Caterpillar CEO says no double-dip recession

August 19 (AP) — Global equipment sales increased 32 percent. And engine and turbine sales were up 5 percent overall. “There seems to be a doom and gloom out there in the punditry,”CEO Doug Oberhelman said. “We’re not seeing that.” Caterpillar said equipment sales in the Asia Pacific region surged 41 percent in July, and North American sales improved 38 percent over last year. The smallest increase came in Europe, Africa and the Middle East where sales still increased 19 percent. CFO Ed Rapp says 2010 has been a year of recovery since the economy bottomed out in August or September, with the developing world leading the way in growth. Rapp said that in past double-dip recessions, the first recession is usually a weak one and the central banks usually typically act prematurely to raise interest rates and scale back stimulus efforts. He said neither one of those applies to the current recession.

22 Responses

  1. Sounds like CFO Ed Rapp is looking at this as a normal post-war recession. But this credit collapse this time is much bigger than anything since the 1930s…

    1. This is largely what the kerfuffle is about. Most people in charge are treating this as a business cycle and not a financial cycle. Richard Koo is almost along in the media calling it a balance sheet recession, although that is beginning to be picked up.

      Many people, notably Bill Black, Frank Partnoy, Janet Tavakoli, Simon Johnson, and Eliot Spitzer, have been calling this a deep cover-up of a monumental financial crisis resulting from massive manipulation and outright fraud, which has left the financial system in tatters, mired in toxic debt that the government is assisting them to conceal.

      The former camp thinks that high unemployment is “just” a lagging indicator. The latter camp says that it is a harbinger of the effects of an unresolved financial crisis that will affect the US and world for some time to come if it is not dealt with appropriately so that we can move on.

      1. True, and I would be for extending the Bush taxes entirely at this time, and even deepening them, along with instituting a payroll tax holiday and a blanket per capita grant to the states as long as necessary, as well as more stimulus expenditure, if it were not for the issue of the nonsensical and disingenuous “strategic deficit” that is already being used to justify cuts to social expenditure that would drastically affect effective demand in the future. There is no way that privatization would take up the slack of reducing and eventually abolishing SS and Medicare as we know it, because a lot what that does not not profitable. It would create a social disaster. And privatization is the declared goal.

        The other issue is the balance sheet overhang at the big banks that the above claim are being covered up and are creating a financial drag that will last years (Japanification) if they don’t actually blow up with increasing defaults, e.g., due to premature Fed tightening or fiscal austerity (1937 redux). While increasing employment would relieve much of that pressure, it still wouldn’t deal with the underlying problem, which Black calls “control fraud,” and which remains in place, preparing the ground for another financial crisis.

      2. The ‘full employment budget deficit’ assuming 4% unemployment is full employment is still probably a surplus and therefore continues to be unsustainable

        A payroll tax holiday probably shifts it to a 4% deficit or so, which might be sort of ok.

        So there is a case to be made that FICA taxes never have to be reinstated.

        Also, if banking stays limp, that’s a good thing- means for a give size govt we can have even lower taxes, etc. So why work to ‘fix’ it???

        And a lot of control fraud and other counter productive incentives can be dealt with at the corporate charter level.

      3. The ‘full employment budget deficit’ assuming 4% unemployment is full employment is still probably a surplus and therefore continues to be unsustainable

        If we put in a place a price control system to put a lid on cost-push inflation, the unemployment rate could be pushed south of 4%. You don’t need Ken Galbraith rationing sugar and gasoline via an OPA bureaucracy to achieve the sub-2% unemployment rate we last saw during World War II. As I’ve mentioned before, William Vickrey’s “chock full employment” proposal involved the use of a “gross markups market” to control prices, allowing for a full employment economy with low inflation.

        A payroll tax holiday probably shifts it to a 4% deficit or so, which might be sort of ok.
        So there is a case to be made that FICA taxes never have to be reinstated.

        A payroll tax “holiday” implies it’d be temporary, the question then is at what point and how fast it should be reinstated. I’d agree that a payroll tax “retirement” would be a sounder policy, but if a FICA regime is going to stay left in place, it should be tied to the unemployment rate. If 100% of the standard FICA rates were only levied at 0% unemployment, I don’t think we have to worry about running a budget surplus– the lowest we’ve ever gone, during WWII of course, was 1.2%. Another idea I’m fond of is replacing FICA with a bank transaction tax (anyone unfamiliar with the idea can google Edgar Feige’s APT proposal). This hits demand-pull inflation from two angles: As Krugman would say, “What determines the price level? Let’s assume a simple quantity theory, with the price level proportional to the money supply: P(t) = V*M(t)”.

        Any tax would reduce M (money supply) by draining reserves, a bank transaction tax that causes a drop in transaction volume also reduces V (velocity of money). Here again, I’d set the rate to be deficit neutral at 0% unemployment and then reduce collections by subtracting the unemployment rate (U3 rate x 10), adjusting monthly whenever Warren’s new friends at the DOL come back with the latest employment figures. :o)

      4. All of which uncovers the dysfunction of our financial “system”. Recession souffle served in a nice gold-standard codpiece, ala Celente, while the rich ask “recession, what recession?”. Truly, this seems to be the landscape I’m seeing with my clients. The upper crust is spending (but a bit cautious) and below that level it’s a wasteland.

