Consumers, Recession, and You

October's retail sales numbers were utterly dismal, a record 2.8% drop in sales is just the beginning for the GDP meltdown. Once again, Nouriel Roubini has valuable information about the economic ruin ahead.

To bring back the household savings rate to the level of a decade ago (about 6% of GDP) consumption will have to fall – relative to current GDP levels – by almost a trillion dollars. If all of this adjustment were to occur in 12 months GDP would contract directly by 7% and indirectly (including the further collapse of residential and corporate capex spending in a severe recession) by 10%, an exemplification of the Keynesian “paradox of thrift”. If such an adjustment were to occur over 24 months rather than 12 months you would still have negative GDP growth of 5% for two years in a row with a cumulative fall in GDP from its peak of 10% (note that in the worst US recession since WWII such cumulative fall in GDP was only 3.7% in 1957-58). One can thus only hope that this adjustment of consumption and savings rates occurs only slowly over time – four years rather than two. Even in that scenario the cumulative fall of GDP could be of the order of 4-5%, i.e. the worst US recession since WWII. Note that the cumulative fall in GDP in the 2001 recession was only 0.4% and in the 1990-9 recession was only 1.3%. So, the current recession may end up being three times as long and at least three times as deep (in terms of output contraction) than the last two and worse than any other post WWII recession.

Any way you slice it, the economy is going to be very, very bad. Unemployment is going to skyrocket, possibly even double.

Obama will certainly take the brunt of the blame.

StupidiNews!

• Astronomers are zeroing in on planets outside our solar system.
• Iraq War vet Tammy Duckworth could be Obama's replacement in the Senate.
• A German politician wants to raise that country's top tax rate to 80%.
• The federal government plans to drill off the coast of Virginia.
• Nintendo once again leads the fight against used games sales and the consumers who want them.

From The "You Have To Be Effing Kidding Me" Department

...Is the big shiny WaPo leak by Al Kamen and Philip Rucker proclaiming the newest nugget out of Obama's team: Hillary as Secretary Of State.

There's increasing chatter in political circles that the Obama camp is not overly happy with the usual suspects for secretary of state these days and that the field might be expanding somewhat beyond Sen. John Kerry (D-Mass.), Gov. Bill Richardson (D-N.M.), Sen. Chuck Hagel (R-Neb.) and maybe former Democratic senator Sam Nunn of Georgia.

There's talk, indeed, that Sen. Hillary Rodham Clinton (D-N.Y.) may now be under consideration for the post. Her office referred any questions to the Obama transition; Obama spokesman Tommy Vietor declined to comment.

The pick of the former presidential contender and Senate Armed Services Committee member would go a long way toward healing any remaining divisions within the Democratic Party after the divisive primaries. Also, Clinton has long been known for her work on international women's issues and human rights. The former first lady could also enhance Obama's efforts to restore U.S. standing amongst allies worldwide.

And Obama could put her in his speed-dial for a 3 a.m. phone call every morning.

So I'm sitting here watching Rachel Maddow and Andrea Mitchell discuss how bad it would be for Obama if this isn't true, that it would be a "slap in the face" to Hillary for her not to get this position now after a leak like this, and for the first time I want to throw something at Rachel Maddow for giving into this Village garbage and I'd like her to tell Andrea Mitchell to go intercourse herself with a power tool of her choice.

Ladies and gentlemen, I can honestly say that I cannot think of a worse person for Sec State for Obama to pick than Hillary Rodham Clinton...which makes me think the quid pro quo on this was sealed months ago. This means Obama's idea of foreign policy is Bush, Only Competent! Joy!

We now know Hillary's price for her and Big Dog campaigning for Obama, and the other shoe has dropped on all these Clinton folks in the transition team. The usual Hillbloggers are already saying that she'd be perfect for the position, when in fact she would absolutely assure that America's foreign policy would continue to be the same abysmal mess we're in right now, and that Israel would be the chief architect of our "diplomacy".

Quite frankly, the trap's been closed on Obama on this one. My major beef with Obama has always been his depressingly Bush-like foreign policy, and the fact it was marginally better than Clinton's even more Bush-like foreign policy was the decider for me in the primaries...at least Obama wanted out of Iraq.

