A US Recession Now Inevitable?

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In summary, billionaire investor George Soros predicts the end of a 60-year period of credit expansion based on the US dollar as the reserve currency, leading to an almost inevitable recession. The US is facing a credit crisis and a recession is all but certain. The state of the stock market and consumer spending indicate a deep recession, and the changeover of the presidency may not provide a boost to the economy. The current economic problems can be traced back to the development of mortgage-backed securities and the unsustainable housing price appreciation of the last decade. This has led to a ripple effect on the financial markets, consumer spending, and the overall economy. The US wealth is now being transferred to foreign investors, and the disparity in wealth distribution between nations is becoming more
  • #1
Art
Soros Sees End of Dollar-Backed Credit Expansion (Update3)

By Edward Evans and Jenny Strasburg
More Photos/Details

Jan. 23 (Bloomberg) -- Billionaire investor George Soros said the post-World War II era of easy credit backed by the U.S. dollar will end as the nation's economy slips into an ``almost inevitable'' recession.

``The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate today at the World Economic Forum in Davos, Switzerland. ``Now the rest of the world is increasingly unwilling to accumulate dollars.''

A U.S. recession is all but certain as lenders and investors stop the flow of credit, while the global economy probably will avoid contraction, Soros, 77, said later in a Bloomberg Television interview.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYk5JK9jvsM8&refer=home [Broken]

Soros appears to be predicting doom and gloom though whilst pessimistic about the US he is more optimistic than many other commentators who are predicting a global recession.

Although he sees the $US maintaining it's reserve currency status how realistic is this given it has fallen by 55% against the Euro since GWB came to power in 2001 and given that the dollars share of currency reserves fell to a record low of 63.8% at the end of September, down from 65% three months earlier. Meanwhile the Euro's share rose to 26.4 percent from 25.5 percent.

China are trying to protect the value of their 1.4 trillion $US treasury holdings by using the funds as collateral for Euro denominated purchases in effect liquidating their $US in favour of Euro denominated assets.

So is America in recession or if not is recession inevitable and if so how deep will it be and how long is it likely to last? Will the changeover of the presidency give a boost to the economy and the dollar?
 
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  • #2
You don't know you're in a recession until you get all the numbers, and often things are improving again by the time you get them. The stock market is unequivocally in bear mode, and there's every indication that consumer spending (2/3rds of the economy) has been sucking for the last two or three quarters. Credit has become increasingly difficult to obtain as people increasingly default on their debt obligations. Investors and home buyers and credit card users are already acting as if we're in a deep recession, so it's almost irrelevant whether or not the economic data due in July will agree.

The majority of today's economic problems began when banks began to develop mortgage-backed securities like CDOs, all predicated on the idea that housing prices never fall. In fact, for the last six decades, housing prices have been very reliable, and the idea made very good sense. Unfortunately, the cost of housing (in inflation-adjusted dollars) has grown about five times as fast in the last ten years as any other period in American history, including the times of prosperity after the Great Depression. Throughout the last decade, people have increasingly viewed housing as a get-rich-quick scheme, with disastrous results for those who bought last. The rampant proliferation of "house flippers" and real estate speculators getting rich off one another is an indication of just how unsustainable housing price appreciation has become. For the last ten years, home prices have had almost no connection to reality, and those involved in the housing market had no idea how deeply their excesses were tied to rest of the world's economy.

Cracks in the housing market spread to the financial markets via CDOs and SIVs. Cracks in the financial markets spread to consumers via their retirement accounts and the new-found difficulty in obtaining financing. Cracks in consumer spending bring down the entire economy by reducing the efficiency of all businesses and decreasing labor demand. Rising unemployment is followed by rising demand on social programs, which causes the government to spend more money. The government doesn't actually have the money, having blown it all on an unpopular war, and has to borrow it from other countries. Thus, the full effect of what will be known in history books as the Y2K housing bubble is that a significant portion of US wealth ends up moving into the hands of foreign investors. The weak dollar and crippled banks make it easy for our assets and businesses and even homes to be sold wholesale to whomever has enough cash. Yes, when Abu Dhabi buys part of Citigroup, they buy part of your mortgage, and they now own part of your home, and part of your local grocery store, and part of your retirement fund.

