Bearish Links

I just wanted to comment on two bearish articles of interest.

• Warren Mosler has been showcasing weak economic data. The Fed manufacturing survey chart at the end of this article looks quite bearish. Although one can argue that there are signs that point to a possible recession, a serious recession requires the business sector to start laying off workers. Other than a few sectors, there has not been a lot of hiring, so there is less obvious need for layoffs. This could allow the "automatic stabilisers" to keep the economy going on a slow growth path.
• This article by Yves Smith discusses the potential for systemic risk as a result of the problems of large over-levered commodity traders. Although I would not be surprised if some entities blow sky high, it is unclear whether this will expand beyond the already weakened commodity sector. Although derivative counterparty risk is presumably a concern, the counterparties tend to create facts on the ground by seizing collateral quickly. A bankruptcy judge might attempt to reverse those seizures, but that reversal would take considerable time. This is not a possibility that will foster an immediate crisis. Unless people have been doing some remarkably stupid things (which I recognise is entirely possible), I do not see how this can infect the wholesale funding market for the universal banks, which was the problem in 2008. We would need a cascade of other defaults by firms in the "real economy" in order to make people question bank balance sheets once again.