The U.S. Isn’t Prepared for the Next Recession

https://www.theatlantic.com/business/archive/2017/10/next-recession-prepared/544391/?single_page=true

by TimJRobinson • 9 years ago

167 193 9 years ago

cm21872• 9 years ago

At the current pace of rate rise and the announced pace of withdrawal of QE, it's going more than 5 years before the monetary policy returns to normal. I doubt the current cycle will last that much longer. That will leave the Fed with little tools to react, other than even more QE.

Shivetya• 9 years ago

the stimulus they claim is not wanton spending by the Federal government but transfer payments. Those include extensions of unemployment, food stamps, and other assistance programs. It also includes, contrary to how we think but government thinks, tax rate cuts and tax holidays.

the real threat isn't the US still, it is that Europe still is more likely to tip and negative interest rates over there are a serious drag. Just ask Japan how long the malaise was because of bad fiscal policy and attempts to prop up on government money was

apexalpha• 9 years ago

Just a few countries in Europe are in bad weather though, the Germanic core of the European economy is in good shape and Eastern Europe is rapidly catching up.

Maybe it's misplaced, but I am pretty optimistic.

digi_owl2• 9 years ago

I would not be. The reason Greece got such harsh treatment was because their government took over much of the private debt at the outset of the crisis to avoid mass bankruptcies. Thing is that much of that debt was issued by German banks. Thus if Greece defaults, German banking is in for a rough time.

Never mind that the German economy hinges on maintaining massive exports, while domestic wages have been deliberately held back.

cylinder• 9 years ago

It's all riding on the faith of the rest of the world in the US. Watch the USD. Once it plunges, it's over. Won't be able to print money anymore. Until then they can print away a lot of problems.

digi_owl2• 9 years ago

More like riding on the world's need for oil, as oil is by decree traded in USD.

jacobush4• 9 years ago

Yes, the US went from backing USD by gold to oil quite some time ago. The exchange rate is not quite fixed, but it’s upheld by the US military against anyone who would try to exchange oil for anything but USD.

JumpCrisscross4• 9 years ago

oil is by decree traded in USD

This is patently false.

OPEC quotes oil in U.S. dollars, because people tend to have U.S. dollars lying around as a result of the massive American consumer base (as well as deep and open financial system), but e.g. North Sea oil is sold for pounds sterling and Bakken shale oil is sold for loonies.

Oil is quoted, future and spot, in every major currency FX traders can think up. Wall Street would love if crude were quoted in more currencies. It would mean FX revenue. Sadly for it the world has some sense.

AlexCoventry2• 9 years ago

Faith in the US for what? If it's faith that the US can annihilate you if you get in its way, I agree with you. But if it's faith in the USD and US debt as reliable stores of value, I would say that the economics of a sovereign power is different from the economics of a subject household.

emodendroket13• 9 years ago

If the USD is doomed why isn't everyone pulling out?

saas_co_de3• 9 years ago

there is more than faith involved.

If you compare the U.S. to the rest of the world in terms of wealth, measured by productive land, population density, industrial development, and access to critical natural resources it is still in the #1 position and has the best natural defenses with no hostile nations on its borders.

Economics is all relative. Even if the U.S. is a disaster in many ways it only has to be as good or better than other large economic blocks in order to be competitive. Since the U.S. is in a superior territorial position and has the advantages of accumulated wealth and knowledge you really have to go out of your way to f--- things up for the U.S. to ever fall out of a leadership position.

Consequently, a "plunge" is very unlikely. More likely is a few more decades of high inflation, which is just a backdoor way to default on pension, social security, and debt obligations, followed by some kind of new stasis.

The people buying US debt are not dumb. They fully understand that it is impossible for the debt to ever be "paid" in any conventional sense. What they are betting is that the U.S. is still a better investment than other nations and that owning U.S. debt gives them leverage and access that outweighs the nominal losses. That is unlikely to change.

eternalban• 9 years ago

he people buying US debt are not dumb.

