
The Most Counterintuitive Recession Ever - elsewhen
https://awealthofcommonsense.com/2020/08/the-most-counterintuitive-recession-ever/
======
akiselev
Is it just me or does this feel like wishful thinking? I'm on my phone so its
hard to dig into sources but the presentation just reeks of misleading by
statistics.

I thought the main unemployment number included only people _looking_ for
work? If states dropped the LFW requirement from unemployment, that number
would drop despite lots of people still on unemployment, no? I assume federal
unemployment statistics focuses on other less state dependent metrics.

Similarly the median house price is a farce if, like in the GFC, there's
plenty of easy capital available for a land grab at the top. The prices could
easily reflect increased competition and asset inflation, not something new
about this financial crisis - and it wouldn't really be new, would it?

~~~
roenxi
> Similarly the median house price is a farce if...

Alternatively, what if people have stopped buying/selling cheap housing?

If everyone except millionaires has dropped out of the market (say, due to
lockdown restrictions) then the median house price will rise even if the
market is dying. Particularly if the wealthy are desperately trying to turn
cash into assets in response to the government largess.

I suspect Mr. Carlson fell for Simpson's paradox with that one; it seems
unlikely that the property market is booming. That chart isn't enough
evidence.

~~~
jhart99
Here are the stats from NAR. The average price has increased, but the volume
is off by 10% year over year. The last slide shows sales volume by price. It
isn't what I expected. It looks like sales are up around the median price
while both the high and low end are way down.
[https://www.nar.realtor/sites/default/files/documents/ehs-06...](https://www.nar.realtor/sites/default/files/documents/ehs-06-2020-summary-2020-07-22.pdf)

------
treyfitty
What is baffling is how the delinquency rates for credit cards have plummeted.
Sure, it's easy to say in hindsight that people are buckling down, and that
the stimulus payments are making it easier for those in the low income
demographic to pay down credit card debt, but that can't be the complete
picture.

The economy was put on pause, and small businesses are being decimated. If
people need financing, the status quo was to use credit card debt to keep
people/business afloat as the debt is unsecured.

As the article posits, the situation is quite unique and very
counterintuitive...

~~~
BolexNOLA
Came here to basically say this - it’s got me scratching my head for sure. I
bet not taking on more debt in uncertain times but many folks don’t have a
choice. Any idea what could be driving this?

~~~
ldayley
My bet is that some of the biggest categories for personal credit card
spending are related to travel and bars/clubs, including the specialized
clothing and accessories that surround those activities. Folks may have paid
some debt off, but not many were spending for these big activities at all. I
imagine there’s a lot of cross-over with demographics that tend to carry more
debt or be more impulsive to begin with.

Edit: ...also dining out

~~~
mleo
Personal anecdote; we didn’t have to pay for after school care or kids summer
activities for many months now, allowing us to pay down credit cards.

------
cs702
In short, Covid-19 triggered an economic tsunami, but so far the US federal
government _has held it at bay_ :

* Since March, the Federal Reserve has created "out of thin air" approximately $3 trillion dollars in new monetary assets, to support asset prices and prevent another financial crisis. This figure is about 3x greater than the $1 trillion of monetary assets created in all of 2008 and 2009, during the worst of the financial crisis. Source: [https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)

* In addition to the above monetary intervention, the federal government launched a ~$3 trillion rescue package at the beginning of the pandemic (including all those PPP loans that won't be repaid, all that spending on special unemployment benefits, all sorts of support for states, businesses, etc.), and now the debate is whether to spend an additional ~$1+ trillion (the last figure floated by the US treasury) or an additional ~$3.4 trillion (as proposed by congress). Source: [https://www.reuters.com/article/health-coronavirus-usa-congr...](https://www.reuters.com/article/health-coronavirus-usa-congress/corrected-update-1-pelosi-mnuchin-eye-narrower-us-covid-19-aid-through-2020-idUSL1N2FB068)

 _The federal government is supporting the economy in an unprecedented manner
to an unprecedented degree_ , to prevent it from collapsing until the virus is
fully under control. All economic statistics reflect this unprecedented
massive economic support. They do not reflect the "true underlying state" of
the economy. There's nothing counterintuitive about _that_.

