Maynard contemplates the economy
Never make predictions. Especially about the future.
— Yogi Berra
The Economist is predicting a recession in America.
This wouldn’t be surprising. There’s an ebb and flow to the economy. Despite what the politicians tell us, there are always going to be down times.
Our immediate problem is that economic expansion is being slowed by reduced finances. This connects to housing bubble, which had gotten out of hand and is now starting to deflate. Many people got used to rising real estate prices, and they treated their houses like piggy banks that fill up automatically. When money was needed, another refinance would supply it. And loans became readily available for new buyers, even if they weren’t well-positioned to pay them back. This is a wonderful state of affairs as long as housing prices continue to rise. Everyone is making money. The people are happy and the politicians claim credit. But when the party ends, the debts become burdensome.
The spike in oil prices doesn’t help. The cost of energy is fundamental to everything. And with global thirst for oil growing in the developing world, a drop in American consumption may not push prices lower as it would have in the past.
Meanwhile, the dollar has declined sharply against other major currencies. This was inevitable, and it isn’t entirely a bad thing. A weaker dollar renders America more competitive in the global markets. We’ll export more and import less. America is suffering from a horrendous balance-of-payments deficit. In plain English, we’ve been leaking hundreds of billions of dollars into the world. Foreigners are financing our binge, while we’ve been consuming more than we produce. And now we’ve effectively stiffed those foreigners, since the dollars they’re holding are worth less. Well, that’s one way of reducing our debt load, but I can’t say I’m happy about it.
America has been allowed to run a deficit because the dollar became the world’s post-WWII reserve currency. All sorts of international transactions are conducted in dollars, even when the United States isn’t involved. This allowed us credit that wasn’t awarded to other currencies, because the world needed dollars. This is changing, as the dollar is no longer the only game in town. The world is transitioning away from the dollar and towards a basket of international currencies for global reserves.
In short, America will be compelled to move towards putting its financial house in order and restoring balance. However, we’re talking about an area of economics that most people don’t understand, and so the politicians get no credit for making hard choices. The people want the party to continue, and economic consequences be damned. Any politician that speaks of belt-tightening and productivity increases must be a mean-spirited union-busting killjoy, and probably a racist homophobic bedwetter to boot.
I’m not anticipating doomsday. I think we’re okay. But it wouldn’t be surprising if we get stuck with something of an economic hangover for a while. Of course, then the politicians will blame each other and propose hard-left responses. The misery merchants and would-be authoritarians will come forward with their usual stupid ideas. And that’s my greatest concern: When we hit the rough spot, the “cure” will be vastly worse than the malady. We’ll have to remember Ronald Reagan’s words, from his first inaugural address: “In this present crisis, government is not the solution to our problem; government is the problem.”
Now I really am confused. According to Paul “The Conscience Of A Liberal” Krugman, we have been in a bottomless DEEEEEEEpression since a few minutes after Bush’s inauguration in 2000. And here I was, naively thanking my lucky stars that I’m not on the street selling apples for a living. Now that there may be an ACTUAL recession in our future (one flowing from economic conditions versus political hysterics), Cassandra Krugman must be gleefully skipping down Wall Street, elated that the forecast is even within the same universe as his incessant, sky-is-falling predictions.
Given the declines in , among other things: cars, rvs, homes and computers; the last 12 months; it is possible that we are already in a recession.
Which is not a slam on GWB as we were in a recession the last year Bill was in office that lasted until either late 01 or early 02 depending on which economists you talk to. In either case the economy has been growing for at least 5 years if not 6 – which is good, not bad.
GWB is and has been a gad President but he brought the economy back to life and it has been healthy for at least 5 yers.
One of my degrees is in econ and we all learned that the economy is cyclical. All economies are cyclical – even the socialist economy of the old USSR had cycles; severe cycles!
The current recession (if in fact we are in one) is not because of GWB!
In our free enterprise economy, which features private ownership and control of capital, that capital is free to flow where it gets the best return. When it flows out of housing, it flows into something else.
It is also a fact that negative news tends to suppress an economy, at least temporarily. How long has the MSM been downtalking the economy? The economic definition of a recession is two consecutive quarters of negative growth. We haven’t even had one yet.
By all indications that I’ve read, from conservative news sources, we are reaping what we’ve sown. At least the greedy loaners have. Got people into mortgages no sane person would have signed for, lying to them about their ability to repay. Now, the chickens are coming home to roost in swarms and there will be a price to pay. And, at least at this point, the gov’t (Bernacke) is not willing to be the rescuer of the greedy. Let’m fry. I choose to believe that the economy will reset itself in time, like it always does. Those who have spent unwisely will, unfortunately, pay a price for their lack of wisdom. That’s life. Stand back up, shake off the dust, (or dung, as it may be) and go on. Life can be occasionally, well, “defecationary”. But that IS life, sometimes.
The sub-prime blowup is actually the proverbial tip of the iceberg (that will melt quickly according to Al Gore). The problem we are led to believe is just the high risk loans themselves. It goes much deeper. Mortgage brokers knew they were creating poison, so they bundled up the risky crap mortgages and created “dirivatives” that are sold as mortgage backed bonds to insurance companies and pension funds. After they are sold, guess what?, the mortgage company now has a brand new pile of money to lend out. Worse?, Investment firms bundle the bonds into an investment grade security, and sell that to foriegn banks, and institutions. After the sale, they’re sitting on a brand new pile of money! So that gets “put to work” too. The logic is that any one mortgage is high risk, but the chance of all of them defaulting decreases as the numbers increase within the bundle. It’s more like if you throw a box of rocks off a cliff the chance of all of them eventually hitting the ground is 100%. Now the standards have tightened up, and people who need to refinance out of a teaser rate loan, can’t qualify for the loan they now have. They will default. Combine this with literally out of control government spending and it’s no wonder that foriegn governments are reducing their dollar holdings. That means that dollars are marching back to the U.S. and that can cause price inflation like nobody’s business. At least a third of the current oil price is from dollar devaluation. Gold is going crazy as we put more spending “off budget” like the entire 600 BILLION dollars spent on Iraq and Afganistan. The feds only collect $1.2 trillion from us, and $925 billion from corporations. The national debt is $6 Trillion, and unfunded liabilities, like Social Security and other entitlements of $52 Trillion. Perspective? You make $60,000 per year and your total commitments are $5.2 million, with interest at 3%.