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revefsreleets
07-25-2008, 10:27 AM
http://www.ohio.com/editorial/commentary/25841979.html?page=all&c=y

A depression? Certainly not this economy
By Robert J. Samuelson


Published on Thursday, Jul 24, 2008
WASHINGTON: The specter of depression stalks America. You hear the word repeatedly. Are we in a depression? If not, are we headed for one? The answer to the first is ''no''; and the answer to the second is ''almost certainly not.''
The use of ''depression'' to describe the economy is a case of rhetorical overkill that speaks volumes about today's widespread pessimism and anxiety. A short history lesson shows why.
The Great Depression of the 1930s — the last time the term rightly applied — was industrial capitalism's worst calamity. U.S. unemployment peaked at 25 percent in 1933; it averaged 18 percent for the decade. From 1929 to 1933, 40 percent of U.S. banks failed. People lost deposits; businesses and consumers lost access to credit.
Over the same period, wholesale prices dropped a third, driving farmers and firms into bankruptcy. Farm foreclosures, shantytowns (called ''Hoovervilles,'' after the president) and bread lines followed.
This was a social, as well as an economic, breakdown. Our present situation bears no resemblance to this. In June, unemployment was 5.5 percent, slightly below the average since 1960 of 5.8 percent.
It's true that banks and investment banks — Citigroup, Merrill Lynch, Wachovia — have suffered large losses. But on the whole, the banking system seems fairly strong. Although profits in the first quarter of 2008 were down 46 percent from 2007, they totaled $19 billion even after $37 billion set aside for loan loss reserves. Overall corporate profits are still running at a near-record annual rate of $1.5 trillion.
As yet, the present economic slowdown does not even approach the harshest post-World War II slump. The back-to-back recessions of 1980 and 1981-82 (as dated by the National Bureau of Economic Research) constituted, for most people, one prolonged downturn.
Unemployment peaked at 10.8 percent in late 1982. In 1981 and 1982, housing starts were down almost 50 percent from their 1978 peak. From 1979 to 1982, the economy stagnated; output lurched down, then up and then down. There had been nothing like that since the 1930s.
''Depression'' is a term of art. It has no precise definition. Economic historian Barry Eichengreen of the University of California at Berkeley notes that in the 19th century, the word connoted extended periods of declining prices: for example, between the 1870s and the mid-1890s. People associated falling prices with bad times, because in good times, prices tended to be stable. Falling prices meant either too many sellers or too few buyers.
After World War II, the term depression lapsed into disuse, because economic downturns became milder and rarely involved general deflation (price declines). ''Recession'' ascended as the term of preference.
The paradoxical thing about today's economy is its strength. No kidding. Consider all the hand grenades lobbed at it. Higher oil prices. The housing implosion. Large layoffs in affected industries: autos, airlines, construction, mortgage banking. The ''credit squeeze'' triggered by losses on ''subprime'' mortgages. Despite all that, the economy hasn't collapsed. It's merely weakened. Output in the first quarter of 2008 was actually 2.5 percent higher than a year earlier.
To be sure, there are parallels with the Great Depression. People fear what they don't understand or expect. In the early 1930s, no one really knew why the economy had deteriorated so rapidly. Similarly, much of today's bad news was generally unpredicted: the higher oil prices; the losses on subprime mortgages; the collateral damage to financial markets; the sharp run-up of food prices.
People fear what's next. They worry whether complex financial markets and a globalized economy are unstable. These are legitimate anxieties. Economist Nouriel Roubini of New York University believes additional losses at banks and investment banks are being disguised by lax accounting practices. If so, things might get worse.
Still, parallels are limited. With hindsight, economic historians ascribe the Great Depression to a passive Federal Reserve, which didn't stop bank panics and allowed a dramatic drop in the money supply to worsen deflation.
Today, no one can accuse Ben Bernanke's Fed of being passive. It has sharply cut interest rates and, with the Treasury Department, performed repeated acts of artificial respiration on financial markets (rescuing Bear Stearns and, recently, Fannie Mae and Freddie Mac). Indeed, some observers — including me — wonder whether the Fed's aggressive policies to avoid an economic downturn might unwisely sanction higher inflation.
We are relearning an old lesson: The business cycle isn't dead. Prosperity's pleasures breed complacency and inspire mistakes that, in time, boomerang on financial markets, job creation and production.
Just as expansions ultimately tend to self-destruct, so downswings tend to generate self-correcting forces. People pay down debts; pent-up demand develops; surviving companies expand. The Great Depression was an exception. The present economy would have to get much, much, much worse before it warranted the same appraisal.

