Wednesday, August 25, 2010

It's Coming! Doom! Doom!

Back in June, I put some indicators together in my non-economist mind and wrote that 2011 will be our Second Plunge Recession. At, I entitled a fuller version of this "We're Doomed." (You should be able to get the gist of a column or chapter by its title.)

Some people who left comments at World were skeptical. Various award winning economists say we're pulling out of this mess. They cite data. Who is this Innes guy? But remember, economics is not a science, though it has a strong quantitative component. Human elements like political passions and wishful thinking enter even into the minds of laureates.

They fester in my mind too, but I'm sorry to say that developments are confirming Innes's prognostications. Look at these headlines:

"Dow Slumps Again" (Jonathan Cheng, WSJ, August 24, 2010).

U.S. stocks slid again Wednesday as blue chips bobbed above and below 10000 as economic data continued to disappoint. ... Investors were responding to a second consecutive day of weak news from the housing sector, as new-home buying fell to a record low in July amid rising inventories, another signal that the market could continue struggling without support from the government's first-time home buyer's tax credit.

"Plunge in Home Sales Stokes Economy Fears" (Sudeep Reddy and Nick Timiraos, WSJ, August 25, 2010).

U.S. home sales plummeted in July to a level not seen in more than a decade, spurring fears of renewed weakness in housing prices and the broader economy. ... The expiration of a home-buyer tax credit in the spring was expected to damp buying, though less severely. Economists said the sales drop—together with a corresponding rise in the inventory of unsold homes—meant another decline in housing prices was on the horizon. House prices had stabilized last year after declining since 2006.

This article quoted Paul Dales of Capital Economics as stopping short of saying this means a double dip recession for sure. "At this point in the recovery, every little bit counts. A double dip in the housing market and house prices would not be enough to generate another recession. It would certainly help to hold back the recovery."

So what would send us over the edge if this doesn't? (That's an if.) Repealing the Bush tax cuts seems like a big enough blow to finish us off. So if you love your family, your job, your neighbors, lobby your Democratic Congressman to back off on that plan. In fact, if you support the President's broader agenda and would like to see him win a second term, you should also lobby to leave the tax cuts in place.


In my column, I say that Social Security is a big Ponzi scheme. Rassmussen Reports surveyed the American public on that question, and the results are here.

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