
The U.S. Isn’t Prepared for the Next Recession - TimJRobinson
https://www.theatlantic.com/business/archive/2017/10/next-recession-prepared/544391/?single_page=true
======
Gustomaximus
What they addressed at the end of the article is the key point to me. There
are reduced nations left to fuel the worlds economic engine in a recession.
Previously events like 2008 we had India, Middle Eastern and Chinese economies
doing massive development, so while the western countries went to recovery
mode, the could benefit and hold themselves a bit better from these other
nations growth.

Today if we hit a trade/financial crisis its likely to spread across the major
global economies. African areas and India seem to have ongoing growth
potential but I dont see them coming to the rescue.

And should a major economy like US have a crisis this could have a global
impact compounded further by; 1) The massive global debts being accumulated at
personal and state levels pretty much everywhere. This is setting ourselves up
for potential contagious failure of our systems. Not just inter country
finance but imagine there was significant defaults and how that would spread
to pension funds and back into the economy. Small business lending etc. Our
globalised and finance heavy economies dont have adequate circuit breakers.
Further 2) I suspect developed nations urbanisation will make any significant
downturn harder on the masses than previous recessions. In the 1920's you had
30%+ of people on farms. Now you have something like 2%. Back then people
could more easily tighten belts and become increasingly self sufficient over a
few hard years. Today it would be a significantly more difficult position for
the government to manage, both by volume of people that would need full
support and back to their indebtedness. This could spell real trouble if the
wheels fall off. And given history, the wheels will fall off occasionally.

Anyway, I'm not trying to scare or convince people to buy bunkers. I do feel
we should demand better long term governance from politicians vs this 'whats
gets me in next term' politics we see today. With the tribalism and instant
gratification of today's politics it doesn't seem to offer the best hope. But
really who knows...

~~~
FussyZeus
Going along with everything you've said, the fact that the wealthy now control
such a vast share of assets and capital is a super not-good thing in the event
of a hard recession. Honestly our situation now looks so much like the Roaring
20's, a certain segment of the population getting a shitload of everything,
while everyone else goes hungry (and famously, the roaring 20's tapered off
nicely and we all came out better- oh no wait, it was the Great Depression and
we had to participate in a World War to get out of it).

Income Inequality and Lack of Social Mobility are a cancerous tumor growing
inside the United States and many other developed countries too. This shit is
a powder keg and the wealthy need to realize that if they keep pushing to get
that next dollar, eventually all their money isn't going to keep the
pitchforks at bay.

~~~
moduspol
I think it's different this time around.

Student loan debt and healthcare costs are out of control, but the practical
difference in quality of life between the rich and average American is smaller
than ever. All the money in the world won't make Facebook better, or get you
another season of Breaking Bad, or a better iPhone, or a better video game, or
faster speed limits.

People aren't going to raise pitchforks because someone has more zeros in
their bank account.

~~~
mywittyname
Yeah, entertainment options are great if you're poor. This might keep them
somewhat complacent. But how about the quality of housing and transportation?

People absolutely will raise pitchforks when they no longer have housing or
food _. There are many Americans in this situation right now, but they suffer
in near-silence. As their numbers swell, we will reach a point where they can
no longer be ignored.

_ The food itself is cheap, but obtaining the food isn't. Consider the poor
rural people that need to drive 30+ miles to the grocery store.

~~~
padobson
_There are many Americans in this situation right now,_

Do you have sources for this? Bonus points if it's something updated regularly
that I can bookmark.

~~~
mywittyname
Great question. The USDA tracks this information.
[https://www.ers.usda.gov/publications/pub-
details/?pubid=849...](https://www.ers.usda.gov/publications/pub-
details/?pubid=84972)

A snippet from the summary:

> The prevalence of food insecurity varied considerably from State to State,
> ranging from 8.7 percent in Hawaii to 18.7 percent in Mississippi in
> 2014-16. (Data for 3 years were combined to provide more reliable State-
> level statistics.

In other words, almost 1 in 5 Mississippi households lacked enough food to
feed the entire family at some point in 2016. For the nation as a whole, it's
still 1 in 8 household.

------
DanielBMarkham
The U.S. has gotten progressively worse and worse at handling recessions, and
yes, it's in no spot to handle the next one.

But this is nothing new. It's been heading this way for a long time. You could
have ran this same article a year ago before the current administration took
over.

I don't want to mention politics, but politics plays a big role here. When
your party is in power, life is good and spending is easy. When your party is
out of power, hard times are coming and we should prepare.

The state of the nation doesn't flip around that quickly. Instead it's all
about long-term trends like debt and interest rates. But by viewing all public
policy through a partisan lens, it allows folks to always blame the "other
guys".

It is a dysfunctional political system that's led to a dysfunctional financial
system. I think the U.S. might have another decade or two, but one day, being
the world's reserve currency ain't going to cut it any more. That day is going
to suck.

