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Green Shoots and Glimmers, not so fast



April 17, 2009 – Comments (4)

Let be begin by saying that I absolutely can't stand Paul Krugman.  If he's not the most liberal person on the planet, he's up there at the top of the list.  And this is coming from someone who's fairly middle of the road...not some nutty, right wing, neocon.  Even though I really don't like Krugman, I often read his work because people can sometimes learn from reading things that wre written by someone who has a different perspective than their own.

That's why I clicked on Krugman's recent New York Times OpEd piece titled Green Shoots and Glimmers.  Krugman gets one point in my book right off the bad for seemingly mocking the use of the phrase "green shoots" which annoys me to no end. In the piece Krugman basically states that despite the recent optimism out there we are far from being out of the woods on the current recession.  He lists several reasons for this line of thought, including:

1. Things are still getting worse. Industrial production just hit a 10-year low. Housing starts remain incredibly weak. Foreclosures, which dipped as mortgage companies waited for details of the Obama administration’s housing plans, are surging again.

The most you can say is that there are scattered signs that things are getting worse more slowly — that the economy isn’t plunging quite as fast as it was. And I do mean scattered: the latest edition of the Beige Book, the Fed’s periodic survey of business conditions, reports that “five of the twelve Districts noted a moderation in the pace of decline.” Whoopee.

2. Some of the good news isn’t convincing. The biggest positive news in recent days has come from banks, which have been announcing surprisingly good earnings. But some of those earnings reports look a little ... funny...

3. There may be other shoes yet to drop.  Such as commercial real estate, rising credit card losses, the complete implosion of Japan or Eastern Europe.

4. Even when it’s over, it won’t be over.  Why? “V-shaped” recoveries, in which employment comes roaring back, take place only when there’s a lot of pent-up demand. In 1982, for example, housing was crushed by high interest rates, so when the Fed eased up, home sales surged. That’s not what’s going on this time: today, the economy is depressed, loosely speaking, because we ran up too much debt and built too many shopping malls, and nobody is in the mood for a new burst of spending...

Employment will eventually recover — it always does. But it probably won’t happen fast.

Now Krugman's and my solution to this recession almost certainly would be different.  As I said he's waayyyyy to liberal for my taste.  Still he makes some excellent points in his piece about why the recent optimism in the markets may be a little premature.  I encourage everyone, even those who don't like Krugman to read his latest article.


4 Comments – Post Your Own

#1) On April 17, 2009 at 8:01 AM, MikeMark (28.97) wrote:

Watch for increasing employment. That's a true indicator. Right now we have job losses to the tune of 500,000 to 700,000 monthly.

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#2) On April 17, 2009 at 6:59 PM, Billullo (< 20) wrote:

you mean unemployment Mke?

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#3) On April 17, 2009 at 10:41 PM, RainierMan (63.55) wrote:

Stock market is now trading a p/e of over 19 using the latest forward earnings estimates of $47 for the year, in a bear market, ahead of what will be, at best, a slow recovery. Yes, the optimism is off the charts. There will be a day of reckoning, just a matter of when it comes.

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#4) On April 18, 2009 at 2:26 AM, uclayoda87 (28.73) wrote:

A 9.0 earthquake just hit in the sea floor 500 miles off the coast.

You are having a nice picnic on the beach on a perfect day.  Your friends and family are all there and they haven't heard the news.

You know it is not wise to stay at the beach, but it's such a nice day you can't motivate yourself to leave.  So you wait.  Maybe that tsunami won't show up.  Why ruin a perfect day?  Live for the present, since there may not be a tomorrow.

It's low tide now, really low tide!  Boy, the beach seems to have gotten a lot bigger.  Maybe we should go.

This fool didn't survive and took his friends and family with him.  The financial news has given us daily updates about the earthquake.  We know what will eventually happen to the market, but we just don't know when.  This post would actually be of some value if I could tell you when to get out, but you already know the answer:  When joy has replaced fear and all is well with the world.


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