http://norris.blogs.nytimes.com/2008/10/24/united-panic/?hp
October 24, 2008, 8:52 am
United Panic
I’ll be blogging through much of today, as the world fears the worst.
The first posts will be at the bottom.
11:42 a.m. | Growls from the Bear Cave: The Jerome Levy Forecasting
Center at Bard College, when Hy Minsky used to teach, has been among the
most worried — and therefore, most accurate — forecasters over the past
several years.
They are out with a new forecast, which is a combination of “told ya”
and “you ain’t seen nothing yet.”
Excerpts:
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.
Let’s hope they are wrong this time.
Jerome Levy Institute: http://www.levy.org/
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