History shows that economists are no better at prediction than ... many others (maybe a little better than weathermen, but I don't have any references from the Journal of Economic Forecasting to share, presently).
DELEVERAGING PARADIGMS - READING THE FINE PRINT
It's not necessary that all deleveraging is rapid and fierce. The U.S. consumer will benefit from lower commodity and energy prices globally. That's a source for deleveraging that doesn't involve cuts in top-line consumption. Because the U.S. consumer will benefit, perhaps disproportionally to consumers in the emerging economies, who may have more serious economic imbalances to work through, that's a positive for the U.S. dollar and long-term Treasury dollar financing, if it weren't complicated by the structural trade deficit.
As for financial leverage, especially at financial companies, rapid adjustments precipitated by declines in asset quality don't necessarily translate into "long term outlooks". At some point, the financial system will "catch it's breath".
DELEVERAGING AT WALL STREET FINANCIAL COMPANIES - EH ... !
It's not clear that the credit needs of a growing U.S. Economy rely on 30:1 leverage at Lehman Brothers, right? Those high-profile adjustments are seriously removed from Main Street, who can probably get by even with slightly higher credit-spreads for a while.
Many company balance sheets are in good shape, right? The corporate sector isn't screaming out of balance or "excess risk taking", is it?
Wednesday, October 22, 2008
Gloomy Economists: Preliminary Assessment
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