For all those blathering about “green shoots of recovery” and markets “starting to turn”, Bernard Hickey’s Top Ten at Ten this morning should be sobering reading – or at least proof enough that these commentators are just talking their book. The scale of this problem is not to be simply wished away or talked down by “confidence building” Pollyanna-ism.
Here’s some of the “high”lights of Bernard’s reality check:
- “WSJ.com reports that the Federal Reserve initial results showed the biggest banks had massive capital black holes, but the Federal Reserve scaled their figures down dramatically after complaints by the banks. . . Yet somehow the markets rallied on this news. Who do the Americans think they are kidding? Their banks are still insolvent zombies and the credit crunch will not be over until they are sorted.”
- Even Paul Krugman is starting to wake up? “It’s not at all clear that credit from the Fed, Fannie and Freddie can fully substitute for a healthy banking system. If it can’t, the muddle-through strategy will turn out to be a recipe for a prolonged, Japanese-style era of high unemployment and weak growth. [Oddly, it’s been the very Austrian economists Krugman derides who’ve been pointing that out for some time.] Actually, a multiyear period of economic weakness looks likely in any case. The economy may no longer be plunging, but it’s very hard to see where a real recovery will come from. [And the’ve been pointing that out too.]
- Nouriel Roubini gives his 10 reasons why the stress tests are “schmess tests”. This is a comprehensive demolition of any credibility the stress tests have left. . . Meanwhile, Nassim Taleb, the writer of the ‘Black Swan’ book, reckons the current financial crisis is ‘vastly worse’ than the 1930s . . .
- US economist Harry S Dent is predicting a full scale depression through late 2009 and into 2010 as the bear market rally peters out and the market collapses again . . .
- “What the Federal Reserve and Treasury have set in motion is the mother of all crowdings-out. The Fed is compelled to buy substantial amounts of Treasuries to prevent the federal deficit from turning into a $1.8 trillion black hole that sucks in all the free savings of the world and then some. . . By ballooning the deficit and tying the credit of the United States to the balance sheet of the banking system, the Fed has avoided panic, but has crippled the economy for the long term. There is no way to finance the deficit except by suppressing financing for everyone else. . . “
Meanwhile, Karl Denninger at Seeking Alpha reports that “’Since the recession began in December 2007, 5.7 million American jobs have been lost. In April, job losses were large and widespread across nearly all major private-sector industries. Overall, private-sector employment fell by 611,000.’ The total number of unemployed rose to the highest recorded since the US Bureau of Labor Statistics began producing these figures - more than 40 years ago - surpassing all previous post-WWII recessions. . . ”
Ouch! And “here's the problem - to have a healthy economic recovery you need to gain about 300,000 jobs a month.”
Any good news in all this? Only one. The only place where a real recovery will come from is from businesses who work out how to do more with the smaller amount of money now available. That’s essentially what it means to manage a recovery. On that basis, those “bosses” Bernard mentions who “are using the recession to squeeze staff down to lower wages and longer hours” while hopefully continuing to produce are the benefactors of all of us. All power to them.
Read all of Bernard’s roundup here, complete with links:
Top 10 at 10; Fed capitulated to bank complaints; Rental property investors hit by banks; Comments on QV stats.