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Nazareth, Pa., United States

Friday, August 05, 2011

Is It a Double Dip Recession?

Although I'm a hundredaire and have a few bucks in my pocket for the weekend, I'm certainly no financial expert. So when a friend called me last night to complain about the nosedive in her stock portfolio as a result of the 500-point stock market crash yesterday, all I could do was tell her what I've learned from another friend who actually is an expert.

You might know him as Steve Thode, a member of Bethlehem's very busy Planning Commission. Last year, I cornered him at Pizza Joe's in Nazareth. He tried to get away, but I blocked the exit. Same thing happened a few weeks ago at Panera's Bread in Bethlehem, where my Center Street satellite office is located. He was in a booth, and I sat right next to him so he couldn't move. His kids got away that time, while I peppered the poor guy with question after question while he was trying vainly to finish his chicken lemon orzo soup.

Thode is known to Lehigh students as Dr. Stephen F. Thode, and is Director of the Murray H. Goodman Center for Real Estate Studies. He was interested in my Patch column about another nosedive in the Northampton County real estate market.

What Steve tells me, and he's a Doctor, is that the real estate market will improve when there are more jobs. But then he added that there's an old familiar enemy that should concern us all - the gas pump. According to Dr. Thode, a recession will follow a surge in oil prices as inevitably as night follows day.

Until yesterday, when oil dropped to $86, it had risen to $117 per barrel from $79 just a year before.

Are we headed to a double dip recession? Or worse, another Great Depression. I don't know. I'm no financial expert.

33 comments:

Anonymous said...

It's all about a rapid rise in oil/gas costs. Thats it. When we rely on foreign oil, we are at the mercy of those who produce it. It is amazing that when Bush started the drilling program and made it easier for US companies to drill and produce oil here, prices dropped and things started turning around. This administration has just made things worse by hampering US companies here in the US from drilling and producing. Let the world know we are going to produce more and things will change for the better. Just my opine.

Jon Geeting said...

This is why you don't cut spending in the middle of a slump. State and local layoffs are dragging down GDP and nominal spending in the economy. JP Morgan says federal fiscal policy is going to slow GDP growth by 1.7 points in 2012:

This drag may appear fairly small, but it is on top of the substantial tightening that was already in place prior to the passage of the debt deal. Most of that fiscal tightening comes about through the automatic expiration of temporary stimulus measures. The table below details those measures, the largest of which is the one-year 2%-point payroll tax holiday, which expires next January. Other large programs that are scheduled to expire or phase out are emergency unemployment benefits, accelerated depreciation, increased transfers to the states, and much of the remaining spending associated with the 2009 Recovery Act. All in all, by our estimates federal fiscal policy will subtract around 1-3/4%-points from GDP growth next year. Given that GDP growth has been 1.6% over the past four quarters when fiscal policy has been much less of a drag, this doesn’t bode well for next year.

No one is forcing the Republicans to cut spending. None of these things have to expire next year. With a double dip looming, they can and should bring state and local deficits onto the federal balance sheet to prevent any more contraction.

Greg L said...

Double dip? We never got out of the first "dip". These bifurcated measures amaze me. Recovery was claimed due to the recovery in the stock markets and now that its had a reversal, we're supposed to now be heading for a "double dip". The stock market is just an overlay over the real economy which has been on a uninterrupted southward trajectory since even prior to September 2008 and has never recovered.

What we have here is a deflationary depression that's global in scope and that will only resolve itself when all of the private bad debts have been removed from the system. In other words, those who engaged in imprudent lending must take the hit. Instead, those bad debts have been transferred to the public purse and austerity is being imposed to "make room" for them to be serviced. This has occurred in Greece and Ireland and we're being set up for this here. The recent debt ceiling impasse is merely a diversion in that it makes one focus on the political football game, rather than those who are really driving austerity (i.e. the Wall Street crowd).

Anonymous said...

just as in most matters of economics, by the time a problem is suspected, it's already ocurred. And so it is with the second dip of this recession. Anyone monitoring factory orders knows this to have been the case by the beginning of this year's 2nd quarter.

In the meantime, PA's untethered energy sector is booming. Transportation fleets are waiting five months for Peterbilts and Kenworths and even longer to be upfitted with frac water tanks. Each truck creates a job for two drivers at 48 hrs per week. They can't find drivers and tanks and trucks fast enough.

