Patterico's Pontifications

Recession or not, the economy sure has gotten worse since the Democrats took over Congress.

Dave in MA (1dbcfe) — 3/14/2008 @ 9:26 pm

Oh, no. It has to be the fault of Bush.
Since the Dems refuse to give any credit to Newt & Crew for the economic boom after the ’94 elections, today’s events cannot in any way be connected to the Dem takeover of Congress following the ’96 elections.
How can any rational person believe that businessmen have altered their planning due to the planned/promised tax and regulatory increases due when the Dems take control of both ends of Pennsylvania Ave.
Hold on to your hats, we might be in for a very bumpy ride.
And, (I’m going to keep riding this horse until my theory is disproven) just how much of our energy prices are due to Soros-controlled hedge funds? He killed the Pound 15-years ago, what makes anyone believe he wouldn’t do the same to the Dollar to stick-it to GWB? Remember, oil prices aren’t set by nations anymore, they’re set by oil-traders and hedge-fund managers in New York.

Another Drew (8018ee) — 3/14/2008 @ 10:32 pm

Oops. “06” elections.

Another Drew (8018ee) — 3/14/2008 @ 10:33 pm

Yes, we are in a recession, and it’s going to be an ugly one. Just because Hillary says we’re in one shouldn’t blind you to the facts.

While Beldar’s choice for defining recession is indeed the most common one, it is by design a historical one looking back at the past. That is of no help in determining present economic conditions.

Just look at the evidence: Nothing the Fed has done in the past few months has made a bit of difference — it injects $200 billion in liquidity at the beginning of this week and by the end investment banker Bear Stears is near collapse. (Liquidity is not the problem, it’s solvency. The Fed could only restore solvency by taking on perhaps trillions in dodgy debt and sticking the taxpayers with the tab). Repeated interest rate cuts do little, as reported business losses continue to mount. The prices of gold and oil soar. Consumer spending — two thirds of the economy — is tapped out. Recession under these circumstances is inevitable.

This piece published last summer tells you what’s going on

What we should do about the recession is to let the free market take its course and liquidate all the bad debt brought about by years of a huge real estate/credit bubble. Our seeming prosperity of the last few years was an illusion, which caused people to make bad economic decisions. One datum: from 1890 to 1990, real housing prices have scarcely kept pace with inflation. Those real estate gurus who told you that buying a house is sure-fire long-term investment were dead wrong.

Yes, recession does bad things. Companies will go under, unemployment will rise, and housing prices collapse. But if the government doesn’t interfere, the worst will happen quickly, and the economy can begin to grow again on a more rational basis. That is the positive role of recessions.

And mirable dictu, by doing nothing, the government will do more to solve the problem of affordable housing than anything it has ever done.

Unfortunately, Hillary, McCain and Obama will compete in offering fanciful bailout packages that will only prolong the pain. Some idiotic economists and officials are talking about intervening to strengthen the dollar, as if that were not merely a symptom of our problems. For politicians, recessions are excuses for big-government interventions in the economy. But it was those interventions (including a negative real interest rate), that caused the bubble in the first place.

Bradley J Fikes (1c6fc4) — 3/14/2008 @ 11:30 pm

Continuous growth of an economy is not a recession, even if that growth slows. The economy is more than the housing market or any other single area. If the overall economy is growing… it’s NOT A RECESSION!

Sheesh.

Stashiu3 (460dc1) — 3/14/2008 @ 11:55 pm

Holy Cow — there must be a Presidential Election in few months. The last time I heard stuff like this from the Dimocrits it was “The Worst Economy Since Hoover!!!”

John Kerry, 2004.

wls (e9f058) — 3/15/2008 @ 2:07 am

We’re in a depression. I’m not working and I’m having trouble finding a job, so it’s a depression. 😉

evilned (429c11) — 3/15/2008 @ 3:42 am

So, to Re-Cap;
1)The Democrats re-take the congress and the economy tanks.
2)Democrats need to ‘re-do’ their primaries in two states.
3)An important Democrat is known to associate, for decades, with avowed racists.
4) A State and Major Metropolitan area, Democrat majority, takes over four years to recover from One hurricane event, horribly botching it’s responsiblity to it’s citizenry.
Yep, vote Democrat.
yeeeeesh

paul from fl (47918a) — 3/15/2008 @ 4:46 am

It’s going to be a lot worse than a recession if we don’t get a grip on this enormous debt overhang, public and private. Govt bailouts for bad actors like Bear Stearns* and mortgage deadbeats are exacerbating moral hazard and encouraging others to walk away from debt obligations. Folks are predicting a 100 basis point Fed funds rate cut for Tuesday. What does that tell the rest of the world about our commitment to defend the greenback? If this keeps up, people are going to start selling off Treasuries, the US bond rating will get dinged, and the govt is headed toward bond default. “Full faith and credit” my ass.