Then again, Obama's too smart for this to really be a trap: Hillary was promised this all along, and this is the pound of flesh she got for not being VP. You'd better believe Big Dog will be all over this too.

So hooray, our foreign policy is officially a shitburger! This right here? This is Obama's first major screw-up, and he's still 68 friggin days from being inaugurated. Should have know it was coming, things were going too well for him.

Meet the new boss, same as the old boss. Jesus.

LIBOR's Liable To Li-Boom

The three month LIBOR numbers have been steadily but slowly improving over the last four and a half weeks. That is...until today.

The cost of borrowing dollars for three months in London rose, snapping a 23-day decline, signaling policy makers have yet to succeed in thawing the global credit freeze.

The London interbank offered rate, or Libor, that banks say they charge each other for such loans increased almost 2 basis points to 2.15 percent today, according to British Bankers' Association data. The last time the rate climbed was Oct. 10. The overnight rate also climbed 2 basis points, to 0.40 percent, or 60 basis points below the Federal Reserve's target rate.

Declines in money-market rates may be slowing amid signs the financial crisis will persist and is spreading to the global economy. U.S. Treasury Secretary Henry Paulson said yesterday he plans to use the second half of the $700 billion financial-rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

``There's still a lot of uncertainty, especially after the change in the U.S. rescue plan,'' said Alessandro Tentori, a fixed-income strategist in London at BNP Paribas SA. ``The perception in the market will change.''

The global hedge-fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.

The LIBOR and TED spread numbers are still much higher than they need to be historically, and if they are heading back UP now due to the US bailout being focused on buying bank stock stakes rather than buying bad mortgage securities and getting them off the books of banks, it means...surprise!

The $700 billion bailout isn't working at all.

We're changing plans in midstream here. Treasury has been reduced to throwing things at the wall to see what sticks, meanwhile the auto industry is about to go under and banks are doing exactly what I said they would do a month ago: sit on all their nice safe government cash and use it for everything BUT lending to consumers and businesses.

Another bailout program will inevitably be signed into law by Obama in early 2009. He'll have no choice.

StupidiNews!

• The second expansion to the wildly popular World of Warcraft hits stores across the world.
• As vote counting continues in Alaska, Democrat Mark Begich has now taken a lead over convicted felon Senator Ted Stevens.
• US foreclosure numbers continue to get worse as October's figures show nearly 85,000 homes were lost.
• Seven-year-old Stanislas "Stas" Gunkel: Political blogger and Stoopid fighter in training?
• Even Wal-Mart is expecting a bad fourth quarter this year.

Zandar's Thought Of The Day

Depending on A) how bad the economy is going to be and B) how obstructionist the GOP is going to be (and I think both will fall pretty deep into the "a hell of a lot worse than you think" level of badness) we could actually be talking about almost the same exact topics that we're talking about now this time next year.

As in "Where the bottom is in the markets, how bad unemployment numbers are going to be for this month, how bad will holiday retail sales really be, who Obama will get to fill his empty cabinet positions, when universal health care will finally get passed, when will we start to actually get out of Iraq and Afghanistan, when will we get Bin Laden, and who is going to run in 2012" stuff, just like now...only the lack of answers would be pretty depressing then.

The fact that I can come up with an entirely plausible scenario where we still don't have answers to any of those eight questions by November 12, 2009 is enough to make me go to bed now.

The Economic Ruin Ahead

Regardless of what President Obama does in 2009, the US is going to be facing a terrible economic situation. The happy-face economic press is expecting a short recession to be over soon. Nothing could be further from the truth: we're looking at five, possibly six quarters of recession at the minumum and much worse news is on the way.

US markets lost another 5% across the board today, the Dow alone having lost 1,400 points in six sessions.

Roubini's outlook is nothing short of catastrophic:

• The U.S. will experience its most severe recession since WWII, much worse and longer and deeper than even the 1974-75 and 1980-82 recessions. The recession will continue until at least the end of 2009 for a cumulative GDP drop of over 4%; the unemployment rate will likely reach 9%. The US consumer is shopped out saving less and debt burdened and now faltering: this will be the worst consumer recession in decades.
• The prospect of a short and shallow 6-8 months V-shaped recession is out of the window; a U-shaped 18-24 months recession is now a certainty and the probability of a worse multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009 the recovery could be so weak because of the impairment of the financial system and of the credit mechanism (i.e. a growth rate of 1-1.5% for a while well below the potential of 2.5-2.75%) that it may feel like a recession even if the economy is technically out of the recession.
• Obama will inherit and economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollar in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed Funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise given price deflation while the value of financial assets is still plunging.
• The world economy will experience a severe recession: output will sharply contract in the Eurozone, UK and the rest of Europe, in Canada, Japan, and Australia/New Zealand; there is also a risk of a hard landing in emerging market economies. Expect global growth – at market prices – to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.