You are right. When presented with offers you can not refuse the smart thing to do is to go along, as a matter of survival.

Since the U.S. is in a superior territorial position and has the advantages of accumulated wealth and knowledge you really have to go out of your way to f--- things up for the U.S. to ever fall out of a leadership position.

They really have gone out of their way. I give it 5 years tops and U.S.A. will be given its U.S.S.R. moment. Don't worry, no actual oligarch families will be harmed in this process.

empath75• 9 years ago

has the best natural defenses with no hostile nations on its borders.

I think the US is in the middle of a cyberwar with Russia (which it may have already lost) in which physical borders mean very little.

mooreds2• 9 years ago

Agreed. The US is in a tough spot, but the rest of the world is in an even tougher spot. Definitely with regards to geography, but also with regards to demography (the only continent where population is continuing to grow is Africa). Worth reading: "The Accidental Superpower", https://www.amazon.com/Accidental-Superpower-Generation-Amer...

nradov• 9 years ago

It's going to be difficult to fully inflate our way out of the coming national debt crisis. When debt service becomes too much of a burden I expect that policy makers will also choose some sort of technical default where Treasury bond holders are forced to exchange their current bonds for new ones with lower interest rates and longer maturities. Many other sovereign states have taken similar measures.

Proposals have also been floated to require that retirement accounts such as IRAs and 401(k)s invest in Treasury bonds. That would give the Treasury a guaranteed debt buyer at whatever interest rate they choose to offer. All in the name of "safety" and protecting peoples' retirement accounts from the risks of the stock market of course.

pjc50• 9 years ago

That supposes it's possible for the USD to plunge relative to other currencies without also wrecking the economies of the rest of the world on the way down. In a globalised world we're all climbers roped together.

eighthnate• 9 years ago

Watch the USD. Once it plunges, it's over.

Historically ( past few decades ), during recessions and international crisis, foreign money would flow into the US, japan, switzerland, etc. But primarily to the US because we are the safe haven for the world and that inflow helped prop up the dollar.

If a major recession or international crisis occurred and foreign money didn't flow into the US, then it would signify a paradigm shift in the international political/economic order.

I don't think ( at least I hope ) we are anywhere near a paradigm shift in the world order given our preeminent military and economic position and our alliances around the world.

But I guess even the brits during reign of the british empire thought that their party would last forever.

padobson2• 9 years ago

There were some pretty decent warning signs the British Empire was over, the American Revolution being a good one.

For the USD to collapse and not take the rest of the world with it, there would have to be some sort of global currency diversification that diminished the centralized power of the US in the global economy.

To continue the British Empire analogy, there would have to be some currency "revolutions" around the world. If the USD tanked, would Euros be able to replace it? Pounds? Yen? Yuan?

All of the countries tied to those currencies are heavily invested in US debt and many of their fortunes are tied to the US consumer.

That paradigm shift may be coming, but it seems like it's still a ways off to me.

jbooth• 9 years ago

We're coming up on a full decade of people saying hyperinflation is "just around the corner".

How many years can it be around the corner?

DanielBMarkham• 9 years ago

The U.S. has gotten progressively worse and worse at handling recessions, and yes, it's in no spot to handle the next one.

But this is nothing new. It's been heading this way for a long time. You could have ran this same article a year ago before the current administration took over.

I don't want to mention politics, but politics plays a big role here. When your party is in power, life is good and spending is easy. When your party is out of power, hard times are coming and we should prepare.

The state of the nation doesn't flip around that quickly. Instead it's all about long-term trends like debt and interest rates. But by viewing all public policy through a partisan lens, it allows folks to always blame the "other guys".

