Posted on 12/27/2008 4:50:54 AM PST by TigerLikesRooster
An ugly, unrecognizable recession
Most of us haven't seen an economic decline like this one before, and as the slowdown gets slower, few will be unaffected. Are you ready for the 'frugal future'?
[Related content: stocks, investments, recession, consumer goods, Jon Markman]
By Jon Markman
MSN Money
Feeling frugal? You're not alone -- not by a long shot -- as butchers, bakers and billionaires alike are feeling the credit crisis this month in a way not experienced since at least 1946 or even 1938.
It's not just a temporary wave of Scrooginess that's to blame for a retail-sales drop of 7.4% in November and much worse expected for December. It's the combination of two tidal waves of demographics and the global business cycle combining to swamp the middle class, the wealthy and corporations as the recession enters its second year.
/snip
This is largely because all of our economic texts and commentary were created from data that followed the 1944 Bretton Woods conference, which established the U.S. dollar as the world's reserve currency. The post-World War II era harbored the profound societal changes that accompanied the birth of 78 million baby boomers between 1946 and 1964. Recessions tended to be relatively short during the postwar years thanks to the insatiable thirst of the boomers to buy stuff.
/snip
Things are much different this time. The median boomer came into the current downturn in his or her 50s, edging closer to retirement in a state of precarious financial health. After a 20-year buying spree, nonhousing durable-goods assets nearly tripled to $40,000 per household. Fueled by the twin forces of a declining birth cycle and the increased availability and acceptability of credit, this accumulative phase is coming to an end.
(Excerpt) Read more at articles.moneycentral.msn.com ...
Hi
I have no really good answer to your post but I read it three times. Thanks for your take on whether we will be stuck in a deflation mode for a few years
Most people will brashly say we will soon get roaring inflation and others say years of deflation because no matter how much money/bailouts Henry Paulson puts into the system, the destruction of wealth in housing, stock market etc far outweigh it
During deflation cash becomes very dear. Bartering increases
During the Great Depression lots of property was lost because they couldn't pay the taxes. I heard a good story last week about this
Quite true...however many people lost money in this market. No one is ever prepared for something like this.
It isn’t a a “red state vs. blue state” thing.
No, it is MUCH more fundamental than politics. It comes down to this:
Is what you do essential?
If you’re in a place like NY, where a huge chunk of their tax revenue is derived from people trading little slips of paper that have now become worthless or undesired (at the very least), then you’re basically screwed. You’ve got a large sector of your economy which has produced nothing of intrinsic value, which is of no fundamental necessity to civilization (ie, we were doing just A-OK before the CDO or other debt instruments were invented, so despite the protests of Wall Street, we could ban then without permanent consequence), and quite frankly, the financial sector had been inflated to three times the historical component of the US economy.
Just like the dot-bomb bubble, the housing bubble and the finance bubble created jobs that are going away... for a long, long time. The jobs from the dot-bomb bubble went away because they were non-essential. No one needed another web site to sell kitty litter to people. No one needed another startup who was going to spend money on their “brand” first and their product/service second. They just went away when the money got tight.
When money gets really tight, as it is getting now, people start asking “Do I need this?” If the answer is “yes” and money keeps getting tighter, people ask “Really?”
If that answer comes back “yes” — then and only then will people spend money.
So if your state’s economy has a large sector of non-discretionary economic activity (eg, farming, mining, oil, natural gas, coal and other fuel production), then this downturn will be merely a recession. It might be a hard recession, but the farming/mining/oil/coal sectors have gone through recessions before - and they’re still here. Those dot-bomb startups doing frivolous nonsense? Gone forever.
Same deal here with the finance sector, the mortgage brokers, the absurd number of real estate agents, the over-built retail sector, the absurd number of lawyers we have — you name it. They’re simply not essential. Those jobs are going away - probably forever.
The thing that the people in cities forget is this: their very existence is completely dependent upon other people in far-away places doing their jobs. The inverse is simply not true. Out here in the rural west, I don’t give a rat’s rear end whether the n-th investment banker shows up to work in the morning. Could not care less how many people Oprah employs, or whether Oprah is even on the air. I don’t give a rat’s rear end what shows are on Broadway, or whether the entire garment industry in NYC shuts down. Doesn’t make an iota of difference to my existence at all. I literally could not care less.
So your area of the country could try the “atlas shrugged” thing to your hearts’ content and you’d find out that only the people in the immediate area (and maybe some breathless op-ed columnists at the NY Times) notice, much less complain.
Ah..... but let’s turn this around, shall we?
The only thing necessary for rural people to do in order to crush the economy of the urban populations is... nothing. Even more tellingly, there is a very small proportion of the US population that, if they wanted to, could bring the rest of the population to their knees.
All they need to do is sit on their hands and do nothing at all. Urban planners know this. The military knows this. Economists know this.
Here in Wyoming, it would take no more than about 15,000 people sitting on their hands for about four to eight weeks... and a huge chunk of the US electrical grid goes dark for a long time, perhaps for two months more after the coal starts flowing again if the people got back to work.
