» Posted by Martin Weil on August 24, 2009

However, US households have lost their love for borrow-and-spend for good. American household demand won't pick up when the temporary growth factors run out of steam. By the middle of the second quarter next year, most of the world will have entered the second dip. But, by then, financial markets will have collapsed.

So writes Andy Xie, former Morgan Stanley analyst, writing from China as reprinted by The Big Picture.

» Posted by Martin Weil on August 11, 2009

photo, NY Times

"Shanghai and Beijing are becoming new lands of opportunity for recent American college graduates who face unemployment nearing double digits at home." So says an article in Monday's NY Times.

» Posted by Martin Weil on August 10, 2009

So concludes a recent study by the Federal Reserve Bank of San Francisco.

"More than 20 years ago, economist Hyman Minsky (1986) proposed a "financial instability hypothesis." He argued that prosperous times can often induce borrowers to accumulate debt beyond their ability to repay out of current income, thus leading to financial crises and severe economic contractions.

Until recently, U.S. households were accumulating debt at a rapid pace, allowing consumption to grow faster than income. ...

Going forward, it seems probable that many U.S. households will reduce their debt. If accomplished through increased saving, the deleveraging process could result in a substantial and prolonged slowdown in consumer spending relative to pre-recession growth rates. Alternatively, if accomplished through some form of default on existing debt, such as real estate short sales, foreclosures, or bankruptcy, deleveraging could involve significant costs for consumers, including tax liabilities on forgiven debt, legal fees, and lower credit scores... Either way, the process of household deleveraging will not be painless."

» Posted by Martin Weil on August 05, 2009

Turmoil in the housing market has led to fears that home prices will drop precipitously, particularly if foreclosures force large numbers of homes onto the market in the coming year. Recently, these fears have driven financial stocks down and led to the government rescue of Fannie Mae and Freddie Mac. But the projected losses have been wildly exaggerated. Most Americans have not experienced any significant decline in the value of their homes - nor are they likely to . . .

But fears of a huge loss in home values for most homeowners ... and fears of the devastating losses by financial institutions that would accompany them, are greatly overblown.

Three economists writing in the Washington Post, Aug 2008.