Three Keys to End the Recession
By Barry Ritholtz - May 13th, 2009, 8:40PM
There have been positive quarters of GDP growth in 8 of 11 recessions since WW2, and the stock market rallied in sync, Shilling notes.
As for the current cycle, he says three trends have to emerge before it’ll be safe to declare the end of the downturn, despite the Fed’s efforts to flood the system with money:
Shilling says there are three trends that will have to emerge before we can to declare the end of the downturn:
- Housing bottom: A reduction in the excess inventory of homes, which he estimates are approximately 2 million (down from 2.8 million a few months ago but still very high.)
- A real resolution of the financial crisis: Like John Hussman and others, Shilling isn’t convinced the stress tests results proved anything, much less marked the end of the crisis. He’s concerned about rising bad loans in sectors outside of residential mortgages, including commercial real estate, auto loans, student loans and credit cards.
- More stimulus: Shilling estimates Obama’s $787 billion package only contained about $200 billion will actually stimulate the economy. With Americans in savings mode, including sitting on recent tax rebates, the government is going to need to do more to “break the cycle of a consumer who is cautious, which means less spending, less production more inventory problems, and more layoffs,” he says.
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May 13th, 2009 at 10:09 pm
So we don’t need jobs anymore?
Seems like jobs would give people money to pay their mortgages and fix the housing bottom.. Also they could pay their loans and fix the financial industry.. Oh and then we wouldn’t need the government stimulus.. In fact the government would be awash in income tax collections…
Is Shilling’s point that jobs will never come back and so he is creating a “plan B”?
May 13th, 2009 at 11:41 pm
Consumer is a cautious for good and sound reasons. Consumption Economy built on easy credit and excess leverage will NOT becoming back any time soon. The deleveraging has to go on to bring the asset prices back to normal (after over correcting first). Belt tightening with eventual decline in the standard of living is a reality, no one wants to admit. You cannot bring back MADEOFF Economy!
You cannot solve INSOLVENCY with more DEBT. That’s called INSANITY!
May 13th, 2009 at 11:46 pm
The title of this post is misleading. “Keys” suggests actions, whereas “trends” suggests indicators.
Housing & finance are both symptoms of our circumstances, therefore a sustained turnaround in those areas would be noteworthy.
OTOH, “stimulus” is definitely an action, but IMHO ineffectual. People aren’t cautious without reason; they’re up to their eyeballs in debt with no relief in sight and questionable prospects going forward. The FIRE economy isn’t coming back, either.
May 14th, 2009 at 8:53 am
Yeah, maybe these would stop the free fall, but we aren’t going up without job creation.
I’m still waiting to see a plan to stop our racing to the bottom against near-slave-labor competition from across the globe… where will real jobs come from? Not everyone can be a financial pundit, House Rep, or brain surgeon, and the census only lasts one year.
May 15th, 2009 at 11:01 am
shilling exemplifies the best and worst in human nature. the prime imperative? go back to the way things were, at all costs, until the path backwards is closed by physical reality.
remember how 9/11 had changed all our attitudes toward the world, toward our society, toward ourselves? remember way back to the ’60s, how “we won’t get fooled again?” *yawn*.
i’m confident the market will stumble on at levels not much below 8000 for one simple reason, one that has nothing to do with fundamentals, technicals, economics, data or logic: america’s opinion that WE LIKED OUR CONSUMER PARTY AND WE WANT IT BACK!