It works like this: No coal, no fire. No fire, no steam. No steam, no whirring noises in the steam turbine. No fast-whizzy whirring noises in the steam turbine means no juice for you guys in cities in huge swathes of the US.
No juice for you... and we’ve already seen what happens when New Yorkers have a black out.
Given those kinds of consequences, you can bet your sweet bippy that the government is going to rob people in cities to make sure that the coal-blackened rednecks in Wyoming keep digging coal out of the ground - and in Kentucky, West Virginia, Montana, Utah... and a host of other places where they don’t turn up their nose at producing products that are absolutely essential.
Understandably, people in cities are going to be pissed off that they’re being taxed to make sure that dirty, grimy rednecks in nasty low-tech jobs without Ivy League educations are kept rolling in dough while award-winning op-ed journalists are laid off, with no hope of finding another job.
That’s the sort of split you’re going to see. People who render a truly essential product or service will be relatively prosperous. It doesn’t mean that they’re going to be driving an Italian V-12 sports car to work - it means that their job won’t be going anywhere. If they’re a good employee, they’ve got a solid job.
Those who have become absurdly specialized in non-essential industries are going to be forced into a very harsh period of change. Most (but not all) of these people are in urban areas. I have not looked at the numbers, but I’d reckon that a majority, but not overwhelming majority, of these people are in blue states. There are plenty of urban people in red states who are about to get a wake-up call too.
In a depression, there is no such thing as an essential industry. As for ‘sitting down’, you would merely be hauled off to jail and replacement workers sent in. Few states in this nation have ‘essential jobs’ by your definition. In the depression during the 1930’s, farmers were hit hard and the crops rotted in the fields. Pray really hard, we won’t be hit by a depression...no one is immune from its effects. It’s no surprise that most of the 50’s communist types called before McCarthy’s committee joined the Marxist movement in the thirties...economic woes cause societal instability.
Yours is the most lucid post I’ve yet read about this whole mess. Thanks.
In the 1930’s, farmers were suffering from a trade policy enacted in 1922 that crushed farm commodity prices for a DECADE prior to the Depression. The Smoot-Hawley legislation was merely the last straw. The 1922 tariff legislation (Fordney-McCumber Act) was what started gutting the 30%+ of the US economy that was ag.
On top of this, a drought started in 1933/1934 that created the Dust Bowl, which covered several midwest states and set about 1.5 million people moving out of the midwest towards other states in search of jobs. There won’t be a repeat of that issue, because we’ve improved (radically) farming practices. There is no longer tillage based on such nostrums as “rain follows the plow” as there was in those days.
The crops didn’t so much as rot in the fields as they never grew. There wasn’t enough rain. Our Glorious Leader, FDR, rammed through the AAA, which then resulted in millions of head of cattle/sheep/pigs being shot and tossed into trenches as people went hungry - because this was his idea on how to raise ag commodity prices, which he thought would result in farmers re-paying their loans, which would then result in banks ceasing to fail.
Funny... it didn’t quite work out that way.
There are essential industries. Let’s review again: No coal, no lights. The POTUS could haul striking workers off to jail and move the military or replacements into do the jobs as you suggest, but then that simply proves you haven’t got your argument thought all the way through. The need to take such action is prima facie evidence that the industry involved is indeed essential - otherwise there would be no need to do such things, QED.
Here’s proof by negation: The people writing Broadway musicals could sit on their plump posteriors for a hundred years, holding their breath until they turn blue and moldy, and there is NO president of the US who is going to take the drastic action of saying “Get back to work or you’ll be arrested and we’ll send in the military to write musicals!”
See how this works yet? Coal miners: essential. Presidents can and have ordered these men back to work. It stands to reason that even with The One (cue the Seraphim) yammering about global warming, when the turds hit the turbine blades, he ain’t gonna allow coal miners to sit on their duffs. That’s an essential industry.
Even Obama, however, is going to go no further than expressing sympathy for writers of musicals, or Hollywood actors. Non-essential, they.
The number of states with essential industry is indeed a minority, but it comes down to this: most of the coastal states have forfeited any claim to being essential in this economy by their own choice, and this is quickly being proven by how quickly the coastal states are the ones with faltering economies and tax bases. The list of states from which it is not a suave idea to buy a muni bond issue right now is a good indicator of which states are in the mess the deepest. States like California, New York, New Jersey, Florida, Connecticut are just basket cases. States like Nevada and Arizona are very poor bets for muni bond safety largely because their ad valorem tax base is crashing, more than just the economic activity. eg, in Nevada, the state’s tax base is in the large majority based on a non-essential industry - gaming. Gold mine gross receipts, however, are going great gangbusters... so you have this bifurcation in the counties of Nevada: in Clark, Washoe and Carson City, their tax revenues, which are in majority generated from gaming, are crashing even as they’re suffering from increased service costs to deal with the rampant over-development.
The rural counties that have experienced little growth, and are still based on mining and ag, are in fine shape. Gold mining receipts are through the roof and have been for five years now.
