Who was *right* about the recession?
December 29, 2008 8:08 AM Subscribe
Who was *right* about the recession?
A lot of people have turned out to be wrong about the health of the economy, and I hope they get the discredit they deserve. However, whose warnings proved to be prophetic?
A lot of people have turned out to be wrong about the health of the economy, and I hope they get the discredit they deserve. However, whose warnings proved to be prophetic?
There was a radio show on NPR at least a year ago, predicting a global collapse due to subprime defaults. Sorry, I just heard in the background, I'm not a regular listener.
posted by StickyCarpet at 8:20 AM on December 29, 2008
posted by StickyCarpet at 8:20 AM on December 29, 2008
The problem you will inevitably arrive at is that many people predicted this recession and maybe even the recession in 2001, but they also predicted the nonexistent recessions of 2005 and 2004 and 1998 and 1995.
What you want are the people who were right about the recession AND were right about the various lacks-of-recessions in other years.
posted by ROU_Xenophobe at 8:21 AM on December 29, 2008
What you want are the people who were right about the recession AND were right about the various lacks-of-recessions in other years.
posted by ROU_Xenophobe at 8:21 AM on December 29, 2008
Best answer: This is the question damn dirty ape was referencing. Might find some good resources there.
posted by ginagina at 8:21 AM on December 29, 2008 [1 favorite]
posted by ginagina at 8:21 AM on December 29, 2008 [1 favorite]
Calculated Risk, while not calling the recession, was tracking and calling the collapse of the subprime and Alt-A mortgage markets quite well.
The problem with bubbles is two fold.
1) You can't be sure when they're going to fail, because, *by definition*, the market isn't behaving rationally when you are in a bubble. If it was, you wouldn't see prices skyrocket, because nobody would pay them.
2) You can be absolutely correct that a market is in a bubble and lose everything trying to call the top. Never mind that you may be absolutely correct that the prices are very inflated -- you short at 100 and the item climbs to 130, you lose. Never mind that the week after you were forced out, it fell to 85.
3) You never know when a collapsing bubble in one market will affect other markets. While the collapsing mortgage market wasn't doing anybody any favors, it really wasn't causing much problems in the equities markets until September, 2008 -- when, very rapidly, it took down every investment bank in the United States. Really, stocks were only modestly affected by the subprime/Alt-A issues until the Lehman bankruptcy -- which then took equities down hard.
posted by eriko at 9:05 AM on December 29, 2008
The problem with bubbles is two fold.
1) You can't be sure when they're going to fail, because, *by definition*, the market isn't behaving rationally when you are in a bubble. If it was, you wouldn't see prices skyrocket, because nobody would pay them.
2) You can be absolutely correct that a market is in a bubble and lose everything trying to call the top. Never mind that you may be absolutely correct that the prices are very inflated -- you short at 100 and the item climbs to 130, you lose. Never mind that the week after you were forced out, it fell to 85.
3) You never know when a collapsing bubble in one market will affect other markets. While the collapsing mortgage market wasn't doing anybody any favors, it really wasn't causing much problems in the equities markets until September, 2008 -- when, very rapidly, it took down every investment bank in the United States. Really, stocks were only modestly affected by the subprime/Alt-A issues until the Lehman bankruptcy -- which then took equities down hard.
posted by eriko at 9:05 AM on December 29, 2008
Calling the recession has no meaning. There are always hundreds of people "calling" recession right around the corner every day. It will be the same next time around. Eventually they are all right.
If somebody called the mortgage meltdown -- or better yet, the easing of mortgage credit restrictions as a the trigger, that would be something.
posted by dzot at 10:03 AM on December 29, 2008
If somebody called the mortgage meltdown -- or better yet, the easing of mortgage credit restrictions as a the trigger, that would be something.
posted by dzot at 10:03 AM on December 29, 2008
Joel Geier, Lee Sustar, and others at the International Socialist Review. Of course, "calling" the recession, from a Marxist perspective, is less about predicting the exact timing and more about correctly understanding and analyzing the specific factors that will contribute to the next downtown (which -- again, from a Marxist point of view -- is inevitable, given the inescapable boom/bust cycle that is built into capitalism).
For example: in early 2004, analyzing the bust of 2001, Geier wrote:
For example: in early 2004, analyzing the bust of 2001, Geier wrote:
This new business cycle gives rise to three bubbles, as well as a deficit that war spending will only make worse. The additional $87 billion for the war in Iraq is only the first request of many to come. The last cycle ended with a stock market bubble. Now the stock market bubble, never fully deflated, is back. The Standard and Poor trades at 27 times earnings and the NASDAQ at 74 times earnings. It is now joined to a bond market bubble, inflated by artificially low short-term interest rates. The third bubble is the housing market, which could sink with the rise in interest rates. Housing prices are inflated out of line with earnings and rents.In 2002, Sustar wrote:
The much-hyped “zero percent financing” of auto sales highlights the interrelation of some of the key problems facing the U.S. economy-corporate debt, personal debt, and industrial overcapacity. By launching the campaign to “keep America rolling” after September 11, General Motors (GM) forced its rivals to match the zero percent offer. GM, with more cash on hand than its competitors, had three aims: to clear its bloated inventory, to compete with cheaper imports, and to spend its domestic rivals into the ground.And in 1999, Geier discussed the global crisis of the late '90s and considered how it would affect the U.S.:
The costs are enormous, however-about $2,300 per car in lost interest. And they only postpone the day of reckoning: An estimated 500,000 people who were planning to purchase a car in 2002 simply bought one sooner. They also eat into profits. Ford Motor Credit reported pretax earnings of $2.97 billion in 2000, but Ford Motor had to spend $3.4 billion to compensate for cheap loans before these latest deals. Nor did extra sales prevent Ford from announcing the closure of five North American plants. It has the capacity to build1.9 million more cars in North America than it can sell. Finally, by financing the loans themselves, automakers are exposed to the rise in bad debt that occurs in any recession.
The market bubble, though disconnected from reality, impacts the real economy. As stocks rise, so has the paper wealth of the upper classes. The rich have a greater percentage of their assets in stocks than at any time since 1929. The consumer boom is also propelled by the spending of a part of these stock market gains. Stock wealth has replaced savings. Savings that in the 1990s averaged a low 5 percent of incomes, have dropped to zero. In September, for the first time since 1933, the savings rate went negative. Meanwhile, credit card debt has hit record levels and housing debt as a percent of housing value rose to the highest on record. When the bubble bursts, and the well-off are forced to restore their savings and credit balances, consumption will drop more drastically than in a normal slump, producing a deeper recession.posted by scody at 11:35 AM on December 29, 2008
The stock market, like debt spending, can act as a spur to economic growth, as capitalists and states are allowed to play with a pool of capital much larger than any could individually generate. But that same overextension also makes the crisis deeper and more dangerous when the market becomes too overvalued. The money on the stock market is in the end merely the shifting around of the existing surplus value created by workers in the real economy; a shifting around that creates market winners and losers, but does not itself add one iota to the pool of surplus value created.
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posted by damn dirty ape at 8:17 AM on December 29, 2008 [1 favorite]