Fear of Impending Economic Collapse Or Just Manipulation?

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com  www.amazon.com/author/wolfrichter

Two thermometers into the brains of corporate America plunged to depth not seen since the trough of the Great Recession when the US was losing hundreds of thousands of jobs a month. One was based on responses from CEOs of America’s largest corporations; the other was based on responses from analysts who’d listened to their industry contacts. But given the mixed, rather than catastrophic, economic data, could these people have ulterior motives? 

In late September, it was the Business Roundtable (BRT)—an association of CEOs from the largest US corporations. Its Economic Outlook Index, after a bumpy slide from 113 in Q1 2011 to 89 in Q2 2012, lost its grip and plunged to 66. The worst level since Q3 2009, when the economy was mired in the Great Recession. And the third largest drop in the survey’s history.

Its largest drop? From Q3 to Q4 2008, when it collapsed from 78.8 to 16.5. In this diffusion index, above 50 means growth. So, within a quarter, these CEOs transitioned from decent growth to utter fiasco. Nestled in their own world, they’d been caught flat-footed by the financial crisis. Incredibly, the index had actually edged up in the prior quarter though the housing bubble was blowing up, financial institutions were cratering, and Bear Stearns was gone. These CEOs should have seen that something big was on the way. But blinded by optimism and intoxicated by confidence in the system that had served them so well, they didn’t. Which left them with exactly zero predictive capabilities.

Now, suddenly, these CEOs have become morose. 58% expected sales to increase over the next six months, down from 75% in the prior quarter. By comparison, on the eve of Lehman and AIG, 78.8% of these prescient CEOs had expected sales to grow—and watched with astonishment the nosedive weeks later. Only 30% of the CEOs said they would increase capital expenditures, the lowest score since Q3 2009. And only 29% expected to create jobs, while 34% expected to cut jobs. For a direr picture, you have to go back to Q4 2009—when the unemployment rate perforated 10%!

While BRT Chairman and Boeing CEO Jim McNerney also blamed “global demand” that was “flattening out,” he emphatically pointed at the “fiscal cliff” of tax increases and spending cuts.

Now Morgan Stanley’s proprietary Business Conditions Index also evoked the dark days of the Great Recession. The diffusion index is calculated from responses by industry analysts—normally not a pessimistic crowd—whose opinions are based on their contacts. And that index dropped like a rock from 55% in September to 41% in October, its “hiring index” from 54% to 44%—the worst level since December 2009—and its “hiring plans index” from 57% to 44%, the worst since August 2009, before unemployment had even peaked.

Who got blamed? The now usual suspect, the “fiscal cliff.” But Morgan Stanley economist Dane Vrabac added a new wrinkle, “election uncertainty”—as if election outcomes were certain in normal times, but this year somehow they were not.

Much like the CEOs of the BRT, these analysts didn’t see the financial crisis coming. And when jobs evaporated to the tune of 400,000 to 800,000 a month, the hiring index at best tracked those job losses, and often lagged them. And the “hiring plans index” lagged those job losses by six months. It’s as if these analysts had been reading old papers to figure out what would happen next.

Yet the CEOs of the BRT and the analysts and their industry contacts of the Morgan Stanley index have enormous resources at their fingertips, and an army of experts just an email or a phone call away. They’re smart people, they’ve been around the block a few times, and they have insights through their connections that outsiders can only dream about. Still, they were wrong about the financial crisis. But now they’re predicting an economy that’s going to be nearly as tough—and mostly because of the impending “fiscal cliff.” Are they wrong again? This time in the opposite direction? Or are they finally correct in their predictions, and economic fiasco is on the way?

Or perhaps they have another agenda altogether. Namely a form of extortion directed at Congress: give us our goodies, or else an economic nightmare will befall the nation, and you’ll get kicked out in the next election. Thus they added their seemingly rational voices to the already phenomenal circus about the “fiscal cliff,” a misnomer given to a reasonable (though not perfect) effort by Congress to whittle the insane deficit down a bit. Watch for these indices to climb back next year, even if the fiscal cliff stays in place [ Fear Mongering And Hysteria About The Fiscal Cliff ].

