A couple of thoughts at once random but related to the question:
1. Small businesses are still having trouble accessing investment capital. Until this changes we never really will recover.
2. Large companies have yet start investing significantly in "developmental talent" or bright junior employees that require an investment. That is, the old adage was "hire the smartest people possible, give them above market compensation for what they actually contribute (relative to line responsibilities) & hope that down the road they would be able to assume leadership roles."
2a. I happened to be in a Best Buy this week & was amazed at the educational background of the front line people I was dealing with. The old joke used to be about the barristas at Starbucks having degrees in English or some other "impractical" major. Now it is MBAs selling iPod accessories at retail.
3. People with significant assets in the equity markets (including many Boomers thinking retirement or starting to think retirement) have dealt with what happened Oct 08 - Mar 09 (give/take). There are a lot of emotions including disgust, anger, betrayal, etc. That isn't to say "forgiveness" but "acceptance"; "It is what it is" -- Accepting a change in when you might be able to retire...accepting a change in potential lifestyle....a shift in asset distribution...but the changes in thinking have been made and we are moving on....
4. All real estate in my view is local....that said, the investor's time horizon is a long one. Things may have bottomed out(???) & lots of people have been hurt, even destroyed....but the price/valuation changes are only helpful to people that are looking for a new place to live. For them this may be a once in a lifetime opportunity. The fact that something is selling for a 1/3rd of what it was 2 years ago doesn't make it a bargain if you have a short term perspective.
5. This doesn't speak to recovery...but...as a consumer there are a lot of great deals out there, everything from consumer electronics to fine dining to travel/resorts to just plain grocery shopping if you are willing to invest a little effort in looking
5a. Since the 1st of the year I've gotten at least 5 offers in the mail offering at least $20 off of my total bill at a restaurant...not "buy one get one" or "early bird special" or "special menu"...just dollars off the bill no strings...I will tell you I read my "junk mail" (or at least scan it) these days...not doing so really is throwing $ away.
- atlcomedy
- 01-30-2010, 01:04 AM
- Nicolette Morgandy
- 01-30-2010, 09:40 AM
Great read.
Interesting responses, and I appreciate everyone's input.
Interesting responses, and I appreciate everyone's input.
- pjorourke
- 01-30-2010, 10:46 AM
- newalhobbyist
- 01-30-2010, 10:52 AM
I think that was textushhogs point: pass a stimulus that is designed solely to be a stimulus. The problem with doing it now is the time delay of stimulus packages' effect on the overall economy. It just takes time, though a well-designed stimulus package will take less time.
- pjorourke
- 01-30-2010, 11:07 AM
It really is a shame that the Republicans stuck a gun to Obama/Nancy/Reed's head and made them waste that 800 Billion in pork. If only they had been given a chance to craft a well-designed stimulus package without having to trade off principles to get the other team to vote for it. Oh, wait a minute, they didn't need any votes... 
- newalhobbyist
- 01-30-2010, 12:06 PM
I do think I could design a much better stimulus package that solely had its purpose to stimulate the economy in the shortest time possible. I do not think either party would support that design. I am certain that the American voter as a group would not.
A major concern of mine is that if the federal goverment has a stimulus package and yet states are cutting back, it is a stalemated tug-of-war from a stimulus viewpoint and therefore is a partially wasted effort. That does not mean that the federal government should have a stimulus package.
A second concern is that a stimulus pakage is judged on having a great "positive effect," ie, positive job growth. A good stimulus package could have a great "less negative effect," ie, a much less decline in jobs than would be otherwise, but still be considered ineffectual because there isnt strong positive job growth.
A third concern is that often commentators like myself confuse short-term and long-term effects and decisions. I personally often promote one thing in the short term and the exact opposite in the long term. In an recession, I promote deficit spending (ie, short term); otherwise I promote government spending less than collected in order to balance the budget longterm.
A major concern of mine is that if the federal goverment has a stimulus package and yet states are cutting back, it is a stalemated tug-of-war from a stimulus viewpoint and therefore is a partially wasted effort. That does not mean that the federal government should have a stimulus package.
A second concern is that a stimulus pakage is judged on having a great "positive effect," ie, positive job growth. A good stimulus package could have a great "less negative effect," ie, a much less decline in jobs than would be otherwise, but still be considered ineffectual because there isnt strong positive job growth.
A third concern is that often commentators like myself confuse short-term and long-term effects and decisions. I personally often promote one thing in the short term and the exact opposite in the long term. In an recession, I promote deficit spending (ie, short term); otherwise I promote government spending less than collected in order to balance the budget longterm.
- Camille
- 01-30-2010, 12:16 PM
Back to the OP's question...
The problem with measuring a recession is that the favoured approach is the decline of GDP over 2 quarters. That's generally the way a recession is indicated and monitored. That said, the other (less preferred) method is a decline in unemployment. So, in theory, the UK are out of recession as announced this week. Reason? GDP increased by 0.1%. Hardly a bang is it..more of a whimper. Try telling the 8.9% of people unemployed that the recession is over and they'll scratch your eyes out. I guess my point is the goverment and economists use GDP whilst the masses use unemployment so until GDP rises AND unemployment falls substantially no-one is willing to admit typically that a recession is over. If you look at recession announcements historically for this country, the end of a recession is usually officially announced a year (or more) after a continually rising GDP.
