Anybody ready to revise (downward) their previous economic predictions?

[raster calculator]

We've all heard about James Kunstler's work on planning (Geography of Nowhere), but if you swing by his blog (www.kunstler.com) he's also got some pretty knowledable thoughts on the current state of our economy.

This in particular is relevant to those of us who work in the public sector:

"Also meanwhile, public investment funds from Florida to Norway are hemorrhaging because of mortgage-associated derivatives clogging their portfolios. Meanwhile, moreover, credit markets have seized up because those supposedly holding capital can't say how much they really have, and are now terrified of loaning out "money" that might actually not be there, not in accounts receivable, not on or off any books, just... not... there... anymore...."

Do any Cyburbians in Florida have any more direct knowledge about this?

What's more, unless I've missed it, has nobody on this forum been talking about the severe financial crisis staring our country in the face? An article in the Washington Post recently concluded that it will be worse than the 1987 Savings and Loan debacle, and its closing in on 1929 territory. http://www.washingtonpost.com/wp-dyn...0500794&sub=AR

I just feel like we are all sleepwalking into a disaster, one kickstarted by the drop in home prices. The trouble is that the rest of our economy is based on pure speculation that the growth would continue and continue, and housing values would continue to rise, allowing us (individually and nationally) to keep paying off the interest on our staggering debts. But when the values started to drop, and it turned out that failing mortgages and car loans and credit cards had been sold throughout the economy in the form of bonds bought by everyone from the municipalities in Florida and Norway to giants like CitiCorp (who needed an $11 billion loan from Dubai to stay afloat), people are starting to realize that up to 2 TRILLION DOLLARS (that figure is from the Washington Post) of money is pure make believe. Its imaginary. And without the presumption of future growth it no longer exists.

And lets face it--it's not like things were going that great before. The median income is lower than it was in 1999. The dollar is tanking. The price of gas is going up (peak oil?). How can this financial crisis not push our economy into a deep funk?

Pardon my alarmist tone, but I feel that this is a discussion that needs to be had. Another question to answer is: What can planners do to prepare there communities for a recession? I'm in my first job, so personally I've never been through one of these professionally before.

[Wannaplan?]

What can planners do to prepare there communities for a recession?

You've come to the right place! About half of active Cyburbians are from Michigan!

All kidding aside, I think your fears are justified.

[MacheteJames]

We've all heard about James Kunstler's work on planning (Geography of Nowhere), but if you swing by his blog (www.kunstler.com) he's also got some pretty knowledable thoughts on the current state of our economy.

This in particular is relevant to those of us who work in the public sector:

"Also meanwhile, public investment funds from Florida to Norway are hemorrhaging because of mortgage-associated derivatives clogging their portfolios. Meanwhile, moreover, credit markets have seized up because those supposedly holding capital can't say how much they really have, and are now terrified of loaning out "money" that might actually not be there, not in accounts receivable, not on or off any books, just... not... there... anymore...."

Do any Cyburbians in Florida have any more direct knowledge about this?

What's more, unless I've missed it, has nobody on this forum been talking about the severe financial crisis staring our country in the face? An article in the Washington Post recently concluded that it will be worse than the 1987 Savings and Loan debacle, and its closing in on 1929 territory. http://www.washingtonpost.com/wp-dyn...0500794&sub=AR

I just feel like we are all sleepwalking into a disaster, one kickstarted by the drop in home prices. The trouble is that the rest of our economy is based on pure speculation that the growth would continue and continue, and housing values would continue to rise, allowing us (individually and nationally) to keep paying off the interest on our staggering debts. But when the values started to drop, and it turned out that failing mortgages and car loans and credit cards had been sold throughout the economy in the form of bonds bought by everyone from the municipalities in Florida and Norway to giants like CitiCorp (who needed an $11 billion loan from Dubai to stay afloat), people are starting to realize that up to 2 TRILLION DOLLARS (that figure is from the Washington Post) of money is pure make believe. Its imaginary. And without the presumption of future growth it no longer exists.

And lets face it--it's not like things were going that great before. The median income is lower than it was in 1999. The dollar is tanking. The price of gas is going up (peak oil?). How can this financial crisis not push our economy into a deep funk?

Pardon my alarmist tone, but I feel that this is a discussion that needs to be had. Another question to answer is: What can planners do to prepare there communities for a recession? I'm in my first job, so personally I've never been through one of these professionally before.

