The “square root” Economy and Goldman Sachs “Surprises”
By Linda Anselmi on October 9, 2009 at 11:40 PM in Current Affairs
The economy was center stage at the International Monetary Fund (IMF) meeting in Istanbul this week. So I thought I would share a few interesting bits that may have gotten overlooked in the reporting by the MSM.
From Politico:
Treasury Secretary Timothy Geithner expressed guarded optimism before an audience of world leaders at the International Monetary Fund and World Bank meeting this week in Istanbul. “We are now witnessing stabilization of the global economy and the beginnings of recovery,” he said. “But we cannot be complacent. Conditions remain fragile.”
So do others share Mr. Geithner’s optimism? And just how “fragile” are conditions?
Some leading corporate executives worry there’s no economic engine available to drive growth in 2010: Technology, construction, finance — all sectors that have powered the U.S. economy out of the doldrums in the past — are flat this year.
And some boardroom denizens offer a bleak assessment: An economy that was driven by consumer overspending for years and by government overspending for the past year will have a tough time making any headway when the government support is withdrawn.
So how is the US economy shaping up? And where is it going?
The best-case scenario is a “V”-shaped recovery — a sharp drop and a quick rebound. Next best is a “U” shape, with a sharp drop, a protracted trough, then a recovery.
The worst of all possible scenarios is the “L”-shaped recession, which is a sharp drop followed by a flat line. In other words: No recovery for you.
The numbers have been so bad recently that yet another shape has entered the lexicon — a “square root”-shaped recovery, in which a short bounce back is followed by a long period of stagnation.
So what do the economist have to say? From Bloomberg:
New York University Professor Nouriel Roubini said stock markets may drop…
“Markets have gone up too much, too soon, too fast,” Roubini, who accurately predicted the financial crisis, said in an interview in Istanbul on Oct. 3. …
“The real economy is barely recovering while markets are going this way,” Roubini said. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.”
“In the short run we need monetary and fiscal stimulus to avoid another tipping point and to avoid deflation, but now this easy money has already started to create asset bubbles in equities, commodities, credit and emerging markets,” Roubini said. “For the sake of achieving growth stability again and avoiding deflation, we may be planting the seeds of the next cycle of financial instability.”
More Bloomberg:
Nobel Prize-winning economist Joseph Stiglitz said U.S. unemployment will keep rising and should be the focus for policy makers, and gains in the stock market show investors have been “irrationally exuberant” about a recovery.
“There’s a lot of risk going ahead of some big bumps,” he said yesterday in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.”
Economic growth this year and next will “fall well short of what we need to stop unemployment from growing,” he said. The likelihood that the U.S. economy will be “out of the woods” before most of the measures in the Obama administration’s stimulus package expire in 2011 is “very small,” he added.
So what worries me the most? This interview:
In a separate Bloomberg Television interview yesterday, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said the International Monetary Fund meetings in Istanbul are “stuck” in an outdated mentality that doesn’t reflect the rising power of emerging economies following the global financial crisis.
O’Neill also said the dollar probably isn’t the No. 1 concern for U.S. policy makers, and predicted 4.1 percent growth for the global economy next year.
Many countries will be “surprising” in their economic growth in 2010, he said, while adding that there is potential for more “positive surprises” that could help fuel global expansion.
Is it just me? Or does hearing “more ‘positive surprises’ that could help fuel global expansion” coming from Goldman Sachs sound ominous for the American taxpayer?
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“Is it just me? Or does hearing “more ‘positive surprises’ that could help fuel global expansion” coming from Goldman Sachs sound ominous for the American taxpayer?”
Thats a rhetorical question, right?
[...] the original: The “square root” Economy and Goldman “Surprises” : NO QUARTER Share and [...]
This is the line that scares me. Sounds like money leaving the U.S. And why the heck not? Who gambles in a casino where there is virtually no chance of winning because the deck is so stacked against you?
Other countries have regulations. Apparently we’re not getting ours back. So who wants to invest in our corrupt third-world country where financial fraud is running rampant?
Actions have consequences.
[...] Original post: The “square root” Economy and Goldman “Surprises” : NO QUARTER [...]
He says that conditions are “fragile”. Geithner looks up a mountain, sees an avalanche, and says that it looks “fragile”. How about if more people adopt his standards about paying taxes, huh?
[...] Read the original here: The “square root” Economy and Goldman “Surprises” : NO QUARTER [...]
By definition it is difficult to sustain a recession for more than a year. Recession is defined simply as a period when GDP falls (negative real economic growth) for at least two quarters. If one looks at this:
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2006&LastYear=2009&3Place=N&Update=Update&JavaBox=no
the recession did not really begin until 3Q 2008. I think the press likes to frame it back to jobs lost since December 2007 to make it look more like it was Bush’s fault. True, we did have a negative 1Q 2008, but 2Q 2008 was positive.
