Lost Decades? Maybe... If We're Lucky!
Japan, those lucky ducks, may have gotten off easy compared to what the U.S. & Europe may actually be going through.
CNBC
Japan's Lost Decade: Still a Risk for US Economy
As the U.S. economy slouches toward another recession and confidence in policymakers erodes, investors are coming to grips with the notion that the country may already be several years into a Japan-style lost decade.
If so, the years ahead could be a very tough slog. U.S. households, unlike those in Japan, have higher debts and lower savings, while massive deficits have sapped political support for the type of robust government spending Japan relied upon.
In short: in a prolonged period of anemic growth, the U.S. economy may have a slimmer margin for error...
U.S. economic output through the second quarter of 2011 has yet to surpass the level seen before the crisis hit in 2008 and may not do so soon; economists polled by Reuters give the the country nearly one-in-three odds of falling back into recession over the next year.
"The financial turmoil of the last three or four months has been the markets coming to terms with a period of prolonged slow growth," said Andrew Scott, professor of economics at London Business School. "With households paying down debt and not consuming, it's hard to see where growth will come from."
Misdiagnosing the Disease
Boosting exports -- an early objective of the Obama administration -- won't be easy since most of the developed world is also ailing, with Japan, Britain, Switzerland, China and others wary of allowing their currency to gain too much strength.
That means America can't rely on steady dollar weakness -- Europe's ongoing debt and banking crises have recently boosted the greenback against the euro -- to sell more abroad.
"Japan (in the 1990s) had a world that was booming around them, and they are an export-oriented economy that could take advantage of that," Mather said.
And while Japanese households were net savers, U.S. consumers relied on rising home prices to fund their spending, an option that dried up when the housing bubble burst.
"We will be lucky to do as well as Japan, because they at least had a stack of cash to help them through," said Michael Cheah, who helps manage $1.5 billion at SunAmerica Asset Management in Jersey City.
Some economists argue both Japan and the United States misdiagnosed their economic diseases. When credit-driven asset bubbles burst, an indebted private sector -- companies in Japan, households and banks in the United States -- focused exclusively on paying down their debts.
In such instances, even slashing interest rates to zero, as both the Federal Reserve and Bank of Japan did, won't boost activity because there is no demand to borrow...
CNN
WHAT IF GREECE DEFAULTS?
A Greek default could spark a crisis for other European countries as well as the United States
...
CNBC
Greek Default Could Tip US Into Recession
Despite being more than 5,000 miles from Washington D.C., a default in Athens could trip up the global banking system just enough to tip the U.S. into a recession, investors and economists said.
“Due to financial trading relationships and off-balance sheet exposure to European banks, the U.S. banking system will not go unscathed,” said Michelle Meyer, a Bank of America Merrill Lynch economist, in a note to clients Friday. “If the crisis in Europe escalates, it could be the shock that pushes the U.S. economy into recession...
There are five major ways the U.S. is connected: trading counterparty risk and derivative ownership with heavily-exposed European banks, overall market confidence, central bank funding, money-market funds and trade flows...
CNBC
Italy's Debt Downgraded by S&P; Outlook Still Negative
Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone...
The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.
The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.
"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.
"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news...
Econobrowser: Lost Decades
Lost Decades: The Making of America's Debt Crisis and the Long Recovery
From the preface to Lost Decades, published today (9/19) by W.W. Norton:
The United States ... lost the first decade of the twenty-first century to an ill-conceived boom and a subsequent bust. It is in danger of losing another decade to an incomplete recovery and economic stagnation.
In order to not lose the decade to come, the United States will have to bring order to financial disarray, gain control of a burgeoning burden of debt, and re-create the conditions for sound economic growth and social progress. None of this will be easy. The tasks are made more difficult by the fact, which we have learned to our alarm, that all too many policymakers and observers cling to the failed notions that got the country into such trouble in the first place. If Americans do not learn from this painful episode, and from others like it, they will condemn the nation to another lost decade.. (p. xvi).
When Jeffry Frieden and I wrote those lines in Lost Decades nearly a year ago, we were still somewhat optimistic that our leaders would rely upon the lessons from history to inform their decisionmaking. However, Republican opposition to funding consumer financial regulation and intransigence regarding revenue increases during recent debt ceiling debate have highlighted the fact that basic economic theory has been trumped by ideology and raw special interest politics...
Moody's Analytics
U.S. Macro Outlook: Fears Across the Sea
By Mark Zandi in West Chester
September 14, 2011
ShareThis
View the Moody's Analytics U.S. Macro Forecast.
U.S. economic growth has come to a virtual standstill. Real GDP during the first half of the year increased at a nearly 1% annualized rate, and is tracking only a bit better than that so far in the third quarter. Job growth has followed suit, decelerating from close to 200,000 per month at the start of the year to a barely positive level this summer.
Businesses have stopped hiring and households are spending more tentatively. Bankers are re-evaluating whether they should continue to ease underwriting standards or tighten again. Declining stock prices and widening credit spreads suggest investors are also losing faith.
This is not sustainable. Unless spirits improve soon, businesses will ramp up layoffs, consumers will pull back, and the economy will fall back into recession. There are already indications that this may be happening; corporate layoff announcements are picking up and retail sales have flatlined...
CNBC
Japan's Lost Decade: Still a Risk for US Economy
As the U.S. economy slouches toward another recession and confidence in policymakers erodes, investors are coming to grips with the notion that the country may already be several years into a Japan-style lost decade.
If so, the years ahead could be a very tough slog. U.S. households, unlike those in Japan, have higher debts and lower savings, while massive deficits have sapped political support for the type of robust government spending Japan relied upon.
