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The Post Still Only Talks to People Who Missed the Housing Bubble
It seems that the people who could not see an $8 trillion housing bubble are now optimistic about the economy's prospects. That's what the Washington Post tells us.
The article points to strong bank profits, respectable March retail sales, and a modest rise in exports. While it is possible to say that all the numbers could have been worse, these data do not provide much grounds for optimism.
In the case of bank profits, much of the profit was driven by a surge in mortgage refinancing which produces large fees for banks. This surge will continue for the near term, but before long most of the people who are able to refinance their mortgages will have done so. Banks have also opted not to declare large write-downs of bad loans in the current quarter. They have apparently decided, possibly for political reasons, to defer write-downs of bad debts for future quarters.
It is important to put reports on chain store retail sales in some context. First, the same store sales are higher relative to overall chain sales because the chains have opened fewer new stores over the last year and in some cases actually have fewer stores in March of 2009 than in March of 2008. More importantly, there will be some upward bias in the chain store sales overall since there are fewer alternatives stores in 2009 than in March 2008.
Many stores that might have provided competition for the chains in March of 2008 no longer exist in March of 2009. Therefore, we should expect to see an increase in chain store sales even if there had been no change whatsoever in overall retail sales.
The article also cites Richard W. Fisher, the president of the Dallas Fed, as saying that the unemployment could cross 10 percent by the end of the year. It is encouraging that even a Fed bank president might now recognize this fact, but Post readers should know that it is a virtual certainty that unemployment will cross 10 percent by the end of the year.
The arithmetic is fairly simple. The economy shed 680,000 jobs per month over the last three months. Weekly unemployment insurance filings have been as high over the last month as at any point in the prior three months, which means that the April data will almost certainly show a similar rate of job loss. This will push the April unemployment rate up by 0.4-0.6 percent to between 8.9 to 9.1 percent.
If job loss just stopped for the next eight months, the unemployment rate would rise by approximately 0.5 percentage points by December. There is no one who thinks that the economy will suddenly stop losing jobs after April, nor that it will start creating jobs before the end of 2009. This means that it is a virtual certainty that the unemployment will cross 10 percent by the end of the year.
--Dean Baker
COMMENTS (6)
This from Tom Whipple, retired CIA analyst and columnist for the Falls Church News-Press:
"If you are one of the millions who have lost their jobs or homes in the last year then you already know that something is happening. Returning to the way we have lived for the last 100 years simply is not in the cards. The world is entering a great paradigm shift and our place in it will be markedly different 10 or 20 years from now. The most alarming thing to remember is that 95 percent of us have not discovered that major changes are underway and are waiting for economic recovery and new jobs to open up.
"A professor out in California just published a paper concluding that the current economic downturn was caused as much by the $147 oil we saw last summer as it was by the bursting of the housing and credit bubbles. It doesn't much matter if he is right or not. What is important, however, is that hardly a day goes by without another major oil production project being delayed or cancelled due to low prices. The death spiral for the oil age has begun.
"The U.S. is currently losing about 600,000 jobs a month. If we did the bookkeeping a bit more honestly, to account for the discouraged or those forced into part-time work, the real total is probably closer to 1 million a month. This hemorrhage may slow for a time when our trillion dollar stimulus catches hold, but there is nothing out there to suggest that spending borrowed or printed money for a year or two is going to turn anything around. The trends all suggest that unemployment is going to continue rising and that social unrest is not very far away.
....
"This time riots will be for food and jobs rather than for civil rights and against the draft. The unrest will change everything. Governments will realize that changing times require changing institutions and new priorities. The mix between capitalism and government involvement in the economy is going to change for there no way that our current institutions and economic arrangements are going to get us through the next 40 years."
Source:
http://www.energybulletin.net/node/48577
Great that Dean can see the housing bubble and its consequences, and the failings of others for missing it, but ...
It is time that economists also recognized the basic unsustainability of modern levels of energy supplies (the basis for modern economies; variable efficiencies in the use of those energy sources are just "noise" in comparison), require that the permanent growth model be consigned to the dustbin, and do their part in support of the needed redesign of institutions.
Posted by: Steve Athearn | April 10, 2009 8:44 AM
It's like the Post's view of the Iraq war. You're not a serious thinker unless you were wrong.
Posted by: ben | April 10, 2009 8:46 AM
Hi Dean,
How is it possible for banks just to 'decide' not to declare large asset write-downs?
Posted by: Marcelo | April 10, 2009 11:27 AM
Marcelo,
Dean might not get back to you but glad to step in.
Writing down loans and securities is a self-discipline. Of course, they also receive external review and exam including the regulatory ones. Now, the latter ones are mandatory and quite often will bring many, many surpise write-downs.
Posted by: James | April 10, 2009 12:01 PM
Another problem with the article is that it ignores the fact that the war on Iraq has played a huge role in causing our problems and it is still going on.
Posted by: libhomo | April 10, 2009 1:16 PM
Regarding social unrest is coming from the Whipple post, anecdotally crime is on the rise in the previously crime-free area where I live. Break-ins target things like laptops and gps. Also rising is unemployment in my state at 12%; one county at 18%. Clearly what is needed is jobs creation.
Posted by: jonny salmon | April 22, 2009 2:18 AM