Goldman Sachs: Brace For Recession In 2008

Wall Street's Biggest Investment Bank Predicts Housing, Credit Turmoil Will Shrink Economy

(CBS/AP)  The biggest investment bank on Wall Street has a grim prediction about 2008: a recession is definitely on the way.

Goldman Sachs on Wednesday said it believes the housing slump and recent credit market turmoil will spill over into the broader economy this year. And, by the time it's all over, economists believe the Federal Reserve will cut interest rates to 2.50 percent from its current 4.25 percent.

There is a silver lining to the dire prediction, however, since Goldman projects the economy will recover as soon as 2009, making this downturn somewhat "recession-light."

"The recession is likely to last two to three quarters and should be relatively mild by historical standards, with a cumulative decline in real GDP of only about a half percent," Goldman economists' Jan Hatzius and Ed McKelvey said in a research note.

A recession is when the economy shrinks for six straight months, reports CBS News correspondent Anthony Mason. The last time that happened was 2001 after the dot com bubble burst.

Goldman switched to an "outright recession call" following recent economic reports that indicated a spike in the jobless rate, and a decline in home sales and manufacturing. They also expressed concerns that sluggish consumer spending will contribute to a recession.

The economists expect the Federal Reserve will aggressively lower rates to combat the credit crunch, including a half-point cut at its Jan. 29-30 meeting. The contracting economy is likely to push the unemployment rate to about 6.25 percent by late 2008, potentially hurting corporate earnings.

Goldman also expects that Congress and the Bush Administration will push through a temporary tax break later this year as part of a fiscal stimulus plan.

What would all this do to stocks and bonds?

Economists predict that consumer spending will likely post a small outright decline - unlike in the 2001 recession - as the housing downturn contributes to a negative wealth effect and consumers find it harder to obtain credit.

This will put pressure particularly on stocks in the consumer discretionary, financials, industrials, materials and information technology sectors. Sectors that might offer investors some protection in a recession, however, include health care, consumer staples, energy and utilities.

Meanwhile, bond prices are expected to rally as risk-averse investors pull money out of stocks and boost demand for safer, albeit low-yield, investments. Goldman predicts the yield on the 10-year Treasury note - which moves opposite its price - will fall to 3.5 percent by late summer following interest rate cuts. The 10-year yielded 3.78 percent on Wednesday.

All the recession talk has the markets on edge, reports Mason. Stocks rallied Wednesday, but the both the Dow and the Nasdaq are still down more than 10 percent from their recent highs.

Experts are predicting an ugly 2008 as inventories of unsold homes grow and a large number of adjustable-rate mortgages reset, sending more homeowners scrambling to make higher payments and pressuring the already shaky credit markets. What worries industry watchers the most, however, is the possibility that the housing troubles will plunge the economy into a recession.

"I think everyone is expecting the other shoe to fall. There's still some blood to be let," said Jim Gaines, a research economist at The Real Estate Center at Texas A&M University. "And historically, a downturn in the housing market has been a leading indicator of a recession."

[underdogus]

AN ECONOMIC collapse would likely set off a chain-reaction of unfortunate events to include business failures, mass unemployment, looting, rioting, violent crimes, starvation, THE THIRD HORSEMAN OF THE APOCALYPSE.....

[usayesterday]

It''s nice to know that there are actually some economists (and their respective organizations) that actually see REALITY!

There are far too many economists who like to paint a rosy picture, either for their employer (who is in denial), or their political affiliates (who are also in denial).

The big question is, how long and how bad will this recession be?

[clestes-2009]

Nonsense! But it won''t be pretty, either. I think it will be a lot worse than mild, maybe pretty severe lasting well into 2009.

After that it all depends on who is elected and what their economic plans are. To put the economy back on a solid footing, we HAVE to start striving for a balanced budget. Cutting expenses and raising taxes and closing tax loopholes.

