Hmmm, let's see... this guy predicted Dow 5000 by 1995 (he was laughed at by "experts") and Dow 10,000 by 2000 (he was also laughed at by "experts"- you know, the same ones who now dismiss Y2K). He has actually (gasp!) *studied* Y2K, as opposed to the relatively shallow "research" given to it by most economists, and, if memory serves, he does some actual programming himself. So, maybe we should listen to him more than most economists - ?

Reassessing Recession Odds

This requires Adobe Acrobat.

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999

Answers

No one listens to most economists (laughter). It seems we have a 95% chance of "surviving" Y2K with only economic disruptions. [Please note that economists make a very specific distinction between recession and depression.] Like others who have moderated their viewpoint (de Jager), I am certain Mr. Yardeni will suffer the scorn of some pessimists/survivalists/fatalists.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 29, 1999.

As I do pay attention to what Yardeni says, I would myself say that he has moderated somewhat on Y2K since a year or so ago. I haven't noticed any significant catcalls aimed in his direction, though.

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

Oh, and by the way, I have always felt the ultimate impact of Y2K would be economic, and primarily the worst cause would the international situation (something I said on the show a year ago). I do think disruptions in water in some places in the US is a possibility; and there may well be a few more problems with food than most people realize (one can determine this by simply reading the government reports). But the greatest risk remains economic, IMHO.

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

Mr. Yardeni (aka "Fast Eddy" to certain WDCY2K types) hasn't changed his "take" on Y2K in many months. Drew's link is to the Feb. 22 report, which lead to one reporter-critter who flunked math to publish an article stating that Yardeni had reduced his estimate. He had not and has not. If he does, by the bye, I will certainly take heed, as he has taken much heat for his "doomsayer" stance and I have much respect for his analytical abilities.

If you're interested, additional Yardeni "Y2K Reporter" issues, including the latest (April 12) are available right here.

-- Mac (sneak@lurk.hid), April 29, 1999.

Drew,

When you get a chance, you might get a chuckle out of this one. :)

-- Stephen M. Poole, CET (smpoole7@bellsouth.net), April 29, 1999.

Drew,

Don't know what it is about this board that causes me to make typos in links. Let's try one more time. :)

-- Stephen M. Poole, CET (smpoole7@bellsouth.net), April 29, 1999.

Agree completely with Drew. Greatest likely impact is in the economic arena, as in serious recession,layoffs and rising unemployment, personal and corporate bankruptcies, etc. Not the ONLY impact area, simply the one with the greatest likelihood of most widespread and significant damage. As has been said elsewhere, it looks like "the last of the seven fat years". "Laying by in store" would seem to be the order of the day.

Judging from your postings, Mr. Decker, you and I seem to be very much in agreement on wise approachs to living and to prudent preparations, while we disagree primarily as to the extent of those preps. [shrug] Yah pays yer money and yah takes yer chances...

-- Mac (sneak@lurk.hid), April 29, 1999.

By the way, Mr Decker, what is your definition of a depression vs a recession?

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

Stephen -

I followed that link and ended up at the Christian Chat network. Now it's clear: yer a card-carrying member of the Christian Right! I knew it! One-a them Bible-thumpers! An admitted conservative, and a WWJD-er as well! Ah-ha!

Oh, wait. I just checked my wallet and found one of those cards as well. Never mind... 8-}]

-- Mac (sneak@lurk.hid), April 29, 1999.

Tis testing and rework, Sir Stephen of the Poole; just takes testing until you get it right, or until your boss tells you to send the d**m program out with bugs intact.

-- Robert A. Cook, PE (Kennesaw, GA) (cook.r@csaatl.com), April 29, 1999.

Drew:

A recession is when you know someone who has lost their job.

A depression is when you have lost your job.

On a human scale the size of the problem is not extremely relevant, except with Y2K the safety net has a big hole in it.

PS: I like your web site and your insight!

