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Did SF Fed's John Williams Just Predict The Next Recession??
Submitted by Lance Roberts of STA Wealth Management,
There are three things that are often spotted, widely believed, and actively sought after with little evidence they actually exist: Big Foot, Ghosts and Economic "Soft Landings." If you are interested in the first two, you can catch weekly episodes of Animal Planet's "Search For Bigfoot" and SyFy's "Ghost Hunters." The funny thing is that both of these shows remind me of "Get Smart" because when it comes to actually finding any real evidence it is always "missed it by this much."
When it comes to "economic soft landings" the story line is really changed that much. By definition an economic soft landing is:
"The process of an economy shifting from growth to slow-growth to potentially flat, as it approaches but avoids a recession."
The chart below is the annual change in economic growth from 1854 to present with recessions identified.
Over the past 159 years, there is not much evidence that an economic "soft landing" has ever occurred. However, it is not without precedent that as the economy reaches the latter stage of the growth cycle that the words "soft landing" are uttered by economists and Federal Reserve members.
In 1999, according to the FOMC minutes, Ms. Johnson stated in her remarks:
"Provided foreign officials do not unnecessarily limit output growth from achieving its new potential, such a development could result in stronger demand for U.S. exports and more balanced growth in the global economy. Such a scenario is one version of a so-called soft landing."
In the August, 2000 FOMC press release Alan Greenspan stated:
"The incoming data seem to have convinced participants in the financial markets that the odds of a soft landing have risen."
Then again following the September 2000 FOMC Meeting:
"Financial market participants seem to be reading the recent economic data as further confirmation that a soft landing is in train."
Of course, as we know now, the recession soon followed in 2001.
One of the things you have to admire of those that hunt for ghosts, "Big Foot" or aliens is that they live by the "Jason Nesmith" motto of "Never give up...never surrender."
Apparently, the same holds true for the members of the Federal Reserve as during the December 12, 2006 FOMC meeting, the now Fed Chairwoman, Janet Yellen remarked:
"In summary, I continue to view a soft landing with moderating inflation as my best-guess forecast, conditional on maintaining the current stance of policy. But there are sizable risks on both sides to the outlook for growth, and the downside risks are now more palpable."
Followed by then Chairman Ben Bernanke:
"So like most people around the table, I think that a soft landing with growth a bit below potential in the short run looks like the most likely scenario."
Of course, it was just 12 months later that the US economy dipped into the worst recession since the great depression.
Why do I bring this up? Bihnamin Appelbaum, via the New York Times, recently interviewed John Williams, the President of the Federal Reserve Bank of San Francisco, who stated:
"John Williams, president of the Federal Reserve Bank of San Francisco, is feeling pretty good about the economy. He is ready to continue the Fed’s retreat from bond-buying and forward guidance. And he says he’s optimistic that this time, the Fed will manage to produce a soft landing."
However, Bihnamin understands that "soft landings" are rare and gives John a chance to extract himself:
Q. You've said several times during our conversation that we're returning to normalcy. A lot of people are uneasy about the Fed's ability to manage that return.
A. I think we've got significant challenges ahead of us that are far greater than normal periods of monetary policy. Not only the communication around the taper but more generally that whole exit period of moving from zero interest rates after many, many years, and what happens to our balance sheet, these are clearly big issues that are ahead of us and getting the soft landing right is very difficult.
Q. But the Fed almost never lands softly.
A. Maybe this will be the one time we have a soft landing. We haven't had a lot of breaks in the last few years."
If history serves as any guide, John's prognostication started a 12-18 month countdown to the next recession. Of course, as John suggests, "this time could certainly be different." As I wrote previously:
"The next major market correction will very likely coincide with the next economic recession. Of course, by simply writing the 'R' word this article will be summarily dismissed by the 'financial illuminati' who continue to marvel at the day to day levitations of the markets with the inherent belief 'trees can grow to the sky'. Ultimately, all economic recoveries will eventually contract. The chart below shows every post recession economic recovery from 1879 to present.
The statistics are quite interesting:
- Number of economic recoveries = 29
- Average number of months per recovery = 39
- Current economic recovery = 57 months
- Number of economic recoveries that lasted longer than current = 6
- Percentage of economic recoveries lasting 53 months or longer = 24.14%
Think about this for a moment. We are currently experiencing the 7th longest economic recovery in history with most analysts and economists giving no consideration for a recession in the near future."
While there is always the possibility that ghosts are real, "Big Foot" is alive and a "soft landing" will be achieved, there is just precious little historical evidence to support that claim. Unfortunately, such claims of a "soft landing" have always come just prior to recessions as any claim different by a Federal Reserve member would likely spark a panic in the financial markets accelerating a recessionary event.
