The Next Meltdown

Crossposted from The Stars Hollow Gazette

Krugman–

(T)he ECB keeps saying that restructuring is unthinkable. Yet austerity programs are not working; the prospect of a return to normal financing is receding rather than approaching.

If you ask me, the water level has now dropped so far that the fuel rods are exposed. We really are in meltdown territory.

How is that austerity thing working out for you?

Cuts Threatening UK Economic Recovery: OECD

By: Matthew West, Associate Web Producer, CNBC

Published: Thursday, 26 May 2011 | 8:41 AM ET

At the start of the year the OECD forecast growth of 1.7 percent, but in March it lowered its forecast to 1.5 percent. However on Wednesday it lowered its forecast again to 1.4 percent. It also lowered its growth forecast for 2012 from 2 percent to 1.8 percent.

It warned unemployment in the UK would rise from 7.9 percent to 8.1 percent of the population by the end of this year and would rise to 8.3 percent in 2012 as a result of the slow pace of growth.

UK Consumer Recovery to be Slowest in 180 Years

By: Daniel Pimlott, Financial Times

Published: Wednesday, 1 Jun 2011 | 2:19 AM ET

The UK economy is set to experience the slowest pick-up in consumer spending of any post-recession period since 1830, according to a Financial Times analysis of official forecasts.

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“The only sustainable recovery is the kind of recovery that rebalances away from consumer demand and towards external demand,” said one Treasury aide.

It is unclear, however, whether trade and business investment will prove sufficient to offset weak consumer spending and public sector cuts – which together account for more than 85 percent of the economy.

Manufacturing Grows at Slowest Pace in Almost Two Years as New Orders Fall

By Svenja O’Donnell, Bloomberg News

Jun 1, 2011 5:55 AM ET

U.K. manufacturing grew at the slowest pace in almost two years in May as weak domestic demand led to a drop in production and new orders, a survey showed.

A gauge based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply declined to 52.1, the lowest since September 2009, from a downwardly revised 54.4 in April, according to an e-mailed report in London today. Output and new orders fell for the first time since the middle of 2009, and producers of consumer goods and smaller manufacturers were hit hardest.

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“The fact that the output and new orders fell for the first time in two years does raise questions about where economic growth will come from,” Hetal Mehta, an economist at Daiwa Capital Markets Europe in London, said in an e-mailed note.

Manufacturing gloom is moving UK closer to double-dip recession

With firms’ order books on a downward trajectory, and mortgage demand going the same way, Britain’s recovery is in tatters

Larry Elliott, guardian.co.uk

Wednesday 1 June 2011 13.33 BST

The news on the UK economy just gets worse and worse. Wednesday’s dismal snapshot of manufacturing removes one of the last remaining reasons to be modestly upbeat about Britain’s recovery prospects.

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Research out today from Ipsos Mori showed that only 10% of Britons consider the state of the economy to be good, making the UK one of the most pessimistic nations in the world. The gloom seems entirely justified given the ferocious squeeze on real incomes and the severity of the government’s fiscal tightening, and it is resulting in a slowdown in domestic demand. The breakdown of Wednesday’s report showed that consumer goods are being hit harder than investment goods.

Up until recently, the softness of home-based demand has been disguised by the buoyancy of exports, with firms able to use the 25% devaluation of sterling to boost overseas sales. But the decline in the European and Chinese PMIs shows that international demand is also slackening, leading to the third successive decline in export order books for UK firms.

Manufacturing accounts for one-eighth of UK output, so we will have to wait for the PMIs for construction and services over the next two days to get a more complete picture of the state of the nation. But the drop in mortgage demand from already depressed levels, revealed by Wednesday’s Bank of England figures, suggests that growth in the second quarter of 2011 is unlikely to match the 0.5% in the first. Indeed, the sharp fall in sterling after the manufacturing PMI was released is a sign that the financial markets believe the UK is moving dangerously close to a double-dip recession.

Oh ek, that’s just the Brits.  We’re exceptional!

Home Prices in 20 U.S. Cities Decline to Eight-Year Low, Case-Shiller Says

By Bob Willis, Bloomberg News

May 31, 2011 10:45 AM ET

The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said today in New York. At 138.16, the gauge was the weakest since March 2003.

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Nationally, home prices decreased 5.1 percent in the first quarter from the same time in 2010, and were down 4.2 percent from the previous three months, the biggest one-quarter decrease since the first three months of 2009. At 125.41, the index was the lowest since the second quarter of 2002.

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“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” David Blitzer, chairman of the Case-Shiller index committee at S&P, said in a statement.

Further declines in home prices are likely to constrain the consumer spending that makes up 70 percent of the economy, as homeowners feel less wealthy and have little home equity to borrow against.

Why housing is in a depression

Commentary: New data says the double dip is even worse than the 1930s

Brett Arends, Market Watch

June 1, 2011, 12:01 a.m. EDT

Writes Capital Economics’ senior economist Paul Dales, “On the Case-Shiller measure, prices are now 33% below the 2006 peak and are back at a level last seen in the third quarter of 2002. This means that prices have now fallen by more than the 31% decline endured during the Great Depression.”

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Capital Economics says the latest double-dip in housing should come as no surprise. It’s very much following a pattern seen in the early 30s, when a brief recovery also petered out. The same has also happened in other big housing busts around the world, the think-tank says. It believes prices are going to fall even further before we hit rock bottom, maybe sometime next year.

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Capital Economics says, back in the Depression, it took 19 years for house prices to recover to their previous peaks.

Private Jobs Post Tepid Rise

By KATHLEEN MADIGAN, The Wall Street Journal

JUNE 1, 2011, 8:53 A.M. ET

Private businesses barely added jobs in May as large companies cut workers, according to a report released Wednesday.

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Economists surveyed by Dow Jones Newswires had expected ADP to report a much larger job gain of 190,000 last month. The April data were revised to show a rise of 177,000 versus 179,000 first reported.

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The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics’ nonfarm payroll data, to be released Friday, include government workers. In recent months, state and local governments have been laying off workers to close budget gaps.

As a result, economists surveyed by Dow Jones Newswires expect total nonfarm payrolls increased by 183,000 in May, down from the 244,000 gain reported in April.

Current Obama economic policy deserves nothing but whispers, giggles, and contempt.

What Davies doesn’t say is that there’s a good reason Lucas won’t even consider the obvious explanation in terms of a shortfall in demand. More than 30 years ago, in a burst of radically premature triumphalism, Lucas and his colleagues declared the “Death of Keynesian economics”. As cited by Greg Mankiw (pdf), Lucas wrote that Keynesian theorizing was so passe that people would giggle and whisper if it came up in seminars.

Since then, as is obvious to everyone but the hermetic inhabitants of the freshwater (Chicago School of Economics) world, the attempt to explain business cycles in terms of rational expectations and frictionless markets has failed; and Keynesian economics continues to be very useful. But to concede that, to even consider the possibility that we’re in a demand-shortfall slump of the kind Keynes diagnosed, would be an incredible comedown for Lucas.

So he can’t and won’t consider the possibility.