(Insert name of economic disaster of your choice here) Watch, January 2010

[Cutlass]

So I thought I'd start this off with a discussion about a conversation I had last night. In these previous threads there was a discussion about how companies raise productivity through trimming the fat that tends to accumulate in any organization during good times. However, what if that's gone too far?

The conversation I had was with my brother in law. He's a district (7 states) sales manager for a multinational with a specialty product. According to him, in his organization in any case, productivity is plummeting. And the reason, according to him, has been the same staffing cuts that have been credited with gains elsewhere. His job, he tells me, is to support the customer and to support the sales force expand sales. However he says that most of his time in the office now is just supporting himself. Doing the routine paperwork and answering the emails that he should have an assistant doing. So here he is, making a 6 figure income doing the work of someone who should be making low 5 figures. His boss's answer to that: Work to 11pm every night.

Of course he doesn't, and neither does very many other people. And that means that the work isn't getting done. Or is simply taking a lot longer. One thing he has to do to support customer and sales is get the company labs to produce reports based on customer inquiries. But the labs have had so many people reduced that it's taking a month to get a report that used to take a week.

In other words, the high income, high productivity knowledge workers are not free to be highly productive, because the people who support them and free their time to be so are no longer employed.

So instead of building a database that will help his salespeople find new customers, he's filling out travel vouchers and expense reports.

I have to wonder how much else of that's going on.

 

[GenMarshall]

Job loss mounting...

...Must...

...crush...

...CAPITALISM!

 

[Mise]

I think it's safe to call it recovery watch by now!

As for your brother-in-law, I think most reports show excess capacity in most industries. Additionally, it's much easier to hire a secretary or PA than it is to hire a sales executive, so I wouldn't be surprised if the recovery mirrors the recession in that regard.

 

[Mise]

Also, http://news.bbc.co.uk/1/hi/business/8454535.stm

Federal Reserve makes record $52.1bn profit
Federal Reserve chairman Ben Bernanke
Fed chief Ben Bernanke has made money for the US taxpayer

The Federal Reserve made a profit of $52.1bn (£84bn) in 2009, a rise of 47% over the previous year.

The sum allowed the central bank to pay a record $46.1bn to the US Treasury last year.

That was the largest amount ever paid by the central bank since its creation in 1914.

The record figure was largely thanks to its attempts to support the financial system throughout the ongoing financial crisis.

The Fed funds itself from its own operations and returns any profits to the Treasury department.

Taxpayer gains

The figures suggest that US taxpayers have, so far, gained money from the US government's action in propping up the system.

Some of the profit has come from interest earned on government bonds and mortgage-related securities - including those of mortgage giants Fannie Mae and Freddie Mac.

The emergency lending programmes instituted by the central bank during the last year's financial crisis helped swell the Fed's balance sheet to more than $2tn.

They were designed to keep down interest rates and get banks lending to each other again, hoping to spark an economic recovery.

The Fed could also lose money on its holdings if it sells them at a time when they have fallen in value.

The Fed also earned money from its emergency loans to banks and other firms, such as the giant carmakers. It charged both interest and fees on these.

Interesting.

 

[Whomp]

Also interesting to note that the Treasury has bypassed Congress and eliminated the loss cap on Fannie and Freddie because they've been directed to pursue money losing propositions by modifying mortgages to avoid foreclosure.

The Fed may be making money but this will be a problem with all the resets coming on alt-a and option ARMs in 2010-2011.

Thanks to Barney Frank and his committee they are also exempt from TARP so their executives bypass the pay czar.

We need govt. to go back to role of referee/regulator instead of player/owner.

 

[kronic]

German GDP for 2009 came in today: -5.0 % ... worse than the forecast (-4.8 %). That means that growth in the 4th quarter was very low, possibly flat. There is a serious risk that Germany could slide back into recession.

Unemployment rose by only 0.4 % in the yearly average: 8.2 % vs. 7.8 % in 2008. The total government deficit came in at -3.2 % of GDP.

 

[PiMan]

Unemployment improves in Australia again.
http://www.theage.com.au/business/jobless-rate-drops-to-55-20100114-m81o.html

Jobless rate drops to 5.5%
CHRIS ZAPPONE
January 14, 2010 - 12:16PM

ABS figures for December.

