CHRISTOPHER THORNBERG: DOUBLE DIP IS COMING IN 2011
In a recent presentation in Orlando, Christopher Thornberg noted the likelihood of a double dip in 2011. Thornberg famously predicted the real estate bubble, disastrous downturn in California and the high probability of recession in 2008. He is a former economist at UCLA and currently works at Beacon Economics, the firm he founded. I relied heavily on Thornberg’s analysis in helping to side-step the housing debacle and I have found his research to be not only straight forward, but well reasoned.
Thornberg says the economic recovery is mostly government induced and could lead to a double dip as the government steps aside and attempts to hand over the baton to the private sector. In the presentation Thornberg noted the continuing concerns:
- The bad news: we haven’t completely fixed the problems, instead the economy is being driven by government policy
- The worse news: government policy is causing its own set of problems: namely public debt and the potential for inflation
Thornberg says 2010 is likely to be a good year for the economy, but as the stimulus wears off the true colors of the private sector will shine through and result in a double dip. On the bright side, Thornberg notes that export growth is likely to remain strong and businesses are well positioned. Unfortunately, in the long-run, he says the following 7 negatives are likely to outweigh the few positives:
- Consumer weakness will likely continue
- Businesses are a wild card
- Housing bounce won’t last
- Banks not out of the woods yet
- Commercial trouble to continue
- Significant chance of a double dip
- Higher Rates coming down the pike
You can see the entire presentation here.
Source: Beacon Economics
excellant TPC…..i bookmarked them
i add 7 insolvent US states.sure ben will throw fresh duckets at them,adding to that eventual, unsustainable fed debt.
they boo-hoo we gotta cut the police force….thats their scare tactic…while i go into city hall there’s all these women sitting around with bad attitudes.
my friend is was an air conditioning mechainic for the local school board. a dam good one….but….they put 1/2 million dollars in his 401k to get him to stay 5 more years….in addition to his pay of $36/hr which is 50% more than he would make privately in a simular position. these figures are litteral..
so he’s 47, retired at $52k a year and $850,000 in 401k….rediculous
they call it the “drop” program.
the whole country reminds me of an exgirlfriend of mine with 3 kids,no husbands.40$k in credit card debt and a 9 yr. old son that runs around in diapers, says he’s her baby….
now that i’m all fired up i’ll think i’ll turn on CNBC, listen to the talking heads pump their sunshine for a good laugh…..
rick santelli for president
What are people going to do when the second mortgage bubble bursts, all the new crappy loans they’re handing out today that won’t be able to be repaid. This on top of barely being able to keep our heads above water now. Not to mention the inventory of houses that aren’t even on the market yet. Healthcare is going to kill us. What are they thinking in Washington? Santelli has my vote too!
Thornberg was also very optimistic in 2009. He’s a sharp guy. Thanks for passing along his outlook.
Where’s Chris? I miss him…
Chris challenged TPC to a bet last night. TPC would short the Russell 2,000 and own the VIX. Chris would own the other side of the trade. It doesn’t appear to be working out too well for Chris right now. He’s down almost 2% in less than 24 hours.
Good stuff – thanks
From Steve Keen:
“Ultimately, the debate over whether we’re in a complete recovery or merely a temporary recess from the GFC will only be resolved by time. But well-informed theory can also give a guide as to what we can expect, and here I regard Hyman Minsky’s Financial Instability Hypothesis and Irving Fisher’s Debt Deflation Theory of Great Depressions as the outstanding guides”
Irving Fisher talked about escaping the deflation spiral via reflation.
“However, Governments cannot print an acceleration of velocity. That is essential to recovery, and indeed it is an essential part of the reflation which almost everyone now recommends. Yet an addition to the money supply in quantitative terms does not automatically result in an acceleration of its velocity”
See: Daily Reckoning
See Fisher Theory:Erving Fisher excerpt
First it was 2010 now its 2011 and in 2011 it will be 2012 etc…This is about as accurate as weatherforecasting in the Rockies.
The higher interest rate thing has been throwing me off lately. Everybody seems to be saying rates are headed higher, and I understand the logic behind this but I just do not see rates heading significantly higher. Full disclosure, I’m in the deflation camp. Similarities to Japan abound and we have not yet begun the delevaraging process in full. We have around 53 trillion in total credit market debt. We will eventually have to start paying down and writing off these debts to grow our economy. Since short rates are not set by markets but rather by the FED, they will keep rates below 1 for an extended period to let consumers repair their balance sheets. 1 and below can hardly be considered a raise in rates imho since that is what got us here int he first place.
I could be horribly wrong, but there are so many people shorting long us bonds right now that I don’t want to be apart of it. I aggree with all fo his points and do feel a double dip is in th cards, but the higher rates I would disagree with.
I have a lingering “What if …” question in my mind. Being in the “Austrian” camp, I naturally don’t think our debt-based world is sustainable economically. But what if continuous government life support becomes the “new norm”? What if most people and governments have become so addicted to debt that they willingly accept debt-slavery as a given and don’t even have the desire and will to break free? What lies ahead? The return of Fascism? Communism?
I don’t care who’s in charge of this pig pen rate game, just get the damned rates back up.
I see NO damned “deflation” everything I buy, or pay for is UP, I don’t buy 10 tons of iron ore to dump in my back yard, I buy things I need to live. which the CPI seems to thing don’t need to be counted.
with no COLA and higher co-pays, higher deductibles, and higher fees on licenses its only the rates on savings that help when the rates are at least 4%, this 1% or less is ridicules.
Of course “Uncle Ben” just stated again to keep interest rates “low” for yet another “extended” time. While the MF’s on CNBC are going spastic with the “stock maaaaaket” bucking the trend, and pissin in their panties at the DOW 11K.
I can’t wait for the “boooya boy” to push more of his crap, while the other one will jump right on how his seeds are growin again. All the while low level savers are gettin racked as usual, and with most “consumer ” items going up, which most of are not even counted in the CPI, along with higher utilities and medical costs, are forced to dig into what savings are left to pay these so called “deflation” prices, until its gone and THAN all sudden its time to raise the Interest rates.
I guess those new Iphones and G4′s are a deal at 500 bucks a pop.