Tag Archives: Recessions

A Major Oil-Led Recession In 2013?: Gail Tverberg | Economy Watch

Posted by on January 10, 2013 Comments Off

The relationship between oil shocks and global recessions is one that has been strongly established for decades. Since World War II, 10 out of 11 recessions in the U.S. were preceded by a sharp increase in the price of oil, while an increase in gasoline prices is often seen to cause a decrease in consumer spending, leading to an economic decline in the process. Worryingly, global conditions suggest that another oil-led recession may be on the way – one that may prove to be a long-term threat to the global economy.

We have been hearing a lot about escaping the fiscal cliff, but our problem isn’t solved. The fixes to date have been partial and temporary. There are many painful decisions ahead. Based on what I can see, the most likely outcome is that the US economy will enter a severe recession by the end of 2013.

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This recession is likely be very long term. In fact, based on my view of the reasons for the recession, it may never be possible to exit from it completely.

I base the foregoing views on several observations:

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5. The financial symptoms that the US and many other oil importers are experiencing bear striking similarities to the problems that many civilizations experienced prior to collapse, based on my reading of Peter Turchin and Sergey Nefedov’s book Secular Cycles. According to this analysis of eight collapses over the last 2000 years, the collapses did not take place overnight. Instead, economies moved from an Expansion Phase, to a Stagflation Phase, to a Crisis Phase, to a Depression/Intercycle Phase. Timing varies, but typically totals around 300 years for the four phases combined.

A Major Oil-Led Recession In 2013?: Gail Tverberg | Economy Watch

Secular Cycles: Peter Turchin, Sergey A. Nefedov: 9780691136967: Amazon.com: Books

Many historical processes exhibit recurrent patterns of change. Century-long periods of population expansion come before long periods of stagnation and decline; the dynamics of prices mirror population oscillations; and states go through strong expansionist phases followed by periods of state failure, endemic sociopolitical instability, and territorial loss. Peter Turchin and Sergey Nefedov explore the dynamics and causal connections between such demographic, economic, and political variables in agrarian societies and offer detailed explanations for these long-term oscillations–what the authors call secular cycles.

Secular Cycles elaborates and expands upon the demographic-structural theory first advanced by Jack Goldstone, which provides an explanation of long-term oscillations. This book tests that theory’s specific and quantitative predictions by tracing the dynamics of population numbers, prices and real wages, elite numbers and incomes, state finances, and sociopolitical instability. Turchin and Nefedov study societies in England, France, and Russia during the medieval and early modern periods, and look back at the Roman Republic and Empire. Incorporating theoretical and quantitative history, the authors examine a specific model of historical change and, more generally, investigate the utility of the dynamical systems approach in historical applications.

An indispensable and groundbreaking resource for a wide variety of social scientists, Secular Cycles will interest practitioners of economic history, historical sociology, complexity studies, and demography.

Secular Cycles: Peter Turchin, Sergey A. Nefedov: 9780691136967: Amazon.com: Books

If Gail thinks the Crisis Phase is near based on the theories in the above book, the Fourth Turning says it arrived in 2005.

Amazon.com: The Fourth Turning: An American Prophecy – What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny (9780767900461): William Strauss, Neil Howe: Books

First came the postwar High, then the Awakening of the ’60s and ’70s, and now the Unraveling.  This audacious and provocative book tells us what to expect just beyond the start of the next century.  Are you ready for the Fourth Turning?

Strauss and Howe will change the way you see the world–and your place in it.  In The Fourth Turning, they apply their generational theories to the cycles of history and locate America in the middle of an unraveling period, on the brink of a crisis.  How you prepare for this crisis–the Fourth Turning–is intimately connected to the mood and attitude of your particular generation.  Are you one of the can-do “GI generation,” who triumphed in the last crisis?  Do you belong to the mediating “Silent Majority,” who enjoyed the 1950s High?  Do you fall into the “awakened” Boomer category of the 1970s and 1980s, or are you a Gen-Xer struggling to adapt to our splintering world?  Whatever your stage of life, The Fourth Turning offers bold predictions about how all of us can prepare, individually and collectively, for America’s next rendezvous with destiny.

Amazon.com: The Fourth Turning: An American Prophecy – What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny (9780767900461): William Strauss, Neil Howe: Books

Not even the great economists of history can get us out of this fix – Telegraph

Posted by on September 27, 2012 Comments Off

Every big financial crisis has its own defining characteristics, but both in origin and consequence, such implosions tend to be remarkably similar. In virtually every case, you first see a long period of excess in financial risk-taking, where credit spirals out of control. This ultimately proves unsustainable, and in the resulting bust the process of credit expansion goes violently into reverse, causing often catastrophic economic damage, from which it will typically take many years to recover. There is no quick bounce back from recessions caused by financial crises.

