2008 September 24 Wednesday
Jack Welch Sees Deep Recession Coming
Former GE CEO extraordinaire Jack Welch sees a really deep recession in the offing.
"I now believe we are in for one hell of a deep downturn," Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 would likely be "brutal."
Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has now changed his mind.
"I am now caving," he said. "Get ready for real tough times. They're coming. There is no credit available."
On the bright side the recession might bring housing prices back down to within historical trend and thereby set the stages of recovery. Though a lot of people in Washington DC want to make people pay more for housing. Even free market economist Tyler Cowen suggests destroying houses as a way to keep up housing prices. This is worse than nutty. It is dumb. Why should people pay more for houses just to save some reckless financial institutions?
Some people's losses from underwater mortgages is other people's gains in the form of cheaper housing. Aren't lower prices beneficial? The housing price-to-rent ratio is still well above historical norms. So is the price of a single family home as a percentage of median household income. These things must correct. Tearing down houses or bringing in immigrants to live in repossessed houses lowers living standards and keeps prices up above their market clearing long term levels. Delaying or slowing corrections just delays recoveries.
Update: Warren Buffett thinks Hank Paulson's plan is a good idea and will earn a profit.
``I think the Treasury will pay back the $700 billion and make a considerable amount of money,'' Buffett said, adding that if he had $700 billion on the government's terms to buy distressed assets, he would. ``Unfortunately, I'm tapped out.''
Warren's judgment counts a lot with me. By contrast, a bunch of non-billionaire economists think the Paulson plan is a bad idea. But they don't know how to invest billions of dollars.
I suppose a recession might have a silver lining if it stalls peak oil by a few months (likely a few weeks) due to lower demand of fossil fuel. This effect might not be significant though. Will a recession lower the amount of funding available for VC firms that invest in alternative energy technology?
Seems to be a great time to short oil.
Of course, such a recession has to be global though; it needs to reduce the oil demand of countries such as India and China. But still, it would only buy a short amount of time in the grand scheme of things.
bringing in immigrants to live in repossessed houses
So what do you think the US government is going to do when it controls all those empty houses?
I suspect the outcome will be Obama becomes president and doles them out to blacks and Hispnics in primarily white areas. Young whites, especially young white girls, will get a few of them if they are in primarily black or Hispanic areas.
"I suspect the outcome will be Obama becomes president and doles them out to blacks and Hispnics in primarily white areas. Young whites, especially young white girls, will get a few of them if they are in primarily black or Hispanic areas."
I also suspect lots of mysterious fires. Maybe some tragic deaths...
Randall quoted Mr Buffett:
`I think the Treasury will pay back the $700 billion and make a considerable amount of money,' Buffett said, adding that if he had $700 billion on the government's terms to buy distressed assets, he would. `Unfortunately, I'm tapped out.'
If you believe WB then there currently exists a market for the purchase of these mortgages. Therefore there is no need for the state to step in.
Less flippantly, WB is looking at it from an entirely private sector perspective without factoring in the political process inherent in government decision making. Does anyone actually believe that the public sector would get to keep the money when the cycle turns? No way. Once the cycle turns the financial sector will rightly start claiming that the government shouldn't be in the business of owning homes and pretty soon the government will be handing back the assets at bargain prices to the same organisations that caused the problem in the first place. The big-end-of-town will then start to flog the houses at true market prices.
Net result - public risk, private profit.
Buffett is merely giving substance to his claim that there is a class war and it is his class that is winning. I mean if he were serious about liquidity solutions to the credit crunch, why not just start Charles Murray's "In Our Hands" citizen's dividend now so that the whole credit structure is supported from the bottom up rather than trying to levitate the eye of the pyramid serenely above the base?
Warren Buffett thinks Hank Paulson's plan is a good idea and will earn a profit.
...to Warren Buffet and his buddies. To the rest of us peons it will mean paying through the nose to help the extra-rich become richer.
I suspect Tyler Cowen was joking. The tip-off is when he writes "I have a modest proposal." Swift wrote "A Modest Proposal" as a solution to the Irish famine, in which he suggested people eat babies to avoid starvation.