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Paul Krugman predicts trouble...again
Posted by: Jon Henke on Tuesday, December 05, 2006

In a recent New York Times column (text here), Paul Krugman predicted a recession in the near future.
Right now, statistical models based on the historical correlation between interest rates and recessions give roughly even odds that we're about to experience a formal recession. And since even a slowdown that doesn't formally qualify as a recession can lead to a sharp rise in unemployment, the odds are very good — maybe 2-1 — that 2007 will be a very tough year.
in a development that should surprise absolutely nobody, economists disagree Larry Kudlow responds, arguing that other economic indicators point away from impending slowdown. So, in a development that should surprise absolutely nobody, economists disagree.

I won't argue that there's no recession coming. The economic cycle has not been repealed — there's always a recession coming.

For example, for some time now foreign purchase of US securities has led to interest rates lower than perhaps the money supply and output would justify. (reflected in much higher asset prices) What happens if our massive twin deficits are no longer covered by foreign purchase of US securities. We'd seen significant inflation and much higher interest rates. If the Fed is obligated to control spiraling inflation, and security prices are reduced (i.e., interest rates go up), then we're going to experience some major discomfort.

But maybe that won't happen soon, or maybe it won't happen at all. It's hard to tell. That doesn't prevent economists from predicting booms and busts on a regular basis, though. For instance, consider the recent record of Paul Krugman.
  • "right now it looks as if the economy is stalling..." — Paul Krugman, Sept. 20th, 2002

  • "We have a sluggish economy, which is, for all practical purposes, in recession..." — Paul Krugman, May 29th, 2003

  • "An oil-driven recession does not look at all far-fetched." — Paul Krugman, May 14th, 2004

  • "a mild form of stagflation - rising inflation in an economy still well short of full employment - has already arrived." — Paul Krugman, April 18th, 2005

  • "If housing prices actually started falling, we'd be looking at [an economy pushed] right back into recession. That's why it's so ominous to see signs that America's housing market ... is approaching the final, feverish stages of a speculative bubble." — Paul Krugman, May 27th, 2005

Will Krugman be right about a looming recession in 2007. Well, eventually, he has to be right.
 
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Looks like the recession will be the Democrats fault....

:)
 
Written By: shark
URL: http://
The Sky is Falling! The Sky is Falling!

Yawn.
 
Written By: SShiell
URL: http://
Krugman has a great track record, he has predicted 11 of the last 6 recessions.

Cap

 
Written By: CaptinSarcastic
URL: http://
Impressive achievement. That would mean he predicted a recession at the age of 16!
 
Written By: Jon Henke
URL: http://QandO.net
very funny cap!
 
Written By: Unknown
URL: http://
No one expects the SPANISH INQUISITION!!!!

Except Krugman.
 
Written By: meagain
URL: http://
There is only one safe prediction: That Krugman will predict a recession.
 
Written By: the wolf
URL: http://gabbleratchet.blogspot.com
Good reason to expect one now: 1) housing market cooling, meaning less consumer spending as already there is record low levels of equity in homes owned; 2) Walmart posting first sales loss in over a decade, and predicting small growth next month; 3) the dollar reaching record lows, now $1.33 to buy a Euro — this is making my life difficult as I’m leading a group of 45 students to Italy next month; and 4) continuing high current accounts deficits, which have been at untenable levels for some time.

Things to watch for: if a recession begins or the dollar continues to fall, pressure will be on OPEC to sell oil in Euros. There could be a capital shift from the US to other locations. It may not be as bad as some predict, but there is cause for concern. If oil prices rise again, that will only make things more difficult.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
It may not be as bad as some predict, but there is cause for concern. If oil prices rise again, that will only make things more difficult.
Or not....
 
Written By: Joe
URL: http://
If oil prices rise again, that will only make things more difficult.
Hmmmm, let’s give it some thought.

Oil, this summer, barely reached the all time high marker per barrel (in inflation adjusted dollars). In other words, it didn’t get any higher than the worst it ever was during the stagflation, price controls and regulations that finally ended under Reagan.

