I said, "Lot of other interesting posts as well. (Balance sheet recession over)'
Brent said: "Do we count that last one (Bonddad) as counterprogramming?"
I am not sure. There are stats I have seen that show that leverage has not decreased that much if at all- (theBonddad post includes one of them). I would guess most of the household deleveraging has come because of bankruptcies and represent impaired demand. That said, the car industry seems to have its replacement cycle well under way, housing seems to have hit bottom, the shale gas cycle seems to be lowering America's energy costs. The Fed, it seems, has kicked the can far enough down the road to allow for some stabilization of the American economy. While the Fed's actions have not been costless, they seem to have had a measure of success. I feel like I have underestimated the ability of the Fed.
I have given my mea culpa before about my predicitions on the economy but I still expect a global synchronized sovereign debt crisis. Perhaps, this will ultimately be proven to be wrong just as my US recession prediction. Perhaps the worst is over and the Fed "won".
I try to update my beliefs as new information comes in. At this moment my concerns and beliefs remain, for the most part, the same as they have been for years. The Fed has blown yet another bubble - a bond bubble and sovereign debt bubble. Policy makers have been lulled into a false sense of security for low interest rates, the message to the banking system from the Fed's actions is exactly 180 degrees from what is best for society. Corporate cronyism, Inequality and tax reform remain unaddressed. None of the major systemic factors facing the economy have been addressed in America or in Europe.
My concerns that have been expressed since this blog's inception were eloquently expressed this summer by BIS. And I find it ironic that in the US, much of the market/economics establishment cheers the socialization of financial markets will deriding national socialism for healthcare or income inequality reduction. Government should have a unlimited role in backstopping the wealth of the elite but not the well being of the lower class. If the poor are supposed to save their way to prosperity, that channel has been destroyed by the Fed. The central banks as pied piper have lured everyone to the edge of the cliff. Let's hope the leap of faith we are all taking leads us to prosperity and not disaster.
I see that John Hussman's performance post crisis has been abysmal- his franchise risk is growing daily. A mass exodus of his client base would be a good contrarian indicator that the end is near. Or, that I was wrong.
Finally, Brent, in personal correspondence, has encouraged me to couch my pronouncements with less certainty and more probabilistic qualifiers. After reading Nate Silver's "The Signal and the Noise" this summer, I am now convinced of the wisdom of this advice.
I still believe the global economy is a Goat Rodeo; with a high probability of systemic sovereign debt crisis in the medium term.
Central Banks are working hard to prevent such an event by forestalling economic collapse in the face of weak demand - by conducting unprecedented levels of asset purchases.
My personal belief is that there is a much better than 50% chance that history will show this was a pyrrhic victory for central banks. Among other things, there is a trade-off at work here - each year the central banks succeed in propping up demand is one that brings us closer to depreciating excess capital and allowing the global economy to get its feet underneath it (as well as strengthening the financial system). Unfortunately, it is also an additional year in which policy makers do not have to make tough fiscal decisions and forestall the fundamental changes needed to stabilize their economies in the long run. If the effects of the former out weigh the effects of the latter, with each passing month and improving economic statistic - Bayesian updating would require me to shift some of my "global reset" probability weight to "muddle through".
But that's the rub, I am not sure whether the former out weighs the latter - when I consider inequality and unemployment in the US and Europe. I am not sure how to judge progress - which brings me back full circle to the start of this post.
I don't know how to Bayesian update what I have been observing. It is fair to say I less sure of myself than I was when I started my blog. But I was also less sure of my predictions of global recession and $40 oil in the summer of 2007 than I when I had made those predictions in January, 2007. At the Global Petroleum show in Calgary, in May 2008, I sheepishly admitted to those predictions having been wrong. I guess I am sure that Brent was correct in suggesting I explicitly qualify my opinions more probabilistically,; particularly since getting the 2007 call correct has done nothing to advance my career (Nor the many other things I have gotten correct on this website since then). Going forward, I will hedge my opinions.
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Lot of other interesting posts as well. (Balance sheet recession over)