John Hussman of Hussman Funds hasn’t backed away from his recession call (see here for more).  In fact, he says it’s here right here and right now.  Mostly because the problems from the previous recession were never properly dealt with.  I agree with him on the fact that we’re still deeply troubled because the problems of the last recession were never dealt with, but I still don’t see real-time signs of recession in the USA.  Here’s more from Hussman:

“By our analysis, the U.S. economy is presently entering a recession. Not next year; not later this year; but now. We expect this to become increasingly evident in the coming months, but through a constant process of denial in which every deterioration is dismissed as transitory, and every positive outlier is celebrated as a resumption of growth. To a large extent, this downturn is a “boomerang” from the credit crisis we experienced several years ago. The chain of events is as follows:

Financial deregulation and monetary negligence -> Housing bubble -> Credit crisis marked by failure to restructure bad debt -> Global recession -> Government deficits in U.S. and globally -> Conflict between single currency and disparate fiscal policies in Europe -> Austerity -> European recession and credit strains -> Global recession.

In effect, we’re going into another recession because we never effectively addressed the problems that produced the first one, leaving us unusually vulnerable to aftershocks. Our economic malaise is the result of a whole chain of bad decisions that have distorted the financial markets in ways that make recurring crisis inevitable.”


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Andrew P

    This is really a Q&A

    So what would really happen if governments did as Hussman suggests in his letter, and resolves the insolvent banks by wiping out their bond holders? Is the experience of the Lehman BK aftermath the reason they have not allowed any large financial institutions to go under since? Who are the bank’s bondholders anyway?

  • LRM

    I read Hussman every week and he seems to sound so wise. When the markets rip up, he maintains his descipline
    Missing the big up moves, but the up market then drops back and he gets proven correct.
    We seem to be running up a hill and then back down with little advance.
    I guess this is the nature of the secular bear market phase.
    I am not sure where Hussman fits in the world of Economic theory. Also, we don’t yet know where this monetary experiment will eventually take us. Because of this uncertainty, we can’t judge whether Hussman is presently a good money manager. We can say that his work is not suitably for the trader, but is his work suitable for the long term investor?
    The roll of Central Bankers and what they should do, or, who controls what they should do is the major factor. I read Jeff Miller regularly, and he seems to place a lot of trust in the motives of CB’s and politicians to act in the best interests of all the conflicting parties to slowly find the workable solution.
    Maybe Hussman feels that such thinking leads to so much compromise that the workable solution is the inferior result.

  • JJ Butler

    With high debt levels, recession would gain traction quickly. The next slowdown, whenever it is, will lead to the Big Print. You know, fiscal deficits just straight funded by money printing. Riddle: If the government would just give everyone a million dollars, would we all be be rich?

  • ES

    > In effect, we’re going into another recession because we never effectively addressed the problems that produced the first one, leaving us unusually vulnerable to aftershocks

    Isn’t that is what has been happening since about 2000? That is then the real wealth growth stopped.
    The economy simply has too many people who don’t produce anything but demand good life-style. I am not saying they don’t add value at all but net-net they are a drag on the productive side of the economy – lawyers, financial industry workers, various accountatns ( audit, tax), even doctors (too expensive), education (too expensive), various brokers, realtors, bankers and other paper shufflers. If you are shuffling/ creating paper as a job, you are not producing. And there is only so much overhead an economy can take before collapsing.
    It starts feeling as a recession around here, too many sales at the malls )).

  • Jason Bivin

    @ LRM,

    “I am not sure where Hussman fits in the world of Economic theory.”.

    You need not try to fit this one into a box. He is a practioner, not a theorist. He speaks from Experience in Practice, not from Theoretical thought.

    He runs a fund, and then puts it on the line by providing rich and provocative commentary that runs from the hobby economists and sell-side sales “buy the dip” pitch.

    You can call it a balance sheet recession, or you can call it a plain old recession. You can use NBER’s definition of Recession or not, you can use PCI or PCE to guage inflation, but the only answer that matters is How Do Your Clients Feel and Will the Prospect Field be willing to Trust Again. Because no analysis, practice or theory serves a purpose if Investors start placing money under the mattress again.

  • JH

    Actually this all began with the recession of 1992 when we began the cycle of inflated real estate prices and HELOC’s to artificially juice the economy.
    We have dealt with every recession similarly since then. Inflating asset values and cranking up the money presses in order to drive inflation and force consumption. The problem is now it is not as effective. The consumer who is the real driving force behind the economy is already too far in debt and is experiencing negative wage growth. This is now a worldwide phenomenon and as we are in a global economy, we are also in a global recession, soon to turn to a global depression.

  • David

    What I would say to Hussman is that he may be underestimating the levels of committment of the global political elite. It’s impressive, they will stop at nothing to intervene. Just today Adam Posen of the BoE(and soon to be the head of the Peterson Institute) urged all central banks to move beyond QE in government bonds and move into *private assets*. Yes, you read that right.

    So central banks will now intervene with non-government assets if he gets his way and he just might. He’s one of the highest profiled people in central banking in the world today, an American expat who influenced a lot of BoE decisions, now heads the most élite economic institute and may easily one day replace Bernanke.

    I fully expect QE to resume within months, if not weeks, from both the US and EU. And it may well indeed move beyond mere government bonds.

    Stimulus may also not be far off the cards. Some will say “extend and pretend” but this is a game that can be played for years.

  • Mr. Market

    Agree. LA container traffic is down. The 2012 february low is lower than the 2011 february low. So, the recession is already here.

  • VII

    Our elected and appointed officials should be forced to pass a course offered by Dr. J on long term growth iniatives. Followed up by the course on how the system was meant to work.

    I was proud of what Dr. J wrote this past Sunday.

  • Anonymous

    Europe has already slowed down. If you do not watch what is going on globally, you are not even in the game……………..

  • Anonymous

    Doesn’t Hussman pin everything on America……………

  • pas

    We’re going into a recession because of our previous sins? WRONG. The business cycle is in full swing. Just because we never addressed previous excess dosen’t cause a recession. Oil is 50% below it’s peak, housing down 40%, unemployment is up 50%. How much lower are these suppossed to go? Glass- Stegall would not have stopped risky loans. If those loans were rated CCC instead of AAA none of this would have happened.

  • Zen Master

    Narrative fallacy.

  • Ted

    We would certainly be less indebted, wouldn’t we?

  • Tyler

    NBER’s definition of “recession” is skewed in favor of economic elites who like high unemployment because it crushes inflation.

    An economy with 13 million people unemployed is in recession.