Here I am on Max Keiser’s show, “On the Edge,” for a tongue-in-cheek discussion of our surreal times. Note how he corrects me when I call the political system in Greece a “democracy.” No way. Not on his show! It’s a “kleptocracy,” he said, and calling it a democracy is just.... Priceless! Pauperization of America - Wolf Richter On Max Keiser’s “On The Edge”

For a funny, edgy, high-energy book about unforgettable car salesmen, their managers, and their shenanigans—I ran a big Ford dealership for a decade—check out my new novel, TESTOSTERONE PIT, and read the first few chapters for free on Amazon.

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janus's picture

my concern over your well-being swells at the reading of each new post...wolf, i'm worried about you.  we have more in common than i at first suspected; and having a lot in common with janus cannot be a good thing.  i'll remember you in my prayers. 

what should concern you is the fact that janus now feels we should someday meet.

i suspect we someday shall.  i think we need to bond. 

let me know if you're ever in boston; otherwise, i'll track you down on the high-seas...all pirate-like.  fret not, the only booty i seek is stimulating conversation -- though i never refuse wine & tasty-treats when offered.

janus will soon be reading the first two chapters of your new book (probably this weekend); i'll let you know what you think.

tell ya what, i'll put myself out there yet again.  i'm poor and so i'll make you an offer:  send me a copy of both of these books and i'll write an honest review of each.  in so doing, you'll prove that you do indeed hide big-brass-balls beneath your briefs (you're i'm sure aware of my knack for nailing asses to the wall), and you may sell enough to make up for the postage.  i'll post it on amazon, too.

i'll be fair...i'm not expecting marcel proust in terms of prose; but i will be expecting a textured, thoughtful and reflective take on a subjective experience, mediated through a wit and personality i've come to favor.

i challenge you.  accepteth thou?

remember this awesome flick? (janus was an olde-school car salesman, too.  there are things about people and the art of sales that can ONLY be learned on the lot.  every face you meet animated by fear and desire; you can sense it, pulsing and immediate, in every gesture, intonation and hesitation.  the dark aspect in all men's eye glistening with greed; only to dim when the prospect of a frittered fortune closes in.  it's your job to keep the greed glistening...whatever it takes.)

blowing the shit outta high prices...


poor tobey...


first a red car and now this...


thought these would bring back some good memories.

janus sold mercedes in augusta, ga.  my first son was born while working that job.  i remember gas at, like, 79 cents a gallon.  i sound old.


W10321303's picture

Enough Said!

Public Briefing: Erskine Bowles Determined to Reduce Private Sector Income, Stifle US Economy

Yves here. This is the second and final post in a series by Michael Hoexter; you can find Part 1 here. I though this one works well as a stand-alone piece and also is accessible to generalist audiences (as in NC readers might find it useful to send it on in part or in whole to colleagues).

Read more at http://www.nakedcapitalism.com/2012/10/public-briefing-erskine-bowles-determined-to-reduce-private-sector-income-stifle-us-economy.html#THCByPpbF6U5lkQx.99

That Bowles is currently lionized in Washington policy circles is particularly striking given the slow-motion economic catastrophe occurring within the Euro-Zone. Bowles’s ignorance or willful disregard of macroeconomic accounting processes and insistence that the US government institute laws that reflect that ignorance, repeats the errors made by the Euro-Zone countries when they signed the Maastricht Treaty in 1992. With a more than adequate understanding of macroeconomic accounting, Wynne Godley predicted in 1992 that the Euro Zone would not withstand a substantial financial crisis because of the budgetary restrictions required by the Treaty. The 3% limits in budget deficits to GDP mandated by the treaty indicated to Godley already at the formation of the Euro-Zone that its founders were woefully ignorant of the stabilizing, supporting and leadership role of government in the economy, especially during times of crisis.

Godley’s fears have been realized as the Euro-Zone and perhaps the European Union itself will either need to break up or need to be entirely re-formed to enable national governments or a unified European government to engage in enough deficit spending to allow countries with trade deficits within the zone to achieve something like full employment. Alternatively they would need to succeed and control their own currencies once again.

Bowles’ and Peterson’s enthusiasm for balanced budgets and reducing public debt are the same type of error that the founders of the European Union made 20 years ago, which with thoughtful engagement with Keynesian macroeconomics the Euro-Zone founders could have avoided at that time. Why would the United States repeat this error, not only with the availability of a correct understanding of macroeconomic accounting in theory but also with the unfolding current real world object lesson in the folly of disregarding macroeconomic monetary rules and institutions? Surely Bowles and Peterson are betting on gross impairments in analytic ability as well as simple reading comprehension in Washington.