It is a dysfunctional political system that's led to a dysfunctional financial system. I think the U.S. might have another decade or two, but one day, being the world's reserve currency ain't going to cut it any more. That day is going to suck.

tonyedgecombe2• 9 years ago

Democracy does seem to have a problem delivering fiscal responsibility, it's too easy to put it off for the next government.

jacobush4• 9 years ago

The problem is larger than fiscal. It’s about long term thinking in general. We have no common cause, vision or “myth” to gather round.

saas_co_de3• 9 years ago

according to most of the histories I have read monarchs and dictators have not been well known for fiscal responsibility either so I am not sure if this is a democracy problem.

maxerickson2• 9 years ago

Here in the US it is evident that we have plenty of resources available, the "supply" part of the economy is working great. There are people that have limited access to this fountain of goods, probably for multiple reasons.

There's an argument to be made that making a number bigger in a ledger for the sake of increasing access to that fountain of goods is not a "crisis".

emodendroket13• 9 years ago

Or, more cynically, you can deliberately create fiscal crisis conditions to justify cutting programs you wanted to get rid of in the first place.

peoplewindow5• 9 years ago

Don't over-generalise from the USA. There are plenty of democracies that run balanced budgets and thus don't have a deficit, or even run a surplus. For example, Germany, Switzerland. The UK government has won the last three elections on a backdrop of "we're going to cut spending still further to try and balance the budget" and voters supported that.

The USA is actually somewhat unusual amongst democracies in how little effort there truly is to reign in spending. The Republicans seem to have lost any ability to enact real policy. Only the Dems seem able to make major changes to US society and it's always in the direction of more spending. When the Reps get in, they seem too weak, too divided and too beholden to the military to pass any real spending cuts.

hackerguy992• 9 years ago

The U.S. has gotten progressively worse and worse at handling recessions

Recessions have been fewer and lest frequent according to the data. What are you looking at that disputes this?

emodendroket13• 9 years ago

I'm guessing that, like the article, he's talking more about mitigating the pain of recessions for the average person.

spodek• 9 years ago

Doesn't a recession happening mean we were unprepared?

If we were prepared to handle it, wouldn't we, and then avoid it?

sharemywin• 9 years ago

it's not binary. without the safety features economy spirals even more out of control.

SomeStupidPoint2• 9 years ago

I tend to think of it as: we go into a recession but not a depression because automatic + manual safety checks were deployed.

It's actually hugely troubling how much has been cut from government safety nets, because it seems liable to send the next recession into a depression and completely wipe out the very base who voted for those laws -- the poor South and the industrialized Midwest. I don't think rural America will survive the next depression with the social safety nets gutted: they've literally cut their own parachute lines, so they're going to crash not just fall.

But hey -- they saved a few years on taxes, right? Oh... wait... that was billionaires. Nevermind.

mcguire3• 9 years ago

But they won't go away when they (we?) crash. And they will likely want to double down on those voting patterns.

FussyZeus6• 9 years ago

Economies bounce. Boom and Bust cycles have been with us since the beginnings. The lack of regulation though and the rolling back of financial policies in the last few years have created an environment where a whole lot of people are in a whole lot of risk that they themselves aren't entirely responsible for, and haven't agreed to.

If the next Bust goes as badly as some are saying, that could be the death knell of Fiat currency. This isn't the first time it's been mismanaged to a degree bordering on straight insanity, and it probably won't be the last either.

mcguire3• 9 years ago

"...the death knell of Fiat currency."

Could someone enlighten me as top the end game? I mean, after the world economy collapses into a sink hole big enough to destroy the confidence in all national currencies?

pault• 9 years ago

How would a commodity backed currency fare better than fiat in an economic depression?

speby• 9 years ago

Maybe but that also assumes economies can actually be prepared for recessions. For starters, that means knowing what pieces of the economy are in a state that could trigger massive sell-offs and value destruction.

Remember that the housing bubble that led up to 2008 wasn't well-known. Granted, there were economists who were publicly saying a recession was imminent (and they weren't wrong), however they were outnumbered compared to those who were saying otherwise.