~~~
danaris
> _The federal government is supporting the economy in an unprecedented manner
> to an unprecedented degree,_ to prevent it from collapsing until the virus
> is fully under control. All economic statistics reflect this unprecedented
> massive economic support.

And while this is true to an extent, it's also important to note that the
government is supporting some parts of the economy (corporations, the stock
market) significantly more than others (workers, the unemployed), and with the
failure of the Republicans to agree to a new stimulus bill that wasn't 99.9%
"bail out the wealthy and grant immunity to corporations that force their
employees to work without adequate safety measures", that latter part is going
to start showing in a big way, real soon.

~~~
millstone
Not so. The support for unemployed workers has been extraordinarily generous -
$600 a week. Household income has not fallen because of the unprecedented
state UI support.

~~~
ghufran_syed
Anecdote: in the SF bay area in the last two weeks, I've randomly overheard
two business owners talk about how they have lots of work but can't hire back
any of their workers. One was a roofer, the other the manager of a hair salon
who explicitly said that their staff say why would make $1000 / month _less_
if they came back to work than if they stay at home not working. That suggests
that as soon as the financial support falls to a more normal level, the
unemployment level may drop significantly.

~~~
sharemywin
In all fairness that was the point so that people wouldn't go to work and add
to the infection rate.

------
mtw
Too early, we're still in the middle of the pandemic. Who knows how numbers
are going to be in October

~~~
BolexNOLA
Yeah get ready for the rent/eviction flood gates to really open. It’s going to
be brutal.

~~~
wrsh07
It's not clear to me that evicting tenants who would ordinarily pay is a good
strategy for landlords. Besides being a dick move, they don't have a guarantee
that anyone will move in

~~~
ctdonath
Costs continue. Mortgage payments continue, heat/water/electric bills must be
paid, maintenance continues, legal wrangling over legit evictions (say,
trashing the place) is costly. Cutting those costs can stabilize losses. Empty
flats can be deducted from taxes as lost income. Other tax & accounting
benefits may apply.

Part of the benefit of renting - for both parties - is ease of vacating.

~~~
gruez
>Empty flats can be deducted from taxes as lost income.

AFAIK there's no "lost income" deduction. Yes, you pay less taxes, but that
because you had less income to begin with, not because of some deduction. If a
tenant is not paying, then you're not getting income, so you're already paying
less taxes.

~~~
ctdonath
Depends on the local tax law. Confluence of maintenance costs vs depreciation
vs revenue vs other legal accounting issues can result in reducing/eliminating
taxes - even if you have a net positive income.

Upshot: evicting non paying tenants can be profitable, while letting them stay
on “they’ll come thru, just give them time” grounds can mean losing the
property outright. (Strange this must be explained on Ycombinator.com.)

[https://www.realwealthnetwork.com/learn/landlord-tax-
deducti...](https://www.realwealthnetwork.com/learn/landlord-tax-deductions-
to-maximize-your-profit/#17-6-rental-property-losses)

------
osy
What I learned in high school economics is that printing more money means
greater inflation. Why isn’t this a problem? Or rather why aren’t people more
scared about it being a problem?

~~~
roymurdock
this topic will probably get flagged, but if you're serious about learning
about inflation

look up money supply - m0, m1, m2, m3, m4, velocity of money

figure out how federal reserve "printing money" (what does that even mean)
affects the different buckets

look up difference between how reserve requirements affect money supply vs
"helicopter money"

look up the federal reserve mandate to target 2% inflation while keeping
unemployment as low as possible

figure out how the federal reserve balance sheet works (eg what happens if
debt the federal reserve owns defaults)

and you'll be much closer to understanding our current economic situation than
you were in high school ;)

~~~
repsilat
My rough understanding of some key mechanics:

\- Treasury makes bonds and sells them into the market. The market impact of
this tends to increase interest rates (cost of bonds relative to dollars) a
bit.

