
Analysis/Opinion: Rumors of Recession way Overblown - DanielBMarkham
http://article.nationalreview.com/?q=NmQ5ZGE1YWFhOTMwYTdiNzRiODljZmQwODBmZDlmYzQ
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nsimpson
I'm all for positive thinking, but it's a little early for partisan hacks to
start crowing about how excellently the economy is functioning right now. Show
me the data in 6 months time.

I nearly fell off my chair on the part where they claimed lenders were
_forced_ against their will to make the bad loans for "Affirmative Action"
reasons... Wow. Just wow.

~~~
gojomo
This article, from tech investor Bill Burnham about what he learned consulting
at Fannie Mae in the 90s, is instructive on the very real political pressures
to loosen lending standards:

[http://billburnham.blogs.com/burnhamsbeat/2008/07/fannie-
mae...](http://billburnham.blogs.com/burnhamsbeat/2008/07/fannie-maes-
gol.html)

(This got 71 upvotes when posted to News.YC about a month ago.)

~~~
jorgeortiz85
I don't know what point you're trying to make.

The article clearly explains that the political pressures came from Fannie Mae
itself. It wanted to lower its lending standards, but was barred by Congress
from doing so, presumably because the US Govt was implicitly guaranteeing
Fannie's debt. According to the article, Fannie Mae's lobbyists came up with
the "affordable housing" campaign to pressure Congress into letting Fannie
lower its lending standards.