Read more at http://www.nakedcapitalism.com/2012/10/public-briefing-erskine-bowles-determined-to-reduce-private-sector-income-stifle-us-economy.html#THCByPpbF6U5lkQx.99

Bowles or Keynes: The Choice is Yours

Bowles and his ally Peterson are setting themselves up as a new school of macroeconomics without having published papers, produced supporting empirical analyses or substantial works of macroeconomic theory. They are peddling a macroeconomic accounting method that directly contradicts the work of Keynes, the founder of macroeconomics as a discipline. Keynes’s view that government needs to manage complex economies via both fiscal and monetary policy is not only the consensus view of a vast number of academic economists but is simply the way the government policymakers have consciously and non-consciously structured their policies in the last 80 years. Keynes’s work is not a unified whole, sometimes self-contradictory, and is unfinished but much of what he wrote has been borne out by the performance of the economies of the world since the 1930’s. While there is conflict among Keynesians and there is no pure Keynesianism, anti-Keynesian economics has, in most cases, failed miserably and spectacularly.

While there is much ambivalence about and even hatred towards Keynes, especially on the political Right, the invective thrown at him has not stuck or presented policymakers with an alternative to being guided by his work or the work of his successors. Since the economic crisis of 2007-2008, the expectations set by Keynesian theory have been borne out by the economic facts, with countries that engaged in fiscal stimulus doing better than ones that did not. Furthermore, the countries that have engaged in austerity as counseled by people like Peterson and Bowles have done poorly. Bowles in the abovementioned interview tried to dissociate himself from the wreck that is the current British economy by claiming that they had engaged in austerity too abruptly and too soon. The question of why countries should engage in austerity at all remains an unquestioned assumption.

Read more at http://www.nakedcapitalism.com/2012/10/public-briefing-erskine-bowles-determined-to-reduce-private-sector-income-stifle-us-economy.html#THCByPpbF6U5lkQx.99
Sigep0612's picture

Come gather ’round  people  wherever you roam

And admit that the waters around you have grown

And accept it that soon you’ll be drenched to the bone

The times they are are changin’

The Line it is drawn, the curse it is cast

The slow one now will later be fast

As the present now will later be past

The order is rapidly fadin’

And the first one now will later be last

For the times they area changin’               -Bob Dylan

Shizzmoney's picture

We've been living under corporate extortion for 12+ years now.  Whether its defense contractors, big banks, Apple, etc........it's "you better do as we say, or the economic bunny gets it!".  And it's usually enforced by the Treasury Dept and the US Chamber of Commerce. 

If Obama wins, a lockout between workers and businesses will start.  Mass layoffs.  No raises and more part-time jobs with even lower pay.  And if Romney wins?  This shit still might happen, anyways....because its all about the bottom line.

poldark's picture

The Great Depression was caused by credit getting out of control. This time it is a bit more than getting out of hand. It makes the credit crunch of the last depression look like the treasurer of the local Christmas club ran off with the funds. I don't think government debt reached anywhere near 100% of GDP. The only way out of this mess is severe austerity. Anything else will just prolong the agony and prove more expensive in end. Have we got a leader that can hack it? Not yet, commeth the hour commeth the man.

Doubleguns's picture

The TBTF banks are screaming about the fiscal clift....that should tell everyone its sole purpose was for them. The tax they cut was the SSI tax not a tax for the govt use but a tax for the peoples use. Think about that....for just a moment.... and that should also be a clue. Going over the clift helps SSI and hurts the TBTF's.


They doth protest too much, methinks.

new game's picture

think of it this way, peoples can not even get along in a neighborhood much less a community.  now figure out how we are going to get along as a state, nation or world if two people are conpassionaite enough to use force because they don't see eye to eye.

this is what is happening via a breakdown of morality as laws are ignored and of course not enforced. watch gringo by mel gibson.

the top eleite are doing whatever they want ignoring constitutions, laws and even stadards of conduct used by "gentlemen", you know the english law thingy. contracts ignored and not enforced...was that common law by the gamed by the the gamers?

system of human behavior is reverting to norm. 60 year run of/ for the most part peacefull coexistence due to excesses is coming to an end. rest of the world wants the same goodies americans have enjoyed for decades.  7+ billion scrambling for scrapes as top 1 percent game the system for their benifit. end run, so as to say.  difference this time is THERE IS NOT ENOUGH TO GO AROUND AND PACIFY the shrinking middle class of past power structure.

