Thread: What caused the recession?

When people talk about the recession, what is accepted as fact about the cause(s) is not how I remember things. That is true for both regular people conversing, as well as what I see and hear in the news media, from both sides politically.

Now, I wonder if I am remembering things wrong, or has history been altered somehow... If the latter is true, then I wonder why? Is it a matter of if something is repeated enough it becomes true, or is there some kind of conspiracy going on, and if so, by whom?

I know I haven't stated how I remember things. I really want to hear from some of you folks first.

What I remember was a perfect storm...

Well, it was on the horizon when Bush took office. The dot com era was the start. There were signs that it was a down turn was coming, but because Clinton's Council of Economic Advisors announced the "end of the business cycle", anyone who mentioned the signs of the downturn were accused of talking down the economy... (interesting reading
here)

Then, 9/11 happened. I was attending Baylor University at the time, and I had the unique perspective of being a student when it happened, and then went back and finished after a couple years' hiatus. What I learned was something that I missed almost immediately afterward because we were trying to figure out what happened. The next day, CNN & Reuters predicted a world wide recession. When I went back to school, I learned that was actually the point of the attacks. Whether or not that is the real motivation, I cannot say for sure, but if it weren't it was icing on the cake, I suppose.

Then, as the economy struggled to get back on track, we had the major real estate bubble burst and ridiculous mortgage situation that led us to where we are today... It wasn't any one thing, it was several negative events that brought us to where we are now.

When I first started university, they were predicting that by 2010 there would be more jobs than there were going to be people to fill them... How's that working out for everyone?

IMHO - the core issue was money that was too easy: e.g. excessively low interest rates kept that were kept near zero for far too long -- which led to people buy far more home than they would be able to afford in normal times, or second homes/vacation homes/speculative home buying (or whatever the case might be)... far much credit card spending... etc.

This in turn ignited a real estate and spending craze which created even more demand (I want what the Jones' have even if I don't have the cash to pay for it)... which, seeing a market of even more customers chomping at the bit to spend on credit, prompted banks to ease lending standards even further... which, in turn, enticed people to spend/borrow more than they could ever realisticly repay... with this cycle becoming self-feeding and growing until it could no longer sustain itself... And, as has been happening since the dawn of time, the market cycle tried to move back into equilibrium by swinging the other way.

Unfortunately, just like any other cycle in nature, it can't just swing back to the middle and stop there... it has to swing both ways a few times before finally finding a balance again.

Everything else (such as 9/11 as Paul mentioned, fallout from the tech boom (hey, are just as susceptible to the lure of lower interest borrowing, getting caught up in the craze and going hog wild on credit as people are), etc) only served to exacerbate the problem even further.

Like I said, just my humble opinion.

There is so much to consider, the dot com boom going bust is probably one thing as is 9-11 and billions and billions spent on the two wars. The tax cuts , the real estate bubble brought on by deregulation and poor management and oversight by the fed.

I grew up in a manufacturing based economy. How long can a consumer based economy last when consumer confidence goes South ? Note the reports that China and India recovered from the recession early and strong. When you make the stuff the consumers have to buy it.

Gas prices are going up again and one big reason is more demand for fuel in China to for their manufacturing. We're winners though because we can buy cheap goods at wallmart and target. Whoop de do.

Now 'we' are trying to get a trade agreement with South Korea just in case there were any manufacturing jobs left that our government forgot to give tax incentives to move off shore. Pleasant dreams.

That's a good point Jimmy... the lack of manufacturing and natural resources in the US (relative to consumption) has really hurt as well.

Good points about the recession and all valid points. Putting that behind us fuel is going to go up because the more money the government prints and spends the more the value of the dollar will fall. That is going to cause prices of energy, our lifeblood, to go up. I live in California and it is bleak here. Fuel, taxes and more taxes, and more taxes are on the horizon. They don't get it and probably never will. We are heading for bankruptcy. Who in the world would buy a California bond? It will not be worth the money it is printed on in the near future.

The real reason for the recession is the citizens spending money they did not have, the government spending money they did not have and the feeling that it was all ok!

Take Care,
Richard

To me the reason for the recession is the wrong economic premisses before the recession. Since I have some science background I believe in conservation laws (actually I believe in symmetry, the conservation laws are a result of it). So even in the dot-com years, I had discussions with my friends that the prevalent economic view about zero-sum rules being non-applicable to the economy, cannot be right and soon we'll have hard evidence for it.