-- Bill P (porterwn@one.net), April 29, 1999.

Stephen,

Aaaahhhh, I get it now. You must be a member of the "first seal" club, also known as the "white horse of the apocalypse" (Matt. 24:4-5, Rev. 6:2).

-- Apoc (apoc@lypse.now), April 29, 1999.

If you peruse the link, you will find a fine explanation of economic malaise... complete with nifty charts.

http://131.93.13.212/econ/EconomicCatastrophe/GreatDepression.html

"American economist Arthur Okum in 1962 when he defined it as 'two sequential quarters of negative growth in the gross national product'".

As explained in the link, a recession is an economic downturn. A depression is a state of lower economic activity as measured against some benchmark. If you take the elegant (but inaccurate) sine wave, a recession is the downward cycle. A depression is a shift of the wave to a "lower" level.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 29, 1999.

Mr Decker,

The reason I ask is because I have seen some people define recession as two consecutive negative quarters, and depression as two consecutive negative years. Have you come across this definition?

Bill,

A little Reagan-esque humor? :) I remember hearing him tell that exact joke. Thanks for the compliment, BTW.

Stephen,

Yes, I agree there are hucksters, but how does what's on that page apply to Yardeni? Hmmmm? In addition, I would submit that the reason most economists & investment advisors now take Y2K into account is because reality has forced them to.

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

Customary "technical" definition of a depression: 10% annual contraction ("negative growth") in GDP. Recession, as aptly defined by Mr. Decker, two consecutive quarters of negative growth.

So, for instance, Japan has never been in a depression in the 1990s, though some Japanese investors might feel otherwise. The Nikkei fell from 39000 in Dec. 1989 to a low of 12900 some months ago; it's currently somewhere around 17000.

-- Don Florence (dflorence@zianet.com), April 29, 1999.

Mr. Poole is the head of the Steve Hewitt fan club. They deserve each other.

-- none (none@none.none), April 29, 1999.

Don,

Yeah, that 10% definition strikes a very faint chord somewhere in the back of what passes for my brain. Although I don't know if it's widely used.

Another definition I use is "secular slowdown," by which one would say that Japan *has* been in a depression for that last 10 years (the Nikkei top was 38,916 on 12/31/89, BTW).

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

"Dr. Ed" as he is affectionately known, simply took his 70% prediction, and weighted it.

10% bump in the road 20% bigger bump in the road 25% modest 6 month recession 40% Major global recession 5% Depression

100% Total

When I first read this (I have been reading his ranting since last Oct.), I saw no real change in his assessment, yet a few days later there were stories in the LA Times about how Dr. Ed is toning down his 70% recession forecast to a 45% recession forecast. Huh?!?! The writer of that story was looking for something similar to De Jagers (who still has major concerns), and omitted the first three categories and stated that he changed his mind on the 70% forecast. Not true at all!

25 + 40 + 5 = 70.

This was the intent, and was confirmed by Yardeni in a letter to his subscribers. The author of the story either intentionally or mistakenly misrepresented his figures and some statements. There is such a push by the mainstream media to put a positive spin on Y2K that reporters will jump at a chance to report any good news, while ignoring or spinning the bad news.

Y2K and other issues hve made me so distrustful of the mainstream media, that when I watch the "News" on TV, I only watch to get the "party line". Whatever happend to honest reporting of the facts (if it ever existed)? Who elected CBS/NBC/CNN/ABC to interpret the facts for me, and present me with a moral along with the news? Not me.

I saw Dr. Ed speak at a small luncheon a month ago, and got the impression he's really tired of the whole thing. Hell, so am I, and I've only been at this for 7 months. He's been at this thing since '97 (whoops 1997). Perhaps he tried to say something a little positive just to get the reporter off his back. His latest Y2K Reporters do not have me filled with joy, I still get the same sense of pessimism and dread that I got in his first Y2K Reporters.

