I made a number of predictions for 2008. This is going to be a quick review of the main ones, though not all of them, to see how they did. Bold is succesful, italics is failed, regular text is a punt (ie. it hasn’t happened yet, but I still think it will)
1) Housing prices and sales will continue to decline. Expect 3 years before the bottom, as a very optimistic best case scenario.
- On track. Expect the decline to continue.
2) Commercial real-estate will go suffer a steep decline as well.
3) Consumer demand will drop. Unemployment will rise.
4) The US will go into a recession at best, a depression at worst. Expect first stagflation (high inflation and high unemployment), both because of the increased price of imports and deliberate pump priming by the Fed, then deflation, as asset prices collapse so hard they take everything else with them. The other likely scenario is stagflation followed by hyperfinflation. Formal inflation numbers put out will become not just a joke amongst market-watchers, but amongst the actual population. Same thing with unemployment numbers.
- Note the stagflation then deflation call, though I’ll admit I hedged a bit. However hyperinflation is still possible after a deflationary period.
5) The Asian economies are not going to "decouple", they are going to have their own financial crises and recessions. Yes, this includes China.
- China’s economy is falling off a cliff.
6) China’s stock market will collapse some time next year. China will go into a recession. There will be huge amounts of violence and the Chinese government will redirect anger towards the US and Japan.
- Absolutely right on the no decoupling. I’m going to punt on the violence prediction.
7) Multiple banks will probably go insolvent. They are simply holding too much crap paper. There will be an extreme tightening of consumer debt of all kinds, including consumer loans, credit cards and mortgages. Even people with good credit will start having difficulty getting loans.
8) Protectionism is going to get stronger. Even if Clinton, a free trader, is put in power, by the time the 2010 Congressional elections are over no "free trade" bill will be able to pass Congress and in fact actual tariffs are likely to be put in place.
Given I said by 2010, this is a fair punt.
9) I wouldn’t be surprised, at some point, to see capital controls put in place to stop money-flight from the US.
- Making this as a failure since I didn’t expect the huge influx of money (although I reversed myself on this sooner than most folks). However the US has printed about 8 trillion dollars. When that sinks in, money may start getting really nervous and this may prove prescient.
10) When the full extent of how bad things were hits Joe public, expect a move for reregulation of Wall Street and to reinstitute something similiar to Glass-Steagall.
- I think I could give myself this one, but I’ll punt on it, there’s lots of talk, we’ll see about re-regulation.
11) The government will have to bail out Fannie Mae and Freddie Mac because they are insolvent. Minimum 500 billion dollars. Possibly much more.
- Had to bail them out. We don’t know how much it’ll be for yet. It’s pretty clear it’ll be over 100 billion at this point. I’m still betting on over 500 billion. That may turn out to be optimistic.
12) Large waves of government layoffs at the municipal and state levels as the inability to raise money cheaply and the reduced property taxes cascade through the system. (Yes, this is already starting to happen, so it’s kind of a safe prediction. But it’s going to get magnitudes worse. Many many municipalities are going to go bankrupt, and many states will be unable to maintain any but the barest of services.)
13) The price of oil will actually drop as there is an actual demand reduction for oil. Don’t expect this to necessarily be reflected in pump prices, which are constrained by refinery capacity.
- Despite the miss on pump prices, I’m going to say I mostly got this one, and very few people did. Got this call originally from Stirling Newberry.
14) The federal government will become the largest holder of mortgages, and in effect, owner of houses, in the country. By far. The Fed, which has been accepting sub-prime paper already, is going to wind up stuck with a lot of it, because some of the banks using it as "collateral" are not going to survive absent huge government bailouts.
15) A serious collapse of the US stock market, probably by September at the latest. Maybe within a couple months.
16) One of the Big 3 car companies goes under. Then it’ll probably get bailed out.
- One could argue I got this wrong, in the sense that I didn’t expect 2. Mark it against me if you’re feeling stingy
17) So many countries selling oil in Euros that the dollar is no longer the world’s sovereign currency
- I’m going to punt on this one, at this point the dollar is flying high, but I think there’s still a good chance that there will be be a point where people look at all the money the US has printed and freak out. Of course, that depends on how the Europeans have been handling their money.
18) By the end of 2009, actual reported starvation/malnutrition deaths unless Congress and the new president step in with significant aid. The food banks aren’t keeping up and neither are food stamps.
- Obviously a punt, and probably won’t happen, but because I think there will be a big enough stimulus.
19) Continued drops in illegal immigration, whether or not the new president continues having them rounded up in large numbers. The jobs just aren’t there for them anymore, especially with the crashing real-estate industry. Many of them made their living as casual construction labor.
20) A huge push to gut entitlements in 2009, no matter who is president. Even if the US quickly pulls out of Iraq, the deficit will be totally out of control, and hundreds of billions will be needed for bailouts. A rapid consensus will form that rather than increasing taxes significantly on the rich, or slashing expenses like the military R&D and equipment appropriations budget, that the real problem is people retiring at 65, poor people getting Medicaid and old folks who aren’t destitute receiving Medicare.
- I think I got this one wrong, given the consensus forming for a large stimulus (assuming the Republicans don’t kill it.) We’ll see, but I’ve tentative marked it wrong.
2 + 1/2 WRONG
11 1/2 CORRECT
I did make some other predictions through the year in other articles, they’ve mostly done fairly well. Of the predictions I got wrong, one was a political prediction, the others were an economic prediction (gas prices not dropping as fast as oil prices and an outflow of money). A large number of predictions are still in play—it may be a year, or in some cases a couple years before we know. I’ll make some new predictions in a later article.
It will be more difficult than making predictions last year was. Economics is as much about politics as anything else, and that means economics is about key decision makers. During the Bush era making predictions was very very easy because it was very obvious that the key figures like Bernanke, Paulson, Greenspan and Bush were incompetent and did not have any interest in the well being of most Americans. Once one figured out what the (negative) trendline was, all one needed to know is that they not only wouldn’t stop it, they’d both make it worse and make sure that no one else could fix it. Betting on them screwing up completely was always the right bet.
The beginning of the Obama era will be more difficult, because it’s less clear what the Obama administration will do, how competently it will do it, and what their economic priorities will be. (For example, Bush decision makers always made it job one to take care of the rich, and to screw the middle class.) My current assumption is that they will do a lot of the right things, but will do them the wrong way because they are not actually liberals. So they will implement strategies which are broadly liberal, but in the details they will do them wrong (for example, the decision to do most of the stimulus through private companies, which will almost certainly make it significantly less effective and increase corruption.)