Tag Archives: Economist

Rosenberg Says US Virtually Certain To Fall Back Into Recession

The US economy is almost certainly headed back into a double dip recession, and economists aren’t seeing it because they’re using “the old rules of thumb” that don’t apply this time, well-known economist David Rosenberg tells CNBC.

“The risks of a double-dip recession—if we ever got out of the first one—are actually a lot higher than people are talking about right now,” he says.

“I think that it’s almost a foregone conclusion, a virtual certainty.”

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Another Day Older And Deeper In Debt

We continue to receive Wall Street research telling us to overweight stocks and underweight bonds. This does not happen at true fundamental bottoms in equity prices and Treasury yields.

I continue to get asked what will turn me more bullish. This doesn’t happen at lows, either. At the true lows, the bears get asked why they’re not even more bearish. At the lows, people threaten to call the police when equity brokers go cold-calling.

What the bulls still refuse to see is that we are in an entirely new paradigm and that the old rules of thumb are rarely, or are ever going to be able to be relied upon, as was the case in the familiar credit-expansion days of yore.

There is simply too much debt overhanging the U.S. household balance sheet — the largest balance sheet on the planet. And, despite the deleveraging efforts to date, the process of balance sheet repair is still in its infancy.

Consider the facts — these are not opinions:

The aggregated household debt-income ratio peaked in Q1 2008 at 136%. Currently, this ratio is at 126%. But the pre-bubble norm was 70% (no wonder 25% of Americans have a sub-600 FICO score). To get down to this normalized ratio again, debt would have to be reduced by around $6 trillion. So far, nearly $600 billion of bad household debt has been destroyed. In other words, we have much further to go in this deleveraging phase. Maybe this is why the McKinsey report concluded that this process can and often takes up to seven years to complete.

Folks, we are in this for the long haul. It’s not too late to enter the acceptance stage.

What about debt in relation to household assets? That debt-to-asset ratio is currently at 20% (the peak was 22.7% set back in Q1 2009) but again, the pre-bubble norm was 12.5%. The implications: classic Bob Farrell mean-reversion would mean a further $7 trillion of debt extinguishment.

We are a long way off this deleveraging phase from running its course. The government, along with the Federal Reserve, have expended tremendous resources to cushion the blow. But now we see first-hand what happens when policy stimulus fades and a mini-inventory cycle peaks out in a credit contraction: stagnation in Q3 followed by renewed economic contraction in Q4.

Play it safe. As in … safe yield.

Here’s a copy of the latest market commentary/analysis from chief economist David Rosenberg at Gluskin Sheff.

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IMACS is a non-profit organization dedicated to helping families avoid foreclosure by assisting them in the modification of their mortgage to lower their monthly payments.


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In The Bright Minds Of IMF

Sometimes you may wonder what is going on in the minds of our top international leaders. Like the IMF-boss Dominique Strauss-Kahn who’ been touring Africa recently, praising the continents central banks for their way of handling The Great Recession when in fact Africa was never in one.

“When America sneezes, Africa’s tuberculosis gets worse.”

Raila Odinga


The global recession has barely begun to hit Africa. Its banks and stock exchanges have been isolated enough from the wider capital markets to suffer few shocks, foreign investment remaine steady and oil-rich countries such as Angola continues to boom.

But dampened demand for African exports last year, together with the shrinking of many venture-capital funds, has now hit the continent hard after a long period of unusually perky growth.

Countries south of the Sahara together grew by less than 2% in 2009, and in many places income has fallen and unemployment started to rise.

According to the IMF’s own figures, sub-Saharan Africa’s economy will grow overall by 4.5% this year.

But that may be distorted by a large boost from oil and gold, as well as from the guaranteed aid that makes up half the budget in some countries.

Kenya will struggle to grow by 3% this year and even that depends on an upswing in tourism.

Nearly every African economy will grow more slowly than the 6% that many development economists reckon is the minimum to enable countries with rapidly increasing populations just to stand still.

The problems are obvious, but the fact is that Africa hasn’t experienced negative economic growth yet, and will probably not do so in the foreseeable future either.

So, it sounds very strange when Mr. Strauss-Kahn is traveling through the continent praising Africa’s central banks.

He even says that Africa’s economies were more dynamic than most of Asia’s. The main point, he said, was that Africa was recovering from the global crisis faster than expected.

Okay:

What if we apply the same degree of accuracy to some of the other statements made by the IMF chief:

“There is evidence of new thinking in recent financial sector reform proposals.”

(Financial Times, 03.17.2010)

“This time it’s different.”

(Huffington Post, 03.12.2010)

“My belief is that Haiti—which has been incredibly hit by different things—the food and fuel prices crisis, then the hurricane, then the earthquake—needs something that is big. Not only a piecemeal approach, but something which is much bigger to deal with the reconstruction of the country: some kind of a Marshall Plan that we need now to implement for Haiti.”

(IMF statement, 01.20.2010)

“The current international monetary system have demonstrated resilience during the crisis, with the U.S. dollar playing the role of a safe haven asset.”

(IMF press release, 02.26.2010)

“The IMF has already moved quickly to help many of our member countries in this time of crisis, including by protecting social spending in order to cushion the impact of the crisis on the most vulnerable.”

(The Guardian, 03.26.2009)

“Human society is not a force of nature. The financial crisis was a catastrophic event, but one created by human hand. The lesson we all need to learn is that even a free market economy needs some regulation, otherwise it cannot function.”

(Der Spiegel, 09.14.2009)

Get’s kinda confusing, doesn’t it?

In the election campaign against Nicolas Sarkozy in 2007 Strauss-Kahn was described as “talented and imaginative”.

Imagine All The (Black) People

“When America sneezes, Africa’s tuberculosis gets worse,” Kenya’s prime minister, Raila Odinga, told a sympathetic Mr Strauss-Kahn, as he passed through Nairobi to herald a new IMF Green Fund, The Economist writes in its latest issue.

Full details will be released in April, but Mr Strauss-Kahn said the fund would focus on mitigating climate change in Africa.

A figure “rising to $100 billion by 2020” was mentioned, but this made some people wonder whether the IMF was simply trying to take over responsibility for the $100 billion that rich countries vaguely promised to spend on poor ones at December’s climate-change conference in Copenhagen.

Should so vast a dollop of cash become available, Mr Strauss-Kahn hints it would be divvied up along the lines of the IMF’s existing quota system.

He told Africans they would be hit first and hardest by climate change, so the need for the Green Fund was urgent.

Of course, the climate change!

Well, that’s another side of the story.

Statement by IMF Managing Director Dominique Strauss-Kahn at the Conclusion of His Visit to Zambia

Statement by IMF Managing Director Strauss-Kahn at the Conclusion of his Visit to Democratic Republic of Congo

Statement by IMF Managing Director Strauss-Kahn at the Conclusion of his Visit to Kenya

More from The Economist:

The IMF’s plan for Africa

Ian McEwan’s “Solar”

Nuclear proliferation

Related by the Econotwist’s:

Low-Oxygen Zones In Oceans Worry Scientists

Earthquake May Have Shortened Days on Earth

U.N Climate Panel Seeks Help

Mother Earth On Crack

As Climate War Intensifies, So Does Extreme Weather

World May Not Be Warming, Scientists Says

Top Scientist: “UN Climate Panel Is Losing All Credibility”

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Filed under International Econnomic Politics