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Posted by on Apr 21, 2011 in Double Dip, Market Conditions, Psycho-babble | 20 comments | Print Print

Change in Psychology?

From the U-T:

Larry Summers, one-time director of President Barack Obama’s National Economic Council, believes the economy is recovering, albeit not as fast in some areas as desired, but enough to forestall a double dip.

“There is no longer any talk of a depression,” he told journalists at a Lincoln Institute of Land Policy seminar in Cambridge, Mass., over the weekend. “Now, there’s very little talk of a double dip.”

He pointed out that the economy has grown for seven straight quarters and the unemployment rate has fallen.

“The stock market has had the best two-year run since the beginning of the 20th century,” he said.  He also said corporate profits are best in any two-year period since World War II.

But he acknowledged things are not improving fast enough.

“To be sure, we have a huge concern that the recovery is not nearly as rapid as we would like,” he said. “The housing sector remains extraordinarily weak. The nation’s long-term debt situation is not where it should be. There have been major steps in financial regulation but we can’t be certain we will avoid another financial crisis.

“But the catastrophe that could have been averted has been averted , and I think it has been averted with a combination of the right diagnosis, determined effort to act on that diagnosis, a good deal of luck and an important change in psychology.”

Summers, who served in the administration from 2009 until early this year, returned to Harvard as president emeritus. He was Treasury secretary under former President Bill Clinton and chief economist of the World Bank.


  1. This article made me think of what about my psychology has changed in the last couple of years.

    The first thing that came to mind was that the lenders/servicers/government would not foreclose, and allow borrowers to live for free in their houses for months & years.

    As a result, the threat of a housing meltdown is diminished greatly.

    It’s a game-changer.

    1. People are more likely to default when they see it happening every day in the media.

    2. It complicates the home-buying decisions for vuirtually everyone – do you wait?

    It’s not right, but by now we’ve come to accept it, and most have moved on.

  2. Thank you Jim for stating the truth. The way banks and gov have been able to bend reality is amazing. Five years ago who would have thought interest rates would be where they’re at right now. And who would of thought deadbeat “homeowners” would be able to live in their house free for years at a time.

  3. The days of free rent are over. The banks are being weaned off the government subsidies for holding the shadow inventory on their books. According to my very credible source at WF, the government cheese completely ends in March 2012. All this is great news to the believers in the free market system!

  4. The real story is what this dufus (Summers) isn’t talking about. He mentions the record stock market and corporate profits, but keenly avoids any discussion of how the median household income is less today than it was in 1998. The U.S. is now a tale of two worlds: the few that keep getting richer and the the rest that keep getting poorer.

  5. Most wealth is somebody elses debt because of fractional reserve lending. If the US consumer hadn’t been willing go into debt to make up for weak income growth than the rich wouldn’t have been able to get much richer. One of the things that happened during the great depression was that wealth disparity and income disparity decreased as the over leveraged debt came out of the system. The Great Depression wasn’t good for anybody but it had a much greater effect on those with stored wealth.

    It’s virtually a guarantee that debt expansion will hit another wall in the future and we’ll be right back in the midst of 2008 again (government debt might be the last possible debt bubble expansion). The wealthy will take a hit when the general population refuses to be a debt slave to support that wealth. When that happens is anybody’s guess but probably within the next 5 years.

  6. This should tell you all you need to know about Larry Summers:

    “The chief economic adviser to the president had, over the past year, received lavish fees for speaking arrangements from a host of banks involved in the government’s asset relief and recovery programs. The list included $67,500 from J.P. Morgan Chase, $99,000 from Citigroup, and $202,000 from Goldman Sachs.”

    In third world countries these are called bribes. In the US “speaking fees”.

  7. Agree that for the average joe debt = slavery. If you do decide to lever up you better be smart, agile and lucky!

  8. source at WF

    Whole Foods?

    They make an average condo! 😉

  9. government cheese completely ends in March 2012

    No offense to you Kbeachguy, and thanks for contributing – but we’ve heard so many rumors I don’t know which to believe anymore.

    Once they ignore the basic premise that if you don’t make your payments, you lose your house, then what?

    Once that goes out the window, does anything else said by the power-that-be have any validity? Especially one with a specific date on it – those are more suspect.

    But I hope for everyone’s sake that yours is the one that sticks!

  10. I guess pretty soon they will be appointing a government cheeze czar. They will call him the Mandated Systematic Tarp Removal Procedure “MSTRP” (aka “Mousetrap”)” Chairman.

