Don Luskin's Pathetic Recession Denial
Let's just look at his latest column where he denies the existence of a recession and still says the economy is recovering. To back that up he produces one lie or misleading statement after another. They are in fact so many, that it would make this post far too long if I refuted them all, so I'll just
First he claims that General Electric's earnings were just bad in its financial division, and so it provides no evidence of general state of the economy. There are two falsehoods present in that statement. First of all, financial operations are part of the economy, so excluding that is in this context misleading. Secondly, if you read the actual financial statement from General Electric, you can see that even most of its non-financial units seeing earnings decline, with infrastructure being the only one with noteworthy gains, and with total earnings from continuing operations falling even excluding the financial units. Moreover, GE notes explicitly that while they saw booming revenues outside the U.S., their U.S. operations experienced hard times.
This brings us to Luskin's next "evidence" against recession. He notes that some other companies did better than GE, and that this proves there is no worldwide downturn. That is again misleading for two reasons. First of all, I don't think anyone has claimed that there is a worldwide downturn yet. Although there are some who believe it will happen in the future (I don't), that is a forecast of the future, not a statement about the present. And it is highly dishonest to mix the issue of a global downturn in a discussion about a U.S. downturn. Secondly, because of exchange rate effects, the earnings of multi-national companies will rise significantly in dollar terms even if their earnings in terms of say euros or yens are flat.
Then there is his discussion of macroeconomic data. Although he acknowledge the Philly Fed indicator came in weak, he uses the Empire manufacturing index, as well as the recent industrial production report as evidence of strength. Yet that is a highly misleading presentation-again for two reasons. First of all, that industrial production does not, even if it stays unrevised, show what he claims it shows. While it showed an increase of 0.3% compared to February, he conveniently forgets to mention that the February reports showed a 0.7% decline. Also, the increase was almost entirely a case of mining and utilities, with manufacturing showing a mere 0.1% increase.
Moreover, he conveniently left out a large number of other reports showing weakness. Including a report showing falling real retail sales, falling business sales even in nominal terms, a sharp decline in housing starts, rising jobless claims -both initial and continuing-, the Beige book showing broad deterioration of business conditions and falling coincident indicators. Indeed, as the decline in coincident indicators more or less meets the definition of a recession, it proves that the recession has started.
He further claims that the New York Fed claims that the total value of mortgage defaults are just $116 billion, and that this supposedly makes the total writedowns of $250 billion unrealistically high. I don't know where he got that $116 billion number from, as I can't find it on the New York Fed web site or find it referenced by anyone else. But even if that number exists, there is certainly no reason to believe it will be all. Default means only loans currently in default, and not those near default, such as delinquent loans. And with the total value of mortgage debt being more than $10 trillion and with the delinquent and foreclosure rate being 7.3%, and with many more delinquencies likely to come, it is simply laughable to think that total losses will stay at $250 billion, much less just $116 billion.
Don Luskin with his denial of a recession is in short, really as pathetic as Baghdad-Bob when he denied Iraqi war losses even as American troops were already in Bagdad. Luskin deserves to be similarly dismissed as a fraud.