The Worst Case Scenario (Someone Has to Say It)

Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.

As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession. Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.

In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?

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With all the happy talk and irrational exuberance going on in the financial press and in the markets, Peacenik thinks its time for a splash of cold water. A bit of reality. Read the ten predictions in this article from Seeking Alpha. Many of these predictions are highly probable. If just one comes true the world as we know it is over. Peacenik hates to keep repeating Peacenik's self but the black hole of debt cannot be ignored.

Warning: More Doom Ahead

By Nouriel Roubini

“Because the United States is such a huge part of the global economy, there’s real reason to worry that an American financial virus could mark the beginning of a global economic contagion.”
– Nouriel Roubini, March 2008

Last year’s worst-case scenarios came true. The global financial pandemic that I and others had warned about is now upon us. But we are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.

The prevailing conventional wisdom holds that prices of many risky financial assets have fallen so much that we are at the bottom. Although it’s true that these assets have fallen sharply from their peaks of late 2007, they will likely fall further still. In the next few months, the macroeconomic news in the United States and around the world will be much worse than most expect. Corporate earnings reports will shock any equity analysts who are still deluding themselves that the economic contraction will be mild and short.

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Peacenik watched an interview with Art Laffer yesterday. This is the Laffer of the totally discredited "Laffer curve". The Laffer of "trickle down" economics. Laffer has a new book out calling for the return of the Reagan years. Tax cuts and no regulation. Laffer is predicting a big boom. The interviewer of course allowed Laffer to spout his nonsense. The finanacial pundit/cheerleaders still don't get it. There will be no going back to a consumer society. Or a growth society. Peacenik hopes there will at least be a civil society. But with auto sales hitting record lows, and no prospects for any future sales, the spectre of millions of unemployed, hungry, indebted and pissed off former autoworkers looms large. Even Dr. Doom, Roubini, may have understated the worst-case scenario. Is Sundin working out?