\- The government uses the money raised to buy goods and services. This causes
the price of goods and services (relative to dollars) to go up a bit.

\- The Fed makes dollars and buys bonds. This pushes interest rates down and
is roughly the inverse of step 1.

Netting the Fed and Treasury actions (which people never do, mostly because
they vary independently according to independent policy), the effect of recent
fiscal and monetary policy is "the government" making cash and buying things
with it (as well as giving it out to people who need it.)

I guess it's the Fed's job to worry about price stability, but the above does
make me think that the fiscal policy is just as relevant to inflation -- if
govt spending as a proportion of the economy changes, it gets easier/harder
for others to buy things. I guess interest rates mostly change behaviour, and
have a less direct (though maybe no less real?) impact on scarcity.

~~~
roymurdock
yes, federal reserve monetary policy is much more focused on the supply side
of money (m2,m3,m4) - making sure banks are well capitalized and can lend to
one another smoothly in order to make loans and keep liquidity high - but this
doesn't get directly translated into inflation because a lot of the "printed"
liquidity isn't directly circulating in the economy (low velocity)

government fiscal policy has a much more direct effect on m0, m1 through
stimulus and other direct lending and spending efforts, which have a high
velocity and directly impact inflation

now...what happens if the assets on the feds balance sheet start to default?

------
joe_the_user
It's hard to even figure out what a "10% unemployment rate" means. I recall
unemployment rate calculations involved something like "of the people actively
looking for work (according to the most recent definition), X percent can't
find it". Looking at ostensibly more objective "Labor force participation
rate", it seems work decline precipitously at the start of the lockdown and
has now, indeed, shot back up by 1/2 or 1/3 the amount.

But what it all means is hard to gauge. For example, the long increase from
1970 to 1990 involved the (re)entry of women into the workforce. The present a
labor force participation rate now equal to that of 1973 might not involve the
re-emergence of the happy homemaker.

[https://fred.stlouisfed.org/series/CIVPART](https://fred.stlouisfed.org/series/CIVPART)

~~~
herdrick
It's

    
    
                people actively looking for work 
        ---------------------------------------------------
        people actively looking for work + people with jobs

~~~
joe_the_user
Yeah, kind of like what I except but with ascii graphics.

But my implicit point is "people actively looking for work" has been a
quantity whose definition shifts and who method of measurement shifts and
which is inherently difficult to measure.

------
Danieru
Lots of people missing the core thing here: savings rate.

When the propensity to save increases it reduces consumption. Falling credit
card debt, reductions in mortgage delinquency, those are all trailing results
of the increase in savings.

People are spending less with most people's income staying steady. This money
is flowing into assets and reducing debt.

In normal times this would be a welcomed reversal of the American trend. Yet
this effect is temporary and instead will only serve to hurt the velocity of
money.

"Why is there no inflation despite massive printing?" is also a common
refrain. Here to the savings rate is to blame. With less consumption the
velocity of money has shrunk and the effective money supply shrank with it.
Thus the FED's insane money printing is in part only there to counter act the
deflationary pressure. Again: everything comes back to the savings rate.

~~~
bamboozled
Except, isn't retail spending right up, or even through the roof?

------
Torkel
I think the lockdown is a large reason why it looks like this. There are
simply less things to spend money on at home, and all the free time at home
means people are looking over their economy. And speculating/investing.

------
jsperson
The author Ben Carlson is one half of the Animal Spirits podcast. I enjoy and
learn a lot from every episode. Highly recommended.