~~~
tonyedgecombe
Democracy does seem to have a problem delivering fiscal responsibility, it's
too easy to put it off for the next government.

~~~
jacobush
The problem is larger than fiscal. It’s about long term thinking in general.
We have no common cause, vision or “myth” to gather round.

~~~
ams6110
Common rallying causes have been systematically dismantled.

You can't be patriotic because our history isn't perfect.

You can't be religious because it might offend someone.

God and country have been the common denominators of our culture and they are
no longer seen as relevant, and there is nothing else to replace them. It
seems like we are more interested in finding and emphasizing all the ways we
are different from each other rather than rallying around anything we might
have in common.

~~~
dragonwriter
> You can't be patriotic because our history isn't perfect.

This is untrue; very few people have a problem with patriotism. Lots of people
have a problem with various forms of nationalism, but none of that is about
imperfection of history except insofar as certain breeds of nationalism center
around glorifying and recreating bad aspects of history.

> You can't be religious because it might offend someone.

While this has _always_ been true to an extent for faiths other than than that
of the most dominant local form of Christianity, it is less true (not more)
now than in the past.

~~~
toasterlovin
> This is untrue; very few people have a problem with patriotism.

Look, I come from the left. Growing up, there was definitely the sense that it
is in poor taste to express enthusiasm about America or being an American.
That it was something reserved for red necks who drive pick up trucks. The
American flag, as a symbol, was considered gauche and the only time you would
wear anything with the flag on it is if you were being self-consciously
ironic. There was no sense that America was great. Instead, the focus was
almost exclusively on America's flaws.

~~~
danans
This critique is overly focused on shallow aesthetics ("gauche", "pickup-
trucks"), which really have nothing to do with patriotism, and more to do with
some kind of tribal name-calling, which I'm sure takes place on both left on
right. It is just as patriotic to acknowledge and grapple with a country's
flaws as it is to express pride in one's country. There's no contradiction
between the two.

~~~
toasterlovin
In my experience, there is a deep vein of antipathy toward America on the
left. I brought up condescension toward the flag because I think it is
emblematic of that antipathy. I mean, the flag is just about the purest
symbolic representation of America that exists. So if your attitude toward it
is that you wouldn’t deign to adorn yourself or anything you own with it, and
you disparage it as fitting only of some lower class, what viable
interpretation of that fact is there other than that you feel negatively about
the thing which it represents?

Or perhaps another way to think of it: if you had a friend who, every time a
certain person came up, immediately started to enumerate that person’s flaws,
what would you conclude about their feelings toward that person?

------
cm2187
At the current pace of rate rise and the announced pace of withdrawal of QE,
it's going more than 5 years before the monetary policy returns to normal. I
doubt the current cycle will last that much longer. That will leave the Fed
with little tools to react, other than even more QE.

------
rothbardrand
This comment identifies parties responsible for actions, but these actions are
taken by democrats and republicans alike, no president in my life time has
failed to engage in these practices. This is not a political response.

Recessions are not "just how economies work". Recessions and depressions are
the product of the monetary shenanigans of the central bank, as laid out well
in the Austrians Business Cycle Theory. The short overview is, easy money
means government gets to spend and the money creation process includes
showering those at the top - wall street banks and government connected
entities-- with new money that they are expected to "invest" in the economy.
The problem is this is malinvestment and distorts the markets.

You can only do it so long and you invariably create bubbles.

A recent example of this I have lived thru is the dotcom boom...when it went
bust, interest rates were put below the cost of money, and banks were mandated
to make bad loans (prudent underwriting of loans was considered "racist" by
democrats in the late 1990s so CRA was changed, later analysis showed it
wasn't correlated with race after all.) Then under Bush the spigots were
really opened and suddenly you have very cheap money to buy houses with.

Buying a house with cheap federal reserve money was a form of the carry
trade--- where you buy an asset worth X and then pay it back with increasingly
lowered value dollars.

This resulted in the housing bubble and of course the housing crisis.... which
was "fixed" with massive amounts of even more easy money. This money is now
going into wall street again, this time into equities, and hedge funds and
venture capital.

It will eventually bust again.

IF you don't have an easy money policy then interest rates follow the supply
demand dynamics of a market, and it will self regulate. Even if you don't
think it will perfectly regulate itself (and that's true) it will tend to,
rather than get way out of whack.

