Tuesday, August 16, 2011

What Is a Recession, Anyway?

So, I was walking around with Jacques, and he was peeing on things, as always.  The thing was, he was peeing on lots of things that needed fixing up—fence posts that needed to be replaced, trees that needed trimming, cars with bald tires.  He looked at me all confused, and I assumed it was because he couldn't figure out why suddenly people stopped fixing their houses and replacing their bald tires.  In hindsight, I think it was just his standard confused look.

Jacques, confused
Really I think I was just projecting onto Jacques my own confusion.  When I was in 11th grade, I stumped my history teacher by asking how the great depression could have had farmers unable to sell their wheat for a reasonable price, and starving people, all at the same time.  It really is kind of a head-scratcher, and its the same problem we have now, just on a much less dramatic scale.  Somewhere on my way to an economics degree I must have picked up something though, because I can now answer the question to my 15 year old self: It's a nasty self-fulfilling loop.  Lots of people can't find jobs, or are afraid of being laid off, so they don't spend much money.  Since people are holding onto their cash, its a rough time to be a business.  So businesses lay people off, or don't hire them in the first place.  This doesn't mean that the people got laid off had the wrong skills, or that people were spending their money on the wrong things before. If this sounds pointless and stupid, it is. There's nothing morally or economically good about the fence post installer or the tree trimmer being out of work, but that's what we see all across the economy.

This is really the hardest part to understand about a bad recession like this: there is actually no legitimate reason why things should be nearly as bad as they are. This is a natural state of the economy the same way disease is a natural state of being.  Even though it occurs naturally, its something that you want to fix, and to fix it we need to understand how we got this way, why we're staying this way, and what the possible options will do.

In the meanwhile, to feel more happy and less confused, I gave Jacques a treat.

1 comment:

  1. OK. I'll bite. Not that Jacques would, of course, it's a figure of bark.

    People quit spending b/c they are scared of losing what they have but the few that are sucking the hell out of all the rest of society are living the high life and making more money than ever before, thanks to QE, and high end jewelry stores these days are doing the best business they have ever done. They spend like there is no tomorrow b/c they have more money than any time in the past...well, since before 1930. (As the UK riots have shown, we cannot reduce the proles to serfdom over the course of a few years, well, those not in America. They won't stand for it. Those in Germany targeting bmw's and audi's have learned how to hone in on the miscreants that put them in the shit hole, pardon my German, and it is of concern to the 1%ers.) The people with the money had to do something with it so they speculated on commodities or had their brokers do it for them or make that decision for them--it doesn't matter as silence is consent. Prices went up b/c they fed off each others' greed in the mkts. Farmers in the 30's found no one could afford the price they had to charge b/c prices were artificially high in the mkts due to speculation in commodities. People, for the most part being poor b/c their money was gone to the top 1% of societal beings thanks to the banks' greed and fraud based dealings much like today--please google for 'then and now' to see how it is exactly the same now as then--could afford to buy very little they did not grow themselves or barter for or acquire in arenas not in the main marketplace much as you are seeing burgeoning forth today in miniature, so far, except for places like Egypt and the rest of Africa where everything bad happens first b/c they are on the bottom of the economic pile.

    Speculation, in a nutshell, is the source of all sorrow in this world and the last. Enjoy. We are entering a new world order. Venezuela has just ordered the Bank of England to tender all the gold they have on reserve for Venezuela. JPM is to do that deed next for Venezuela. I wonder if JPM has oversold their holdings and it may be that just one country asking for their gold could bankrupt both entities? We shall shortly find out. Interesting times. Sorry this ran so long. It is such a fascinating topic.