Many are predicting that the current recession will end soon, by this summer, later this year, or at most next year. I don't believe this prediction, which I see as largely politically motivated or self-serving. Instead, I believe that it will take years for the recession to end unless major reforms are initiated that go well beyond current policy initiatives. Here are some of the many reasons:
• The failed attempt to remedy the situation by TARP and its successor, the US Treasury's private-public partnership plan, that mistakenly tried to fix the economy from the top down, by putting enormous federal funds into major banks and non-bank financial institutions, rather than from the bottom up, through funding homeowners and small businesses
• President Obama's economic stimulation plan, the American Recovery and Reinvestment Act (ARRA), while doing many useful things on infrastructure, the environment, housing, health, etc. has been and will continue to be insufficient to stop the downward economic spiral
• There is still a lack of short-term credit in the U.S. economy, making financing for businesses, individuals, and even governments difficult. Credit markets remain paralyzed, with everything on hold and with many major corporations having failed or at the brink of failing. At the same time, hedge funds and private equity funds, that have provided some small amount of lending, are unwinding, accelerating the economic decline. Until bank and non-bank financial institutions resume lending, there will be a continuing downward economic spiral
• From the viewpoint of potential borrowers, whether businesses, financial institutions, governments, or individuals, risk premiums are so high that they are reluctant to borrow
• There are continuing defaults on mortgages, with many homes going into foreclosure, while Fannie Mae and Freddie Mac are in deep trouble with no way out and no means to help people obtain mortgages or emerge from foreclosure
• GM is closing most of its plants and Chrysler has gone into bankruptcy, closing most of their plans and throwing huge numbers of their workers out of their jobs with repercussions on their employees, suppliers, dealers, and local communities
• States, counties, and cities throughout the country are facing enormous deficits and downsizing with furloughs, layoffs, and reductions in expenditures, with substantial secondary effects
• As unemployment increases more people are losing their health insurance that will lead to more personal bankruptcies since health costs for the uninsured are a major cause of personal bankruptcies
• The collapse of Lehman Brothers, in September 2008, and the change in status of J.P. Morgan Chase to a commercial bank means that we have lost our major investment banks that play a key role in capital formation
• The lax regulatory framework that resulted from the deregulation that took place at the end of the Clinton Administration continues. It paved the way for the excesses of the financial system leading to the astronomical growth of new and risky financial products, such as credit default swaps. They continue, creating huge instabilities for those on both sides of these private deals and are totally unregulated. In addition, highly leveraged financial institutions with unworthy debtors are still a major source of potential instability
• Lax reviews by credit rating agencies exacerbated the situation, while regulatory bodies were ill equipped to render sound judgment on the health of these financial institutions and apply necessary actions. The result was a vicious circle of losses leading to a financial meltdown, that continues
• Other nations worldwide are also in recession and in many cases deeper ones than that in the U.S. so there are no international "locomotives of growth" unlike previous recessions. Indeed, several nations of Eastern and Southern Europe are at or near bankruptcy and will not be able to repay their debts to banks in Germany and other European nations, with secondary effects on the U.S. economy. The agreement at the recent London G-20 meeting on increasing the resources available to the IMF will not be adequate to stop the worldwide downward spiral.
As a result of these and other considerations, this recession will not be V-shaped with a quick turnaround, as many public and private economists have been forecasting. Instead, it will be "U-shaped," with a long economic malaise comparable to the "lost decade" in Japan in the 1990s (and not to the Great Depression). The recession in Japan followed equity and real estate bubbles, as in the U.S., and it lasted years. Similarly, the current worldwide recession could take 6 to 8 years to recover from its official start in December 2007.
Michael D. Intriligator, Professor of Economics, Political Science, and Public Policy, UCLA and Senior Fellow, the Milken Institute
*rolls eyes*
All I know? Nobody talking about this knows what they are taking about.
You're an economist?
The anology to Japan in the 1990s is a close one. You could also compare what is happening to our economy to what we saw in the mid 1970s - early 1980s with stagflation.
From what I have read I think the most likely combination is that the economy WILL start growing again by this time 2010, BUT that that growth will be accompanied by inflation like we haven't seen since the late 1970s.
The end result being an economy with numbers that grow at a decent rate, but with most, if not all of that rate being eaten up by the inflation rate. Here's hopeing we don't have to raise interest rates to 15+% again to squash that inflation.
--- national health care and retirement
--- industrial policy
--- new trade rules
--- severe regulation of the financial sector
Anything other than this will just perpetuate a paper-shuffling, artificial, speculative economy.
National retirement like in Europe is crucial, if instead retirement depends on the stock market the country can be held at ransom.
Reasonable regulation would benefit everybody.
Revolutionary self-powered generators are expected to replace the need to plug-in a plug-in hybrid. A 2 kW generator is on the horizon. It will eventually demonstrate a compact, inexpensive, capability to end the need to plug-in.
It may be possible to provide 100 kW systems that will fit in the space of an engine and gas tank, on a prototype basis within two years. If that occurs, since no fossil fuel or battery recharge is required, automobile manufacturers may conclude that existing engines are likely to become obsolete. Consumer purchasing patterns could begin to reflect a new reality, with the market deciding most future cars must never need fossil fuel.
When a substantial number of vehicles powered by such systems fill a parking garage, it will have become a multi-megawatt power plant.
The cost of many vehicles might be paid for by utilities, as they purchase power whenever needed. The parked cars, trucks and buses, each become decentralized power plants - a rapid, cost-effective alternative to the many tough and costly challenges of constructing new coal burning and nuclear power generation facilities.
Auto makers will have no trouble selling fuel free cars that need no batteries or recharge, and can pay for themselves.
Imagine the potential for stimulating the world economy.
Auto makers have a unique opportunity to lead the nation and the world.
This recession is caused by the irresponsible free market, pro-war mentality of the then ruling Republican elite. The Democrats were impotent to prevent this because they were shot down every time they wanted to contribute to governance.
The Great Depression was no minor event.
That's how we got the Bushes.
And the only thing that will 'pop' that bubble will be if prices of those comodities get high enough to inspire increased efficiency, push us to renewable sources, and convince us that real recycling needs to be done.
(and yes - I have been putting my money at it's own small levels in those markets - at least for the next couple of years)
What I foresee is a dramatic decline in the worldwide standard of living. Worst case is that there will be widespread disease and famine as governments and businesses are increasingly less able to distribute goods and services. This is not as unlikely as it sounds right now.
The financial industry has engaged in a massive fraud, enabled by the deregulatory excesses written by corrupt politicians. Briefly, from mortgage and real estate companies through Wall Street securities firms and ratings agencies liar loans, over appraised loans, and every imaginable “creative” loan was fraudulently rated and sold as AAA securities. This was fraud, conspiracy and misrepresentation on a global scale. Far from investigating the miscreants our Government has misappropriated taxpayer monies to keep these criminals in business. Three trillion dollars have gone down the drain and more will follow.
The defense, Wars, security, CIA boondoggles and the continuance of Empire sap one trillion dollars per year from our economy. Far from reining in this ruinous miss-spending Obama has increased it. Moreover, it is the façade of Empire that has made us the enemy of millions and threatens our security. Until we eschew the trappings of Kingly Empire we will continue to throw our blood and treasury into the MIC pit.
I hold out little hope that we will be able to borrow enough to spend our way through Wars, defense of Empire, financial malfeasance, tax cuts including those for the lower and middle classes, welfare, unemployment, corporate welfare, health care, pork and infrastructure jobs creation.