The coming decade-long depression - Printable Version
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The coming decade-long depression - BostonCard - 05-24-2020
This one is for Mick...
https://nymag.com/intelligencer/2020/05/why-the-economy-is-headed-for-a-post-coronavirus-depression-nouriel-roubini.html?utm_source=pocket-newtab
Quote: He foresees a slow, lackluster (i.e., “U-shaped”) economic rebound in the pandemic’s immediate aftermath. But he insists that this recovery will quickly collapse beneath the weight of the global economy’s accumulated debts. Specifically, Roubini argues that the massive private debts accrued during both the 2008 crash and COVID-19 crisis will durably depress consumption and weaken the short-lived recovery. Meanwhile, the aging of populations across the West will further undermine growth while increasing the fiscal burdens of states already saddled with hazardous debt loads. Although deficit spending is necessary in the present crisis, and will appear benign at the onset of recovery, it is laying the kindling for an inflationary conflagration by mid-decade. As the deepening geopolitical rift between the United States and China triggers a wave of deglobalization, negative supply shocks akin those of the 1970s are going to raise the cost of real resources, even as hyperexploited workers suffer perpetual wage and benefit declines. Prices will rise, but growth will peter out, since ordinary people will be forced to pare back their consumption more and more. Stagflation will beget depression. And through it all, humanity will be beset by unnatural disasters, from extreme weather events wrought by man-made climate change to pandemics induced by our disruption of natural ecosystems.
BC
RE: The coming decade-long depression - Mick - 05-25-2020
Thanks, BC, I did see that. I'd been paying attention to Dr. Doom for a few years now, mainly because I thought his predictions and assessments, while overwrought in a booming economy, would be sound in a black swan economy when other economists would underweight the risks of the economic moves. He's taken to referring to this economy as the "Greater Depression" given that it will drastically outpace the economic devastation of the 1930s. And you can see little signs all around (e.g., for the first time, the Chinese have not given economic growth predictions) that people in the know understand now -- and understood months ago -- that the drastic measures we took to protect lives would sink our collective economic ship.
There are a few small businesses that can thrive in terrible economies. Take Corn Nuts, for example. It's a large variant of corn, soaked in water for three days, then deep fried to the consistency of a nut. It was invented in the Great Depression (1936) by a local, Oakland native Albert Holloway, who ultimately cross-bred Peruvian corn strains to create his snack. It was cheap and different and broadly appealing. In fact, he originally created it as a very salty snack so bars would give it away for free to encourage beer purchases. The game of Monopoly was created in similar circumstances.
You all know that I think we've collectively underestimated the coming economic disaster. I started one of my own businesses on the side against the day that my employer decides that either I or my group are no longer necessary (Mrs. Mick runs the side business for now). About 45% of all workers have side hustles, so to speak. Not a bad idea as a hedge against an incredibly dim future.
https://www.sidehustlenation.com/side-hustle-statistics/
RE: The coming decade-long depression - OutsiderFan - 05-25-2020
As someone who likes to simplify complex things and make simple things complex, let me share a simple thought about the very complex economy.
You can't get out of a hole by digging deeper.
Here's just one example of why we are totally f*cked. The gas and oil industry financed itself on junk bonds. The price of oil went down to the point the companies that sold the bonds couldn't turn a profit or pay back the bond holders. Rather than let the investors who made the bad decisions pay for their mistakes and lose money, the Federal Reserve comes to their rescue. The Fed did this to keep the investors from losing their money and to keep companies going ostensibly so supply wouldn't go down and create spikes in oil prices that would tank the economy. But if these companies continue producing, the price of oil isn't going to go down to make them enough money to ever get off the government tit.
The reality is, printing all the extra money will drive inflation and stop market forces from further pressurizing the fossil fuel energy sector to go to renewables, as the true cost of the oil and gas product is buried. So we not only are creating higher inflationary pressures by printing more money, we're also hiding the cost on the economy of fossil-fuel enabled climate change, while refusing to let investors lose.
