation by sharply increasing interest rates, one side effect of which was the recession.

I've never before heard the theory that high oil prices caused that recession.

steve wood said...

henry canaday, that's a good article. Thanks for the link. The most striking thing is found in the graph at the end: the red line showing world oil production leveling off in the latter half of 2005. Well, of course prices have risen sharply! We've hit a lengthy plateau in production while demand has risen, and there's no obvious short-term solution. This is such a simple explanation - and the reasons given in the article for the production plateau (plus the decline in the dollar and long-term fears about Peak Oil) are so straightforward that I'm mystified as to why this is not more widely discussed. It's not exactly sound-bite material, but nor is it too complex to be presented on a regular newscast. (I do realize that the situation is probably more complex than described, but this is first explanation I've seen that made sense and stood up to even a moment of rational analysis.)

Of course, if they didn't spend the ENTIRE F**KING DAY talking about Ted Kennedy's seizure, maybe they could squeeze in a few minutes to explain to the public why they're paying twice as much at the pumps as they were a couple of years ago.

anony-mouse said...

The pessimist looks at the economy glass and asks, 'are we going to have a recession now or later'.

The optimist looks at the economy glass and asks, 'are we going to have a recovery now or later'.

And me, I say, well if this is some sort of downturn, isn't it the best time to buy stocks?

As Buffett says (I think), buy when there's fear, sell when there's greed.

Anonymous said...

hahaha...the iSteve crowd ponders the BROWN economic future of America.

NEWSFLASH: white America must now pay dearly for its own racial and ethnic displacement. you must now transfer massive amounts of wealth to a new gigantic welfare-dependent underclass of angry reconquistador illegal aliens.

HAHAHAHAHAHA.

ASSHOLES! you didn't have the balls to defend the borders and now you are stuck with a latinized decline of your european civilization. a collosal fade into la raza dysfunction. a degeneration into Mexican living standards!!!

the mortgage meltdown is a story of illegal immigrant deadbeat culture refusing to pay its debts but YOU CAN'T GO THERE. sure the vast majority of the crooked mortgage mayhem took place in hispanic florida, nevada and california...but don't mention it in public! you're white! you don't want to offend non-whites no matter the cost to yourselves!

this is hilarious. illegal aliens crashed the border and then crashed the real estate market and soon will crash the banks...but whites dare not mention the truth out of fear of causing offense and being labeled insensitive.

HAHAHAHAHAHA.

...during this entire trip down the rat hole you whites will argue over the reasons why it's happening...but you will never EVER face the actual reason for the "change" in your society...because the single most important driving force in your pathetic existence is to demonstrate your sensitivity to alien races and cultures. YOU LOSERS.

HAHAHAHAHAHA. DIE ALREADY YOU WORTHLESS EMPTY BRATS.

...planet earth is a steel cage death match of competing species and subspecies...and without PRIDE all life forms will be dead meat. AND YOU ARE DEAD MEAT, white man.

Henry Canaday said...

Steve Wood:

I should have written, "So it takes a 50% rise in prices, at the retail level, to balance out a 5% deficiency in supply." But the EPRI folks make the point clear.

The deficiency in expected supply occurred just as the world was pushing up demand another 3-5 percent notch, and oil traders, noting this, made the required price rise rapid and dramatic. That was the 'tipping point': one more year of two of growth, and oil that was not there to meet it.


The optimistic scenario is that demand elasticity will increase with time, as cars and other capital stock can be changed, and alternative fuels will come on line.

But new, cheap oil supplies from the oil-rich countries will not be one of those alternatives. The Middle East is de-globalizing. The Arab countries are not investing in new crude reserves, their control of production and political chaos discourages foreign firms from investing, and their governments are diverting more oil production to domestic uses.

So the civilized world will have to look elsewhere and to its own resources, just like Europe did when the Turks' capture of Constantinople forced sailors to look westward across the Atlantic.

Anonymous said...

People will never be smart enough to govern themselves until they are taught capitalism in grade school. Oil companies never sell oil for less than they can (or the market price) just as you do not go to your boss and demand lower wages. It is not greed finally manifesting itself or a public numbed by consistant raises (the market is worldwide). If I had to guess it would be Ben taking on so many worthless assets on the Fed's ballance sheet that everyone wonders if the US can pay its debts with real constant dollars. Of course if the US prints dollars unbacked by new assets (faster than growth) we get real inflation and oil, paintings collectables and real estate go up in dollars. Everyone is alittle scared of RE right now because it is a deflating bubble.

SFG said...

PS: I hope to Hades that you had the strength of character to throw the damned check in the garbage.

Why not donate it to Steve? If you want to support paleoism and be anti-government... ;)


Seriously, I plan to invest mine in a European index fund. Any other suggestions?

Sideways said...

Titus Pullo:
When telling everyone how smart you are, it's best not to write things like "alot."

