This Isn't a Recession, It's a Collapse

http://seekingalpha.com/article/148526-washington-s-dilemma-this-isn-t-a-recession-it-s-a-collapse

by stuffthatmatter • 17 years ago

69 50 17 years ago

seekingalpha.com

stuffthatmatter14• 17 years ago

It doesn't help that: State Tax Revenues at Record Low

http://www.nytimes.com/2009/07/18/us/18states.html?_r=1

mpk• 17 years ago

Articles like this have me nodding 'yes, yes, yup, sure, yes' while I'm reading them. But by now it's just too easy to write them.

What I'd like in such articles is some root-cause analysis and at least a few pointers on how to proceed.

stuffthatmatter14• 17 years ago

Agreed, but I bet the masses still believes we're in recovery, because that's what the news media have them believe. Look at all the 'recovery' headlines on the major financial news portals and you'll see.

Geithner Sees Evidence of a Financial Recovery http://www.nytimes.com/2009/07/17/business/economy/17geithne...

Summers Says U.S. ‘Close to a Level Path’ to Recovery http://www.bloomberg.com/apps/news?pid=20601103&sid=antm...

Fed's Hoenig says U.S. recovery to be very slow http://www.reuters.com/article/ousiv/idUSTRE56D6CK20090714

BrentRitterbeck8• 17 years ago

I consume financial and economic news like it's going out of style. The majority of the press is still reluctant to claim we are now in recovery. I'm convinced that the only person the media will believe about being in a recovery is Roubini, and he didn't get his moniker for nothing.

marcusbooster• 17 years ago

I don't think anyone is claiming recovery until the jobs start coming back, which they haven't.

iigs• 17 years ago

Not to be too dismissive of the causes of the problem, but I think when you get to problems of this size and complexity there's rarely "a" root cause -- you're either stuck with one phrase low intellectual effort summaries ("greed", "stupid people") or endless finger-pointing and circular reasoning (the crap the cable news channels and talk radio like to fill hour upon hour with).

I'm proceeding by living my life. I took a loss on my house when I sold it, not primarily because of economic concern, but largely because it was time to move elsewhere (having kids etc). I have a manageable debt, mitigation strategies if that debt becomes undesirable, am not against taking on more if it becomes more desirable. My intent is to diversify into markets that may go contrary to the general economy (particularly petroleum).

I don't think anybody knows what to do. The events of the time remind me of yesteryear's disasters -- the pundits don't have anything to say, but the tape is rolling so they're talking.

nostrademons• 17 years ago

I think that basically was the problem - there were so many things that could go wrong that eventually a bunch of them did, and then enough things went wrong at once that the economy couldn't hold up any more.

If you remember back to 2006, there were lots of things wrong with the economy that everybody loved to point out. A housing bubble that was about to pop. A consumer debt bubble and usurious credit card rates. A Web 2.0 Startup bubble with a bunch of dumb ideas. Anemic wage & job growth since the last recession. A derivatives time-bomb. Massive government deficit spending to finance the war on Iraq. High oil prices, partially caused by demand from China and India and partially because of speculation. A large current account deficit, and fears of dollar overvaluation. A student loan bubble where many students take out expensive loans for college and then can't find jobs afterwards.

The majority of these doomsaying prophecies turned out to wrong - by my count, the housing bubble, high oil prices, and the derivatives time bomb were right, and everything else either hasn't happened yet (credit cards, student loans, dollar devaluation) or turned out to be quite minor (Web2.0 popping). But just those three were enough to put a serious dent in the economy.

The 1930s were similar: people like to blame it on the Fed constricting the money supply, but it was really that, plus the gold standard, plus Smoot-Hawley, plus the Dust Bowl, plus the bursting of the stock market bubble, plus the bursting of the Florida real estate bubble. Any one of those might've been shrugged off, but all of them together was cataclysmic.

mtanva3• 17 years ago

'Greed' is not intellectual or logical in nature. Its psychological

And what about those 'projected returns' figures that never materialised?

And what about Earth's limited capacity to sustain unlimited needs?

And what about that huge desert in Iraq where once a great civilization flourished?

And finally what abt - "There is enough for everyone's need not for everyone's greed - MKG"

Intellectuality is not the only angle of looking at things. Try it out with any woman !

tybris• 17 years ago

At least the banks are back in business, which is unfortunately essential to recovery. First order of business is to force them to severely lower their margins. Mortgage rates need to be heavily regulated to prevent further disasters on the housing market. Wall street needs to be regulated into oblivion. As long as they can afford to give out a single bonus they can handle more regulation to stabilize the system.

To be honest, I think the recovery will be surprisingly fast. Economic cycles are not what they used to be. At this point in history our economic infrastructure has become so sophisticated that within no time you will have an dramatic amount of new business starting to carry the weight of the economy.

It's like a forest fire. First there is the pain, then there is the barren wasteland, but then you see the new light opens up the seeds and the ashes of the old forest feed the young trees. A new forest appears in no time.

stuffthatmatter14• 17 years ago

"To be honest, I think the recovery will be surprisingly fast"

How? Our manufacturing sector has been taken apart in the last 20 years. A large amount of baby boomers are retiring now, cashing out 401k/IRA/social security/medicare.

BrentRitterbeck8• 17 years ago

Our manufacturing sector has been taken apart in the last 20 years.