Samuelson is a Washington Post columnist.

Mosca
07-25-2008, 11:41 AM
It is definitely not a depression, and it isn't even really a recession.... but whatever it is, it is dangerous. It is dangerous to the American middle class, and it is dangerous to our status in the world.

As individuals we need to be very careful about taking on new debt, and we need to avoid vanity purchases for now. If eating out less causes a contraction in the restaurant industry, too bad for them. If the new car needs to be put off for a year, or the purchase needs to be a good used car instead of a new one, so be it.

I have to make sure I get through it, and everyone else has to do that for themselves as well.

Atlanta Dan
07-25-2008, 12:15 PM
I love it when columnists who have no fear of losing their job and do not have to choose between paying the mortgage or the fuel bill tell people to man up and quit their bitching abot the economy.

As the cliche goes, a recession is when your neighbor loses their job and a depression is when you lose yours

In accordance with what Tom observed, while this is not yet a depression we cannot keep having the governemnt bail everyone out indefinitely

In the narrative that has governed American commercial life for the last quarter-century, saving companies from their own mistakes was not supposed to be part of the government’s job description. Economic policy makers in the United States took swaggering pride in the cutthroat but lucrative form of capitalism that was supposedly indigenous to their frontier nation. ...

The American consumer has for decades served as the engine of world commerce, using borrowed cash to snap up the accoutrements of modern living — clothes and computers and cars now manufactured, in whole or in part, in factories from Asia to Latin America. Eliminate the American wherewithal to shop, and the pain would ripple out to multiple shores.

Globalization, in other words, allowed China and Japan to amass the fortunes they have been lending to the United States.

But globalization also emboldened American capitalists to take huge risks they might have otherwise avoided — like borrowing to erect forests of unsold homes from California to Florida, delivering the speculative disaster of the day. They were operating with bedrock confidence that money would never run out. Someone would always buy American debt, delivering more cash for the next go. ...

So the government offers its rescue of the mortgage companies, and foreigners keep stocking the government’s coffers. “They don’t want the U.S. to go into the worst downturn since the Depression,” Mr. Tilton says.

But all the while, the debt mounts along with the costs of an ultimate day of reckoning. Debate grows about the wisdom of leaning on foreign credit, and about how much longer Americans will retain the privilege of spending and investing money that isn’t really theirs.

Bailouts amount to mortgaging the future to stave off the wolf howling at the door. The likelihood of a painful reckoning is diminished, while the costs of a reckoning — should one come — are increased.

The costs are getting big.
http://www.nytimes.com/2008/07/20/weekinreview/20goodman.html?_r=1&adxnnl=1&ref=weekinreview&pagewanted=2&adxnnlx=1217005811-bBZrwsyFrWZ53Dd/7aVUpQ

http://graphics8.nytimes.com/images/2008/07/20/weekinreview/20good.1901.jpg

revefsreleets
07-25-2008, 04:35 PM
I'd like to point out that this is also a time of opportunity. One of my larger clients is Lincoln Financial, and I've spoken a lot with the owner of the local franchise. He's on the phone putting out fires with housewives who are in a panic because their 100 shares of GM are in the toilet, but he's on the other phone buying buying buying for his own portfolio.

There will be an emerging market that will right this ship...but what will it be? Hopefully it's more sound than dot coms or exaggerated home prices.

Preacher
07-25-2008, 06:13 PM
I'd like to point out that this is also a time of opportunity. One of my larger clients is Lincoln Financial, and I've spoken a lot with the owner of the local franchise. He's on the phone putting out fires with housewives who are in a panic because their 100 shares of GM are in the toilet, but he's on the other phone buying buying buying for his own portfolio.

There will be an emerging market that will right this ship...but what will it be? Hopefully it's more sound than dot coms or exaggerated home prices.