The disparity in wealth distribution between "have" and "have not" nations has been untenable for decades. This is, in my opinion, an inevitable collapse of a differential in wealth that never should have existed in the first place. Yes, it's a recession. Yes, it's an economic collapse. Yes, it's a chance for other nations to share in our spoils. Will we recover? Of course. By mid- to late-2008, all of the balance sheets will be clean, the banks will stop hemmorhaging, the CDOs will be dismantled, home prices will shrink back to sensibility, and the stock market will begin another bull run. We have a long way to fall yet, but the incredible speed of this correction indicates hope that recovery will be prompt. I don't forsee another Great Depression, but I do forsee another year or eighteen months of falling home prices and tightened household budgets.

- Warren
 
  • #3
The defnition of "recession" is negative economic growth. Except inso far as the statistics for today aren't out today, we're probably not in one yet. Odds are decent for the next few months to bring one, though.

[that was a response to Art]
 
  • #4
That's the consequence of running up large budget deficits. The average American knows absolutely 0 on basic macroeconomic principles. You could use the Ricardian Equivalence argument to try to point out the fact that tax cuts don't really do anything for stimulating the economy. Large budget deficits increase inflation, decrease the value of a currency, and also contribute to larger trade deficits...these are all problems that we are seeing right now. Much of the huge deficits over the past 8 years have to do with the ludicrous amount of spending Bush and the Con Congress did. I forget off the top of my head how many times, but during the Con controlled Congress several emergency sessions had to be held over Bush's first term in order to raise the maximum federal debt allowed by law. The Con controlled Congress basically gave Bush an unlimited amount of blank checks and now we are reaping what we have sown.
 
  • #5
gravenewworld said:
but during the Con controlled Congress several emergency sessions had to be held over Bush's first term in order to raise the maximum federal debt allowed by law.


Which court determined this?

I don't see the Chinese dumping US assests, and the Euro is a hot ticket; they are the new band in town everyone wants to see and be a part. To say the Euro has risen by x amount since Bush's presidency is a bit of...politics, not economics. The Euro was introduced when? 2000.
 
  • #6
DrClapeyron said:
Which court determined this?
Huh?

Congress itself writes laws.

http://www.npr.org/templates/story/story.php?storyId=5282521

"Congress Sets New Federal Debt Limit: $9 Trillion"It is taught in the fundamentals in macroecon at every university that huge budget deficits will have a negative impact on the value of a currency.

Huge budget deficits retard future economic growth by hindering present investment.

I don't want to be all doom and gloom though, not all deficit is bad. However, when deficit is owned by foreigners, which more and more of it is, then it is time to start worrying.
 
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  • #7
Well, the legislature is not the one lending money, so there must be a contract or court decision limiting the legislature's ablity to indebt itself. They are not lending themselves the money, that is for sure.
 
  • #8
DrClapeyron said:
The Euro was introduced when? 2000.
1999 as a paper trading currency and 2002 as 'real' money.

One thing that is slightly confusing me.
The US cut interest rates and this raised the dollar - I thought the idea was that you cut interest rates, people didn't want to put their money in your savings accounts and so demand for your currency falls and it's value drops?
 
  • #9
DrClapeyron said:
Well, the legislature is not the one lending money, so there must be a contract or court decision limiting the legislature's ablity to indebt itself. They are not lending themselves the money, that is for sure.

Congress sets the limits on how much it is allowed to spend. Courts deal with issues of the law, they don't write them.

The people of the United States and foreigners lend the government money through the form of buying bonds, t-bills, etc.

However, the FED can buy the bonds as well. This is exactly how the FED controls the supply of money.

In fact a large chunk of the deficit is money that the government owes to itself. Case in point-- you know that so called social security surplus that is supposed to exist? Well it doesn't really exist as cash, Congress already took that money and spent it. The surplus only exists as special non marketable bonds. That's right the social security "surplus" is nothing more than more debt that the government owes to itself in the form of bonds.
 
  • #10
gravenewworld said:
Congress sets the limits on how much it is allowed to spend. Courts deal with issues of the law, they don't write them.

I thought you said the legislature set the limit on debt, not spending. So I will assume in this case that the foreigners, the people of the United States and the Fed set the limit on how much debt the national government may acquire. We seem to be getting at the opinion of the people of the United States with regard to how much debt the US should rack up, what in this case are the opinions of the foreigners and the Fed?

