Skewering Muppets

Jan Hatzius of Goldman Sachs is calling a major recovery after 2013:

What can we expect in coming years? If our estimates and assumptions are correct, 2013 is likely to be a more extreme version of 2010-2012, with a bigger positive private sector impulse that is offset by a bigger negative public sector impulse but still leaves growth around trend. But we expect the net impulse to turn positive in subsequent years, assuming that 2013 marks the peak rate of fiscal contraction. By 2014-2015, the decline in the ex ante private sector balance should be contributing around 11⁄2 percentage points to the overall growth impulse, but we currently assume that fiscal policy will subtract only 1⁄2- 1 percentage point, for a net impulse of 1⁄2-1 point. This ought to be a recipe for clearly above-trend growth.

His forecast looks like this:


His model is one of sectoral balances.


He writes:

…an update of our financial balances model suggests that growth is likely to improve starting in the second half of 2013. Homebuilding looks set to recover strongly, the corporate sector should start to spend a larger share of its cash flow, and the personal saving rate will probably edge down a little further.

In very simple language, Hatzius is forecasting a recovery because he believes that the current trend is away from private sector deleveraging toward releveraging.

This approach is deeply, deeply flawed. Why? Total debt as a percentage of GDP is still ridiculously elevated. There has been very little deleveraging in total:


How can the private sector releverage from here? The costs of a high debt load make growth very difficult, as Irving Fisher and later Hyman Minsky showed. This huge outgrowth of debt is totally unsustainable. It has taken trillions of quantitative easing and bailouts to just sustain the present bloated debt load. And Hatzius’ model is predicting that we will soon be growing from taking on more?

This is transparent bullshit (unless you’re either a sucker or a shill), and I am sure Goldman’s traders will reap great reward betting against this advice just as they reaped great reward betting against worthless subprime junk last time round (another reason why banks that trade should never be in the business of advising clients, but that absurd conflict of interest is another story for another day). Win on the way up, win on the way down, and take a bailout if you lose.

The economy is stuck in a Catch-22. The high debt load is strangling growth, but growth is the one thing that can significantly reduce the size of the debt load. Right now, we are experiencing a slow deleveraging of a fragile economy as opposed to the quick and brutal deleveraging we would have seen had the market been allowed to clear in 2008.

There will be no return to the kind of debt-driven growth Hatzius is forecasting before the unsustainable debt is either liquidated, forgiven or (hyper-)inflated away. Until then, it is Japan all the way for America.

41 thoughts on “Skewering Muppets

  1. The whole system needs a reset, but cannot do so until it collapses because the powers that be cannot allow their egos to be wrong in their assumptions of endless fiat.

  2. John,

    Think like a CEO. Do you spend liquid assets on Capital assets, Marketing, and new staff?

    How much cash is in liquid assets for the SP500? Do you have access to a Bloomberg Terminal?

    I kind of agree with Goldman. Governments are winding back the spend, so the G in GDP is replaced with the I (Business Confidence) and C (New employees and higher wages-with a propensity to spend more and save less)

    If Politicians use their collective heads and come to some agreement, work on a longer plan for the USA, and do not penalise innovation and investment with regulation with unintended consequences, then I think the CEO’s of the SP500, NASADAQ and DOW components with release their purse strings.

    I am waiting on the Fiscal cliff outcome to determine my Investment/spending plans. With ZIRP, the rocket under the market could be immense. Remember 80% are employed with very good income. Most of the 20% unemployed have limited spending power when they are employed. They are usually employed when production is so high, their inefficiency (lack of skills, motivation, attitude, people skills etc-which gets them fired when times are tough) is paid for with high profits.

    • Today a poll of optimism/pessimism of (US) small business owners was released. It showed that they were the most PESSimistic of any time since the 2008 collapse. Remember — it’s small business that creates new jobs!

      Deja vue, sort of. It was politicians (Democrats, esp. Dodd & Frank) and Fannie/Freddie management (Democratic appointees) who trashed the markets with sub-prime fraud in 2006-8; it is Democratic Obamacare, regulation, tax plans, and “fiscal cliff” politics that threaten now. The only question is: are Obama et al stupid, or do they WANT to destroy free enterprise?

