

This Isn't a Recession, It's a Collapse - stuffthatmatter
http://seekingalpha.com/article/148526-washington-s-dilemma-this-isn-t-a-recession-it-s-a-collapse

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brent
The author clearly cannot even define depression, recession, or collapse...
Let alone comment on what state we are in...

Useless. Amateur Hour.

------
mpk
Articles like this have me nodding 'yes, yes, yup, sure, yes' while I'm
reading them. But by now it's just too easy to write them.

What I'd like in such articles is some root-cause analysis and at least a few
pointers on how to proceed.

~~~
iigs
Not to be too dismissive of the causes of the problem, but I think when you
get to problems of this size and complexity there's rarely "a" root cause --
you're either stuck with one phrase low intellectual effort summaries
("greed", "stupid people") or endless finger-pointing and circular reasoning
(the crap the cable news channels and talk radio like to fill hour upon hour
with).

I'm proceeding by living my life. I took a loss on my house when I sold it,
not primarily because of economic concern, but largely because it was time to
move elsewhere (having kids etc). I have a manageable debt, mitigation
strategies if that debt becomes undesirable, am not against taking on more if
it becomes more desirable. My intent is to diversify into markets that may go
contrary to the general economy (particularly petroleum).

I don't think anybody _knows_ what to do. The events of the time remind me of
yesteryear's disasters -- the pundits don't have anything to say, but the tape
is rolling so they're talking.

~~~
nostrademons
I think that basically was the problem - there were so many things that
_could_ go wrong that eventually a bunch of them _did_ , and then enough
things went wrong at once that the economy couldn't hold up any more.

If you remember back to 2006, there were _lots_ of things wrong with the
economy that everybody loved to point out. A housing bubble that was about to
pop. A consumer debt bubble and usurious credit card rates. A Web 2.0 Startup
bubble with a bunch of dumb ideas. Anemic wage & job growth since the last
recession. A derivatives time-bomb. Massive government deficit spending to
finance the war on Iraq. High oil prices, partially caused by demand from
China and India and partially because of speculation. A large current account
deficit, and fears of dollar overvaluation. A student loan bubble where many
students take out expensive loans for college and then can't find jobs
afterwards.

The majority of these doomsaying prophecies turned out to wrong - by my count,
the housing bubble, high oil prices, and the derivatives time bomb were right,
and everything else either hasn't happened yet (credit cards, student loans,
dollar devaluation) or turned out to be quite minor (Web2.0 popping). But just
those three were enough to put a serious dent in the economy.

The 1930s were similar: people like to blame it on the Fed constricting the
money supply, but it was really that, plus the gold standard, plus Smoot-
Hawley, plus the Dust Bowl, plus the bursting of the stock market bubble, plus
the bursting of the Florida real estate bubble. Any one of those might've been
shrugged off, but all of them together was cataclysmic.

~~~
messel
We are experiencing a chain of events, all intertwined in the most fundamental
way. The way of life we have assumed was sustainable is in fact not so. We
can't ignore production. We have to consider balancing incoming and outgoing
value.

I don't believe we have seen the bottom of the market, but I'm hopeful that
the American economy that emerges from our original mess will be much more
rational & sustainable.

We must collectively recognize the need for long term economic vision or else
repeatedly suffer the fickle repercussions of short sighted greed, and
delusion. Our nation, all of its industries, all of our people don't exist in
a vacuum. Each of our actions and individual productivity in aggregate results
in shifts in our economic strength and resiliency.

------
larryfreeman
To be clear, we just went through a Panic. This is what happens.

We recovered from the Panic and now we are going through a Recession. There's
no collapse as far as I can see but like any panic, it sure felt like we were
close to a collapse.

State governments were completely unable to cope with the sudden, significant
decrease in funds: California and NY are in big trouble.

But it's not a collapse. People should start reading about the other major
panics that the US experienced instead of just reacting to the current one.
Turns out it's not as bad as what we went through before. But it is bad.

The Housing Bubble will unfortunately go down in history with Tulipmania, the
South Sea Bubble, and the the Great Panic of 1873. We'll recover but
unfortunately, it's going to be slow treading and state services will be cut
significantly even while federal services will likely expand.

~~~
robotrout
I wish I shared your optimism that we will recover.