Update Australia's jobless rate fell last month as the labour market gathered strength, building the case for further interest rate rises.

The unemployment rate eased to 5.5 per cent in December from a revised 5.6 per cent rate in November, according to the Australian Bureau of Statistics.

Analysts had expected the jobless rate to rise to 5.8 per cent for the month.

The economy added 35,200 jobs last month - although all but 7300 of them were part-time positions - much more than the 10,000 extra jobs economists had tipped.

''These are extraordinary results,'' said Moody's Economy.com's Matt Robinson. ''The strength of labour market results over the last six months is amazing.''

The extra jobs underscore the surprisingly moderate economic downturn, with Australia likely to dodge a jobless rate of 6 per cent. The Federal Government was predicting the rate to rise to 8.5 per cent by the middle of this year.

''It shows the Australian economy is very robust if not strong given global circumstances," Mr Robinson said.

The news, though, may be less positive for borrowers.

"For the RBA, it means there's less spare capacity in the economy than anyone expected and that puts a lot more pressure on for a hike in February," Macquarie senior economist Brian Redican told Reuters.

100,000 jobs

Australia added about 93,800 jobs in the final three months of 2009. For the year, the gain was about 100,000 - but less than the 135,000 created in 2008 when the jobless rate ended the year at 4.6 per cent.

The economy has added jobs for the past four months, its best run since April of 2008 when the global financial turmoil combined with a series of interest rate rises at home to cool the labour market.

Australia's low employment rate stands in telling contrast to the 10 per cent jobless rate seen in the US, and across much of the Eurozone, where the financial crisis crippled confidence and curtailed hiring. In the UK, unemployment is 7.9 per cent, while in Germany it is 8.1 per cent.

The Australian dollar leapt on today's better-than-expected news. The currency gained almost half a US cent, trading recently at 92.9 US cents.

Investors raised their bets that the RBA will increase rates for an unprecedented fourth consecutive meeting when its board meets on February 2. The market now rates the chances of another 25 basis point rate rise by the RBA at about three-in-four, compared with 60 per cent just prior to the release of the jobless figures, according to Credit Suisse.

Such an increase would lift the interest rate to 4 per cent.

Alex Joiner, ANZ economist, said the strong jobs data added to other positive news on the economy to suggest a February rate rise is a ''serious prospect''.

"Consistently strong employment numbers, with more on the way if the lead indicators are anything to go by, combined with solid retail sales leading into Christmas must be giving the RBA significant food for thought," said Mr Joiner.

Across the board

All states reported a drop in the jobless rate, underlining the broad gains on the employment front.

New South Wales' jobless rate dropped to 5.9 per cent in December from 6 per cent in November, seasonally adjusted. In Victoria, it fell to 5.2 per cent from 5.4 per cent.

Queensland's fell to 5.9 per cent from 6.1 per cent, while South Australia's eased to 5.3 per cent from 5.5 per cent. Western Australia's rate also sank to 5.1 per cent from 5.2 per cent.

In Tasmania, the rate fell to 5.2 per cent from 5.4 per cent, while it was unchanged at 3.7 per cent in Australian Capital Territory.

Recruitment interest rising

Melbourne-based Recruitmentworks managing director Adam Rowson said he had seen more interest from clients this year compared with last, as companies look to hire more staff and overall confidence improves.

''There are quite a few jobs I'm working on at the moment and a bunch more that I know of coming up,'' he said.

''I'm just not quite getting the candidate response yet'', he said, but is still expecting a pick-up once job seekers return from holiday.

The work force participation rate remained unchanged at 65.2 per cent, with a record 10.9 million people employed.

Summary: Unemployment falls to 5.5% instead of rising, beating all expectations. Most of the job increases are part time jobs this month.

 

[Godwynn]

Deutsche Welle

The extent of the damage felt in Germany by the global financial crisis was revealed on Wednesday with the release of new economic figures by the Federal Statistics Office.

"As an export-dependent nation, Germany was particularly affected by the financial crisis," commented Federal Statistics Office President Roderich Egeler. "With a GDP drop of five percent, the country is relatively far behind other nations."

