Shares in London, the rest of Europe and the United States went into sharp retreat today after shock US data showed the housing crisis and credit squeeze are starting to hit growth in the world’s biggest economy.

The dollar also tumbled as the US government reported the first fall in jobs for four years.

Against forecasts for an increase of 110,000 in the payroll numbers, the figures showed there had actually been a decline of 4,000 in August.

Economists were alarmed by the figures. Rob Carnell of ING in London described them as “downright awful”. “For those wishing to see some evidence of the impact of sub-prime on the broader macro-economy – look no further,” he said.

Figures yesterday from the Mortgage Bankers Association in the US showed the rate of home loans entering the repossessions process hit a record high in the second quarter after a surge in the number of failing mortgages.

You have to love Alan Greenspan’s response: “The human race has never found a way to confront bubbles”.



  1. Tiago says:

    I think this is happening for a long time, especially when you see the us economy from another country. The dollar compare to the Brazilian currency in the last years is getting weaker and weaker.

    And this housing crisis is amazing, there is houses here in the east bay of san fransisco that are for sale for a year, price went down several times and still no one is buying.

  2. Misanthropic Scott says:

    I think some of these folks may just be looking at the wrong data. Just prior to the Iraq war, the U.S. debt to GDP ratio hit a record high, narrowly edging out the prior record set in October, 1929.

    Does that date mean anything to anyone?

    Does anyone think that the figure has gotten better as a result of the Iraq war?

    I personally hate the GDP, so would prefer another ratio by which to compare. However, if you want to compare against 1929, there probably was no better indicator.

    What we really need to look at is a debt to capital ratio. On that score, we have probably long surpassed any records many times over. Since we are depleting our capital we must be in an ever increasing ratio there. However, since we do not measure our capital, we may never know.

    Anyway, if the crushing debt we had in 1929 had anything to do with the great depression, we’re in worse shape now.

  3. KVolk says:

    This data is some what alraming but a few days before they reported Productivity levels in the US were at all time highs and lead all countries. I believe a while back that Greenspan himself said that productivity stas up recessions are less likely. I think that a downturn may happen but a recession is a little extreme of a forcast at this point.

  4. cheese says:

    Welcome, USA. Please take a seat. The recession has arrived from Michigan and will be with you shortly.

  5. jlm says:

    I’m sure Bush will try to fix it with more tax cuts that benefit the rich much more than everyone else.

  6. GigG says:

    #5 It’s hard to cut the taxes on the poor since they pay so little.

  7. grog says:

    same thing happened under reagan/bush
    1) tax cuts induce short-term spike in economic activity, and increased tax revenues,
    2.) short term spike flattens, fails to generate further growth
    2.) government spending drags budget so deep into the red that it skews all macro-economic activity
    3.) desperate for profits, banks start engaging in risky behavior and then fail,
    4.) recession results as banking industry loses their shirt at the casino of global finance

    we need another president who’s willing to work with fiscal conservatives to make the tough choices to get the budget back to being balanced, not a single-minded halfwit who thinks simply cutting taxes is a panacea for economic woes.

  8. Wayne Bradney says:

    These are the same guys that have successfully predicted nine of the last five recessions, right?

  9. Misanthropic Scott says:

    #6 – GigG,

    How about raising the taxes on the rich to cut the taxes on the middle class? Since I’m somewhere in between, I might see a slight increase. I’m OK with that. I’d like to see a huge increase on wealthier individuals, or more accurately, a huge increase in actual taxes paid. The official rate for the tax bracket may be the same.

    #7 – grog,

    Pretty good analysis, I like it, despite the facat that you have two number twos.

  10. Misanthropic Scott says:

    #8 – Wayne,

    These are the same guys that have successfully predicted nine of the last five recessions, right?

    Given the difficulty of that type of prediction, the rate you quote, if accurate, would be pretty good. How many have you successfully predicted? Have you missed any? Have you made predictions that didn’t come true?

