Could It Have Been Better to Have Had a Recession?

[MichaelB]

I'm happy that Mr. Schumpeter was able to coin a new phrase for use in his book. It's still a bald faced oxymoron.

Actually it’s a very clever term that describes economic innovation that destroys one economic activity while creating another in replacement. An example is streaming video replacing video rental.

 

[PlayinwithFIRE]

Great depression supposedly lasted about ten years. Not sure if there have been times that lasted longer without appreciable gains (like long term recessions or economic flats) . Perhaps Japan is a good example of no appreciable growth over long term.

Ten years would be hard to stomach when you can check your account balances every minute these days


pwf

 

[Koolau]

I dunno. In terms of debt issuance we are and probably will continue to be the best looking horse in the glue factory.

That's what I keep hearing and what I keep hoping. YMMV

 

[Koolau]

Seems to me we’ve outlawed recessions this century. Whenever there’s a market plunge, the government floods the zone with “liquidity” (money printing in various forms) conjured from thin air, and interest rates are cut drastically to stimulate lending and investment. “Put it on the credit card.”

Of course, there are prices to be paid later in everyone’s decreased purchasing power caused by all those additional dollars in the system, followed by higher interest rates for everyone and for the government to make debt payments, all in an effort to mop up the excesses of the prior emergency liquidity injections.

It would probably be healthier to allow periodic, cleansing recessions, but then elections come along more quickly than recoveries, so officials decide it’s better to inject liquidity now, longer term consequences, like mushrooming national debt, be-damned. After all, those are future officials’ problems.

The Keynesian model has worked well for 100 years, helping make America prosperous, and the dollar the current global reserve currency. One price is debt payments that now exceed defense spending. Another is $22 for a plain breakfast a diner, which, soon enough we’ll look back on as having been cheap.

The political class isn’t known for long-term thinking, so I expect we’ll keep it up until we can’t.

We either pay unemployment to the unemployed and do a lot of other stuff (food stamps, rent control, etc.) OR we "prevent" the problem of unemployment by jerking the economy around with the attendant issues that causes. Pay me now or pay me later. It's an engineered economy with plusses and minuses.

 

[Koolau]

"Creative destruction." I've never heard such an oxymoronic phrase before.

I don't know. Has sort of an appropriate "ring" to it when you consider how our economic system is cobbled together. YMMV

 

[Koolau]

Seems to me we’ve outlawed recessions this century. Whenever there’s a market plunge, the government floods the zone with “liquidity” (money printing in various forms) conjured from thin air, and interest rates are cut drastically to stimulate lending and investment. “Put it on the credit card.”

Of course, there are prices to be paid later in everyone’s decreased purchasing power caused by all those additional dollars in the system, followed by higher interest rates for everyone and for the government to make debt payments, all in an effort to mop up the excesses of the prior emergency liquidity injections.

It would probably be healthier to allow periodic, cleansing recessions, but then elections come along more quickly than recoveries, so officials decide it’s better to inject liquidity now, longer term consequences, like mushrooming national debt, be-damned. After all, those are future officials’ problems.

The Keynesian model has worked well for 100 years, helping make America prosperous, and the dollar the current global reserve currency. One price is debt payments that now exceed defense spending. Another is $22 for a plain breakfast a diner, which, soon enough we’ll look back on as having been cheap.

The political class isn’t known for long-term thinking, so I expect we’ll keep it up until we can’t.

One word for you about breakfast: Dennys (oh, and take your AARP card).

 

[Dtail]

Someone told me that the Great Recession of 2008 was only going to get much, much worse. That was on the last week of February 2009.

Was that one of your acquaintances who sold all their stocks and never got back in?

 

[LARS]

I am reminded of my Wall Street days with the quip: Trees don’t grow to the moon.

We are clearly on borrowed time. What has singularly amazed me is how Central Banks have managed to continue to stave off the inevitable reckoning.


Trees don’t grow to the moon…

 

[target2019]

And trees grow to the sky...

One day only the trees will remember this...

Deep thawts.

 

[Stormy Kromer]

I am reminded of my Wall Street days with the quip: Trees don’t grow to the moon.

We are clearly on borrowed time. What has singularly amazed me is how Central Banks have managed to continue to stave off the inevitable reckoning.