Germany's gross domestic product (GDP) shrank by five percent in 2009, with a particularly heavy slump in the first half of the year. But the statistics show that the GDP stabilized in the second half of 2009.

The export industry was particularly hard hit, with a drop of 14.7 percent in overseas trade during the year. "All in all the export trade in 2009 was not the motor of economic development we're used to, but the brakes on it," Egeler said.

But private consumer spending recorded a slight rise of 0.4 percent, due in large part to the government-sponsored "cash-for-clunkers" scheme, which boosted sales in the auto industry.

Germany also breached the European Union's public deficit ceiling for the first time in four years, the office found. Berlin racked up a budgetary deficit of 77 billion euros ($112 billion), or 3.2 percent of GDP in 2009. The EU's Stability and Growth Pact, which is meant to ensure the stability of the bloc's common currency, requires all member states that use the euro to keep their public deficit under three percent of GDP. Several eurozone economies have been struggling to stay under the ceiling.

Jobs spared

But despite these dramatic figures, unemployment remained at a similar level to 2008, with 3.27 million people unemployed in Germany in December 2009. "It's notable that the effects of the crisis have barely registered on the employment market," Egeler said.

According to the Federal Statistics Office, companies largely refrained from redundancies in favor of putting employees on short-term contracts and reduced working hours.

German salaries also sank for the first time since reunification in 1990, with a 0.4 drop in gross income, and a 0.9 fall in net income.

And there was a significant rise in company insolvencies, with 27,565 reported between January and October 2009, an increase of 11.7 percent on the same period in 2008.

bk/AFP/AP/dpa
Editor: Chuck Penfold

 

[Godwynn]

The Times Online

Britain's economy fell last year at the sharpest rate since 1921, despite hopes that it finally emerged from recession in the last three months of the year, according to a respected economics forecaster.

The National Institute of Economic and Social Research (NIESR) said today that its latest estimate showed that GDP rose by a modest 0.3 per cent in the final three months of 2009 compared with the third quarter.

That means that, for the year as a whole, the economy contracted by 4.8 per cent, a bigger fall than in any year of the Great Depression and the biggest contraction for 88 years.

However, NIESR went on to say that signs of a recovery were starting to emerge after the economy bottomed out in March last year after 12 months of sharp falls.

In October, NIESR predicted that British GDP would fall by 4.4 per cent in 2009.

Most economists had expected the country to turn the corner in the third quarter of the year, the three months to the end of September.

But official figures shocked economists by showing that the economy was still in recession, falling 0.3 per cent.

That left Britain as the world's last major economy still in recession.

NIESR's prediction of 0.3 per cent growth in the fourth quarter is broadly in line with most economists forecasts.

Today, official figures for Britain's industrial sector provided a mixed signal on whether Britain did indeed come out of recession in the last quarter.

A surge in oil and gas extraction meant that production grew 0.4 per cent from October to November, but manufacturing output had stagnated at low levels with no change for the second successive month.

Further fears about the sustainability of any recovery were triggered today by official figures for Germany showing that, after modest growth in the third quarter, the economy ran out of steam in the fourth quarter.

Growth slumped to close to zero, meaning that, for the year as a whole, the German economy fell a record 5 per cent.

The Office for National Statistics will produce its official estimate for GDP third-quarter growth in two weeks' time.

 

[RedRalph]

from BBC

Sales at US retailers saw an unexpected fall in December, casting uncertainty over the recovery of the US economy.

Retail sales fell by 0.3% compared with November, figures from the US Commerce Department said.

Sales of electrical goods and cars saw some of the biggest falls, though core sales - which exclude cars, fuel and building materials - still fell.

Concerns over job security are expected to continue to restrict spending, with unemployment still at 10%.

Many economists expect unemployment to keep rising until the middle of the year.

December's figures end a tough year for US retailers, with total sales for 2009 down 6.2% on the previous year.

But sales were expected to have been stronger, given the string of retailers reporting positive results for the festive season.

Job worries

The weaker-than-expected retail figures will add to concerns over the strength of the recovery in the US economy.

In December, the US unexpectedly cut a further 85,000 jobs after seeing some job creation in November.

Economists are still predicting a recovery in 2010, but warn that it will be slow.