      • I agree small business has been the largest employer, but I assumed they are tapped out with all the competition from the big players, regulation, Obamacare etc, that they have no capacity to expand. Banks are not lending as aggressively as they used to so it would be difficult for small business to borrow.

        Basle 3 is making it hard for banks to lend.

      • Don Guier – both political parties (Democrats and Republicans) are one and the same. When you only go after Democrats, you lose me. They are both controlled by F.I.R.E. All central banks are controlled by the financial elites.

        I read a report a few years ago that said: NO program ever comes into being UNLESS it benefits the financial elite. If it doesn’t benefit them handsomely (forget about the people – it wasn’t brought in for them), it doesn’t see the light of day.

        Follow the money, Don Guier. Who made the money on the programs you listed?

        • I don’t “ONLY go after Democrats”, as this and other Azizonomics threads clearly show. But CURRENTLY the US government is firmly in the hands of a radicalized (“redistributionist”, anti-Judeo-Christian culture, anti-democracy, anti-white racist, criminally corrupt) Democratic Party regime. Most* current Washington Republican politicians are weak, self-serving, and complicit in the Democrats’ destruction of our Constitutional republic.

          Both parties are bad. Two-party government is bad. Overpaid, over-privileged and under-watched elected officials/political appointees/bureaucrats are bad. Any government (force, monopoly) beyond the absolute minimum necessary is bad.

          The Democratic Party is for bigger government. Republicans are for smaller government, except for their special interests. Though they share many faults, the two parties are NOT “one and the same”! Why do you think Libertarians/tea party candidates and elected officials, our hope for the future, choose Republican primaries and congressional leadership?

          Since before most of you posters were born, I have “preached”: Republican politics are bad; Democratic politics are worse! Bi-partisan is NOT non-partisan! It’s Washington D.C. VERSUS the people!

          * “Tea party”/Libertarian members and few others are exceptions.

    • “Remember 80% are employed with very good income.”

      BR, you may be a little out of touch. 99% are scared shit. Most people’s incomes are falling; their real incomes are being decimated. Hardly anybody can save anything, and if they do, they only get .01% on their mm accounts. Those “forced” to gamble in the casino are not exactly secure.

      Also, keep in mind that many people who are on all the government benefit programs are doing better than the people actually making what used to be thought as a decent income.

      • That would be an interesting statistic:

        “If you are employed full time, how confident you will have your job in 3 months. 6 months 12 months 5 years.”

        “How does job security rank in importance when making a large spending purchase?”

  3. Aziz: I demur on macroeconomic forecasting. But here are a couple of guys with credentials who seem to agree with you: Jeremy Grantham “suggests that the growth of US GDP will be less than 1% over the next 18 (repeat 18) years.” John Mauldin, who quoted Grantham above, writes “I would be happy with 2%”.

    • GDP is an absurd measure of economic growth. It’s like saying that the average price of a house in ‘x’ country is ‘y’ currency units. What does this mean?

      If only .01% are getting a great deal of it, what’s the difference?

      The important matter is who is getting what.

  4. Since 1948, the selection of members of the Nobel Committee has been delegated from the Parliament of Norway (against what Nobel prescribed) to the major political parties in Norway. On December 10, 2011, a leader of the Nobel Family Association for 15 years, Michael Nobel, supported the criticism voiced by Heffermehl, warning that Norwegian politicians may lose their independent control of the peace prize

    Nothing pays like selling a good crime story, and a good crime story always has the bad guy loosing out in the end, so buy love and sell fear and watch as legal frameworks across the West gradually inverse themselves to better secure your private property rights for the benefit of all. The institutional and retail demand to secure said rights is overriding because without them nobody could function in the type of lawless society that would otherwise result, and new generations desire civilization. Western Welfare States will collapse like Communism did but that’s okay, because we’re one step ahead thanks to the high frequency trading that has produced a black hole which Bitcoin, or some other derivative thereof, is now emerging from. The old paradigm is now obsolete like a mini disc, which many people did not even know about.

    The most powerful forces amongst humans are ideas, and the most powerful idea is love.