You just can't continue trying to get out of financial and economic trouble by continuing to go further into debt. Eventually the cost has to be realized by the market. These oil and gas companies eventually have to take a big hit. It can't be put off forever, and the longer it takes, the worse it will be for them and the greater economy when it happens. Much like an Earthquake, the longer the time goes before the pressure on the system is relieved, the greater the damage will be when it breaks.
Roubini is one who believes the pressure of which I speak simply has to be relieved. I think he's right.
RE: The coming decade-long depression - 2006alum - 05-25-2020
FWIW, I am about 85% of the way to where Roubini is, too, and I'm far from one of the "but the economy" folks around here. One of my biggest frustrations with the claims about our great economy over the past few years is that no one was pricing in the fact that even with record low unemployment and ten years of nearly uninterrupted growth, our public sector deficits were expanding at all levels (state, local, and federal), and wage growth and productivity were nearly nonexistent. If our economy couldn't keep up in "boom" times, what the hell did we think was going to happen once the debt-fueled ride ended?
And I think Roubini is absolutely right that one of the major consequences of trade wars and onshoring will be significant cost increases. It's really easy to blame China for everything, but most of the folks I know who did are sure happy to shop at Walmart where it seems like 98% of the non-food merchandise was made in China. Those everyday low prices can't support living wage American jobs...
COVID-19, unfortunately, has just accelerated our timeline about 3-5 years from what I thought it was going to be anyway. I've been saying this for a while now, but whoever the next President is (be it Trump or Biden) is going to be in for a really unpleasant four years.
RE: The coming decade-long depression - OutsiderFan - 05-25-2020
Data to settle argument on economy vs. health:
https://www.washingtonpost.com/business/2020/05/23/government-has-spent-decades-studying-what-life-is-worth-it-hasnt-made-difference-covid-19-crisis/
RE: The coming decade-long depression - BostonCard - 05-25-2020
My baseline scenario is as follows:
Steep decline in economic growth in the first half of 2020, followed by a partial recovery in the second half (with unemployment in the 10 - 15% range by year end). The next decade is likely to be a Japan-style "lost decade" with slow growth as two conflicting forces compete: the federal government tries to decrease spending and increase taxes to get a balanced budget and the fed starts winding down asset purchases, which causes a big slowdown in growth and markets "tantrum" on the other. We will see weak growth (~1% over the decade, with occasional small recessions as there is variation about that average).
About that baseline, there is a downside scenario of a weaker partial recovery complicated by second order effects (as more businesses go bankrupt) causing a double dip, and then affecting banks, leading to a financial crisis and a consequent decade of stagflation (inflation rising above 5% coupled with continued weakness in growth and/or continuing recessions). While I think Roubini is on the pessimistic side, his predictions are plausible.
Let's put it this way, I think his scenario is less unlikely than the optimistic case (a V-shaped recovery in the second half of the year, with fewer residual effects), unemployment getting back to 8% by year end, followed by a return to 2+% growth and 200,000 new jobs a month which over the ensuing decade brings us back to full employment without inflation.
Then there is the "glass isn't half full or half empty; it's about to break" scenario, which is that the economic crisis leads to a political or international crisis: either our political system falls apart and morphs into a dictatorship or we get into a war with China. These are tail-type events, but I think it is a fat tail.
BC
RE: The coming decade-long depression - burger - 05-25-2020
A wildcard here is what happens if Biden wins the presidency and the Republicans continue their policy of disliking deficits when Democrats are president.
Reducing government spending now would make an already disastrous situation even worse.
[I just noticed BC said essentially the same thing above.]
RE: The coming decade-long depression - oregontim - 05-25-2020
This discussion might also include the inherent threat of absurd but also increasing concentration of wealth and the corollary widespread poverty. Start with its human cost: hunger, homelessness, real misery. Then add in the economic and political cost of the riots and violence and such. We haves in this country have ignored the plight of the have-nots. The highest income brackets were 70% or more during the 60s and 70s, where now the highest is 37% and it kicks in at just a bit over half a million in annual income. That's crazy.