That's just leading off. It gets worse: predictions of stag-deflation (a nasty combination of stagnating GDP and deflation), Fed rates hitting zero basis points, the S&P 500 going at low as 500, Credit market losses approaching $2 trillion, more deleveraging and downgrading of long-term corporate bonds, the collapse of the commercial real-estate market, a $1 trillion deficit in 2009 and 2010, the dollar dropping off the cliff, and the markets crumbling as the year-end rally that the economic press is betting on failing to materialize.

General Growth Properties, the second largest US mall operator, saw their stock hit 33 cents today. Bankruptcy is all but certain for this company as it's already looking for a deal.

Ford, GM, and Chrysler will not survive as independent companies. The Big Three Automakers are almost dead and if they all go under, unemployment in this country will double overnight. We're talking the cascading losses of eight to ten million jobs, that would devastate the country for a decade.

Throw in the airlines falling apart and retail stores crumbling across the country, and you have an idea of just how bad the worst case scenario is.

A recession...a bad one lasting into 2010...is assured. A depression is still very possible. A lot will depend on what Obama does. If he and his administration recognize that we're facing a second Great Depression, we have a chance.

If not...we'll all find out just how likely the depression scenario is.

Democrats Won, Folks

So can we finally retire the Village argument for letting the GOP run Congress?

In a CNN/Opinion Research Corporation survey released Tuesday, 59 percent of those questioned think that Democratic control of both the executive and legislative branches will be good for the country, with 38 percent saying that such one-party control will be bad.

Get that? Fifty-nine percent.

The Village is full of crap. America is ready for Obama and the Democrats to try it their way.

One Term Obama

My least favorite blogger, US News wrongmaster Jim Pethokoukis is at it again, saying the economy will doom Obama to one-term ignominy.

Just "one and done" for Barack Obama's presidency? Recall an ominous passage in his otherwise joyous election-night speech: "The road ahead will be long. Our climb will be steep. We may not get there in one year or even in one term." Maybe the tone was suggested by one of Obama's economic advisers like Jason Furman or Austan Goolsbee. It's the battered economy, after all, that will be President Obama's greatest domestic policy challenge. As such, it will also be his greatest political challenge, too -- but one where failure may already be baked into the cake.

That's right, the "O" in "Obama" may stand for "One Term." For starters, there's a strong chance that when voters head to the polls on Nov. 2, 2010, they likely will still think the economy is awful. Not much debate about that. (Good chance the Democrats' two-election winning streak comes to an end.) And while voters may be somewhat patient for two years, patient for four years? Really unlikely. If history is any guide at all, voters may still be terribly cranky about the economy when they cast their ballots on Nov. 6, 2012 and thus likely choose the 45th president of the United States -- be it Mitt Romney, Sarah Palin, Bobby Jindal or some other Republican without "Bush" for a last name. Once again a "change" election for an impatient America. The same bad economy that doomed John McCain in 2008 will have sunk Obama, as well.

Now, Jim is right when he assumes the economy is going to be bad for the next four years. He's dead right about that. He is wrong however in assuming that Obama will be kicked out of office because of it.

If Obama is able to convince voters that he's actively doing something about the economic disaster, and that he can say "Look, I'm doing everything I possibly can to fix this" and he has a specific plan ready to go on January 20, the public will work with him.

It was GOP's insistence that the economy was fine that killed John McCain's chances, not the economy itself. Bush made the same mistake, as did his father.

The Left Has Teh Stupid Too

Plenty of folks on the Left need to face the music for being, I don't know, 100% wrong on this election, mainly the die hard "Hillary Or Hell" folks on the Left that said that a black man could and would never win a Presidential election in America. Larry Johnson of No Quarter went from one of the best sources of behind the scenes intel community analysis to going completely off the reservation and turned into a wingnut with a severe case of Obama Derangement Syndrome, but almost as bad was TalkLeft's "Big Tent Democrat", Armando.

