The Great Recession

[FUEGO]

regarding the debt to GDP ratio - we also have a lot more individual assets today versus 1950, particularly houses. Today the median size of new houses is roughly 2400 sf. How many 2400 sf houses were being built in 1950? The median was probably closer to 1/2 that size. So we have more mortgage debt, but more collateral backing that debt.

 

[FUEGO]

Congress is never slow to jump on an idea that will buy them votes (with your kids money) - Cash for Clunkers has worked so well, stay tuned for Funds for Foreclosures. If you have owned your house for at least a year and it's worth less than your loan, Congress will give you $35,000 to $45,000 more than your appraised value if you buy a smaller, more energy efficient home. It doesn't have to be much smaller or much more efficient, just a little bit will be fine. But your old house has to be destroyed. Realtors make money, builders make money, banks loan money, and the next generation pays for it - what's not to like. Of course if you've been responsible and own your home, or your loan is less than the value of the house - you get squat. Wait until Congress comes back from vacation, you heard it here first...

Hey, you trying to steal my genius stimulus idea? I call it "Cash for Clunky Houses" but Funds for Foreclosures does have a nice ring to it. But I though up this idea first: http://www.early-retirement.org/forums/f27/clunker-bait-car-dilemma-45468-2.html#post840628 So you heard it here first.

This would definitely help out with all those unemployed construction workers, mortgage brokers, real estate agents, etc!

 

[NW-Bound]

Remember that after Katrina hit, some pundits said that the silver lining was that the rebuilding would boost up the GDP for the next year or two. Good grief!

How would you like to keep busy rebuilding your house every few years, instead of sitting on your butt surfing the Web?

No economist here, but one would think that by that logic, those Caribbean islands besieged by hurricanes would have really low unemployment and their GDP growing through the roof. Heck, talk about roofs, the one time I was driving through St. Thomas, I saw many houses still had tarp for a roof.

Yeah! Let's trash our houses, overturn and burn our clunkers! We should be busy rebuilding for years.

 

[FUEGO]

Remember that after Katrina hit, some pundits said that the silver lining was that the rebuilding would boost up the GDP for the next year or two. Good grief!

How would you like to keep busy rebuilding your house every few years, instead of sitting on your butt surfing the Web?

No economist here, but one would think that by that logic, those Caribbean islands besieged by hurricanes would have really low unemployment and their GDP growing through the roof. Heck, talk about roofs, the one time I was driving through St. Thomas, I saw many houses still had tarp for a roof.

Yeah! Let's trash our houses, overturn and burn our clunkers! We should be busy rebuilding for years.

Well, that makes three of us in agreement. Anyone want to chip in a couple hundred thousand for a lobbyist and get this clunker of a bill rolling through Congress? Let's snap up a bunch of XHB first though...

It would probably never pass. Many of the laborers in construction (in my area at least) are, how shall we say, ineligible to vote due to citizenship reasons. Plus they aren't represented by unions. Guess there aren't any votes to buy there.

 

[Running_Man]

U.S. productivity rises 6.4%, fastest in 6 years - MarketWatch

With today's GDP release, indication that shows wages increasing their rate of decline and another sign to me that deflation is much more likely than any inflation. The decline in per unit labor is actually quite amazing. This report dovetails and confirms what I am seeing in most companies, cost reductions are ocurring much more rapidly than the sales are falling off increasing profits. However that is not a very enduring model for an economy or stock prices.

 

[IndependentlyPoor]

Signs of a bottom?

When I see charts like this, I just have to shake my head in wonder. The world economy really did fall off a cliff. But it is just as interesting to note how fast U.S. exports were growing before the crash. Surely exports weren't driven by the U.S. housing bubble.

Anyway, it is nice to see the cliff diving coming to an end.

from
http://www.calculatedriskblog.com/2009/08/trade-deficit-increases-in-june.html

 

[NYEXPAT]

Signs of a bottom?

Surely exports weren't driven by the U.S. housing bubble.


View attachment 7135
from
Calculated Risk: Trade Deficit Increases in June

I think exports were driven by the declining dollar, The redline (imports) were driven by the housing bubble and rampant consumerism.