The Fed controls the supply of money because it is the Fed's; they may print money or buy and sell bonds in order to control interest rates.

Social Security is an entitlement, this is different than any other normal government spending. Social Security spending is not included in what economists call 'government expenditures' and is marked at a set limit to be spent no matter the situation, so I do not entirely understand Social Security surplus if it is mandatory spending which does not count as part of the debt.

I do believe you are correct stating recessions involve periods of debt. Markers for recessions use inflation, debt, currency rates and other real and nominal variable rates in a given period of time in close proximity to the present and compared to periods of economic boom and bust.
 
  • #11
mgb_phys said:
One thing that is slightly confusing me.
The US cut interest rates and this raised the dollar - I thought the idea was that you cut interest rates, people didn't want to put their money in your savings accounts and so demand for your currency falls and it's value drops?
Two possible explanations:

1. Currency traders had expected a bigger cut.

2. If the dollars drawn out of savings accounts were diverted to alternative dollar denominated instruments (for instance, U.S. stocks and bonds and their derivatives) then the net effect would be zero. But this does not take into account the secular effect in the stock markets. If the demand for U.S. stocks increases faster than the demand for U.S. savings accounts decreases, then the net effect is positive.
 
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  • #12
DrClapeyron said:
I thought you said the legislature set the limit on debt, not spending. So I will assume in this case that the foreigners, the people of the United States and the Fed set the limit on how much debt the national government may acquire. We seem to be getting at the opinion of the people of the United States with regard to how much debt the US should rack up, what in this case are the opinions of the foreigners and the Fed?

The Fed controls the supply of money because it is the Fed's; they may print money or buy and sell bonds in order to control interest rates.

Social Security is an entitlement, this is different than any other normal government spending. Social Security spending is not included in what economists call 'government expenditures' and is marked at a set limit to be spent no matter the situation, so I do not entirely understand Social Security surplus if it is mandatory spending which does not count as part of the debt.

I do believe you are correct stating recessions involve periods of debt. Markers for recessions use inflation, debt, currency rates and other real and nominal variable rates in a given period of time in close proximity to the present and compared to periods of economic boom and bust.



Congress BOTH sets the limit on how much federal debt is allowed and also must approve of the federal spending budget every year (the President proposes the budget and must sign it).

Honestly US debt controlled by its own citizens really isn't so bad. Debt will just be paid back to the US's own citizens. However, when debt is owed by foreigners (which more and more of it is), then you have to start to worry. This represents a loss of income from the country when debt is paid outside of the country.


Social Security surplus is exactly what is sounds like--more taxes were taken in for SS than were used to pay SS benefits. However, all of that excess lucre was already spent by Congress and was replaced with special nonmarketable government securities. I only used this as an example of how a some of the US debt is actually just debt owed to itself.
 
  • #13
Foreign debt builds foreign bonds between nations. An obligation is made by both parties to live up to the terms of contract, this gives a common grounds by which outside business between the countries may be conducted. Debt is also a finance term, and the US is financing its spending, not indebting itself.

Financing government spending is good. An inflow of capital comes into this country, is distributed and when we pay back what we owe to a foreign nation, it is with the money earned in excess of the original loan made either through inflation, interests or the production and sale of goods. The loss of income represents the interests paid on a credit card, it is not bad that a credit holder must pay interest because the only alternative is to not paying interest is to have no credit, or in this case no financial sector. This means no banks, credit unions, lenders of any sort. It would be a wonder how the economy would exist without it.
 
  • #14
DrClapeyron said:
Foreign debt builds foreign bonds between nations. An obligation is made by both parties to live up to the terms of contract, this gives a common grounds by which outside business between the countries may be conducted. Debt is also a finance term, and the US is financing its spending, not indebting itself.



Who said it builds bonds? Debt that is only bought up by foreign countries, only because foreign countries believe they can make money off of it. If you wanted to borrow $100,000 and someone lent you the cash and in return got an IOU with a 6% interest rate would you want that person to come back later and ask for all of that $100,000 at once WITH the interest payment on top? or would you want that person to slowly ask for their money back in several repayments? China is in position to due such a thing. They have threatened to dump US commodities to kick the legs out from under our economy. China holds over $1 trillion of our debt (which is almost the entire amount of M1 money supply). If China ever wanted to ask for all its money back, which would not be wrong at all, it would seriously effect the value of the dollar. The US is simply financing its spending through more and more debt. How do you think we currently pay off our debt when people/governments cash in their bonds and other securities? By selling more debt. If that isn't putting yourself into debt, than I don't know what is.