The underlying problem IMO is (at least in part) the vicious cycle of campaign financing = elected officials beholden = public policy skewed towards the upper echelons.
If we ever get the political conditions necessary to turn this on its end, we could have taxes of high incomes helping to control deficits and support increased public spending. Not that it would be a complete solution, but it could help. But of course, with the campaign funding situation as is, that's asking foxes in the henhouses to feed the hens.
RE: The coming decade-long depression - Mick - 05-25-2020
(05-25-2020, 09:46 AM)BostonCard Wrote: Then there is the "glass isn't half full or half empty; it's about to break" scenario, which is that the economic crisis leads to a political or international crisis: either our political system falls apart and morphs into a dictatorship or we get into a war with China. These are tail-type events, but I think it is a fat tail.I think that's where we're headed. The economy is going to tank much worse than most people think. We've shipped our production to China, and I don't think we can get it back easily. I don't think we have the means or wherewithal to get it back.
BC
I think war with China would be highly unlikely. Both nations are too efficient at war. Neither could realistically win what would necessarily be a global conflict. And frankly, China (or at least the CCP) is an outlaw country/organization. They wouldn't abide by the Geneva convention, or any kind of rules governing conflict. Atrocities, biological weapons, chemical weapons, cyberweapons; yes to all of the above. Heck, this is a country that threatened to cut off our medicine during PEACETIME! What do you think they would do during wartime? Finally, they make everything we buy and need. We'll complain and grouse, but we won't attack them. In fact, if they attacked us, I genuinely think we'd be slow to respond.
Which brings us to the dictatorship scenario. I could see it, particularly when 60 million hungry Americans without jobs and unable to pay the rent revolt. Individuals, governments and corporations will all be swamped by debt. The economy will be in the crapper. The temptation to kill the debt and control the populace will manifest itself, and lots of the behaviors necessary to support and control the populace will lie outside of standard democratic legislative remedies. I could definitely see more than the occasional national guard call up. You already have an extraordinary wealth disparity, COVID-19 will only exacerbate it. And that means dictatorship.
RE: The coming decade-long depression - dabigv13 - 05-25-2020
I think a lot of humility is necessary in trying to predict how things will shake out, particularly in the medium or long term. Pandemic flu and WWI killed many more than covid will, and younger working age folks too. The leading economies of the time were in tatters, and yet in the 20s the economies of the world powers reached new heights, though inequality worsened along with it.
Whether we end up in a depression or new economic heights is not preordained. The choices we and our leaders make will matter.
RE: The coming decade-long depression - chrisk - 05-25-2020
Isn‘t this when Keynesian economics gets rehabilitated following the rise of supply-side Reaganonmics over the last 40 years?
RE: The coming decade-long depression - oregontim - 05-25-2020
(05-25-2020, 12:33 PM)chrisk Wrote: Isn‘t this when Keynesian economics gets rehabilitated following the rise of supply-side Reaganonmics over the last 40 years?
+1.
Here's hoping. Fingers crossed and all that.
RE: The coming decade-long depression - Snorlax94 - 05-25-2020
I often come from a more optimistic economic perspective — I think there *should* be a partial V-shaped bounce by Q4, but for completeness, I do think there will be a lot of pain for years to come.
First, we had already unnecessarily doubled the annual federal deficit by about 500billion a year with Trump’s tax act, leaving us with less money for a true emergency, and with all the deficits, there will be consequences. I don’t envy who will be president from 2022-2028 because we will have to raise taxes *and* reduce spending. If you have any familiarity with the federal budget, you know how much of it goes toward social security and Medicare (and defense and interest), so I’d say we will have to make cuts in Social Security and Medicare while also bringing back the higher tax brackets on income, and then some.