Then there’s over $400T nominal value of derivatives propping up the financial system; that’s 30X US GDP! What happens when people lose confidence in that mound of paper and electrons?

* Bear Stearns, an _investment bank_, that uses 20 to 1 leverage(!) deserves to go down in flames, not rescued with my money. The longer the Fed dicks around trying to “fix” this, the worse the outcome is going to be.

gp (72be5d) — 3/15/2008 @ 6:46 am

All I know is, working in retail, that people spent less last year than they did the year before, and people are spending less this year than they did last year. We may not be in a recession, but the economy isn’t exactly the picture of blooming health.

Also remember that parts of the country can be in a recession even though the nation in general is not.

kishnevi (88ed49) — 3/15/2008 @ 7:04 am

and then this blog post on a site that is definitely not a Democratic blog.

kishnevi (88ed49) — 3/15/2008 @ 7:25 am

Trying this again (caught in the spam filter?)
http://www.qando.net/details.aspx?Entry=8107

Q & O is definitely not a Democratic blog.

kishnevi (88ed49) — 3/15/2008 @ 7:26 am

Sorry for the double posting. Thought the first one didn’t go through.

kishnevi (88ed49) — 3/15/2008 @ 7:27 am

We were heading into one when Bush got elected, but the dems said everything was fine. Now, they are saying we are in a recession, so that the moment a dem gets elected, they can say s/he turned it around in the first 48 hours.

Lyings pieces of crap. That includes the entire profession of “journalists” who are the Goebbels of this kind of crap.

martin (86a2e8) — 3/15/2008 @ 7:34 am

How do we know if we’re in a recession or not? Doesn’t that data always come out a quarter or two after the fact?

Xrlq (62cad4) — 3/15/2008 @ 7:47 am

Yeah, they’re just predicting that on July 1 they’ll be able to say that we just completed two quarters in negative growth, not just a decline in the rate of positive growth…

kimsch (2ce939) — 3/15/2008 @ 8:02 am

Since we haven’t had a single quarter of negative growth yet, that’s a pretty ~~bold prediction~~ bald-faced lie from them. They’ve been making that prediction for 7 years now, what’s their percentage of accuracy? Zero.

Stashiu3 (5285bb) — 3/15/2008 @ 8:24 am

I know! Let’s raise taxes.

J. Peden (054d2f) — 3/15/2008 @ 8:31 am

And another government bailout for the housing industry, along with a “stimulus package” for everyone who doesn’t pay any taxes at all, including illegal aliens. Feh.

When are they going to realize that besides the media’s constant doom-and-gloom, taking money from the productive segment of society to pay for votes from the non-productive has a negative effect on the economy as well? People stop spending because they can’t rely on keeping what discretionary funds they already have. The economy is about confidence and the MSM tries to shake that confidence at every opportunity.

Stashiu3 (5285bb) — 3/15/2008 @ 8:39 am

Stashiu, it’s not the MSM that’s telling me I’m having to pay more for everything, and that my pay is less than it was a year or two ago.
Consider this little data point.
Price of Lender’s Frozen Bagels (6 pack, softy style, or 5 pack New York Style) six months ago, at my usual supermarket (Publix)–$1.39
Price of same item now–1.79
(and last year’s price, btw, is an increase of about twenty cents over the price of two years ago).

I’m not eating as many bagels as I used to, that’s for sure.