In one important respect, however, the present maelstrom is unique. Never before have we seen a financial crisis result in such all-encompassing and explosive growth in public indebtedness. This is not a problem exclusive to Britain, nor is the UK even the worst example of it. To a greater or lesser extent, all advanced economies that were directly involved in the financial crisis have suffered the same phenomenon, with public debt climbing to previously unthinkable levels. This might be understandable in the event of a no-holds-barred military conflict, where nations are fighting for their very existence, but for public indebtedness to be approaching such extremes in peacetime is quite without precedent.

Not even the great economists of history can get us out of this fix – Telegraph

Unprecedented relative peace and stability since the end of World War II is being followed by an unprecedented financial crisis. Well, it would be unprecedented if it weren’t so heavily suppressed by heavy borrowing.

Where have we seen this picture before? Things going along just great, then bang – everything falls apart. Does that remind you of the Arab Spring? There was the 9/11 attack. There was a slow motion version of this with the Soviet Union and Chernobyl – the bang moment. There was the Pearl Harbor attack by Japan. There was assassination of Archduke Franz Ferdinand of Austria which started World War I.

Here are some more bang moments:

How to Build a Better Economic Model

In the summer of 1988 Yellowstone National Park experienced a fire unlike anything ever seen before in that park. Initially, there was no indication that this fire was going to be exceptional. It started off like any other fire, but by the time the fire was ultimately put out over 1.5 million acres of land was burned. Prior to that fire the biggest fire ever recorded in Yellowstone was in 1886 where 25 thousand acres burned. Between 1886 and 1988 the policy of the forestry department was to put out or mitigate every fire (stabilize the forest). Paradoxically, this policy pushed the park into complete collapse.

In 2010 economists are trying to figure out how they can prevent the next collapse. When the U.S. financial system was prevented from collapsing in 1997 (the Long Term Capital Management collapse), we got the tech market collapse of 2000-02. When the Fed did everything to mitigate the collapse of the tech market, we got the housing bust of 2007-09. When the housing bust turned into the global financial crisis, the government did everything it could to mitigate the collapse. Now many are wondering if we will experience a double-dip recession in 2011-12.

How to Build a Better Economic Model

Both in financial matters and war, countries experience a bang moment when the wheels fall off. Suppressing the bang moment only makes things worse down the road.

Are Chinese Banks Hiding “The Mother of All Debt Bombs”? | The Diplomat

Posted by on September 7, 2012 Comments Off

China’s massive bank financed stimulus was intended to keep the economy moving. It may instead lead to economic disaster.

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Flooding the economy with trillions of yuan in new loans did accomplish the principal objective of the Chinese government — maintaining high economic growth in the midst of a global recession.  While Beijing earned plaudits around the world for its decisiveness and economic success, excessive loose credit was fueling a property bubble, funding the profligacy of state-owned enterprises, and underwriting ill-conceived infrastructure investments by local governments.  The result was predictable: years of painstaking efforts to strengthen the Chinese banking system were undone by a spate of careless lending as new bad loans began to build up inside the financial sector.

Are Chinese Banks Hiding “The Mother of All Debt Bombs”? | The Diplomat

If trying to maintain economic stability in the face of a global economic storm leads to calamity, then what does that say about stabilization efforts in the West during normal recessions? Why is the West today facing an economic storm? It is because of stabilization efforts since 1945. Systematic stabilization efforts since 1945 have ultimately led the West to calamity. China’s efforts to catch up with the West have largely succeeded – China is approaching calamity too. The bigger the stabilization required, the closer one is to calamity.

Is The Fed Responsible For The Great Financial Crisis? | ZeroHedge

Posted by on September 5, 2012 Comments Off

“Recessions are a natural economic feature and their regular occurrence is healthy and indeed essential,” is how Deutsche’s Jim Reid introduces his investigation into post-Fed un-natural business cycles. Without them there is a serious danger of bubbles and the misallocation of resources as the further market participants detach themselves from the last downturn the more they tend to under-estimate risk.

Is The Fed Responsible For The Great Financial Crisis? | ZeroHedge

Spain’s troubles could spread – Salon.com

Posted by on June 13, 2012 Comments Off

Until flaws in the euro are addressed, the crisis is likely to simmer on

Spain’s banks are in a world of trouble, as you’ve undoubtedly heard. They are strained by loans made over the course of a a building boom that went bust in 2008, two recessions in the last three years, and the highest unemployment rate among developed nations. Misguided austerity policies have only made things worse. Everybody is biting their fingernails, trying to figure out if the bailout Brussels recently concocted will work. Stocks are reacting in an up and down roller-coaster ride. Depositors are taking their money out of banks in the most vulnerable countries. The biggest fear is that if the bailout fails, the contagion will spread even further into Europe’s core and eventually to the shores of the US itself.

Spain’s troubles could spread – Salon.com

Europe’s Crisis Threatens To Kill Global Economic Recovery, Experts Warn : The Two-Way : NPR

Posted by on May 23, 2012 Comments Off

Unless leaders in Europe act quickly, the financial crisis there could drag down the global economy and kill what appears to be a “fragile, extremely uneven” recovery, the multi-national Organization for Economic Cooperation and Development warned today.