If not, then the economy will tank, the dollar will plunge to a new low and inflation will run rampent. Anyone who has balanced a checkbook or used credit cards knows you CANNOT keep spending more than you earn and borrow money to keep spending more than you earn. Disaster and bankruptcy will soon follow.

[clestes-2009]

USAyesterday,

depends on who is elected in Nov.

[walt1944-2009]

Anyone who has gone through the reign of the first Great Emperor Bush I (Sr.) between 1988-1992, will rememeber the recession of the early 90''s.

Jobs were being lost, unemployment was near double digits, the economy was a mess, companies were closing, and people were so fed up that when they got "pink-slipped", they paid their ex-employer a "FINAL" visit by blowing his/her brains out! While all this was going on, the Great Emperor Bush I was denying there ever was a recession, traveling abroad (throwing up all over foreign dignitaries) and making sure HIS financial future was secure (much of it at taxpayer expense)!

Seventeen years later, we have the Great Emperor Bush II (Jr.) doing the same thing by saying that the economy is great, traveling abroad, talking "barf" to anyone stupid enough to listen, and making sure that HIS financial future is totally secure (a lot of it at taxpayer expense).

There is a lot of truth in the saying: "Like father, like son"!

SIG HEIL, BUSH!!!

[clestes-2009]

Wow, I just read something amazing! I know this is off the subject of a recession, but Deputy Assistant Secretary of Defense Mark Kimmitt has ADMITTED that the surge, as it is today, is NOT A SUCCESS due to the lack of parlimentary progress!

In fact he gives it a chance of 50 50 at best.

http://d-day.blogspot.com/2008/01/actual-big-story-pentagon-admits-no.html

Maybe there are people in shrub who actually do know what the hell is happening in Iraq??

[bobnjersey]

[Anyone who has balanced a checkbook or used credit cards knows you CANNOT keep spending more than you earn and borrow money to keep spending more than you earn. Disaster and bankruptcy will soon follow.][Posted by clestes at 03:24 PM : Jan 09, 2008]

that''s only if you''re responsible for your actions. the government does this all the time under the guise of ''rising tides floats all boats''.

disaster and bankrupcy could not possbily have been anticipated ... and there was nothing that could have been done to avoid it. (at least that will be the official line when it occurs)

[mudrose-2009]

I''m just waiting to hear it. Don''t disappoint me know. IT''S BUSH''S FAULT!!!!!

[clestes-2009]

mudnut,

if you don''t have anything constructive to add, why don''t you go blab on some other blog so we don''t have to wade through your tripe.

[usayesterday]

USAyesterday,

depends on who is elected in Nov.

Posted by clestes at 03:25 PM : Jan 09, 2008
...........

Perhaps, but there are significant economic fundamentals that need to be addressed and that cannot be done by just one person in the White House, it needs to be a concerted effort between the legislative and executive branches and that will take a lot of time.

Some of those fundamentals are:

Jobs, good paying jobs (in America for AMERICANS)
Trade defecit
Overall defecit
Inflation

...just to mention a few.

[clestes-2009]

bobnjersey,

denying responsibility isn''t going to do much to passify an already unhappy public. We will want and expect some kind of plan. Details of how to bring up the income and drop expenses.

The first thing I would expect is to close all tax subsidies and loop holes for oil companies.

The second I would demand the govn stop subsidizing big agriculture. It is OK to help out a small farmer but 95% of the money goes towards industrialized farms that don''t need it.

[jumkey]

No problem mudrose, it IS George Bush''s fault primarily.

Second in line are the politicians who serve only the interests of corporate America at the expense of the middle class - and those are all Republicans and a lot of the Democrats.

Finally, most importantly, it''s YOU who are responsible for the mess we''re in: the uninformed, blindly partisan, slightly loopy wingnut so enthralled by the George Bush personality cult that you vote again and again and again against your own financial interests.

I think that about covers it.

[jumkey]

No problem mudrose, it IS George Bush''s fault primarily.