C
The problem with measuring a recession is that the favoured approach is the decline of GDP over 2 quarters. That's generally the way a recession is indicated and monitored. That said, the other (less preferred) method is a decline in unemployment. So, in theory, the UK are out of recession as announced this week. Reason? GDP increased by 0.1%. Hardly a bang is it..more of a whimper. Try telling the 8.9% of people unemployed that the recession is over and they'll scratch your eyes out. I guess my point is the goverment and economists use GDP whilst the masses use unemployment so until GDP rises AND unemployment falls substantially no-one is willing to admit typically that a recession is over. If you look at recession announcements historically for this country, the end of a recession is usually officially announced a year (or more) after a continually rising GDP.
C
- newalhobbyist
- 01-30-2010, 12:39 PM
Camile, I think you are spot on. The only thing I can add is that there is a big difference between the end of a recession (when GDP turns positive) and start of the end of the effect of a recession (when unemployment starts declining).
Can you not tell I was trained as an economist? LOL
Can you not tell I was trained as an economist? LOL
- Camille
- 01-30-2010, 12:51 PM
Oh I completely agree with you and I think that's really why we see stalling with regards announcements. Oh sorry...I just realized, my sentence should have said " after a continually rising GDP AND a clear demonstration of falling unemployment." The government's primary economic aim in a recession is going to be stimulating teh GDP. Decreasing unemployment tends to be their secondary aim. Perhaps the real question should be how far can you increase the GDP without decreasing unemployment? Btw newal...I won't hold it against you that you are a trained economist. Honest :-)
C xx
C xx
- terbul
- 01-30-2010, 01:02 PM
- WTF
- 01-30-2010, 01:30 PM
You really have to be versed in the phrase "On the other hand..."- pjorourke
- 01-30-2010, 01:37 PM
- atlcomedy
- 01-30-2010, 04:07 PM
I'm not a big fan of stimulus programs in general but to the extent you do one it should actually generate consumer spending and have quick real time turnover vs. multiyear infrastructure projects. Some sectors of the economy are better than other for this.
You send people an "Obama Check" for $300 or $600 a lot of people do prudent things like invest it or pay down debt.
I'll suggest a $500 gift card to every adult for use in the adult business (strip clubs, escorts, etc.). The multiplier on that money would be off the charts. The people recieving that $ would spend it again (quickly) in the economy. Obviously that has practical problems.
Short of that I'll suggest the bar/restaurant business. Send everyone a gift card that must be used by a certain date. Again, the people getting this $ would reinvest in the consumer sector.
You send people an "Obama Check" for $300 or $600 a lot of people do prudent things like invest it or pay down debt.
I'll suggest a $500 gift card to every adult for use in the adult business (strip clubs, escorts, etc.). The multiplier on that money would be off the charts. The people recieving that $ would spend it again (quickly) in the economy. Obviously that has practical problems.
Short of that I'll suggest the bar/restaurant business. Send everyone a gift card that must be used by a certain date. Again, the people getting this $ would reinvest in the consumer sector.
- Sarcastro
- 01-31-2010, 06:55 AM
I recently ran across this superb analysis of historical unemployment levels from the Fed Bank of Dallas which I think is relevant to Camille's point:
Economic Letter—Insights from the Federal Reserve Bank of Dallas
Economic Letter—Insights from the Federal Reserve Bank of Dallas
- Texas Contrarian
- 02-03-2010, 02:34 PM
I think the economy has a good chance to look like it's holding up fairly well, with what appears to be decent year-over-year GDP growth at least through the end of this year, since policymakers can probably keep it on what's tantamount to a caffeine and sugar high for a while longer. The Fed -- with ZIRP and massive quantitative easing -- has flooded the economy with more monetary stimulus than at any other time in history. I'm very concerned about 2011 and beyond, though. The Fed will eventually have to implement an exit strategy, and we obviously can't keep running gargantuan fiscal deficits for much longer.
History shows that recovery from the aftermath of financial crises tends to be painful and difficult. Asset price collapses tend to be deep and prolonged. For anyone who may be interested in the topic, Reinhart and Rogoff wrote an excellent short paper on the topic:
http://www.economics.harvard.edu/fil..._Aftermath.pdf
No one should get too excited about the 5.7% GDP "first take" for Q4 2009. Most of it resulted from the typical inventory bounceback you see following a deep recession, and from the method by which government spending is tallied in the national income accounts. What's called "real final sales to domestic producers" actually declined slightly from Q3 to Q4.
In other words, the economy is not exactly robust.
And no one should be surprised that the unemployment rate remains stubbornly high. Just look at what managers and small business owners who make hiring decisions see when they take a look around the landscape: The most anti-growth economic agenda in many years. This uncertainty overhang gives pause to many decision-makers.