  5. Ask yourself, if democracy is so good why not employ a mass vote for the Supreme Court? To say, “because Judges must be smart and not be promoted based mainly on popular opinion, but according to their own intellectual nuance and how well they can therefore supply demand to people requiring Law” …would then be to say that you therefore are content with politicians who are not nuanced or intelligent. It simply makes no sense.

    Private law in some instances already predominates amongst corporations ( – conflicting businesses often voluntarily agree to courts that are more favourable to free market-esque thinking, while shopping about for legal jurisdictions is very common place) – why shouldn’t the folks on the street have access to similar degrees of flexibility? Democracy is great, so long as it does not involve the application of unwanted force outside of a court of law to a person who has not initiated the application of unwanted force onto yourself to begin with.

  6. Alan Greenspan and his ilk, is and are, quite literally, the most base form of criminal scum that I’ve ever had to witness in my 45 years on this godforsaken globe.

    There is one and only one “solution” to both the American and the entire Global problem of the thorough “financialization” of the Kleptocratic, Corporate-owned and Corporate-Run [Corporate Takeover] Fascist Dictatorships that have enthroned themselves to power. Here it is:

    Absolutely NOTHING will “change,” much LESS get “better” until AND unless THAT happens. Indeed, if the CRIMINALS are ALLOWED to continue to PLUNDER, it will, in FACT, only get WORSE. MUCH WORSE.

    ALL criminals involved in these monstrous, reprehensible, PATHOLOGICAL financial CRIMES, which were clearly, totally and willfully collaborated as a gigantic Scheme to Defraud and totally BILK the very citizens of this, our country, the United States, and, um, the entire world, MUST PAY.

    Each one of these Criminals must be Indicted, Prosecuted to the fullest extent of THE NEW LAWS, (all of which will be made retroactive) and, finally, actually PUNISHED SEVERELY; Let me be perfectly clear: Each CRIMINAL that is found GUILTY in the Courts of Law, whether by a judicious Judge or by a Jury of his/her “peers,” shall be held fully accountable for their [blatant] CRIMES, and penalties will surely entail STIFF terms of imprisonment, along with the lawful SEIZURE of ALL ill-gotten gains.

    We all know, for example, that George Bush, Dick Cheney…that list goes on and on; And let’s not forget Jamie Dimon, Lloyd Blankfein, Richard Fuld, Hank Paulson, Larry Sommers, Timothy Geithner, Alan Greenspan; And an astonishingly dizzying and countless number of all the other CRIMINALS; All should be on the TOP of the list for the vigorous investigations and thorough prosecutions and then PRISON FOR LIFE.

    Make no mistake, We MUST HOLD each of these thoroughly Monstrous, pathological Serial FELONS/PREDATORS/Criminals FULLY ACCOUNTABLE for their outrageous crimes of Fraud, Scheme to Defraud, Financial Elder Abuse, and countless other very serious Felonies. If we don’t, then good riddance anyway to everyone.

    In fact, every last one of these filthy criminals should be publicly EXECUTED by HANGING; In FACT, I will VOLUNTEER.

    • Agreed. These type “A” personality types, pathological liars, must be restrained from having any influence via the Democratic process. To be eligible to run for Government, or a CEO position they must pass certain “psychological” tests.

      A fish rots from the head, so to speak.

    • Update: In addition to Goldman Sachs alumni in US government (Paulson and Geithner on your list plus Rubin), they currently head the central bank of the EU and the UK and the governments of Italy and Greece.

      Bias: In addition to Rubin, you omit Democrats in Washington, the worst co-conspirators with banksters, including Clintons, Obama, Dodd, Frank.

      • Democrats (and their historical antecedents the Lincoln Republicans) have a long track record of claiming to be tough on the banks while filling administrations with bankers.

        • Aziz: A brief historical review of the Penn. Ave.-Wall St. axis would be most interesting. Your comment suggests the hindsight-discredited FDR (and Hoover) administrations. On the other hand, the 1921-? Mellon era included quick recovery from the post-WW1 recession, followed by prosperity with unemployment reaching 1% in 1926(?). [Was there a Mellon bubble bursting in 1929?]