So when is a recession over? Answer: when the GDP grows compared to the depressed quarter from the previous year. Thus, when the positive # comes out for 3Q 2009 when compared to a depressed 3Q 2008, then everything will be great–recession over, Obama is great! Not really with official unemployment near 10%, underemployment near 17%, delinquent mortgages above 13%, tax revenues down 18% and the yearly federal deficit at $1.8 trillion. I have learned a new word, you should too. Quadrillion which is a thousand trillion or 1,000,000,000,000,000.
Again, by definition it is difficult to sustain a recession for more than a year. The game is rigged so that Timothy Geithner or anybody else can get us out of a recession in a year.
By definition it is difficult to sustain a recession for more than a year. Recession is defined simply as a period when GDP falls (negative real economic growth) for at least two quarters. If one looks at this:
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=2&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2006&LastYear=2009&3Place=N&Update=Update&JavaBox=no
the recession did not really begin until the 3Q of 2008. I think the press likes to frame it back to jobs lost since December 2007 to make it look more like it was Bush’s fault. True, we did have a negative 1Q in 2008, but 2Q 2008 was positive.
So when is a recession over? Answer: when the GDP grows compared to the depressed quarter from the previous year. Thus, when the positive # comes out for 3Q 2009 when compared to a depressed 3Q 2008, then everything will be great–recession over, Obama is great! Not really with official unemployment near 10%, underemployment near 17%, delinquent mortgages above 13%, tax revenues down 18% and the yearly federal deficit at $1.8 trillion. I have learned a new word, you should too. Quadrillion which is a thousand trillion or 1,000,000,000,000,000.
Again, by definition it is difficult to sustain a recession for more than a year. Timothy Geithner or anyone else can end a recession in one year because it is a rigged game by definition.
By definition it is difficult to sustain a recession for more than a year. Recession is defined simply as a period when GDP falls (negative real economic growth) for at least two quarters. If one looks at this:
Percent change at annual rate GDP:
4Q 2007 ….. +2.1%
1Q 2008 ….. –0.7%
2Q 2008 ….. +1.5%
3Q 2008 ….. –2.7%
4Q 2008 ….. –5.4%
1Q 2009 ….. –6.4%
2Q 2009 ….. –0.7%
the recession did not really begin until the 3Q of 2008. I think the press likes to frame it back to jobs lost since December 2007 to make it look more like it was Bush’s fault. True, we did have a negative 1Q in 2008, but 2Q 2008 was positive.
So when is a recession over? Answer: when the GDP grows compared to the depressed quarter from the previous year. Thus, when the positive # comes out for 3Q 2009 when compared to a depressed 3Q 2008, then everything will be great–recession over, Obama is great! Not really with official unemployment near 10%, underemployment near 17%, delinquent mortgages above 13%, tax revenues down 18% and the yearly federal deficit at $1.8 trillion. I have learned a new word, you should too. Quadrillion which is a thousand trillion or 1,000,000,000,000,000.
Again, by definition it is difficult to sustain a recession for more than a year. Timothy Geithner or anyone else can end a recession in one year because it is a rigged game by definition.
The co-founder of Home Depot was on Cavuto yesterday afternoon, and his comments were very similar to those you quote, Linda.
Unemployment is expected to be high at least into 2013, and more governors have acknowledged that their states have no alternative but to cut services, even in vital areas like law enforcement.
Things may very well get far worse before they get better, and I think the days of easy money and plenty of jobs are gone!
Does this mean that Geithner will win the Nobel for Economics?
Yes, he will have ended the recession because the # will have improved from a dismal quarter the year before. This = Nobel Prize. However, a 0.1% improvement when you were in the crapper probably still means you are still in the crapper.
Thanks for this post, even though it is sobering to say the least.
Linda, you are a great reporter. This kind of story actually helps us make real life decisions. (I think I will sell my few shares of stock today–they have zoomed upwards and I could not figure out why.)
The shape of the “recovery”: not V,U, or L. It’ll be a W, and the next leg down will be a crusher.
We’ve lived through various “bubbles” that have moved the economy up, the “internet-tech” bubble and the “housing” bubble being the most recent. Eventually, these bubbles burst, causing great pain. Now the government, with the cooperation of the media, is working hard to inflate what can only be called the BS bubble; blown up with absolute nonsense and rosy prognostications, the BS bubble is filled with “green shoots,” fudged statistics, and “better than expected” pipe-dreams based on an imaginary “slowing” in the rate of decline. In order for the BS bubble to continue to grow, “lagging indicators,” such as the unemployment rate, must be ignored.
When the BS bubble bursts, and it will, look out below. The BS will soon hit the fan.
I might have missed it, but the one thing I hear about is the amount of losses in real estate value and retirement investments caused by the meltdown.
The thing is what are the real losses?
I mean if the price of a house was inflated by demand caused by easy credit, what was the actual loss incurred? Same for investments.
It’s easy to babble on happily about numbers that no one can prove. But when your company has just laid off half its workers and when the friends you know haven’t found jobs it is harder to BS that.