Archive for April, 2008
The official headline for U.S. Q1 GDP growth says a positive 0.6% growth but the details are ugly and confirm that we are in a recession. First of all, if you exclude the increase of inventory of unsold goods (that moved positive after a negative figure in Q4) the Final Sales of Domestic Product were [...]
Is the global economy headed towards a global recession? Or should we worry more about the rising inflationary forces in the global economy? Or will both evils emerge in a stagflationary outcome of contracting output and rising inflation? Certainly recessionary pressures are mounting in many economies; while inflationary pressures are mounting in other ones.
So let us consider in more detail the recessionary and inflationary risks in the global economy…
Foreign Policy and Prospect magazines have just come out with their list of the world “Top 100 Public Intellectuals”. The list includes 15 economists: Jacques Attali George Ayittey Paul Collier Esther Duflo William Easterly Fan Gang Yegor Gaidar Paul Krugman Steven Levitt Nouriel Roubini Jeffrey Sachs Amartya Sen Michael Spence Lawrence Summers Martin Wolf [...]
The discussion continued later in the day on CNBC…
While the housing figures are getting worse and worse (literally plunging new home sales, falling existing home sales, falling housing starts and permits) the effects of this housing recession and the ensuing financial crisis on the real economy are now in full swing.
Three headlines this morning were indicative of how the housing recession has now spread to an economy-wide recession…
Project Syndicate has now published my latest column “The Shape of the US Recession”. This is a shortened version of my April 7th blog “The US Recession: V or U or W or L-Shaped? where I first discussed whether the current US recession would be a short and shallow one (V-shaped), a more severe and protracted one (U-shaped), a Japan-style longer term stagnation (L-shaped) or a double-dip recession (W-shaped) if the coming tax rebate leads to a temporary pick-up in consumption in Q3.
As I have been repeating for months now the US debate is not anymore on whether we are going to have a soft landing (slow growth patch) or a hard landing (a recession) but rather on how hard the hard landing will be (i.e. how deep and severe the recession will be).
Today the Financial Times has a long and very good article titled “Road to Ruin? America Ponders the Depth of Its Downturn” that starts as follows:
What will be the shape of the US economic downturn? In recent months, the debate among economists has shifted from whether the US will have a recession to how deep and how long it will be.
Will it be a V-shaped recession – short, shallow and followed by a rapid return to normal rates of growth? Will it be U-shaped, in which the initial downturn is followed by a protracted period of weak growth and a slow return to the trend rate? Or could it even be an L-shaped recession – with economic weakness lasting for many years, as in the US during the Great Depression or Japan in the 1990s?
The article then goes on discussing whether the US recession will be V-shaped or U-shaped or L-shaped. As they say “imitation is the sincerest form of flattery”…
And here is below my “The Shape of the US Recession” column…
The worst is ahead of us rather than behind us in terms of the housing recession and its economic and financial implications
How bad is the US housing recession and are we close to its bottom? In recent interviews and remarks I have argued that the worst is ahead of us – rather than behind us – for housing, the real economy and the losses in financial markets.
The blogger Calculated Risk has certainly provided, by far, the best coverage of the US housing recession; a most excellent blog. This week he first linked to the Canadian TV interview where I expressed my concerns about the consequences of the US housing slump; he next provided three arguments on why he is not as pessimistic as me about this housing recession and its economy-wide and financial implications. His three arguments go as follows: first, by now housing starts have fallen as much as new home sales; so we are close to the point where the excess supply of new homes is reaching its peak. Second, he argues that in California if the borrower has refinanced the mortgage becomes a recourse loan and the lender can pursue a deficiency judgment; so the number of folks who will walk away is more limited than what I have estimated. Third, he argues that losses for banks from the credit crisis may be less than my estimate of $1 trillion.
There is certainly some uncertainty on each one of the issues that Calculated Risk has highlighted. Let me provide some additional details for the pessimistic case…
I was recently interviewed by Steve Paikin, the anchor of The Agenda, a public affairs program on a Canadian television station. This 25 minutes video interview is now available at this link (on the right side is a television icon with “Nouriel Roubini” hyperlinked next to it; by clicking on the link, a media player [...]
The Financial Times has now published a video interview (taped earlier this month in Italy) where Jim O’Neill (head of global macro research at Goldman Sachs) and myself discussed the US and global economic outlook. Here is the link to this video: How Slow Will It Go? Economists Discuss the Global Slowdown There is now doubt [...]
The French Finance Minister Lagarde compared the G7 statement on the US dollar to the 1985 Plaza Accord to weaken the US dollar; but the forex market pretty much ignored the statement pushing the dollar further down. The statement certainly signals that the G7 are getting closer to the point where the dollar weakness bothers both the US and Europe and where coordinated forex intervention may be considered; but as the saying goes “talk is cheap”. Verbal intervention – of the sort used even by Trichet in the last few weeks and used by the G7 in their weekend statement – almost never works (as the Japanese learned a few years ago). Also sterilized fx intervention usually does not work – unless such intervention goes with the wind rather than against the wind, is seriously coordinated and aggressive and signals future changes in actual monetary policies (i.e. unsterilized intervention). What works in affecting exchange rates is unsterilized intervention – or equivalently – changes in relative monetary policies, i.e. changes in policy rates.
Currency movements are driven – apart from market noise and momentum – by economic fundamentals. Several fundamentals are driving the dollar south relative to euro and other floating currencies.
Lets discuss these fundamentals and their implications…