How Much Will The Economy Slow?

Amidst all the great earnings reports coming from U.S. companies this week there is disquieting talk of a real slowdown ahead in the economy. I was reminded of it Tuesday morning when PIMCO’s Mohamed El-Erian stated on Bloomberg TV that the indicators his firm watches most closely (and presumably trusts the most) show that “the economy continues to lose momentum.” Also, mutual fund giant Vanguard released its economic forecast Tuesday in which it noted that “Near-term risks remain tilted toward the downside owing to important headwinds involving real estate, consumer balance-sheet repair, and, most recently, the sharp transition toward fiscal austerity in Europe.” Vanguard’s analysts put the probability of a double-dip recession at 20%. That may sound optimistic but it’s unusual, they note, to even be considering recession’s possible return so early in an economic recovery. Also, there’s a lot of room for slowdown before you trip the double-dip switch.

So how big a slowdown is coming? Part of the answer depends on what, if anything, the feds do on the stimulus front. There could be some backstage action, such as the Federal Reserve buying securities, but there’s not much ammo left on interest-rate cuts. The folks at High Frequency Economics see a gentle GDP slowdown from roughly a 2.5% rate in the second quarter to a 2% rate over the final two quarters of the year. To their eyes, the stock market is stable, consumer confidence is holding and capital spending is rebounding. The economists at Goldman Sachs are expecting a 1.5% rate over the second half, hardly something to get excited about. As Goldman economist Jan Hatzius notes, “Absent substantial further stimulus, we worry that final demand will recover only very slowly given the continuing headwinds on sectors such as housing, consumption and state and local spending.” I, for one, see a big potential problem for the stock market if earnings estimates have to readjust to that 1.5% number.

The second quarter advance GDP estimate won’t be released until Friday, July 30th, and it will surely undergo revisions. But it promises to be an interesting day no matter what the report says.

Facebook, Wall Street Banks Sued Over Pre-IPO Financial Forecasts

Just days after its controversial IPO, Facebook and its Wall Street bankers have been hit by shareholder lawsuits alleging that the social networking giant and its underwriters concealed the company’s decelerating revenue growth from investors. The lawsuits come amid a growing furor about whether Facebook’s banks selectively disclosed information that gave favored clients an unfair advantage over other investors. Top U.S. regulators have begun examining the IPO, and now the U.S. Senate Banking Committee and other lawmakers want answers from Facebook about issues raised in the offering’s aftermath, according to The Hill newspaper.

Small Dairies Go Under as Milk Prices Sink Again

PLAINFIELD, Vt. — The MacLaren brothers are third-generation dairy farmers, but they will likely be the last in their family.

After working all their lives on the hillside farm in Vermont that their grandfather bought in 1939, rising to milk cows at 3 a.m., even in blizzards and sub-zero temperatures, they decided to call it quits, auctioning off their roughly 200 cows and equipment ranging from stalls and hoof trimmers to tractors and steel pails.

http://rodgermmitchell.wordpress.com Rodger Malcolm Mitchell

Want to know how much the economy will slow?
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By Z. BYRON WOLF ABC News; July 27, 2010; “Debt Commission: Dealing With Federal Debt Likely To Require Tax Hikes, Spending Cuts.”
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Our leaders have no idea what they are talking about. Cutting services and raising taxes is not a “hard political fact.” These are the absolute worst steps we could take, not just unnecessary, but massively harmful to our economy. The infamous DEBT COMMISSION, whose assignment it is to reduce the economy’s money supply, is akin to a “blood commission,” whose job it is to reduce the blood supply. Money is the lifeblood of an economy.
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The same people who complain there are not enough jobs, also want to reduce money creation, the very thing that creates jobs. Our leaders act like doctors, who apply leaches to cure anemia. The country needs lower taxes, not higher. The country needs more federal spending, not less. These politicians, totally ignorant about economics, make economic decisions with the expected result.
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And don’t be fooled by statements that taxes only will be increased on the rich. That simply is not true. All taxes destroy money. Period. Destroying any money, whether currently owned by rich or poor, decreases the total money supply, which hurts the entire American economy. You cannot drain water from only one end of a bathtub. A tax on Bill Gates hurts us all. It benefits no one.
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I cannot express in stronger terms how outrageously harmful this all will be.
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If Congress were employed by Al-Qaeda, they could not hurt America more than they now wish to do. If an American told you, “I have a plan to destroy billions or even trillions of American dollars,” you rightfully would brand him a traitor. More countries die from enemies within than from enemies without.
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Want to know how much the economy will slow? If the Debt Commission and Congress have their way, it won’t slow. It will go in reverse.
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Rodger Malcolm Mitchell
roccojohnson

Record government spending failed to make a dent in the economy during the Great Depression of the 1930s, and it won’t work this time either.
http://rodgermmitchell.wordpress.com Rodger Malcolm Mitchell

There are many hypotheses about the cause, depth and length of the Great Depression, but none that I know of, assumes the government spent too much. Most assume the government spent too little.
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During the Depression, President Roosevelt tried to inject money into the economy, (WPA, farm subsidies, etc.), but these efforts were insufficient, because he also wanted to balance the budget. In this regard, President Obama has followed the same mixed path of trying to add money (deficit spending) with one hand, while subtracting money (taxes) with the other.
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There is widespread agreement that WWII, or more specifically, massive spending for WWII finally ended the Depression. Concerns about the war overcame debt hawk concerns about budget balancing.

During the Depression, and during the recent (current?) recession, there was an extreme shortage of money. Deficit spending is the federal government’s method for injecting money into the economy.
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Today, there remains a shortage of money, and more deficit spending is needed to overcome this shortage.
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Rodger Malcolm Mitchell