Friday, March 9, 2012

‘Animal spirits’ update

I continue to forecast the unemployment rate judgmentally, and by eye, to be consistent with the 1973-1974 pattern relating the “animal spirits” metric and the Michigan sentiment series.  Unemployment can be expected to jolt upward in 2013 as the European recession drags the US down with it, with the US Congress adding its own drag by reducing net fiscal flows into aggregate demand.



By my estimation the economy will enter recession in the first half of 2013.  From a chaos theory point of view, it looks as if the US entered a period doubling regime in the 1980s, 1990s, and 2000s, as the length of the cycle between recession rose to almost a decade.  Period doubling precedes the transition to chaos in many dynamic systems.  If that is what has occurred, then we can expect a choppy short business “cycle” for some time to come, with perhaps another recession in 2018 or 2019.

We are in an “animal spirits” bubble now, hard as that is to believe.  The next bout of depressed spirits will probably be accompanied by another staggering downward of living standards, health and welfare of the 99%, which may or may not finally motivate the population to force democratic changes that will benefit them. 

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