[Sixstrings]

Lunch at the National Press Club on Wednesday caused some serious indigestion.

It wasn't the food; it was the entertainment. Christina Romer, chairman of President Obama's Council of Economic Advisers, was giving what was billed as her "valedictory" before she returns to teach at Berkeley, and she used the swan song to establish four points, each more unnerving than the last:

She had no idea how bad the economic collapse would be. She still doesn't understand exactly why it was so bad. The response to the collapse was inadequate. And she doesn't have much of an idea about how to fix things.

What she did have was a binder full of scary descriptions and warnings, offered with a perma-smile and singsong delivery: "Terrible recession. . . . Incredibly searing. . . . Dramatically below trend. . . . Suffering terribly. . . . Risk of making high unemployment permanent. . . . Economic nightmare."

(snip)

Even now, Romer said, mystery persists. "To this day, economists don't fully understand why firms cut production as much as they did or why they cut labor so much more than they normally would." Her defense was that "almost all analysts were surprised by the violent reaction."
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/01/AR2010090106148.html?hpid=news-col-blog

Quite an about-face now that she's leaving the White House.. I remember seeing her interviewed on Morning Joe a few times, always cheery and upbeat "the stimulus is going to work" blah blah blah.

Now she says she has no clue how things got so bad, or any idea how to fix it. Pretty much sums up the rest of the Administration, eh?

[Outcast_Searcher]

You're right, of course, Six.

But at least she's (finally) being honest.

1). If you look back at the prognostications of the vast majority of the well known stock commentators -- their 2008 economic/GDP predictions were just linear extrapolations (with a modest range) of 2007. Of course, normally that works well enough for them to get by.

2). I always liked the quip "if you laid 10,000 economists end-to-end, they couldn't reach a conclusion". This is frighteningly accurate. No wonder they call economics the "dismal science". The odd thing is, we pay so much attention to economic predictions, even with the MASSIVE EVIDENCE that basically no one has a clue. (Notice how the gurus like Buffett will usually frankly admit they have NO IDEA what will happen economically in the short run, even if they can often pick good companies over the long run).

Thousands of variables that frequently change and are tough to measure, and billions of irrational humans running around -- somehow, I don't expect the state of economic predictibility to improve much anytime soon.

[Plantagenet]

I don't expect the state of economic predictibility to improve much anytime soon.

It certainly won't change in the White House, where Obama is keeping Timothy Geither, Lawrence Summers and the rest of the economic incompetents on his team who completely misjudged the economy and then backed wrong-headed economic policies that have failed to create jobs and get the economy growing again..

[SeaGypsy]

The writing was on the wall among peakers years before it happened. The downside of globalisation is that whilst the poor (in poor countries) become marginally less poor; the poor in rich countries pay the balance. When they can't or won't, the middle class are co-opted join the poor, asset stripped in the process.
It's called global expansion meets resource constraint.
Yes much of the detail of how it unfolds is a complete mystery; but the overall bleak economic outlook should be no surprise. Considering how bad things were looking 18 months ago, the relative functionality of things is more surprising than a much worse much sooner situation seemed back then.
TPTB are working on bleeding us all dry in the long run; resource constraint implies brutality and in a global economic situation the ramifications affect everyone.
The non simultaneous nature of the crash was forseen more outside the US than within; with America blindsided by it's own power. This is the captain having worn out the heroics and jumped from his sinking ship, watching from the water as she is righted by the crew and blown off downwind forever.
At the same time as America bites the dust it is Americans with American money ensuring the demise continues, through good old American style free market capitalism.
How many here remember the early globalisation arguments about floating currencies and free trade?
"For a nation's own good and the welfare of it's people, a nation should seek independence; lest it be overrun by tyrants. If there are airplanes, we should make them, if there are tanks or ships or guns, we should make them, and from the ore of our own earth in our own smelter." My Gran used to say over and over even after forgetting the names of his children.

[Fiddlerdave]

How is this any different than our previous administration's personal insistence that the housing boom would rise forever even as it was crashing?

Well, except for the fact that Obama is attempting to soften the deadly fall for those at the bottom, while the Republicans are chomping at the bit to throw all of the laid-off under the economic bus. Cutting off unemployment is high on the list, slashing food stamps, ending medical subsidy like COBRA payments help, the modern American (ex-)worker has no idea what real pain is. Yet.

Many of those hating and distrusting government are about to be finding out the government is the only friend they had.

[Pops]

I just commented the other day when she was on the news how she seemed like a kindergarten teacher who had to keep a sunny disposition - one crack and she'd go postal

Was it the self-hypnosis of all the program traders that they had finally achieved the "Truth" and convinced everyone we were beyond the business cycle? You can't blame the little guy who was just following what Gordon Geko taught him.

Why would anyone still believe anything - anything - paid consultants (economists) say after the self-serving lies told by everyone -EVERYONE - in the financial world these last few years since everything was effectively deregulated?

Did anyone else read the stories the last couple of weeks about the 1.2 QUADRILLION dollar derivatives casino still going full tilt out there?

I said when I first started posting here RE and credit was in a bubble and I had been telling those I knew at least a couple years before that - and I barely graduated high school.

I really think it's time to get out of the pool kids.

[AgentR]

I guess I shouldn't be surprised that a politico wouldn't understand why the private economy cut so much and is so hesitant to ramp up even when cash flush.

