It wasn’t the usual FedEx man who showed up at the economics professor’s door.
“Hey, you’re a new FedEx man,” the professor observed. “What happened to the other fellow?”
“He had two jobs,” the FedEx man replied. “FedEx was his day job. His evening job was repoing cars. Now he’s just repoing cars.”
This is the kind of conversation that gets you to thinking when you are a professor emeritus of international economics and finance from the University of Chicago and a former colleague of the late Milton Friedman.
That, and getting notice that your home-equity line is frozen because of the credit crunch.
“There isn’t a recession by the traditional data,” Robert Z. Aliber concedes. “It just smells like a recession.”
I first met Aliber in February 2007 when he spoke to a University of Chicago alumni group in Denver. He was billed as having foreseen the Asian crisis of 1998 and the equities bubble in 2001.
Stay in cash, he warned. The housing bubble is about to pop, and it will take down the economy and the stock market too.
He sounded like an alarmist. But when Aliber returned to address the Denver-based alumni group last March, he upped his chance of recession to 98 percent.
“I have a reputation for being downbeat,” Aliber said then. “But I’ve never been this downbeat.”
Housing prices were indeed plunging. But was the rest of Aliber’s forecast inevitable?
“Every time we’ve had a price deflation in a big asset class . . . a recession follows,” he said.
Price deflation in equities, for example, led to the 2001 recession. So where is the recession Aliber predicted for this year?
The nation’s economic growth indeed turned negative in the last quarter of 2007, shrinking 0.2 percent, according to revised gross- domestic-product numbers. But first-quarter growth was a positive 0.9 percent, even after revisions. And second-quarter growth clocked in at 1.9 percent.
So far, the U.S. hasn’t measured a contraction lasting for two full quarters, the standard definition of a recession. And employment numbers remain strong.
Aliber warns employment may not be reliable. Many lost jobs may not have been documented because they belonged to undocumented workers. One clue that this is happening is a decline in people wiring money to Mexico.
As for the official recession, just wait. First-quarter growth could still be revised lower, and then there’s the third quarter. “I just don’t see how we can be stronger in the third quarter,” Aliber said.
Housing values keep falling, foreclosures are still rising, banks are still taking multibillion-dollar write-downs, and now the rest of the world is slowing too. The U.K., the euro zone and Japan are slouching toward recession. China is likely to slow too.
“It’s going to be very difficult to get economic growth going again,” Aliber warns. “It’s a scenario we’ve not had since the early 1980s.”
The world’s economies can’t improve until the banks stop taking write-downs.
“There are years in which it pays to sit on the sidelines and let someone else take the losses,” he said.
For now, Aliber is working on the fifth edition of a book called “Manias, Panics, and Crashes: A History of Financial Crises.” He’s adding the housing bubble — which keeps bursting around the globe. Updating a book on financial disasters is the kind of opportunity that arises in an economy like this — kind of like openings for repo men.
Al Lewis: al.lewis@dowjones.com