Trees don’t grow to the moon…

I agree, trees don't grow to the moon and "bulls make money, hogs get slaughtered". I don't know when a bull turns into a hog. An old farmer told me once "seed doesn't grow in the granary, you have to plant it and watch it grow, harvest it then pay your bills and plant a crop again next year" "If you leave it in the granary you'll soon be broke." Money is o different, keep it in the bank and you're keeping your seed in the granary. Hold onto enough seed (money) to get through some hard times and keep the rest working for you.

Corrections are to be expected. On the other hand, I've seen way too many people put their lives on hold because the next crash is going to happen tomorrow. I remember when the Dow hit 1,000 when I was a kid over 40 years ago, the old timers said "this is just like 1929". They kept their money in FDIC insured savings accounts and slowly went broke. But they didn't lose their money gambling in the stock market.

I don't know who is right, and I don't know when the next crash (recession, depression, panic...) is going to happen. It will, but then it will come back. Have enough cash/income to ride it out.

 

[SnowballCamper]

Decades ago I heard someone say basically, that the stock market is the place to be. Sure it goes up and down and all around but if it ever stops working there will be much more to worry about than not having money.

A good read about the history of monetary policy pre and post Great Depression is the book, Lords of Finance. We are in a much better position across the world today. But perhaps trending to the opposite extreme (from an over constrained money supply, to one a bit too free).

But then I look at current interest rates for home loans and house prices, and nope, the days of free money aren't here anymore, at least for the people.

I'm not sure what breaks the cycle of govt spending --> inflation & Higher interest --> govt spending (on debt)

I guess it will be the discovery of some better economy, but most other big economies are use fiat currency just like ours.

 

[marko]

Was that one of your acquaintances who sold all their stocks and never got back in?

Yes, my "smarter than you" neighbor.

 

[MercyMe]

Thank you for all of the responses. Sorry I've been unable to reply to so many of them. I've had a bit of a thing going on all since Monday.

 

[Stormy Kromer]

Don't wait for hard times... They'll find you. Until then enjoy yourself and everything that is good.

 

[RetiredHappy]

Thank you for all of the responses. Sorry I've been unable to reply to so many of them. I've had a bit of a thing going on all since Monday.

Like Deep Seek news?

 

[target2019]

Thank you for all of the responses. Sorry I've been unable to reply to so many of them. I've had a bit of a thing going on all since Monday.

That's fine. Be sure to let us know your thoughts on specific posts and suggested ideas.

 

[RobLJ]

They can’t engineer/conduct a recession that precisely.

Tall Paul engineered one quite easily in the early '80s. It only took 16% interest rates.
As others have said, be careful what you wish for. I went to grad school in the early 80's in the Savings and Loan Southwest Depression, largely since there were no jobs and it worked out well--for me.
But most of my high school associates and college associates in Oklahoma and Texas didn't fare as well as I. Recessions hit the lower and middle classes hard, so I'd prefer a soft landing. Those of us with investment assets need to watch out for ourselves. In the great recession, most of the tech investors took 6-10 years to get even in the dot com bust, but admittedly that was an unusual event, although they seem to happen every 25-35 years or so.

 

[aenlighten]

I'm probably speaking way above my own intelligence with this question, but it popped into my caveman head today and won't leave.

It seems to me like we're past the point at which the next recession will be mild and short. I think we're in for a doozy sometime. So I then wondered if the Fed's actions for a soft landing (along with everything else it does) has set up the economy for a harder fall... whenever it may happen. Perhaps a harder fall than just having let a moderate recession take place lat year and then responding to it. I know that would have meant hardship for many people by way of unemployment and reduced investment values. And I don't want anyone harmed.

Go gentle on me if I'm way out of line. I dare not post this on the other forum!

In economics this refers to whether the economy follows a unit root process. There is strong evidence of an employment plucking model where growth at full employment is interrupted by recessions. In this case, recessions are never beneficial. If there is any exception it may be if forestalled by increasing debt as debt does not behave nicely across recessions. Otherwise the lost employment always leaves us worse off.

 

[Artiscara]

My parents and the people I grew up around lived through the Great Depression. Many of them thought the next big Depression was overdue and lived like it was coming tomorrow. Some never dared to borrow money to buy a home or farm or start a business, because the next depression was over due. They were right. They lived their lives like it was a depression even though there wasn't one.

So true of a lot of our parents

 

[Global Wizzo]

I'm probably speaking way above my own intelligence with this question, but it popped into my caveman head today and won't leave.