Second in line are the politicians who serve only the interests of corporate America at the expense of the middle class - and those are all Republicans and a lot of the Democrats.

Finally, most importantly, it''s YOU who are responsible for the mess we''re in: the uninformed, blindly partisan, slightly loopy wingnut so enthralled by the George Bush personality cult that you vote again and again and again against your own financial interests.

I think that about covers it.

[antoniof123]

My God this is the worst President in US history if it gets any worst by electing another wing nut neo con then we should kiss the world good bye because anything worst than this idiot will mean a global war.

[random_radar]

If Goldman Sachs admits there will be a recession, you can bet we are in bad trouble. Investment banks make money by painting rosy pictures. They wouldn''t admit trouble unless they were sure denying it would make them look foolish.

[random_radar]

Sometimes I think we ought to elect another neocon president just to see how many liberals commit suicide. On the other hand, if we did, I might slash my wrists and die, too.

[d33pthroat1]

I remember Bush bragging for several years about how great our economy was under him and the proof was his favorite line: "More Americans own their homes than at any time in history. Minority home ownership has reached record levels."

He ain''t saying that anymore.

[bobnjersey]

[denying responsibility isn''''t going to do much to passify an already unhappy public. We will want and expect some kind of plan. Details of how to bring up the income and drop expenses.]
[Posted by clestes at 03:45 PM : Jan 09, 2008]

oh ... you''ll get a plan ... it''s just that the system is teribbly broken ... with reps claiming their contributions to an electorate that is more interested in steroid use in baseball than the conditions that ensure they can get a job, sell their house, and raise their family.

corporate interests, ideaological agendas, and general lobbying corruption will ensure you and i are the last ones represented.

there''s no change in sight ...

[shanev137]

Way to go Bush.

Thanks for killing every dollar-based investment vehicle out there.

[bobnjersey]

[Investment banks make money by painting rosy pictures. They wouldn''''t admit trouble unless they were sure denying it would make them look foolish. ]
[Posted by random_radar at 04:16 PM : Jan 09, 2008]

they''re selling short.

[neobrian-2009]

EVERYBODY Knows Shrub IS at Fault!
The Fact is : We `ll always have people that refuse to see the truth,no matter how blatant it is. These people that think O.J. is innocent,ones like this think Shrub is great.They can`t see the plain truth.And No matter what you show them,they think they are right.
Our nation Will recover from "The Worst Days "in US
history. Our aim should be that we never allow such corrupt and greedy people to ever occupy the white house again.
It was not intended to house criminals or harbor terrorists .It was built for people that we deemed ''respectable'' not ''despicable''.

[usayesterday]

Over the past 5 t 6 years, America saw housing prices and other costs of living increase double-digit percentages year over year...

...and yet, the incomes of the Middle Class only increased (on average) 1 to 3 percent, year over year.

I want to go and slap those people who called me crazy for thinking all this time that there WAS a bubble and that it WOULD burst big time.

The economy and the vast majority of the American people will suffer because of the lack of foresight so many "experts" have these days.

[bogusbones]

The foreclosure problem was manufactured by the banks and mortgage industry affecting a small percentage of home buyers in CA, NY, NJ and FL especially. Spur to the building industry. The Middle Class is a myth due to a lack of industry and shipping these jobs out of the country. Our nation was built on a strong middle class and if it disappears, so does the strength of the fabric of our country. Goldman Sachs you are as big a culprit in this shameful economic raping of the the U.S. as anyone. As Hillary said the days of big oil, bad banking and high college costs are coming to a close. Let''s hope. Capitalism has taken over democracy in our country and we will all pay for that within the next ten years.

[micma-2009]

Don''t worry America! The "trickle" in Bush''s Trickle Down Economics plan is coming soon. If, when it reaches you, it looks and smells like urine, that''s because it is. Support the troops!