Financing government spending is good. An inflow of capital comes into this country, is distributed and when we pay back what we owe to a foreign nation, it is with the money earned in excess of the original loan made either through inflation, interests or the production and sale of goods. The loss of income represents the interests paid on a credit card, it is not bad that a credit holder must pay interest because the only alternative is to not paying interest is to have no credit, or in this case no financial sector. This means no banks, credit unions, lenders of any sort. It would be a wonder how the economy would exist without it.

You are treating the government like it is a single consumer. That's apples to oranges. You do realize from WWI all the way up to 1980 the US was always a debt creditor? It wasn't until recently that we have become a debtor nation (and we happen to be the largest debtor in the world). I would agree that if a country uses the proceeds from a foreign investor to increase its physical and human capital, then the borrowing isn't so concerning. However when you borrow from a foreign nation to simply fund spending, then you run into problems. Unfortunately if you look at all the data, the increasingly large amounts of borrowing from foreigners is NOT accompanied by any significant increases in the rates of physical investment or in human capital formation.


The biggest problem with huge budget deficits is the fact that they end up reducing national savings which in turn means less capital and less foreign assets are accumulated. This means that future generations of Americans have the strong potential to have lower standards of living.



Financing government spending is good. An inflow of capital comes into this country, is distributed and when we pay back what we owe to a foreign nation, it is with the money earned in excess of the original loan made either through inflation, interests or the production and sale of goods. The loss of income represents the interests paid on a credit card, it is not bad that a credit holder must pay interest because the only alternative is to not paying interest is to have no credit, or in this case no financial sector. This means no banks, credit unions, lenders of any sort. It would be a wonder how the economy would exist without it.
 
  • #15
A concern I saw lately is that foreign countries are converting their $US debt into American equity assets through so called sovereign funds. The danger being that in effect the US is selling it's future income streams which would have been used to improve the American economy but will now be used to improve the economy of the new owners.

As for a debtor nation being a better position to be in than a creditor nation - ask yourself would you rather be a bank lending money or a consumer borrowing money? Who ends up better off in the long run? Have a look at South America and Africa to see the results.

The only time borrowing is really justified is for capital investment where the returns earned will outstrip the interest paid. America is borrowing money to augment it's current expenditure to provide an unearned higher standard of living than they could otherwise afford and this is further exacerbated as these consumer goods are being imported mainly from China and selling off their revenue streams will make repayment very painful.
 
  • #16
Art said:
A concern I saw lately is that foreign countries are converting their $US debt into American equity assets through so called sovereign funds. The danger being that in effect the US is selling it's future income streams which would have been used to improve the American economy but will now be used to improve the economy of the new owners.
This actually doesn't scare me - I love it. The fact that the US's economic growth continues to outstrip most of the rest of the western world even while exporting our prosperity means our economy is just that fundamentally strong. And as a humanitarian, I want our prosperity to help people in, say, China, rise out of the dark ages.
 
  • #17
Great Post Warren:

Abu Dhabi buys part of Citigroup

http://www.enn.com/top_stories/article/25913

Its worse/better (depending on what side of the fence you are on) than people seem to think

I can't think of the full reasons for why what is happening, is happening, but I tend to agree that it was inevitable. The prosperity of the USA was unsustainable, just like it was for the UK and its commonwealth up until WW2.

Perhaps it was the built in greed of the Adam Smith ideology that has come back to haunt the true capitalists, as for an amateur economist as I am (I make my money in IT) it seems that the market forces they hold so dearly are now crashing down upon them because the drive to ensure cheaper and cheaper goods, and faster and faster money has created the situation that the markets are in now.

I hope the USA doesn't have a full blown Recession as if they do, we will all feel the pain. But the universal truth with economics is one mans loss is another mans gain
 
  • #18
russ_watters said:
This actually doesn't scare me - I love it. The fact that the US's economic growth continues to outstrip most of the rest of the western world even while exporting our prosperity means our economy is just that fundamentally strong. And as a humanitarian, I want our prosperity to help people in, say, China, rise out of the dark ages.