I believe it's necessary to take a look at the last nine years to fully understand what a difficult spot we're in. Beginning in early 2001, the Federal Reserve stimulated our way out of what probably should have been a far more significant recession (in 2001-02). Instead, we had an extremely mild recession in 2001. After 9/11/01, the Fed pumped even more liquidity into the system, and followed up by shoving the policy rate all the way down to 1% in early '03 and leaving it there for over a year. Of course, that provided the fuel for the housing boom which busted so calamitously a few years later.
At the same time, congress removed PAYGO rules in 2002 and jettisoned any semblance of fiscal discipline. A massive expansion of government spending ensued. We saw a huge entitlement expansion (the prescription drug benefit plan of 2003), a trillion-dollar war, huge transportation and agriculture bills, the corn ethanol boondoggle, and all sorts of other expensive goodies -- all while cutting taxes (across-the-board, not just for the "rich"). Tom DeLay and his associates porked up the budget to a then-unprecedented degree. And George W. Bush didn't veto any of it. In fact, his administation actively called for much of the spending.
Ten years ago, the federal budget was about $1.8 trillion. By 2008 it approached $3 trillion. The budget just proposed by the Obama administration weighs in at approximately $3.8 trillion.
The problem is that there is a giant disconnect between the current level of spending and the ability of our present tax system to cover it. Most of the deficit is structural, not cyclical. I doubt seriously that any prominent politician is going to confront this. The solution would be painful for the nation and political suicide. So we'll probably try to stimulate, stimulate again, and then stimulate some more -- just kicking the can down the road.
I don't believe for a minute that it will work very well. If you try to cure the aftermath of the bust following a credit-fueled, consumption-fueled, cheap-money-fueled boom by mixing up a stronger cocktail of all the ingredients that got you there in the first place, you'll risk just building a bridge to the next crisis.
The painful, unvarnished truth is that someone eventually has to pay for all this. Demand for Treasury issuance is not unlimited, and attempts to just start monetizing trillions of dollars of debt would likely have disastrous consequences.
In the not-too-distant future, you're likely to see tax increases. And they could be really, really big.
History shows that recovery from the aftermath of financial crises tends to be painful and difficult. Asset price collapses tend to be deep and prolonged. For anyone who may be interested in the topic, Reinhart and Rogoff wrote an excellent short paper on the topic:
http://www.economics.harvard.edu/fil..._Aftermath.pdf
No one should get too excited about the 5.7% GDP "first take" for Q4 2009. Most of it resulted from the typical inventory bounceback you see following a deep recession, and from the method by which government spending is tallied in the national income accounts. What's called "real final sales to domestic producers" actually declined slightly from Q3 to Q4.
In other words, the economy is not exactly robust.
And no one should be surprised that the unemployment rate remains stubbornly high. Just look at what managers and small business owners who make hiring decisions see when they take a look around the landscape: The most anti-growth economic agenda in many years. This uncertainty overhang gives pause to many decision-makers.
I believe it's necessary to take a look at the last nine years to fully understand what a difficult spot we're in. Beginning in early 2001, the Federal Reserve stimulated our way out of what probably should have been a far more significant recession (in 2001-02). Instead, we had an extremely mild recession in 2001. After 9/11/01, the Fed pumped even more liquidity into the system, and followed up by shoving the policy rate all the way down to 1% in early '03 and leaving it there for over a year. Of course, that provided the fuel for the housing boom which busted so calamitously a few years later.
At the same time, congress removed PAYGO rules in 2002 and jettisoned any semblance of fiscal discipline. A massive expansion of government spending ensued. We saw a huge entitlement expansion (the prescription drug benefit plan of 2003), a trillion-dollar war, huge transportation and agriculture bills, the corn ethanol boondoggle, and all sorts of other expensive goodies -- all while cutting taxes (across-the-board, not just for the "rich"). Tom DeLay and his associates porked up the budget to a then-unprecedented degree. And George W. Bush didn't veto any of it. In fact, his administation actively called for much of the spending.
Ten years ago, the federal budget was about $1.8 trillion. By 2008 it approached $3 trillion. The budget just proposed by the Obama administration weighs in at approximately $3.8 trillion.
The problem is that there is a giant disconnect between the current level of spending and the ability of our present tax system to cover it. Most of the deficit is structural, not cyclical. I doubt seriously that any prominent politician is going to confront this. The solution would be painful for the nation and political suicide. So we'll probably try to stimulate, stimulate again, and then stimulate some more -- just kicking the can down the road.
I don't believe for a minute that it will work very well. If you try to cure the aftermath of the bust following a credit-fueled, consumption-fueled, cheap-money-fueled boom by mixing up a stronger cocktail of all the ingredients that got you there in the first place, you'll risk just building a bridge to the next crisis.
The painful, unvarnished truth is that someone eventually has to pay for all this. Demand for Treasury issuance is not unlimited, and attempts to just start monetizing trillions of dollars of debt would likely have disastrous consequences.
In the not-too-distant future, you're likely to see tax increases. And they could be really, really big.