[micma-2009]

That''s crazy, there can''t be a recession coming. Exxon and Halliburton are still posting record profits.

[vastr-wcon]

.
Today the DOW is up 146 POINTS!!!! The pre-recession rally is in full force, thanks to the greed and stupidity of investors. Those with IQ''s greater than their shoe size, however, are doing the right thing and taking profits and protecting their assets. The rest deserve what they will get.

.

[mbcsmith]

These were the guys that lost their shirts on the bundled home mortgages. Nuff said!

[micma-2009]

Don''''t worry America! The "trickle" in Bush''''s Trickle Down Economics plan is coming soon. If, when it reaches you, it looks and smells like urine, that''''s because it is. Support the troops!

[mcv57]

Is not that strange, but expected. That more upon more major financial institutions are exposing their analysis, but the Buckwacker does not say nothing.

That treasonist, lying dog has had his last wag the tail.

[tylenol6]

GOLDMAN SACHS = NEW WORLD ORDER SCUM

[tylenol6]

vote FOR RON PAUL.....WAKE UP PEOPLE!!!!! Pretty much
all of these candidates are pulling the wool over your
eyes. Most of these CFR candidates are selling out the
american people. The sheep seem to be falling for it. You get what you deserve.

[g-gfather]

GOLDMAN SACHS --one and the same that through leverage schemes helped bring on the CRASH OF 1929 AND THE GREAT DEPRESSION THAT FOLLOWED. RECESSION, MY FOOT. MY HOPE IS THAT THIS ONE WILL ONLY BE AS BAD AS 29 AND THE SUBSEQUENT DEPRESSION.WE AMERICANS HAD FAITH IN OUR GOVERNMENT THEN AND WERE LESS DEPENDENT ON FORIEGN OIL AND FOOD.WE HAD THE BASIC KNOW HOW TO SURVIVE. NOW WE ARE HELPLESS-HAPLESS DEPENDENT VICTIMS OF THE E-A-S-Y WAY WITH OUT THE MOREL FIBER TO SURVIVE OR REMOVE A GOVERNMENT TURNED TYRANNICAL. FOR THE CHILDREN PLEASE GET READY FOR WHATS COMING....NOW ! ! Great-grandfather

[joyous88]

Don''t you just love the conservative economy, Bush says its going great by the way

[tejasdemo]

Yea, thanks for the heads up. The average person has been in a recession for years as prices continue to go up and up and up and wages stay the same with fewer fewer good jobs.

[usayesterday]

Yea, thanks for the heads up. The average person has been in a recession for years as prices continue to go up and up and up and wages stay the same with fewer fewer good jobs.

Posted by tejasdemo at 06:39 PM : Jan 09, 2008
.........

Yep, apparently to the economists and the White House...


...its only called a "recession" when the wealthy have to cut back and/or make sacrifices.

[mcv57]

Place on your ballot: Bozo the Clown, at least he will make you laugh on the way down.

[rowdytexan2]

Cut goverment spending! Less goverment is better!

OKayyyyyyyyy.....

To do list:
Today: Cut the lights off at the White House...nobody''s home anyway, send Bush his pink slip--he''s being laid off--pink slips to the secret service, also--and also the White HOuse Workers--cancel Bush''s insurance policy--pack Bush''s personal effects and ship them to Dubai--send Laura home to momma (don''t forget the cigarette stock)--pack up the few post it notes left in the oval office (thank goodness all those papers are gone)--cancel the grocery delivery--cancel Dubya''s BP medicine prescription--check the pharmacy list for hallucinagens and cancel those--cancel scheduled Air Force1 flights to Crawford...
Tomorrow--Turn the lights out at the VP Mansion--call the exterminators for VP removal--cancel the regular delivery order for shotgun shells and pacemaker batteries--pack up the post=it notes--clean the ashes out of the office fireplace--cancel the monthly government stipend to Al Queda--hire an interpreter to fire all the household staff--send Tipper home to Momma (oh wait...who?)--check the bribes file and cancel entries--call the canine unit to check for bodies in the back garden--call the Dubai household staff and inform date of arrival--cancel the dsl, cell phones and hot line to Osama--send the standby ambulance back to the station--cancel all insurance polices and send outstanding bills to King Abdulla--cancel the hotline to Blackwater....