What it does suggest is that the Federal Reserve is far more worried about the current economic state than what they reveal. For the Federal Reserve, "forward guidance" is their "Omega 13." The hope of is that communication can put the markets, and economy, on a controllable "glide path." The problem is that in order for forward guidance to work you have to make the assumption that the Federal Reserve, through monetary policy, can control, or potentially eliminate, real economic cycles.
Is that possible. Sure. Historical probabilities suggest something far different. Regardless of the outcome, just remember to "Never Give Up, Never Surrender."
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Is it me or did we never exit the last recession, which realistically, is a depression
It's not just you. What's going on right is definitely a depression.
There isn't much difference between today and the Great Depression (back then everyone wanted dollars and now people want to dump them). The pictures from the Great Depression that show bread lines and people standing in line at the employment offices are very much alive today. The bread lines are simply electronic now.
yep, it is a depression.
If you subtract out the trillions the fed gave to the USG to spend you get negative growth for 20 quarters....but I guess 'depression' has been reitred like a famous athlete's number so now it would just be called a really really really long recession.
I have also recently learned that somewhere along the timeline we started IMPUTING part of the GDP. If you own your home for instance the rent you would pay...is ...now part of the GDP.
All this tells us is that those in charge of numbers know things are so bad that the truth would be the end. So the truth must never be spoken. We have arrived at the end of the road. All else is just waiting. The GDP is produced the same way as the Chinese economy numbers. It is representation of the way those in charge would like it to be seen.
The only professional people in the money world who 'can't' see the problem are those 'who's salary depends upon it'.
No its not you. We have been in a recession papered over with debt.
These guys have been selling advice based on a recovery, thus cannot and will not admit that we've been and still are, in a recession.
I wouldnt let these people lick my postage stamps let alone handle my money.
No, it's not you... it's ME ;-)
Looney
We've been in a recession (growth - debt) since the early 1970s.
wow they are pumping this market damn hard to keep one big shart of a close from happening.
And when it tanks we will get the, "nobody saw this comming" shenanagins
the buying frenzy in the last 20 seconds was tremendous. someone could not pile in fast enough.
Equity market indexes are just about the last thing they can paint in order to (unsuccessfully) try & prevent a total collapse in an illusion of any positivity.
The problem is that a) it's not worked thus far, and b) they've used a helluva lot of paint during the last 5 years & will have trouble sourcing more diminishing layers.
I personally think the green paint today is in honor of St. Patrick's Day.
Not gonna happen, the FED has fixed the problem of business cycles making this time different.
We have reached a permanent high plateau, a new paradigm if you will.
I wonder about that a lot.
On October 23rd 1929 Economist Professor Irving Fischer announced that "Stock prices have reached what looks like a permanently high plateau". The next day the Dow Jones gapped down 10% in the first few minutes of trade and did not recover to that point in inflation adjusted terms until the 1960's.
http://www.youtube.com/watch?v=MEc7sE7psJA
the last 2 times we went into recession, "they" sent 2 planes into the Towers in 2001 and when the fed let LEH go BR. see, create hysteria to explain away the crash. what will it be this time???
No.
Leveraged asset collapse redux ... bitchez
Some researchers suggest that Bigfoot resides in the White House.
I thought she was a Wookie...
Shoe size implies at least half-squatch.
I think we have seen the last officially declared recession of our lifetimes. Everything is "recovery" now. There may be times of greater "recovery" or less "recovery", but I think the R-word has been banished just as the D-word before it.
hey buddy, bigfoot is real, I've seen pictures on Youtube...get edjacated...
It's "edjumucated", idiot.
dr copper has the last say
Doctor Copafeel?
A debt based economy equals slavery.
An asset based economy equals freedom.
Dumpster diving recovery.
BTFD
"This" time is different. Unlike the last "this" time, which was different before it wasn't.
Sucks to be a bull when an economy reverts to the mean.
Main St. is responsible for holding back the recovery because they keep going bankrupt.
Thankfully, the big Corps and financials can't go bankrupt or we would be in very serious trouble.
The trick to soft landings is looking in the right places for them.
My only comment in question form is "Why does any sane person give a shit about what these psycopaths say"?
What is the official fed policy?(mission statement) and over time what has it been and how many times has it been amended?
This Piece of BS information gives you all the information you need to know.
hahahahahahahahahahahahahaha, dicks!
The depression started in 2007 Yellen.
Sucks to be you bitch!!!!