November 6, 2007

The "R" Word

Recession. We'll be lucky to simply have a recession.

Those who were old enough in the late 1970s and 80s remember Japan. So smart, selling high quality small cars while the US auto makers kept selling huge gas guzzlers. Japan had so much money pouring in that it was buying up US real estate and business icons.

You haven't heard a lot about Japan since then. That's because they've been in a "Japanese-style economic stagnation, which eventually evolved into a deflationary recession." Japan has been in this condition for well over a decade.

Before it's fall from grace, Japan had a trade surplus. Japan was, and remains, a power house auto maker. The US is neither. It has outsourced blue and white collar jobs that are not coming back, has a historic level of debt held by Japan, China, Saudi Arabia and other foreign countries, and is on the brink of expanding its military adventures beyond the Iraq quagmire into Iran. In other words, a "fall from grace" of historic proportions has been teed up for the United States. It reminds one of the saying, "The bigger they are, the harder they fall."

At a Reuters Finance Summit in New York, James Dunne, chief executive of Sandler O'Neil & Partners, said:

I think that the risk of a recession is greater than people realize.

Howard Lutnick, CEO of Cantor Fitzgerald company of 9/11 notoriety agreed:

I think there is a serious risk to the economy.

Former Federal Reserve Chairman Alan Greenspan thinks there is a one-in-three chance of a recession in the near future.

John Duffy, chairman and CEO of Keefe, Bruyette & Woods, gave a more colorful answer when asked where the U.S. economy is headed over the next year or so:

In the toilet.

Returning to the point I've raised above, the question is not whether we're going to have a recession, but how severe. Charles Peabody, partner at New York-based research firm Portales Partners LLC raised the reference to the "Japan-style" melt down and said:

We're moving into a recession, and over time -- the length of which is difficult to predict.


Reuters, Wall Street firms see recession nearing, John Poirier, November 6, 2007.

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