Good, but I think you have a skewed idea on what your prosperity is built on. Just look at one of the elephants in the room, the Worlds largest Bank, CitiGroup had to write off 13,000,000,000$ due to subprime morgage write offs in your backyard, and you are calling this growth?
 
  • #19
Anttech said:
Great Post Warren:
The prosperity of the USA was unsustainable, just like it was for the UK and its commonwealth up until WW2.
Actually the UK system = turn up at third world country, take over, use all their resources and people and go home with some decent food is probably more sustainable than the US system of either, drop $billion weapons on sand or run up huge spending deficits with them in order to buy their cheap DVD players!


Anttech said:
CitiGroup had to write off 13,000,000,000$ due to subprime morgage write offs in your backyard, and you are calling this growth?

By the bizarre definitions of GDP I think that is growth. Who said that - "from the point of view of GDP the ideal person is a termianl cancer patient going through an expensive divorce"?
 
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  • #20
mgb_phys said:
Actually the UK system = turn up at third world country, take over, use all their resources and people and go home with some decent food is probably more sustainable ...
Then invite them all to come 'home' with you :smile:
 
  • #21
From AOL Money & Finance - The retail sector is winding down.
Sharper Image - Just filed for bankruptcy protection. People finally figured out that they sell overpriced stuff/junk.
Stores Closing: 90 of 184

Movie Gallery
Stores Closing: 400 of 3,500

CompUSA
Stores Closing: 103 stores will be sold or shut down

Ethan Allen Interiors
Stores Closing: 12 of 300+

Retailer: Sofa Express
Stores Closing: 44
Why? The Ohio-based furniture retailer sent notice in Dec. to stores saying the company was shuttering headquarters, closing stores and laying off workers due to their financial situation.

Retailer: Levitz Furniture
Stores Closing: 76
Why? Also in Dec., Levitz Furniture announced it is liquidating its assets and closing all 76 of its stores.

Macy's
Stores Closing: 9

PacSun 'Demo' Stores
Stores Closing: 154 Demo Stores

Kirkland's
Stores Closing: 30 to 130

Fashion Bug, Lane Bryant & Catherine's
Stores Closing: 150

Talbot's & Sigrid Olsen
Retailer: Talbot's Kids, Mens
Stores Closing: 78

Jasmine Sola
Stores Closing: 23

Krispy Kreme
Stores Closing: Undetermined

Why? In December, Krispy Kreme said its quarterly sales tumbled and it expected more franchised store closures ahead. In the first nine months of fiscal 2008, franchisees closed 25 stores, the company said.

Starbucks
Stores Closing: 100 and slowing expansion by 34 percent

84 Lumber
Stores Closing: 12

Why? Due to a difficult year in the nation's housing market, the Pennsylvania-based building materials company closed a dozen stores in December.

Home Depot
Stores Closing: 3 call centers closing

Rent-A-Center
Stores Closing: 280

Rite Aid
Stores Closing: 28

Sprint Nextel Corp.
Stores Closing: 125

Sears losses could signal death
http://marketplace.publicradio.org/display/web/2008/02/28/sears_kmart/ [Broken]
KAI RYSSDAL: Moving on now to other companies and their customer's interests. Sears reported a 48 percent drop in quarterly profits today. Yes, a faltering economy had probably something to do with that. But Sears has been falling behind its competitors for years. Now there's speculation the 121-year-old retailer's very survival is on the line.

Bond failures may bankrupt cities
http://marketplace.publicradio.org/display/web/2008/02/28/municipal_bonds/ [Broken]
New problems in the municipal bond market are resulting in cities and municipalities paying record-high interest rates. And with cities making less from property taxes, some have no choice but to declare bankruptcy.

KAI RYSSDAL: You know how every now and then we bring you a completely obscure term from the world of high finance and try to explain it? We're not doing that anymore. At least, not for a little while. We figure you've had about all you can take of structured investment vehicles and auction rate securities. Suffice it to say the municipal bond market took another turn for the worse this week. The latest to blow up are things called variable-rate demand notes. Look that one up for yourself if you really want to know. Or drop us a line, we'll tell you. What it means in practice is that cities and states are seeing their borrowing costs more than quadruple while revenues are going downhill.


