My question: the current recession is about 18 months old. People are cutting back on their purchases…especially of durable gods like cars, appliances, clothing. Yet, you can only nurse an old car so long-eventually the repair costs will exceed the cost of a new car. The same with th other stuff. So, will this recession begin to end when the USA car fleet gets beyond a certain age? My guess is that demand will revive as soon as 2010…of course, if interest rates rise too much, that could choke off the recovery. What do economists say? Is it possible to forecast the return of demand?
Recessions end when the size of the economy stops shrinking.
There was plenty of “demand” during the Depression, but that didn’t stop it. It took major world-changing events to shake America out of the Depression, and nobody to this day is quite sure exactly what worked and what didn’t. People in Great Debates were recently arguing over whether the New Deal helped or hindered economic recovery.
If we knew what causes and fixes recessions, we wouldn’t be in this mess. Personally, I predict we’ll be hurting until home prices recover, and that could be ten years or more. Don’t fool yourself into thinking that we’ve retreated as far as possible, and pretty soon people will be FORCED to buy new cars just because their old ones are broken. Plenty of people are realizing they don’t need a car at all, just like plenty of people are realizing their family doesn’t need its own house and they can share three or four people to a bedroom and fit three families in that same house, or they can move back in with their parents.
Recessions end when people regain faith in the economy. Of course people have to believe that there’s some math showing that they should have faith in the economy, but largely that’s just putting the carriage in front of the horse.
Demand requires income. The middle class is getting eviscerated. There is growing unemployment and wages are dropping. Things can not go back like they were. We have changed the country fundamentally.
One thing that is a bit odd and hard to understand is that YOU, Mr Average, don’t count.
I read an interesting article in Fortune Magazine. About 14% of the nation makes over $100,000 a year. These 14% of American earners purchase 40% of all major goods. These are defined as goods over $1,000 per item.
THIS is what drives the economy.
This accounts for the reason why “Mr Average,” doesn’t have a lot of products made for him. Because the companies are trying to appeal to a much smaller segment, the 14% who make 100K or more.
Remember it’s much easier to find a common ground in 14% and produce that ONE good or service, than it is to find a commonality in the 86% remaining.
So in a recession the little guy counts more, but they aren’t the ones really driving anything. Whether or not you purchase a new TV isn’t gonna change a heck of a lot. Oh yeah it helps but it’s the big guys who’s purchases drive the economy.
These “big guys” are now very resentful of the government. These guys are the ones who purchases the stocks and bonds and now are getting shafted by bankruptcy. And please note this is not a Republican/Democratic thing. Everytime there is a re-organization, no matter who’s in charge someone gets shafted.
In this case a lot of these guys had spent more to purchase bonds and the like which would have a higher priority. But then the Chapter 11 comes and they get the same as anyone else. So their extra money was for naught.
BUT these people are more likely to give to political campaigns. Remember without Oprah backing Obama he’d never even made it into the race. So even those who represent the “common man” still need powerful backers.
And this is where politics start.
One investment newsletter I subscribe to hammers home the theme again and again that the world is in the process of a massive deleveraging, where people and corporations everywhere are winding down (or defaulting) the loans they’ve had up to now at some crazy number like 80 times book value – and this is a process that will take years to complete.
Specifically for US consumers, it’s predicted that they’ll become savers again, going up from a zero savings rate back to the historical average of 8% or something like that (don’t remember the numbers off the top of my head.) So it looks like as jobs come back and people start earning more money, they’ll be socking away a larger proportion of their new income and not spending it.
So with the combination of deleveraging and increasing savings rates, it’s predicted that this time around pent-up demand will not be a force pulling the US out of recession and that impetus must arise elsewhere.
For added fun, you could throw a real deflation into the mix – though I understand that this is unlikely, and Bernanke would rather risk a surge in inflation rather than a bout of serious deflation. I can understand why, as why would anyone purchase stuff now when you know it’s going to be cheaper a few months down the road? That leads to enough factory shutdowns and then you got breadlines and soup kitchens.
I’m not an economist, but it makes sense to me – take it as you will.
In a highly industrialized and rapidly technical advancing nation
Recessions end when price of energy is significantly reduced.
You need but correlateenergy prices and recessions.
Neither FDR or the war ended the depression of 1930’s but it was the supply and low cost of energy.
Note that saving the money by putting it in a bank is as good as spending it, because the bank can then lend that money out. The danger is people putting the money in their mattresses, where it does no one any good.
You paint the same gloomy picture in every “recession” thread. I’d just like to point out that it’s as easy to falsely extrapolate a linear trend in the downwards direction as it was to extrapolate an every growing economy during the recent bubble.
It was your intent to cause suffering of the middle class!!!
How does that make you feel?
Who do you include in the ‘we’?
Well, I can see that would boost money supply and facilitate businesses’ investment, but I’m not sure that translates to a direct increase in GDP. Businesses may still be reluctant to invest if demand isn’t there for their product.
Eventually the demand would return, of course, and then businesses would invest to meet it, as anticipated by the OP. But I’m thinking that there may be a considerable lag before that happens as consumers retrench from accounting for ~75% of the economy currently back down to ~65% as was the case up until the 1990s.
Gonzo’s intent ???
Declan
We is the country that voted the big money people in. I am not being gloomy, just realistic. I did not vote for Bush, but Obama is allowing the same thieves to run the system. So far nothing has changed. We are going to be in a hole for a long time. If the demand comes back. it will help the Chinese economy.
Id say that you really dont remember the 82 recession and the japanese economy there after, of course its different this time around, but over all , I am gonna bet on us.
Declan
Especially when your daughter throws out the mattress.
Of course I do. This one is different. We have sent our manufacturing abroad, pared wages, cut back the middle class . We still have rising unemployment, home foreclosures and growing bankruptcies. We can not purchase our way out of this one. Demand is dropping with our economic problems. Banks are failing or being bailed out with the taxes of the people.
Bet on us? What cards do we have to play?
I suspect that the remaining 86% is largely dependent on the 14%. Either as junior employees in their firms or in low level service jobs catering to them.
http://www.faculty.fairfield.edu/faculty/hodgson/Courses/so11/stratification/income&wealth.htm
They have the money. Of course the real top wealthy people are international spenders. Staying home and buying American is for little people.