LA Times: "post-bubble global recession"

Peter Gosselin's front page article in today's LA Times, "Better off in 4 years? Unlikely" gives a good description of the economic context ahead for Westside real estate. Note especially the quotes from Stephen Roach, who has a track record of being a prescient bear. Here are some highlights:

"We're in a post-bubble global recession, and post-bubble recessions are lethal for growth," Stephen S. Roach, chairman of Morgan Stanley Asia, said from Beijing. "It will be a long time before the world experiences anything more than anemic recovery." ...

What most worries analysts is not a cataclysm such as the Great Depression but the sort of economic morass into which Japan fell after its stock and real estate markets burst in the late 1980s and early '90s [chart above, 2007 post].

Daily life for most Japanese citizens wasn't terrible. There were few company shutdowns or mass layoffs. Indeed, the Japanese came to call their economic condition the "golden recession," said Simon Johnson, a senior fellow at the Peterson Institute for International Economics.

The problem was that the country simply didn't grow -- and that, economists worry, is what could happen in the U.S. and around the world. ...

Although U.S. consumers constitute only about 4.5% of the global population, they bought more than $10 trillion worth of goods and services last year. By contrast, said Roach of Morgan Stanley Asia, Chinese and Indian consumers, who together account for 40% of global population, bought only $3 trillion worth.

In the last decade, a new generation of financial engineering -- complex deals involving home equity loans, subprime mortgages and other devices that provided easier access to credit -- seemed to make it safe for Americans to save less and consume more. That further expanded their share of global economic activity and made them even more indispensable here and abroad. ...

Initially, the expansion was heralded as evidence of economic vitality. But by now, it has become apparent that the growth was largely a debt-driven bubble -- and a double bubble at that, in housing and in personal consumption.

As the elaborate superstructure of easy credit began to pop rivets, consumers found themselves caught dangerously short. They have reacted by drastically cutting back on purchases, particularly those that are discretionary.

Retail sales in the last three months of 2008 plunged 7.7% compared with a year earlier, the government said last week, making it the worst sales quarter in more than 40 years. ...

"Decades of borrowing have finally caught up with consumers; they realize there is no more easy money left," said Allen Sinai, chief economist of Decision Economics Inc. "This is going to scar this generation of consumers the way the Great Depression did our fathers' and grandfathers'." ...

China and other Asian economies "were driven by export bubbles, which, in turn, were a play on the U.S. consumption bubble," Roach said. With the bubbles on both sides now burst, the U.S. and Asia are dragging each other down, he said. ...