Wednesday, October 5, 2011


The Lehmann Letter (SM)

Today’s New York Times carried a grim front-page article on Europe’s prospects:

Entitled, “In Europe, Signs of 2nd Recession With Wide Reach,” its key paragraph said:

“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.”

In other words: Greece, Ireland, Portugal and Spain are cutting their spending and raising their taxes to reduce their debts and meet European demands for austerity (as the price for receiving assistance from Europe). But these actions have depressed their economies, making them poor markets for European goods. This raises the likelihood of recession throughout Europe.

Meanwhile Fed chairman Ben Bernanke testified before the Joint Economic Committee of Congress yesterday:

Here are some of his key comments:

“Nevertheless, it is clear that, overall, the recovery from the crisis has been much less robust than we had hoped….
“The pattern of sluggish growth was particularly evident in the first half of this year, with real gross domestic product (GDP) estimated to have increased at an average annual rate of less than 1 percent…..
“Consumer behavior has both reflected and contributed to the slow pace of recovery. Households have been very cautious in their spending decisions, as declines in house prices and in the values of financial assets have reduced household wealth, and many families continue to struggle with high debt burdens or reduced access to credit…..”

This letter continues to believe that we’re in for a period of sluggish growth, not recession. Europe, however, may be a different matter.

© 2011 Michael B. Lehmann

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