Dave’s Top 10 Reasons the Recession Will Last Forever
August 5th, 2009By David Goldman
10. No innovation. As Nobel Prize Laureate Edmund Phelps told Bloomberg News Aug. 2, “I’m not convinced that there’s going to be another wave of innovation in the offing.”
9. Speaking of innovation, the US is not getting the clever immigrants it used to. Remember that almost half of Silicon Valley during the tech bubble peak was Asian.
8. China will hold its own but its economy is too small to act as a locomotive for the rest of the world (maybe for Korea).
7. The US only can finance its nearly $2 trillion annual borrowing requirement if banks and households buy Treasury securities rather than riskier corporate securities or mortgages. If the rest of the economy starts competing with the Treasury for capital, interest rates rates will rise immediately and suppress economic activity.
6. The rest of the world is full up on US Treasury securities. Asia won’t dump its existing holdings (it would be the biggest loser) but will try to diversify out of dollars. That’s why the Euro is trading at the ridiculous level of $1.40. There won’t be enough Europeans left working in thirty years to pay taxes to cover the interest on newly issued long-term government bonds. But the Euro has diversification value against the dollar and its parity is exaggeraged. So revert to Point 5: the US is on its own financing the deficit.
5. The US consumer can’t get out of a hole. The bloggers have been all over the personal income data for June, which shows that household finances continue to deteriorate. I don’t need to reiterate what others have documented; see for example
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The U.S. Consumer’s Pain Will Continue Until 2010 by John Lounsbury
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Personal Income and Savings: The Double Whammy by Tyler Durden
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Where’s the Consumer? by Karl Denninger
4. American demographics look suspiciously like Japan’s in 1990, at the beginning of the “Lost Decade.” Japan’s elderly dependent ratio jumped from 18% to 26% over the 10 years; between 2010 and 2020, America’s will rise from 19% to 25%. In other words, a huge component of the labor force is nearing retirement. They have no savings to speak of and what they thought was their nest egg (home equity) just vaporized. Their savings requirements are bottomless. The combination of demographic and wealth shocks should produce a loop-de-loop in the “marginal propensity to save” such as we have never seen before, except, of course, in Japan.
3. More taxes are en route, to pay for health care, the interest on the federal debt, or whatever. No country ever taxed its way out of a rececession.
2. The rule of law has been severely weakened in financial transactions, through heavy-handed White House intervention into th bankruptcies of the auto sector, through mortgage renegotiation, and so forth.
And Dave’s Number One reason the recession will last forever is:
1. Barack Obama!
Bill Clinton, the last Democratic president, thought in effect, “Let’s get economic growth so I can tax it and pay for all my toys and games.” That was the “New Democrat” approach. Obama knows that if the economy crumbles and he’s the only one left with a checkbook, then everyone has to come to him. Where is the independent base of entrepreneurial business to which the Republicans might to to raise money against Obama? The banks, the hedge funds, the manufacturers, the municipalities, in fact everyone who is left standing in the economy is beholden to Obama. This is Chicago city politics writ large. Leave aside all of the individual things that Obama is doing that harm economic growth: Obama is the first American president (with the possible exception of FDR) to actually benefit from economic weakness.
August 5th, 2009 at 8:37 am
[...] the prospects for recovery, please see “Dave’s Top 10 Reasons the Recession Will Last Forever” over at my Asia Times’ financial blog, “Inner Workings.” The number two [...]
August 5th, 2009 at 8:43 am
Forever is a long time…just ask the Dinosaurs.
I think your keyboard might have betrayed you on #9. Is the word “not” missing from between “is” and “getting”?
#8 I think China will hold it’s own. Maybe in the short term it might blow up from all those state owned loans to state owned companies for state owned friends of my other friends who have friends who are also friends of the party……
#5,6,&7 are solved here with a color printer:
http://www.hasbro.com/games/kid-games/monopoly/images/money/monopoly-money-five-hundred-dollar.pdf
As for me? I am think of a specialized MBA in Crony Mercantilism.
August 5th, 2009 at 11:18 am
[...] assesment here… Inner Workings ? Blog Archive ? Dave’s Top 10 Reasons the Recession Will Last Forever __________________ Since when is being passionate about something wrong? Ohio State fans can [...]
