What if a Slowdown Is a Never-Ending Story?

The New York Times ^ | November 21, 2008 | Ben Stein

[dano1]

I AM endlessly charmed by chatter about when this slowdown/recession will end. (snip)

But this does not look like a typical recession. A typical recession is brought on by Federal Reserve tightening in the face of excessive demand and rising prices. The economy still functions normally, but purposeful credit tightening slows activity. When the Fed loosens up and money starts flowing, demand increases and growth returns. This, at least, is the pattern of the large recessions we have had since the Great Depression, which was a special case, as we shall see.

Smaller recessions have been brought on simply by the inventory-business cycle, but they, too, were amenable to Fed stimulus.

That was because normal credit mechanisms were working.

This time it’s different. Or, because that is a dangerous phrase, let me say that maybe this time it’s different.

The problem now, as in 1929 to 1940, is that the economy is not functioning normally. It is shot through and through with fear, even terror. Worse yet, and unlike the situation in the Depression, government miscues have been only a part of the problem. This fear is so pervasive that it has brought the credit sector to a virtual shutdown, even to borrowers with good credit. At this point, the lending sector is so panicked —largely from the government’s inconsistent behavior and failure to rescue Lehman Brothers — that it is frozen. Not totally, but way too much for ease of lending and maybe even for the survival of a robust economy. And if a colossal worldwide deleveraging spreads to Treasury debt owned by foreigners, the situation will be deadly serious.

The unemployment rate is rising. Housing is in collapse. Manufacturing is weak. The unionized auto sector is dying before our eyes. Commodities are falling hard and fast.

[Travis McGee]

"If recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Federal Reserve System would take steps to ease the money market, and so check the movement."

~~Harvard Economic Society, October 19, 1929

"Business will turn for the better this month or next, recovering vigorously in the third quarter and end the year substantially above normal."

~~Harvard Economic Society, May 17, 1930

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-~~Ludwig Von Mises

“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities; and in December occurred the largest bank failure in American financial history, the fall of the ill-named Bank of the United States in New York.”

~~"Only Yesterday: An Informal History of the 1920’s" by Fredrick Lewis Allen

[Deetes]

Everybody has enough cars TV’s Ipods to last the decade . Not much you can do about that ;-)) Build a better car TV or Ipod ??

[oioiman]

http://www.youtube.com/watch?v=2I0QN-FYkpw&eurl=http://caps.fool.com/blogs/viewpost.aspx?bpid=109293&t=01007146184382914537

Ben Stein is a tool, Peter Schiff owns him, and others in this video is from 2006/2007, notice the crap Stein spews in response, I loooove where he says Merrill Lynch is a bargain and AND ASTONISHING WELL RUN COMPANY, look at the prices the people were saying WERE BARGAINS for the financials

[Travis McGee]

This is just plain stupid. Never ending. Please. Even the depression had an ending. This will be over in two to three years.

Sometimes depressions lead to Dark Ages. Ask any Roman. No Roman from 500AD lived to see the end of that Great Depression.

[rlmorel]

I think he means WWII is what really pulled us out of the Depression, not the policies of the Roosevelt administration, which made it worse.

[Lilpug15]

I believe it is much deeper - the credit sector has yet to topple and I have discussed this with some people who think this is the next thing to go. Credit is so intertwined like a spider webt that when one thing starts to go so does everything else because banks lend to banks, banks lend to companies and companies lend to companies - one in the chain defaults or goes under so do many of the others following!

[ErnBatavia]

A whole lotta historians credit World War II as FDR’s chosen way out of the depression. No matter whether you agree or not -— it worked.

[Emperor Palpatine]

I just lost all respect for Ben Stein.

[Travis McGee]

"The crisis of the abuses of banking is arrived. The banks have pronounced their own sentence of death. Between two and three hundred millions of dollars of their promissory notes are in the hands of the people, for solid produce and property sold, and they formally declare they will not pay them. This is an act of bankruptcy, of course, and will be so pronounced by any court before which it shall be brought. But cui bono? The laws can only uncover their insolvency, by opening to its suitors their empty vaults. Thus by the dupery of our citizens, and tame acquiescence of our legislators, the nation is plundered of two or three hundred millions of dollars, treble the amount of debt contracted in the Revolutionary war, and which, instead of redeeming our liberty, has been expended on sumptuous houses, carriages, and dinners. A fearful tax! if equalized on all; but overwhelming and convulsive by its partial fall. Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper, as we were formerly by the old Continental paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burthen all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs. Prudent men must be on their guard in this game of Robin's alive, and take care that the spark does not extinguish in their hands. I am an enemy to all banks discounting bills or notes for anything but coin. But our whole country is so fascinated by this Jack-lantern wealth, that they will not stop short of its total and fatal explosion."

~~Thomas Jefferson to Dr. Thomas Cooper, 1814

[Jacquerie]

But the Depression taught us that if there is enough fear in the economy, lenders will not lend and economic activity will continue indefinitely at a level consistent with serious recession or even depression.

This was John Maynard Keynes’s great contribution to economic understanding, and it’s a big one.

The money quote. Keynes's solution was tried by FDR. It did not work. World war did. Scary.

[ThePythonicCow]

You are trying to put WW II with the depression?

What Perdogg said made sense to me. By various (though not all) accounts, it was World War II which ended the Great Depression.

Do you disagree with that claim, or did you not read Perdogg as making such a claim?

[Kirkwood]

“Even the depression had an ending. This will be over in two to three years.”

These are the beginning days of the new dark ages.

[realdifferent1]

Even the depression had an ending...

But FDR didn't have a country that was 100 TRILLION DOLLARS IN DEBT!

Our GPD is currently about 14 TRILLION PER YEAR!

This means that for every dollar we produce, we owe seven dollars and change.

This will not end in our lifetime.

[Travis McGee]

Could be. See 24. GMTA.

[Emperor Palpatine]

I’ve always said it wasn’t FDR that ended the Great Depression.

It was Hideki Tojo and Isoroku Yamamoto.

[Big_Monkey]

I couldn’t agree more.

Clinton benefited greatly from the explosion in the micro-processing power and computer inter-connectivity. These gains continued, sustaining us through what could have been a really disastrous .com crash.

However, this is where your point has great relevance. We (the US and the civilized world) are to the point of technology saturation. What’s next? There doesn’t seem to be any new technology on the near-horizon that is so compelling it continues to drive demand for consumer goods.

This isn’t the only reason reason for the pickle we’re in, but it certainly is going to greatly complicate the recovery efforts.

[wbill]

I don’t like this tone from Ben Stein...he is usually fairly well balanced, I think...

Ben Stein has been talking down the economy for quite awhile now. More gloom and doom than usual.

Dunno if it's personal, political, or if he really thinks there's a problem.

[bert]

......This will not end in our lifetime. .....

It will disappear in a cloud of inflation

[I see my hands]

So many sectors are experiencing chaos and uncertainty.. plus, no matter what, we have to institute national health insurance, that's a given. The only thing that makes sense is central planning and collaboration with the global community.

[Jacquerie]

If prices are falling, why would anyone buy today if they could put off purchases until tomorrow?

Rare, yes. Stupid, no.