Congress didn't "force" Fannie Mae to make bad loans. Fannie Mae "forced"
Congress to change the law so that Fannie Mae could make bad loans.

~~~
DenisM
I think it's a brilliant hack. Now we know who ''they'' are.

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mdasen
The "recession" has been way overblown. But the funny thing about recessions
is that they don't need to be brought about by anything real - perceived
weakness in the economy is enough to get people to spend less which leads to
stores needing less labor and such.

Spending doesn't help the economy (in fact, most economists believe that
saving helps more as long as you don't put your savings in your mattress).
Consistent behavior does. For example, if people save money consistently, it
means that the supply of loanable funds is plentiful and it's cheap and easy
to finance business activities. Likewise, if people spend consistently, you
know that you will have high sales and that makes business easy.

If people are buying like crazy and then politicians start screaming
"recession! recession!" and you stop spending money, stores and manufacturers
are going to have a lot of excess inventory that they can't sell.

The same is true of all parts of a modern economy. It's based on the wheels
spinning smoothly. If something is a bit out of alignment (different from
normal on the negative side), it causes problems. Of course, these are very
small problems (as much as politicians try to make them sound like the end of
the world). It's not as if you're getting terminal diseases.

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steveplace
Three reasons the GDP was up this quarter:

1) Gov't loaned us our own money in the form of stimulus checks.

2) Prices increased (inflation, but not as how the gov't reported it)

3) More importantly (and related to 2) is the way they collect their data.
They add in something called "hedonic regression." That means if a TV costs
the same than it does 3 years ago, it's still more valuable because it has
1080p, and that gets added into GDP, and somehow mystically subtracted from
CPI.

There's plenty of other reasons why his claim is bullshit, but just a couple
more notes:

Recessions are not defined as two quarters of negative GDP. Rather, it's a
period of economic contraction. We are in a recession. Anyone who denies that
is not looking at the same data as I am. Look at employment, housing starts,
credit spreads, equity markets, bond markets, credit default swap markets, CPI
(both core and otherwise), and number of bank failures.

Some better resources:

<http://bigpicture.typepad.com/> <http://calculatedrisk.blogspot.com/>

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DanielBMarkham
"Recessions are not defined as two quarters of negative GDP. Rather, it's a
period of economic contraction."

I've begun to hear this over the last year or so. While I understand the
sentiment, unless you have a commonly defined measuring stick for "economic
contraction", I think it's a generalization without a point. Just by googling
around, it seems pretty clear that the rule-of-thumb is a negative change in
GDP over two consecutive quarters.

Now you can argue that GDP changes aren't reflective of the change in the
economy, but if you do that, then you're stuck with coming up with a new
definition. Not only that, but you would have to retrospectively go back and
apply your new definition to historical financial data. Then you'd have to
make an argument that the new definition matches up with the actual
perception.

I'm still on the fence about this. I think I'll wait until after the election
heat cools off to read up some more. I hear you about the indicators you
mention, but there are a lot of ways to slice a cake, and growth is growth.

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steveplace
Don't know why you got downmodded...

Economists are generally lagging indicators when it comes to the market. And
they don't have a measuring stick, they have a basket full of them.

From BusinessWeek:

 _"Many people think the definition of a recession is two consecutive quarters
of decline in the gross domestic product. But that's a misperception. [the
NBER] will look beyond such simple metrics, weighing monthly GDP estimates,
employment data, income, industrial production, and other factors. To call a
recession, they'll look for clear signs of "a significant decline in economic
activity spread across the economy, lasting more than a few months."

Any call, if it comes, is going to take a while. The NBER usually takes 6 to
18 months to decide when a recession starts or ends. Hall's committee didn't
announce the end of the 2001 recession until a full 20 months after the
fact..._

Also, an increase in GDP does not necessarily mean "growth." The way that they
have measured this has changed over the past decade, and I think their
analysis techniques are biased.

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DanielBMarkham
I didn't submit this as a political piece, although at the end of the article
the author makes a political argument (and it's from a political rag)

I submitted it because as startups, we should keep an eye on the economy. We
should be able to make it no matter what the economy is doing.Our success
should not depend on macro conditions. But I would guess the better our macro
view, the better we can pick areas that we might want to explore further at
the startup level.

Not sure. Perhaps macro conditions don't matter at all. What do you guys
think?

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swombat
Macro conditions definitely matter in terms of raising capital... it's a lot
easier to raise money in a boom than in a recession. However, beyond such
high-level statements, I don't think these articles are actually relevant,
since they are common knowledge. The result of the US presidential election is
also relevant to start-ups, but please, don't report it here?

I'm pretty sure those of us who are interested in economic conditions already
follow those kinds of news elsewhere and have our own opinions about whether
we are in a recession or not. Now, if you posted an article that specifically
discusses the impact of the economic conditions on start-ups, that _would_ be
very relevant.

Also, disagreeing frankly with the article, yes, we are in a recession. The
GDP growth numbers cited are adjusted for the "official" rate of inflation.
Both the US and UK governments vastly understate the rate of inflation. I'm
not familiar with the exact loopholes the US uses, but, as an example, the UK
doesn't count food and energy costs (where most of the price inflation is
happening) in the official inflation rate, so that it's typically several
percent lower than the real rate of inflation.

This means that the Real GDP has actually decreased rather than increased.
Which is the definition of a recession.

Lies, damn lies, and statistics.

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rgrieselhuber
I pay moderate attention to the economy at large but at the end of the day, I
know I'm going to keep doing what I'm doing and take the same risks.

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pqs
I think this article is politically biased. It is not only about economy.

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byrneseyeview
The submitter said "I didn't submit this as a political piece, although at the
end of the article the author makes a political argument (and it's from a
political rag)"

So I guess that's been established. And one would expect a Republican talking
about the positive results of Republican policies to be biased, wouldn't you?

~~~
pqs
My point is that the article is much more political than the submitter tells
us. The political part is not at the end, the whole article is political.

Maybe, as I'm not American and I don't live in the US, my understanding of the
comment of the submitter is different than yours.

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tom_rath
The economy is cyclical. We've been in an extended boom for some time.

As there is no such thing as "The New Economy" a recession will come next.

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iuguy
You're absolutely correct. However what is different is that the upside of the
boom (above what it should be) is so high that the correction is at least
almost as big a downside. There are two ways that the market correction can
occur, a sharp correction would cause many problems, a slow recession would
ease the pain somewhat but would take too long.

The actions you're seeing in the US, UK, EU and Japan are all designed to
lessen the steepness of the drop.

