Part 1 – Predictions for the New Year (Part #1 of 8)
by Tom on December 13, 2008
in Market Musings, house prices
Fortune Magazine did a series of short articles with predictions from some notable people. I’m going to feature one of them a day and then some comments on it afterwards. I’d hope that I could say, “Enjoy!” but they aren’t going to be pretty…..
The first one comes from Dr. Nouriel Roubini. A couple of words about Dr. Roubini. I’ve listened in on a couple of conference calls that he has led and the man is unbelievably brilliant. He is known as Dr. Doom because since 2005, he’s been calling this credit bubble and no one has been as negative as he has. No one has been as right either.
Here we go:
We are in the middle of a very severe recession that’s going to continue through all of 2009 – the worst U.S. recession in the past 50 years. It’s the bursting of a huge leveraged-up credit bubble. There’s no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it’s all reversing right now in a very, very massive way. At this point it’s not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we’re having a global recession and it’s becoming worse…..
And the recovery in 2010 and 2011, if there is one, is going to be so weak – with a growth rate of 1% to 1.5% – that it’s going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010.
8 really, really scary predictions – Nouriel Roubini (1) – FORTUNE.
Tom here with a few comments:
- He’s got it nailed in that it’s not a mortgage thing, it’s a credit bubble. The entire world spent too much, borrowed too much and now we need to adjust to that.
- On a national level, I think that an anemic recovery in 2010 and 2011 might actually pan to be fairly accurate.
- On local levels there will probably be parts that will rebound faster (SW) and parts that will rebound slower (the Rust Belt).
So what does this mean for the housing market?
- The recovery will be slow.
- Any stimulus plan that aims on encouraging a resumption of the “old” spending and use of credit is destined to only prolong the downturn. Instead we need to promote the use of credit wisely and encourage smart borrowing.
Part #2 will be here on Monday.
What do you think?
Tom – yes, I agree with this Dr Doom – I learned a long time ago that “The personal is political” – when I look at my own personal life, spending patterns, risks taken but not calculated, and assumptions, it is a perfect reflection of the world’s economy today – it has been a mass conciousness ‘bubble’ – now there is no going back, but a new way of going forward is being born. Thanks for your great posts
Di,
Thank you very much.
Tom