"I don't think that portends a new downturn in the economy, but it does serve as a warning that the recovery is going to take some time to put in place here," commented Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York.

 

[Cutlass]

BARRON’S INTERVIEW WITH RICHARD KOO: Japanese Rx for the West: Keep Spending

(Barron’s) AN INTERVIEW WITH RICHARD KOO: America seems to be suffering from the same affliction that has hobbled Japan for so long — a balance-sheet recession.” And no matter how hard the Federal Reserve tries, it won’t end until businesses shake their heavy loads.

RICHARD KOO HAS DRAWN WIDESPREAD ATTENTION for his theories on why Japan’s economy has struggled for so long. In particular, his view of that nation’s “balance-sheet recession” has been extensively studied by policymakers in the developed world.

Though many economists fear that Japan’s enormous debt is unsustainable, the nation’s economy hasn’t collapsed. Still, the economic malaise has punished investors in Japanese stocks, which topped out in 1989, and some investors fear that the same stagnation could afflict equities in the North America and Europe, too.

“The most interesting question in macroeconomics today is why Japan developed the way it did over the past 20 years,” says Gifford Combs, a portfolio manager at Dalton Investments. “What nobody in the West wants to utter aloud is that western economies, and most especially the U.S., could follow the same trajectory as Japan, essentially a recovery that almost feels worse than the disease.”

Koo is well-equipped to answer questions about Japan and the West, having served as an economist for the Federal Reserve Bank of New York in the past and as chief economist of Nomura Research Institute now.

To learn his views, read on.

Barron’s: You’re visiting Washington a lot these days.

Koo: I’m explaining to the Americans that the disease you’ve got, is the disease we got 15 years earlier. Most Americans are flabbergasted by the fact that the Federal Reserve has lowered interest rates to zero, flooded the market with liquidity — and the economy is still going absolutely nowhere. Unemployment is still increasing, people are still retrenching, deleveraging. When the central bank brings rates down to zero, a lot of things are supposed to happen, but there’s nothing happening. But that’s what we experienced in Japan. The Bank of Japan brought the rates down to zero, did massive quantitative easing, with no result whatsoever. This happens because of a balance-sheet recession.

What is that?

This happens because the private-sector companies are no longer maximizing profits; they are minimizing debt. They are minimizing debt because all the assets they bought with borrowed money collapsed in value, but the debt is still on their books, so their balance sheets are all under water. If your balance sheet is under water, you have to repair it. So everybody is in balance-sheet-repair mode. This type of recession isn’t in any economic textbook yet, and there’s no name for it. I call it the balance-sheet recession.

It took us [in Japan] a decade to figure out. People said, “Ah, just run the printing presses, ah, structural reform, ah, just privatize the post office, this and that, and everything will be fine.” Nothing worked. This is pneumonia, not the common cold. When people are minimizing debt because of their balance-sheet problems, monetary policy is largely useless. If your balance sheet is under water, in negative equity, you are not going to borrow money at any interest rate, and no one will lend you money, either.

In an ordinary, garden-variety recession, as we learned in school, the private sector uses money more efficiently, and a budget deficit is considered bad. But when the private sector is completely absent and paying down debt at zero interest rates, and the government doesn’t borrow this money, what happens? Even a child would understand the whole thing could collapse. The only way the government can turn this economy around is to do the opposite of the private sector — borrow the money the private sector saved and spend it, which means fiscal stimulus. That’s what saved Japan from entering a Great Depression.

Has the U.S. government done enough to offset the crisis?

They are a bit too cautious. In this type of recession, government has to be in there in a sustained fashion to take this entire excess savings in the private sector and put that back into the income stream. It has to be sustained until private sector deleveraging is over. Individually, everybody is doing the right thing. I can’t tell you to stop paying down debt. But when everybody does it at the same time, who is going to borrow and spend? Once the private sector starts borrowing again, we’re back to the textbook world of maximizing profits. But U.S. households and U.S. financials are still deleveraging.

What do we need to see?

