Economic Recessions Post 12/22/09
With the failure of Copenhagen (my MAPSBLOG post), it’s time to start thinking about serious depression, causes and strategies for when it gets worse. Click on, if you want. This may be my last post of this certain style as I’m considering changing the blog to be more real-time deadline appropriate. Hopefully a well-researched and justified account of the times we are living in as Americans right now, click:
Whatever you think the cause was, “evil speculators,” hedge funds (interesting group in ag speculation), “swashbuckling financial raider” like George Soros who make bets against the economy, or the confining rules of the Economy itself, the market is in trouble. Consumer confidence is down, jobs and national savings are lower than ever, and above all the Fed’s financial ability to bail the economy and the market out of any crisis. Real recovery takes production, and stability takes growth. I’m afraid that our chance in clean energy may have just passed to countries like Sweden. Currently, 1 in three wind turbines is deployed in Sweden. Most of the steel and auto production in our country is no longer competitive.
If for example you have problems in the financial underpinning your real liabilities (like houses) the Economy is perfectly able to continue itself on momentum alone. Financial and economic underpinnings of a real economy, like budget, is offset by the present ability to take loans. The arrangement of a loan fundamentally requires three things: 1) a buyer (China) and seller (US) of debt. 2) reasonable expectation it will be paid back (not default in case of a run), and 3) formal sanctions in case of default (the IMF). So far, we haven’t had problems with any of the three assumptions. But, if anyone were to start doubting our credit-worthiness – or a disaster, or attack – the loans would stop. This is called a “sudden stop” on loan money, and in terms of consumption it means a lot.
It’s hard to find material on the effects of a recession, but one is that things become more local and conservative. The worry is a depression with high taxes and climbing rates. What it’s going to look like from a business perspective if things get worse is plunging prices and imploding balance sheets– “a vicious cycle of deleveraging.” The Return of Depression Economics 135. Oversupply means they are forced to lower prices and cut back production, which means jobs, and services. It’s hard for businesses to lead out of a recession. From the consumer point of view, there’s less money available unless the government tries to stimulate us, which means prices rise while production falls: a cycle called stagflation.
How can financial systems fail? Largely based on the myth that they’re rational and based on real growth. There are quick fixes and props. Al Gore’s economy says you need more than just cash.
There’s no quick fix or prop any more. What’s the telling statistic? “Job market was still getting worse”! Money manages itself, but it’s only a statistic. If you are still unsure, check out: ‘Ponzi scheme,’ wikipedia.
So crisis of currency-growing food still has a demand at the time of a real economic recession. Food demand is inelastic, which means it’s more about your shopping habits than the price. Evidence shows that the local growers are doing better in the recession so far: better control over a more personal market, ability to barter, ability to save costs. Talk about “real production growth” is abstract in other fields like IT: in food it’s real, production, and growth! And talk about competitive advantage: other countries are looking at our land.. if it’s not going to be wind turbines we’re growing there like my first dream, it better be something useful! Evidence is already “growing” for the people taking up farming and gardening, lead by (of all places): [Detroit]! Before that? (of all places): Cuba and the urban oil-free agriculturalists!
A few words to kick out to my climate activists on a financial perspective. The only thing you need to talk about is gas. Almost all of our production is tied to oil prices, so Gas price inflation drives up costs and lowers production/jobs further. According to my recent tweet from national Geographic, most experts expect a peak in oil by 2015. This is like the world effect of a sudden stop in finance. The binge stops. HUGE spark in oil prices, everyone drives hybrids, oil-based industries no longer competitive. Economic effects of peak oil: continued unemployment, and losing competitiveness in middle-class jobs. Organic farming flourishes.
What will be next?
a. relocalizing (see last post)
b. more cutting back (see a wartime culture, or during the great depression)
c. global macro, one that accounts for environmental limits. Let’s sure hope we can convince developing countries, because we definitely failed to model restraint when we had power..
Other countries that are coming up right now= say we have a lot of land.. invade? challenge our resource hegemony? begin spending their reserves= all of these actions could lead to a global resource war. Fortunately war leads an economy..
To you, dear reader:
What are you going to be doing in 3-5 years?