My guess will be....

Homes... again.

Prices will bottom out, and then go back up. Because it is "Real" estate, people will get back into it, especailly now (or in the near future), as this will be the only chance for those who haven't been able to afford a house... and wasn't going to put out the money for a home they couldn't afford, to now get into one.

Atlanta Dan
07-25-2008, 06:25 PM
My guess will be....

Homes... again.

Prices will bottom out, and then go back up. Because it is "Real" estate, people will get back into it, especailly now (or in the near future), as this will be the only chance for those who haven't been able to afford a house... and wasn't going to put out the money for a home they couldn't afford, to now get into one.

Looking for the next bubble is part of the problem; most folks pay the bills based on their wages, not investments, which requires jobs that pay middle class wages. Unfortunately, that traditionally involved manufacturing jobs, which are long gone.

Preacher
07-25-2008, 06:29 PM
Looking for the next bubble is part of the problem; most folks pay the bills based on their wages, not investments, which requires jobs that pay middle class wages. Unfortunately, that traditionally involved manufacturing jobs, which are long gone.

And have moved to sales jobs, computer industry jobs, etc.

tony hipchest
07-25-2008, 06:36 PM
And have moved to sales jobs, computer industry jobs, etc.i know. them people from india call me all day long trying to sell me shit and increase my bandwidth...

and if my cellphone ever breaks.... :doh:

Atlanta Dan
07-25-2008, 07:18 PM
And have moved to sales jobs, computer industry jobs, etc.

But real wages have slightly declined since 1973 after increasing significantly from WWII until then.

from 1947 to about 1973 — from the days from the great Harry S. Truman to the great Richard M. Nixon — real hourly pay for nongovernment workers rose by about 40 percent. The peak year was the one before R.N. left for San Clemente in 1974. Since then, real wages both hourly and weekly for all nongovernment workers, on average, have fallen by about 5 percent, very roughly.


http://www.nytimes.com/2008/06/29/business/29every.html?scp=3&sq=ben%20stein&st=cse

Those time frames pretty much track the rise and subsequent fall of U.S. manufacturing hegemony. Trying to perpetuate the increases in living standards that resulted from rises in real income prior to 1973 after those increases stopped as the U.S. shifted to a service economy has resulted in a culture that attempts to borrow its way to prosperity

David Brooks sums it up

America once had a culture of thrift. But over the past decades, that unspoken code has been silently eroded.

Some of the toxins were economic. Rising house prices gave people the impression that they could take on more risk. Some were cultural. We entered a period of mass luxury, in which people down the income scale expect to own designer goods. Some were moral. Schools and other institutions used to talk the language of sin and temptation to alert people to the seductions that could ruin their lives. They no longer do. ...

And now the reckoning has come. ... After the Depression, a savings mentality set in. After the dot-com bubble, a bit of sobriety hit Silicon Valley. Now it’s the borrowers’ and lenders’ turn. As the saying goes: People don’t change when they see the light. They change when they feel the heat.

http://www.nytimes.com/2008/07/22/opinion/22brooks.html

Preacher
07-26-2008, 01:36 AM
the real question then...

Is the increases seen in the 50's through 70's the norm... or is the what we are seeing between the 80's to now the norm (market correction).

I could and would argue that the tremendous salaries pushed by the unions for those manufacturing jobs were out of line with the total economy, driving up prices to the place where the companies themselves could no longer afford to compete. The big three auto comps. have all had tremendous problems since then.. and PART--not all-- but PART of the problems is that the paycheck for the union wages promised years ago (retirement, etc.) is coming due.

Furthermore, you had the impact of double income families which entered into the market place. Classic inflation where too much money starts chasing too few goods. As a result, the prices of many items inflated to the point where you now NEED dual incomes to buy items that once, only a single income family could afford.

In short... what I am NOT convinced of.. is that because certain blue collar jobs went overseas (not to mention white collar jobs), everything... or even a lot of things can be blamed on that particular issue in a wide-ranging economy.

What I AM convinced of-- is that we have entered a new economic dynamic whereby everything but the basic understanding of a cyclical economy is outdated. The world has taken on a new dynamic... the economic superstate. The communications, travel, etc. has ALL impacted how everyone does business.

