Heads down for hard landing

WHY wait until later when you can panic today? Some of the economists who work for the big investment banks are salivating over the prospect of the US economic landing skidding off the runway in black ice.

Ian Morris, the HSBC man in America, has slashed his GDP forecast for this year from 2 per cent to zero.

We can forget about a V-shaped recovery in the second half of the year, he says.

Even though Alan Greenspan will flood the system with liquidity and keep hacking interest rates until they reach 4 per cent or less, these policies will initially appear “impotent,” because the focus for business and consumers is now on “balance sheet repair, not expanding consumption and investment”.

Morris says the signs of distress that precede hard landings, notably credit constraints and a reduction in household wealth, are present in the same way that they were before recessions in 1974, 1980 and 1990.

He does not see a return to meaningful growth before the second quarter of 2002.

If Morris is right, and HSBC does not have a reputation for being dills, two questions are raised:

How did confidence in the world’s biggest economy go so bad so quickly?

And how come Wall Street has started the year relatively chipper with the Dow Jones Index closing in on 11,000?

The answer to the first might be the US election fiasco, and the hollow victory of Muppet look alike George W. Bush.

Business hates uncertainty.

It is hard to think of anything that could create more uncertainty than not knowing who would run the country for what seemed like months.

Consumers too zipped up their wallets.

As to the second, fund managers like nothing better than looking across the valley of despair to the milk and honey on the other side.

The weaker NASDAQ players have been stretchered off the field, but the major institutions are heavily cashed up, and they are shopping around for cheap shares.

With the broad US market still selling at a ritzy 23 times deteriorating earnings, they might get them.

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