the game of competiton has a new set of rules, which was always in place rule-dog eat fucking dog.  sharpen your teeth and get ready to bite or be bitten... NOBODY GONNA BE TAKEN CARE OF YOU - ESPECIALLY THE GUB. and as GC says they don't give a fuck about you.

purplefrog's picture

All of this is well said!  And GC was the prophet for our times. 

hivekiller's picture

The Jews have always planned to take over the world. They are forcing multiculturalism crap on everyone else while that shitty little country in the middle east is kept 'racially pure'. They are looting the world and making sure that plenty of goyim get killed in the process. Meanwhile, they have selected the most corrupt and perverted individuals are placed in positions of power throughout the world. Everything is going according to plans.

Abednego's picture

Mr. Hivekiller you are such a revolutionary thinker - I mean really revolutionary and so well informed on the facts, and also so astute in your readings -you have mastered the art of fact and fiction and are completely light years ahead of the rest of the world in your udnerstanding of the middle east... seriously I marvel at how discerning you are - may we all wake up tomorrow with a tenth of your insight and a hundredth of your wisdom, so we too can see the light and find the path of righteousness in this world darkened by hate and greed.... long live hivekiller *-)

AnAnonymous's picture

Again with that multiculturalism tale? Clearly, 'americans' equate races with cultures but still...

'Americanism' has been a wonderful eraser of cultures. There are much less cultures today than there were before the appearance of 'americanism'

'Americans' strive for uniformity and well, cultures did not thrive through that.

Probably happens the same for biological figures as 'americans' have such a crush on their uniformizing the world fetish...

Widowmaker's picture

You get down votes because ZH is full of Joo-lovers in a mark to fantasy world.

To your point, "god's chosen bankers" will prove you right via equities manipulation in the upcoming plunge in markets to assure a Romney victory. 

Watch history that no one sees coming (again) and everyone shilling for liars money denies before and after the fact.

Nothing but short.

purplefrog's picture

Those "Jews" are no more Jews than Herod was (Idumean).

LawsofPhysics's picture

Maybe.  One thing is for sure, the time to purchase shorts or buy the VIX is when no one else is.

steve from virginia's picture




"wait by the river long enough, the bodies of your enemies will float by ..."

 ... the world's auto manufacturers, tits-up.


Two more years MAX ... then they're gone. When done they will be gone forever.


Good riddance.

hidingfromhelis's picture

Many people "plan" or forecast based on what they see in the rear view mirror.  A poor record on predictions doesn't imply that the opposite outcome will occur; it just means the person or group with the prediction is lousy at it.

That said, I wouldn't bet against their forecast going forward.  Of course, I'm one of the people that after a coin toss comes up heads 10 times in a row, will still assume the probability of tails coming up on the next toss is 50%...unless the game is rigged, but that's a whole 'nother issue.

cornedmutton's picture

*If* Romney "wins" the outgoing adminstration will pull the plug and turn off the lights on their way out...

northerngirl's picture

If Romney wins staring on November 7 and going forward all that will be reported:  The high cost of a gallon of gas, horrible unemployment rate, number of dead US soldiers in our never ending wars, increased cost in utilities and food, number of people loosing their homes, increased cost of health care and the uninsured.  I'm no fan or Romney, but I am tired of all media games being played with the Obama administration.  His administration has done much to support Big Government and Crony Capitalism and done little to bring relief to the above mentioned.

Papasmurf's picture

Neither contender will throw out the crooks and restore the rule of law.

LawsofPhysics's picture

Right, because Romney is going to end cronyism/fascism.  That must be why Morgan Stanley, Goldman Sachs, and J.P. Morgan (once Obama's largest campaign contributers) are now Romney's largest campaign contributers.

Stupid fucking sheep.

Neethgie's picture

And michelle obama will loot all the silverware

cossack55's picture

Too late. She already switched it with silver painted tungsten.

disabledvet's picture

with labor this cheap capital can work its will upon us all. But that includes GOVERNMENT CAPITAL as well. Right now that capital is directing the biggest war effort since World War II...one which is clearly and openly engaged in a covering fire on the grandest of scales. who cares what the business roundtable is saying when the Fed's can cut 100 billion checks a week towards a massive war effort with no penalty? as long as everyone is on board with "the strategy"...and given the attacks in Libya, the ground preparation made going on over 6 months now Syria, the sudden "blow up" between Japan and China, is that a softening of the regime in North Korea i've been reading about of late?, is that a schism between Spain and "the rest of the EU" i see?...and i think the path forward for whoever wins the election is crystal clear.