A three- to five-year program, minimum, where President Obama comes out and tells the American people: “Look, we have a different type of disease now.” That kind of explanation is essential to get Democrats and Republicans to understand why you need fiscal stimulus. I can assure you if [the government doesn't spend much more], your budget deficit will continue to increase. During the past 15 years, we in Japan tried to cut the budget deficit twice. On both occasions, the economy collapsed, and tax revenue dropped. The U.S. will experience that, too. If you say it’s political suicide [to spend], not doing it will be an even bigger suicide.

Full Barron’s Interview: http://is.gd/5JJHz

http://commoditytradealert.com/blog/?p=4656
The rest can be found here

I think it's worth a read. This guy seems to make a lot of sense to me. A couple of guys at Mises panned it. Which gives the guy instant credibility.

Koo has also written a book on the idea of the "balance sheet recession" and an interview with him on the subject can be found here.

Question 1: You are the Chief Economist of Nomura Research Institute, the research division of Nomura Securities, the leading securities house in Japan. You are a trained economist, a visiting professor of Waseda University and recipient of the Abramson Award by the National Association of Business Economics. In the past you worked with the U.S. Federal Reserve where you dealt with syndicated loans to Latin America and were a Doctoral Fellow of the Federal Reserve Bank of New York. I know from the book that you also are a U.S. citizen and the son of Chinese immigrants. Obviously you are a man who knows Asia, international business and finance and the World. You also are the author of many other books. Why did you decide to write this book and what are you hoping that its publishing will achieve?

Answer First, there are just too much misunderstanding outside Japan as to the real driver of recession in the country. I also found that once I explain the concept of balance sheet recession, most people are surprisingly willing to listen. They must have felt that the conventional "structural reform or bust"arguments are not sufficiently convincing to explain what has happened to Japan.
After all, those structural problems had been around for a long time, but they did not keep the Japanese economy from becoming the second largest economy in the world. Second, as for the banking crisis, so much of the key information on this issue has never been reported in the English press, resulting in a massive perception gap between the policy makers in Japan and those making noise abroad. Third, I noticed that after the collapse of the IT bubble and the corporate accounting mess, the US economy is beginning to display the symptoms of a balance sheet recession. As a US citizen, I wanted to warn my people that this disease is different from the usual recessions and that proper care should be put in place quickly. In particular, I did not want them to waste time relying on monetary policy when the only effective cure available is fiscal stimulus.

Question 2: In your new book Balance Sheet Recession which has just been published by J. Wiley & Sons, you state that “the root cause of Japans economic weakness during the last decade has had more to do with Company balance sheet problems than with Japan’s overall lack of structural reform.” Exactly what is a balance sheet recession, are they common and is the fact that Japan is currently in the midst on one recognized by the current Japanese government?

Answer: Balance sheet recessions are highly uncommon and happen following the bursting of a nation-wide asset price bubble. Balance sheet recessions are as rare as a nation-wide asset price bubble which happens perhaps once every two generations. This type of recession is unlike other recessions in that the inventory cycle is not the key driver. The key driver in this recession is the corporate effort to repair their balance sheets by postponing investments and instead, paying down debt. When a large number of companies move away from the usual goal of profit maximization to debt minimization all at the same time in their effort to regain their financial health, the balance sheet recession starts.
Although a large number of policy makers in Japan are becoming aware of the concept of balance sheet recession (largely because of my frequent TV appearances with key policy makers), it is still an extremely new concept in the economics profession not just in Japan but in the world. The current Koizumi government, unfortunately, does not understand the concept or the proper remedy. In spite of many one-to-one nationally televised debates I have had with Minister Takenaka, he refuses to understand it either. And that is why the Japanese economy is going nowhere.

Question 3: In your book at page 7 you show a chart (Exhibit 1.2 Falling asset prices forced companies to move away from profit maximization to debt minimization). Could you explain what this chart demonstrates and how it relates to a balance sheet recession and the points you were making above?

Answer: I just noticed while trying to answer your question that a horizontal line at zero mentioned in page 6 is missing from 1.2. I guess I have to get back to the publisher for this horrible mistake. (It is corrected on the graphic above.) The point of this chart is that households in Japan really did not change their behavior since the beginning of 1990, supplying 5 to 8 percent of the GDP equivalent of savings to the economy each year. But the corporate sector did change its behavior, from a net taker of funds to a net supplier funds to the economy. This shift resulted in a loss of aggregate demand equivalent to 14 percent of GDP.

