If you’re looking for a single anecdote to sum up the demise of the American economy, you could do worse than The Wall Street Journal’s excellent front-page story this morning on glass and Toledo.
The paper’s James T. Areddy reports that a museum in Toledo, known as the “Glass City,” had to go to China to buy glass for a new expansion.
The Toledo Museum of Art’s $30 million Glass Pavilion is a symbol of America’s “Glass City,” and reflects the legacy of its local glassmakers.
A smudge on the image: The pavilion glass was imported from China, the new global powerhouse of the glass industry.
No one in the U.S. had the capability to satisfy cutting-edge architectural specifications for the curving pavilion, even though the 2006 job involved techniques advanced decades ago by Toledo inventors: bending and laminating glass.
Here’s the nut graph:
For years, the West focused on the threat from China’s low-tech exporters like clothing and furniture makers. Glass represents how an even more potent challenge has arrived: sophisticated, capital-intensive businesses that boast high-tech expertise.
In industries where global demand has shifted to China, the pattern is repeated, from steel to locomotives and turbines to specialized glassworks. Chinese companies that have gorged on growth in the domestic market have managed in just a few years to close the gap on decades of technological innovation in the industrialized West.
Meanwhile, the soaring trade deficit slashed 3.4 percentage points off American GDP in the second quarter—the most in sixty-three years.
(h/t Felix Salmon)
— I haven’t been able to figure out the bullish arguments for the economy or the stock market, for that matter, in the past few years.
The economy was massively out of whack and saved (or at least temporarily reprieved) from 1930’s-style collapse only by unprecedented trillions of dollars poured in by the Fed and the stimulus package. Markets were shored up by said trillions and mark-to-myth, extend-and-pretend accounting. Deleveraging from a decades-long debt-fueled orgy is a long, nasty affair.
Planet Money’s Jacob Goldstein points to a new paper that shows just how much uglier recessions that follow financial crises are than ones that don’t.
Unemployment rates are “significantly higher” in the decade after crises, compared to the decade before. In 10 of the 15 post-World War II crises they looked at, unemployment rates never returned to their pre-crisis levels.
Median housing prices are 10 to 15 percent lower during the entire post-crisis decade, compared to their prices just before the crisis. Of all of the home-price data points they looked at from post-crisis decades, 90 percent showed prices lower than they were before the crisis.
Good times!
— Speaking of extend and pretend, American Banker reports on how banks are delaying foreclosures to stay afloat.
Even as serious delinquencies have continued to soar, foreclosures and default notices have fallen.
y postponing the date at which they lock in losses, banks and other investors positioned themselves to benefit from the slow mending of the real estate market. But now industry executives are questioning whether delaying foreclosures — a strategy contrary to the industry adage that “the first loss is the best loss” — is about to backfire. With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults.
It is becoming harder to blame legal or logistical bottlenecks, foreclosure analysts said.
“All the excuses have been used up. This is blatant,” said Sean O’Toole, CEO of ForeclosureRadar.com, a Discovery Bay, Calif., company that has been documenting the slowdown in Western markets.
Make sure to check out the chart.
I've mentioned this before elsewhere, the strategy of the banks, and the Obama Administration that is staffed by the banks, is that the real estate market will recover as it always has. When this happens, the values of properties on the bank's balance sheets will equal the value of the market and they will be able to dump the properties without needing to recognize today's loss of value. It's a waiting game.
But there's a catch. The real estate market requires several preconditions before it can recover. It requires healthy banks who can lend, employed consumers with the confidence to borrow, and - in short- demand.
The real estate market is NEVER going to recover, prices are NEVER going to go up if there is no demand.
And there isn't any. Banks are hesitant to loan, consumers are hesitant to borrow. Demand doesn't grow when the market is unstable. The market cannot stabilize while the banks are unhealthy. The banks cannot become healthy until demand pushes up prices necessary for balance sheet recovery. It's an infinite waiting game, a race condition, a catch 22.
This is exactly the kind of problem the government is supposed to resolve when it has failed in its duty to prevent it in the first place.
But we have instead an inactive government who is helping banks with low interest credit and government programs that HAMPer consumers ability to recover:
http://www.truth-out.org/treasury-makes-shocking-admission-program-struggling-homeowners-just-a-ploy-enrich-big-banks62680
because they have the same mindset of the (thief) executives who refuse to recognize the consequences of their actions. The waiting game, if we wait long enough, hope hard enough, the problem will just go away.
It won't. You don't have the preconditions to recovery. Isolate what those preconditions are and design your policies around them, not around the hopes and dreams of the loser banksters who'd be bankrupt and incarcerated under a free market / personal responsibility system.
#1 Posted by Thimbles, CJR on Tue 31 Aug 2010 at 03:35 AM
Krug exploring a different angle on the same shape of the economy.
http://krugman.blogs.nytimes.com/2010/08/30/the-trap-were-in-wonkish/
"The crucial thing to understand about this position is that it’s not self-correcting. On the contrary, as inflation falls over time and possibly goes to actual deflation, we sink deeper into the trap.
That’s why the Fed’s wait-and-see policy is so wrong-headed: to the extent that the Fed thinks it can use unconventional measures to get some traction, it should use them now now now, not wait until expectations of below-target inflation have gotten embedded.
It’s also why fiscal policy should have been much more aggressive than it was; even aside from the political dynamics, which said that we’d only get one shot, the economic dynamics also said that not doing enough early on only makes an eventual solution harder.
The sad thing is that policy makers were supposed to know all this. The Fed had studied Japan extensively, and believed that the Bank of Japan could have averted the lost decade if it had reacted very aggressively early on. Larry Summers talked about a Powell doctrine of overwhelming force in the face of crisis. And yet what we actually got was an underpowered response on both the fiscal and the monetary fronts.
As I’ve said before, we — and particularly Summers-san and Bernanke-sama – owe the Japanese an apology."
#2 Posted by Thimbles, CJR on Tue 31 Aug 2010 at 05:15 AM