Personally, I spend a ton of time thinking about this stuff and its inevitable impact on the community that I work in. I think about the perfect storm that is coing down the pike and how everyone is either too wrapped up in day to day minutiae to bother paying attention or too afraid to face it. I think about how I work in a dense, walkable suburb, yet everyone is in the habit of driving - and I wonder how much financial hardship they'll have to suffer as a result of the declining financial viability of private car ownership for the average person. I think of the rail line that is the community's umbilical link to NYC, and how it is located on the Hudson River in a location that is bound to be inundated by flooding as the estuary rises as a result of climate change. I think about the Comp Plan we are working on, and the fact that only thirty people out of 30,000 showed up to the public meeting in which we presented the final plan draft, and what this says about the health of our community and its ability to pull together as things get rougher.

Yeah, I think about this stuff constantly. I can't help but think about it.

[boilerplater]

Having been laid off twice in the past 6 months, I think about it a lot as well. I heard that 2008 is likely to be worse. I'm looking for a goverment job to try to weather it out. I just bought a condo at a greatly reduced price, but now I'm wondering how I'm going to pay for it. Yet I still see plenty of conspicuous consumtion here, plenty of SUVs on the road. I wonder where some people get their money. Many in the housing sector in the Las Vegas valley have lost jobs, and that means they are spending less, or not all besides the basic necssities. That in turn affects other businesses. I'm expecting weeping and gnashing of teeth, more mall shootings, rising crime in general.

[Cardinal]

I am usually a skeptic on the economy. But while I do see us entering a recession in the next year, I think it is wildly of to begin comparing it to 1929. Even a comparison to the 1970's may be out of line. There are five things I see as important in assessing where we are:

1) Housing - It did not take any great skill to determine that the housing market was over-valued. For those who needed a genius to point it out, Alan Greenspan was talking about it three years ago. A recent estimate said that housing values would decline seven percent nationally this coming year, and sixteen percent in California. That is going to hurt a lot of people who bought in the past few years, and particularly those with balloon or subprime adjustable mortgages. It is also going to hurt communities that rely on property taxes to fund government.

2) The Weak Dollar - This is a silver lining. It means we will be buying less from overseas, and hopefully will see some improvement in our trade deficit. It also means that US products are cheaper overseas, so they may end up buying more from us. Perhaps US manufacturers will be less inclined to move jobs to other countries.

3) Our Thirst for Water - I am working on plans for an industrial park that will need 15 million gallons of water every day. This hit me as I looked at articles on the impending water crisis in the Southeast. Some of the region's major cities will be out of water in four to six months if they don't get an amazing piece of luck, and then that is likely to simply push off the crisis rather than prevent it. The southwest is not really all that far behind. Imagine if the water isn't flowing in cities like Athens and Atlanta. Yes, it affects the people directly, but when industries are forced to close and these same thirsty folks lose their jobs, it only gets worse.

4) Government Spending - Our national debt and our state budget trickery will come back to haunt us. We can't continue to finance today based on hopes of future growth that are so wildly out of line with reality. Hand in hand with that, it is about time that we realized that government is not here to solve everyone's problems. You don't deserve special treatment because you are old. Schools are not social service centers and free restaurants for kids as well as places to learn. It is time we pared down and got back to the core of what government is meant to do.

5) Energy - People want to ignore the oil crisis. Other people want to see it in as "end of the word" event. Oil prices will continue to escalate. That will drive more research into alternatives. The ten percent renewables standard for energy production that made such big waves a few years ago now seems overly easy to achieve. Plastics, lubricants, adhesives, and other chemicals derived from plants are rapidly entering the market. Scarce oil will bring change. It won't lead to collapse.

[Michele Zone]

Interesting discussion. Nah, I hadn't thought about it at all. Frankly, it's news to me, in large part because I rarely watch or read the news.

I was at my poorest in The Eighties, when the economy was supposedly so awesome and everyone was supposed to be rolling in dough. I didn't get to take part in that decade-long party. I just got to stare through the window at the party while I froze my arse off outside. And even during The Great Depression, there were sectors of the economy that boomed: second hand stores did well and bicycle sales picked up because you still had to get to work even if you could not afford a car (or public transit or a horse or whatever the issue was). Plus, I have this diagnosis of a "dread disease" where doctors have told me I'm supposed to just get sicker and sicker until I die at a young age. Sorry, no can do, I'm too busy getting well and planning my future -- and other folks who have the same diagnosis are beginning to listen to me and see improvements in their lung function, reduction in their need for digestive enzymes, and so on. So I just can't really swallow the idea that some prediction of doom should rule my life or attitude or keep me up nights.