 

[IndependentlyPoor]

A chart contrived to scare the bejeezus out of you.

from
Calculated Risk: California to Stop Issuing IOUs a Month Early

 

[sanjugibbs]

Great recession

Every citizen should take part to solve this world wide problem of recession. This recession makes the whole world jobless.

 

[audreyh1]

A chart contrived to scare the bejeezus out of you.

The key word there is "contrived".

 

[IndependentlyPoor]

The key word there is "contrived".

It doesn't look nearly so scary now!

 

[Sevo]

I never have understood why mild deflation seems to be so scary. Every one seems quite happy with 3-say 5% inflation. On the other hand 3-5% deflation seems to be quite frightening? It just seems to me that with a fiat currency that sort of fluctuation around the mean or 0% inflation/deflation would be sort of a normal variation.

I understand that if you owe money then inflation helps you pay off your debt with cheaper money so if your are in debt then inflation is your friend. On the other hand if you have no debt and have cash or have loaned money then deflation would be your friend.

Why the panic when signs of deflation pop up? Why the helicopter money drops?

 

[Gone4Good]

U.S. productivity rises 6.4%, fastest in 6 years - MarketWatch

With today's GDP release, indication that shows wages increasing their rate of decline and another sign to me that deflation is much more likely than any inflation. The decline in per unit labor is actually quite amazing. This report dovetails and confirms what I am seeing in most companies, cost reductions are ocurring much more rapidly than the sales are falling off increasing profits. However that is not a very enduring model for an economy or stock prices.

Wow, here's an example that behind every silver lining lurks a cloud.

Productivity growth is the ONLY way an economy increases wages and standards of living over time. It is increased productivity and associated profits that encourages businesses to higher more workers.

What you saw in the 2nd quarter is the result of businesses cutting costs below what the economic environment actually warranted. What we'll see after a couple of quarters of good profits is businesses starting to reverse that and adding to payrolls, perhaps aggressively.

With respect to stock prices, research the term "operating leverage". With the significant cost reduction that companies have achieved, the slightest bit of revenue growth will translate into massive earnings growth.

 

[ziggy29]

I never have understood why mild deflation seems to be so scary. Every one seems quite happy with 3-say 5% inflation. On the other hand 3-5% deflation seems to be quite frightening? It just seems to me that with a fiat currency that sort of fluctuation around the mean or 0% inflation/deflation would be sort of a normal variation.

Mild deflation for a short period of time isn't a big problem. Prolonged deflation is, as it leads to people postponing purchases and reducing economic activity for a long time.

Deflation is also a problem when the inflation most people "feel" in the essentials (food, utilities, health care, insurance, taxes) are rising even as we are told there is no inflation or even negative inflation because of electronics and big-ticket discretionary stuff.

 

[Running_Man]

Wow, here's an example that behind every silver lining lurks a cloud.

Productivity growth is the ONLY way an economy increases wages and standards of living over time. It is increased productivity and associated profits that encourages businesses to higher more workers.

What you saw in the 2nd quarter is the result of businesses cutting costs below what the economic environment actually warranted. What we'll see after a couple of quarters of good profits is businesses starting to reverse that and adding to payrolls, perhaps aggressively.

With respect to stock prices, research the term "operating leverage". With the significant cost reduction that companies have achieved, the slightest bit of revenue growth will translate into massive earnings growth.

I have been a believer since 2007 that falling home prices would wreck havoc on the economy. I look at the period of 1981 to 2007 as the golden age of investment in that I don't think there was a bad decision to be made, merely which is the very greatest. The combination of falling mortgage rates and rising home prices provided the money to grow our economy, the rising home prices combined with lower interest rates encouraged personal debt. Throughout the '80's homeowners refinancing lead to a real decline in mortage expense and a real rise in disposable income to spend and an incentive to borrow against that equity.