-- Rob (rob.sansom@db.com), April 29, 1999.

Near the bottom of the page Stephen Poole linked to --

(start snip)

* As a conservative, in fact, I'm concerned that Y2K may be used as a back-door way to increase government interference in business. Let's say I'm the manager of a small bank and feel that I can ignore Y2K; I'll just hire a couple of extra people and deal with it the old fashioned way. There is a very real question now of whether the radical Y2K'ers will even let me do that!

Have you not noticed that some 60's-style radicals are becoming involved in the Y2K thing now ...?

** Howard Ruff is back! That rascal almost talked me into becoming a survivalist during the Carter adminstration. He had me convinced that TEOLAWKI (the end of life as we know it) was at hand. It was my dear mother who beat sense into my head, and of course, his predicted collapse never occurred.

(Yes, you may infer from this one of my motivations for writing about Y2K. I don't want to see anyone make the same mistake.)

(finish snip)

-- Moderate (less@spam.get), April 29, 1999.

In my personal opinion, the ten percent level seems too arbitrary. I think a depression is more multi-faceted than a recession... it goes well beyond GNP/GDP shrinkage. Joblessness, for example, ought to be included. There are some interesting "misery" indices out there. Also, we ought to differentiate between inflationary and deflationary economic woes. Again, this type of talk does nothing to enhance the reputation of economics as sparkling dinner conversation.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 29, 1999.

Mr Decker,

I had to laugh at your last line about "this type of talk does nothing to enhance economics as sparkling dinner conversation," because I was interested in the first part of what you wrote. I'm reading it, sitting here thinking to myself, "Wow, I could really enjoy a discussion on this, because these definitions remain so arbitrary"- and then you dropped that last line in :) But then, I enjoy sitting around reading about the Panic of 1907, so I'm a weird duck to begin with.

Rob,

Yardeni probably is tired of Y2K. Good grief, so am I, sometimes anyway (or at least I'm tired of the insane hours, among other things).

The LA Times reporter probably did have legitimate reason to write what he did about Yardeni's views becoming somewhat more optimistic (at least, that's been the general consensus after the story stirred up quite a fuss). A year or so ago, Yardeni was looking for a 4% GDP decline; now he looks for 3%. In addition, I also believe he thinks the recovery will now begin sooner than he previously thought. In the past, I think he used to go with mid to late 2001; now, he looks for something like late 2000. I'm just going with off the top of my head recollections, but they're probably more or less in the ballpark.

-- Drew Parkhill/CBN News (y2k@cbn.org), April 29, 1999.

Mr. D -

You'd be surprised. In my family, anyone who couldn't throw names like Keynes, Samuelson, or Friedman into a rip-roaring, save-the-world debate wasn't holding up their end of the bargain! Used to scare off my potential girlfriends all the time. 8-}]

-- Mac (sneak@lurk.hid), April 29, 1999.

It seems Mr. de Jager is "tired" too. From the Globe and Mail:

(snip)

And so, about 18 months ago, the world decided that Mr. de Jager, 44, was worth listening to. Last year, he left his home in Brampton, Ont., for 80 speaking engagements (at $7,500 a pop).

In short, he has become famous and wealthy. And now, he can't wait for it all to end.

"This thing has become an obsession, and if someone uses that in the clinical sense, it doesn't bother me because I think it's true," he said. "This is a seven-days-a-week, 24-hours-a-day job. I never stop thinking about this, and getting away is very, very difficult."

Mr. de Jager now describes himself as "a walking human cinder."

He complains that his weight is up and he is subject to mood swings. He says he is taking more and more time off.

"I am burnt out in every definition of that word, every aspect of that word," he said. "I make it one day at a time."

Now, what's his bottom line? "I don't know what's going to happen. I know that we run a huge risk because we're dependent on computer systems and they were broke and we've done our best to fix them, but we don't know if we're going to get it all."