That’s happened to just about every item on my weekly shopping list, although most of the time the increases are not so sharp (for instance, ten cents on a loaf of white bread–but I buy three loaves a week). That, and the increase in gas prices, means something like twenty five or thirty dollars a week I spend more on basics, and less by that much on books, CDs, clothes, anything non essential–and on what goes into the savings account.

kishnevi (ba7408) — 3/15/2008 @ 9:19 am

no, this isn’t a recession. i’ve seen some recessions. this is the first quarter of a financial apocalypse which will equal or surpass the great depression.

did you see what happened to bear stearns yesterday? the $200 billion federal intervention will only save it for a month.

here’s a morally instructive story about the weimar hyperinflation i heard at my daddy’s knee:

two brothers in germany inherited a large and most excellent wine collection from their deceased father. one of the brothers was a serious, conservative, self-denying fellow who reasoned that the value represented by his share should properly be invested in conservative, income-generating investments, so he sold his half of the wine and invested the proceeds.

the other brother was more of a rakish, devil-may-care kind of guy, he reasoned that his current possession of cases of chateau petrus, domaine de la romanee-conti, chateau d’yquem, etc., was a sign from such gods as may exist that he was intended to drink these liquid assets with his friends, and he did so, to much merriment.

while this was happening, the hyperinflation occurred. the funloving brother ultimately sold the empty bottles for more deutschemarks than the stuffy brother got for his full bottles.

assistant devil's advocate (5c52cc) — 3/15/2008 @ 9:21 am

while this was happening, the hyperinflation occurred. the funloving brother ultimately sold the empty bottles for more deutschemarks than the stuffy brother got for his full bottles.

But what did the funloving brother do with the empty bottle proceeds as opposed to the stuffy brother’s full bottle proceeds?

Let me guess: in a few years Mr. Funloving is bumming cash from Mr. Stuffy.

Paul (249390) — 3/15/2008 @ 12:14 pm

Ther cost of petrochemicals is/are driving this uptick in costs. Everything in this economy moves courtesy of oil. A great many of the things we use in everyday activities are made from oil. Plus, the diversion of a vital ag commodity, corn, to ethanol, from food-stocks has driven up the price of all foods that have corn in their chain.

If Congress was serious about economics, they would repeal the ethanol requirements/subsidies for gasoline, and repeal the import restrictions/tarriffs on imported ethanol.

That would be a major effect on the costs of domestic energy (and, anyway, the IA caucus’ are over, they can afford to offend a few farmers).

Another Drew (8018ee) — 3/15/2008 @ 12:24 pm

Gretchen Morgenson nails it in the NYT:

WHAT are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

Or all of the above?

Stick around, because we’ll soon find out. And it’s not going to be pretty.

Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of JPMorgan Chase, the Federal Reserve Bank of New York conceded last Friday that no sizable firm with a book of mortgage securities or loans out to mortgage issuers could be allowed to fail right now. It was the most explicit sign yet of the Fed’s “Rescues ‘R’ Us” doctrine that already helped to force the marriage of Bank of America and Countrywide. . .

Bradley J Fikes (1c6fc4) — 3/15/2008 @ 12:30 pm

Another Drew #23:

When people within earshot complain about “wars for oil” I simply say; Name a product or service that either the raw materials or the finished goods are not transported.

The price of oil affects virtually everything .

If Congress was serious about economics, they would repeal the ethanol requirements/subsidies for gasoline, and repeal the import restrictions/tarriffs on imported ethanol.

They’d also get rid of the myriad of gasoline formulations (which also drive up the price) and refine one consistent standard product.

Paul (249390) — 3/15/2008 @ 12:49 pm

Bradley J Fikes,

I think the difference between the current response to Bear Stearns’ liquidity problems and prior government response to Drexel Lambert is that, this time, JPMorgan Chase was willing to step in. Some believe this is because Bear Stearns would be a tempting acquisition for JPMC. Granted, Bear Stearns’ problems aren’t good and may well have a ripple effect, but I’m not convinced this event is as gloomy as your NY Times link suggests.

DRJ (a431ca) — 3/15/2008 @ 2:08 pm

ooh, ooh! I just got a robo-call from Americans United for Change and their first words were about Bush’s failed policies and the recession we are now in. So it must be true! /sarcasm

They also gave me the D.C. office number of my Dem Rep and told me to call her to block Bush’s failed policies.

Of course, Congress just went out on a two week Spring Break so even if I had written down the number, my representative won’t be there for two weeks.

The way I see it, the economy was tooling along just fine until January 2007. Since then ….

kimsch (2ce939) — 3/15/2008 @ 4:36 pm

Paul #25…
No arguement from me there. Since the dawn of the 20th-Century, we have been in an oil-economy.

You know, prior to the opening of the Panama Canal, the largest city in Florida was Key West; because it was a coaling station for our Navy, and for international shipping. At the same time that the Canal opened, the Navy was transitioning to oil-fired boilers, and Key West died – along with all of the remote coaling stations around the world.

