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Reasons For An Impending Us Economic Recession

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Guest wrongmove

There seems to be a glut of bearish articles in US at the moment (see TMF thread here: Calcaria on TMF "The world must prepare")

e.g. Reasons for an impending US economic recession

"...The unrecognized problem in the United States is that economic growth driven by a housing bubble is extremely credit and debt intensive. It needs, firstly, heavy borrowing to drive up the house prices and, secondly, further heavy borrowing to turn the resulting capital gains into cash. Put this together with minimal or now zero real disposable income growth and you have something like a credit Moloch devouring credit and leaving less and less for economic growth.

Yet we are sure that the US economy’s extraordinary debt addiction has other reasons unrelated to the housing bubble. One is the huge trade deficit, and the other is extensive and rapidly increasing Ponzi finance...."

and The world must prepare for America's recession

"The odds that the US will slide into recession have risen since last month from 50 per cent to 70 per cent by my estimates. The US Federal Reserve took its foot off the brake on the economy this week when it took a pause in tightening monetary policy for the first time after 17 successive interest rate rises in spite of rising inflation. But it is too late. The Fed might have been hoping for a soft landing for the economy but instead it faces recession. The implications will be felt globally. The rest of the world will not decouple from the US economic train, as some analysts predict. When the US sneezes, the rest of the world still gets the cold...."

The above is a subscription only article, but the author elaborates here Four Investors' Fairy Tales...and Five Ugly Realities About the Coming Severe U.S. Recession. and in links from this article.

""... * Fairy Tale # 1: The U.S. economy will have a soft landing: according to this tale, U.S. growth will continue at its trend rate of 3.5% (as recently argued by Bernanke) or just below trend, around 3.0% (i.e. the Fed staff and the market consensus view).

* Fairy Tale # 2: If the U.S. slowdown is excessive, inflation will ease and the Fed will come to the rescue with a sharp cut of the Fed Funds rate in the fall. I.e. a reduction in interest rates will prevent a recession from occurring.

* Fairy Tale # 3: Even if the U.S. slows down, the world will "decouple" (to use Goldman Sachs' term) from the U.S slowdown and will keep on growing at a perky rate in Asia, Europe, emerging markets and Latin America. In JP Morgan's terminology, this "decoupling" is termed as the "rotation in global growth", from U.S. to Asia and Eurozone. Others refer to it as the "locomotive switch” with a switch in the global growth locomotive from the sputtering U.S. one to the perky ones in EU and Asia.

* Fairy Tale # 4: The rebalancing of global current account imbalances is underway and will be orderly rather than disorderly: the Bretton Woods 2 regime of vendor financing of the US twin deficits will continue unabated; and any possible fall in the US dollar will be orderly and gradual...."

Not even RB will need to spin these articles ! :)

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Forbes publised prediction of recession in the US couple months ago.

Yes, it is true. Despite that Bank of England apparently is better player with reality (UK has higher credit debt and similiar twin deficit in compare with US and still there is "only" some slowdown, not crash) now it is not important.

After US many Asian countries will have huge problems. Presently, Chinese goverment is trying to slowdown an investment in property and industry as China is dependent from US consumers. When US crash, China crash as well. So, we will have crash in two major economies (engines of world economy) in the same time.

Than recession (depression?) will spread further, like Asia crisis in 1997 - but on much bigger scale.

My bet is that we are facing next Great Depression. Similiar trade imbalances, even higher than in 1929 credit debt, massive property bubble around the globe...

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http://uk.biz.yahoo.com/060809/323/gj34t.html

Wednesday August 9, 07:07 PM

Housing market hitting a rough patch

WASHINGTON (AFX) - The 'For Sale' signs are staying out longer. House prices are easing as sellers try to lure in buyers.
The big question now:
Will the nation's five-year housing boom turn into a devastating bust that could derail the overall economy?
'We recognize the risk ... and we are watching it very carefully,' Federal Reserve Chairman Ben Bernanke told Congress recently.
The Fed's interest rate increases, which have helped push mortgage rates to the highest levels in more than four years, are putting a damper on housing.
The central bank acknowledged that fact Tuesday when it decided against raising a key short-term rate for an 18th time.
Instead, the Fed's policymakers said they believed the 'gradual cooling of the housing market' would help slow the economy and allow inflation pressures to moderate.
The Fed's cease-fire on rate hikes came after various reports showed the housing boom is definitely over.
Sales of new homes and existing homes have been falling. And although the median prices are still increasing, the gains have been the smallest in years.
A
record level of unsold homes
is expected to exert even greater pressure on prices in coming months.
The concern is that the already sizable inventory glut could worsen as millions of Americans with adjustable rate mortgages, taken out when interest rates were at four-decade lows, suddenly find they
can't meet new higher monthly payments.
'So far, the correction in housing has been orderly, but there is a significant risk that this orderly correction could become more chaotic,' said Mark Zandi, chief economist at Moody's Economy.com.
'
The housing market has been driven by euphoric optimism about future house price growth
. That could quickly change to dark pessimism and we could see sales and prices fall much more than expected,' Zandi said...../

IMO, we are in EXACTLY the same boat as our ex-colony. The only difference is that we are about 6 month's behind and have an entire market that is comparable to the very worst "froth" markets in the US. Our debt crisis may even be worse as I do not believe the rate of growth in repossessions is as high as the UK market.

Edited by Realistbear

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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