Look Out Below!

[Ichingcarpenter]

The slowdown has begun. The economy has started to sputter and unemployment claims have tipped 400,000 for the last seven weeks. That means new investment is too weak to lower the jobless rate which is presently stuck at 9 percent. Manufacturing--which had been the one bright-spot in the recovery-- has also started to retreat with some areas in the country now contracting. Housing, of course, continues its downward trek putting more pressure on bank balance sheets and plunging more homeowners into negative equity.

The likelihood of another credit expansion in this environment is next-to-none. Total private sector debt is still at a historic high at 270% of GDP which augurs years of digging out and painful deleveraging. Analysts have already started slicing their estimates for 2nd Quarter GDP which will be considerably lower than their original predictions. With the economy dead-in-the-water, the IPOs, the Mergers & Acquisitions, and the stock buybacks and all the other ways of amplifying leverage will slow putting a dent in quarterly earnings and pushing down stock prices. Here's a clip from the Wall Street Journal:

"After a disappointing first quarter, economists largely predicted the U.S. recovery would ramp back up as short-term disruptions such as higher gas prices, bad weather and supply problems in Japan subsided.

But there's little indication that's happening. Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.

http://www.counterpunch.org/whitney05312011.html



U.S. home prices have fallen more than in Great Depression

U.S. home prices as measured by the Case-Shiller index have now fallen by more than they did during the Great Depression, according to Capital Economics.

Paul Dales, senior U.S. Economist at Capital, said the Case-Shiller index released earlier on Tuesday — which tracks prices of single-family home in 20 major U.S. cities — are now 33% below the 2006 peak and back at a level last seen in the third quarter of 2002, edging out the 31% dip seen in the Depression of the 1930s.

“On that occasion, the peak in prices was not regained until 19 years after they first fell,” Mr. Dales said.

“The similarities between the current downturn and that seen during the Great Depression are striking,” Mr. Dales said in a note. He pointed out that on both occasions, prices initially fell by 31% and, after a temporary rebound, dropped back by 7%, the dreaded double-dip.


http://business.financialpost.com/2011/05/31/u-s-home-p...

[Ichingcarpenter]

1. When spending slows, the economy contracts

•
When spending slows, the economy contracts. It's that simple. Without emergency stimulus, commodities will fall hard and stocks will follow. Look out below.

[Donnachaidh]

2. but but but -- we got Bin Laden! Yeahhhhhh!! Boo-yah! Yeah Haw!!!

:sarcasm:



What else will be the next shiny key distraction form this new dive we're headed into?

[Citizen Worker]

3. What is needed is a massive public works program. We've had over two years of digital money, tax

cuts for the rich and corporations, with a few crumbs thrown to workers, and it hasn't worked and it won't work. Working people spend what they earn and if we aren't earning we're not spending. It really is that simple.

[Demeter]

4. But but but

That's so 20th century! So FDR! Antique and quaint! We must go forward!


(This time it's different, pass it on)