Of course, we know that none of the deregulation will happen as long as the Dems are in the pocket of the EnviroLibs. I think that some of them won’t be happy until we’re back to sailing ships, and horse-drawn cartage.

Fools!

Another Drew (8018ee) — 3/15/2008 @ 4:54 pm

Of course, we know that none of the deregulation will happen as long as the Dems are in the pocket of the EnviroLibs. I think that some of them won’t be happy until we’re back to sailing ships, and horse-drawn cartage.

Fools!

Yup. They have no conception of what drove inventors of modern conveniences.

Paul (249390) — 3/15/2008 @ 5:16 pm

no paul (#22), that’s not what happened. the stuffy brother enlisted in the wehrmacht and was gut-shot to death while goose-stepping across the polish frontier. the funloving brother built his own sailboat and took it to tahiti, where he lived and painted in the style of your namesake, paul gauguin, for the next 50 years.

assistant devil's advocate (46f8a8) — 3/15/2008 @ 7:32 pm

no paul (#22), that’s not what happened

Because the best predictor of future behavior (and results) is the opposite of past behavior and results. That’s why when you invest, you get the worst prospectus you can find and put all your money in that stock.

What? You wouldn’t do that? Because you want to keep your money… make it grow. So the brother who was habitually wise, but on this one occasion unlucky, is more likely to have money later than the funloving brother who habitually pissed (pun intended) his assets away. The best predictor of future behavior and results, while not perfect, is past behavior and results. That’s how you pick investments, employees, and friends if you have any sense.

Doom and gloom all you like, you’re entitled to your own uninformed opinion… but not your own facts. We’re not in a recession and there’s no indication that a recession is coming anytime soon. We haven’t had even a single quarter of negative GDP, much less being close to two consecutive quarters. There’s always a way to look negatively at the econcomy, the government, or anything traditionally considered conservative… it says more about you than it does about anything else.

Stashiu3 (460dc1) — 3/15/2008 @ 7:49 pm

no paul (#22), that’s not what happened. the stuffy brother enlisted in the wehrmacht and was gut-shot to death while goose-stepping across the polish frontier. the funloving brother built his own sailboat and took it to tahiti, where he lived and painted in the style of your namesake, paul gauguin, for the next 50 years.

Riiiiiiight.

Paul (249390) — 3/15/2008 @ 7:55 pm

…but not your own facts.

I’ve used this phrase before, but I was just reading Laura at Pursuing Holiness who just posted on this same topic and used this phrase. It was still fresh in my mind because it’s so appropriate a response to the “We’re in a recession” folks and I wanted to acknowledge where it came to me from.

Stashiu3 (460dc1) — 3/16/2008 @ 12:55 am

no paul (#22), that’s not what happened. the stuffy brother enlisted in the wehrmacht and was gut-shot to death while goose-stepping across the polish frontier. the funloving brother built his own sailboat and took it to tahiti, where he lived and painted in the style of your namesake, paul gauguin, for the next 50 years.

Whoot! Responsible people are Nazis!

Foxfier (74f1c8) — 3/16/2008 @ 2:58 pm

Following up on my comment #26, JPMorgan Chase announced today it will acquire Bear Stearns for $2 a share. Last week, Bear Stearns stock sold for $30 a share and was $159 a share at its peak. No wonder Chase was anxious to bail out Bear Stearns. You can’t get that sweet a deal in bankruptcy or receivership.

DRJ (a431ca) — 3/16/2008 @ 4:54 pm

DRJ,

I do think the situation is that gloomy, or worse. If Bear Stearn’s sale is any indication of the mark-to-market value of the toxic securities held by other banks, the only question is whether we’ll have a severe recession or a depression. Holy Jeebus!

There are some $13 trillion in mortgage securities out there. Okay, so only a fraction of them are going to go belly-up. But that fraction is used as collateral for leveraged borrowing. If just $1 trillion of that goes up in smoke, so does an amount multiplied times the leverage. So with 10x leverage, that’s $10 trillion wiped out. That is a conservative estimate of leverage, btw. Carlyle Capital’s leverage was about 30 times.

McCain should quit with the theatrical trips to Iraq and start reading up on economics.

Bradley J. Fikes (1c6fc4) — 3/16/2008 @ 9:55 pm

DRJ.