Last I heard, writeoffs at the big financial companies over the subprime mortgage crisis are now around $600 billion.
 
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  • #22
Foreign investors pulling out of U.S.
http://marketplace.publicradio.org/display/web/2008/02/29/foreign_investors_pulling_out_of_us_markets/ [Broken]
Kai Ryssdal (Feb 29, 2008): You know, that extra day we get every four years we probably could have done without, this time around.

The stock market fell pretty hard today, the dollar tumbled to new lows overnight, oil hit new highs, consumer sentiment plunged to a 16-year low... Hang on, I'm almost done: The Federal Reserve announced yet another big drop of liquidity into the banking system. And to top it all off, the Treasury Department says overseas investors have begun to abandon the U.S. stock and bond markets.
Trouble for a highly leveraged economy as credit and capital supply decrease.
 
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  • #23
Anttech said:
But the universal truth with economics is one mans loss is another mans gain
That's a philosophical statement, not an economic truth. There is no conservation rule for global wealth.
 
  • #24
chroot said:
By mid- to late-2008, all of the balance sheets will be clean, the banks will stop hemmorhaging, the CDOs will be dismantled, home prices will shrink back to sensibility, and the stock market will begin another bull run. We have a long way to fall yet, but the incredible speed of this correction indicates hope that recovery will be prompt. I don't forsee another Great Depression, but I do forsee another year or eighteen months of falling home prices and tightened household budgets.

- Warren

I've been thinking about buying a second home when the market hits bottom. I doubt there will ever be a better opportunity in my lifetime. However, I tend to doubt that this will bottom out in 2008. My sense is that there is too much downward momentum. [Of course this is all great news for the Democrats. Perhaps the Republicans will be remembered for this as much as Iraq]

If there is no government bailout for those who got insane loans, there should be a glut of cheap houses available from foreclosures. In turn the value of that home [that we would buy] should be doing very well about the time we retire.


Fortunes are made when blood runs on the streets.
 
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  • #25
I would add that as Obama pointed out, this was infinitely foreseeable. Tsu and I have been talking about it for years now.
 
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  • #26
Ivan Seeking said:
I would add that as Obama pointed out, this was infinitely foreseeable. Tsu and I have been talking about it for years now.
My wife and I made our move 2 years ago, foreseeing just this kind of a crash. We had our last house a little over 15 years and it doubled in value over that time. The town is heavily dependent on a single industry (pulp mill and 3 paper machines) for a lot of its commercial tax base and they have been spending money like it's water. We did not want to end up owning a house with severely depressed value and super-high taxes in the event that one or more of the paper machines were shut down, so we found a little log house in another town that is nice, but does not conform to FMHA standards, and so couldn't qualify for most loans and had been on the market for a time. The owner was getting nervous, and he came down on the price to get a cash sale. I am SO glad we sold that big place. I think the new owners are sitting on an ARM and the wife home-schools the kids, so they're living on one income. Not good.
 
  • #27
Businesses go boom and bust; it's why you don't see horse drawn kerosene tankers delivering lamp oil door to door. The only way to prevent a subprime loan failure is for all of us to go out and start mowing lawns, painting houses, tarring roofs, etc.
 
  • #28
Re Turbo: Yes, when we realized that a move to Canada was going to be more difficult than was hoped, we talked about the fact that the housing market was certainly going to crash and that we would have to either sell now [late 2004/2005] or stay put for another ten years.
 
  • #29
Regionally, we are in recession. Two very large lumber mills have shut down and the third very large one is operating at a loss with reduced shifts to try to ride out the soft lumber market. Since the housing market tanked, home-building has almost ground to a halt and lumber inventories are high. This ripples back through carpenters, truckers who haul wood, jobbers that cut and stockpile saw-logs, and landowners that rely on sequential cutting of large tracts of forests for income. It also negatively impacts electricians, plumbers, roofers and many others, including real-estate agents, appraisers, etc. We have also lost a number of paper mills over the years, and due to soft vehicle sales, many dealerships have been bought out and consolidated.
 