No Obama monopoly money is making this possible. In fact, he's trying to stop it. The untehered market and profit motive have created $100M injection into PA's economy. Hotels can't be built fast enough. They require construction workers to make and staff to run after completion. The Microtel in Mansfield gets $180 per night.

Anonymous said...

Thank you Greg for your point on analysis. Here is a list of the culprits who have transferred their debt to the American purse:

BNP Paribas Securities Corp.
Barclays Capital Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Capital Markets America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
Jefferies & Company, Inc.
J.P. Morgan Securities LLC
MF Global Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Mizuho Securities USA Inc.
Morgan Stanley & Co. LLC
Nomura Securities International, Inc.
RBC Capital Markets, LLC
RBS Securities Inc.
SG Americas Securities, LLC
UBS Securities LLC.

Source: http://www.ny.frb.org/markets/
pridealers_current.html

Guess what folks...these are the primary dealers who are required to purchase at the US treasury auctions. And worse, they all have privilages at the Fed discount window. Yes , they are allowed to borrow money from the Fed at the discount window, and use mortgage backed securities as collateral. After the auctions, they are also allowed to sell their auction purchases directly back to the Fed, while receiving a digital credit for money that does not exist.

These banks, assisted by the Fed, are feeding the massive beast (16.4 trillion megatoxic) his junk food. They will feed him until he explodes.

Trish

Bernie O'Hare said...

Very good points, Greg. Now I want to see your son play basketball.

Anonymous said...

Jobs jobs jobs. Thats what we Republicans are all about.

Good thing the tea bag ideological tantrum didn't have any negative effect on the national economy.

Way to go Michelle Bachmann.

Patrick McHenry said...

Anon 2:22 -

Obama and the Democrats got the increase in debt they wanted to continue their wasteful spending.

The markets are reacting accordingly, as any rational person would.

Greg L said...

>>>Here is a list of the culprits who have transferred their debt to the American purse:<<<

Exactly Trish and these are some of the same people being bailed out in Europe via the same exact measures that are being deployed here. It's all sleight of hand.

Unfortunately, much of this is rather opaque and people don't actually see what's occurring. A case in point---a few weeks back, the ECB put together the bailout package for Greece in which the IMF participated. About a third of the IMF's funding is from US taxpayers when essentially meant that nearly a billion of our money went to bail these same people out in Greece. Basically, it's not good enough that we bail them out here, but must do so abroad as well.

Of course, primary dealers being at the government trough here and aboard was totally absent from the debt ceiling debate, instead both sides are assuring them of no default while they drive the entire process and that will continue with the "super congress" as well. The no tax increase pledge just ensures that they don't have to contribute to the same bailouts they engineered. This is outrageous really, but the real story is not out there in the press, instead we get simplistic notions parroted about "small government", "low taxes" and "cutting spending" as a cover to continue this sort of thing.

Anonymous said...

Greg,
Yes. The ECB and the Federal reserve(and its primary dealers), as well as other nations central banks have become the worlds largest money laundering cartel in world history.

The IMF will evaporate.

We will have one global currency. Not sure when, but we will.

Trish

Anonymous said...

Italy's Prime Minister BERLUSCONI has called for an immediate balanced budget amendment to help deal with his country's debt crisis.

Wow!

Another HOSTAGE-TAKING TERRORIST!!!

Greg L said...

>>>We will have one global currency. Not sure when, but we will.<<<

I believe that. I also believe that there will be war.

We're at a pivotal juncture in history essentially without leadership; most of it having been purchased. We're also largely without the information we need to evaluate the events around us; most of it having been sequestered. Leaderless, blind and dependent on a dysfunctional central state is really not the place to be. We have mostly ourselves to blame for this state of affairs.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Greg,
I'm not sure about the war. Its seems that it would have to happen...I mean, each country stepping on heads until one wins...but when the great beast finally unleashes itself from its lock box at the Fed, the disaster will be so profound, that no one will have money to fight a war, and there will be nothing left to borrow.

Some think that 100% of the USA tax revenue will be spent on poverty programs, and this was planned all along to make each and every citizen totally dependent on its government. When people start fantasizing about great government conspiracy, they are labeled as having schizo-affect disorder, and are discredited. I'm not sure if it was planned to be this way, but I think it will be this way, for awhile after the explosion hits.

Trish

Anonymous said...

