The Wall Street Journal‘s Mark Gongloff quotes Lehman economist Ethan Harris in this morning’s “Ahead of the Tape” column:
In the rush to enact a timely package, politicians may have stopped a 2008 recession, but they have ignored a risky letdown — after the election. [The U.S. faces ] another brush with recession in 2009″ [for this reason].
Gongloff adds that once the “stimulus cocktail wears off,”
…home prices seem likely to keep falling, weighing on consumer balance sheets, confidence and spending. The expansion after the the 2001 recession … was partly fueled by more than $1 trillion in borrowing against home equity. It is hard to see the economy getting that lift this time.
Even if the stimulus package serves to help the political class survive the November elections, it still remains that (as Hazlitt pointed out) the longer and indirect consequences of policies or actions are those that the good economists will focus on. Unfortunately, democratic capitalism produces politicians and the economists who focus purely on short-term results. Until the rank-and-file realize that it is the expanding nation-state itself, with its monetary inflation and government spending, that has created this mess, and that more of the same can only prolong the inevitable (and make it worse), then the next few years will look like the 1970s all over again. This time, could we at least be spared the disco?
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And the lime green leisure suits! That and hyperinflation would be too painful to endure.
Sorry to inform you, the answer is “No”. You won’t be spared the disco.
Bad money drives out good money. Good people people see the value of their fiat-money savings evaporate. Substitute poverty for wealth as the reward of virtue, and sooner than you expect bad everything drives out good everything.
Hence, bad taste will drive out good taste.
…
I’m off to choose the shade of lime green for my next leisure suit
Wall Street analysts see trends and they see balance sheets of individuals and firms and so they can potentially speak with insight. But why are they content to barely scratch the surface? Why do they not dig deeper to understand and to help others to understand the underlying cause?
Searching for the deeper meaning and for the truth has a limit in the Wall Street world of corporatism. Under the covers is government and that would not be something that Wall Street wants to be known.
Not only is it scandalous but it is revealing. In the light of true economics Wall Street will have to be confined itself to the ethics of competitive entrepreneurship which is wholly sufficient. But the pararsites will be eradicated.
This is a newbie question: what defines a “recession”?
Is a recession a bad thing? Aren’t market adjustments a good thing?
How is it bad for the economy that people decide to save?
Aren’t there many opportunities for investing, when the market is down?
They’re not bad, per se, but they can be painful as they involve short-term adjustments usually, which dampen economic activity. But yes, they are necessary.
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