As the saying goes, "We'll survive by doing each others laundry". That saying,
of course, is meant to be a joke. The US can't just do it's own laundry to
survive. We can't just sell latte's to each other, either. We have to actually
produce more than we consume.

So, we either have to produce a lot more, or consume a lot less. I don't see
us producing more, do you?

I used to comfort myself that we had evolved as a nation, from doers into
investors, and that we still brought value to the world by providing the
capital needed for the rest of the world to grow, and so we were indeed,
earning our bread. My faith in this viewpoint has been shaken, however.

All is not bread and circuses for non-US folks either. If the US consumer
quits buying, I think that's a big deal to everybody.

~~~
rbanffy
"We have to actually produce more than we consume."

You know that this is not sustainable if you look beyond US's borders. It's a
big planet and someone will have to produce less than they consume or this
won't really work.

"we had evolved as a nation, from doers into investors"

This is not what I would call evolution.

"If the US consumer quits buying, I think that's a big deal to everybody."

It is, but it's not as big a deal as it would be a couple decades ago.

We (as in "mankind" - I don't live in the US) will survive. In the end, this
adjustment may even prove helpful. At least, that could be the viewpoint of
those who survive us ;-)

~~~
robotrout
Wow, that's quite a lot of one-liner rebuttals ya got there. I'm not sure what
to do with such, ummm, condensed wisdom...

You say that it's a big planet, and someone will have to produce less than
they consume. Sure, for an instant. That's why God invented Capacitors,
Inductors, and Bank Ledgers. To smooth over the instantaneous fluctuations in
the system. However, long term, the capacitor needs replenishing. Long term, a
nation better produce more than it consumes, to make up for the times it
produces less, and for the inefficiencies in the system. This is a
conservation of energy mindset that I often apply to economics. Adam Smith
tells me that it's not a zero sum game, and that you and I can trade, and both
come out better for it. This does violate my conservation of energy model, to
some degree. However, I still maintain that I better produce something, and
what I produce, I better not use all of it, as I need some of it to trade with
you.

You say evolution from doers to investors is not evolution. I say it is. I can
bake a pie, or I can finance a 200 chef pastry kitchen. You're saying I've
serviced humanity less by creating the kitchen than I did by baking the pie?
If you think that, you can't be reasoned with.

You assure me that mankind will survive. Thanks. I never doubted it. What does
that have to do with anything at all?

~~~
rbanffy
"Wow, that's quite a lot of one-liner rebuttals ya got there. I'm not sure
what to do with such, ummm, condensed wisdom..."

Mobile phones work miracles on conciseness.

"I better not use all of it, as I need some of it to trade with you."

This is not what I meant. If you base your economy on producing more than you
consume, you end up risking having nobody to buy your goods because everybody
got somewhat self-sufficient or got their supplies someplace else. It's
nothing but smart to be as self-sufficient as possible.

The strategic dilemma between being a doer and an investor is that, despite
the illusion it's the other way around, the investor is actually serving the
doer. You see - your kitchen is valuable as long as you have people wanting to
cook, but absolutely useless if you have people who want to fix cars.
Investment capital is a very useful tool, but it's only part of the machinery
- it only smooths out some fluctuations that allow some companies to get
started. Converting your whole economy from 100% doers into 100% investors is
suicidal.

------
ErrantX
I think collapse is a _very_ strong term.

The way see it is that the recession is going to be long, very long. But it
wont be a collapse. We will see state after state, company after company,
country after country hit crisis and be bailed out.

The crucial thing is this will happen in sequence rather than all at once.

We survived a major banks crisis earlier this year and can probably survive
another similar crisis without the world going to ruin.

Im predicting 10 years to recover from this myself. Any other predictions?

~~~
stuffthatmatter
"We will see state after state, company after company, country after country
hit crisis and be bailed out."

Who's gonna pay back the bailout?

~~~
vaksel
our great great grand children

~~~
stuffthatmatter
What makes you think they'll want to? :)

~~~
elai
They'll have no choice but to. Do you have that choice today?

~~~
stuffthatmatter
I pay very little tax (both in income and spending) and my wealth is not in
dollar

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kiba
In an economy, there is alway work to do since we live in a world of scarcity.
So eventually, the economy should pick up in employment after reallocating
resources.

