US recession 2007, dollar crisis by 2010?

Here's someone who thinks US economic meltdown is imminent, starting with housing, then construction more widely, then on. When you think about the composition of the US construction industry - ie low waged immigrants in large part - it's not hard to see who this first stage of recession would hit the hardest. Is this kind of thing being discussed among those involved in UK anti-olympics groups and construction industry unions? Is it conceivable that if the US experienced this kind of downturn by 2008 the 2012 construction programme/pyramid scheme will not be affected?b

Housing Free Fall Turning into Meltdown...2007 Recession Ahead Nouriel Roubini | Nov 17, 2006

http://www.rgemonitor.com/blog/roubini/

For the last few weeks and months I have been writing dozens of detailed notes and blogs (see my latest here) rebutting the utter nonsense that has been spewed - based on little or no data - on the alleged bottoming out of the housing recession. Even Alan Greenspan - the allegedly careful reader of  macro data - had joined this cheerleading clown show and the NAR spin of half-lies that "we are near the bottom of the housing recession". The actual data that  were coming out of the housing market in the last few weeks were clearly inconsistent with this cheerleading non-sense and spin. So, maybe these delusional optimists will now shut up for a while and listen to the numbers after today's announcement that housing starts fell over 14% last month and that they are now at their six year low. Even worse, building permits, that are THE leading indicator of future housing activity, fell further by 6.3% and they are now at their lowest level since 1997.

And even at these low levels of permits and housing starts the housing sector is nowhere near its bottom. In previous housing recessions, housing start fells as much as 40% to 50% from their peak; so, with starts now being only 27% down, the housing bust has still a very long and ugly way downward to go. And lower permits today mean lower housing starts ahead, and lower starts mean lower construction and lower construction means much lower construction jobs; expect over 800K jobs to be lost in housing in the next year.

So beware of the new spin that you will hear soon claiming that, with starts now down 27%, the bottom of the housing bust is near; building  permits and housing starts are likely to fall at least another 20% in the next 12 months before any bottoming out of the worst housing bust in the last five decades is reached in 2008.

And in spite of lower starts the glut in the housing market is getting much worse (not better as delusional optimists are spinning it): indeed the completions of current housing projects will dump another huge mass of unsold homes into the market in H1 of 2007 at the time when the speculative demand for housing ("condo flipping "investments) is collapsing and the fundamental demand for housing is collapsing too as the economy spins from a sharp slowdown into a recession. As I predicted last summer real home prices are likely to fall at least 30% in the next 3 years; and new home prices are already falling at a 10% annual rate. They will fall much more as the 90% increase in real home prices since 1997 was a massive speculative price bubble based on little fundamentals.

And now the housing recession is spreading to non residential construction. Until Q2 non residential construction investment was strong but it was only half the size of housing; but by now it is clear that non residential construction is also completely stalling; the figures for total construction spending for September show a sharp fall in residential construction and a stall of non residential construction. The reason for this contagion from residential to non  residential construction is obvious: since we have now entire "ghost towns" in the West (a term used by SF Fed Prez Janet Yellen to describe many housing developments that are empty in the West) no one is going to build stores, shopping malls, shopping centers/strips, offices near these "ghost towns". Indeed, as reported in a recent lead article of the WSJ, a McGraw Hill Construction study forecasted sharp drops in non-residential construction in 2007 as lower housing leads to lower non residential construction. Indeed, the October figures for construction employment already show a fall of 26K, a fall that will accelerate in the next few months as housing construction now under completion is completed and then new starts will become sharply lower. 

So, the housing recession is now becoming a construction recession; and the construction recession is now turning into a clear auto and manufacturing recession; and the manufacturing recession will soon turn into a retail recession as squeezed households - facing falling home prices and rising mortgage servicing costs - sharply contract their rate of consumption. As I have predicted since July a recession in 2007 (as early as Q1 or at the latest by Q2) is now highly likely to occur. Expect the Fed to slash the Fed Funds rate as early as January and expect this Fed easing to fail to prevent the 2007 recession as the glut homes, autos, consumer durables will make the demand for these totally insensitive to changes in interest rates. The Fed easing in 2001 failed to prevent the 2001 recession and the Fed easing in 2007 will also fail to prevent the 2007 recession.  Also expect this sucker rally in equity to continue for a while into the end of 2006 as expectations of a Fed easing will lead to the delusional hope that such easing will prevent the 2007 recession. But once the signals of a recession are clear to all by the beginning of 2007 expect, as in previous US recessions, for the stock market to experience a sharp contraction; as detailed in my research work, in the typical US recession the S&P500 has fallen by an average 28%. 

PS - some longer term US doom news:

Currency Watch:

 November 17 – Bloomberg (Flavia Krause-Jackson):  “United Arab Emirates Central Bank Governor Sultan Bin Nasser al-Suwaidi comments on the outlook for the euro overtaking the U.S. dollar as the dominant reserve currency for international trade… ‘I would say the euro will definitely grow to dominate trade outside the euro area. I expect the euro to become the currency of international trade within 10 years. It will surpass the dollar by 2015.’”

 November 15 – Bloomberg (Kevin Carmichael): “Robert E. Rubin…and former Federal Reserve Chairman Paul Volcker said foreign investors probably won’t keep increasing dollar holdings… Volcker said the U.S. borrowing requirements raise the risk of a ‘crisis’ in the dollar as soon as the next two and a half years.  ‘It seems almost inconceivable that this will continue indefinitely,’ Rubin…said…”

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