We also have many longer term problems that pre-existed Covid that will be exacerbated by it: wealth disparities that could harm the social fabric, a post-Truth/rumor mill/“fake news” society where outside influences (Russia), the dishonest wealthy and provocateurs sow discord in American society and just ruin us as a united force, a demographic time bomb, poor education, poor health (leading to higher healthcare costs and a smaller proportion who can work or even be drafted in case of war), an economy lacking in manufacturing capability, already slower growth anticipated in the future (before the pandemic), a diminishing scientific base that would lead to the US losing its role in technological leadership within our lifetimes (and with it, military, global and economic power). Oh yeah, and don’t forget all the impacts of Global Warming.
So, yes, there is a lot of pain to come after the pandemic. But don’t count out how dynamic the US economy can be — by 2022 the GDP should be higher than in 2019. While there are many places in the world that will be a better place to be in 2020 due to the US’s failed response to Covid, you know, other countries have budget deficits and high unemployment also, and it’s not like France was overrun by dictatorship in the 2000s. By 2022, even a messed up US with higher taxes, higher unemployment, continually worsening education and health, more fires and smog, will still be one of the best places in the world to live. But there is a very large range that the US can drop and remain one of the best places to live, and hopefully we can make the drop as small as possible.
* though yes, there is also the longtail possibility of war in the world or a giant meteor hitting us or something. I think the likeliest risk is not China v US but global instability in smaller nations due to Covid. What if Brazil collapses as a state and S America falls into war? What if Russia gets really pissed off at Saudi Arabia? What if some world leaders die and their enemies decide to take advantage of the moment? Etc. and then there is the creeping rise of dictatorship/authoritarianism across the globe that predates Covid. As bad as things are in the US, the reason why the dollar is so strong and our interest rates are so low is that things are even worse in the rest of the world.
RE: The coming decade-long depression - Mick - 05-25-2020
(05-25-2020, 12:28 PM)dabigv13 Wrote: I think a lot of humility is necessary in trying to predict how things will shake out, particularly in the medium or long term. Pandemic flu and WWI killed many more than covid will, and younger working age folks too. The leading economies of the time were in tatters, and yet in the 20s the economies of the world powers reached new heights, though inequality worsened along with it.
Whether we end up in a depression or new economic heights is not preordained. The choices we and our leaders make will matter.
In the Great Depression, America's GDP sank 27% between 1929 and 1933. Unemployment grew to 25.2% after four years of the Great Depression. By 1939, 10 years after the depression started, unemployment was still 19.1%. Prices fell nearly 25%, because no one could afford to spend anything.
So, it's not far off from where we are now, incidentally, after just nine weeks of layoffs. Our GDP shrank 1.2% in the first quarter (-4.8% annualized), most estimates are in the -30% to -40% annualized rate for Q2. We'll find out in early July.
You are technically correct. Neither economic disaster nor dizzying heights are preordained. But every single signal tells me we are in for a plunge much worse than the great depression.
RE: The coming decade-long depression - BostonCard - 05-26-2020
Here's one Democrat who largely disagrees:
https://www.politico.com/news/2020/05/26/2020-election-democrats-281470?cid=apn
Quote:“We are about to see the best economic data we’ve seen in the history of this country,” [Furman] said.
For my part, I would be delighted to have the economy rebound so strongly to be "concerned" about Trump getting re-elected.
BC
RE: The coming decade-long depression - OutsiderFan - 05-26-2020
I call this Furman guy clickbait. Nobody knows what is going to happen with the economy or the virus. Markets like certainty and you can't be any more uncertain than where we are now. Maybe by October there will be some idea what is happening that we can hang our hats on.
That said, the fundamentals are terrible. I saw a poll indicating 1/5 of Americans don't think they will be able to make rent or mortgage payments in June. Commercial real estate is getting kicked in the groin. Main Street is still hurting badly. Nobody knows the pressure Wall Street analysts will put on companies to cut people when the 2nd quarter numbers come in. States are running out of money too.