I think the most intriguing remark I have ever read about economic cycles is the attitude of one man that "When times are tough, people work hard and fix it. Then, during good times, people get lazy and slack off and it deteriorates again." I think that's the most logical explanation for such cycles that I have ever read. Even though I believe in astrology, I don't believe for one minute that there is some mysterious force, which is completely outside of human influence, simply dictating economic ups and downs.

I think another very big factor is kind of what Cardinal alludes to: People get lazily set in their ways and keep doing things the same way even though circumstances have changed. If you more readily adapt to change, change per se does not have to be some horrible crisis. Some folks see such things as opportunities while others won't change until absolutely forced to by circumstances beyond their control (or literally die due to their refusal to change). In my personal observation, the folks who have the hardest lives are the ones who are the most intractably resistant to change. This becomes a very big issue for "the nation" or "the economy" or whatever because of the inertia of a great many people resisting change. Even if you have someone in charge who recognizes the need for change, it may not be possible to get anyone to agree to those changes until it's a big, horrible, freakin' crisis -- i.e. only after it becomes visible to people with less ability to predict such an outcome ahead of time.

Then there's the thing that makes me completely crazy: Sometimes all the preparation in the world doesn't stop you from having to "jump off a cliff" at some point. Sometimes change doesn't cooperate with being managed in the nice, conservative, gradual manner I tend to personally prefer. But if you have a hang-glider or bungee cord, jumping off a cliff doesn't have to be "doom" either. (Not even if, like me, it scares the begeezus out of you and you scream the whole way down. )

[Brocktoon]

I still don't think we will see a recession unless some external shock hits.

There are still more positives than negatives.

The positives
Interest Rates are low and they look like they will get lower. This will further weaken the dollar further increasing US exports. This could create inflation but the core CPI is not making large jumps. Also if the economy slows then inflation should be put into check.Energy costs are still low relative to real income as a percentage of all other consumables. Real incomes are also up.

Companies are still adding jobs, profits are strong (unless you are a home builder), unemployment is low and the stock market is near record territory. Although I think we will see a decline in stocks.

The negatives
The housing market is down in most cities which could cause a damper on cosumer spending. Since sonusmer spending is 75% of the economy a significant drop in housing vlues and the reduction of the "wealth effect" could slow the economy even further. The credit crunch could also lead towards a slow down but as leading tightens up it reduces the chances for inflation.

[Plan-it]

I still don't think we will see a recession unless some external shock hits.

There are still more positives than negatives.

The positives
Interest Rates are low and they look like they will get lower. This will further weaken the dollar further increasing US exports. This could create inflation but the core CPI is not making large jumps. Also if the economy slows then inflation should be put into check.Energy costs are still low relative to real income as a percentage of all other consumables. Real incomes are also up.

Companies are still adding jobs, profits are strong (unless you are a home builder), unemployment is low and the stock market is near record territory. Although I think we will see a decline in stocks.

The negatives
The housing market is down in most cities which could cause a damper on cosumer spending. Since sonusmer spending is 75% of the economy a significant drop in housing vlues and the reduction of the "wealth effect" could slow the economy even further. The credit crunch could also lead towards a slow down but as leading tightens up it reduces the chances for inflation.

I agree with Broctoon. All indicators are showing that economic gorwth may slow over the next year, but it will not result in a negative growth rate. The disclamer about external shocks is appropriate because with reduced economic growth small disturbances in the energy and trading environments can have large impacts on the global economic system due to its volitility.

Food will continue to rise due to the increase in fuel costs. Consumers should continue their trend of temperate spending, due to the increase in commodity prices. Thus, it will be vital for the bunsiness sector to fuel growth with job creation and investment (just as consumers bailed out the business sector during the years of the Enron/World Com scandals). Exports should be up and foreign tourism (especially Europe) should increase due to the weak dollar strong Euro/Pound scenario.

[Captain Worley]

I'm not really that pessimistic. Yeah gas is up, and likely to stay that way for a while. Food is more expensive because of incresed fuel prices and high corn prices due to gasahol (you oughta here the dairy farmers cuss E85). But the housing prices really needed a correction. Outside of the overpriced and overbuilt coastal market. It has remeined steady or rising in SC. Actuually, I JUST heard the interest rates have been cut again.

[boiker]

I am usually a skeptic on the economy. But while I do see us entering a recession in the next year, I think it is wildly of to begin comparing it to 1929. Even a comparison to the 1970's may be out of line. There are five things I see as important in assessing where we are:

1) Housing - It did not take any great skill to determine that the housing market was over-valued. For those who needed a genius to point it out, Alan Greenspan was talking about it three years ago. A recent estimate said that housing values would decline seven percent nationally this coming year, and sixteen percent in California. That is going to hurt a lot of people who bought in the past few years, and particularly those with balloon or subprime adjustable mortgages. It is also going to hurt communities that rely on property taxes to fund government.