How does one get prepared in those situations? Tin foil hat, perhaps, and then pray?

mywittyname6• 9 years ago

Save money. Which is, I believe, the crux of this article's argument: people do not have enough cash on hand to weather the storm.

mcguire3• 9 years ago

The first line of defense has been to lower interest rates. That can't happen currently.

A second line is to increase government spending. That seems unlikely.

The article notes that we have been reducing back-ups like food stamps and Medicaid. It would take time and political will to restore those.

Gustomaximus3• 9 years ago

What they addressed at the end of the article is the key point to me. There are reduced nations left to fuel the worlds economic engine in a recession. Previously events like 2008 we had India, Middle Eastern and Chinese economies doing massive development, so while the western countries went to recovery mode, the could benefit and hold themselves a bit better from these other nations growth.

Today if we hit a trade/financial crisis its likely to spread across the major global economies. African areas and India seem to have ongoing growth potential but I dont see them coming to the rescue.

And should a major economy like US have a crisis this could have a global impact compounded further by; 1) The massive global debts being accumulated at personal and state levels pretty much everywhere. This is setting ourselves up for potential contagious failure of our systems. Not just inter country finance but imagine there was significant defaults and how that would spread to pension funds and back into the economy. Small business lending etc. Our globalised and finance heavy economies dont have adequate circuit breakers. Further 2) I suspect developed nations urbanisation will make any significant downturn harder on the masses than previous recessions. In the 1920's you had 30%+ of people on farms. Now you have something like 2%. Back then people could more easily tighten belts and become increasingly self sufficient over a few hard years. Today it would be a significantly more difficult position for the government to manage, both by volume of people that would need full support and back to their indebtedness. This could spell real trouble if the wheels fall off. And given history, the wheels will fall off occasionally.

Anyway, I'm not trying to scare or convince people to buy bunkers. I do feel we should demand better long term governance from politicians vs this 'whats gets me in next term' politics we see today. With the tribalism and instant gratification of today's politics it doesn't seem to offer the best hope. But really who knows...

FussyZeus6• 9 years ago

Going along with everything you've said, the fact that the wealthy now control such a vast share of assets and capital is a super not-good thing in the event of a hard recession. Honestly our situation now looks so much like the Roaring 20's, a certain segment of the population getting a shitload of everything, while everyone else goes hungry (and famously, the roaring 20's tapered off nicely and we all came out better- oh no wait, it was the Great Depression and we had to participate in a World War to get out of it).

Income Inequality and Lack of Social Mobility are a cancerous tumor growing inside the United States and many other developed countries too. This shit is a powder keg and the wealthy need to realize that if they keep pushing to get that next dollar, eventually all their money isn't going to keep the pitchforks at bay.

LeifCarrotson• 9 years ago

we had to participate in a World War to get out of it

I'm not sure that "participation in a World War" was what got us out of it, nor is that an admissible tool to correct a recession. WWII did kick-start a lot of valuable developments, and it allowed the government to write a lot of checks and take out a lot of loans to inject money into industry, I'll grant.

But I'm curious what you think would have happened had the Nazis not come to power in Germany, and Japan not taken Manchuria.

moduspol11• 9 years ago

I think it's different this time around.

Student loan debt and healthcare costs are out of control, but the practical difference in quality of life between the rich and average American is smaller than ever. All the money in the world won't make Facebook better, or get you another season of Breaking Bad, or a better iPhone, or a better video game, or faster speed limits.

People aren't going to raise pitchforks because someone has more zeros in their bank account.

ameister145• 9 years ago

Income inequality and lack of social mobility don't lead to widespread violent revolution unless you add in famine.

Just because you'll never be able to afford floor seats doesn't mean you're going to attack the people that can. If you don't have food for your children, though, and you don't see another way - that's a lot more likely.