I'm American, and I'll say that this is a typical American thing to say. We live in a world economy now. Certain parts of the world specialize in certain sectors. We can come out of a recession without depending on manufacturing. What you're saying is the equivalent of saying that a place like Silicon Valley can never escape a recession because they don't have a huge manufacturing base like, say, Pittsburgh.

ErrantX• 17 years ago

I think collapse is a very strong term.

The way see it is that the recession is going to be long, very long. But it wont be a collapse. We will see state after state, company after company, country after country hit crisis and be bailed out.

The crucial thing is this will happen in sequence rather than all at once.

We survived a major banks crisis earlier this year and can probably survive another similar crisis without the world going to ruin.

Im predicting 10 years to recover from this myself. Any other predictions?

BrentRitterbeck8• 17 years ago

I've been calling 9K on the DJIA by September 1 since March. Also, as I said somewhere else in this thread, I wouldn't be surprised if the NBER says later this year that Q2 was the official end of the recession.

stuffthatmatter14• 17 years ago

"We will see state after state, company after company, country after country hit crisis and be bailed out."

Who's gonna pay back the bailout?

vaksel• 17 years ago

our great great grand children

brent• 17 years ago

The author clearly cannot even define depression, recession, or collapse... Let alone comment on what state we are in...

Useless. Amateur Hour.

kiba• 17 years ago

In an economy, there is alway work to do since we live in a world of scarcity. So eventually, the economy should pick up in employment after reallocating resources.

However, if a market persists in unemployment rate long after a recession than there are forces preventing pricing changes and the reallocation of resources. Such forces are often government regulation or bailout, maybe perhaps stubborn unions or cartels.

stuffthatmatter14• 17 years ago

Incorrect. With global demand dropping sharply, there's actually not enough work to do. We cranked up the credit machine the past few years to make sure there were enough work to do.

Again, too much supply, not enough demand.

eru5• 17 years ago

Lower prices.

larryfreeman2• 17 years ago

To be clear, we just went through a Panic. This is what happens.

We recovered from the Panic and now we are going through a Recession. There's no collapse as far as I can see but like any panic, it sure felt like we were close to a collapse.

State governments were completely unable to cope with the sudden, significant decrease in funds: California and NY are in big trouble.

But it's not a collapse. People should start reading about the other major panics that the US experienced instead of just reacting to the current one. Turns out it's not as bad as what we went through before. But it is bad.

The Housing Bubble will unfortunately go down in history with Tulipmania, the South Sea Bubble, and the the Great Panic of 1873. We'll recover but unfortunately, it's going to be slow treading and state services will be cut significantly even while federal services will likely expand.

robotrout2• 17 years ago

I wish I shared your optimism that we will recover.

As the saying goes, "We'll survive by doing each others laundry". That saying, of course, is meant to be a joke. The US can't just do it's own laundry to survive. We can't just sell latte's to each other, either. We have to actually produce more than we consume.

So, we either have to produce a lot more, or consume a lot less. I don't see us producing more, do you?

I used to comfort myself that we had evolved as a nation, from doers into investors, and that we still brought value to the world by providing the capital needed for the rest of the world to grow, and so we were indeed, earning our bread. My faith in this viewpoint has been shaken, however.

All is not bread and circuses for non-US folks either. If the US consumer quits buying, I think that's a big deal to everybody.

larryfreeman2• 17 years ago

We've been through much worse than this. The economy is complex enough and our entrepreneurs talented enough that we will rise above this. The economy gets better under two circumstances in my view:

(1) Large opportunities are available for businesses to invest and make money.

(2) People start spending money again because consumer confidence improves.

BTW, the goal is not to produce more than we consume. That, in my view, is a formula for failure. The goal is to create a more stable supply and demand curve. If consumers don't spend enough money, then the problems get worse as a business's gross revenue decreases.

If we stop panicking, spend their money, stop with the bail outs, provide tax incentives for entrepeneurs, and most importantly, provide an opportunity for business to make money as well as compete with existing giants, then the recession will start easing into recovery.

eru5• 17 years ago

America - on aggregate - is not an investor, but an investee. Look at the capital inflows.

(However America may provide a service as the world's speculator, if you meant that. (No negative connotations implied.))

rbanffy2• 17 years ago

"We have to actually produce more than we consume."

You know that this is not sustainable if you look beyond US's borders. It's a big planet and someone will have to produce less than they consume or this won't really work.

"we had evolved as a nation, from doers into investors"

This is not what I would call evolution.

"If the US consumer quits buying, I think that's a big deal to everybody."

It is, but it's not as big a deal as it would be a couple decades ago.

We (as in "mankind" - I don't live in the US) will survive. In the end, this adjustment may even prove helpful. At least, that could be the viewpoint of those who survive us ;-)

eru5• 17 years ago

> The sawdust of debt, and the monetization of assets rather than the production of goods, continually came to define the internal composition of the system.

Ah, those lovely Americans. Always clamouring for the lost paradise of an industrial economy.

stuffthatmatter14• 17 years ago

Becuase we're proved that a economy based on financial engineering and construction and selling each other houses has worked so well?

eru5• 17 years ago

Perhaps. But re-industrialization might not be the answer.

Looking at GDP figures, Germany was hit much harder by the global downturn so far than the US. And we do produce things you can touch with your hands here.

(Ironically, a few years ago Germans were worried about the heavy reliance on industry. Pundits worried about how Germany might close the gap to more modern service economies in the UK and US. They imagined a ladder of value adding that starts with agriculture, goes to industry, and then to services.)

This Isn't a Recession, It's a Collapse

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