He talks of the long weekends he has been stealing lately and even the occasional week when he has tried to leave the issue behind. He has bumped his lecture price up to $12,500 to try to price himself out of the market. "One of my goals," he said, glancing at the watch, "is that six months or a year after this is for someone to write 'Whatever happened to . . . ?'

(end snip)

-- Gayla Dunbar (privacy@please.com), April 29, 1999.

Drew - re your comment about the food industry - I think it is "telling" that the American Farm Bureau Federation has *just* posted a web article looking at y2k as a problem as relates to ag producers. It is the first time I know of that actual links to informative resources have been referenced. IMHO, the "light tone" is not very encouraging. It sort of mimics the upbeat radio announcer whose job it is to awaken agriculture to y2k.

http://www.fb.com/today/watch/index.html

-- marsh (armstrng@sisqtel.net), April 29, 1999.

Drew: Sorry if I'm repeating myself here, but I think "Dr. Ed" has had a better track record because he understands that perceptions and reactions that people have to those perceptions drives the stock market and thus the short-term economy. That, as opposed to others, using cold historical data for trending. The market usually overeacts and looks only six months ahead. It's not the reality of a situation, but the perception that people in decisive roles have of a situation that affects the market.

One factor that has helped Japanese people weather the structural 'decession' [depression/recession brought about by an economic culture ill-suited to adapt to the global financial and investment shifts of this decade] is the high personal savings rate. The U.S. consuming population is ill-prepared to withstand even a short-term recession and employment downturn.

The Japanese savings rate is over 13% (This rate includes all forms of savings, including securities). The U.S. savings rate for 1998 was 0.5%. Americans saved one half of one penny for every dollar earned The weakest rate since the middle of the Great Depression. The rates for the last quarter of the year showed a dismal shift. September rate was 0%, October was -0.2% and December was - 0.4%.

The average savings of all Japanese households, including salaried workers, farmers, fishermen and single persons, stood at 16.61 million yen ($134,000) for the fiscal year ending March, 1999.

The service industry of the U.S. would be drastically hit by a reduction in consumer spending, should y2kcreate significant delays in delivery of goods. The first reaction by American companies is to layoff workers. Turning off the faucet of U.S. discretionary spending and the lack of personal savings to weather even a 4-6 month recovery would be a bitter pill to swallow for many American families. Beyond the economic consequences, what are the social consequences of such a scenario?

-- PNG (png@gol.com), April 29, 1999.

Sorry

-- PNG (png@gol.com), April 29, 1999.

With some irony, it is the Japanese reluctance to spend that has exacerbated some economic problems. In very simple terms, markets depend on supply AND demand. If consumers stop spending, businesses lose many, so they lay off workers who then spend less....

Do you see a downward cycle here.

This is not to say I support the ultra-consumer binging of the average American, particularly when it is debt fueled.

By the way, if you don't mention Veblen in your dinner conversations, it isn't really "fun" econotalk.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 29, 1999.

I just didn't want to go on and on and on with the obvious...

I understand some anesthesiologists read Veblen to surgical patients in lieu of general anesthesia. I'm feeling a little sleepy just typing the name...zzzzz

-- PNG (png@gol.com), April 29, 1999.

As a child I experienced a major depression, albeit second-hand. Somehow my father always had work, and we always had food and a house to live in. This was in St. Paul, Minnesota.

What I remember of that time (1931, '32, '33) is guys knocking on the back door, looking for something to eat, because they had no other way to get food. Some of them wore suits, all of them were embarrassed as hell to beg, none of them gave my mother any trouble. Everyone who came to the door asking for food got something to eat. If they were really dirty they had to eat on the back porch. That's a depression, in my book.

-- Tom Carey (tomcarey@mindspring.com), April 29, 1999.

Tom: Reading some of the posts here lately, a modern depression would bring bug-eyed, heavily-armed creatures to your back door.

-- PNG (png@gol.com), April 29, 1999.