2) The Weak Dollar - This is a silver lining. It means we will be buying less from overseas, and hopefully will see some improvement in our trade deficit. It also means that US products are cheaper overseas, so they may end up buying more from us. Perhaps US manufacturers will be less inclined to move jobs to other countries.

3) Our Thirst for Water - I am working on plans for an industrial park that will need 15 million gallons of water every day. This hit me as I looked at articles on the impending water crisis in the Southeast. Some of the region's major cities will be out of water in four to six months if they don't get an amazing piece of luck, and then that is likely to simply push off the crisis rather than prevent it. The southwest is not really all that far behind. Imagine if the water isn't flowing in cities like Athens and Atlanta. Yes, it affects the people directly, but when industries are forced to close and these same thirsty folks lose their jobs, it only gets worse.

4) Government Spending - Our national debt and our state budget trickery will come back to haunt us. We can't continue to finance today based on hopes of future growth that are so wildly out of line with reality. Hand in hand with that, it is about time that we realized that government is not here to solve everyone's problems. You don't deserve special treatment because you are old. Schools are not social service centers and free restaurants for kids as well as places to learn. It is time we pared down and got back to the core of what government is meant to do.

5) Energy - People want to ignore the oil crisis. Other people want to see it in as "end of the word" event. Oil prices will continue to escalate. That will drive more research into alternatives. The ten percent renewables standard for energy production that made such big waves a few years ago now seems overly easy to achieve. Plastics, lubricants, adhesives, and other chemicals derived from plants are rapidly entering the market. Scarce oil will bring change. It won't lead to collapse.

I'd like to build on some of your comments.

THe housing bubble popping is causing credit to dry up, which has been paying for our recent economic expansion. With bankruptcy law reform, the ability to get debt forgiveness just got 10 times harder for many millions of two-income families.

WIth the elimination of easy credit and the ever lowering interest rate, and the fed flooding market with dollars, it's of little surprise to see the dollar loosing it's dominance. You can attribute 20% or more of the price of oil to the devaluing dollar. Oil is very important to the health of our economy... and even with us producing cheaper exports, we export so little that the other issues with the economy prevent any stagnation or expansion.

I am very pessimistic of 2008

[raster calculator]

Has anybody ever had an experience where you feel like everything is pointing in a certain direction, but then when you try to explain it to anyone else you realize to them it kinda sounds like some crazy conspiracy theory?

Thats where I'm at with Peak Oil. This is the theory that global oil production has peaked or will soon peak, leading to an extreme rise in oil prices. If you look at a graph of world oil production, you see that it has flatlined.

Peak Oil scares the bejeezus out of me, seems extraordinarily plausible, and yet no one is really talking about it. In his post, Cardinal addressed Energy Issues and concluded that it will be a soft landing into alternative energy. I at times also believe this and would certainly LIKE to believe this for both personal and professional reasons (if it gets real bad there ain't gonna be anything to plan). But there is disturbing evidence that the worst case scenario may be much worse than this. A couple of facts:

1. In the 1970s a mere 5% reduction in oil production resulted in a tripling in oil prices, shortages at the pump and high inflation. This scenario would repeat itself under Peak Oil, except it would be much worse due to the fact that oil traders, realizing that oil production is going down for good, would bid up prices even higher and begin to exhibit hoarding behavior. This is what happens when a commodity becomes scarce.

2. Alternative energy offers some promising opportunities, but right now it falls woefully short in integrating itself into the agricultural, industrial, transportation, and production systems that are all dependant on cheap and plentiful oil. And we are a long way from reaching 10% alternative energy.

Whether Peak Oil has already happened or will happen 25 years down the road, it is clear to me that the effects will be dire. I have begun to think of fossil fuels as the equivalent of the "spice" in the "Dune" novels. Its been the power behind the rise of living standards since the Industrial Revolution, and without it the fundamental basis of our economy and civilization will have to be altered.

This is a good place to start to learn more: www.lifeaftertheoilcrash.net
This website was even quoted from by Congressman Bartlett from Maryland in a speech to Congress.

The upshot for planners in my opinion is that energy efficiency and incentives for alternative energy ought to be at the top of the priority list, from the local level to the national level. And people need to be educated as to what Peak Oil actually is and what it means.

