From American Prospect:
Don’t suppose there’s anything we can do about it?
Elect the right individual.
And yes, I think we are.
If we’re already in a recession, chances are we won’t be by the time the next president is sworn in. The average length of a recession in the last 50 years has been about 11 months. The Nov elections will have almost no effect on economic growth rates. As for guiding the economy, to the extent that we do that at all, that’s up to the Fed. I doubt the Fed’s policy will change significantly whether it’s Hillary, Obama or McCain in the WH.
How many have been “above average” recessions? Even an extra month could leave our next president with a contracting economy on their hands come January 2009.
You’re right. That president could sweep in reforms on his very first day in office that would affect the economy in Feb '09. My mother might be the Queen of Sheba, too, now that I think about it. 
If we’re already in a recession…we not be in one just yet, or we maybe in the very beginning stages. But I agree, no candidate is going to sweep in and sweep up anything quickly.
It seems to me that if you’re wondering if you’re in a recession, then you’re in a recession. I can’t prove it, but ask me in ten months if I was right.
No one has yet suggested otherwise. Do you also agree that, chances are, this recession will last no longer than the 50 year average for recessions?
With the personal savings rate hanging at historic lows, and property values also declining, I’m not seeing much of a silver lining for consumer spending come next Christmas.
Based on what I’ve been reading from various sources I would have to say…yes, we are most likely in the first stages of a recession. We should know for sure next month but it looks likely.
Depends. Can we do something about it that makes good political sense? Sure…we are doing that already by tossing bread and circuses to the masses (including me…can’t wait for my check!). Economically? The Fed handles that and it won’t change regardless of who is in office. They have dropped the prime rate to below 3% IIRC…and they are talking about another quarter point adjustment (in theory) sometime this quarter.
What we will actually do is hear all the politicians say they know what to do and that they have A Plan™ and that it will be the best plan evah. And what we’ll do is ride through the rough waters of the adjustment to the market and come out the other side…despite the brilliant ‘help’ those politicians will provide.
-XT
I agree it will last no longer than the 50 year average, but I’m not wholly convinced we are in full swing just yet. Very close indeed, but the ticker on that 50 year average I believe has not begun yet.
I’m not sure it’s safe to assume that this recession will last no longer than the average recession. There seem to be some feedback loops involved that present problems:
The recession is fueled by mortgage defaults, which result in foreclosures, which result in falling prices for homes, which result in less equity for consumers, which results in an inability of consumers to refinance debt (and begin spending again), which results in maxed-out credit cards, which results in credit card defaults, which results in more bank losses and less consumer spending, which results in business losses, which results in layoffs, which results in mortgage defaults, which…(return to beginning)
What can break that loop in 11 months’ time? (And I left out tightening credit, rising fuel prices, and the collapse of the home construction industry.)
Seems to me that a real estate crash, like a flood, is a disaster in slow motion, and that it may take quite some time to work through this problem.
That’s one of the reasons the Fed has dropped interest rates, and are putting pressure on lending institutes to now close down their loans and not push through rate hikes on variable length mortgage rates.
I really don’t see this as more of a crisis than when the bottom fell out of the entire dot com industry.
-XT
I do.
People who lose their dot-com stock still have a place to live. People who lose their homes, not so much.
A dot-com crash can happen more or less overnight. A real estate crash could drag out for years.
The real estate crash creates the nasty feedback loop I described in my last post.
For all the hoopla about the dot-com crash, its effects were much more narrow than a real estate crash. For most people, their greatest asset is their home equity – that was never true for dot-com stock.
Moreover, in the interim since the dot-com crash, bankruptcy laws have been tightened, under the guise of “reform.” :rolleyes: This means that people who get into trouble with debt are going to have a harder time getting a fresh start in bankruptcy court, and will be chained to credit card debt for years. Before you say “Good!” remember that a debt-laden consumer is a non-spending consumer. And spending has been the engine of our economy of late.
While this is all true, the market will have its preferred candidate as time goes on and will respond accordingly. Increased confidence in US capital markets will have a nontrivial impact on our growth. I believe this race will have a looming effect on our economy, though it has nothing to do with the fiscal policies of the future president.