Question 4: In the next chapter, you show another graphic (Exhibition 2.4
Net wealth ratio of Japanese companies) and note that Japan has experienced a greater loss of wealth than the loss experienced by the U.S. in the Great Depression. I don’t think this point is common knowledge or if it is, it isn't commonly discussed. Could you clarify this point and also explain how Japan’s economic performance since the late 1980s should be viewed in light of this?

Answer: Exhibit 2.4 does not show that the wealth lost in Japan during the last decade is more than the wealth lost in the US during the depression. It only shows that the corporate asset and liability position improved dramatically during the bubble and deteriorated equally quickly afterward. Secondly, because the Japanese economy managed to muddle through in spite of such horrendous loss of wealth, most people are not aware of how much wealth was actually lost in the country. It is for this reason that the current recession is called the "bankers' and managers' recession", since only
those two groups of people are aware of the actual state of the balance sheets in the country, the true driver of this recession. It is truly miraculous that the economy managed to stay afloat for so long in spite of so much losses in national wealth. It is for this reason that I believe Japan's fiscal policy during the last ten years has been one of the most successful fiscal stimuluses in history.

Question 5: The current Japanese government has followed a policy called “quantitative easing”. Why specifically do you feel that this policy and monetary policy in general will be ineffective in helping the economy to begin to truly grow again?

Answer: Monetary policy is ineffective because nobody is borrowing money. There has to be borrowers out there, either pubic or private, who are willing to borrow money for the money supply to increase. With the corporate sector now a net supplier of funds to the economy to the tune of 20 trillion yen a year, all the high-powered money supplied by the Bank of Japan (BOJ) through quantitative easing is stuck within the banking system.

Question 6: Adam Smith in his writings on capitalism argued that the “invisible hand” will work to bring prosperity and growth by businesses seeking profit maximization. Was Adam Smith wrong and why isn’t the invisible hand working for Japan at this time?

Answer: He was right, but Japanese businesses are not meeting his fundamental assumption that they maximize profits. Instead they are minimizing debt. Such a world is not covered by Adam Smith or by the economics profession for that matter, and that is why we need an entirely new macro economic theory (balance sheet recession) for such occasions

Question 7: Also in your book in Chapter 9 you discuss the real challenges facing Asian economies. You discuss about the Asian Financial Crisis and its aftermath and note that balance sheet recessions are not only a problem in Japan. Many observers have pointed the finger at structural issues, crony capitalism, foreign exploitation of exchange rates, weak banking regulation or greed as causing the crisis. Do you agree or disagree and if so why or why not?

Answer: There is no smoke where there is no fire. All the structural issues mentioned in your question certainly contributed to the severity of the crisis. However, they are not the key driver of the Asian currency crisis. This is because if the lenders of funds did their homework, they would have noticed all of those factors and would have priced them into their lending to the region. If the international lenders did that, it is highly unlikely that there would be a bubble in the Asian asset markets in the first place. It takes two to tango, and in this case, the lack of due diligence on the part of international investors was more to blame for the crisis because due diligence by the bankers could have and should have prepared them for these factors which had been around for decades prior to the crisis.

Question 8: In 1999 and thereafter many parts of Southeast Asia regained their competitiveness. Is this likely to continue and how does China as a competitor play into the equation? Also are there things that you would advise the countries of Southeast Asia to focus on to improve their competitive position vis-à-vis China?

Answer: China poses a very serious challenge to the economies of S.E. Asia for all the reasons mentioned in the book. In addition, what the Chinese challenge indicates is that relying on foreign capital for economic development is viable only if the country is the lowest cost producer. Once that distinction is lost to somebody else, inflow of foreign capital could fall off rapidly. In other words, reliance on foreign capital for growth is an easy-come easy-go process. For long-term sustained growth, countries in South East Asia must cultivate and nurture their own technological and other strengths (such as their possessing a strong legal framework). Such an effort to create and nurture a domestic value-added base, however, may run counter in the short run to the principles of market opening and free flow of goods and services.

Question 9: Based on your study of Balance Sheet Recessions and the current situation in Japan, you also note that Japan’s situation may have lessons for the U.S. Could you discuss what these lessons are and whether you feel that the lessons have been noted and are being acted upon?