John Cole of Balloon Juice (himself a reformed wingnut turned Stupid Fighter) takes BTD to task and names his many crimes against reason, logic, and his fellow bloggers.

With Democrats like this, who needs Red State? If there was anyone who was more tedious during this last election cycle than Armando, aka Big Tent Democrat, let me know. Besides turning one of my favorite sites, TalkLeft, into a pseudo-Puma cess-pool during the primaries (But he supports Obama, dont’cha know- speaking for him only!), BTD’s bigger sin was dispensing bad advice to the Obama campaign on an almost daily basis. If concern trolling was an art form, BTD would be Michelangelo and the 2008 Democratic primary his Sistine Chapel.

Because I am short on patience, and, at heart, a compassionate person, I am not going to go through the TalkLeft archives and dig up where BTD gravely intones that Obama can not win the white vote, can not win the Jewish vote, can not win the Hispanic vote, and on and on. I will not dig up all the stupid god damned advice he gave to the Obama campaign (which they, thank GOD, ignored). I will not look up the umpteen posts where the left’s own pompous village idiot warned that Obama could not win without Hillary on the ticket. I will not dig up the polling data that he consistently misread and always curiously interpreted as showing a need for Hillary on the ticket. I will let you do that for yourself, and you can enjoy your own historical retrospective into BTD’s idiocy. Yes, I voted for Bush twice, but I proudly state I am not as stupid as BTD. Period.

Not proud of some of the folks on the Left, but Teh Stupid plays all sides of the political spectrum, and it's about time somebody called BTD out on the most egregious of his wrongnosity.

It won't be the last time, either.

StupidiNews!

• President Bush says he has a few regrets about what he said over the course of his two terms.
• HBO releases the entire Sopranos series on DVD in one huge box set.
• Treasury's vaunted plan to rescue homeowners facing foreclosure will only help less than ten percent of them.
• The world's first ovary transplant is a success as a healthy baby is born to the recipient.
• With the real estate crash now hitting retail properties, America's second-largest mall operator is facing bankruptcy.

Wingnut Stopped Clock Is Still Right Twice A Day Alert

It's amazing what getting your ass kicked in the race for the White House and in both houses of Congress will do for wingnut perspective. Today's penitent petitioner? Cap'n Ed Morrissey of Malkinvania's scream site, Hot Air, talking about today's earlier douchebag, Rep. Paul Broun's
"Obama Gestapo" comments.

Nothing in that speech hints at a Gestapo-like organization at all. I’d agree that we have to remain vigilant at all times to ensure that the government doesn’t try to impose such a regime upon us, but this is an extremely thin reed to grasp for such a conclusion. Although I supported a freer hand at the NSA in monitoring communications with one end in the US for possible terrorist activities given the dangers we face in this era, it’s far easier for the government to turn that into a Gestapo than what Obama proposed. That’s why I understood the Left’s opposition to it (as well as a small minority of conservatives) and thought reasonable safeguards against potential abuse were appropriate, as the eventual compromise in Congress provided.

If we plan to offer a rational alternative to the coming debacle of the next two years, then we’d better stick to facts and eschew hyperbole. We need to oppose the reality of the radical agenda proposed by Obama and the Democratic majorities in Congress, not fantasies spun out of context-free snippets of speeches. The more critics invoke Hitler and Stalin instead of Jimmy Carter and Lyndon Johnson, the better the reality of Obama, Reid, and Pelosi will seem in 2010.

Well no duh, Ed.

You might want to talk to your boss about this whole "Obama is not Hitler" thing first, however.

Why Obamacare Might Actually Happen

Jon Cohn over at TNR has a pretty good article explaining how and why Obamacare might actually get passed in 2009.

But it's more than new money these groups are bringing to the table. It's also a new attitude. It's easy to forget now, but in the run-up to the Clinton fight most of Washington--indeed, most of the United States--thought health care reform was inevitable. Pro-reform interest groups approached the debate in the same way, focusing relentlessly on their narrow interests. This time around, nobody takes reform for granted. "Groups are coming in with less of an attitude that it's our way or no way," says one staffer who's been present for some of the discussions. "What we're getting from these stakeholders is, we want something to happen, we know you won't do it just the way we recommend, but we want to be positive and we to be there with you."