However, if a market persists in unemployment rate long after a recession than
there are forces preventing pricing changes and the reallocation of resources.
Such forces are often government regulation or bailout, maybe perhaps stubborn
unions or cartels.

~~~
stuffthatmatter
Incorrect. With global demand dropping sharply, there's actually _not_ enough
work to do. We cranked up the credit machine the past few years to make sure
there were enough work to do.

Again, too much supply, not enough demand.

~~~
eru
Lower prices.

~~~
stuffthatmatter
What? no. You see more realtors after housing prices dropped? You see more car
salespeople after car prices dropped?

~~~
eru
I was replying primarily to

> Again, too much supply, not enough demand.

And adjusting prices is the orthodox mechanism to match supply and demand.

Anyway, in a physical sense there is enough work to do. We haven't reached
Mars, yet. Diseases afflict the world's population. And where is my yacht?

------
tybris
At least the banks are back in business, which is unfortunately essential to
recovery. First order of business is to force them to severely lower their
margins. Mortgage rates need to be heavily regulated to prevent further
disasters on the housing market. Wall street needs to be regulated into
oblivion. As long as they can afford to give out a single bonus they can
handle more regulation to stabilize the system.

To be honest, I think the recovery will be surprisingly fast. Economic cycles
are not what they used to be. At this point in history our economic
infrastructure has become so sophisticated that within no time you will have
an dramatic amount of new business starting to carry the weight of the
economy.

It's like a forest fire. First there is the pain, then there is the barren
wasteland, but then you see the new light opens up the seeds and the ashes of
the old forest feed the young trees. A new forest appears in no time.

~~~
stuffthatmatter
"To be honest, I think the recovery will be surprisingly fast"

How? Our manufacturing sector has been taken apart in the last 20 years. A
large amount of baby boomers are retiring now, cashing out 401k/IRA/social
security/medicare.

~~~
BrentRitterbeck
_Our manufacturing sector has been taken apart in the last 20 years._

I'm American, and I'll say that this is a typical American thing to say. We
live in a world economy now. Certain parts of the world specialize in certain
sectors. We can come out of a recession without depending on manufacturing.
What you're saying is the equivalent of saying that a place like Silicon
Valley can never escape a recession because they don't have a huge
manufacturing base like, say, Pittsburgh.

~~~
stuffthatmatter
Sure I agree...we manufacture debt, and the other countries buy them. Until
they don't, since the whole world's making less money.

Yes, we make game/tv/movie/porn/internet. But notice that Asia is notorious at
pirating them.

~~~
BrentRitterbeck
Okay. I was trying to have a serious conversation, but I see that you've
decided to take things elsewhere.

~~~
stuffthatmatter
From a thread down: "Just to name a few of the things we are producing in
Ohio..."

Yes, but in this worldwide recession, people only buy things that they need.
Those things you mentioned are all advanced (want, not need) products, which
has dropped severely in demand. Things we need (oil, cheap stuff, cheap
services) are mostly manufactured by other countries.

~~~
BrentRitterbeck
_Things we need (oil, cheap stuff, cheap services) are all manufactured by
other countries._

The middle part of the country grows a large portion of what we eat. I can't
state everything everyone needs, but food is certainly one of those things. On
top of that, I don't see how you can say medical advancements are something we
don't need.

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eru
> The sawdust of debt, and the monetization of assets rather than the
> production of goods, continually came to define the internal composition of
> the system.

Ah, those lovely Americans. Always clamouring for the lost paradise of an
industrial economy.

~~~
stuffthatmatter
Becuase we're proved that a economy based on financial engineering and
construction and selling each other houses has worked so well?

~~~
eru
Perhaps. But re-industrialization might not be the answer.

Looking at GDP figures, Germany was hit much harder by the global downturn so
far than the US. And we do produce things you can touch with your hands here.

(Ironically, a few years ago Germans were worried about the heavy reliance on
industry. Pundits worried about how Germany might close the gap to more modern
service economies in the UK and US. They imagined a ladder of value adding
that starts with agriculture, goes to industry, and then to services.)

~~~
stuffthatmatter
you got a point; I think a good mix of industrial/agriculture/service industry
is a stable base for any economy.

------
stuffthatmatter
It doesn't help that: State Tax Revenues at Record Low

<http://www.nytimes.com/2009/07/18/us/18states.html?_r=1>