Likewise, counties and states with ag, mining, oil/gas/coal forming a significant part of their economic base will get by.
New York, New Jersey and California, however, are just screwed. And they did it to themselves.
I don’t know the details or I would be poised to be a millionaire. I meant that the downturn will be severe and protracted. Home prices may not recover to bubble values for over 10 years. The stock market may not begin to show solid growth for another 8-10 years. Unemployment will not only be higher than the masses expect, but the unemployment rate will REMAIN high for much longer than most people expect. Five years from now, we may still have 9-10% unemployment.
The scale of this contraction and downturn are simply larger, with more unemployment, more business bankruptcies and more bank closures than the mass of people foresee. The scope is that it will affect all industries, including the public sector, which will also experience layoffs and pay reductions.
I’m not saying we go back to the great depression, but the scope and scale of this recession will make 74 and 80 look like fun and games. It is not as if we won’t weather it or bounce back from it. But the recovery will be late and slow. We already have people here claming a recover in second half of 2009. I don’t think we see a recovery until 2012. Between now and then, lots of fired employees are going to be living at home or with relatives, or depleting savings, or doing odd-jobs and gray market, or maybe the government will just pay their unemployment year after year. I don’t know.
When I say the scale and scope will be worse than the masses think, they think this will be a recession like the 1990 recession, with modest unemployment and a relatively quick, strong recovery. The recession will be longer, deeper and more painful than they can imagine because they’ve never experienced it before in their lives. The coming deleveraging will just keep unwinding for years to come.
Their are ALWAYS essential industries. ALWAYS. In any depression, people need food and water, they need a means of travel, they need heat and light in whatever dwelling they live in. Furthermore, in any depression, most of the people are still working and are still buying.
The depression is among those people who can’t find any sustainable work and thereby lose the ability to feed, house and clothe themselves because they are out of work for months or for years at a time.
Those who continue working throughout a depression, even at half-wages, will continue to need food, water, home heating, gas to get to and from their jobs. They may carpool. They may cut out all luxuries from their food budget. They may cut out all lattes and sodas.
The point is, that which sustains your survival are ALL essential industries in a depression. NVDave is distinguishing that from those which are not necessary for survival.
Try this...
Essential jobs:
Farmers
Grocery store clerks
Gas station operators
Water delivery engineers
Auto mechanics
Coal miners
Natural gas companies
Alcohol & cigarrettes (not essentials, but people keep consuming even during depressions)
Non-essential jobs:
Starbucks clerks
Automated car wash staff
Auto detailers
Dog groomers and walkers
Hair stylists
Video rental companies
Cable TV providers
Sports teams
Gyms and racketball courts
Restaurants
Get the picture? See the difference here? Essential (that you need to live day to day) vs non-essential (luxuries and conveniences you want but don’t need).
Most people are oblivious to everything that isn't directly affecting their personal lives at this moment, or that isn't blasted 24/7 across their favorite entertainment channels.
The bridge to the 21st century got dismantled and sold off in pieces. The train already went over the cliff and is on the way to the bottom. Most people think the ride is going just fine, so far. Their car hasn't reached the bottom yet.
My Grandmother lived through the depression. She told me many true stories about those times...I think you are wrong. Also, clerks in stores get fired in order to make way for the ‘highly educated’ employee. It is not as simple as you make it.
While I see how many computer applications are frivilous, you still gotta count stuff, do payrolls, do accounting, and do medical stuff.
So, while theoretically, I won't say I'm essential, I'm not far from it, I suspect.
The boomers will at least have pensions to fall back on. Their children will not. They also will be able to vote themselves ever greater government benefits, further impoverishing their offspring.
The question is will be people continue their ordering cycle or will they continue to use the products they already have? I'm in computer hardware and I'm afraid people will just put off purchases longer and longer.
Products break.
Exactly. And property ownership is what the leftist elites mostly agree on. They're against private ownership of property by citizens. Unless, of course, "they" are the ones doing all the owning.
I just can't help thinking this whole thing has been planned and orchestrated by the very same anti-capitalist leftists/DemocRats and commies that have been working methodically to destroy America for over half a century.
Looks like they'll finally get their way.
Last week this old timer told the story of how the family house was seized for taxes in 1936
His father was Italian and a skilled carpenter and built that house with his brother for $5,000.
How would you like to lose the house you built to the government!
Such a sad story
Took place in New Jersey
Such a sad story
Thanks for your thoughts. I’m hearing both points of views (quick/slow recovery) and can’t yet tell which side I agree with.
My brother thinks a 2-3 year slowdown; your prediction is one of the more dire I’ve heard, but you could be right.
Seems like the days just keep passing, and no one really knows what will happen. I’m glad the Lord is in ultimate control of the earth though.
People who can maintain COBOL, RPG, CICS/MVS applications are just short of being able to name their price these days.
The old farts are retiring, and the kids today are too proud and too arrogant to learn COBOL - all they want to do is lecture people as to why C++ or Java is the wave of the future.
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