In a stark report calling for action aimed at boosting and shoring up Europe’s economies, OECD Chief Economist Pier Carlo Padoan warns that “the crisis in the euro zone remains the single biggest downside risk facing the global outlook.”

Europe’s Crisis Threatens To Kill Global Economic Recovery, Experts Warn : The Two-Way : NPR

If the global financial crisis started in late 2008, why after over 3 years is the recovery only fragile? Do you see something wrong here? We are following the path of Japan, but we don’t really understand Japan’s path. Japan doesn’t either. Why can’t we get out of this mess?

We are in an economic depression that is being heavily suppressed, so it doesn’t feel like a depression. This is different than past recessions. We have now reached the end of the line. We have kicked the can so long that we have reached the end of the road.

Samuelson: Economists’ ‘science’ didn’t stop financial crisis

Posted by on March 18, 2012 Comments Off

All the good news (low inflation, high employment, rising stock and real estate prices) drove economic growth. Between 1982 and 2007, there were only two mild recessions. The economy seemed less risky. Economists announced the Great Moderation of business cycles.

Booms become busts because justifiable confidence becomes foolish optimism. So it was. Believing the world less risky, people took more risks. Investment banks and households increased their debt. Lending standards eroded, because borrowers’ repayment prospects were thought to have improved. Regulators relaxed oversight, because markets seemed more stable and self-correcting. On the fringes, ethical standards frayed; criminality increased. The rest, as they say, is history.

Samuelson: Economists’ ‘science’ didn’t stop financial crisis | The Asbury Park Press NJ | APP.com

Nouriel Roubini and Ian Bremmer on the toll of war with Iran

Posted by on March 13, 2012 Comments Off

An exclusive conversation with Nouriel Roubini and Ian Bremmer on the toll of war with Iran — and why China and Russia just don’t care anymore what the United States thinks of them.

It’s a mixed bag these days. Europe appears to have arrested its fall into the abyss and the U.S. economy is finally looking up. But with a looming consensus that war with Iran is in the offing and Putin’s recent return to power in Russia, geopolitical chaos lurks around the corner. Foreign Policy once again turned to Nouriel Roubini — who’s always good for a little doom and gloom — and Ian Bremmer to make sense of the ticking time bombs. And they didn’t hold back.

When asked about the consequences of war in Iran, Roubini sees prolonged high oil prices “$170, $180, $200 a barrel” and warned of the knock-on consequences: “the last three major global recessions … were all caused by a geopolitical shock in the Middle East that led to spike in oil prices.” But Bremmer’s not buying all the war hype: “the Obama administration does not want to engage in military strikes against Iran — and they sure as hell are going to resist it, no matter what — before the elections.”

$200 Oil and the Moscow-Beijing Alliance – Interview by Benjamin Pauker | Foreign Policy

The Austerity Debacle. – NYTimes.com

Posted by on January 30, 2012 Comments Off

Last week the National Institute of Economic and Social Research, a British think tank, released a startling chart comparing the current slump with past recessions and recoveries. It turns out that by one important measure — changes in real G.D.P. since the recession began — Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

Nor is Britain unique. Italy is also doing worse than it did in the 1930s — and with Spain clearly headed for a double-dip recession, that makes three of Europe’s big five economies members of the worse-than club. Yes, there are some caveats and complications. But this nonetheless represents a stunning failure of policy.

And it’s a failure, in particular, of the austerity doctrine that has dominated elite policy discussion both in Europe and, to a large extent, in the United States for the past two years.

The Austerity Debacle. – NYTimes.com

Couldn’t Make Davos This Year? Here Are the 5 Things Everyone’s Talking About | Business | TIME.com

Posted by on January 28, 2012 Comments Off

Capitalism needs a fundamental overhaul. That capitalism is somehow broken has become one of Davos’ most persistent themes. 

The Arab Spring must end happily. Representatives from the revolutionary movements that recently toppled regimes in Tunisia, Egypt and Libya are among the stars of this panel.

The Eurozone crisis will continue to muddle along, but muddling may be enough. The European finance ministers in attendance are all staying on message: Eurobonds are not happening, austerity measures are the way forward now, greater fiscal union is the end goal, and Greece will not default or leave the Eurozone.

China is still the star. Brazil has come to Davos in a big way. As has Mexico, and India, and Azerbaijan. But the panels on China are packed,…
Americans and Europeans are pointing fingers at each other. Why is the global economy not in full recovery?

Couldn’t Make Davos This Year? Here Are the 5 Things Everyone’s Talking About | Business | TIME.com

 

Here is my take on these issues:

1. Capitalism is not broken. We are in a crash state because the genius economists and politicians decided that suppressing recessions is a good thing. The build up of corruption and bad decisions has now crashed the system.

2. The Arab Spring will end badly with Islamists coming to power.

3. The Eurozone will muddle along until something happens to make it crash.

4. China is a star that is going to crash soon.

5. Both Americans and Europeans are at fault. The recovery cannot start until the corruption and bad decisions are released. No crash equals no recovery. Let’s default – burn out corruption and bad decisions – and move on. Embrace small recessions going forward.