What we have now is an economy that is has gotten so out of whack and never
been able to properly recover itself by unwinding the last two bubbles.

~~~
mjburgess
Right, because there were no recessions and depressions before central
banking. Oh Wait! They were more frequent and worse.

The "government is the source of all economic problems" is a religious myth as
wholesale as "satan is the source of all evil, god is the source of all good".

> prudent underwriting of loans was considered "racist" by democrats

is a myth.

Conspicuously missing from this comment is anything about deregulation,
nothing about Glass–Steagall. Only euphemistic suggestions that somehow people
disagreeing with redlining (and other practices) somehow caused a crash.

This view is only possible if you assume any behaviour people partake in a
market is the right behaviour and so any adjustment to that must be bad (, and
thefore ... euphemism euspemism... crash).

No. It is possible to have a financial system which is regulated to minimize
perverse financial practices. We should place blame on the legislators who
fail to do so and the financiers who act recklessly. Not wink and nodd towards
"prudence", by which we mean, a president _asking_ for an end to racist
policies is more severe than deregulating the banks.

------
emodendroket
It seems like the main takeaway here is "the social safety net has been
deliberately weakened, and now in a downturn people will be more hurt." Well,
yes, but in some sense that's the point of weakening the social safety net.

~~~
Helmet
The "point" of weakening the social safety net is not to "hurt" people in a
downturn, but to shift economic incentives by changing a reward structure from
non-work/non-productive behavior to work/productive behavior.

How successful this policy is is debatable, but I think it's important clarify
intentions and purposes.

~~~
DonnyV
I love the double standard and the underlining continuous servitude which is
created with this statement. So the reason your not well off or have multiple
homes is because you don't want to work. So lets give little Johnny or Maria a
little whip to the back and make them earn the scraps we give them to keep
themselves alive. Oh but if banks and corporations that have hollowed out the
government coffers and pensions go under because of there gambling with
derivatives. Well they need a blank check, or oil companies who have been
making hand over fist in money for years, lets give them subsidies, or the
company thats making a trillion dollar plane that doesn't even fly. Lets give
them more money!!!

I really wish we would stop picking on poor and down and out people and start
making the 1% pay their fair share instead of everyone else paying for them to
be the 1%.

------
cubano
Isn't prepared to do what exactly?

Does The Atlantic think people are just going to lay down and die when it
comes?

People will deal with it the way they always have of course, by modifying
their behaviors to align with current financial realities.

I really don't understand the point of article like this.

~~~
3pt14159
There are systemic shocks that you're sweeping under the rug.

If most people in a state is underwater on their house and they declare
bankruptcy there is a real economic erosion that occurs. Foreclosed houses get
looted, depressed people stop working, already stressed state finances break
under the burden of further aid applicants.

By saying they'll just "modify their behaviours" you're essentially saying
they'll just "go on welfare or become homeless on the street".

Most of America is not ready for the next recession, and it is coming at the
worst time, when Baby Boomers are starting to strain the retirement and
healthcare systems.

~~~
ihsw2
Paradoxically, economic downturns disproportionately affect the economically
advantaged. While the medium and lower classes' financial situations don't
need to travel very far to reach the bottom, the rich (and super-rich) will
see their income and wealth descend a steeper cliff much more violently.

Skilled individuals can seek employment (at least until regional supply is
exhausted) whereas wealth does not recover so quickly. What can take a
generation to build up would be wiped out within a single fiscal year.

War and economic recessions/depressions have a tendency to assiduously devour
the rich. To be quite honest, war and economic depressions are the best way to
reduce income inequality. The old adage of the tree of liberty needing to
(regularly) be replenished by blood seems to apply.

------
cylinder
It's all riding on the faith of the rest of the world in the US. Watch the
USD. Once it plunges, it's over. Won't be able to print money anymore. Until
then they can print away a lot of problems.

~~~
saas_co_de
there is more than faith involved.

If you compare the U.S. to the rest of the world in terms of wealth, measured
by productive land, population density, industrial development, and access to
critical natural resources it is still in the #1 position and has the best
natural defenses with no hostile nations on its borders.

Economics is all relative. Even if the U.S. is a disaster in many ways it only
has to be as good or better than other large economic blocks in order to be
competitive. Since the U.S. is in a superior territorial position and has the
advantages of accumulated wealth and knowledge you really have to go out of
your way to f--- things up for the U.S. to ever fall out of a leadership
position.

Consequently, a "plunge" is very unlikely. More likely is a few more decades
of high inflation, which is just a backdoor way to default on pension, social
security, and debt obligations, followed by some kind of new stasis.

