12

The Next "Great Recession"

Posted by  $  blarman 8 months, 3 weeks ago to Economics
20 comments | Share | Flag

So there are so many holes to poke in this article it won't have the solidity of swiss cheese when we're done, but I always think it interesting to throw in a few Bloomberg articles just to emphasize that along with their warped viewpoint, there is a hint of truth.

False things stated in the article:
1. That the last recession only lasted eighteen months. It actually lasted eight YEARS - the entirety of the Obama Presidency. Economic activity only went back to normal once Trump was elected and his Agency heads started reversing onerous Obama-era policies.
2. That we are in our ninth year of economic expansion. This one is patently false. We're barely into year two. The economy struggled mightily all during Obama's reign in every conceivable category.
3. That the next recession could drag on longer than eighteen months. Aside from #1 above, the Democrats aren't in charge to be able to draw out the malaise and keep heaping on more regulations - which were the primary cause of the last recession.


Truths:
1. That the Fed is out of tools. They've already tried so-called "quantitative easing", which is nothing more than a huge transfer of wealth - trillions of dollars to the Federal Reserve itself. Now the Fed is trying desperately to get all that debt off their balance sheets by having it purchased by your tax dollars. But the Fed can't take on much more debt - even in the form of IOU's to itself.
2. Rising interest rates can be a problem. Clarification: rising interest rates are a problem to anyone who is in debt - especially those on a variable-rate payment system (like most revolving credit lines). That includes unfortunately most of America, who has been drunk on "easy money" for the past two decades - especially the Federal Government. As interest rates rise, so does the percentage of tax income necessary to service the National Debt, meaning that entitlement programs are going to have to take a hit eventually.
3. Rising interest rates are a boon to investors who can now demand reasonable returns on their moneys. We've been so low for so long that people have forgotten what it was like to get 2-4% on their standard savings accounts, 5% on a decent CD, or 7-8% on a bond. (Homeowners, beware!)


Things that slipped out:
1. That the Fed's goal is 2% inflation every year. (That's because the Fed works to bail out the government for its egregious spending policies - which didn't get any better this year even with Republicans in control.) This is a TERRIBLE goal because inflation is wealth transfer from the makers to the takers by devaluing debt.
2. The Fed is worried about our "financial foundation." That's because it stinks right now. The investment market is a three-legged stool consisting of stocks, bonds, and real estate. Bonds are worthless right now because they depend on higher interest rates to attract investors. What this does is push wealth into the other two legs of the stool and the result has been exploding stock prices that have no relation to real earnings. The other problem is that because interest rates are so low, real estate values are also overvalued because many people are pouring "cheap" money into homes they can't afford, inflating the market. On top of that, instead of getting Fannie and Freddie OUT of the housing market during the last crash, they are even MORE involved than ever, meaning that when the next real estate crisis which hits will be even worse than before.

Buckle up. It's going to be a wild ride.
SOURCE URL: https://www.bloomberg.com/news/articles/2018-02-28/summers-warns-next-u-s-recession-could-outlast-the-previous-one?cmpid=BBD022818_BIZ


