The Recession of 2011?

Chris Okonkwo

Aug. 20, 2011, 5:17 p.m.

“Think about this. The Fed announced this week that it would extend low rates until 2013. They are practically pushing people into higher-risk assets in a search for yield, at PRECISELY the time we may be slipping into recession, which will put those assets at their highest risk. I think this could end in tears and land those who are close to retirement in even worse shape.”

Me: Glad to see I’m not the only one who thinks so. As earlier, I believe (given the volatility of the equity markets in the past decade and the uncertainty about the u.s. econ in the near to intermediate term) that most old-timers aka. the holders of most American wealth will take a pass on bernanke’s invitation to venture further out on the risk limb, and instead exchange even more of their equities for fixed income instruments in order to restore the lost in-the-wallet spending power that the fed’s new zero-for-2-yrs policy portends. Said another way: s&p and dow are going lower, and likely lower that 2008. this outcome might not be deserving of a charge of treason, but i’m with rick perry: it’s at least treacherous.

Steven Kastein

Aug. 20, 2011, 4:10 p.m.

The elephant in the room that is very rarely discussed is how the changing demographics and the general dumbing down of the population affects our economy. As the US becomes more and more third world this will accelerate. Third world populations have third world economies.  How can it be otherwise?

Richard Commins

Aug. 20, 2011, 3:50 p.m.

You are giving very solid advice about the coming recession. The yield curve would be flat or inverted if the FED were to put the short term rates to where they should normally be.  They are keeping them near zero so as to not increase the interest payments on our outstanding debt of 14.5 trillion dollars.  The FED has boxed themselves in by transferring a lot of the US long term debt into short term debt.  This has kept our interest payments low, but when the bond market causes our interest rates to rise (US downgrade from AAA to AA+ or lower) our interest payments will rise with a vengeance. Think of a homeowner that forgoes a 30 year mortgage for an adjustable rate mortgage.  It all goes well when the rates are low, but when the rates go up (and they always do), the increase in their mortgage payment can become unmanageable.

I understand that every word you say “can and will be used against you”, but when the facts are this obvious, your “we will muddle through” approach seems hollow.  Your new “I’m an optimist” approach is a bit stronger but if people can’t “read through the lines” and protect their life savings now, you have done them a disservice.  Texas Governor Perry’s remark “The Treasonous FED” might be over the top, but is closer to reality.  The country will not survive if the monetary system collapses through rampant inflation because Bernanke keeps printing money to keep the (Ponzi) system going.  If we don’t reverse course and start paying down this 14.5 trillion dollar debt, we will lose this country.  These are very serious times and we need to stop playing politics and take a stand.  The consequences of runaway inflation in the United States would be too horrible to endure.  Also the coming “Great Depression” is not going to be an easy ride.  We need to balance the US budget and live within our means or the coming disaster could even lead us into WWIII.  Remember the last depression in the 1930’s and that history doesn’t repeat but rhymes.

Rich Commins (Retired)

PS.  “Remember the Alamo” where Texans took a stand.

William Krause

Aug. 20, 2011, 3:13 p.m.

John, you clearly state what ails the US economy (and by extension the world economy) but then dismiss the remedy as something that “there is little stomach for…”.  You have earned respect and earned a voice in this debate.  You know the best way out of this mess for the majority of Americans.  You articulate the arguments so well:  consumers are burdened with high levels of debt, unemployment, and job insecurity and so consumer confidence and consumer spending are very low.  In turn the private sector has absolutely no incentive to invest in job creation in the face of weak consumer demand . Surely the only way out of this global debt crisis is economic growth and the only way to grow our economies is by putting people back to work.  And the only way to put people back to work is by instituting a modern version of Roosevelts New Deal.  Boom and bust can be brought to an end with a full employment, price stable economy.  We have to let go of all this neoliberal free market nonsense.  I’m sure in your gut you know this because you’re a very smart guy and somehow I suspect your kids keep you honest!
Respectfully,
Bill

Gerard Longpre

Aug. 20, 2011, 2:07 p.m.

John:  you make the statement:  “Fed Policy is impotent”.  Do you not read your own charts.  See StreetTalk/Maudlin.  With Fed policy Output was right up there!  Why do you take your charts for one point but completely ignore that the same Chart supports Fed intervention.  Yes it did not create jobs but the Fed never promised jobs just to inflate the stock market and somehow the greed on Wall Street would morph into jobs - fat chance.  Why does the Fed not tax the Bank Reserves and hit capital reserves unless they loan funds to small businesses who then must hire people.

Paolo Sassetti

Aug. 20, 2011, 12:57 p.m.

I do know if you have ever admired the beauty “the three Lavaredo Peaks” (“le tre cime di Lavaredo”) in Italy.

http://www.google.it/imgres?q=cime+di+lavaredo&hl=it&biw=1024&bih=649&gbv=2&tbm=isch&tbnid=5jFXuUVEVM6hAM:&imgrefurl=http://vegan-biker.blogspot.com/2010/08/vacanze-e-allenamento.html&docid=UBTJfXnmNZLUHM&w=1024&h=768&ei=gwBQTrDWIKTc4QT-wI3fBw&zoom=1&iact=hc&vpx=337&vpy=134&dur=35&hovh=194&hovw=259&tx=130&ty=81&page=1&tbnh=147&tbnw=180&start=0&ndsp=12&ved=1t:429,r:1,s:0

Well, what do they have to do with the economic situation of the USA? Nothing, except that their shape looks like the chart of S&P500;, which shows a terrific reversal pattern for the US equity market, both if you see a huge uncompleted head and shoulder or a very large triple top.

These patterns usually do not fail! The Lavaredo peaks of the US equity market are showing its next destiny.