It's almost like someone is trying to monetize his Harvard-based opinion as a contrarian, sort of like those Stanford researchers bankrolled by a Biotech VC who wants an alternate reality to the real one.
RE: The coming decade-long depression - 82lsju - 05-26-2020
(05-26-2020, 01:50 PM)OutsiderFan Wrote:
Nobody knows the pressure Wall Street analysts will put on companies to cut people when the 2nd quarter numbers come in. States are running out of money too.
already happening, in the small set of companies I follow as part of my job (data storage companies)
- HPE - https://www.marketwatch.com/story/hpe-is-undertaking-another-reorganization-after-a-lousy-quarter-to-the-chagrin-of-analysts-2020-05-22
Quote:Hewlett Packard Enterprise Co. has been down this restructuring road before.
In announcing a three-year “Cost Optimization and Prioritization Plan” Thursday to save more than $1 billion after a lousy quarter hit by the COVID-19 pandemic, executives of the information technology company announced their latest scheme to cut costs — much to the chagrin of Wall Street analysis.
- IBM - https://www.fiercetelecom.com/telecom/ibm-ceo-krishna-plans-thousands-job-cuts-report [/url]
Quote:[url=https://www.wsj.com/articles/ibm-announces-first-job-cuts-under-new-chief-executive-11590113061]The Wall Street Journal (pay wall applies) reported that IBM will be cutting thousands of employees across several sectors at IBM, including the Global Technology Services (GTS) division, which offers IT outsourcing. Last month IBM announced it took a $900 million charge against earnings, largely to cover restructuring costs related to its GTS division.
- Dell - not layoffs but cutting salaries and some benefits - https://www.bloomberg.com/news/articles/2020-05-21/dell-slashes-employee-benefits-to-preserve-cash-during-pandemic
Quote:Delll has suspended some employee benefits, signaling that the computer hardware giant is cutting costs to contend with the weakening global economy.
The company will discontinue contributions to employees’ 401(k) retirement plans under a matching program, beginning June 1 and continuing at least until the end of the fiscal year, Dell Chief Operating Officer Jeff Clarke wrote to employees in a recent memo, citing the contracting economy and estimates of shrinking spending on information technology.
Dell has also frozen external hiring, internal promotions and raises for the rest of the fiscal year, a person familiar with the matter said.
- Nutanix - not layoffs but furloughs - https://www.mercurynews.com/2020/05/04/coronavirus-unemployment-bay-area-planned-layoffs-top-74000-in-april/
Quote:“Due to the COVID-19 emergency and related government order and/or instructions and/or business circumstances, Nutanix is implementing two separate, one-week unpaid furloughs,” Nutanix stated in an April 21 letter to the state EDD. The EDD received the WARN notice on April 30
this week there will be earnings announcements from Pure Storage and NetApp so we'll see what they say (Dell and Nutanix also announce earnings but given what they already announced about employees I'd be surprised if they announced layoffs)
RE: The coming decade-long depression - 82 Card - 05-26-2020
(05-26-2020, 01:28 PM)BostonCard Wrote: Here's one Democrat who largely disagrees:
https://www.politico.com/news/2020/05/26/2020-election-democrats-281470?cid=apn
Quote:“We are about to see the best economic data we’ve seen in the history of this country,” [Furman] said.
For my part, I would be delighted to have the economy rebound so strongly to be "concerned" about Trump getting re-elected.
BC
Depends on what he means by "about to see" and "economic data." If he means stock market in next few months, it's quite possible. Heck, the market had happy feet again today. If he means general economic activity in the next month, I think the professor may have gotten into his stash. It's not entirely impossible. A super effective simple treatment could be announced next week and congress could take action to rescue the masses from ruin, thus enabling the economy to come roaring back. I'm not holding my breath.