    • Christina – you are so correct! The problem is that these same people you mention are the ones who hire the lobbyists, and the lobbyists essentially write the laws that Congress passes. THEY write the laws, and if there’s something that wasn’t covered, they write them retroactively. They have control of the law-makers (Congress) and they buy them with campaign donations. If the lawmakers don’t move fast enough, they just appoint puppet leaders (as they’ve done in Europe).

      They have a stranglehold on the world.

  7. “The problem is, of course, that not only is economics bankrupt but it has
    always been nothing more than politics in disguise… economics is a form of
    brain damage.”
    ~ Hazel Henderson

    The destruction of the natural world is not the result of global capitalism,
    industrialisation, ‘Western civilisation’ or any flaw in human institutions.
    It is a consequence of the evolutionary success of an exceptionally
    rapacious primate. Throughout all of history and prehistory, human advance
    has coincided with ecological devastation.
    ~ John Gray, Straw Dogs

    “Democracy cannot survive overpopulation. Human dignity cannot survive it.
    Convenience and decency cannot survive it. As you put more and more people
    onto the world, the value of life not only declines, it disappears. It
    doesn’t matter if someone dies. The more people there are, the less one
    individual matters.”
    ~ Isaac Asimov

    “Only two things are infinite, the universe and human stupidity, and I’m not
    so sure about the former.”
    ~ Albert Einstein

    “How we dare even prate about democracy is beyond me. Our form of democracy
    is bribery, on the highest scale. It’s far worse than anything that occurred
    in the Roman empire, until the praetorian guard started to sell the
    principate. We’re not a democracy, and we have absolutely nothing to give
    the world in the way of political ideas or political arrangements. God
    knows, the mention of justice is like a clove of garlic to Count Dracula.”
    ~ Gore Vidal

    “The kind of growth Western culture has experienced over the past three
    hundred years would be considered a sign of gross malfunction in any other
    context. Healthy growth is paced differently – it does not absorb or destroy
    everything living around it. It is cancerous cells that grow and reproduce
    rapidly in total disregard of their connection with surrounding cells. From
    this viewpoint technology would have to be regarded as a cancer on human
    culture, Western culture as a cancer on the human species, and the human
    species as a cancer on terrestrial life – a cancer that may in the end be
    treated by radiation and radical surgery at the same time.”
    ~ Philip Slater, Earthwalk, 1974

    “To most of us nothing is so invisible as an unpleasant truth. Though it is
    held before our eyes, pushed under our noses, rammed down our throats – we
    know it not.”
    ~ Eric Hoffer

    “When all the trees have been cut down, when all the animals have been
    hunted, when all the waters are polluted, when all the air is unsafe to
    breathe, only then will you discover you cannot eat money.”
    ~ Cree prophecy

    “We stand today at a crossroads: One path leads to despair and utter
    hopelessness. The other leads to total extinction. Let us hope we have the
    wisdom to make the right choice.”
    ~ Woody Allen

    “…a society driven mainly by selfish individualism has all the potential
    for sustainability of a collection of angry scorpions in a bottle.”
    ~ David Ehrenfeld

    Not only will men of science have to grapple with the sciences that deal
    with man, but — and this is a far more difficult matter — they will have
    to persuade the world to listen to what they have discovered. If they cannot
    succeed in this difficult enterprise, man will destroy himself by his
    halfway cleverness.
    ~ Bertrand Russell, 1951

    “If we don’t halt population growth with justice and compassion, it will be
    done for us by nature, brutally and without pity – and we will leave a
    ravaged world.”
    ~ Dr. Henry W. Kendall, Nobel Laureate

    “Anyone who thinks that an economy can be expanded forever, within the
    confines of a finite planet, is either a madman or an economist”
    ~ Kenneth Boulding.