I think I''ve already saved us $6 trillion.

[gkc99]

"Bushie, you''re doing a heck of a job"!

Thanks, Bushits!

[usayesterday]

I think I''''ve already saved us $6 trillion.

Posted by RowdyTexan2 at 07:33 PM : Jan 09, 2008
..........

And that savings is just for the first fiscal year!

I like your budget reforms!

[donbl1]

And it all started by selling homes to people who could not afford them and should never have been given a loan......

[sioux4life1]

Goldman Sac another poltical cartel of the Bush/Clinton/Bush regime. Wonder who cooked the books in NEW HAMPSHIRE polls and votes Hilary?

[usayesterday]

And it all started by selling homes to people who could not afford them and should never have been given a loan......

Posted by donbl1 at 08:03 PM : Jan 09, 2008
...........

That is barely scraping the surface of the economic problem.

The people who could not afford what they were buying is just one of many factors causing our economy to falter. But I know its easy to blame just them, or Bush, or any one particular person or group. But it never solves anything when people can''t look at the ENTIRE picture first, before trying to solve the problem. When people find fault/blame with a single person or group, any and all (fake) solutions end up being just a band-aid style temporary fix. A little while later, the same problem still exists.

[donbl1]

USA, recessions are a normal part of US economics. They happen.

However, they can be made worse or better by the actions of large economic segments (financials in this case), the government or the federal reserve.

Greed has long caused bubbles in the American economy. The last two bubbles being the Tech bubble of the Clinton years and the housing bubble of the Bush years.

The solution? Tough this time as our inflation is higher. We do not want the stagflation of the Carter years.

[lssbigdog]

Well we have been in a recession for years. Im always shocked when its trickled up for recognition.
lol Milk $5.42 thats more outrageous then gas.

[neobrian-2009]

Rowdy Tex ...What Do U look Like ?
I Love Your Posts !,....Right On !

[neobrian-2009]

Rowdy Tex ...What Do U look Like ?
I Love Your Posts !,....Right On !

[king77shaw]

gold is hitting record highs why the dollar is tanking ... time to get out of greenbacks?

[mrconservatv]

The ''Plunge Protection Team'' Prepared

They''re not the New England Patriots

Bush of course was laughing out his arse when he said just a few days ago the economy was in good shape

Goldman Sachs sees US recession in 2008

Recession soon to be called depression of which millions of Americans are already facing although unreported by the US liberl/conservative media

FOX NEWS NEW MANTRA IN 2008

NO MORE REPORTING WE DECIDE

INSAIN McCAIN & Bilary Clinton

Unreported campaign slogans

Free the illegal immigrants enslave the citizens for a better coporate America

[searingtruth]

But wait, the economy is doing fantastic.

Really, it is.

And we''re "winning" in Iraq.

Really, we are.

And the founding fathers always intended for the President to be a Dictator, and indefinitely incarcerate illegally abducted American and foreign citizens in secret prisons without charge or representation where they are subject to institutionalized torture and murder.

Really, they did.

And how do we know this? Because Dictator Bush has told us so.
ST


"The greatest persuader is the ever encroaching power of truth."
SearingTruth

A Future of the Brave - www.searingtruth.com

[jowand]

Goldman Sachs on Wednesday said it believes the housing slump and recent credit market turmoil will spill over into the broader economy this year. And, by the time it''s all over, economists believe the Federal Reserve will cut interest rates to 2.50 percent from its current 4.25 percent.

The Fed causes recessions by jacking interest rates up until it kills business'' cash flow. The above sample from the article is proof of this.