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Kevin Drum’s 10 signs the economy may still be in trouble

April 12, 2010

1. This is a balance sheet recession, not a Fed-induced recession. Paul Volcker caused the 1981 recession by jacking up interest rates and he ended it by lowering them. That’s not going to happen this time.
2. In fact, there won’t be any further stimulus from lower interest rates. They’re already at zero, and Ben Bernanke has made it clear that he doesn’t plan to effectively lower them further by setting a higher inflation target.
3. Consumer debt is still way too high. There’s more deleveraging on the horizon, and that’s going to make consumer-led growth difficult.
4. The financial sector remains fragile and there could still be another serious shock somewhere in the world.
5. There are strong political pressures to reduce the budget deficit. That makes further fiscal stimulus unlikely.
6. Housing prices are still too high. They’re bound to fall further, especially given rising interest rates combined with the end of government support programs.
7. Our current account balance remains pretty far out of whack. Fixing this in the short term will hinder growth, while leaving it to the long term just kicks the can down the road.
8. The Fed still has to unwind its balance sheet. That has the potential to stall growth.
9. Oil prices are rising. This not only causes problems of its own, but also makes #7 worse.
10. Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.

I don’t expect all of this stuff to be as dire as it sounds, and overall I suspect that we are indeed going to see steady if unspectacular growth over the next few years. But I’m not entirely sure of that, and these are the reasons why. Just thought I’d share.

Numbers 6 and 9 are the ones that really concern me. If housing values start to freefall again and we go through the whole foreclosure cycle again we are , to put it mildly, screwed. If oil prices go to high we get back into a a scenario where no one can afford to hire. If real estate prices don’t collapse and businesses can continue hiring the rest of the problems will resolve.



Jake Tapper as interim host of “This Week” has partnered with Politifact to fact check guests statements. My guess is this will not be making him very popular in DC. NBC’s “Meet the Press” isn’t going to follow suit.

Thank God! President Obama has taken historic steps to improve our democracy.

Some observers see a conflict between Kazakhstan’s chairmanship of the 56-nation OSCE, which plays an important role in monitoring elections in emerging democracies, and its own widely criticized human rights record.

But if the Obama administration saw any disconnect, it kept its criticism to itself.

“In connection with the OSCE, the presidents had a very lengthy discussion of issues of democracy and human rights,” NSC senior director Mike McFaul said on a conference call with reporters Sunday. “Both presidents agreed that you don’t ever reach democracy; you always have to work at it. And in particular, President Obama reminded his Kazakh counterpart that we, too, are working to improve our democracy.”

The Wall Street Journal’s Jonathan Weisman asked McFaul to clarify.

“You seemed to be suggesting there was some equivalence between their issues of democracy and the United States’ issues, when you said that President Obama assured him that we, too, are working on our democracy,” Weisman said. “Is there equivalence between the problems that President Nazarbayev is confronting and the state of democracy in the United States?”

“Absolutely not … There was no equivalence meant whatsoever,” McFaul said. “[Obama’s] taken, I think, rather historic steps to improve our own democracy since coming to office here in the United States.”

I guess in DC improve translates to grinding the American people into the ground.

Jennifer Rubin on the great democracy expansion –

Furthermore, what has Obama done that qualifies as historic steps to improve our own democracy? I’m stumped to think of a single thing. Great transparency? Hmm. Haven’t seen that in the health-care legislative process of elsewhere. Toleration and civility for the opposition? Puhleez. Does Obama regard his own presidency as some historic leap forward for American democracy? Apparently so, a troubling sign that his narcissism continues to grow by leaps and bounds.


Details on thwarted subway attack.

Zazi and his two Queens friends allegedly planned to strap explosives to their bodies and split up, heading for the Grand Central and Times Square stations – the two busiest subway stations in New York City.

They would board trains on the 1, 2, 3 and 6 lines at rush hour and planned to position themselves in the middle of the packed trains to ensure the maximum carnage when they blew themselves up, sources said.

Larry Kudlow claims the US is in a V shaped recovery

Rather than blow their credibility over a cyclical rebound that is backed by the statistics, free-market conservatives should tell it like it is.

Let’s begin with the March employment numbers recently released by the Labor Department. Those numbers were solid. People say small businesses are getting killed by taxes and regulations from Washington, but the reality is that the small-business household employment survey has produced 1.1 million new jobs in the first quarter of 2010, or 371,000 per month. If that continues, the unemployment rate will drop significantly.

Additionally, the corporate payroll number for March increased by 224,000 — not 162,000 as some claim — with the prior two months being revised up by 62,000. And this is being led by private-sector job creation.

And according to just-released data, retail chain-store sales for the year ending in March were up a blowout 10 percent. Ten percent. That’s a V-shaped recovery. And the real-time ISM purchasing-managers reports for manufacturing and services indicate that the economy in the next few quarters could be much, much stronger than the consensus expects — maybe 5 to 6 percent. Another V-shaped recovery.

Commodity charts, meanwhile, are roaring. All manner of raw industrial materials have been booming — iron ore, steel, you name it. More V-shaped recovery. So with higher commodity prices running virtually across-the-board, there is every incentive for rapid inventory-rebuilding. (Inventory prices are going up as commodity prices go up.)

I hope he is right but given his history of predictions it may be prudent to bet the other way.

One Comment leave one →
  1. April 25, 2010 2:08 pm

    I bookmarked this link . Thank you for good job !

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