People who lost their jobs lost homes to. The dot com bust was about more than just some folks losing stock. It had a cascade effect into other industries.
It was a real, honest to gods recession, you know? Just like this one.
Maybe it seemed like that to you…from my perspective it lasted for years. Again, it wasn’t just the stock market going down and folks losing a bit of money. It was an entire high tech industry that went down there and it cascaded into a lot of other industries. It was years before people started doing serious IT again…and as far as IT jobs it still hasn’t recovered to what it was. It may never again.
Which is why the Fed has adjusted interest rates and is pressuring banks to continue to make loans and not up their own rates on outstanding variable rate loans. There are usually some kind of nasty feedback loop associated with a market re-adjustment. Yeah, this one will probably be fairly nasty as it effects peoples homes AND credit.
Again, it wasn’t just a stock problem…and it didn’t just effect the tech industry though that was the hardest hit. I think there was a bit more to it than you are saying.
-XT
I think Paul’s suggestions are good: fiscal restraint, a standards based currency, greter regulation of commerical fraud, and a reduction in the size and scope of Washingtonzilla, that wealth sucking black hole from which even economic production cannot escape.
xtisme, I don’t doubt the dot-com crash had a big effect on you personally. And I’m sure that’s true for a lot of subscribers to this board. But frankly, it didn’t affect me at all, since I wasn’t invested in tech stocks and didn’t work in the industry. And there were a lot of people like me for whom the tech crash had, at most, a bit of an echo effect.
Real estate is a different kettle of fish. For most American families, a sizeable chunk of their net wealth derives from their home equity. And this crash has the potential to obliterate that wealth and to drive a lot of people from their homes. And that’s in addition to the people actually employed in the real estate and home construction industries.
A much broader problem than the dot-com crash in my estimation.
Yes, most people have a lot of wealth tied up in their home equity.
But if you’re living in the same house you lived in 5 years ago, and plan to keep living in the same house for the next 5 years, then the housing bubble won’t touch you.
It’s only if you bought a new house at the top of the market, or if you refinanced and took out most of the equity in your house and spent it, or if you were buying second houses to flip, or if you have to sell your house today that you’ll have a problem.
And even if you have to sell your house today, that’s not such a big problem, because although housing prices are down from where they were at the top, they’re still much higher than they were 5 years ago. So if you bought your house at $200,000 and last year it was valued at $400,000, you’ll still be able to sell it for $300,000. It’s only if you bought it for $400,000 and now it’s worth $300,000 that you’ll be screwed.
But of course, there’s a limit to the amount of screwage, because the homeowner can simply default on the loan. You lose all your non-existant equity in the house, but you don’t have to come up with that $100,000 difference. And the bank, or whoever they sold that mortgage to, is left holding the sack.
And of course, that house is still there, and someone is going to buy it at fire sale prices, and then either live in it or rent it. That means lower rents for the families who are now “homeless”. Getting out from under that ridiculous mortgage would be the best thing that can happen to that hypothetical family, even if they have to default, because they were only paying interest anyway.
Losing your house doesn’t mean you end up on the street, unless you also lose your job.
Of course in a foreclosure sale ,the owner is responsible for the balance . You could have no home and a substantial debt at the same time.
Yes…the dot com bubble burst hurt me personally. I lost literally millions of (paper) dollars and probably the greatest job short of working on Mythbusters imaginable.
Tossing back an anecdote at you, this housing readjustment isn’t going to effect me at all either. Nor will it effect most American’s…except the cascading effect of the recession. Just like the recession cascading effects that you DID experience, just like every one else did, after the dot com bubble burst.
The country doesn’t go into recession because some IT guys like me lose their jobs and stocks bottom out. And it has a wider effect than just some guy named XT.
It has the potential to painfully readjust the housing market and to be quite painful to those folks who bought houses that were over priced and more than they could afford. It won’t really affect me or most American’s much unless we want to sell those houses this year…in which case property values will probably be less since there will be a glut of housing on the market for a while. (In actuality my own house is worth $40k more than I paid for it 4 years ago, even with the currently depressed housing market…it’s just not worth the $100k+ more that it was last year).
A recession is a recession. They are all bad in the short term. They all effect more broadly than you think they do.
-XT