EconomicCrisis.US

The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm — debt as a percentage of GDP. Now that the US can’t cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing — buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It’s a point from which it’s almost impossible to return.
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European financial troubles are unlikely to send the world back into recession, and the U.S. may actually benefit from unsettled markets over the near term as investors look for a safe place to preserve their wealth, a U.S. central bank official said Tuesday.

Because the trouble in Europe is rooted in government debt problems, there is good reason to think events “will probably fall short of becoming a worldwide recessionary shock,” Federal Reserve Bank of St. Louis President James Bullard said. The official noted the world has seen these types of events before, and “there is nothing intrinsic about such crises that they need to become important shocks to the broader, global macroeconomy.”
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The U.S. economy’s recovery is likely to be slow, and the outlook is for stable inflation, Federal Reserve Bank of Chicago President Charles Evans said Thursday.

While leaving current monetary accommodation in place too long could fuel inflation eventually, removing it prematurely could “choke off recovery,” he said the prepared text of a speech in Chicago.

“I anticipate that restrictive bank credit, along with business and household caution, will continue to restrain the recovery’s strength,” Evans said. “Inflation will remain relatively stable.”
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In response to Pat Mikenatic’s letter: Yes, the recession is over. The general definition of a recession is “two or more consecutive quarters of negative economic growth.” The economy has grown in the past two quarters. By definition, the recession has been over for eight months and we are in a recovery.

He says that Austrian school economists know that this recovery is a bubble because of fiat money. No, they might think that. They don’t know it. He also claims that Von Mises disproved Keynes. No, Von Mises disagreed with Keynes.
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