Posted on 03/04/2010 7:30:27 AM PST by SeekAndFind
Whether the 2007-09 slump was the worst since the 1930s or is merely tied with the 1973-74 debacle is an open debate. The economy appears to be weakening again, fueling fears of a double dip. I am certain, though, that the 2007-09 Great Recession didn’t need to be so great. It could have been, should have been, no worse than the 1990-91 recession.
Since World War II, the U.S. has suffered 12 recessions. The two worst, not including the most recent, were in 1973-74 and 1982-83. Both lasted 16 months and saw unemployment go over 10%. The 1973-74 recession was psychologically worse because it happened during a 48% stock market drop, the first OPEC embargo, and the resignations of Spiro Agnew and Richard Nixon. America was spinning out of control in 1973-74--an echo heard today. The 1982-83 recession had the virtue of being somewhat planned, the result of Fed Chairman Paul Volcker’s successful attempt to kill inflation.
The 1990-91 recession in America lasted 8 months and saw unemployment go to 7.8%. That’s the recession we should have had in 2007-09. The causes of 1990-91 and 2007-09 were similar: Real estate collapse, stock market turbulence, financial engineering turkeys come home to roost, loan failures, taxes going up, a Middle Eastern war, a spike in oil prices and everybody de-leveraging at once.
The early '90s slump could have easily started in 1987, after Black Monday’s worldwide drop in stocks on Oct. 22. For the month, stocks fell 46% in Hong Kong, 41% in Australia, 26% in the U.K. and 23% in the U.S. This might have set off a panic lasting many weeks, but it didn’t.
(Excerpt) Read more at blogs.forbes.com ...
The recession didn’t have to happen at all, but the world’s central banks insisted on it, as they always do.
Some differences then and now according to this author:
* After Black Monday, President Ronald Reagan did not get on television and tell the American people not to panic, as George W. Bush foolishly did in September 2008
* We were led by better people, many of them children of the Depression or veterans of World War II or people who had exhibited steady hands in the Cold War. There was no advisor to a U.S. president with giant nanny state ambitions.
* U.S. government did not add to the uncertainties that paralyze investment and consumption during past recessions. The waning days of George W. Bush and the first 14 months of Barack Obama, on the other hand, have done little else but pile on the uncertainties.
Some differences then and now according to this author:
* After Black Monday, President Ronald Reagan did not get on television and tell the American people not to panic, as George W. Bush foolishly did in September 2008
* We were led by better people, many of them children of the Depression or veterans of World War II or people who had exhibited steady hands in the Cold War. There was no advisor to a U.S. president with giant nanny state ambitions.
* U.S. government did not add to the uncertainties that paralyze investment and consumption during past recessions. The waning days of George W. Bush and the first 14 months of Barack Obama, on the other hand, have done little else but pile on the uncertainties.
The causes of all modern recessions have been central banks inverting their yield curves. Or to put it another way, the cycle of tight money following loose money.
I remember Reagan going on television after the 1987 crash. Perhaps the difference was Reagan had credibility in economic matters.
A few issues....
Legislation in the late 1990s gave us an unregulated derivatives market and allowed banks to go beyond deposit taking and stable lending. Congress then gave financial houses a license to debt when they lifted leverage limits.
Toss in the Fed’s attempts to control the market with free money and no oversight on how banks are operating and away you go.
Why is it that the Recession in 1920 is never mentioned?
Well, golly, because Government slashed taxes from 77% to 25% and cut Spending 50%. Golly, that recession ended so fast no one remembers it.
If OholyO had done that instead of ramping up spending to hand out billions to his friends and their friends, this recession would already be over.
But then Obama’s friends would not be so much richer.
Unfortunately, they do. Recessions and depressions are the way that imbalances are corrected.
All these guys talk as if the “recession” is over. The Recession of 2007-09. Must have been Bush’s fault.
Oh, sure, and businesses are thriving and hiring all over the place. Unemployment numbers are plummeting—or would be if it weren’t for all this darned snow.
What imbalances?
Malinvestment. For one, the amount of money being allocated to housing was unsustainable.
What about other sectors of the economy where malinvestment wasn't a problem? Shouldn't they be allowed to function normally? Does everybody have to suffer?
And where did the "money allocated" come from. Wasn't it largely a result of the artificial loose/tight money cycle foisted on us by the central bank?
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