Not coincidentally, the same attitude seems to be prevailing among members of Congress. In 1994, reformers were fervent but seemed unable to agree on what reform should be. A sizable block wanted to create a single-payer, government- run system; another group favored a system based on private insurance, like the Clintons were proposing; a third group didn't even want to pursue universal coverage. This time around, many traditional single-payer proponents have indicated they could get behind a proposal like Obama's because it would at least offer people the option of a government-run plan and, perhaps, evolve into a single-payer system someday. Meanwhile, the bill attracting centrist interest, Wyden's, is far more ambitious than its 1994 counterparts. Among other things, it would cover virtually everybody right away, something even Obama's own proposal wouldn't accomplish.

It's a good read, and speaking of what Obama can do to get this issue passed fast, BooMan takes a smart look at what the Dems can do to shuffle chairmanships and to create a pair of special committees in Congress to get things done on the universal health care front.

All of the proposed members of these hypothetical special committees are experienced, high-ranking, members in the field of health care. The three biggest and longest advocates of universal health care (Dingell, Kennedy, and Clinton) would all be in a position to take credit. Waxman would be situated to take over energy issues, but Dingell would be well compensated. Clinton would get recognition for both her historic primary campaign and her willingness to campaign for Obama. Kennedy could live to see his greatest desire fulfilled and Baucus would not get unjustly cut out of the deal. Finally, Lieberman would have a prominent role and something to take home to his constituents, but he'd also be punished for siding with McCain.

Obama's very much like myself: a terribly pragmatic guy. I can see him going for this type of arrangement very early, and doing something even better than "spreading the wealth":

Spreading the credit.

Today's Sign Why The GOP Will Continue To Lose

If even David Brooks can figure this out:

In short, the Republican Party will probably veer right in the years ahead, and suffer more defeats.

...then the GOP is in serious trouble.

John McCain lost because of the economy showing up as the final proof that the GOP shouldn't be in charge of a lemonade stand, much less a country.

The response of the most inept, incompetent, foolhardy, partisan, rancorous, corrupt and racist group of sleazy politicians to ever ruin this country?

Double down.

The Spirit Of Bi-Partisanship

The GOP is clearly interested in burying the hatchet...

...in President-Elect Obama's forehead.

A Republican congressman from Georgia said Monday he fears that President-elect Obama will establish a Gestapo-like security force to impose a Marxist dictatorship.

"It may sound a bit crazy and off base, but the thing is, he's the one who proposed this national security force," Rep. Paul Broun said of Obama in an interview Monday with The Associated Press. "I'm just trying to bring attention to the fact that we may — may not, I hope not — but we may have a problem with that type of philosophy of radical socialism or Marxism."

Broun cited a July speech by Obama that has circulated on the Internet in which the then-Democratic presidential candidate called for a civilian force to take some of the national security burden off the military.

"That's exactly what Hitler did in Nazi Germany and it's exactly what the Soviet Union did," Broun said. "When he's proposing to have a national security force that's answering to him, that is as strong as the U.S. military, he's showing me signs of being Marxist."

I'm glad to see that Obama's election has changed the face of the political spectrum so rapidly, and that the rancor and hatred of the campaign has been left behind.

Pro Tip, asshole. Accusing Obama of being a Marxist, Nazi-like dictator after what Bush did to this country for eight years just makes you look like a hypocritical moron. Also, you don't get to get away with statements like this:

"We can't be lulled into complacency," Broun said. "You have to remember that Adolf Hitler was elected in a democratic Germany. I'm not comparing him to Adolf Hitler. What I'm saying is there is the potential of going down that road."

So of course I'm now waiting for one of these gun-owning patriots to settle with Obama in "the American way" before he can revoke the Second Amendment...which of course he's never said he's going to try to do.

But that won't stop people like Paul Broun from sounding "crazy and way off base".

And it won't stop somebody from deciding the threat to gun ownership is worth exacting the ultimate price from Obama, either.

God I look forward to four more years of this, if only to marginalize the entire GOP. Remember Rep. Paul Broun when the Democrats are attacked for not being "bi-partisan" enough.