Add Comment

FORMATTING HELP

All Comments Hide marked as read Mark all as read

  • Posted by term2 8 months, 2 weeks ago
    This is all really the fault of Nixon- who took us off the gold standard. Backing the US dollar allowed this to get out of control and heat up the economy beyond what was sustainable so that politicians could get re-elected. At some point, the chickens will come home to roost when all the tricks dont work anymore.
    Reply | Mark as read | Best of... | Permalink  
    • Posted by  $  Maritimus 8 months, 2 weeks ago
      Don't you think that those who succeeded Nixon bear some responsibility for not correcting a mistake?
      Just a thought.
      Stay well.
      Maritimus
      EDIT: Corrected a typo
      Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by term2 8 months, 2 weeks ago
        Of course. Getting USA off gold standard was a hidden way to allow for the unfettered expansion of the money supply to help the government in its plans, as well as help to get them re-elected becaue it appeared the economy was expanding. The whole thing is really evil down the core, since its theft from anyone who actually tries to lead a responsible life. The ones who prosper are the debtors and the ones who save nothing.
        Reply | Mark as read | Parent | Best of... | Permalink  
  • Posted by  $  allosaur 8 months, 2 weeks ago
    Boo, y'all! BOO! Be afraid! Be very afraid!
    That big bad damnation Donald Trumpin' thumpin' boogie bear is gonna get you!
    He's gonna get you BIG TIME!
    So all you impeachment petitioners get the lead out before your assets all go poof!
    Reply | Mark as read | Best of... | Permalink  
  • Posted by straightlinelogic 8 months, 2 weeks ago
    I quit reading Bloomberg on the economy and finance years ago. As a bond trader I knew listening to their version of reality would cost me serious money. So I didn't read the linked article, but your commentary on it was excellent. Your version of reality comports much better with actual reality as I came to understand it during my trading years.
    Reply | Mark as read | Best of... | Permalink  
    • Posted by  $  8 months, 2 weeks ago
      I agree about Bloomberg's bias, but I bludgeon my way through their articles just in case they do accidentally expose those hidden nuggets about the Left's agenda. ;) It certainly isn't to agree with them.

      As you're already a prolific blogger, maybe you've written an article about your bond-trading experience I haven't read, but I'd sure be interested. Could you post a link?
      Reply | Mark as read | Parent | Best of... | Permalink  
  • Posted by bz1mcr 8 months, 2 weeks ago
    blarman,
    Your comments are right on. It seems so few really understand these basically simple things, and continue to vote for those that want to take from producers and give to the leeches.
    Reply | Mark as read | Best of... | Permalink  
  • Posted by GaryL 8 months, 2 weeks ago
    Lots of good speculation and predictions but how does one protect themselves if/when the next crash comes? I can't figure out where to invest what little free money I have. Stocks, Bonds, Gold, Silver, Real estate, Mutual Funds or just buy lots of ammo. I tend to despise these discussions simply because there is never any clear cut answers other than to remain debt free.
    Reply | Mark as read | Best of... | Permalink  
  • Posted by  $  Olduglycarl 8 months, 3 weeks ago
    Add to that states that have increased tax rates, punished established businesses and give freebies to new ones...not to mention, causing the housing market to stagnate making homeowners slaves of the system....unable to get out of Dodge...ah, Connecticut.

    A Home before 2008/9 that would sell for 750K is now lucky to bring in 350K...
    Reply | Mark as read | Best of... | Permalink  
  • Posted by LibertyBelle 8 months, 2 weeks ago
    I don't claim to understand it all very well, but I do
    recall reading about the Smoot-Hawley Tariff which
    took place early in the Hoover administration; and an opinion that that really prolonged the Great De-
    pression. And now Trump has been proposing tariffs.
    Reply | Mark as read | Best of... | Permalink  
    • Posted by  $  8 months, 2 weeks ago
      Smoot-Hawley may have contributed, but the bigger elephant in the room was the Federal Reserve and the manipulation of interest rates.

      At the time just before the Great Depression, the US was looking to wind down its open borders policies and scale back immigration. Following WW I - which hadn't really affected the US or its industries - the US people were fat, dumb, and happy - and increasingly isolationist in policy (this was true even deep into WW II). And as the US' industrial and military might was growing (and the rest of the world was still recovering from WW I) tariffs were popular among the people because they really only put the squeeze on foreign competition - not US business. In steel, the US had some of the best mills (best technology, most efficient) in the world and plentiful ore and coal supplies to process it with. We could produce our own cotton and timber, and most everything else. And we were competitive while doing so.

