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The Adversity Index was created by msnbc.com and Moody's Economy.com to track the economic fortunes of states and metro areas. Each month, the Adversity Index uses government data on employment, industrial production, housing starts and home prices to label each area as expanding, at risk of recession, in recession or recovering.

"Recovering" doesn't mean "recovered." It doesn't mean that an area's economy is above where it was at the beginning of the recession, just that the area has begun to dig its way out of the hole.

The Adversity Index was designed to be a slow-moving indicator. It looks for sustained changes, so any one-month jump is likely to be smoothed out. This means the index is probably slow to call a beginning or end to a recession.

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Bubble Dynamics

A torrent of commercial development, a residential market convinced that if you don't get in today you're toast, and a wan government response to overheating ... Sound familiar? But there are several key structural differences between our real estate mess and China's situation, which suggest it is simplistic to assume China's bubble must end in a U.S.-style meltdown.

* 1. Leverage is muted. About 25 percent of Chinese buy their homes outright with cash. Among borrowers, a 50 percent down payment is typical; you can't get a mortgage with less than 20 percent down and if you are looking to buy a second (or third) property the down payment is 40 percent. China also has yet to develop a HELOC market. Lardy, of the PIIE, notes that China's household debt as a share of household income runs about 40 percent. In 2007, U.S. household debt to income was 130 percent. Nor has China fallen into the grasp of Wall Street alchemists concocting toxic real estate derivatives.
* 2. It's not a blanket bubble. Beijing, Shenzhen, and Shanghai are China's Florida, Nevada, and California: speculation and overbuilding have clearly fed bubble valuations. But Nicholas Consonery, China analyst at the Eurasia Group, a political risk consulting firm, says there's still plenty of unmet demand in China's second-, third-, and fourth-tier cities.
* 3. The ubiquitous demand argument. Consonery also articulates the most oft-heard reason for why the bubble doesn't have to burst: China actually needs more construction, not less, to accommodate the mass migration of Chinese from their rural past to their urban future.

While China's real estate picture doesn't necessarily stack up as Dubai times 1,000, or even the United States circa 2006, similarities to Japan's property bubble could be more salient. Rather than a quick burst, Japan is still working through a long slow deflation from its epic property bubble that peaked in the late 1980s. Patrick Chovanec, professor at Tsinghua University's School of Economics and Management in Beijing, who has advised private equity funds on China investments, says that's the danger facing China. "Never underestimate the ability of the Chinese to brush things under the rug, rather than acknowledging losses and poor investments," Chovanec cautions. "That can create a long-term drag on the economy."
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“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
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