The people buying US debt are not dumb. They fully understand that it is
impossible for the debt to ever be "paid" in any conventional sense. What they
are betting is that the U.S. is still a better investment than other nations
and that owning U.S. debt gives them leverage and access that outweighs the
nominal losses. That is unlikely to change.

~~~
mooreds
Agreed. The US is in a tough spot, but the rest of the world is in an even
tougher spot. Definitely with regards to geography, but also with regards to
demography (the only continent where population is continuing to grow is
Africa). Worth reading: "The Accidental Superpower",
[https://www.amazon.com/Accidental-Superpower-Generation-
Amer...](https://www.amazon.com/Accidental-Superpower-Generation-American-
Preeminence/dp/1455583685)

~~~
ac29
>the only continent where population is continuing to grow is Africa

No, the only continent where population isn't growing is Europe [0], where it
is relatively flat. Everywhere else is growing. For individual countries, the
only ones with negative growth are in Europe, Islands, and Syria [1].

[0] [https://www.statista.com/statistics/270859/natural-rate-
of-p...](https://www.statista.com/statistics/270859/natural-rate-of-
population-growth-by-continent/)

[1]
[https://data.worldbank.org/indicator/SP.POP.GROW?year_high_d...](https://data.worldbank.org/indicator/SP.POP.GROW?year_high_desc=false)

~~~
toasterlovin
Yeah, but birth rates have fallen below replacement in huge swaths of the
world. And Pakistan is the only country outside of Africa that has fertility
rates above 3 children per women. Which means that, if the demographic
transition continues, the entire world except for Africa will be at below
replacement fertility in several decades. Population can continue growing for
a while after birth rates fall below replacement, but the writing is on the
wall: if Africa can modernize, then the world population will start declining.

[https://en.wikipedia.org/wiki/Sub-
replacement_fertility#/med...](https://en.wikipedia.org/wiki/Sub-
replacement_fertility#/media/File:Countriesbyfertilityrate.svg)

~~~
mooreds
Thanks to both you and GP for digging up the facts!

~~~
toasterlovin
I think the most interesting avenue of thought to stroll down is considering
what humanity looks like after we evolve resistance to whatever it is about
modern life that results in low fertility rates. In other words, which types
of people are immune to modern life and have lots of children anyway.

Happy (thought) travels!

------
spodek
Doesn't a recession happening mean we were unprepared?

If we were prepared to handle it, wouldn't we, and then avoid it?

~~~
FussyZeus
Economies bounce. Boom and Bust cycles have been with us since the beginnings.
The lack of regulation though and the rolling back of financial policies in
the last few years have created an environment where a whole lot of people are
in a whole lot of risk that they themselves aren't entirely responsible for,
and haven't agreed to.

If the next Bust goes as badly as some are saying, that could be the death
knell of Fiat currency. This isn't the first time it's been mismanaged to a
degree bordering on straight insanity, and it probably won't be the last
either.

~~~
mcguire
" _...the death knell of Fiat currency._ "

Could someone enlighten me as top the end game? I mean, after the world
economy collapses into a sink hole big enough to destroy the confidence in
_all_ national currencies?

------
Shivetya
the stimulus they claim is not wanton spending by the Federal government but
transfer payments. Those include extensions of unemployment, food stamps, and
other assistance programs. It also includes, contrary to how we think but
government thinks, tax rate cuts and tax holidays.

the real threat isn't the US still, it is that Europe still is more likely to
tip and negative interest rates over there are a serious drag. Just ask Japan
how long the malaise was because of bad fiscal policy and attempts to prop up
on government money was

~~~
apexalpha
Just a few countries in Europe are in bad weather though, the Germanic core of
the European economy is in good shape and Eastern Europe is rapidly catching
up.

Maybe it's misplaced, but I am pretty optimistic.

~~~
digi_owl
I would not be. The reason Greece got such harsh treatment was because their
government took over much of the private debt at the outset of the crisis to
avoid mass bankruptcies. Thing is that much of that debt was issued by German
banks. Thus if Greece defaults, German banking is in for a rough time.

Never mind that the German economy hinges on maintaining massive exports,
while domestic wages have been deliberately held back.

------
Systemic33
Here's an intersting question; Would an economic recession be a boost for
Bitcoin, or would it be dragged down?

My intuition tells me that Bitcoin would see a surge, as it becomes a stronger
pillar of monetary value that crosses country borders, similar to the dollar,
but not tied to the US.

~~~
zanny
Given five years of data on bitcoin prices I think it is a false flag to think
any macroeconomic force correlates to bitcoin. Bitcoin is centralized enough,
and independent enough, that the real motivator of bitcoin price is the whims
of a handful of people who control most of the economy, _whatever those whims
may be_.

Often those whims can _correlate_ to shockwaves in the economy or the policies
of the US and China trying to stomp out miners or trading but fundamentally
they aren't reflective of broad market ideas the way most major stocks are.
Bitcoin is _much more centralized_ than traded stocks because its economy is
so small and the barrier to entry so high.

People keep trying to find the trends in bitcoin, but the active pursuit of
trends is what motivates the dominant whales to avoid being predictable.

------
liberte82
Why don't we just flag this article too along with all the others, if it's too
unpleasant to think about?