Gustomaximus3• 9 years ago

eventually all their money isn't going to keep the pitchforks at bay.

I wonder if it will. This is where drone and automation tech can get scary.

Particularly combining drones with less than lethal tech could be super dangerous for our society. And I say less than lethal as it is a huge step to straight out attack and main people. But imagine something like the LA riots again. I suspect many people wouldn't be OK if some drones with paintball and tasers were sent to 'calm the fray' and zap a few nasty looters type thing. As long as it was controlling some 'evil few'. Then the evil few starts to expand...much like surveillance today. So if we ever see this style of scenario in our lifetime I feel people should use all political clout to stop it in its tracks. It could take society in a really bad direction and I dont doubt some people will look to take this route.

crimsonalucard• 9 years ago

Rich people aren't pushing for it. There assets appreciate without any effort. This is the tricky part. There is a point where you are so rich that your assets itself just make money for you.

cubano2• 9 years ago

By definition the "wealthy" have always controlled the "vast share of assets and capital" in the world.

How could it be anything but?

The reality is that the "poor" in developed countries live better then 99.9999% of all humans have ever lived on this planet.

You disagree? Well consider this then...just very-short-90-years-ago, the 16 year-old son of the most powerful man on Earth died from a blister on his foot he got while playing tennis on the White House lawn.

We should all stop looking at the glass being half-empty.

Qwertious3• 9 years ago

and we had to participate in a World War to get out of it).

I think it wasn't participating in WW2 that got the US out of the depression, so much as everywhere else being completely fucked by war, with the USA being basically the holder of the best production setup at the end of the war, and therefore able to export an absolute fuckton of product to help Europe et al rebuild.

I suspect that if USA never joined the war, it would actually be better off today economically, since WW2 would have proceeded regardless.

JumpCrisscross4• 9 years ago

The United States exported $2.2 trillion of goods and services in 2016 [1]. That's 12% of our $19 trillion GDP [2]. Moreover, because we run a trade deficit, net exports subtract from our GDP [3].

The reason why where the American economy goes, so does the world, is American consumption. Americans buy. As a result, foreigners end up with claims on American assets. Those claims are an outward transmission channel for economic shocks [4]. The same is not true in reverse.

China crashing wouldn't be nice for us. But it's less dramatic to America if China crashes than vice versa.

[1] https://fred.stlouisfed.org/series/IEAXGSA

[2] https://fred.stlouisfed.org/series/GDPA

[3] https://fred.stlouisfed.org/series/A019RE1A156NBEA

[4] https://www.econstor.eu/bitstream/10419/60730/1/635889102.pd...

dragonwriter3• 9 years ago

Moreover, because we run a trade deficit, net exports subtract from our GDP

No, net exports add to GDP, its just that the value is negative. (Or, equivalently, the positive number of net imports is subtracted from GDP.)

The reason why where the American economy goes, so does the world, is American consumption. Americans buy lots of stuff. As a result, foreigners end up holding lots of claims on American assets. Those claims are the transmission channel through which American shocks reverberate abroad [4]. The same is not true in reverse.

No, the mechanism isn't the same, but there is a reverse mechanism; foreign shocks dry up the flow of capital into the US from abroad (and potentially leads to disinvestment), which reduces production possibilities in the US. It's the flip side of the way US shocks affect the rest of the world, but the net effect is similar (though the domestic conditions which can magnify or mitigate it are different from a demand-driven shock.)

cm21872• 9 years ago

And even in the 2008 crisis, the chinese economic engine was largely boosted by the money printed in china and the ensuing local credit boom (exports have otherwise collapsed which would have hit them hard). I don't think this trick is repeatable in the short term.

perseusprime11• 9 years ago

I think Africa is a great opportunity and we are not scratching the surface. Imagine the world dynamics if 100% of Africa is highly educated.

mythrwy• 9 years ago

There are lots of great opportunities in the world but in many cases the block to realization is local culture and behaviors. Violence, corruption, tribalism, cultural bigotry, religious zealotry....