LawsofPhysics's picture

"who cares what the business roundtable is saying when the Fed's can cut 100 billion checks a week towards a massive war effort with no penalty?"


That, my friend, is the only thing anyone should be focusing on, because when those checks and all those paper promises issued by the Fed (at the expense of the U.S. taxpayer - where is all that interest going BTW?) does not purchase shit, then, and only then, does shit get real.

Revert_Back_to_1792_Act's picture

"Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." - George Washington, in letter to J. Bowen, Rhode Island, Jan. 9, 1787

Governments always combine with banks to borrow and print paper money (or issue bank credit) to pay for causes and wars that the people would not otherwise support.  The money or credit paid out becomes the very incentive to fight the war. 

The Civil war in the USA is a great example of this.  Both sides printed banknotes to pay their soldiers.  Consider what happened to the conferderate bank notes at the end of the war. 

Consider also that the soldiers would not fight if they were not paid something.  You can consider that with anyone who works for the Government today.  They support the cause of whoever is paying them.  People are always using the term 'taxpayer money'.  If you go and draw some of it out of a bank, it does not say 'Taxpayer Money' at the top.  If you look down at the bottom, the treasury (taxpayers) appear to be the co-signer on these 'notes'.

Bear's picture

Can you imagine what numbers are going to come out of the BLS and other Gov agencies should Romney win. The workers are going to have to pay catch up so their numbers will in the ballpark when their new bosses arrive. It will be a beauty to behold.

cossack55's picture

Wrong. Oromney will apply "his" new and improved basline and the criminality will continue unabated.

calgal's picture

I think there will be peace on earth, love for all humanity and skittle shitting unicorns. we will all be eating "Shittles"

Mr. Hudson's picture

In 2000, The House of Rothschild announced to the world that they were no longer buying physical gold. They lied. They were, in fact, buying with both arms. Why did they lie? They knew what was coming, and they wanted to keep the price of gold supressed while the world's CEO's and other underlings were continuing to invest in the housing bubble. If it was known by the world's investors that Rothschild was buying gold, gold would have shot to the moon a lot sooner. But, by being secrative, Rothschild purchaced tons and tons of gold at $300 an ounce. It wasn't until around 2009 that the truth came out that the Central Banks were buying up gold. Of course, we know that Central Bankers are into fiat; their power and wealth comes from the manipualtion of fiat currency and by loaning countries and businesses more fiat money than they can ever pay back. And eventually the whole fiat game will collapse, but the debt won't. The debt stays here. Iceland got away with murder. So, when all hell has broken loose and people and their governments are desperate, the Rothschild Dynasty will step up to the plate and rollover the world's debt; but they will do it on the back's of people, and not with their own wealth. The gold they hold plays a purpose. It says: we are in charge. The "Golden Rule": "He who has the gold rules."

The CEOs were manipulated by Rothschild before, and are being manipulated again. This time though, the manipulation will be for the purpose of CEOs and governments to sell their assets to Rothschild. They do this to stay afloat; to survive. Take a look at Greece. Their government has lost everything; including Greece's shipping. The CEOs know that it's all going to collapse. They also know that there is nothing they or anyone can do to turn it around. Even the CEOs will be slaves to debt.

cossack55's picture

The fcking rothschilds are getting away with murder. Iceland got away with their autonomy, albeit maybe only temporarily. Fuck the banks and the Fed, sameo-sameo

Mr. Hudson's picture

: "Iceland got away with their autonomy"

I agree. I should have put my comment "Iceland got away with murder" in quotes because I was being facetious.

suteibu's picture

"Note how he corrects me when I call the political system in Greece a “democracy.” No way. Not on his show! It’s a “kleptocracy,” he said, and calling it a democracy is just.... Priceless"

Oh, yeah...we were all laughing at that highly intellectual and witty banter.  It was simply....Priceless!  That's the only word for it.

You realize that your less-than-captivating attempts at self-promotion distract from what, otherwise, is a decent article, don't you?  In fact, you really do sound just like a used car salesman.  Good to have that confirmation.