August 5th, 2009 at 12:57 pm
[...] Spengler: Don’t Wait for Obama to Fail Daves Top Ten Reasons: Why The Recession Will Last Forever Ruth Marcus: Quit lying about raising taxes, Mr. President Bookworm: What your representatives [...]
August 5th, 2009 at 5:23 pm
Excellent list. I think David Rosenberg feels about the same way as does Paul Craig Roberts who says there is no economy to generate recovery. Deninger, of course.
August 5th, 2009 at 5:31 pm
[...] #1 make you think this a political hit piece, 10 through 2 have nothing to do with politics) Inner Workings ? Blog Archive ? Dave’s Top 10 Reasons the Recession Will Last Forever __________________ Since when is being passionate about something wrong? Ohio State fans can [...]
August 6th, 2009 at 5:19 am
One of the most important reasons behind US decline is the spread of greed and Wall Street mentality into entire US economy. One example for all - Boeing. Boeing management would outsource even their wives or children just to make some profit on it. That´s why Dreamliner is the aircraft of the future. Always has been and always will be …..
And the most important figure to watch about american society is the gini index, the measurement of inequality. Gini index for USA is currently at 0,45, which is roughly the same as for Jamaica(0,455),Mexico(0,461) or China(0,469) and higher than that of Ghana(0,408), Nigeria(0,437) or Nicaragua(0,431). When baby-boomers(the wealthiest section of middle class) retire, US will become a two class society: a tiny minority of super-rich owning nearly everything and the rest - the poor. Societies at that stage are in dead-lock, there´s no way out. The only way out is revolution. Conditions for a revolution in US are ripening. Fastly.
http://en.wikipedia.org/wiki/List_of_countries_by_income_equality
“As I’ve often said … the increasing income inequality is not the type of thing which a democratic society — a capitalist democratic society — can really accept without addressing.” - Alan Greenspan, June 2005
August 6th, 2009 at 9:51 am
[...] This entire site Copyright 1997-2009 Don C. Warrington. All rights reserved. Appearances of certain advertisements on this site do not constitute an endorsement. “Obama is the first American president to actually benefit from economic weakness”6 August 2009, me @ 09:51This, from David “Spengler” Goldman: [...]
August 6th, 2009 at 1:50 pm
Why Obama Won’t “Fail” …
I just wrote a blog on Victor Hanson’s speculations that President Obama may not be as successful as many have thought as righteous anger springs forth from the grassroots.
I commented that,
“I think he may be a bit off, however. There is……
August 11th, 2009 at 12:26 pm
Hi David:
There may be hope on the demographic front. The Economist reports on the new demographic transition.
Teresa
August 11th, 2009 at 1:52 pm
Teresa, thanks for the link. The French and Scandinavian data have been much-discussed but little analyzed. It’s true that a few countries show improvement, but many others — Japan, Germany, Spain, Italy, plus all of Eastern Europe– are doing terribly. The French and Scandinavian examples suggest that “natalisme” helps — subsidies to families with children are an effective way to raise the birth rate. There is also an immigration component which is hard to sort out (immigrants have much larger families and skew the numbers). It also may be the case that nationalism still helps — the French have a high opinion of themselves.
September 25th, 2009 at 12:07 am
Am I missing something? Rates APPROACHING replacement in Norway? After all the money they pump into the social system the people still refuse to reproduce! What happens when the money dries up in Norway? And what about the other countries that dont have huge oil reserves? I guess slower extinction is considered progress! The average fertility rate for the EU is 1.5 which translates into a moderate pace toward extinction. If a Norweigan social system isnt enough to make people reproduce at replacement levels, what incentive is there? What does this say about Eastern Europe?
And as far as the role of immigration goes, for all we know it could be the COMPLETE explaination of the higher birthrates. It certainly has SOME role. Immigrants and most likely the European equivalent of rednecks! Lets not be sanctimonious about birth rates. Equally as important to the quantity of births is the quality. For all we know its the deadbeat parasites who r having more kids to sponge off the system not the responsible parents. This is in some way similar to the subprime mortgages. Europe needed investment vehicles. There werent enough people w/good credit to lend to so they loaned to peoplke w/crappy credit. Same mentality…they need people to avoid extinction. But since they cant make enough good people they make crappy people. Soon they r a “subprime” nation of idiots! Instead of breeding future workers, more than likely they r breeding future parasites!
Maybe we would be better off if they go extinct! Maybe extinction is their only hope for survival!