  11. Wayne Bradney says:

    #10
    I’m not paid to make predictions, especially with the Vegas-like international financial markets, but I would be willing to bet that there are sports handicappers with better records than most “economists”.

    I’d also predict that in five years time, if this blog is still around after the meltdown, that most posters still won’t give their real name 😉

    And by the way, the quote isn’t mine — it’s from Paul Samuelson, economist. The irony.

  12. Misanthropic Scott says:

    BTW, for a good analysis of the mortgage meltdown, check the current Mother Jones article on the subject.

    http://tinyurl.com/ysed8e

  13. MikeN says:

    Well, yes a recession is inevitable. Things don’t keep increasing forever. However, recessions are unlikely with so much population growth. Even if standard of living’s decrease, production will still go up with everything the illegals do.

  14. BobH says:

    When industry ships jobs off shore, who profits? It’s damn well not the individual now out of work.

    I live in an area of North Carolina that has essentially fiscally imploded. At one time we had a diverse economy of furniture manufacturing, textiles and fiber optic cable. None of those are here anymore. One of the local furniture magnates – his family name is instantly recognizable – was quoted in the New York Times recently as saying he doesn’t understand what happened. Summary: In 2000, everything was fine; but now there’s double digit unemployment. He’s either disingenuous or a fool.

    Here’s a clue: all the furniture previously from here is now made in China. So are the textiles. And no one is running fiber to the home because ISPs don’t need to spend a dime on improving infrastructure since they have no competition. You don’t like the service from the cable or DSL provider… too bad, they’re the only game in town.

    From an owner, stockholder, Wall Street perspective, things are looking pretty sweet short term. Labor costs are down and profit is up.

    Of course, the housing market collapsed. The out of work folks were foreclosed. When you lose your home, there’s not much need for new furniture nor high speed Internet. The service industries take a massive hit too since people don’t dine out when living on food stamps. There’s also not much point in visiting a hair salon to look fine for a job interview because no one’s hiring.

    The rich got richer and the rest got raped.

    Recession? We’ll be lucky if it’s only a recession. We may all be riding a rocket to one hell of a depression. If anyone needs a lesson on why we can’t survive another Republican administration, look around. If you need an even bigger wake up call, realize the Democrats are equally inept.

    Name a single candidate for the House, Senate or Presidency willing to state without equivocation the US economy is in crisis?

  15. nightstar says:

    William Paterson is the fellow who set the wheels in motion. He started legalized fractional reserve banking. The practice originated with goldsmiths passing out notes for more gold than they actually held.

    A liquidity crisis occurs when money that doesn’t exist is collected(attempted). There is no money to back the claimed wealth of the USA. It’s all 1s and 0s.

    Worse yet by abandoning the gold standard America doomed us to financial indenture long before any of us were born.

    Save you pennies people, the copper is worth more than the coin.

  16. Thomas says:

    #7
    > 2.) government spending drags budget so deep into
    > the red that it skews all macro-economic activity

    That’s the key: increased goverment spending. Everytime the economy does better and tax revenue goes up the government spends it…and then some. When the economy eventually retreats, everyone looks around and asks where the money went.

    #9
    How about leaving the tax rate the way it is and getting the government to spend less?

  17. tallwookie says:

    Recession is always inevitable – the economy goes up & down – it has to or it’ll crash.

    The shit is cyclical – just like global temperature patterns

  18. ECA says:

    Its funny all the names they have in our country for HOW business can screw the Poor.
    But, NONE on how well the poor can purchase New/better goods.

    recession, means they Fire more people, cut more wages(lower end), and keep their prices.
    Inflation, means those on top are getting more money, and prices are Higher.

    WHERE in these 2 definitions does it say ANYTHING about them lowering prices to compete with each other, and those shopping there get a DECENT price.