Eduction is only a small part of the answer and hard to implement with the above.

peoplewindow5• 9 years ago

People have been trying to turn Africa into a great opportunity for far longer than I've been alive. It never works. There's something more fundamental there that's causing problems than lack of education.

That said, I believe the most important stats are moving in the right direction there.

southphillyman• 9 years ago

The majority of Africa is still dealing with the effects of colonialism. Leaders are incentivized to enrich themselves via horrible resources deals, tons of cultural conflicts and agendas in countries with arbitrary colonial defined borders, lopsided trade deals signed as part of independence granting treaties etc

mos8• 9 years ago

I do feel we should demand better long term governance from politicians

Do let us also know what we should demand from you.

seem_2211• 9 years ago

I think you've got a really underrated point about the farm population.

We've generated enormous wealth and an amazing quality of life by specializing our skills and the global economy to a massive degree. But we've also got a system that leaves skilled workers vulnerable if they are "no longer required."

Reading books before say 1950 and it's incredible to see the diversity of skills that individuals had. Now we're in a hyper-optimized economy where we get a handyman to do basic home maintenance tasks, or we get our oil changed by the dealership, rather than doing it by ourselves. And from an economic perspective, it makes sense - especially if you are able to earn a lot of $$ per hour. But it also makes us a lot more fragile.

We've ruined our waistlines with our diets, we're wrecking our mental health and concentration skills with our social media / internet usage, and the average person has disastrous finances.

I don't know how we fix this, but I often think about how I can protect myself and my standard of living if things get worse. I think we all should do this, and we should proactively do things to ensure that we've got some level of individual buffer for when things go bad.

jogjayr• 9 years ago

Compared to the 1950s it's also far easier for the average individual to learn how to do basic home maintenance, change their own oil or cut their own hair. It's not all doom-and-gloom.

emodendroket13• 9 years ago

It seems like the main takeaway here is "the social safety net has been deliberately weakened, and now in a downturn people will be more hurt." Well, yes, but in some sense that's the point of weakening the social safety net.

humanrebar• 9 years ago

...in some sense that's the point of weakening the social safety net.

It sounds like you're saying people want to hurt poor people. Did you mean that or do you care to elaborate?

emodendroket13• 9 years ago

Well, sure, my claim here is that without the threat of being unemployed and destitute it's hard to maintain labor discipline. "Political Aspects of Full Employment" is probably the classic essay outlining the case for this claim.

eli_gottlieb2• 9 years ago

It sounds like you're saying people want to hurt poor people.

Well, let me quote some recent news:

Speaking to National Review editor Rich Lowry at an event hosted by the conservative magazine, House Speaker Paul Ryan made the case for the American Health Care Act by presenting it as a once-in-a-lifetime opportunity to cut Medicaid spending.
“We’ve been dreaming of this since I’ve been around,” Ryan says, before interrupting himself to clarify exactly how big of an opportunity this is, “since you and I were drinking out of kegs.”

https://www.vox.com/policy-and-politics/2017/3/17/14960358/p...

Yes, the current Speaker of the United States House of Representatives wants to hurt poor people. He's been dreaming of it since he was doing keg-stands in college. He said so.

bluGill3• 9 years ago

It isn't that anybody wants to hurt the poor. It is that people want the poor to take care of themselves.

I know I get jealous when I think of a certain girl I know who dropped out of high school and had a few kids and collected welfare to pay for it. I worked hard to pay for my college education, now I'm in part paying for her bad decisions, my share of her support could be spent on a widget I want instead.

Note that I intentionally picked he worst, least sympathetic example of a poor person: someone who could have made something of her life by choose not to. I also know a poor person who is sympathetic: born with Downs Syndrome he will never be more than assistant usher in the local theater (the head usher - some kid who started two weeks ago - needs to handle the hard situations). As such he can never actually make a good living and most people are willing to spare some change to support him.