Based on these theories for decades people in US, at least, have been encouraged to spend more than they have and they have been doing just that. So the recession is just the cost of getting back to a more sensible way of living, and in my opinion absolutely unavoidable. Whether it was precipitated by the housing bubble, or the dot-com one, doesn't really matter, if neither had triggered it, one of the next bubbles (and there are more to come) would have.

As far as manufacturing goes, the same way the industrial revolution killed certain type of jobs and created different types, the new technologies, along with the globalization are going to obsolete the industry of the 50s and the 60s. Just another thing that is unavoidable.

Originally Posted by richmondesi

That's a good point Jimmy... the lack of manufacturing and natural resources in the US (relative to consumption) has really hurt as well.

Paul, sometimes I think about the fact that younger people in this country today don't remember a time when there was prosperity and a blue collar middle class. It only lasted about 30 years if you come right down to it. Guys died in the streets to get an 8 hour day and a forty hour work week. Literally died in the street fighting goons and cops paid for by the companies.

There was a window of time from after WW2 up into the late '60s early '70s when a man could go to work, feed his family, while the wife stayed home raising the kids. A home, a couple of cars and money to send the kids to college with a pension at retirement.

The companies never gave up. They used their political influence and whittled away at it. Gradually the union busters, the entrepreneurs and their bought and paid for politicians killed the goose that laid the golden egg. Back then a CEO didn't need to make 400% more than their employees and the government didn't give tax incentives to companies to move their production overseas. Democrats didn't push legislation such as NAFTA and say it was a good thing.

All over this country there are abandoned shells that once were factories, mills, and plants. I used to see them when I lived in Norther New Jersey in Newark, South Kearny, Elizabeth and Patterson. Forget about Pittsburgh and the steel mills and Detroit's auto plants.

Now mothers leave their latchkey kids to work two and three jobs and hope they don't get sick because they can't afford health insurance. The kids who used to be out and self sufficient at 18 or 20 are still living at home into their 20s unable to afford their own housing.

The way it was for that short window of time was what they used to refer to as "the American dream." I used to say buy American, the job you save may be your own but the cow is so far out of the barn now that I don't think there is anyway to shut the door. End of rant.

Originally Posted by HNSB

Now, I wonder if I am remembering things wrong, or has history been altered somehow... If the latter is true, then I wonder why? Is it a matter of if something is repeated enough it becomes true, or is there some kind of conspiracy going on, and if so, by whom?

HN, the question is too big to prompt anything but heat and very little light.

Has history been altered? Of course - by the same forces that shaped the events that happened, and then received the window dressing of choice.

To point to individual events can be instructive, it can also miss the forest for the trees. The economic cycles, and the lifecycles of hundreds of civilizations have repeated for millennia. We launch discussion along areas of interest, but whether that's the economics, the politics, or environmental cycles - the same plays work themselves out. Each country/civilization frames the plays according to their unique history. In the U.S., we repeat the Hamilton/Jefferson perspectives - in politics, economics, and social policy. 'Progressive' vs Individualism. But the same results happen. Power centralizes, over extends itself, screws with the currency to finance it's projection of power, decimates its youth in constant Orwellian warfare/welfare plays, and collapses from it's appetites over-reaching it's resources. 'Makes me grieve - watching the freedoms disappear so quickly. We seem to be rather frail creatures - unable to step outside the plays and actually change our (leopard) spots.

Originally Posted by pinklather

HN, the question is too big to prompt anything but heat and very little light.

Has history been altered? Of course - by the same forces that shaped the events that happened, and then received the window dressing of choice.

To point to individual events can be instructive, it can also miss the forest for the trees. The economic cycles, and the lifecycles of hundreds of civilizations have repeated for millennia. We launch discussion along areas of interest, but whether that's the economics, the politics, or environmental cycles - the same plays work themselves out. Each country/civilization frames the plays according to their unique history. In the U.S., we repeat the Hamilton/Jefferson perspectives - in politics, economics, and social policy. 'Progressive' vs Individualism. But the same results happen. Power centralizes, over extends itself, screws with the currency to finance it's projection of power, decimates its youth in constant Orwellian warfare/welfare plays, and collapses from it's appetites over-reaching it's resources. 'Makes me grieve - watching the freedoms disappear so quickly. We seem to be rather frail creatures - unable to step outside the plays and actually change our (leopard) spots.

Well said.

"We seem to be rather frail creatures - unable to step outside the plays and actually change our (leopard) spots." And, I agree human history has proven this to be true. Our delusion in regard to our "abilities" perpetuate the myth that humanity can overcome its limitations and inherent flaws if we just find the right humanist key to unlock the mystery.

Chris L