      Things have changed in the past century. WW II destroyed most other nations' factories and production centers, and when we helped rebuild them, we incorporated the latest technology. But we failed to update our own. And so we created the conditions for our own demise. Add to that the growing influence (and especially cost) of labor unions and it is no surprise that our industries have been outsourced to other nations. The only way to become productive again is to rebuild new factories using new technology and get rid of the unions - and all other forms of government controls - that artificially inflate costs.
      Reply | Mark as read | Parent | Best of... | Permalink  
  • Posted by CircuitGuy 8 months, 3 weeks ago
    We won't address the structural problems without a crisis. Then it'll be all "hoocudanode!?" and never let a crisis go to waste. We should be solving the problems now. Actually, we should have started in the early 2010s when modest expansion resumed most of the deleveraging was done.
    I can't listen to political crap about it anymore. I can just work around its results.
    Reply | Mark as read | Best of... | Permalink  
    • Posted by term2 8 months, 2 weeks ago
      I cant listen to it either. In politics there is ALWAYS the hidden agenda, and I am tired of trying to find it when a politician speaks.

      Next crisis should be followed by the government doing nothing to keep business from going bankrupt if they are overextended.
      Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by CircuitGuy 8 months, 2 weeks ago
        "Next crisis should be followed by the government doing nothing to keep business from going bankrupt if they are overextended."
        Yes. And if they must do something in a crisis, why not debate it before it happens? What will we do unemployment hits 10%? What do we do someone sets off a crude dirty bomb in a major city? You shouldn't make decisions in the heat of the moment. But people tend to which is why politicians never let a crisis go to waste.
        Reply | Mark as read | Parent | Best of... | Permalink  
        • Posted by term2 8 months, 2 weeks ago
          Most crisis talk is manufactured, and doesnt affect my life, so I need to ignore some large percentage of it. Its a shame I cant just accept what the media says, but Its so often made biggere just to sell advertising.
          Reply | Mark as read | Parent | Best of... | Permalink  
          • Posted by CircuitGuy 8 months, 2 weeks ago
            "crisis talk"
            I like this phrase. Just for fun I'm going to use it in a sentence. At the gym they have TVs by the treadmills. The news channels have 24 hours a day to fill, and they appear to fill it with mostly crisis-talk.
            Reply | Mark as read | Parent | Best of... | Permalink  
            • Posted by term2 8 months, 2 weeks ago
              I think they want to hook you into watching through the commercials to see the "breaking news".

              All the talk about the Florida school shooting really doesnt affect MY life at all. I should try to fortify the LOCAL schools that my kids go to , but the days and days of regurgitating politicians talking about this doesnt make much difference in my life or the lives of my kids.

              I should NOT get involved in the media analysis of its, and spend my time having a good and safe life for me and my kids.
              Reply | Mark as read | Parent | Best of... | Permalink  
    • Posted by  $  8 months, 3 weeks ago
      We didn't really address any structural issues during the housing market crash. Or during the near-collapse of the financial industry. We passed a couple of feel-good bills that interposed MORE government interference, when what we need for the long-term is less. When the next real crisis comes, it is going to be a doozy.
      Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by term2 8 months, 2 weeks ago
        Reminds me of the TSA guarding planes. I say they arent responsible for actually protecting us. If left to the airlines and the insurance industry, much more would have been done to keep terrorists out of planes. Things like profiling would be a quick and effective solution as I see it. Also, hire the Israeli security people to figure out what to do. They have it DOWN.
        Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by CircuitGuy 8 months, 3 weeks ago
        "We didn't really address any structural issues during the housing market crash."
        I know. It was the crisis when "hoocudanode" was coined because people seemed shocked by it even though blogs like Calculated Risk were predicting it for years. It's a thing that should be easily correctable, but we wait for crises and apply bandaids.

        That's why I say I can't listen to it anymore. In a few years, it will be hoocudanode again and probably a mad dash to assign blame. I'm glad I don't work in policy.
        Reply | Mark as read | Parent | Best of... | Permalink  

FORMATTING HELP

  • Comment hidden. Undo