Answer: The key lesson is that the US should not wait hoping that monetary policy easing will turn the economy around. If the US has contracted this disease called balance sheet recession, it will have to mobilize its fiscal policies in a timely and pro-active fashion in order to keep the damage from the recession to an absolute minimum.( I know that former White House Advisor on Economic Policy Larry Lindsey was fully aware of the danger of a balance sheet recession.) Now that he is gone, I am not sure whether the new economic team in Washington understands the danger of balance sheet recession.

Question 10: The U.S. stock market has been weak of late even in spite of positive news with the completion of the War in Iraq. President Bush’s tax cut seems to be in some trouble in Congress. The U.S. budget has gone back into deficit largely to fund the War on Terrorism and the War on Iraq. How do you see the U.S. economy progressing over the next year and is a Balance Sheet Recession, Double Dip Recession or even a Depression a possibility and if so why or why not?

Answer: The US is likely to muddle through just like the Japanese economy muddled through during the last ten years. This is because the large deficit brought about by the war and the automatic stabilizer actually represents an important fiscal stimulus needed to keep the economy going in this type of recession. However, not realizing that this recession is fundamentally different from the usual recession, the US policy makers are not likely to apply the fiscal stimulus in a consistent and pro-active fashion. This will deprive the US from entering a virtuous cycle until policy makers realize that this recession is fundamentally different from the rest and react accordingly.

Question 11: In the last Chapter of your book you talk about the real challenges facing Japan – among these you include inefficient use of land, the need to make Japan more attractive for companies to invest, the need to change Japanese public perceptions about saving, the need to improve housing, etc. Could you speak about some of these points and how progress in solving these issues would help to improve Japan’s overall financial outlook?

Answer: As I indicated in the book, increasing investment opportunities by changing people's life styles and relaxing land use laws in Japan will help bridge the huge gap between investment and savings inside the country. That, in turn, will reduce the need for fiscal stimulus to keep the economy going. However, as I indicated in the book, changing people's savings behavior is an extremely difficult task. Thus, this must be viewed as a medium-term objective. The progress in this front, however, is pitifully slow because most people do not realize the need for change from a macro-economic perspective. In other words, most people still do not realize that the real problem in Japan is the fact that the household sector is saving but the companies are not borrowing even at zero interest rates.

Question 12: In summary, are you optimistic about Japan and the World economy say over the next three to five years and if so why or why not? Also, if not, what actions by the current government or by other actors could help to improve the situation?

Answer: Given that most people have never even heard of a balance sheet recession, even within the economics profession, I am not that optimistic in the short-run. However, as more and more people begin to realize that such a type of recession can actually happen and that they are actually in the middle of it, I am confident that they will take the kind of actions suggested in this book to rid themselves of the disease. That is the whole purpose of writing this book in English in the first place.

 

[Godwynn]

THE 2000s—the Noughts, some call them—turned out to be jobless. Only about 400,000 more Americans were employed in December 2009 than in December 1999, while the population grew by nearly 30m.

The Economist

 

[Integral]

^ I should include a short answer question on my next exam to critique that statistic.

[Does anyone want to talk about regulation and/or bubbles? 'Cause I'm itching to do just that...]

 

[Godwynn]

^ I should include a short answer question on my next exam to critique that statistic.

"Whose fault is the latest spike in long-term unemployment?"

A. Bill Clinton
B. Barack Obama

?

 

[Theige]

"Whose fault is the latest spike in long-term unemployment?"

A. Bill Clinton
B. Barack Obama

?

That's a multiple choice question not a short answer. This is what you're looking for:

"Explain how the spike in long-term unemployment was the fault of Barak Obama and Bill Clinton"

 

[BasketCase]

Somebody said "recovery" in here.

Not gonna happen. What you see right now? This is it. This is as good as it's gonna get for the short term.

Currently, the core of it seems to be the problem with lending. Before the foreclosure crisis hit, banks were encouraged by the federal government (and sometimes REQUIRED, also by the federal government) to provide loans to low-income (and therefore high-risk) families in order to get them out of apartments and into houses. Then the foreclosure crisis DID hit last year, and the federal government (plus you guys in CFC, and pretty much every other armchair economist on the planet) browbeat the banks day after day ever since then for making stupid loans. And now, in an attempt to get the economy restarted, the federal government is trying to get the banks to START making stupid loans again.