It's not going to help people believe you.

kevin said...

The rise in dollar prices[for oil] does not mean a relative scarcity of goods, but the growing worthlessness of the dollar.

This dosen't fit with the Canadian situation. Here, the dollar has appreciated and is now at parity with the $US. However, we have experienced the same quick price increases.

Anonymous said...


NEWSFLASH: white America must now pay dearly for its own racial and ethnic displacement. you must now transfer massive amounts of wealth to a new gigantic welfare-dependent underclass of angry reconquistador illegal aliens.


(Grrr, why don't you allow blockquote, Steve?)

If there is a recession, those at the bottom of society will be the biggest losers. Many of the illegals will go home as well.

These things are self correcting.

quote unquote said...

"The Die is Cast- The Case Will Die - If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, (i.e., the “business cycle”) the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered."--Thomas Jefferson, President of the United States 1801-1809

"I believe that banking institutions are more dangerous to our liberties than standing armies ."--Thomas Jefferson, 1816

"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson to Edward Carrington, 1788. ME 7:36

"It is a [disputed] question, whether the circulation of paper, rather than of specie, is a good or an evil... I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin." --Thomas Jefferson to John W. Eppes, 1813. ME 13:409

"We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth. It is vain for common sense to urge that nothing can produce but nothing; that it is an idle dream to believe in a philosopher's stone which is to turn everything into gold, and to redeem man from the original sentence of his Maker, 'in the sweat of his brow shall he eat his bread.'" --Thomas Jefferson to Charles Yancey, 1816. ME 14:381

poor richard said...

Love the financial mumbo jumbo talk about issues that are much more baseline and real. White people just love fancy soundin' jargon, don't we.

This is not a "depression" or a "recession." It is nothing to do with financial instruments or magic wands or artificial penises by any other name. This is all about Europe finalizing its recovery from the world wars and China recovering from its expensive revolution. America had it's little postwar window of brainless consumption, and it's over.

The US economy is falling because it is once again competing with other white economies. When Iran sold oil in non-US dollars this month, what currency did they use? Euros and Yen. Gee, Germany's Q1 GDP was pretty strong, ja?

Bill said...

Read this Lex column from the FT earlier this year: Peak No Evil. The world has plenty of oil. The problem is getting access to it. Usually the way things work, when demand increases, production then increases, and, after a lag time, you get more supply. Two problems are slowing down that bit of Econ 101 this time around.

-Fred


The problem absolutely is getting access to it, and I don't think it's only governments getting in the way. The easy fields have already been pumped for a long time, and we haven't started recovering the difficult oil in large enough quantities yet. Canada is a huge source of oil, but only at $60+ per barrel. Due to this, the fields haven't been sufficiently developed to meet demand.

We'll still have oil for some time, but prices won't go down. In the meanwhile, we should be developing nuclear and renewable power. We'll also have to readjust our way of life. I don't think there will be a doomsday catastrophe (at least not in the developed world -- I can see Africa and S/SE Asia really hitting a wall), but there will be a lot of pain.

The Saudis have enormous amounts of cash saved from this current boom. Remember all the headlines you've read about Sovereign Wealth Funds?

Sure, but as I understand the thousands of Saudi princes have a habit of putting their fingers in the cookie jar, and all those dollars suddenly buy a lot less.

Honestly, though, I have never studied economics very much (seems I am in rare company here on isteve), except as it relates to Asian development strategies. From what I have read, China's vast cash reserve has become something of a liability recently -- when governments have the cash there is always pressure to spend it.

Dutch Boy said...

It depends on what you mean by a recession. Wage earners have been in a recession for 30+ years. You can't send your industrial plant overseas and import the equivalent of a medium-sized third world country and not screw your working and middle classes (it's called labor arbitrage). The coupon clippers are doing fine,'though, more billionaires than ever (you can sock away a lot of money when you pay someone to do for 25 cents/hr what you paid an American $20/hr to do).

Glaivester said...

If you actually are facing a serious shortage in aggregate demand, then taking money from thrifty people and giving it to profligate people is precisely what you want to do.

I don't think that a serious shortage in aggregate demand has ever been a problem (for the entire economy, that is, not for individual sectors).

Titus Pullo said...

Titus Pullo: When telling everyone how smart you are, it's best not to write things like "alot." It's not going to help people believe you.

Oh, god forbid. Please tell me I didn't use "hopefully," also.

Anonymous said...

How does the Term Auction Facility "cook the books"?

Because it allows investment banks to list assets that aren't theirs for the sole purpose of hiding financial reality: they are bust-o.

And what do these magicians think is going to change 30 days from the swap? You think that stack of fancy engraved toilet paper they parked at the Fed is going to magically appreciate in value when Helicopter Ben coughs politely and tosses the hot potato back to them?