Recession 2010?

If you watch any mainstream news program these days, it is almost a certainty that someone will mention the word “recession” before a half hour passes.  In fact, it seems like almost everyone is either predicting that we are going into a recession, or they are warning of the need to avoid a recession or they are proclaiming that we are still in a recession.  So will the U.S. economy once again be in recession in 2010?  When you consider all the signs that are pointing that way, the evidence is compelling.  The truth is that there is bad economic news wherever you turn.  There is bad news in the housing industry.  There is bad news in the financial markets.  There is bad news in the banking system.  There is bad news coming out of Europe.  There are even signs that the bubble in China may be about to burst.  Plus, the economic impact of the Gulf of Mexico oil spill could end up being the straw (or the gigantic concrete slab) that really breaks the camel’s back.  So there are certainly a lot of pieces of news that “gloom and doom” economists can hang their hats on these days.  There is a very dark mood in world financial markets right now, and it seems like almost everyone is waiting for the other shoe to drop.  But does all of this really mean that we are looking at the start of another recession before the end of 2010?   

The truth is that nobody really knows.  Things certainly look very ominous out there.  The dark clouds are gathering and the economic winds are starting to blow in a bad direction.  The following are 24 pieces of evidence that do seem to indicate that very difficult economic times are imminent….

-U.S. Treasury yields have dropped to stunning new lows.  So why are they so low?  Well, it is because so many investors are anticipating that we are headed into a deflationary period.  In fact, many economists are warning that the fact that Treasury yields are so low is one of the clearest signs that economic trouble is ahead.

-The Conference Board’s Consumer Confidence Index declined sharply to 52.9 in June.  Most economists had expected that the figure for June would be somewhere around 62.  If consumers aren’t confident they won’t be spending money.  If American consumers don’t start spending money soon a lot of American retailers are going to go belly up.

-The M3 money supply plunged at a 9.6 percent annual rate during the first quarter of 2010.  If the M3 keeps declining at that kind of a rate it is going to put extreme deflationary pressure on the U.S. economy.

-Many economists are now warning that the “China investment bubble” is about to burst.  In fact, Kenneth Rogoff, Harvard University professor and former chief economist of the International Monetary Fund, claims that China’s property market is beginning a “collapse” that will send a shockwave across the globe.  One prominent economist that specializes in China is even forecasting that property prices in major Chinese cities are likely to soon experience a drop of up to 30 percent.

-Nouriel Roubini is warning that Europe’s economy could stop growing as soon as this year.  Back in 2007 and 2008, the U.S. was the epicenter of the financial crisis, but many analysts believe that it will be Europe this time around.

-Vacancies and lease rates at U.S. shopping centers continued to get worse during the second quarter of 2010.  If things don’t pick up soon will we see half empty shopping malls by the time Christmas rolls around?

-CBS News is reporting that the oil spill in the Gulf of Mexico is hurting businesses “from coast to coast”.  The longer this oil spill goes on the bigger of an impact it is going to have.  The cost to the American economy from this disaster could ultimately be in the trillions.

-Some analysts are warning that if BP goes under as a result of the Gulf of Mexico oil spill that it could cause the total collapse of the worldwide derivatives market and unleash a liquidity crisis unlike anything the world financial system has ever seen.

-The state of Illinois has stopped paying most of its bills and yet the flood of red ink continues to get even worse.  Illinois now ranks eighth in the world in possible bond-holder default.  That is even worse than California.

-Speaking of California, the Schwarzenegger administration has won an appellate court ruling saying it has the authority to impose the federal minimum wage of $7.25 an hour on more than 200,000 state workers as California wrestles with its latest budget crisis.

-Things are so bad at the state level in the U.S. that economist Mark Zandi is projecting that up to 400,000 workers could lose their jobs in the next year as states, counties and cities struggle with lower tax revenues and significantly reduced federal funding.

-Two Federal Reserve officials recently said that U.S. unemployment is likely to stay high for a long time.  Normally Fed officials are some of the biggest cheerleaders for the economy.  If they are not optimistic about the employment situation that is a very bad sign.

-Analysts are warning that the “death cross” is coming.  The Standard & Poor’s 500 50-day moving average is about to cross beneath the 200-day moving average, and many economists say that this is a very strong indication that a new recession is about to begin.

-One prominent trader says that the Dow Jones Industrial Average is repeating a pattern that appeared just before financial markets collapsed during the Great Depression.

-Ambrose Evans-Pritchard, one of the most respected financial columnists in the world, really raised eyebrows recently when he declared that this “really is starting to feel like 1932”.

-In the month of May, sales of new homes in the United States dropped to the lowest level on record.

-The National Association of Realtors recently announced that its seasonally adjusted index of sales agreements for previously occupied homes dropped 30 percent in May.

-Small and mid-size banks across the United States are failing at a rapidly accelerating pace.  The truth is that the entire U.S. banking system is teetering on the brink of disaster.

-At this point just about everyone can see the writing on the wall.  Literally dozens of top economists and world leaders are declaring that we are likely to enter the second leg of a “double-dip recession” at some point over the next twelve months.

So yes, things are really, really bad.

Those who want to forecast a coming recession don’t have to look too far for data that will back them up. 

But wait.

There is actually one prominent economist who says that it is virtually impossible that the United States will experience a recession in the next six months.

Goldman Sachs economist Andrew Tilton says that there is “no way in hell” that the U.S. economy is going into a recession.  To be more precise, Tilton says that there is a 1.6% chance that the U.S. economy will be in a recession six months from now.

So according to Tilton, there is a 98.4% chance (and he has computer models that supposedly back him up) that the U.S. economy will be growing when we reach the end of the year.

So what is actually going to happen?

Who knows.

The truth is that so many of these economists are so caught up in what is happening in the short-term that they are missing the bigger picture.

The bigger picture is that the U.S. economy is more over-leveraged than it ever has been before, and we are caught in a debt spiral that is basically impossible to unwind.

So in the final analysis it really doesn’t matter if we are “officially” in a recession by the end of 2010 or not.  The truth is that the United States is headed for a devastating long-term economic collapse and there isn’t much that anyone can do to change that reality at this point.