Energy, as a whole, including oil, constitutes a significantly smaller portion of household spending now than it did in 1982. Thus, prices need to rise much higher than they did in 1982 to have the same impact on our economy.

Rising oil prices drive the market to build refineries, drive less, use less electricity, buy more fuel efficient cars. This is a nifty feedback cycle that corrects for the economic disruption of high oil prices.

Hmmmm, okay, thought about it. Oil prices certainly didn’t set off the end of the world as we know it this year, contrary to the predictions of Krugman and his ilk. Pretty sure that they won’t do it next time they go up either. What I am sure of is that someone will claim that the end is nigh the next time oil prices go up. Or down, for that matter.
 
Written By: Adam Selene
URL: http://www.thelibertypapers.org/
Krugman: If there is a recession in the next two years, its Bush’s fault, if there isnt, it’s due to the heroic efforts of Congress.
 
Written By: bains
URL: http://
From a statistical perspective this is, in my mildly educated opinion, a vague analysis at best.

Analyzing historical patterns is interesting, but it is a common fallacy to believe that what happend in the past will happen in the future. This is why forecasting is an imprecise art, relationship that held true in the past may not necessarily hold true for the future.

And while I obviously value statistics, I think a completely statistical model would be the least likely to accurately predict a future recession. A statistical model based only on the correlation between interest rates and recessions is especially weak because it fails to take into account other economic conditions that might mitigate the effects of interest rates.

Sounds like he’s guessing to me, but even journalists guess right some of the time.
 
Written By: Shinobi
URL: http://liesandstatistics.blogspot.com
First, Krugman didn’t predict a recession. He says it’s 50-50.

Second, both Krugman and Kudlow can be partially right. Equity prices can continue to increase, corporate profits can continue to increase, inflation can continue to mildly increase, and wages for the bottom 50% can stagnate or decline in real terms.
 
Written By: Steven Donegal
URL: http://
Energy, as a whole, including oil, constitutes a significantly smaller portion of household spending now than it did in 1982. Thus, prices need to rise much higher than they did in 1982 to have the same impact on our economy.

Rising oil prices drive the market to build refineries, drive less, use less electricity, buy more fuel efficient cars. This is a nifty feedback cycle that corrects for the economic disruption of high oil prices.

Hmmmm, okay, thought about it. Oil prices certainly didn’t set off the end of the world as we know it this year, contrary to the predictions of Krugman and his ilk. Pretty sure that they won’t do it next time they go up either. What I am sure of is that someone will claim that the end is nigh the next time oil prices go up. Or down, for that matter.
It takes a higher price increase, but the inelastic nature of oil demand means that if there is a shortfall price will have to rise significantly to allow supply and demand to coincide. Last year Americans drove less for the first time in a long time, Walmart has lower sales due to higher fuel prices, and Americans have shifted away from big SUVs, which is having a negative impact on American car makers. Look at it this way, higher oil prices function like a tax — they take money that otherwise would be spent elsewhere in the economy. At some level a higher tax rate pushes an economy into stagnation. At some level, higher oil prices will too.

Remember: we did have energy crises in 1974 and 1979; I doubt very much we’re immune to that possibility.
 
Written By: Scott Erb
URL: http://faculty.umf.maine.edu/~erb/blog.htm
Big surprise, since Krugman has accurately predicted seven of the last two recessions.
 
Written By: Jeff Medcalf
URL: http://www.caerdroia.org/blog
Remember: we did have energy crises in 1974 and 1979; I doubt very much we’re immune to that possibility.
If you re-read what I said, I never said rising oil prices wouldn’t cause economic problems. I did say that the current level is not going to have the same economic impact as the spikes of 74, 79 and 82.
 
Written By: Adam Selene
URL: http://www.thelibertypapers.org/
So, in a development that should surprise absolutely nobody, economists disagree.
The difference between economists and meteorologists is that the meteorologists can agree what the weather was like yesterday.
 
Written By: Phil Smith
URL: http://

 
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