  11. @4) Take a good look. That’s in constant dollars, which means the median is *no* worse off in net purchasing power than in 1998. And that’s despite the fact that constant dollar income had been rising at a good clip into 1998.

    But if you’re worried about a disappearing middle class… don’t. I’m sure Obama will tax the rich down and bring a whole bunch more people “down” to the middle class!

  12. There was an excellent Matt Taibbi article on Rolling Stone that looked into how a huge portion of the TARP money was spent by the big banks. Here’s the five minute summary: the government gave Goldman Sachs and other big banks (that were too big to fail) TRILLIONS of Dollars worth of loans at nearly 0% interest. The banks then turned around and reinvested all those trillions into safe-as-houses US Treasury bonds that pay out a 3% yearly interest. Free money – guaranteed profits. It’s essentially the financial equivalent of a perpetual motion machine, except being powered by tax-payers.

    Summers is correct when the says we have avoided the double dip recession, but that really means nothing in the grand scheme of things. Wall Street has no incentive to change the way they do business; past experience has already shown them that the government is ready to bail them out whenever the next bubble bursts. We’ll likely see this cycle repeat itself over and over again until the government is too broke to subsidize the bank’s losses any more.

  13. @ #11

    The median income peaked at $52,388 in 1999. In 2009, it was $49,777. This about a 5% drop over ten years in constant dollars, which is significant by any standards. Maybe you should stop listening to Larry Summer’s speeches.

  14. “But if you’re worried about a disappearing middle class… don’t. I’m sure Obama will tax the rich down and bring a whole bunch more people “down” to the middle class!”

    The whole let’s just tax the rich to fix our problems doesn’t work from a math perspective.

    This irs link will get you to the tax stats from the latest published results 2008,,id=96981,00.html

    If you take the > $200K crowd you have 3% of the population that filed a tax return and about 30% of the income.

    4.375 million returns, 2.46 trillion total income. Of the 2.46 trillion 536 billion taxes were paid for an effective rate of (21.8%). How much can you soak the rich before they start earning less to pay less taxes? Can you double the effective tax rate to 43.6%, probably not before you run into some tax avoidance but let’s assume you can.

    You get 536 billion in extra tax revenue but with a 1.7 trillion dollar deficit you still need to cut 1.2 trillion. Cut military’s budget in half (400 billion) and you still need to cut nearly 800 billion from our entitlement programs and stimulus spending. You can’t balance the budget until you touch entitlements and the longer you wait the more the interest part of the budget goes up.

  15. Alex,

    “We’ll likely see this cycle repeat itself over and over again until the government is too broke to subsidize the bank’s losses any more.”

    There will be NO next time. The US is very close to it’s credit limit and the Market will not allow the Fed. to keep printing.

  16. “There is no longer any talk of a depression,” … “Now, there’s very little talk of a double dip.”

    True, now there’s the talk of future currency crisis, sovereign debt crisis, runaway inflation, runaway commodity prices, lowering US debt rating, etc.


    nicely said. Also, are you adding property taxes, state taxes, sales taxes, etc. to the 21.8%?

  17. @13), point taken. And taking that thought further, $42.7 in 1975, $52.4 in ’99. That’s a 24% increase over 24 years. Pretty low growth, something like .8% per year compound growth? So real median incomes haven’t really moved much throughout the data period, despite a MASSIVE increase in the standard of living (everything from pollution to quality of goods like cars/washing machines, to cheap great computers and internet access). Which tells us that there are likely other factors that make the stat fairly misleading/junky. For example, we’ve had an influx of foreign workers into the workforce who perform lower paying jobs in greater proportion today. What would be much more interesting to see is the income growth of people over time who were X number of years into the workforce for each of those years. Then you would see, without question, large income growth. Different statistic to be sure, but much more meaningful.

    @14), my only point was that Obama/the Left will be INCREASING the size of the after-tax middle class (which is all that matters anyway) via taxes.

  18. JtR,
    No offense taken…just sharing what I hear from my friend who is in executive management with (WF) Wells Fargo. He oversees Southern California/ Arizona mortgage divisions. That date came from his mouth about the banks no longer receiving the cheese from the fed. I hope he is right too, it would really be nice to get back to “normalcy”.

  19. Yea, Summers is a real genius and saved America. You know we are screwed when clowns like this think they are heroes.

  20. 21.8% is just federal income. Property tax, sales tax, state income tax, local income tax, any other of the hundreds of taxes would on top of that rate.

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