1. MSNBC – “The recovery is close to faltering.” Those are the words of Federal Reserve Board Chairman Ben Bernanke. You can’t get much closer to the R-word these days without just coming out and saying “recession.”
Central bankers typically avoid warning of impending recessions for fear of creating a self-fulfilling prophecy. But private economists caution that the Fed is virtually powerless to do anything about financial turmoil in Europe, which is roiling global financial markets. More than a year after eurozone governments and policy makers began wrestling with a widening debt problem, there are no clear solutions.
On Monday, Goldman Sachs economists trimmed their growth forecasts for Europe and told clients they expect the eurozone to fall into recession beginning in the fourth quarter and continue to flatline next year — with full-year 2012 growth in gross domestic product of just 0.1 percent. Headwinds from Europe will slow U.S. GDP growth to just a half-percent, the Goldman economists warned.
Many economists note that every recovery in modern times, including the postwar boom that followed the Great Depression, have included a housing market rebound. But tighter credit standards hold back a housing recovery now, according to Paul Dales, a senior economist with Capital Economics.
Dales notes that home buyers typically need a credit score of at least 700 to qualify for a conventional mortgage from Fannie Mae or Freddie Mac, compared with around 650 during the mid-2000s. He figures that increase has sidelined roughly 12 percent of households looking for a home mortgage.
Falling home prices have also discouraged potential buyers from owning a home. According to a recent survey by Trulia, a real estate website, the number of Americans who believe that owning a home was part of their American Dream fell to 70 percent from 77 percent in 2010. Dales figures that’s the equivalent of nearly 8 million households.
“Even if the US economy were to strengthen suddenly, a long-lasting decline in the willingness of Americans to buy a home and a permanent deterioration in their ability to qualify for a mortgage will prevent a significant strengthening in housing demand,” Dales said.
Though the current weak recovery appears to most people to be much shorter than past expansions, some economists note that the boom cycles of the last 30 years have been the exception to the historical rule.
According to the Economic Cycle Research Institute, an independent group that tracks business cycles, between 1799 and 1929, nearly 90 percent of U.S. expansions lasted three years, as did two of the three expansions between 1970 and 1981.
2. Moody’s downgraded Italy’s ratings to A2 from Aa2, a lower rating than that of Estonia, and kept a negative outlook on the rating, a sign that further downgrades are possible within the next few years.
3. Greek civil servants walked off the job on a 24-hour strike Wednesday, paralyzing the public sector in a protest over ever-deeper austerity measures applied as the government struggles to avoid a catastrophic default.
Air traffic controllers joined the strike, grounding all flights to and from Greek airports. State hospitals were running on emergency staff, while lawyers, school teachers and tax officers also were out. Public transport workers were holding work stoppages in the morning and evening, and state television and radio pulled news programs off the air. Demonstrations are planned later in the day in central Athens.
Greece, Ireland, Portugal and Spain are already in downturns or fighting to avoid them, as high unemployment and austerity belt-tightening take their toll. But in the last few weeks, even prosperous Germany and France, the Continent’s powerhouses, have started to be dragged down, hurt by the ebbing of business orders from indebted countries in the rest of Europe.
Unemployment in Spain remains at 20 percent, and youth joblessness is nearly twice that rate. The economy is worse in Portugal, which is operating under a bailout agreement with the European Union and the I.M.F. The I.M.F. warned the new prime minister, Pedro Passos Coelho, that Lisbon still needed to find an additional 1 billion euros in budget savings. But further austerity may only deepen the downturn, with Portugal’s economy expected to fall by 1.8 percent this year and 2.3 percent in 2012.
Portugal’s slump convinced François Libner, the president of Libner S.A., a French manufacturer of delivery truck bodies, that it was hopeless to keep trying to sell there.
After growth in Portugal, Greece, Spain, and Italy started to trail off last year, he shifted his focus to Germany. Mr. Libner figures it will take at least a decade for any real growth to return to Southern Europe, particularly in Spain and Greece, which he classifies as “a catastrophe.”
5. Greece’s unemployment rate rose to a record in the second quarter as the government’s austerity measures deepened the recession. The jobless rate rose to 16.3 percent, or 810,821 people, from 15.9 percent in the first quarter and 11.8 percent a year earlier, the Hellenic Statistical Service said in an e-mailed statement today in Athens. That’s the highest since the introduction of quarterly data going back to 1998.
6. Businessweek Oct 5 – Most Asian stocks dropped, led by exporters as a downgrade of Italy’s credit rating overshadowed signs that Europe may reach consensus on measures to shield its banks from the sovereign-debt crisis.
Japan’s Nikkei 225 Stock Average fell 0.9 percent while the broader Topix Index fell 1.4 percent, having touched its lowest intraday level since the nation’s March 13 earthquake. South Korea’s Kospi Index slumped 2.3 percent. Australia’s S&P/ASX 200 advanced 1.4 percent. The Hong Kong stock exchange is closed today for a public holiday.
Brian Wang is a Futurist Thought Leader and a popular Science blogger with 1 million readers per month. His blog Nextbigfuture.com is ranked #1 Science News Blog. It covers many disruptive technology and trends including Space, Robotics, Artificial Intelligence, Medicine, Anti-aging Biotechnology, and Nanotechnology.
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