In short: in a prolonged period of anemic growth, the U.S. economy may have a slimmer margin for error...
U.S. economic output through the second quarter of 2011 has yet to surpass the level seen before the crisis hit in 2008 and may not do so soon; economists polled by Reuters give the the country nearly one-in-three odds of falling back into recession over the next year.
"The financial turmoil of the last three or four months has been the markets coming to terms with a period of prolonged slow growth," said Andrew Scott, professor of economics at London Business School. "With households paying down debt and not consuming, it's hard to see where growth will come from."
Misdiagnosing the Disease
Boosting exports -- an early objective of the Obama administration -- won't be easy since most of the developed world is also ailing, with Japan, Britain, Switzerland, China and others wary of allowing their currency to gain too much strength.
That means America can't rely on steady dollar weakness -- Europe's ongoing debt and banking crises have recently boosted the greenback against the euro -- to sell more abroad.
"Japan (in the 1990s) had a world that was booming around them, and they are an export-oriented economy that could take advantage of that," Mather said.
And while Japanese households were net savers, U.S. consumers relied on rising home prices to fund their spending, an option that dried up when the housing bubble burst.
"We will be lucky to do as well as Japan, because they at least had a stack of cash to help them through," said Michael Cheah, who helps manage $1.5 billion at SunAmerica Asset Management in Jersey City.
Some economists argue both Japan and the United States misdiagnosed their economic diseases. When credit-driven asset bubbles burst, an indebted private sector -- companies in Japan, households and banks in the United States -- focused exclusively on paying down their debts.
In such instances, even slashing interest rates to zero, as both the Federal Reserve and Bank of Japan did, won't boost activity because there is no demand to borrow...
CNN
WHAT IF GREECE DEFAULTS?
A Greek default could spark a crisis for other European countries as well as the United States
...
CNBC
Greek Default Could Tip US Into Recession
Despite being more than 5,000 miles from Washington D.C., a default in Athens could trip up the global banking system just enough to tip the U.S. into a recession, investors and economists said.
“Due to financial trading relationships and off-balance sheet exposure to European banks, the U.S. banking system will not go unscathed,” said Michelle Meyer, a Bank of America Merrill Lynch economist, in a note to clients Friday. “If the crisis in Europe escalates, it could be the shock that pushes the U.S. economy into recession...
There are five major ways the U.S. is connected: trading counterparty risk and derivative ownership with heavily-exposed European banks, overall market confidence, central bank funding, money-market funds and trade flows...
CNBC
Italy's Debt Downgraded by S&P; Outlook Still Negative
Standard and Poor's downgraded its unsolicited ratings on Italy by one notch to A/A-1 and kept its outlook on negative, a major surprise that threatens to add to concerns of contagion in the debt-stressed euro zone...
The move from S&P came as a surprise as the market had thought Moody's was more likely to downgrade Italy first. Moody's last week said it would take another month to decide on its action.
The downgrade came as Greece struggles to meet demands from lenders for yet more austerity measures.
"It's just more of the same negative news," said Stephen Roberts, a senior economist at Nomura in Sydney.
"It only adds to the contagion risk over Greece and has encouraged the flight to safety in markets here," he added, pointing to a sharp fall in the Australian dollar on the news...
Econobrowser: Lost Decades
Lost Decades: The Making of America's Debt Crisis and the Long Recovery
From the preface to Lost Decades, published today (9/19) by W.W. Norton:
The United States ... lost the first decade of the twenty-first century to an ill-conceived boom and a subsequent bust. It is in danger of losing another decade to an incomplete recovery and economic stagnation.
In order to not lose the decade to come, the United States will have to bring order to financial disarray, gain control of a burgeoning burden of debt, and re-create the conditions for sound economic growth and social progress. None of this will be easy. The tasks are made more difficult by the fact, which we have learned to our alarm, that all too many policymakers and observers cling to the failed notions that got the country into such trouble in the first place. If Americans do not learn from this painful episode, and from others like it, they will condemn the nation to another lost decade.. (p. xvi).
When Jeffry Frieden and I wrote those lines in Lost Decades nearly a year ago, we were still somewhat optimistic that our leaders would rely upon the lessons from history to inform their decisionmaking. However, Republican opposition to funding consumer financial regulation and intransigence regarding revenue increases during recent debt ceiling debate have highlighted the fact that basic economic theory has been trumped by ideology and raw special interest politics...
Moody's Analytics
U.S. Macro Outlook: Fears Across the Sea
By Mark Zandi in West Chester
September 14, 2011
ShareThis
View the Moody's Analytics U.S. Macro Forecast.
- U.S. growth has stalled amid falling business and consumer confidence.
- Rising layoffs and slowing retail sales mean the economy could be perched on the edge of a new recession.
- Europe's crisis is among the uncertainties weighing on sentiment and inhibiting economic activity.
- European policymakers must act decisively to shore up that region's banking system and forestall a Greek default.
U.S. economic growth has come to a virtual standstill. Real GDP during the first half of the year increased at a nearly 1% annualized rate, and is tracking only a bit better than that so far in the third quarter. Job growth has followed suit, decelerating from close to 200,000 per month at the start of the year to a barely positive level this summer.
Businesses have stopped hiring and households are spending more tentatively. Bankers are re-evaluating whether they should continue to ease underwriting standards or tighten again. Declining stock prices and widening credit spreads suggest investors are also losing faith.
This is not sustainable. Unless spirits improve soon, businesses will ramp up layoffs, consumers will pull back, and the economy will fall back into recession. There are already indications that this may be happening; corporate layoff announcements are picking up and retail sales have flatlined...