Helmet• 9 years ago

The "point" of weakening the social safety net is not to "hurt" people in a downturn, but to shift economic incentives by changing a reward structure from non-work/non-productive behavior to work/productive behavior.

How successful this policy is is debatable, but I think it's important clarify intentions and purposes.

emodendroket13• 9 years ago

In the end this is just a different spin on the essential premise that cutting the social safety net is using the threat of destitution to change behavior, and it seems plain that these kinds of changes hardly just affect people who are currently unemployed.

DonnyV• 9 years ago

I love the double standard and the underlining continuous servitude which is created with this statement. So the reason your not well off or have multiple homes is because you don't want to work. So lets give little Johnny or Maria a little whip to the back and make them earn the scraps we give them to keep themselves alive. Oh but if banks and corporations that have hollowed out the government coffers and pensions go under because of there gambling with derivatives. Well they need a blank check, or oil companies who have been making hand over fist in money for years, lets give them subsidies, or the company thats making a trillion dollar plane that doesn't even fly. Lets give them more money!!!

I really wish we would stop picking on poor and down and out people and start making the 1% pay their fair share instead of everyone else paying for them to be the 1%.

Systemic33• 9 years ago

Here's an intersting question; Would an economic recession be a boost for Bitcoin, or would it be dragged down?

My intuition tells me that Bitcoin would see a surge, as it becomes a stronger pillar of monetary value that crosses country borders, similar to the dollar, but not tied to the US.

zanny2• 9 years ago

Given five years of data on bitcoin prices I think it is a false flag to think any macroeconomic force correlates to bitcoin. Bitcoin is centralized enough, and independent enough, that the real motivator of bitcoin price is the whims of a handful of people who control most of the economy, whatever those whims may be.

Often those whims can correlate to shockwaves in the economy or the policies of the US and China trying to stomp out miners or trading but fundamentally they aren't reflective of broad market ideas the way most major stocks are. Bitcoin is much more centralized than traded stocks because its economy is so small and the barrier to entry so high.

People keep trying to find the trends in bitcoin, but the active pursuit of trends is what motivates the dominant whales to avoid being predictable.

moduspol11• 9 years ago

That is my feeling as well.

I think we got a taste of what will happen with economic certainty in 2008: they'll print more money. And in a situation like that, people will want something with the supply algorithmically constrained like Bitcoin.

If nothing else: Even if Bitcoin's "value" stays constant, its value in terms of USD will rise as inflation occurs. I'm not sure what rational case one can make that it would lose value as faith in the US economy gets weaker.

chiph• 9 years ago

I expect the coin markets to take a hit as well. In a recession, people stop spending to preserve their cash and ride it out. I would expect the weaker coin exchanges to go under for lack of trading activity.

As word of this spreads, fewer people will be buying coins for fear of having their coins held by a soon-to-go-under exchange. Lack of demand will then drive exchange rates down.

cubano2• 9 years ago

Isn't prepared to do what exactly?

Does The Atlantic think people are just going to lay down and die when it comes?

People will deal with it the way they always have of course, by modifying their behaviors to align with current financial realities.

I really don't understand the point of article like this.

3pt14159• 9 years ago

There are systemic shocks that you're sweeping under the rug.

If most people in a state is underwater on their house and they declare bankruptcy there is a real economic erosion that occurs. Foreclosed houses get looted, depressed people stop working, already stressed state finances break under the burden of further aid applicants.

By saying they'll just "modify their behaviours" you're essentially saying they'll just "go on welfare or become homeless on the street".

Most of America is not ready for the next recession, and it is coming at the worst time, when Baby Boomers are starting to strain the retirement and healthcare systems.

ihsw2• 9 years ago

Paradoxically, economic downturns disproportionately affect the economically advantaged. While the medium and lower classes' financial situations don't need to travel very far to reach the bottom, the rich (and super-rich) will see their income and wealth descend a steeper cliff much more violently.

