Do You Want the Good News Or the Bad News First?

The good news, if we can call it that is that most financial crises end within two years and according to the NBER (National Bureau of Economic Research) the present recession began in December 2007 which means that we should start coming out of the present one in December 2009 or thereabouts.

The not so good news however is that many Wall Street pundits claim that the real recession only started in September 2008 which would mean that we still have a long way to go!

The Bad News!

The current crisis is global and if one compares the present one to recent ones in other countries such as,

o Spain 1977
o Norway 1987
o Finland 1991
o Sweden 1991
o And Japan 1992

one finds that the parallels are astounding and according to a large number of macroeconomic indicators we are in for a very bumpy ride, and perhaps the most worrying trend from a U.S. point of view is the rise in government debt that can be expected.

Using data gleaned from the crises in the above countries we can expect U.S. government debt to rise around 85% during the first 3 years of a recession which in America’s case would mean between $8 and $9 trillion!

The unemployment problem is generally svenska nyheter much greater in richer countries because of their higher levels of wage insurance and stronger worker protection policies so it’s likely to worsen for at least another two years and may last up to five years and reach double digits at its midway point.

House prices in the U.S. peaked in 2005 so it’s quite likely that we won’t see them bottom out until the end of 2010 and based on our earlier models their inflation adjusted prices will fall around 36% which would mean a further drop of about 8-10% in real house prices from their current levels.

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