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  • #30
Gokul43201 said:
That's a philosophical statement, not an economic truth. There is no conservation rule for global wealth.
We see that fallacy here soooo often, it's really getting old. The idea that wealth is a zero sum game is common among socialists, but it is very much wrong and very easy to see.
 
  • #31
Anttech said:
But the universal truth with economics is one mans loss is another mans gain

This is definitely wrong...but...



russ_watters said:
The idea that wealth is a zero sum game is common among socialists

...(assuming you, as usual, by "socialism" mean market economies of western Europe style) what facts do you base this notion on?
 
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  • #32
No, I mean socialists (I said socialists). People who favor socialism/socialist policies. The very idea comes from Marx. Marx believed that the primary/only way for rich people to become rich was by pushing down the "working class". That's the fundamental tenet of Marxistm. "The rich get richer while the poor get poorer" fallacy that we see so often today from liberal politicians and modern socialists is the modern incarnation of that line of thought. Marx can be forgiven for it due to the times he lived-in (exploitation during the industrial revolution was so widespread it may have been tough to see the unviersal prosperity to come as a result of minor corrections to market economics). Today, it's just a lie that people like to believe even though it is clearly wrong.

More to the point, though, the comment was made by Anttech.
 
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  • #33
Antech's statement said 'one man's loss is another man's gain' as a rule of thumb is generally true.

Russ seems to have equated this with 'one man's gain is another man's loss' (which is something entirely different due to wealth creation) to build a strawman argument.
 
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  • #34
Art said:
Antech's statement said 'one man's loss is another man's gain' as a rule of thumb is generally true.

Russ seems to have equated this with 'one man's gain is another man's loss' (which is something entirely different due to wealth creation) to build a strawman argument.
That's true Art. I misread the sentence too. Appologies to Antech.
 
  • #35
russ_watters said:
No, I mean socialists (I said socialists). People who favor socialism/socialist policies. The very idea comes from Marx.89
But Russ, havn't we discussed this before in a number of threads?
At first I equated socialism with the ideas of Marx, and hence claimed that e.g. Sweden is not a socialistic country. Then I got the impression that you (and many other americans) basically saw all European countries as socialistic. (I even started a thread about how to define socialism: https://www.physicsforums.com/showthread.php?t=204449 )
That's why I interpreted your use of "socialists" as someone who favours e.g. Swedish (or other western European) wealthfare policies.

"The rich get richer while the poor get poorer" fallacy that we see so often today from liberal politicians and modern socialists is the modern incarnation of that line of thought.
If you by "modern socialists" mean people who favours e.g. Swedish (or other western European) wealthfare policies, I don't get what you mean. I have never heard that kind of reasoning among those people.

Instead I think it is quite commonly agreed that both rich and poor prosper from an efficient market. However, efficiency of the market is not a goal in itself. Although taxation generally decrese the efficiency, it can serve as mean to redistribute sources between different groups in society. It all comes down to the subjective notion of fairness, and how much deadweight loss one is ready to accept in order to reach what one finds to be fair.

The "modern socialists" I know just happens to be ready to accept a higher deadweight loss in order to reduce the income differences between rich and poor. I have never heard anyone say what you claim they do.
 
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1. What is a recession?

A recession is a period of economic decline, typically characterized by a decrease in GDP, a rise in unemployment rates, and a decline in consumer spending. It is a normal part of the business cycle and is usually accompanied by a decrease in stock prices and a slowdown in economic growth.

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A recession is typically determined by a sustained decrease in GDP over two consecutive quarters. However, other factors such as employment rates, consumer spending, and stock market performance may also be taken into account when determining if a recession is occurring.

3. Is a US recession inevitable?

While it is impossible to predict the future with certainty, many economists believe that a US recession is likely in the near future. Economic indicators such as slowing global growth, trade tensions, and high levels of corporate debt all suggest that a recession may be on the horizon.

4. What causes a recession?

There is no single cause of a recession, but they are often triggered by a combination of factors such as a decrease in consumer spending, a decline in business investment, or an increase in interest rates. Other factors such as natural disasters, geopolitical events, and financial crises can also contribute to a recession.

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It is difficult to completely avoid a recession, as they are a natural part of the economic cycle. However, governments and central banks can take measures to mitigate the effects of a recession, such as implementing fiscal and monetary policies to stimulate economic growth and providing support for industries and individuals affected by the downturn.

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