        How all the goldbugs would love for the economy to explode so they could be hailed as a prophet, then later as a God, all the while picking up assets at 5 cents on the dollar; oh, how they must dream of it! Money, fame AND power all in one fel swoop. Look at all the commercials and urgings for people to buy gold! My guess is that gold is in the distribtion phase and the sellers would love to unload it on an investor who will then just watch it’s value wilt. My guess is the ones shouting the loudest are the ones with the driest mouthes.

        Mixed standards, fairytales, hyperbole. Politicians, economists and wannabes desparately grabbing from a bag of conjugated logic in a bid for popular backing. Dysfuntion attracting dysfunction.

        What’s a citizen to do?

  2. I would rescind the tax cuts for the wealthy, since that was part of Obama’s 2008 campaign. A big part of the problem, in my opinion, has been the unequal distribution of income. Too much money has flowed to the wealthy who invest and save; too little has gone to workers who consume. The result has been high asset prices that are not supported by the underlying income and consumption levels. For a long time, consumption was propped up by increasing credit, but this has ended.

    Anyway, I think we all agree that the government has to run a bigger deficit to get people back to work. It just that some ways of doing this are more efficient and equitable than others…

  3. It would be interesting to see the stats on current/impending mortgage defaults with regard to just how short folks are (x% need 300/mo, x% need 1k/mo, etc). I wonder how much it would take (per household) to stabilize “the belly of the market”.

  4. In terms of unequal distribution of income, I would like to know how much has gone to bankers and insiders and not real producers. I don’t think more should be taken away from real producers who make, say, $200,000= thats reasonable for a small businessman taking on a lot of risk, but he gets lumped in with a govt bond trader making God knows what.

    Either way, taxes should be lower, especially for the people who actually do something.

      1. I think the general feeling among Americans not employed or reaping benefit from the financial sector is that the industry is swollen through subsidy and counterproductive to the real economy in many ways. IPOs, mergers, high risk/reward loans for fledgling companies, all of this seems useful and important for the real economy, but activity like securitization that inflates the price of homes and is deemed necessary to increase credit availability seems ridiculous to the non-financial expert. People need income not credit, and the cost of a home should reflect the cost of a home, not the demand for securitized loans. There is a sense that the greatest rewards of wealth do not flow to the most innovative producers, but to those who understand how all this is working and can position themselves to best take advantage of the structural deficiencies in our banking and monetary system. That the debate is framed in economic and not structural terms makes it difficult for politicians scared of reading to understand that it does not have to be this way.

      2. The crux of the matter is that supervisory reform inadequate in that both private and public regulation can easily be subverted. What is required is structural reform, but the wealthy and powerful have so far been able to successfully avoid it. Lobbiests still write the rules and the incentives are materially unchanged, which will lead to a continuance of malinvestment and financial imprudence resulting from moral hazard and lack of accountability due to state capture.

        The result is that the US middle class is still screwed, while the top end of town gets its way — a “new normal” with a higher “natural” rate of unemployment, hence depressed wages and the public coffer picking up the tab for their mistakes. They apparently figure that the emerging world coming online will take up the demand slack due to lower incomes in the US, while they gear up again.

        Meanwhile, mainstream economists look only to their models instead of looking out the window and tell us that everything is fine and dandy.

        Joseph Stiglitz, Needed: a new economic paradigm

    1. Perhaps we should have a government agency that determines who are the real producers and who are just the parasites making too much money, and then set tax rates appropriately. Also, the agency can decide what is a reasonable amount of money to make for each job and for the risk of each investment. I guess JD is as good a person as any to be in charge of that agency. I’m not sure what’s a fair salary to pay him, or what’s a fair tax rate either, but perhaps JD can weigh in on that as well.

      1. Good point JD, that’s exactly what Congress does now. Tax expenditures are now $1.2 trillion dollars a year. Congress could eliminate both tax expenditures and FICA ($870 billion a year) and there’d still be $330 billion a year left over– Adding back in mortgage and charitable deductions is $150 billion a year, the rest could be used to raise the standard exemption (Alan Grayson priced his $35,000 exemption per person at $159 billion a year).

        That will never happen, of course. People who take the standard exemption aren’t who’s funding political campaigns.

      1. I’m a soldier in your army Mr. Mosler. Your work has been very enlightening and I’m glad to have come across it. The biggest challenges are political- getting everyone on the same page so we can even identify the real nature of our problems, and then we can work on where to go to move forward. We’re still in phase 1, and there is so much misinformation, emotion, and tension out there that it is difficult. However, information can pass freely through the internet and you are reaching people. Self-proclaimed Conservatives and Liberals would support you if they were familiar with your ideas. Thanks again for the education, it’s time to get to work on helping the average person make sense of all these troubles; I will do my best to assist.

  5. I’m with you ESM- I neglected to mention that I don’t want the govt involved in anything like that or anywhere near it. Deciding “who is rich” and all that. I think changing the structure of the financial system to strip away the subsidy and obscurity of it all will solve the issue and allow resources to be reallocated. Sorry for the confusion- I am absolutely with you on that.

    I also like Mr. Mosler’s proposal for a national property tax, rather than basing taxation on incomes.

    1. I agree. I also like Warren’s property tax idea, although a consumption tax with a pre-paid rebate on the first $30K of consumption is a pretty good idea too (why not both?).

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