Well, folks, there's only one way the loans will come back, and only one way companies will resume hiring: IT MUST BE PROFITABLE TO DO SO. Until that happens, as I said, this is it. This is as good as it's gonna get.

 

[Merkinball]

How is productivity actually calculated?

 

[Cutlass]

^ I should include a short answer question on my next exam to critique that statistic.

[Does anyone want to talk about regulation and/or bubbles? 'Cause I'm itching to do just that...]

Of course

 

[Cutlass]

The Economist

This reminded me of this article that I had to hunt up:

For stocks, an end to a 'lost decade'
By Tom Petruno Tribune newspapers
January 1, 2010

The U.S. stock market Thursday closed out its best year since 2003, an amazing comeback from what felt like Armageddon to many investors just nine months ago.

Yet Thursday also ended by far the worst decade for stocks overall since World War II. For example, the Dow Jones industrial average, at 10,428, is up 19 percent for the year, but still 9 percent below its level at the end of 1999.

The last time the Dow failed to make any net progress in a decade was in the 1930s, when it plunged 39 percent during the Great Depression.

Not surprisingly, Wall Street optimists see the market's last 10 years, and the gloom this "lost decade" has generated, as a better reason to buy stocks than to sell.

Although conceding that the economy faces daunting challenges in the aftermath of the financial crisis, Jeremy Siegel, the Wharton School finance professor whose now-famous book, "Stocks for the Long Run," was published in 1994, said he remains a long-term bull.

"As Warren Buffett says, you should be fearful when everyone else is buying, and buying when everyone else is fearful," Siegel said.

Still, for many Americans who rode the market boom of the 1980s and 1990s, and who came to trust the mantra of "buy and hold," going 10 years with no capital gain to show for it has been a bitter pill.

The list of stocks still sharply below their levels at the end of 1999 includes some of the nation's most respected and widely owned companies. Shares of General Electric Co., for example, are at $15.13 , down from $51.58 at the start of the decade. Wal-Mart Stores Inc. has fallen to $53.45 from $69.13 in the same period, while Microsoft Corp. has dived to $30.48 from $52.53.

Eric Nicol, an aerospace engineer, said he has come to regard buy-and-hold advice as "absolutely stupid."

After losing half of his 401(k) account nest egg in the 2000-02 bear market fueled by the dot-com crash, Nicol said, he swore off the idea that he could simply sit still with stocks and hope for the best. Now, his strategy is to try to time major market swings by pulling out when he believes share prices are in danger of plummeting.

Although financial advisers typically try to warn individual investors away from jumping in and out of the market, "I learned a lesson by staying put," Nicol said. At age 52, holding on through crashes "is not an option for someone in my age bracket," he said.

For some investors, the one-two punch of the financial-system meltdown of 2008 and the severe damage it did to the stock market -- the Dow lost a stunning 54 percent from its all-time high in 2007 to its low in March -- has far exceeded the shock of the dot-com era losses.

"There's been a paradigm shift. People are wondering, 'How could this happen?' " said Sunil Gupta, a software developer and trainer.

Although he has held on to the stock mutual funds in his retirement accounts, Gupta, 46, said he is plowing savings into condos that he plans to rent, instead of looking for more opportunities in equities.

"I think this is a once-in-a-lifetime opportunity" in housing, Gupta said.

Many investors have forsaken stocks for another option: They're pouring cash into government, corporate and municipal bonds, securities that pay fixed rates of interest.

Through November, Americans' net new purchases of bond mutual funds reached an unprecedented $384 billion for the year, industry data show. By contrast, investors have pulled a net $30 billion from their stock mutual funds in 2009.

Copyright © 2010, Chicago Tribune

http://www.chicagotribune.com/business/chi-tc-biz-stocks-0101-jan01,0,6842249.story

 

[amadeus]

This guy seems to make a lot of sense to me.

He would.

Japan's been in economic malaise for 20 years, and you're suggesting the U.S. do the same things they did to try and get us out of it.