12 Reasons Rosenberg Is Still Wrong About The Economy


On September 15, uber-economist David Rosenberg posted an article 13 Reasons We’re In A Depression Now and I responded with 13 Reasons We’re NOT In A Depression Right Now.

Two and a half months later I still stand by all of my reasons but it seems Rosenberg has backed off a little and has changed the slant ever so slightly.

Here’s his most recent thoughts on the economy.

Now it seems, we are in a “recovery” but there are 12 threats that can torpedo the recovery. I think these are not real threats at all but, conveniently, a wall of worry that the markets will climb on a continued road to recovery. I’ll deal with his points one by one.

Admittedly, bailouts of Greece and Ireland and fears of Portugal, Spain, and now Belgium are not encouraging. It's the fears of Greece last April/May that I think caused the horrible slide we experienced until about July. Everyone was worried about the debt contagion spreading here.

But, lets take a step back for a second. Greece is 3% of the European Union's GDP. Ireland is 2%. Portugal (if it gets there) is 2%. And Ireland and Portugal, in particular, have been passing brutal austerity measures to make sure that any bailouts don't go to waste. Similarly, Spain and Italy have also passed significant austerity measures. As opposed to the US government, these countries are serious about cutting spending. And the recovery that's taking place in the US economy will ultimately lift those ships (like we always do).

Let's not forget public debt in Japan (at 200% of GDP) is 2.5x what it is in Europe. Japan has been in a recession for 20 years and it hasn't slowed us down. Europe, which is doing fine by comparison, won't slow us down either.

Excuse me, what street is Canada on? So I can go over there and watch when it busts.

Housing is still a mess. There's a ton of foreclosures that need to be processed through the system. But, ultimately, housing will be driven by a strengthening economy, not the other way around.

Private sector payrolls are up an average of 106,000 per month over the past six months. Initial jobless claims are at their lowest level in years and household debt obligations are back to where they were in the 90s, meaning we've been getting our debts under control per household.

Meanwhile, Rosenberg cites a falling in housing prices over the past four months but there's an obvious explanation: the expiration of the homebuyers tax credit which applied if you bought a house by the end of April. Ultimately, housing starts (and hence inventories) are shrinking and while we don't seem to be out of the housing mess, just the laws of supply and demand, plus an improving economy overall should pull us out of a housing mess by end of 2011.

Again, the economy seems to be much more correlated to the stock market than the housing market and QE 2 seems to be having a direct positive effect on the stock market, just like QE 1 did.

This is true. States will not default on their debts so they have four choices: raise taxes, raise fees for services, cut spending, sell off assets.

My own view is that states have sufficient under-utilized assets that they should be selling into the private marketplace in order to jolt their economies AND pay down debt.

Here is my article on the topic.

They should sell schools, roads, parks, hospitals, etc. Just like our capitalist friends in China are currently doing.

Rosenberg's Concern: The Koreas

This is anecdotal but its funny to me that every economist I know thinks economists are way too optimistic.

This weekend, I told a friend of mine at the University of Chicago Economics Department that I was bullish on the economy and she laughed in my face, attempting to humiliate me with her scorn.

Here's an article from last month though that polled a bunch of economists and they all answered pessimistically. So who is optimistic?

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