Here is a chilling explanation of the avalanche effect of mortgage defaults from my previous link, “Money is also destroyed,” brought to my attention by a resident of our Festering Swamp, allan.

Whatever the reason, Mr. Jones and millions like him had to break their promises about paying back the loans. In the end they’ll just give their keys back to the bank and say, “Thanks, but no thanks. I can’t afford it.”

The banks in turn will say, “Don’t give us the keys. We sold your mortgage a long time ago. We don’t even know who owns your mortgage now, and frankly we don’t care.”

Until now, his debt was an asset of the fund, and was being used as collateral against loans ten times its value. But the moment that Mr. Jones gave up on the idea of home ownership, the value of his mortgage simply disappeared. The paper asset, which derived its value from Mr. Jones’s promise, was destroyed. This had a cascading effect, since Mr. Jones’s mortgage was being used as collateral to borrow money to buy even more subprime mortgages, many of which were also defaulting. Assets purchased on borrowed money were now worthless. Only the debts remained, and suddenly there was more debt than the original amount that investors had put into the fund. These original funds would be needed repay the debts incurred by the fund. Nothing is left to return to investors. This is the process by which money is destroyed.

What about the houses, you ask? Yes, they have some value, but not nearly as much as when they were first purchased. Again, it was not the houses that had the value, it was Mr. Jones promise to pay a steady stream of high interest income over 30 years that was valuable to investors.

Bradley J. Fikes (1c6fc4) — 3/16/2008 @ 10:00 pm

Bradley – Sarbanes-Oxley I was bad enough. With a democratic Congress, I envision rolls and rolls of duct tape type regulations being written for the mortgage, banking and securities industries in the wake of the losses being generated currently.

Lawyers do not write good rules for accountants and other business professionals.

daleyrocks (906622) — 3/16/2008 @ 10:59 pm

Stashiu3:

Since we haven’t had a single quarter of negative growth yet, that’s a pretty ~~bold prediction~~ bald-faced lie from them.

Perhaps, but not quite as bold/bald-faced as those who (accurately) predicted the 2001 recession before its first quarter of negative growth had even begun. I guess those guys were all bald-faced liars too, as are all bookies, actuaries, meteorologists, and anyone else who predicts stuff that hasn’t happened and/or been proven yet.

They’ve been making that prediction for 7 years now, what’s their percentage of accuracy? Zero.

Who is “they?” I don’t know anyone who has been predicting recessions for the past 7 years, but wasn’t also predicting one the year before. How did you just “happened” to land on a nice, not-so-round number like 7?

To be sure, the left has its share of idjits who constantly hope and pray for something to go wrong on Bush’s watch, but judging by the tone of your comment it seems equally clear that the right has its share of Kool-Aid drinkers, too. Me, I’m less inclined to trust either camp, as I’m more interested in seeing the world as it is rather than as any particular interest group would like it to be. No one is infallible, but for now, my (nearly worthless) money is on everyone’s favorite bald-faced liar, Alan Greenspan.

Xrlq (b71926) — 3/17/2008 @ 5:01 am

Xrlq – According to Kerry and the Dems, we have been in a recession since Bush stole the 2000 election.

JD (75f5c3) — 3/17/2008 @ 5:06 am

daleyrocks,

I agree that the Democrats will only make things worse. But the Republicans are little better. Paulsen is useless — he is just acting as a PR shill, pretending to have answers he doesn’t have.

Flawed as he turned out to be, Ron Paul was the only candidate in either major party who understood that federal intervention is the wrong thing to do. It is how we got in this mess in the first place.

Greenspan forestalled recession for most of Bush’s term by blowing a huge credit bubble to take the place of the tech bubble. The recession that is now unfolding is the hangover from the bubble. It is inevitable, and in the end, will be beneficial to getting us back on a sound economic footing.

Bradley J. Fikes (1c6fc4) — 3/17/2008 @ 6:18 am

Xrlq #39,

I don’t know that Wall Street is either right or left but it does seem to me that the first ones to scream “recession” are the investment brokers whose clients start screaming at them because their return dropped from 27% to 22%. Look at all the fuss about Bear Stearns, leveraged thirty-fold. How long did it think it could survive on hope and optimism. Now if you say, “Well, that’s why we vote Republican” …?

nk (34c5da) — 3/17/2008 @ 6:20 am

3/14/2008

It’s Time for a Recession

42 Responses to “It’s Time for a Recession”

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