Thanks for the compliment, Alan. There are many on SI who articulate themselves well, and you can count yourself among that group.
As for my use of the word "recession", it was deliberate. I am confident a recession will come eventually, though it may be several years off. For what it is worth, I also believe that a "depression" is possible within my lifetime. I simply do not believe that it is possible to steer our economy so as to avoid downturns forever. As for a "correction", I assume that you refer to an adjustment in stock prices without changes in the underlying economic fundamentals. Keep in mind that the stock market is a fairly accurate leading indicator of economic activity. I recall years ago hearing that the stock market had correctly forecast 11 of the last 8 recessions. <VBG> Presumably the other three were "corrections".
Is a recession imminent? That I don't claim to know. You comment that the "turmoil" in Asia will reduce the price of imports and the price of offshore manufacturing. This is true. But the fact is that we now live in a global economy, and what happens in one corner has widespread effects. You mention declining sales by American companies to Asian customers. This is certainly true. Another effect is declining commodity prices, which is severely harming farmers among others.
In fact I now consider the Fed to be in a box. Low unemployment is causing inflationary pressure on wages. On the other hand we have deflationary pressure in imports and commodities as well as a strong dollar. Normally the Fed could raise interest rates to cut employment, or decrease them to weaken the dollar and strengthen commodities. But for the Fed to try to fix one problem would exacerbate the other. Thus I believe that both pressures will continue to increase until one or the other gives. In my opinion declining exports and weak farm economies will eventually weaken employment. Once the employment market softens I think wages could actually begin to fall, which could throw us into the deflation camp. Then the Fed will slash interest rates, but will it be enough?
As for learning that interest rates today are a pretty good return, I agree that this lesson will have to be learned the hard way, and will be learned too late.
Carl |
