The Other McCain

"One should either write ruthlessly what one believes to be the truth, or else shut up." — Arthur Koestler

Not News: Economy Still Sucks

Posted on | May 24, 2010 | 16 Comments

A commenter on an American Spectator post earlier today made a weird statement:

The economy, boosted by falling energy prices, a weak Euro, and record low interest rates and tons of liquidity is finally showing signs of life.

Excuse me, but “record low interest rates and tons of liquidity” isn’t good news. The Fed is pumping currency in a desperate effort to revive a comatose economy. This policy is inflationary, but prices are still flat because the economy is so weak — with the official unemployment rate at 9.9 percent and 23 percent of mortgages “underwater”  — that even five straight quarters of  a near-zero Fed rate isn’t enough to jump-start consumer demand. And the Fed can only pursue this policy because the U.S. government is on a phenomenal spree of deficit spending.

Are “falling energy prices” good news? No, just a side-effect of the weak economy, which means lower demand for oil. And the “weak Euro” is also bad news, because it will hurt U.S. exports to Europe.

After a one-day upward bounce Friday, the Dow Jones Industrial Average lost 126 points Monday, closing at 10,066. Here’s Business Week:

U.S. stocks fell, dragging the Dow Jones Industrial Average to its lowest level in three months, as the seizure of a Spanish bank and rising borrowing costs spurred concern Europe’s debt crisis will halt the global recovery.

And here’s The Washington Post:

“If what happened in Greece were to happen in a large country, it could fundamentally mark our times,” Angelos Pangratis, head of the European Union delegation to the United States, said Friday after a panel discussion on the crisis in Greece sponsored by the Greater Washington Board of Trade. . . .
The most vulnerable European countries — Greece, Spain, Portugal and Ireland — may represent only about 4 percent of world economic activity, but “the debt crisis and its ripple effects are bad news for all corners of the world,” said Cornell University economist Eswar Prasad.
The risk of a worst-case scenario is still considered remote. . . .

However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008. And even if the “worst-case scenario” doesn’t happen, how bad would the “kinda bad scenario” have to be, in order to kick us into another three or four years of recession?

The economy sucks, and it’s likely to start sucking even worse — possibly much worse — before the year is over.

UPDATE 9:10 a.m. ET Tuesday: As a commenter points out, European markets dropped more than 3% overnight, and Dow futures are down about 2% before the opening bell. It’s likely the DJIA will close below 10,000 today.

Category: Economics

Comments

16 Responses to “Not News: Economy Still Sucks”

  1. Arizona CJ
    May 25th, 2010 @ 5:38 am

    Quote: “However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008.”

    Great post, but I disagree with you on this point only. I’m a realtor, and I’ve been predicting a housing and banking crunch since the early 2000’s. Why? Because I knew, instantly, that bad times were on the way in the market when i saw the first slew of low down, easy credit adjustable rate loans. I remebered all too well what a mess those made in the Savings and Loan disaster years before, and I was outraged that we were doing it again.

    I was not entirely right, not be a longshot; I thought the crunch would come sooner, and I didn’t think so many “big players” would be mind-numbingly stupid enough to touch subprime loans. Therefor, the crunch came a couple of years later than i thought, and was worse.

    The vast majority of realtors kept spinning, saying that everything was fine. So did just about everybody in government. There were either stupid or blind, because this crisis was obvious; feed a housing price bubble with highly leveraged low quality debt, and you’ve set the stage so that any dip in the housing prices, even a flattening, cause a default wave. This is the same root cause as the Savings and Loan disaster (S&L crisis) in the early 80’s and late 90’s.

    I was far from alone in my prediction; a great many people were decrying subprimes, but no one listened. It ought to have been obvious, and it was obvious, but today the government line is “no one saw it coming.” I say baloney.

    Mr. McCain, please don’t believe that no one could see this coming. Doing so only covers for those that helped cause this mess (a key culprit being the Dems and their community reinvestment act that spurred subprime lending). Better, I think, to let the truth be known; many saw this crisis years before it hit, and were ignored by those who now hold power and present themselves as knowing what they are doing.

    Sorry for the rant, but I spent over five years warning everyone (including my customers) who would listen that this train wreck was on the way.

  2. Arizona CJ
    May 25th, 2010 @ 12:38 am

    Quote: “However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008.”

    Great post, but I disagree with you on this point only. I’m a realtor, and I’ve been predicting a housing and banking crunch since the early 2000’s. Why? Because I knew, instantly, that bad times were on the way in the market when i saw the first slew of low down, easy credit adjustable rate loans. I remebered all too well what a mess those made in the Savings and Loan disaster years before, and I was outraged that we were doing it again.

    I was not entirely right, not be a longshot; I thought the crunch would come sooner, and I didn’t think so many “big players” would be mind-numbingly stupid enough to touch subprime loans. Therefor, the crunch came a couple of years later than i thought, and was worse.

    The vast majority of realtors kept spinning, saying that everything was fine. So did just about everybody in government. There were either stupid or blind, because this crisis was obvious; feed a housing price bubble with highly leveraged low quality debt, and you’ve set the stage so that any dip in the housing prices, even a flattening, cause a default wave. This is the same root cause as the Savings and Loan disaster (S&L crisis) in the early 80’s and late 90’s.