Edit: typo

~~~
wrsh07
Yikes, I did not find anything of substance on this ad-riddled page

I've seen significantly better pandemic / economic coverage from Byrne Hobart,
Money Stuff, etc

------
thewileyone
Simply put, people have stopped buying stuff they don't need. They've changed
their spending patterns and found that they have extra cash to pay their
bills, invest, etc.

Gee, if only they'd have been encouraged to do that earlier.

------
yborg
Every time something like this happens, Keynes is proven right again.

------
swalsh
This kind of feels like a test run of Modern Monetary Theory. I guess once we
have a vaccine, and the full effect of all this stimulus settles, we might
find out if our fears are warranted or not.

------
nimbius
looking at the markets makes it more apparent that performance madness is
largely driven by 2008's quantitative easing having never been put through
cessation. It was tried once with disasterous effects, and we entered this
recession with the same debt still on the balance sheets. Wolfgang Streeck
does a great job of explaining it in his book 'how capitalism will end'

Essentially through regulatory capture, capitalists have commoditized things
you shouldnt, like labor and currency. As this progressed through the past
decade the markets began to drift further and further from any meaningful ties
to labor or consumer confidence and spending. Markets began to perform simply
due to the fact that they _were_ a market in most cases, and so we see in 2020
though the US suffers nearly 40% unemployment and a service economy that has a
failure rate of nearly 50%, markets that float along with easy access to low
interest or negative interest credit as a function of the post 2008 recession
are nearly entirely divorced from reality. They no longer serve as a barometer
for the overall state of a nation at all.

And now we enter the 2020 tax season next january with a promise that somehow
this burden will be deferred yet enforced for the average citizen, which could
honestly only be maintained with evermore low or negative interest loans this
time issued directly citizens instead of major multinational corporations as
part of a personal shift of public service (competent taxation policy in this
case) to personal responsibility that began in 1993 with the US exit from the
public sphere of education and ambulance services in the form of charter
schools and ambulance bills. this was enhanced with the transition from low
wages and savings to personal lines of low interest credit that inevitably
wracked the market in 2008.

~~~
millstone
Was the above post AI generated? The statistics are made up - unemployment is
not 40%. It is not the case that "now we enter the 2020 tax season next
january." And I have no idea what "commoditization of currency" or "deferred
yet enforced" means.

------
lettergram
I don't feel this article focused enough on the primary driver - deferments.
Credit card, mortgage, auto, rent payments were all deferred the same time
money was handed out. At the same time, the ability to spend money to travel,
go out to eat, etc all evaporated.

This let people pay off debt, save, or invest. All of which is probably good
considering...

There are multiple super scary looming issues:

* Commercial real estate is about to collapse

* Renters are about to have to start paying again (although, with Trumps executive order, maybe not?)

* Auto repos are about to pick back up

* Those who are required to use credit cards to finance their lives are about to be cut off (banks are limiting increases)

* Wave two of the virus is going to increase

* Civil unrest from elections, pandemic, racism, etc. are going to [probably] continue to escalate

* Inflation will start to hit (we can already see it in the stock market and some food prices). This will effectively reduce any stop-gap mechanism.

* Unemployment insurance is going to start dropping off for people (who did apply). States typically have 12 - 24 weeks[1], plus the additional 13 weeks from the CARES Act.

* Although unemployment is dropping, part of that is their counting mechanism. Many left the job market (my parents just retired), job openings are dropping (we will see Junes tomorrow[2]), a second pseudo-lockdown will likely continue through the end of the year.

* Many small businesses haven't really "recovered" and are still running red. Many will be out of business by the end of the year.

* Oil prices are stagnant, but any kind of lockdown will cause this to drive down further.[3]

* Airlines aren't expecting a recovery any-time soon. [4]

[1]
[https://www.forbes.com/sites/zackfriedman/2020/04/29/unemplo...](https://www.forbes.com/sites/zackfriedman/2020/04/29/unemployment-
benefits-extended/#7a66ba652a51)

[2] [https://tradingeconomics.com/united-states/job-
offers](https://tradingeconomics.com/united-states/job-offers)

[3]
[https://www.marketwatch.com/investing/future/crude%20oil%20-...](https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic)

