Thursday, August 13, 2009

Will Dr. V Bounceback (Jim Morley) Prove Right?

I am increasingly of the more optimistic view that we may see a strong recovery of GDP growth in the near future in the US, if not a full V, then a U with a short bottom followed by a strong upswing. I am not usually a fan of WSJ polls of forecasters, but most of them are looking for at least a sort of V, see Menzie Chinn at for link and discussion, including about debt ratios and implied multipliers.

I do not have a link, but did see recently that the much-less closely followed Case-Shiller index of housing price-to-rent ratios has now returned to long-term historical averages (partly driven by rising rents, ugh). Thus I think we have hit bottom on housing prices in the US, despite the likely continued pressure from more foreclosures to come. I do think Morley's inventory adjustment mechanism will be weaker now than in the past, and consumers will be saving more, thus weakening the multipliers, but there will be some of this inventory adjustment effect that bounces back more from deeper falls. More important to me is that the main mass of the spending fiscal stimulus (and not just in the US but elsewhere, with some other countries also showing signs of turning around) is yet to hit, with only about 10% of it out there (that figure including the weak tax cuts). The main spending stimulus will come next year, which should help put the boost in if the economy really does turn around.


gordon said...

Great, Prof. Rosser! Now exactly whose recovery are we talking about?

Barkley Rosser said...


I am all too aware that a recovery of GDP, even a faster one than what we are likely to see, does not solve many problems. So, in 1982 we were at 10.8% unemployment rate, followed by a bounceback boom in 1983 that paved the way for Reagan to run in 1984 on "Morning in America," winning 49 states. But there was no serious resolution of problems of poverty, inequality, the environment, international economic relations, or financial instability, with some of these worsening after the recovery.

Anonymous said...

Not based on this projection...

David said...

I don't know who you're reading or what research you've done but i can't see how your conclusions square with reality.

The falling dollar, the Chinese bailing out of the dollar and buying every bit of gold and silver as well as any other bullion they can get their hands on and of course speaking of China, they are looking at unemployment in the double digits too because of world wide recession and the depression here.

The coming avalanche of mortgage defaults in 2010 (millions of loans.) That should be fun to watch. How do you think that will affect spending by the general public.

The outright lies concerning the unemployment situation. Real unemployment at 17% and about to take another big jump. Some prognosticators say it won't stop till it hits 30-40% . Just how do you think that will set with the GDP.

The retail shocker, cash for clunkers in exchange for any other spending by the public. Oops! People bought cars and stopped buying anything else. Why? Cause they are broke! Belly up! The rapidly decreasing consumer spending and utter and complete lack of confidence in this government should make for some interesting reading in the near future.

There's a lot more but you get the picture and it isn't a rosy one.

Daro said...

I'm also suffering some disconnect on the prognosis of a rosy future...

What about the $516 Trillion dollars in derivatives? The infamous "Ticking Time Bomb"? If I ignore my debts long enough, do they just go away? said...


I am out on the optimist end of the spectrum here on much of this, but some of your stuff is either old hat or off base. The Chinese have been "bailing out the dollar" since sometime way back in the 1990s. What else is new? And actually their growth is now accelerating, not declining, as is India's and Brazil's. That is part of the more optimistic story.

"Real unemployment" has always been higher than official. In case you did not notice, the official rate just dropped this past month, although I am fully aware that this was due to discouraged workers and it will probably rise some more. I expect it to go above 10% before it is all over, but it might not actually break the 10.8% at the worst point in 1982.


Yes, there are still a bunch of bad debts out there, but the wonky derivatives market is all but frozen and ain't coming back. Sorry, I can't get too worked up about it, especially if GDP and earnings and profits and housing prices all start going back up, which in fact will make some of those outstanding derivatives less wonky.

Anonymous said...

Actually, the Chinese have been loving the dollar until just a teeny tiny bit ago. They are the largest stockholder in US debt. Period. Just passed Japan. Somewhere in the neighborhood of 800 billion. The deal with India and Brazil looks like diversification but is actually transfer of funds out of US bonds and into hard assets.

China has it's own problems with severe unemployment and social unrest due in whole to the crashing world economy and their number one consumer going off the map. These are tumultuous times we live in.

They are scared. It is not business as usual. They are dumping dollars as fast as they can into hard assets and gold. Since 2002 the dollar as lost over 30% and it looks grim for anyone holding them. Maybe if they just print some more and spend more it will be OK.

The worst of it is that China is looking hard at other markets for it's goods. The US has been a literal gold mine for China's industrial boom but that is about to go bust unless we get a handle on the debt we are now saddled with.

The worst of it is that the US is tied at the waist to China. We have never been so intertwined with one country. this is dangerous..

Here we have a situation where another country, an old nemesis actually, owns the lions share of the US. Japan is second in line.

That is power of a sort. But really, it is perhaps an even larger problem for the Chinese who are not happy with their leaders for sinking so much of Chinese capital into one pot. Billions have been lost and I know the leadership is looking long term but there is infighting on the home front as to the wisdom of having all of your eggs in one basket.

That is why there is both gnashing of teeth and rattling of sabers in China today. There are factions in China that understand the precarious position their leadership has put them in. Just as there are those who see this as a house of cards in this country.

Having a Happy face is all well and good but really, you can smile and live in the real world too.

As for unemployment going above ten percent, Ha! You were right. It's way beyond that now and more and more folks who live in the real world and not Alice's know it. The curve for this depression is still heading straight down and will probably not come back up for air till 2013. Perhaps by 2014 it will rise to an equivalent level of a year ago.

Housing needs people who are making money and have perfect credit, to start climbing out of the morass. It will not have them. They are on unemployment and it will soon be gone. With Colonials death this week and the fire sale merger with BB&T, we have still more rosy news from the financial industry. Sure there was a merger but a loan will be 10 times harder to get now. Still more to come.

The reason I present this view is that I believe it is irresponsible for anyone to paint a rosy picture on a rotten apple. This deluded view may lead others astray with their much needed and hard earned cash. Happy smiley faces are great on a greeting card but not when you're arrogantly leading others astray.

Folks really need to prepare for a bit of a hard time ahead. I think that is really the only prudent and responsible advice.

Anonymous said...

Since when are the conditions of slaves improved by the extension of slavery, Rosser?

You just don't get it: Recovery to previous level of economic activity can only occur if an already too long work week is extended still further.

Your happy scenario for a "V" recovery is simply a scenario for an increase in the misery of ordinary working people, their further indebtedness, and another bubble waiting to burst with even more horrid consequences...

Barkley Rosser said...


See my first comment.

Read it.

media said...

kinduh nice being optimistic for a v shaped recovery while recognizing this may not solve problems regarding poverty, inequality, environment, quality of life, etc.

sounds exciting. almost makes me optimistic, cept im autistic.