RE: The coming decade-long depression - BostonCard - 05-26-2020
Well, there is a definite possibility that when the advance estimate Q3 GDP is announced on October 29, that it will show something like a 20% (quarter on quarter, annualized) rise in GDP. Of course, that would be after a 40% fall in Q2, but still, out of context it would be an extraordinary number. Likewise, while unemployment in May (announced next Friday) will be ghastly (and probably again for June, at some point some of the temporarily laid off people will be rehired, and you could easily see millions of jobs gained from August to October.
There's no way that Dec. 2020 looks better than Dec. 2019, but it is very likely that Dec. 2020 looks better than June 2020.
BC
RE: The coming decade-long depression - Mick - 05-26-2020
Trump will claim any positive number as a victory. Q3 '19 GDP growth was only 1.9%. He's probably already made the ad buys to celebrate the 2.7% Q3 '20 growth (or whatever it is). If he gets a 20% annualized bounceback in Q3 '20 - a massive "if" - he could win the election.
I just don't think the economist is correct. I understand his argument, and candidly, my firm is planning and preparing for a "V"-shaped recovery. Sharp drop, followed by a sharp ascent. We haven't furloughed a single billable professional, because management thinks the drop is entirely artificial, and once the artifice is removed, the increase will be nearly as sharp.
But we -- and the economist -- are wrong. And here's why:
1. American business has pursued pell-mell growth since 2009, with nary any serious attempt at cost savings. Cost savings is something that everyone likes to talk about, but no one likes to actually accomplish -- unless you're in the midst of the worst economy in recorded history. Then, companies like cost savings. We all know that 40 million jobs have been lost in ten weeks. 40 million will not be rehired in Q3. And know what else? We aren't done losing jobs. It might hit 60 million. My mental over/under is that we rehire, at peak, about 6 million between 7/1/20 and 9/29/20. American business is currently experiencing what it's like to have a dramatically reduced cost structure...and I think it's the way most businesses will want to play it in the face of an uncertain future.
2. A "V" bounceback is predicated on a miracle cure (miracle in terms of both speed and effectiveness). It's not coming. Remdesivir, Hydroxochloriquine, apricot pit extract; whatever it is, it's not going to have a significant enough impact to erase the public's fear. We're not getting drugs or vaccines that will effectively address the virus. So the public will not return to a business life.
3. If we can't return to a business life, we won't return to a for-pay social life. Ball games, dining out, attending church services...people won't go back any time soon. They won't spend any time doing anything social any time soon, despite the crowded beaches in the video. They can't. They're petrified. They read the web sites (like this one) that says 11 year olds are in danger from the coronavirus and make the connection that ALL 11 year olds are in danger and THEIR 11 year old will die. That's what the Elites have sold to the Great Unwashed Deplorables (GUDs).
4. And speaking of the Elites, they have underestimated the impact that their fearmongering has had on the GUDs. 40 million people out of work, and there are people on this web site who downplay the loss of a job. To the Elite, a job loss may not be much. Just get another one. Or start your own company. The GUDs are helpless and hopelessly screwed, particularly after July 31 when the $600 weekly stimulus check runs out.
5. 70% of the economy is driven by consumers. Thanks to all of the above, the consumers won't buy anything. NOTHING. Why would they? They can't trust a political/medical/media Elite who tells them what to do. "Yes, you'll lose your job, but at least you won't die." Because, you know, the virus has a 100% ifr. At least that's how the GUDs are interpreting the Elites' message.
6. Our relationship with China is on life support. They make most of what we buy. And China has never had any restraint in stealing IP, nor has it shown any restraint in their zeal to polluting their own country (a good friend of mine is a Chinese national who thinks the environment is the Achilles heel of China). Their cybertheft and cyberspying are breathtaking. They accuse the United States military of creating the virus. And they condemn our honest publication of the facts that if China had acted like literally any other country in the world, then far fewer people would be dead and sick. Instead, the Chinese threaten to withhold medicine they created for the American market. People are finally tumbling onto the fact that it is fundamentally an outlaw society.
Unemployment was 25.2% in 1933 at the nadir of the Great Depression. In 1939, it was still 19.0%. And you think this debacle will turn around?