It seems to me like we're past the point at which the next recession will be mild and short. I think we're in for a doozy sometime. So I then wondered if the Fed's actions for a soft landing (along with everything else it does) has set up the economy for a harder fall... whenever it may happen. Perhaps a harder fall than just having let a moderate recession take place lat year and then responding to it. I know that would have meant hardship for many people by way of unemployment and reduced investment values. And I don't want anyone harmed.

Go gentle on me if I'm way out of line. I dare not post this on the other forum!

Some of you wizards check me on this, but what concerns me more is the potential for The BRICS countries being able to change the standard world reference currency. This would have a real long term negative impact. The USD could see a permanent devaluation which would affect us all.

 

[Koolau]

Some of you wizards check me on this, but what concerns me more is the potential for The BRICS countries being able to change the standard world reference currency. This would have a real long term negative impact. The USD could see a permanent devaluation which would affect us all.

It does seem nearly inevitable that such a replacement of USA will happen eventually. Maybe not BRICS but perhaps some other alliance or country. Looking at world history, it has always happened. Why not for USA?

My hope is that day will be long after I and anyone I care about is long gone. The big difference between now and even 50 years ago, people speak openly about the possibility. I hope that "we" (as a country) are w*rking to actively prevent such supplanting from happening in our life times. YMMV

 

[robnplunder]

I'm probably speaking way above my own intelligence with this question, but it popped into my caveman head today and won't leave.

It seems to me like we're past the point at which the next recession will be mild and short. I think we're in for a doozy sometime. So I then wondered if the Fed's actions for a soft landing (along with everything else it does) has set up the economy for a harder fall... whenever it may happen. Perhaps a harder fall than just having let a moderate recession take place lat year and then responding to it. I know that would have meant hardship for many people by way of unemployment and reduced investment values. And I don't want anyone harmed.

Go gentle on me if I'm way out of line. I dare not post this on the other forum!

In my 4 decades of trying to understand the US/world economy and invest, I figured out that things happen way beyond my understanding. So, after 2008-2009 recession, I simplified my investment strategy to mainly invest in S&P 500 (plus some hedging strategy). Had I done that since I started working after college, I probably could have retired by age 45 instead of at 54.

 

[Koolau]

In my 4 decades of trying to understand the US/world economy and invest, I figured out that things happen way beyond my understanding. So, after 2008-2009 recession, I simplified my investment strategy to mainly invest in S&P 500 (plus some hedging strategy). Had I done that since I started working after college, I probably could have retired by age 45 instead of at 54.

Yes, as I look back and see all the mistakes I made, I realize I could have increased my stash significantly had I not been so uneducated. Having said that, regrets are for fools. I do try to learn from my mistakes and change behavior.

 

[Markola]

I agree, trees don't grow to the moon and "bulls make money, hogs get slaughtered". I don't know when a bull turns into a hog. An old farmer told me once "seed doesn't grow in the granary, you have to plant it and watch it grow, harvest it then pay your bills and plant a crop again next year" "If you leave it in the granary you'll soon be broke." Money is o different, keep it in the bank and you're keeping your seed in the granary. Hold onto enough seed (money) to get through some hard times and keep the rest working for you.

Corrections are to be expected. On the other hand, I've seen way too many people put their lives on hold because the next crash is going to happen tomorrow. I remember when the Dow hit 1,000 when I was a kid over 40 years ago, the old timers said "this is just like 1929". They kept their money in FDIC insured savings accounts and slowly went broke. But they didn't lose their money gambling in the stock market.

I don't know who is right, and I don't know when the next crash (recession, depression, panic...) is going to happen. It will, but then it will come back. Have enough cash/income to ride it out.

Of course I knew about that generation’s conservative financial ways, but I never fully connected that they assumed another depression was always around the corner. There were many busts and panics before that, which they also probably heard about from their parents and grandparents. Their allergy to debt and risk makes some sense, except in light of inflation eroding their purchasing power.

 

[Markola]

Some of you wizards check me on this, but what concerns me more is the potential for The BRICS countries being able to change the standard world reference currency. This would have a real long term negative impact. The USD could see a permanent devaluation which would affect us all.

Here’s an interesting article about how global reserve currencies have lasted an average of 94 years since
1450.

World Reserve Currency History: From 1450 to 2023 - About Financials

Dive into the captivating world reserve currency history, tracing its evolution from ancient times to modern dynamics. Explore its impact on global finance.

aboutfinancials.com

I don’t worry about the BRICS, because those are quasi criminal countries, so how can they trust each other?