I agree with Greg L. 100%. That guy is paying attention. I agree that there will be a one world currency but I am not sure what I should be doing about it. Buy gold?

Anonymous said...

The US is like that decent neighborhood that went to hell and eventually came to house the projects. The decline is on. Thank you Barack!

Greg L said...

>>>I'm not sure about the war. Its seems that it would have to happen...I mean, each country stepping on heads until one wins...<<<

Trish, none of us can be sure about much of anything at this point. I'm just figuring war for a couple of reasons; dwindling energy sources spawning resource wars and the need to "thin the herd". There are some who believe that the next crisis right behind this one will be one related to encountering energy shortages imposed by peak oil. As you point out, our infrastructures are going to be stressed as a function of the financial fallout but a hard ceiling on energy which will be made worst by the lack of money to invest in any alternatives. Here's a site that I lurk at that I'm sure that you'll appreciate if you've not heard of them previously. There's a ton of material, so you'll need to do a search on peak oil issue to see their take on that.

http://theautomaticearth.blogspot.com/

I just think that things are going to become a lot more local with people being forced to rely on others as opposed to a central authority. Austerity will kill those central authorities who manage to avoid bankruptcy.

anon 6:25--There are many who think controlling the basic elements of your existence (i.e growing food) is a far better investment than gold.

bunga bunga said...

spread ur cheeks dummies and wish u could afford vaseline

Anonymous said...

Can't we just run our cars on windpower?

What do the Geeting-ites of the World (or Democrats or class warfare warriors in general) care about a few bad days in the market.

It's just big bad corporations losing money.

Corporations are evil MSNBC hosts and the DCCC tell me so every day.

Let them lose all their money. Broke corporations are good for America!

Anonymous said...

I trust Rachel Maddow for all my economics information. He's very sharp and has balanced his checkbook at least twice since college.

Chris Miller said...

Trish
I would say that as long as we have printing presses we will be able to have wars and much, much more. Remember LBJ? He told us that we could have guns and butter. If our money was backed by gold we might end up with no wars. Getting off the gold standard to fight a war was done in both great wars, if I remember correctly, and paper was printed immediately

Anonymous said...

Hey Chris remember George W. Bush, he told us we could have guns and butter and "lower taxes". Some of us realized that was impossible but some built a new little party around the premise.

Brendon

Chris Miller said...

Brendon
Hate to tell you this but Bush actually told us to go shopping. This because we are a consuming economy instead of a building economy.
Bush failed to attack Afghanistan immediately after crashing of the planes. That should have been tomahawk missiles going into bin Laden's area of the country. It was also stuping to go into Afghanistan given the history of the region. As to Iraq, well what can one say other then another case of 20-20 hindsight. Let's keep in mind that Democrats participated in going to war there primarily because of the report on WMD's. What was worse was the failure of the American people to demand a declaration of war on Iraq. Yet despite the fact that this nation has not issused a Declaration of War since the end of WW II, says a whole lot about the ignorance of America and that now includes your man's move in Libya and throughout the Arab world that is now in turmoil. What is that costing us. Beware when you throw stones. And for your edification, I am not a member of the tea party at this time.

Anonymous said...

For your edification, Mr Miller Obama is not 'my man' but our man for now. Whether your ilk likes it or not, we only get one President at a time. In 2012 that may be a new person. I will say this, if given a choice between Obama and a Michele Bachmann, Obama wins hands down.

Reality is a sword that cuts both ways Chris!


Brendon

Chris Miller said...

Brendon
Obama is your man in that you voted for him and now you will live with him. As to Mrs. Bachman, great lady with a super message. She will not be the candidate for the Republian Party. Unfortunately I think we will see Romney or Perry as the nominee for the Republicans. I am not fond of either. Obama is not going to win in 2012 because he has shone himself to be intent on creating a progressive nation based on one of the "isims". I do not believe American voters will stand for that.

Anonymous said...

Republicans and Democrats alike will be voted out in 2012. If the politics in Washington would have cut 4 trillion off the debt, we would have been spared a downgrade by S&P. Though it should be rated as XXX, it is now only AA+, down from AAA.

Trish

Anonymous said...

It's amazing how often we miss a major story. You just reported that oil dropped 31 dollars a barrel. At the pump, gas came down 25 cents. What's wrong with this picture
Fred

Greg L said...

