James Grant / Op-Ed Contributor / NY Times:
Nobody Knows -- ECONOMISTS cannot reliably forecast recessions. Nor can they detect for certain when a recession is in progress. Only after the fact do the official cyclical timekeepers identify the beginning and ending dates of a slump.
Though deficient in the powers of foresight and observation, economists do believe they know how to treat an economy on the brink of recession, as this one seems to be. They administer what non-economists know as the “hair of the dog that bit you.”
But booms not only precede busts, they also cause them. Bargain-basement interest rates are a potent stimulant. Borrowing more than they might at higher rates, people stretch. Businesses stock up on labor, machinery and buildings. Consumers buy cars and houses — houses, especially, these past five years. The G.D.P. takes flight.
Then unwelcome facts intrude. Easy money, it seems, was an illusion. Society was not so rich as it seemed. The prosperous future for which people had collectively prepared is slow to arrive. The inflation rate picks up. Supposedly creditworthy consumers and businesses turn out to be risky. [...]
The world’s top economy seems curiously sluggish. And the economists and politicians ask, “What happened to America’s dynamic economy?” The answer: It’s wrapped in the coils of debt.
comment: Reading James Grant is like taking a cold shower. When Greenspan retired in October 2005 Grant bid him farewell with a biting O Sage! O Confidence Man! article in Forbes that presaged the current credit crisis.
Subprime Crisis Claims California: Arnold to Declare Fiscal Emergency -- The inevitable has happened, and, as tipped here previously, California governor Schwarzenegger has conceded that the state budget deficit is ballooning to record levels. From forecasting breakeven, as of last August, the state is now saying that it is looking at a whopping $14-billion shortfall in 2008, up from the $10-billion forecast of a scant few months ago. [...]
Retailers Face an Ominous Holiday Sign -- Sales of women’s clothing, a traditional pillar of the holiday shopping season, are unusually bleak so far this year, according to a major credit card company, an ominous sign for the retail industry.
From high-end dresses to bargain coats, spending on women’s apparel dropped nearly 6 percent during the first half of the Christmas season, compared with the same period last year, according to MasterCard Advisors, a division of the credit card company. [...]