    I was far from alone in my prediction; a great many people were decrying subprimes, but no one listened. It ought to have been obvious, and it was obvious, but today the government line is “no one saw it coming.” I say baloney.

    Mr. McCain, please don’t believe that no one could see this coming. Doing so only covers for those that helped cause this mess (a key culprit being the Dems and their community reinvestment act that spurred subprime lending). Better, I think, to let the truth be known; many saw this crisis years before it hit, and were ignored by those who now hold power and present themselves as knowing what they are doing.

    Sorry for the rant, but I spent over five years warning everyone (including my customers) who would listen that this train wreck was on the way.

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    May 25th, 2010 @ 3:37 am

    […] In completely unrelated news: The Economy Still Sucks And It’s Finally Headed Downwards. […]

  4. T.L. Davis
    May 25th, 2010 @ 10:06 am

    Don’t forget that in the Obama world higher unemployment is GOOD news because it means more people are going back to work! Where? On the street corner?

  5. T.L. Davis
    May 25th, 2010 @ 5:06 am

    Don’t forget that in the Obama world higher unemployment is GOOD news because it means more people are going back to work! Where? On the street corner?

  6. Virginia Right! News Hound for 5/25/2010 | Virginia Right!
    May 25th, 2010 @ 5:39 am

    […] Not News: Economy Still Sucks […]

  7. Joe
    May 25th, 2010 @ 12:00 pm

    Arizona CJ is right. What made this collapse worse than others is the boom went on longer than others (in housing prices escallating) combined with crazy loan policies that were based on the assumption house prices would keep going up. I knew we were in trouble when the average homeowner could no longer buy into the market at all–or rather could provided they agreed to pay some adjustable rate subprime mortgage payment that took about 60% of their actual net income. Something was going to give…and it did.

    If the economy is doing okay in 2012, Obama will get elected. If it is not, Obama is vulnerable. If it is in the toilet, Obama is doomed. I do not hope for that to merely defeat Obama. I would rather have a health economy than that. Unfortunately Obama’s policies are drivng us to a double dip recession.

  8. Joe
    May 25th, 2010 @ 7:00 am

    Arizona CJ is right. What made this collapse worse than others is the boom went on longer than others (in housing prices escallating) combined with crazy loan policies that were based on the assumption house prices would keep going up. I knew we were in trouble when the average homeowner could no longer buy into the market at all–or rather could provided they agreed to pay some adjustable rate subprime mortgage payment that took about 60% of their actual net income. Something was going to give…and it did.

    If the economy is doing okay in 2012, Obama will get elected. If it is not, Obama is vulnerable. If it is in the toilet, Obama is doomed. I do not hope for that to merely defeat Obama. I would rather have a health economy than that. Unfortunately Obama’s policies are drivng us to a double dip recession.

  9. Joe
    May 25th, 2010 @ 12:11 pm

    Hey the Eurpean markets slid about 3.5 % last night. Good times. Good times.

  10. Joe
    May 25th, 2010 @ 7:11 am

    Hey the Eurpean markets slid about 3.5 % last night. Good times. Good times.

  11. Joe
    May 25th, 2010 @ 2:07 pm

    Now the Dow is down 2%. Weeee.

  12. Joe
    May 25th, 2010 @ 9:07 am

    Now the Dow is down 2%. Weeee.

  13. Richard McEnroe
    May 25th, 2010 @ 2:09 pm

    T.L. — Hey! We need those numbers! Those windshields won’t wash themselves at the intersections, buddy!

  14. Richard McEnroe
    May 25th, 2010 @ 9:09 am

    T.L. — Hey! We need those numbers! Those windshields won’t wash themselves at the intersections, buddy!

  15. Roxeanne de Luca
    May 25th, 2010 @ 4:08 pm

    However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008.

    I wouldn’t have predicted total free-fall, but I predicted stagnation (and maybe a dip) in 2000 – when I was all of about 19 years old.

    It’s basically Mathlusian logic: housing prices cannot rise exponentially while income rises linearly, if at all. (My generation has massive student loans, which leaves us with less money to save for a down payment and to pay for a mortgage.) It just seemed obvious that, since no one was holding a gun to our heads demanding that we buy houses at ever-increasing prices, that we simply wouldn’t do it. In a free market, you can only sell something if a buyer can afford it.

    When you couple that with Baby Boomer retirement and the desire to downsize, it just seemed obvious that, at least at the high end, there wouldn’t be enough buyers who could afford the prices.

  16. Roxeanne de Luca
    May 25th, 2010 @ 11:08 am

    However “remote” the risk may be, we ought to remember that in 2006 almost no one expected the collapse of the U.S. housing market which hit freefall in 2008.

    I wouldn’t have predicted total free-fall, but I predicted stagnation (and maybe a dip) in 2000 – when I was all of about 19 years old.

    It’s basically Mathlusian logic: housing prices cannot rise exponentially while income rises linearly, if at all. (My generation has massive student loans, which leaves us with less money to save for a down payment and to pay for a mortgage.) It just seemed obvious that, since no one was holding a gun to our heads demanding that we buy houses at ever-increasing prices, that we simply wouldn’t do it. In a free market, you can only sell something if a buyer can afford it.

    When you couple that with Baby Boomer retirement and the desire to downsize, it just seemed obvious that, at least at the high end, there wouldn’t be enough buyers who could afford the prices.