    ‘I believe that banking institutions are more dangerous to our liberties
    than standing armies. If the American people ever allow private banks to
    control the issue of their currency, first by inflation, then by deflation,
    the banks and corporations that will grow up around the banks will deprive
    the people of all property until their children wake-up homeless on the
    continent their fathers conquered..'”
    ~ Thomas Jefferson 1802

    “The economy is a wholly owned subsidiary of the environment, not the other
    way around.”
    ~ Gaylord Nelson, 1916 – 2005

    There are in nature neither rewards nor punishments – there are only
    ~ Robert G. Ingersoll

    Humans on the Earth behave in some ways like a pathogenic organism, or like
    the cells of a tumour or neoplasm. We have grown in numbers and disturbance
    to Gaia, to the point where our presence is perceptibly disturbing … the
    human species is now so numerous as to constitute a serious planetary
    malady. Gaia is suffering from Disseminated Primatemaia, a plague of people.
    ~ James Lovelock

    A human population approaching 7 billion can be maintained only by
    desolating the Earth. If wild habitat is given over to human cultivation and
    habitation, if rainforests can be turned into green deserts, if genetic
    engineering enables ever-higher yields to be extorted from the thinning
    soils-then humans will have created for themselves a new geological era, the
    Eremozoic, the Era of Solitude, in which little remains on the Earth but
    themselves and the prosthetic environment that keeps them alive.
    ~ John Gray

    “There is something fundamentally wrong with treating the Earth as if it
    were a business in liquidation.”
    ~ Herman Daly

    “Indeed, I tremble for my planet, when I reflect that Nature is
    inflexible: that her response to our abuse cannot sleep forever.”
    ~ Thomas Jefferson

    “Some scientists claim that hydrogen, because it is so plentiful, is the
    basic building block of the universe. I dispute that. I say there is more
    stupidity than hydrogen, and that is the basic building block of the
    ~ Frank Zappa

    After Hubris Comes Nemesis
    ~ Byron King, Whiskey and Gunpowder

    “Humankind cannot stand very much reality” ~ T.S. Eliot

    It’s very clear that bacteria have been here much longer than we have, and
    as far as they’re concerned, we may be just a passing feature in their
    ~ Stuart Levy, M.D., 2000

    “When fascism comes to America, it will be wrapped in the flag and carrying
    a cross.”
    ~ Sinclair Lewis

    “Humanity is just a virus with shoes.”

    ~ Bill Hicks

    The first principle is that you must not fool yourself – and you are the
    easiest person

    to fool.

    ~ Richard Feynman

    The predicament confronting humanity is the summary result of all our
    separate and innocent decisions to trade horses for a tractor, to move from
    a farm to the city, to live in a heated home, to reside far beyond walking
    distance from our place of work, to buy an automobile and not depend on
    public transportation, to specialize, exchange, and thereby prosper, and
    even to reproduce beyond replacement level.

    ~ Bottleneck, William R. Catton, Jr.

    and my favorite,

    Goddamn you all, I told you so.

    ~ Herbert George Wells

  8. Anti depressants down. People are feeling good about current situation. This bodes well for the economy.

    So is Prozac specifically

    resume writing down

    Consumer confidence looks good!

    However eTrade searches down. Retail Investors are weary.

    reinforced by stock tip searches

    CONCLUSION: If the US politicians get consensus, avoid the Fiscal Cliff, and have a plan to reduce the debt, this bodes well for the economy, and the stock prices are cheap (No retail investor pushing up demand)

  9. This is why Rex Tillerson should run for President on a Green Platform promoting renewable energy with Roseanne Barr as his Vice President… I swear it would work

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  11. Jan put out a report in 2007 explaining how the housing bubble will create a Great Recession, so he doesn’t just talk his book. The STA demographic cycle expects 2013 to be a bottom.

    My own works suggests a long term bottom starts in 2014. Did the bottom in 1946 and 1982 start after or before the debt was repaid?

    Will this author recant if 2013 is a solid year? Or will that be lost in the blogosphere?

    Everybody is doom and gloom these days. That is how bottoms are forged. I agree with Versant Partners who believe one more sell off, as all depressions have three large moves to the downside, as does Bob Farrell’s trading rules. Early 2013 sell off sets generational bottom, late 2013 rally until 2018.

    Check out some real analysis, not just a refute to what others say.

    • Everybody is doom and gloom?

      Then why are Business Insider (broadly bullish) getting about way more hits than Zero Hedge (broadly bearish) these days?

    • I agree that there is more doom and gloom and is sensationalised, as it drives click revenue (Boomers ready to retire are very anxious about their wealth).

      But I am seriously searching far and wide to find information that will see me convert from defensive to offensive.

      Most baby boomers are retiring now, so fund outflows are greater. There is massive demographic trends happening.

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