Personally, only one event in my lifetime has made my blood run cold in terms of economics.. the day a brief blurb ran about the commercial paper market locking up. It seems like such an innocuous little term, of seemingly trivial importance. Yet, everyone was in it, it turned receivables into operating cash on a day by day basis at absolutely tiny interest costs. I can hardly imagine the sinking feeling that went through the guts of many a CFO that day, instantly changing their thoughts from profit margins, market share, and quarterly reports, to OMFG how the heck am I gonna make payroll. You don't go there without it changing how you buy and sell. Now a CFO looks at his books and the first thing in his head is, if I have no other source of cash other than what I have in hard currency in the bank, can I make payroll this week; can I make my tax payments, how long can I keep our central office open....

NOT conducive to aggressive expansion, risk taking, and entrepenurial enthusiasm.

[Ludi]

Now she says she has no clue how things got so bad, or any idea how to fix it. Pretty much sums up the rest of the Administration, eh?

What ideas do the other parties have to fix it?

So far I have seen, from the GOP:

- Reduce or eliminate taxes

- Reduce or eliminate spending

- Reduce or eliminate government regulation

How will cutting spending while cutting taxes improve the economy? Do you know?

[efarmer]

I think it is a hard enough slog for an economist to keep their dream of continuous growth with mitigation tools for slumps straight in their minds during turbulent times. I don't think economists are equipped for what is going on at this point in several key areas:

1. Resource limits impinging on growth and removing mitigation tools for economic slumps that depend on high level belief in future prosperity by the upper echelons of national and global capital.

2. The decoupling of the largest national financial players from having the need for an intact financial base in their own host nation and being free to pursue profit globally without regard for same.

3. Providing the largest American financial players with zero cost capital with expectations but no rules to provide for it's use in a plan of national economic stimulus, and instead seeing it used for wealth concentration and dismantling of the capitalizing nation.

It demoralizes an economist when they wake up and realize they drove the getaway car for a bank robbery and thought they were there to tighten security and suggest ways to improve responsible behavior.

[Plantagenet]

efarmer is exactly right.

I'd add one more screw up by the White House economists.

These folks rely HEAVILY on numerical computer models of the economy. These models allow them to test things like how inputting money (like the government spending 1 trillion dollars of stimulus money) might produce jobs.

The computer models are one of the reasons the White House economists sound so lost when they talk about the economy....the economy in the real world isn't behaving like the model says it would, and Summers and Geithner and Rohmer and the rest of them are shattered when they have to accept that they really don't understand the economy and their computer model is wrong and that Obama's economic policies have utterly failed to produce jobs and significant GDP growth.

[yeahbut]

Why would anyone still believe anything - anything - paid consultants (economists) say after the self-serving lies told by everyone -EVERYONE - in the financial world these last few years since everything was effectively deregulated?

Did anyone else read the stories the last couple of weeks about the 1.2 QUADRILLION dollar derivatives casino still going full tilt out there?

The governor of the Reserve Bank here in NZ has just published a book about his experience of the crisis. There were some interesting excerpts published in 'The Listener' magazine the other day, including this one(can't link to it yet cos they don't put their content online for a couple weeks after publishing):

In 'Crisis', Bollard tells of a very impressive presentation at a central bankers' conference in Switzerland in 2007, given by a young American business school professor. He used PowerPoint and whiteboard to describe a smarter and more complex class of derivatives that absorbed and reallocated risk, and could even be engineered to reduce it further.

"Then he looked around the room and asked 'How many of you really understood that?' No response. 'How many of you understand who ultimately holds this risk?' No hands went up. 'How many of you know how this could unravel?' Again, silence."

The professor warned the bankers that very few people in the world understood this sort of complex transactional chain, and the central banks, trading banks and credit-rating agencies employed none of them. "In other words, 'these guys are brainier the you!'" Bollard recalls. It was a sobering moment. Not only were lenders incentivised to "shovel loans out the door", luring householders to borrow more than they could prudently afford, but no one could be sure wherre the locus of the risk of these initial transactions lurked at any time.

[Chuckmak]

To paraphrase George Carlin: "Shows you how much they have on the shelf"

[Fiddlerdave]

efarmer is exactly right.

I'd add one more screw up by the White House economists.

These folks rely HEAVILY on numerical computer models of the economy. These models allow them to test things like how inputting money (like the government spending 1 trillion dollars of stimulus money) might produce jobs.

The computer models are one of the reasons the White House economists sound so lost when they talk about the economy....the economy in the real world isn't behaving like the model says it would, and Summers and Geithner and Rohmer and the rest of them are shattered when they have to accept that they really don't understand the economy and their computer model is wrong and that Obama's economic policies have utterly failed to produce jobs and significant GDP growth.

The model behaves pretty well. The stimulus money has improved the situation considerably from what it would have been. The extra unemployment and assistance has saved untold misery.

It is just that no one will accept the reality of just how badly we are screwed, both by long-term models, and the utterly gargantuan looting of the last 10 years, where entire barns were burned down to cover the theft of some pallets of hay.

And our technology infrastructure and business investment has been exported to countries that have played us like chumps. We paid them to take over our skilled production, science, and engineering. And now we have no work.

[Wiltshire_rules]

Great post from AgentR

Now a CFO looks at his books and the first thing in his head is, if I have no other source of cash other than what I have in hard currency in the bank, can I make payroll this week; can I make my tax payments, how long can I keep our central office open....

NOT conducive to aggressive expansion, risk taking, and entrepenurial enthusiasm.

That's exactly right. I have invested in two small businesses with family and friends. We are agreed that we cannot rely on loans or any other form of finance being there if needed, so we are operating very conservatively, keeping cash in the business and paying off borrowings as quickly as we can.