[4] [https://www.barrons.com/articles/german-airline-lufthansa-
sa...](https://www.barrons.com/articles/german-airline-lufthansa-says-it-
expects-flying-slump-to-last-until-2024-51596722375)

~~~
cloudking
I agree, the article feels cherry picked. Look at the entire picture not just
what's going well.

The S&P 500 is performing well, because it's being driven by big tech stocks
that were largely unaffected by the pandemic.

There is a flood of retail investors enabled by mobile apps, many of them are
inexperienced. There is stock mania, trading without looking at fundamentals.

------
Spooky23
Everything is great except for the 30M unemployed.

People aren’t paying rent and entire industries are truly and completely
fucked. The conjecture here is baffling for a website that supposedly is rich
in common sense.

------
ethn
We're simply not in a recession. Recessions are systemic collapses related to
bad monetary policy causing a misallocation of resources.

~~~
treyfitty
A recession is labeled by the NBER and has a modestly strict definition of: A
recession is a significant decline in economic activity spread across the
economy, normally visible in production, employment, and other indicators. A
recession begins when the economy reaches a peak of economic activity and ends
when the economy reaches its trough. Between trough and peak, the economy is
in an expansion.

[https://www.nber.org/cycles/june2020.html](https://www.nber.org/cycles/june2020.html)

~~~
joe_the_user
I don't care how many references you have claiming that a recession defined
only by statistical data points, you're wrong. A coherent definition of a
recession involves the stipulation that it is an endogenous crisis. Exogenous
effects showing the same data points still can't be the same.

~~~
treyfitty
Uhhh that’s a completely different argument. A recession is a recession.
Economists, bankers, and policy makers all but unanimously agree that a
recession is defined by the NBER.

A recession need not be an endogenous crisis. I don’t know where that’s coming
from, but there have been plenty of exogenous induced recessions. 9/11 being
one of them. (I know you don’t like references, so I’ll leave that up to you)

~~~
ethn
There’s nothing less scientific than defining some phenomenon as some
authority’s whimsical arbitration. It’s a deeply mistaken view that all
economic analysis is incontrovertibly decided by some coterie, and that
somehow that is the unspoken agreement.

When there is exogenous disruption, the Fed is responsible and capable of
preventing a then endogenous recession. For instance, this is the first time
the money stock has been raised proportionally to the extent as the money
velocity has dropped—-a correct measure as described by the monetarists.

------
Izkata
> The real estate market has been red hot after an initial slowdown during
> quarantine:

The spike here coincides with the riots and "defund the police", not the
recession or pandemic/quarantine. It's likely people moving away from the
hotspots.

~~~
cik2e
The chart in the article shows the median price of homes sold. Nothing about
total real estate transaction volume which is what you’d need to look at to
say that the market is “red hot”. Common sense would dictate that the only
people spending money on real estate right now have excess wealth and are
playing around with more expensive properties.

------
euix
There is no such thing as a free lunch. Money is not created out of "thin
air", all that is happening is that the present generation is borrowing from
the future generation and generations that are yet to be born. The young and
unborn subsidize the old.

The way this kind of borrowing shows up in society is in low marriage rates
and smaller families and eventually lower birth rates as people cannot find
the stability or financial ability to start families or even to establish
stable relationships, which eventually leads to low consumption as your
demographic basis simply needs less of everything.

As long as you have political will you can keep kicking the can down the road
at the cost of a declining population. In liberal western societies this is
partially made up by immigration from developing countries, but that creates
another host of issues and tensions between recent arrivals and natives.

~~~
millstone
Money is free, but it is not a lunch. You can't eat it. It doesn't actually do
anything at all by itself, which is why you CAN create it out of thin air!

What matters is real productive capacity. Factories that build stuff, fields
that grow crops, people learning skills. If next year, we have shuttered
factories and fallow fields and a less skilled workforce - then the future has
paid the price!

Perhaps the government saves the future by borrowing today. The Fed issues
bonds, Jeff Bezos buys them, and in 50 years Jeff Bezos's kids own bonds, that
yours and my children pay for through taxes. But that is a wealth transfer
between people in the future, not a transfer from the future to today.

