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With the Recession Becoming Inevitable the Consensus Shifts Towards the Hard Landing View. And the Rising Risk of a Systemic Financial Meltdown
Nouriel Roubini, Roubini’s Global EconoMonitor
It is increasingly clear by now that a severe U.S. recession is inevitable in next few months. Those of us who warned for the last 12 months about a combination of a worsening housing recession, a severe credit crunch and financial meltdown, high oil prices and a saving-less and debt-burdened consumers being on the ropes causing an economy-wide recession were repeatedly rebuffed the consensus view about a soft landing given the presumed resilience of the US consumer.
But the evidence is now building that an ugly recession is inevitable. Thus, the repeated statements by Fed officials that they may be done with cutting the Fed Funds rate are both hollow and utterly disingenuous. The Fed Funds rate will be down to 4% by January and below 3% by the end of 2008.
More revealing of the change in mood the financial press and some of the most prominent market analysts are coming to the realization that a recession is highly likely
(16 November 2007)
Is it time to panic?
Anushka Asthana and Ned Temko , The Observer
After Northern Rock and sub-prime loans, the consequences of global financial uncertainty are about to hit Britons in the pocket. Anushka Asthana and Ned Temko report on the dramatic effect on prices in the high street: from groceries and petrol to luxury goods, and new mortgages to credit cards
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Heading to the petrol pump? Your tank of unleaded may be pricier than usual. Renegotiating your mortgage? Expect a rise in your monthly payments. Time for the weekly supermarket run? Better carry a little extra cash.
Mervyn King, governor of the Bank of England, has sent out a stark warning: the British public should prepare to economise. Next year, the bank’s forecasts suggest, will be the toughest in a decade. Economic growth will slow, inflation will rise and share prices could tumble. The central bank will cut interest rates, but it will only work to soften the blow, not divert it – and mortgages may actually still rise.
But how will all this translate into everyday life? Here The Observer investigates how the cost of motoring, mortgages and food could all be affected. Will retailers have a happy Christmas? And are the boom times over for the housing, art and luxury goods markets? Economists and analysts discuss whether unemployment is on the up and whether banks are keeping depositors’ money safe.
Most agree there will be a slowdown.
(18 November 2007)
Credit Crunch: It Ain’t Over Yet
Ron Cooke, Global Public Media
In March 2007, the Cultural Economist Ron Cooke predicted a recession. Today he notes, “we are sinking into a credit crisis of very large dimensions.”
Introduction
In March of this year (2007), I published an essay entitled “Warning: Recession Ahead”. You can find it on my WEB site www.tce.name under the My Blog tab. Many scoffed at the time. For most economists, there was no recession in sight.
But reasonable pundits mock no more.
My basic argument was grounded in three concerns: debt, real estate and oil. Here are two little jewels from that essay:
1. “It’s a wonder the financial markets have not become unglued. The size of the high yield corporate debt market has exploded to about $1 trillion. High yield? It’s high yield because the debtors are in trouble. Corporate bond defaults, now running at less than 1 percent, could easily top 8 percent if the economy goes into recession. Debt defaults are certain to increase. Private equity firms, hedge funds, and Government Sponsored Enterprises will all need help (along with some mutual funds, pension plans, banks and brokerage firms).
Thus far, struggling debtors have been buoyed up by a liquidity glut. But we must ask ourselves: how long will that generosity last?
Only until lenders perceive it is in their selfish-best-interest to bail out.”
2. “If my analysis is correct, one to four unit residential loan delinquency rates will exceed 4 percent for 33.3 million prime loans, and 18 percent for 10 million sub prime and government insured loans by the end of 2008 (versus 2006). Total non performing consumer loan obligations, including mortgage and consumer debt, could exceed $ 700 billion.”
Sound familiar? These excerpts could be from a current issue of the Wall Street Journal. We are sinking into a credit crisis of very large dimensions. Q4 of 2007 and Q1 of 2008 could be quite messy.
…The only element of this three part thesis still unfulfilled is the contention that sharply rising oil prices have usually foreshadowed a decline in GDP. But that little “gotcha” (described in my prior essay) is still laying in the economic weeds. Higher hydrocarbon prices are now reducing the bottom line of every business. Big losers include airlines, trucking companies, and the food chain (from planting through distribution).
It should not surprise us to discover a price inflation driven decrease in corporate profits and a loss of consumer confidence has rolled the economy over into a recession by spring. Certainly before the end of 2008.
Ronald R. Cooke
The Cultural Economist
Author: Detensive Nation
(17 November 2007)