[Michele Zone]

Has anybody ever had an experience where you feel like everything is pointing in a certain direction, but then when you try to explain it to anyone else you realize to them it kinda sounds like some crazy conspiracy theory?

I have been writing in this forum about Peak Oil for some time. Eventually, others began talking about it as well. You can search it, if you want to see some of what I have written before.

I am sure Peak Oil will make a big impact. However, "the shallow end of the pond empties first" (people give up pet rocks and restaurant meals across town before they give up groceries and other basics). So I am somewhat less worried about that than many people. I am somewhat more concerned about what Cardinal touched on briefly: water scarcity. I have read a few things that say the next wars will not be about oil but about water. People can change their lifestyle to live without oil. But no one can live without water. So if we don't start making lifestyle changes now to get that issue somewhat under control, water shortages are likely to have much uglier consequences than any oil shortage. You can die in as little as 2 days from lack of water. Details like that are likely to make battles over water really harsh and desperate.

[Cardinal]

...You can die in as little as 2 days from lack of water. Details like that are likely to make battles over water really harsh and desperate.

But also very short.

Imagine this situation. Reservoirs in the southeast are already historically low. We have a dry winter and there is little increase in thier levels before we enter the even-drier months of summer. Hydropower is affected, and the summer brings power shortages coupled with severe water use restrictions (no watering, no car washing, no pools, etc.). Water levels in reservoirs in the southeast pass critical levels over the summer. Some cities begin to run out of water. Industries that rely on water (Coca-Cola, for instance?) shut down. The guvmint steps in with tankers of water, but soon, thousands of southerners are unemployed, thirsty, hot, and smellier than usual. Some people may want to leave, but there is nobody to buy their homes. The same is true for businesses. Foreclosures go up. Spending drops off. Investment comes to a halt.

The failure of southeastern states and cities to plan for their water needs may be the tipping point for our economy in the next 6 to 8 months.

[mendelman]

Good thing I live next to the largest reservior of fresh surface water (Great Lakes, I love you.)

[Michele Zone]

But also very short.

Unlike most of my posts.

Does anybody know how much The South relies on hydroelectric? That's kind of scary, thinking that a water shortage could also mean a power shortage on top of it all.

Another reason to wish I didn't live here.

[Luca]

There is little reason to believe that the US economy faces some sort of permanent / significant / sharp slow-down in per-capita GDP growth or even absolute GDP growth.

There is now a high probability of 3-9 quarters of slower growth and a decent probability of 2-4 quarters of actual recession.

For now, the labor market and income growth (albeit they are lagging indicators) remain strong, on a national basis.

Corporates and the Govt. would go into a recession with a lower debt/income ratio than in previous (recent) ones. The big debt threat, of course, is on the consumer side, especially as a lot of assets (housing, stocks) will likely suffer fresh price decreases

On the weak US$: it will tend to push inflation a little higher but also deflate US public and private debt. It ha already provided a boost to US exports with a lot of the benefit probably accruing in 2008 due to ‘menu cost’ factors

The biggest unknown is the health of the banking system's capital base / credit cycle operationality (what we used to called money velocity)

[Plan-it]

Unlike most of my posts.

Does anybody know how much The South relies on hydroelectric? That's kind of scary, thinking that a water shortage could also mean a power shortage on top of it all.

Another reason to wish I didn't live here.

Most of the plants in the south east are either coal burning, nuclear (South Carolina), or natural gas (recent trend in SE is to convert from coal burning to natural gas burning) plants. They still need water to cool the equipment to keep the eqiopment from overheating. That is why the water is important for energy generation. The flows on the Chattahoochee River and Etowah River are two of the main watering sources for electricity generation in the Alabama Southern Company power plants.

[Michele Zone]

Most of the plants in the south east are either coal burning, nuclear (South Carolina), or natural gas (recent trend in SE is to convert from coal burning to natural gas burning) plants. They still need water to cool the equipment to keep the eqiopment from overheating. That is why the water is important for energy generation. The flows on the Chattahoochee River and Etowah River are two of the main watering sources for electricity generation in the Alabama Southern Company power plants.

Thanks. Though, that's a surprise to me. I saw a map some years ago which showed (I think) the highest concentration of coal burning plants in the Northeastern U.S., and also showed the concentration/distribution of all that sulfurous smoke in the region. Sulfur allergies run in the family. Many years ago, my sister became extremely ill (and I think was in real danger of dying at one point) when her job took her to Ohio for a few months. Now you have me curious.

We need to just go solar. Seriously. (And wind counts. It's like "secondary solar". )