Bernanke vs. Roubini

Inquiring minds are really trying to keep a certain…decorum. Gallows laughter comes so easy. But this is just such low hanging fruit!

The unemployment number was very troubling and a big surprise (up from 9.6 percent to 9.8 percent). And economists who decide such things have been saying the recession ended way back in 2009. Yet, people are asking, “Where is the recovery?”

Enter our intrepid economic leader, Fed Chairman Ben Bernanke giving an interview to CBSNews:

Chairman Ben Bernanke: The unemployment rate is just not going down. Unemployment is just about the same as it was in mid-2009, when the economy started growing. So, that’s a major concern. And it looks that at current rates, that it may take some years before the unemployment rate is back down to more normal levels.

Scott Pelley: We lost about eight million jobs from the peak. And I wonder how many years you think it will be before we get all those jobs back?

Bernanke: Well, you’re absolutely right. Between the peak and the end of last year, we lost eight and a half million jobs. We’ve only gotten about a million of them back so far. And that doesn’t even account the new people coming into the labor force. At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate. Somewhere in the vicinity of say five or six percent.

But what he said next was probably even more troubling. That more than 40 percent of the unemployed have been without jobs for six months or more which is unusually high.

It was when he said the following where ‘real’ controversy began:

Bernanke: It doesn’t seem likely that we’ll have a double dip recession. And that’s because, among other things, some of the most cyclical parts of the economy, like housing, for example, are already very weak. And they can’t get much weaker.[SC editor’s bolding] And so another decline is relatively unlikely. Now, that being said, I think a very high unemployment rate for a protracted period of time, which makes consumers, households less confident, more worried about the future, I think that’s the primary source of risk that we might have another slowdown in the economy.

Not exactly what esteemed economist, Nouriel Roubini thinks. He says he’s increasingly worried about America’s real estate mess because the country’s real estate problems are “underappreciated”. Mr. Roubini added that banks could face another $1 trillion in housing-related losses.

The drumbeat of bad news grows louder. Sales of existing homes fell more than expected in October, down 2.2 percent to an annual rate of 4.43 million, the lowest level in more than a decade, according to the National Association of Realtors. After rising in the second quarter, Standard & Poor’s Case-Schiller home price index fell 2 percent in the third quarter.

Meanwhile the trouble is spreading across all types of borrowers, as even the most creditworthy show increasing weakness. The Mortgage Bankers Association recently announced that foreclosure starts for prime fixed-rate mortgages rose to a record high of 0.93 percent in the third quarter.

Mr. Roubini said he was particularly focused on a recent study by Laurie Goodman, a senior managing director of Amherst Securities and a former co-head of fixed income research for UBS. In her October report, “The Housing Crisis — Sizing the Problem, Proposing Solutions,” Ms. Goodman comes to the dark conclusion that more than 11 million borrowers are in danger of losing their homes, or roughly one out of five borrowers.

What is so interesting about this last statistic is that it is incredibly close to what the number one real estate investment guru in California has been saying for at least 4 years. Bruce Norris, The Norris Group, has called the California real estate market perfectly for almost the last 30 years. He has correctly predicted both up markets and down. Since his prediction of this downturn in 2004, Mr. Norris has been consistently forecasting a foreclosure rate of about 17.5 percent and calling it “Financial Armageddon”.

To get a true sense of just how bad this would be, remember that until this downturn, the early 90’s had the worst foreclosure rate of all time…at 6 percent.

We are talking triple that.

But, hey, Mr. Bernanke doesn’t see housing getting much weaker.


One Response

  1. […] it seem as if it were only yesterday that Ben Bernanke was saying on this very page in “Bernanke vs. Roubini“: Bernanke: It doesn’t seem likely that we’ll have a double dip recession. And […]

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