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The Recession is Still On

Only South Park would get away with this.

Only South Park would get away with this.

For anyone who had the hairbrained idea that the latest stock market rally was a sign of the return of the good ol’ days, news signaling future woes continues to flood the financial rags.

The housing market in the US and UK is still extending people’s abilities to accept ever more bad news. The Financial Times reports:

The 25 per cent auction discount and the sluggish market give a strong signal that prices have further to fall. But the recent uptick in the auction market also shows the gap is narrowing.

This can mean either of two things; either the housing market is still tanking (in the UK and US), but a turn-around is coming soon, or the housing market is still tanking, and the increase in sales at auction is due to people who have to live somewhere buying at the 25% discount that results at auction, not realizing that prices will fall further still as more mortgate defaults accumulate (since, in the US, as many as 30% of mortgages are still bigger than the asset value). It certainly suggests that the Australian housing market is not at all a safe place to invest currently, although the statistics still look amazingly good there thanks to the naive First Home Buyers.

China, fearing an inflationary spiral, is restricting credit:

Chinese bank lending slowed dramatically in April because of fears that loan growth in the first quarter had been excessive and could pave the way for loans of deteriorating quality, so possibly creating a new round of asset bubbles.

This suggests that nobody there has any real confidence that life is going to get any easier in the near future. Whatever is said of China’s increase in manufacturing, it is occurring in the face of worsening deflation and therefore falling demand. Again we ask, where are the markets going to come from to restart China’s furry toy and other plastic-junk factories? The banks have probably overstepped their mark in spreading around the easy-money:

There have been signs that China’s economy is starting to regain momentum after weak growth in the early months of this year. There was significant growth in fixed-asset investment and industrial output in March. Chinese banks have also lent 4.6 trillion yuan (£460bn) in the first quarter of the year, nearly the total for the whole of last year.

As we described earlier, this is like flogging a dead horse by ramming it with a speeding freight train. Of course the horse will move, but it’s still dead. But according to central bankers such as Jean-Claude Trichet, the recession is over. He is ignoring the magical freight train (the ridiculous amount of new money spirited into existence over the past year) which governments and bankers alike are hoping people will not notice, or at least forget very quickly.

The problems won’t pass until some serious restructuring occurs in advanced economies in order to make them viable. This will take years and, in countries such as Australia, planing for this kind of restructuring (in the form of infrastructure upgrades) is still only talk. Most of this stuff isn’t even on the Parliamentary floor yet.

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  1. Jayshree
    May 12, 2009 at 6:00 am

    Wonder if the good times will ever be back again.
    Incidentally there is an interesting website that is specifically dedicated to recession victims.It offers help and discusses all issues related to recession-www.angstcorner.com. It’s worth a visit!

  2. May 12, 2009 at 8:25 am

    Thanks for the info. With all the bad stock market information we get online with low rate websites, it is good to read something from someone who knows what they are talking about.

  3. gatkin09
    May 13, 2009 at 12:37 pm

    The good old times always come back, that is how we work ourselves into another bubble 🙂

  4. May 13, 2009 at 9:07 pm

    See Poor retail figures in US causing stocks to tumble. I know there is optimism, but wages and spending are still down (or falling), and the housing market in the US is far from being out of the woods.

  5. July 5, 2009 at 6:19 am

    I think we also need to appreciate that much of the world is slowly adjusting to a situation where the U.S is no longer the key driver of economic growth. There is a huge middle class in Asia that will soon rival consumer buying power of the U.S and Europe combined.

    So maybe we do not need the U.S to recover to end this mess..just stop falling apart?

  6. July 5, 2009 at 6:46 am

    Whether we need the US or not, we are probably not going to get a return of the strong consumer market that North America once represented (unemployment >9%.. what would it have been without the Obama spending?). The next biggest markets are Europe and Asia. The U.S. might well fall apart though, which is a very worrying prospect, because a nation rarely just implodes without first attempting to offload its problems onto someone else. The U.S.S.R. was a different situation, because in many respects the changes brought about by Gorbachev were carefully planned decades before. The U.S. is not looking as tidy – it has fingers in too many hot pies.

  7. July 5, 2009 at 1:06 pm

    Yes I think the days of the U.S consumer spending like there was no tomorrow are probably over. I do agree that the U.S. has the potential to implode or at least have some pretty chaotic years. After all the U.S. came pretty close to imploding in the later years of the Vietnam War, and the fallout from the sub-prime crisis and the Iraq War is probably going to be more crippling than that poorly executed venture into South East Asia.

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