July 15, 2009

The Stupid Peter Boockvar

While I like MillerTabak for the most part, I do not like Peter Boockvar. Peter LOVES going on TV to talk about, well, economics and his take on the course we're on. I saw him on Bloomberg this afternoon talking about 'how the economy has to deleverage' which is essentially the same thing he's been saying since before the TARP was put into place.

This afternoon Peter brought up consumer refinancing at lower rates which the Fed and government programs have made possible. Peter doesn't think this does much good because he thinks the debt should be, in a word he's fond of using, extinguished. The mechanism to bring this about remains a mystery as does what Peter expects Americans to do while this delevering is ongoing since it will cause explosive deflation with a concomitant depression (assets decrease in value along with goods and services meaning businesses run constantly in the red and the workforce contracts... basically, the Great Depression on steroids. With an HGH booster).

Here's the thing... whether you are paying off or refinancing debt, you are increasing your disposable income. In this environment, it keeps the consumer basis of the economy from falling off a cliff and increases savings. Savings that, in effect, delevers consumer balance sheets without having to liquidate assets or cause a panic. Employment, while diminished, doesn't implode. Neither do prices for goods and services as everyone is given some breathing room. As banks regain confidence in the performance of their books, and investors in the performance of asset backed securities, credit for expansion becomes available again and asset prices start to increase which in turn takes even more pressure off consumer balance sheets.

The caveat to all this is that income is also dropping which, even with refinancing, puts pressure on the ability of save or spend. However, the rate of decline in consumer spending has decelerated and the savings rate is much higher than the loss in incomes.

What we're going to see next is a pickup in hiring as manufacturers gear up to meet decreased demand (sounds stupid but our demand right now for many items outstrips production. Prices haven't gone up because we have inventories still to sell... that reverses around August). As those workers come back on, they'll start spending again, further driving the economy. In the end, it all comes back to normal over the next two to three years. We would nominally increase GDP to pre-recession levels quickly but we won't this time because of ... the very delevering that Boockvar says is so essential.

I think it's going to be 2011 before we return to 2007 levels of GDP. However, it's going to be a more productive economy with a much stronger balance sheet. But, I'm sure, Boockvar will still find something he doesn't like in it.


Posted by mcblogger at July 15, 2009 03:12 PM

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