Skilled individuals can seek employment (at least until regional supply is exhausted) whereas wealth does not recover so quickly. What can take a generation to build up would be wiped out within a single fiscal year.

War and economic recessions/depressions have a tendency to assiduously devour the rich. To be quite honest, war and economic depressions are the best way to reduce income inequality. The old adage of the tree of liberty needing to (regularly) be replenished by blood seems to apply.

ProAm• 9 years ago

Does The Atlantic think people are just going to lay down and die when it comes?

It's a definite possibility [1]

[1] http://www.npr.org/sections/krulwich/2014/06/11/318885533/su...

namlem2• 9 years ago

No worse, people will revolt, resulting in violence and instability. If we have another market crash in the US, the government is likely not going to do a good job dealing with it. If that happens, within a few years we can expect to see both fascist and socialist parties rise to power and start fighting it out for dominance.

foxyv• 9 years ago

People will deal with it the way they always have of course, by modifying their behaviors to align with current financial realities.

God what a beautiful way to describe violent protests and looting. They are just adjusting their behaviors to align with current financial realities!

rothbardrand• 9 years ago

This comment identifies parties responsible for actions, but these actions are taken by democrats and republicans alike, no president in my life time has failed to engage in these practices. This is not a political response.

Recessions are not "just how economies work". Recessions and depressions are the product of the monetary shenanigans of the central bank, as laid out well in the Austrians Business Cycle Theory. The short overview is, easy money means government gets to spend and the money creation process includes showering those at the top - wall street banks and government connected entities-- with new money that they are expected to "invest" in the economy. The problem is this is malinvestment and distorts the markets.

You can only do it so long and you invariably create bubbles.

A recent example of this I have lived thru is the dotcom boom...when it went bust, interest rates were put below the cost of money, and banks were mandated to make bad loans (prudent underwriting of loans was considered "racist" by democrats in the late 1990s so CRA was changed, later analysis showed it wasn't correlated with race after all.) Then under Bush the spigots were really opened and suddenly you have very cheap money to buy houses with.

Buying a house with cheap federal reserve money was a form of the carry trade--- where you buy an asset worth X and then pay it back with increasingly lowered value dollars.

This resulted in the housing bubble and of course the housing crisis.... which was "fixed" with massive amounts of even more easy money. This money is now going into wall street again, this time into equities, and hedge funds and venture capital.

It will eventually bust again.

IF you don't have an easy money policy then interest rates follow the supply demand dynamics of a market, and it will self regulate. Even if you don't think it will perfectly regulate itself (and that's true) it will tend to, rather than get way out of whack.

What we have now is an economy that is has gotten so out of whack and never been able to properly recover itself by unwinding the last two bubbles.

mjburgess• 9 years ago

Right, because there were no recessions and depressions before central banking. Oh Wait! They were more frequent and worse.

The "government is the source of all economic problems" is a religious myth as wholesale as "satan is the source of all evil, god is the source of all good".

prudent underwriting of loans was considered "racist" by democrats

is a myth.

Conspicuously missing from this comment is anything about deregulation, nothing about Glass–Steagall. Only euphemistic suggestions that somehow people disagreeing with redlining (and other practices) somehow caused a crash.

This view is only possible if you assume any behaviour people partake in a market is the right behaviour and so any adjustment to that must be bad (, and thefore ... euphemism euspemism... crash).

No. It is possible to have a financial system which is regulated to minimize perverse financial practices. We should place blame on the legislators who fail to do so and the financiers who act recklessly. Not wink and nodd towards "prudence", by which we mean, a president asking for an end to racist policies is more severe than deregulating the banks.

liberte82• 9 years ago

Why don't we just flag this article too along with all the others, if it's too unpleasant to think about?

The U.S. Isn’t Prepared for the Next Recession

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