>>>Republicans and Democrats alike will be voted out in 2012.<<<

Yep. This also put Obama's grand $ 4 trillion bargain in context. What was assumed by many to be capitulation to Republican "no tax" demands was actually an attempt to avoid a downgrade. The republicans surely knew about S & P demands for a $ 4 trillion cut and yet let their "no tax" intransigence sabotage this whole thing.

Funny how this "no tax" ridiculousness has now resulted in a very real tax on the economy as higher interest rates on treasuries will surely reverberate through state & local debt, mortgages, commercial loans and the like. Don't get me wrong, both sides have issues and many of these problems will only be resolved by a complete overhaul of our political and economic systems. So, I don't believe that merely voting in one party will resolve the issue, however, the current crop of republicans have done much to prevent a honest debate in this country and according to the polling, there'll be a price to pay for that.

What is needed is someone to forget about politics and simply level with folks about what the real problems are. I don't necessarily agree with Ron Paul about everything, but he comes the closest to telling the truth, particularly when it comes to sound money and the trillions spent on wars. Dennis Kucinich and Marcy Kaptur are two others that tell it like it is. Other than those guys, everyone is in campaign mode.

Anonymous said...

Yes, Greg...should we run a ticket together for congress or senate?

The playing field would be level, as it should be if campaign finance reform was amended to state that no party can accept monetary contributions of any sort.

2012 will be one interesting year.

Trish

Anonymous said...

BTW, I think the tax code of 1986 is responsible for much of our current mess. Not only is tax reporting optional in this country,(or should I say voluntary) but the 1986 code fostered absurd behavior. Prior to '86, interest on auto loans was deductable. No more. Now people thrown their homes on the line ( or used to until recently) to but a car, because home loan interest is deductable.

Now those who do not have a car loan pay one anyway every time they drive up to the pump.The gas mess is hurting us every day.

Trish

Greg L said...

>>>2012 will be one interesting year.<<<

2012 will be interesting indeed, considering that the depression that we're in will be apparent to all at that time.

>>>Yes, Greg...should we run a ticket together for congress or senate?<<<

LOL. That would be fine except that me and politics is like oil and water. Other than functioning as an observer and a voter, I'm thoroughly repulsed by the current system.

Greg L said...

>>>BTW, I think the tax code of 1986 is responsible for much of our current mess. <<<

Generally, tinkering around with the code creates winners and losers and much the code, particularly the recent changes, are in support of the financialization of the economy. The same could also be said about most of the de-regulation that occurred in the 80's going forward IMO.

One of the things that 1986 revisions did curtail was all of the real estate tax shelters that were created as a result of the very short depreciation schedules that were tied to early 80's real estate investments. That spawned a host of abusive real estate tax shelters and contributed the the real 80's real estate tax bubble, which was subsequently deflated with TRA of 1986.

You know, along with the rates cuts were back end tax increases as measured by phaseout of deductions, exemptions and other tax benefits as one's income reaches certain levels; a sort of stealth tax if you will, so the top end rate is always effectively higher than the rate bantered about in the press. Also, as you point out, certain things became no longer deductible, which triggered other behaviors.

Although I'd be out of a job, I've felt for some time that a VAT or national sales tax is the way to go and the income tax system should be scrapped and replaced with such a system. The first benefit is ease of administration, hence you could get rid of the army of CPA's, Tax attorneys and IRS agents required to administer and police the existing code. Second, the underground economy that's not taxed would be taxed as everyone has to buy something at some point. It would also end all of this tax haven business while probably raising more revenue.

Makes too much sense, so they'd never do it.

Anonymous said...

Yes, I see but the sales tax system would be chewed up and barfed out by the Jon Geetings of this world who would scream and scream even louder that it is regressive on the poverty population. They would find a way to circumvent and we may be in the same shoes, different height heels.

Tim Forbes came up with the flat tax system which would have not taxed several, but added ease of tax to many, and increased taxes for some. We saw where that went.

I think that the recent debt crisis deal should have let the bush tax cuts expire as a strategy for a greater bite out of the giant megatoxic beast that is alive and well and foaming at the mouth in its lock box at the Federal Reserve in Washington. Their schedule of bi-monthly meeting are closed to the public, of late. Gee, I wonder why? Is the beast so loud now that he can be heard throughout the building?

Paying for wars and the medicare part D plan would have helped tremendously. Maybe we should start there and increase the retirement age to 72, no ifs ands or buts.

Trish