Fact is, if we want manufacturing jobs to come back to the states... we need to make it FINANCIALLY VIABLE for the jobs to come here. That means lowering or removing taxes for businesses. That means stopping the stranglehold of unions on labor (I am not saying stop unions... but unions and management MUST understand they are part of the SAME team. The last union shop I worked in... they were mortal enemies).

That means... govt. licensing, oversight, EPA regs, etc. should ALL be re-evaluated.

revefsreleets
07-26-2008, 07:11 PM
I'm not talking about another bubble, I'm talking about a true emerging market. Something innovative and different and new, something "with teeth" so to speak.

Crisis brings about radical changes and innovations. We've gotten fat and slow, and maybe this is just the kick in the ass we need. Time to show a little bit of that fabled "American Ingenuity"...

Atlanta Dan
07-26-2008, 07:31 PM
I'm not talking about another bubble, I'm talking about a true emerging market. Something innovative and different and new, something "with teeth" so to speak.

Crisis brings about radical changes and innovations. We've gotten fat and slow, and maybe this is just the kick in the ass we need. Time to show a little bit of that fabled "American Ingenuity"...

Thomas Friedman thinks developing non-fossil fuel energy sources may be that ticket in the 21st century

I continue to be appalled at the gap between what is clearly going to be the next great global industry — renewable energy and clean power — and the inability of Congress and the administration to put in place the bold policies we need to ensure that America leads that industry....

http://www.nytimes.com/2008/06/29/opinion/29friedman.html

GE CEO Jeff Immelt is pushing the same theme

American companies such as manufacturers, distributors and builders that do not embrace and invest in green Technologies now will soon be at a competitive disadvantage, according to Jeffrey Immelt, chief executive officer and chairman of General Electric Co.

Immelt joined several other top corporate executives and venture capitalists at The Wall Street Journal's Eco:nomics Conference in Santa Barbara, Calif., this week.
Immelt issued a warning to other CEOs about the impending U.S. government capping of carbon emissions: "The day it becomes law, you're five years late."

In an interview at MarketWatch.com during the conference, Immelt pointed out that American manufacturers of the greenest technologies, such as the cleanest-burning locomotives, jet engines and wind turbines, can't keep up with the demands for their products overseas.

"We just see that the government is moving in this way … We'd rather get ahead of it than have it be thrust on us in a very negative way for our companies and the economy," said Immelt, who formerly oversaw GE Healthcare in Waukesha. "I think this could be one of the great export industries of our lifetime."

http://www.biztimes.com/daily/2008/3/13/immelt-advises-american-companies-to-go-green-now

Certainly makes more sense than attempting to reinflate the real estate bubble, as Robert Samuelson notes in this column

As a society, we're overinvesting in real estate. We build (and buy) too many extra-large homes. McMansions, if you will. They use too much energy, and their carrying costs, including mortgage payments, absorb too much of Americans' incomes, limiting the ability to save for retirement and other needs. We think everyone should become a homeowner, when many families can't or shouldn't. The result is to encourage lending to weak borrowers who are likely to default....

But when you subsidize something, you get more of it than you otherwise would. That's our housing policy. Let's count the conspicuous subsidies.

The biggest of these favor the upper middle class. Homeowners can deduct interest on mortgages of up to $1 million on their taxes; they can deduct local property taxes, and profits (capital gains) from home sales are mostly shielded from taxes. In 2008, these tax breaks are worth about $145 billion.

http://www.newsweek.com/id/149008

Definitely agree something needs to change - and soon

revefsreleets
07-26-2008, 07:42 PM
Even T. Boone agrees, that's why he's investing 10 bil of his own in wind. He was misquoted, by the way, in saying "We can't drill our way to cheaper oil". He was talking longer term. He says drill the Hell out of the US and get off foreign oil...but I digress.

It does almost seem like a "set-up" doesn't it? Things get awful and unbearable and then...Poof! The US finds some new miracle engine that runs on garbage (hopefully it doesn't have to be in a De Lorean), and we all get right again.

The alternative is that we really have lost our edge, and Nero fiddles on the roof in reprise as we burn...