Over at LA Biz Observed, Mark Lacter makes a point I’ve wondered about as well.
Never in my memory has the question of whether we’re entering a recession gotten so much attention, both in the press and on Wall Street. At this point the conventional wisdom is that a recession has either arrived or is about to. Certainly, there’s plenty of evidence pointing in that direction – tomorrow’s employment report is expected to be dismal – and yet Business Week’s Chris Farrell suggests that the half-filled glass crowd is getting shunted aside.
Then again, the natural cycles clear the brush for the ‘creative destruction’ I believe in so much. So maybe talking ourselves into an overdue recession isn’t such a bad thing…
All through 1992, the Press did stories almost daily on how bad the economy was. Clinton and Gore were running around talking about how it was “the worst economy in 50 years.” The Press would then report that “consumer confidence is declining.” Duh.
Then, within days of the election and a Clinton victory, the Press suddenly reported how things weren’t so bad after all. In fact, things had been improving for months. Too late for the truth but mission accomplished – they got Clinton elected.
They’re working from the same playbook this year. Surprise.
“Recession already began in December 2007.”:http://futurist.typepad.com/my_weblog/2008/02/recession-began.html
If anything, it is looking like the classical ‘V’ shape, and a steep one at that.
This means that come Sept or Oct, we might already be in recovery, particularly if Oil is as low as $80/barrel by then. If anything, it began a bit too soon for Democrats to be helped by it.
The percentage of the population that was old enough to pay bills during the ’70s is a dwindling quantity. “Recession” is getting watered down as a term. It’s one thing to be hot and bothered by credit cards exceeding 15% interest… and something else entirely when your *mortgage* crosses 15%. I shudder to think of what the press would be doing if unemployment was at the unthinkably high level of… 6%.
We need a good sharp recession. The fed is merely increasing the likelihood of stagflation with its overzeaous attempts to keep interest rates low. A little recession never killed anyone.
I have a friend who helded his parents sell real-estate for awhile, but then got a better paying job reselling foreclosed houses for local banks. It was a difficult job at first, but not many hours. For the last 6 months he’s practically been running double shifts. He’s a fiscal conservative, but lately has used the ‘R’ word often.
Wasn’t there a headline this week to the effect of Unemployment Down, But Not Enough?
Ive always been perplexed by the press, and especially the talking head “financial press” (the people you see on MSNBC Squawkbox) basically crafting public opinion instead of reporting what is occurring. Why is anyone surprised that consumer confidence is down, its the only thing the press reports. When economic factors are good, they are always couched with the ‘but….’ I guess there never is any good news when someone with an (R) by their name is in the whitehouse.
We have had a tremendous amount of financial growth over the last 7 years, even in light of the events of 9/11, two simultaneous wars, the airline bailouts and the housing bubble/sub prime mess (a fully created disaster by the banks and credit industries who instead of actually doing their due diligence on credit risks, jumped in with the pie in the sky view that the housing bubble would never burst, and that loaning money to illegal aliens was not risky behavior), yet you would never have thought that if you read or watched the press.
I still wish they would teach basic economics starting in gradeschool and moving forward, it would really help remove a good deal of ignorance when it comes to the economy as a whole, not to mention, it might instill some fiscal responsibility into the populace. Too bad more emphasis is now placed on cultural studies which will have absolutely zero benefit over the course of ones lifetime, than on basic economic fundamentals.
I’m with Al up there, having lived through the same times. It’s amazing how short and adaptable people’s memories are over the space of a few decades. The degree of economic and historic illiteracy that pass for a supposedly educated adult in our postmodern age are pretty appalling.
It’s also amazing the degree to which people think the political side is (variably) at fault for / can fix the business cycle. They aren’t completely independent – the government can always f*** things up by heavy handed intervention, and that gets more likely around an election. But about the only institution that can act fast enough and have a broad impact is the Fed. However, they should be taking the long view, not exhausting all of their flexibility for one ‘crisis’. There could be another one just around the corner: your ‘bubble bust’ can always be followed by a 9/11.
A.L.’s take is also right on. To some extent we talk ourselves into both booms and busts. The media, as amplifiers of change, play their part on the way up and the way down. But that’s hardly novel, it’s been going on since the days of the English coffeehouses and early newspapers in the 1600s.
A company that’s been running fat and happy on big margins for years always has 10% that can be trimmed with no loss. Similarly the overall economy in a up cycle tends to accumulate activities that have outlived their original justification, or were just dumb to begin with, and are generating a negative return. They slide through during fat times, but get cut when there’s a crunch, and free up resources for something more productive.
It’s often one of those ‘just dumb’ things that’s taken beyond the point of rationality, and finally blows up and precipitates the contraction. That’s what’s happened this time: We knew consumers were over-extended on credit. We suspected there was a ‘wealth effect’ that was over stimulating spending. Meanwhile – with government encouragement – lenders were busy extending adjustable loans to marginal home buyers.
Lenders then packaging the loans for resale, and carving them up into tranches ranging from ‘equity’ to ‘junk’ to ‘super prime’. Problem was, there wasn’t any actual experience on which to base that grading – no one really knew what fraction of loans would go bad when there was a downturn and/or rates ratcheted up. And, BTW, this started at a point when rates were pegged artificially low to boost a recovery from the twin effects of the bubble and 9/11.
The upshot is a lot of securities that were labeled as investment grade were nothing of the kind, and a lot of institutional investors are still trying to figure out how much of their equity just got blown away. That’s got to get worked out, and we’re going to go through some pain on the part of families who got themselves overextended as well.
Tim, you are sortof right – but the 9/11 could actually be 12/7 (to use the rather illogical American numbering). How does Wall Street react if 20 kilotons goes off in a shipping container round about 40th and 9th?
(Ain’t Google wonderful?)
Fletcher: The markets would probably close down for a couple of days, but they’d come up and run thereafter, regardless of EMP and other effects. The financial institutions took 9/11’s lessons to heart. There’s been a LOT of money expended on backup data centers, optical links, virtualization technology, etc., etc. in the last few years.
And, yeah, they’d then tank. Not only based on the loss of capital and human assets, but on the uncertainty of how and when we’d reply. That’s why I say the Fed has to keep some flexibility in hand. They can’t go down to the nearly ‘free money’ point that was reached not long after 9/11 – that reserve has to be in hand against such an atrocity.