Why the Current Economic Weakness May Be Overstated
Sunday November 23, 2008
Justin Fox on economic predictions for this quarter:
I went to college in the mid-1990's when 'alternative music' was at its height. The DJs at our campus radio station, CHRW, seemed to be in a perpetual contest of one-upping each other by playing this most obscure music they could find. I got a laugh from one DJ who introduced a track by saying "this song is so alternative, it sucks!"
I have to wonder if that is what is going on this quarter - that pundits and forecasters are trying to make a name for themselves by issuing even gloomier forecasts than their competitors. Irrational exuberance in reverse.
Excessive negativity is a problem due to the role of self-fulfilling prophecies in economics. I wonder how much of this quarter's poor economic performance will be due to poor fundamentals and how much of it will be due to the predictions of economic argammedon emanating from the chattering classes.
Just how far and how fast will the economy drop this quarter? There's lately been a race to the bottom among forecasters, with the economists at Goldman Sachs leading the way. Early in the week, they put out a report saying that -3.5% annualized GDP growth was their baseline forecast for the quarter, but they also went so far as to outline a "just awful" scenario of -6.0% and a "worst case" of -7.8%. Today they updated their baseline forecast to -5%.Emphasis on race to the bottom mine.
That puts Goldman well ahead, for the moment at least, of even Nouriel Roubini, the New York University professor known as Dr. Doom — whose current forecast is about -4%. Lots of Wall Street economists less renowned for their gloominess have by now moved past the -3% mark.
I went to college in the mid-1990's when 'alternative music' was at its height. The DJs at our campus radio station, CHRW, seemed to be in a perpetual contest of one-upping each other by playing this most obscure music they could find. I got a laugh from one DJ who introduced a track by saying "this song is so alternative, it sucks!"
I have to wonder if that is what is going on this quarter - that pundits and forecasters are trying to make a name for themselves by issuing even gloomier forecasts than their competitors. Irrational exuberance in reverse.
Excessive negativity is a problem due to the role of self-fulfilling prophecies in economics. I wonder how much of this quarter's poor economic performance will be due to poor fundamentals and how much of it will be due to the predictions of economic argammedon emanating from the chattering classes.
Comments
The Time Based Fractal Solution for the Commodity and Equity Asset Low and for the US Debt Instrument and Dollar High Saturation Valuations
The macroeconomic system of total wages, savings, debt, asset valuation, and asset supply is completely mathematical and mechanistic. It produces asset saturation valuation curve data in hourly, weekly, monthly, and yearly units. These data conform to simple fractal patterns which define the complex macroeconomic system as a science just as the simple mathematical laws of gravity describe the relationships of proximal heavily bodies under the influence of unseen but mathematically discernible and consistent fractal energy forces emanating from the mass-energy bodies.
Within any given section of the asset valuation saturation curve, fractal patterns at various time orders are identifiable. This is the nature of fractals. But in order to prospectively and accurately determine the true ongoing asset valuation fractal pattern, the complete curve and the longer, intermediate and shorter fractal patterns must be viewed in totality and with relational consistency. Likewise the short term and long term decay and growth fractal relationships of debt valuations, currency valuations, commodity valuations, and equity valuations and their respective inverse growth and decay fractal relationships must be consistent. The world is at the historical time frame for a nonlinear commodity and equity collapse involving the most invested and monied second fractal asset valuation saturation curve in the history of the world - the terminal portion of the150 year US equity valuation second fractal. Saturated real estate market assets and saturated equity assets and saturated commodity assets rotationally peaked within a 2 and 1/2 year period of each other - limited by ongoing debt, overvaluation, and oversupply of durable goods including housing involving basic commodities. Now a collapsing real economy: diminishing jobs, diminishing total wages, collapsing commodity, equity, and real prices is an exponential feed back system causing more oversupply, less demand, and greater debt default. And because the United States has been such a dominant force in the world’s - debt driven, US consumer driven, US financial facilitator industry driven, US low interest rate driven -macroeconomy, the entire world has operated under the umbrella of the United States- dominant long range 150 year seond fractal pattern - especially for the last 50 years since the second world war. The first 70-71 year asset valuation growth cycle for the United States began coincidentally with the writing of its constitution and ended in 1858 shortly before the American civil war. Nonlinearity between the 2x and 2.5x time frame characterizes the terminal portion of asset valuation second fractals. Asset nonlinear devolution has been transpiring in earnest for the last two months and will now accelerate percentage wise in a precise and predictable nonlinear fractal pattern. This predictable nonlinearity has the potential for dislocating the entire global macroeconomic, debt obligation, political, social, ownership, and currency systems.
While the qualitative guidance for the rotational collapse of real estate, equities, and commodities has been accurate, the prospective daily quantitative identification for the daily fractal sequence of the collapse has not been. The prior fractal decay estimations included portions of saturation curve and parts of the various asset elements but not all of the assets within the context of intermediate and longer fractal progression and linked in mechanistic optimal lock step with each other. There is now a fractal solution that fits all parameters: debt instrument growth, commodity and equity collapse, and US dollar growth relative to other basket currencies. This fractal solution provides a time table within which the emanating epiphenomena continuous stream of bad news - collapsing banks, corporations. and retailers; exponentially rising unemployment; unbalanceable state budgets, state budget cuts, tuition increases, defaulting local community bonds, defaulting pension plans, collapsing GDP numbers, and finally decreasing Big Mac sales - will occur. As of 22 November 2008, the inverse fractal daily decay growth pattern is prospectively predicted as 33/14 of 83/25 days.
who cares?
How reassuring than that the most accurate economic forecasts are the reverse of what most economists predict. Feeling better all the time.
Were is the base for job creation?
Just what kind of work is out there for those getting laid off or have been?
Retail has been hiring 65 and older now for the last 3 yrs on an rapid rate. To lower benefit costs.
Credit was given to people with no jobs, no income, home equity loans on 500% values, this is what kept the economy going for the last 20 yrs.
Only 50% of homes have been foreclosed
70% of ARM;s to come yet
40 million out of work or not in jobs that pay above a poverty wage.
Wal-mart to close stores??
How many people think we can train our way out of this?
Train them to do what?
How many jobs exists where training can solve the problem?
Anyone?
Bailouts and borrowing money?
Correct me if I’m wrong but creative financing played a major role in soaring house prices. Because it was easy to qualify for a home you couldn’t afford, and easy to pay for it while you deferred interest, housing prices soared as people put themselves in loans that traditionally would have been 2-300K out of reach. While the house appreciated someone else would come along and purchase it for a 150K more just a few years later and start the whole process over again. As these loans become easier to obtain sellers had more leverage and asked for more. We know this was the beginning of the end, and a bust was forecasted from the start. What I don’t understand is how can bailouts combined with making credit more available be a good thing? Isn’t that how we got in this situation in the first place? As a nation how can we expect to catch up if the only way to stimulate the economy is with borrowed money? My brain hurts, someone please help?
Your idea that if no one is told the economy is bad then they won’t figure it out when they see their neighbors living in the street and eating out of garbage cans is naive to say the least. Reality always wins in the end everywhere except in Hollywood. The fantasy approach has already been used by the U.S. govnernment in the production of economic statistics by the BLS. Unemployment and inflation are grossly understated, while GDP is overstated. This hasn’t kept things from falling apart, nor will any further delusionary claims as to the health of the U.S. economy.
I see the point you are making and i do agree that the papers certainly don’t help anything with their doom mongering. But fundamentally a lot of economies are in serious trouble. 2009 will not look any better than 2008 - in fact it will probably be much worse - especially here in the UK.