That trend has ended, I view the odds that a new productivity trend to provide a robust economy as very low, but I certainly will be very happy to experience a new burst in economic prosperity. What I see, and it is a dark cloud in my sights, is in addition to the ending of the home equity pool of income real wages are falling too, while the economic army may have some fine looking corporate horses but the number of nails available to let that horse run fast and safe are becoming too scarce. At present the party on the other side trying to stem the tide of a trend that has ended is the US government running unprecedented deficits, which will also call inevitably demand for income from the same nail-makers who have a shrinking pool of resources. I will take the comment of look up "operating leverage" and hold on for a couple of quarters to see how this battle fares.

 

[IndependentlyPoor]

Productivity growth is the ONLY way an economy increases wages and standards of living over time. It is increased productivity and associated profits that encourages businesses to higher more workers.

This is the conventional wisdom that we were all raised on (and I do not disagree with it). We were taught that the American companies could afford to pay their workers the highest wages in the world because our workforce was the most productive in the word. (Cue swelling strains of Stars and Stripes forever).

But this chart of American productivity and wages seems to indicate that the game changed in the 1970s.

The comforting way that rising wages tracked rising productivity ended. Anybody care to advance a theory as to why?

Embarrassing admission: I got this chart from some website recently, but didn't record the source and now I can't figure out where it came from.

 

[brewer12345]

Presumably globalization changed the balance of power/market dynamics and allowed employers to retain much of the value generated by productivity growth for themselves.

 

[Gone4Good]

But this chart of American productivity and wages seems to indicate that the game changed in the 1970s.

Add corporate paid health insurance and benefits to the definition of "wages" and I think you'll see a different picture.

------

Additionally, the original comment expressed an opinion that somehow high productivity was bad for both the economy and the stock market. As I recall, both have done very well since the mid-1970's.

 

[Gone4Good]

. . .That trend has ended, I view the odds that a new productivity trend to provide a robust economy as very low, but I certainly will be very happy to experience a new burst in economic prosperity. . . .

Wow, I guess I didn't realize that nothing happened in the economy over the past 40 years other than falling mortgage rates. Apparently computers, the internet, wireless communications, robotics, cancer treatments, etc, etc, didn't have any sustainable impact on our overall standard of living. It was all just one giant housing related boom that is now over.

 

[Running_Man]

Wow, I guess I didn't realize that nothing happened in the economy over the past 40 years other than falling mortgage rates. Apparently computers, the internet, wireless communications, robotics, cancer treatments, etc, etc, didn't have any sustainable impact on our overall standard of living. It was all just one giant housing related boom that is now over.

Your statement was that NOTHING other than productivity could increase income over the long term. I was pointing out for example a
a fall in interest rates on a average mortgage of $90,000 in 1981 of 15 percent refinanced at 9 percent in 1985 would have given the average Wage earner would lessen the interest income by $5,400 a year or about a 25 percent increase, which also tended to increase his home by an additional 25 percent over the inflation rate as many average homes tended to sell for the amount of the affordable payment. So the average homeowner in 1985 from the drop in interest rates was the beneficiary of $22,000 of available equity and 25 percent higher income without anything else occuring in the economy. And that additional income made the purchases of non essential goods such as computers, cell phones and the internet much more affordable.

Do not sell the power of this trend short, but the reality is I hope I am wrong and you are right.

 

[IndependentlyPoor]

Looking better all the time.

 

[IndependentlyPoor]

Unemployment claims drop

Calculated Risk: Weekly Unemployment Claims Decline

 

[IndependentlyPoor]

Apologies for bumping this ancient thread, but I liked this chart and didn't know where else to put it (no anatomically difficult suggestions please).

from
The Daily Dish | By Andrew Sullivan

 

[FUEGO]

Apologies for bumping this ancient thread, but I liked this chart and didn't know where else to put it (no anatomically difficult suggestions please).

from
The Daily Dish | By Andrew Sullivan

I imagine similar but slightly lower results would be obtained at most intervals in recent history, recession or no. If you asked someone "In the last three years of your financial life have you [insert questions from chart]".

Some segment of the population will always have financial problems or be trying to cut back.

 

[dex]

But this chart of American productivity and wages seems to indicate that the game changed in the 1970s.

The comforting way that rising wages tracked rising productivity ended. Anybody care to advance a theory as to why?

High paying mfg jobs in heavy and other industries went overseas, computerization and increase in lower paying service jobs.