  19. MikeN says:

    Raising taxes on the rich is a good way to speed up a recession, or slow down a recovery. Lowering taxes is a good way to produce more economic growth. That’s basicaly what jumpstarted the economy a few years ago, giving Bush just enough growth to get reelected.

  20. Misanthropic Scott says:

    #16 – Thomas,

    OK, tax rate’s fine. How about we make everyone pay it? How about removing all deductions? I shouldn’t subsidize the children of others any more than they should subsidize my mortgage. I am OK paying for public school, just not deductions for kids. We don’t need more people on the planet.

  21. Thomas says:

    > How about removing all deductions?

    Technically, when you hit the AMT, you lose almost all of your deductions. It might be all; I’m not sure. I’ve been lucky/unlucky enough to miss hitting the AMT.

    I’m sure the charities would love the idea of removing all deductions since most of their money comes from charitable donations made as part of a deduction. In addition, it would do nothing to stop people from investing in non-taxable investments like municipal bonds.

    The rich do not pay less tax by declaring more deductions. They do so by declaring less income.

  22. OmarTheAlien says:

    Like the oil speculators raising the price of oil I suspect media hype may be fanning the flames of the current mortage crisis. I read the other day that the percentage of defaulted mortgages equaled .65% of the total mortgages. Also, the loans held by qualified buyers were doing as well as ever, with foreclosure rates tracking into historical norms. Home construction has been booming, with the majority of houses built being the “McMansion” style of home, big and kind of stupid, so it should be no surprise that the market is saturated and demand, along with prices, are beginning to fall.
    This not to say that all is hunky-dory, as our leaders have just about broke us with ill considered economic decisions and the tragic blunder that is Iraq, but the housing situation is not the trigger to the next American depression, unless the media convince us otherwise.

  23. Johnson says:

    follow the money. Who will benifit from a recession? Raising taxes on the “rich” will never work. They can afford to hire people to find ways to hide income and assets. The “poor” do not pay taxes and evan get money back. Mean while us smucks in the middle give up 30% plus of our earned income..

  24. Misanthropic Scott says:

    #21 – Thomas,

    Right again. Yup we need to get rid of the concept of tax free income. If the fed wants to subsidize the interest on munis, let them pay a portion of it to bring the interest rate up enough to be competitive. The net effect to the fed would be the same. The difference would be that people would have to pay taxes. And, oh yeah, interest on treasuries needs to be taxed too.

    My horribly unrealistic dream would be to have a tax form that looks pretty much like this:

    1) Enter your total income from all sources: _____________
    2) Look up your tax rate and enter it here: ______________
    3) Multiply line 1 by line 2 and enter it: _______________
    4) Enter the tax you already paid: ________________
    5) Subtract line 4 from line 3: _________________

    Line 5 is the amount you owe or the amount of your refund.

    Oh no!! I just put a whole boatload of tax accountants and all tax attorneys out of business. Oh well.

  25. ECA says:

    19, and it hasnt gone up sense(taxes) and we are going BACK as a sling shot effect.
    Business has to COMPETE…They have to give into the Poor,, IF they want money.

  26. Thomas says:

    #24
    What would happen in your world is that the rich would find ways of making item #1 as small as possible. They would do that by finding ways of reducing taxable investments or moving investments so that they were not under their name (but still under their control). In addition, thousands of legitimate charities would disappear overnight. Thousands of city and State projects would fall by the waste side as there would be no incentive to invest in State and municipal bonds. In short, such a change would be an economic catastrophe and the people that would be hurt the most are everyone *except* the rich.

  27. Mike says:

    What about the word “selfishness”.
    – CEO’s making 400x the pay of regular workers
    – Managers once lost sleep at night when they mis-treated someone. Now, they toss and turn trying to figure another way to squeeze a few more bucks out of the workers and push it to the top.
    Here are some things to note:
    1) We all are going to die
    2) I believe there is a God and it’s going to be interesting to see what these selfish people have to say then…Note: They won’t be able to call their lawyer.


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