The Collapse
By now everyone’s seen the headline about the revised fourth quarter growth numbers. They’re now saying we shrank at a 6.2 percent annualized rate. This explains the semi-mysterious fact that the U.S.-originating global recession seemed to be hitting Europe harder than it was hitting the United States. Now it just looks like we were undercounting the extent of the downturn. At the point, we all seem to be pulling each other down:
A wider trade gap than previously reported — that is, fewer American goods being purchased abroad — also pushed G.D.P. further downward. Exports fell at an annualized rate of 23.6 percent last quarter.
U.S. exports are falling, it would seem, because economies abroad are shrinking. And those economies, in turn, are shrinking because they were previously dependent on exports to the United States. New demand is going to be needed.
28 Responses to “The Collapse”
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February 27th, 2009 at 4:17 pm
This clearly means that we should spend more money on Wall Street. Because our financial sector is our biggest asset and we need more of those geniuses!
February 27th, 2009 at 4:21 pm
I am prepared to provide demand by purchasing a new laptop/monitor, toaster oven and microwave as soon as I am employed again.
February 27th, 2009 at 4:22 pm
Re “New demand is going to be needed.”
————-
From http://www.bloomberg.com/apps/news?pid=20601109&sid=auZeM63nrgzo&refer=home
“Arsonists Torch Berlin Porsches, BMWs on Economic Woe
By Brett Neely
Feb. 27 (Bloomberg) — When Berlin resident Simone Klostermann returned from vacation and couldn’t find her Mercedes SLK, she thought it had been towed. Police told her the 35,000- euro ($45,000) car had been torched….
…The 34-year-old’s experience isn’t unique in the German capital. At least 29 vehicles were destroyed in arson attacks this year, most of them luxury cars, according to police. The number is already about 30 percent of the total for 2008. The latest to go up in flames was a Porsche, on Feb. 14, two days after a Mercedes was set alight in a public car park.”
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“The horror. THE HORROR!! Exterminate the brutes!”
February 27th, 2009 at 4:22 pm
what, we can’t sustain an economy on rich people selling yachts and mansions to each other????
February 27th, 2009 at 4:22 pm
Those sick German bastards.
February 27th, 2009 at 4:32 pm
Obviously the thing to do here is have everyone learn their lesson and save more. This can’t possibly be a bad time for that.
No, no, wait- capital gains!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
February 27th, 2009 at 4:34 pm
Ok, but that 6.2% annualized rate is a bit hype isn’t it?
I doubt the American economy is going to contract by 6.2% by next fall.
In reality, a 6.2% annualized rate means that the economy contracted by 1.6% last quarter. Bad by any means, but not catastrophic and in line with what you ‘d expect during a recession.
February 27th, 2009 at 4:44 pm
Here’s a rejoinder to the “more stimulus” crowd by Eric Janszen, the itulip guy:
http://www.itulip.com/forums/showthread.php?p=78579#post78579
Money quote:
“…but we side with Soros on this, and Volcker: we are witnessing a global systemic breakup, the end of the road we got onto in 1971. We passed the last exit in 2001, the last chance to adopt a strategy to shift to a production and savings based economy through a series of steps negotiated with trade partners. Instead we increased the debt further through a property bubble financed with fraudulent structure credit products. The road ends when the US cannot finance its debts. The end of the road is near.”
February 27th, 2009 at 4:44 pm
Why is new demand needed, why can’t we just settle into a new, smaller economy? We can’t reinflate the bubble, folks
February 27th, 2009 at 4:51 pm
Obviously it’s a sharp recession, but we re still way off from being 1929 all over again. The issue here isn’t the recession per se, but the bank problems and the danger of going through stagnation for the next few years.
February 27th, 2009 at 4:52 pm
Wait, why bother making a fuss over the fact that it’s annualized? Of course you can’t extrapolate from one quarter where we’ll be three quarters later. The relevant number is the one I can use to compare it with every other quarter before it. Which are also annualized.
The point is that we’re going down very sharply at the moment. And while ‘82 was a similarly sharp downward turn, I don’t think anyone believes this recession is anything like that one.
I guess most importantly, there’s a lot of reason to buy the “hype” until it looks like we’re approaching some sort of a bottom, a bottom we won’t get stuck on.
February 27th, 2009 at 5:03 pm
1930 -8.6%
1931 -6.4%
1932 -13%
We’re not in Great Depression land yet, but you can see it from where we are.
February 27th, 2009 at 5:04 pm
The issue here isn’t the recession per se, but the bank problems and the danger of going through stagnation for the next few years.
I don’t understand this need to keep minimizing it, but there’s a much greater problem than just “stagnation” facing us. There’s a huge difference between a downward spiral and stagnation.
And in terms of the market and comparisons to 1929, we are still in early 1930 – do you think all the people who lost their jobs in the Depression lost them during those first few months? At the time at first they thought it was only a mild correction and recession. We potentially have a very long way to go here
February 27th, 2009 at 5:10 pm
The problem with great depression was as much the original crisis as the policy response to it. Today we have hindsight and 80 additional years of economic wisdom, so we are unlikely to repeat the same mistakes.
For example, the idea of a fiscal stimulus was highly unorthodox in the 30s and many countries went the opposite road implementing austerity problems and making the situation worse – the exception being Sweden.
So, I doubt that contraction is going to continue at this pace let alone drop to 1930 levels.
The issue is that if the analogy with mid-90s Japan is correct that the problem with the bank sector will not allow for steady growth to resume again and we might enter an era of 0-0.5 growth which inimical and problematic.
February 27th, 2009 at 5:27 pm
Why is new demand needed, why can’t we just settle into a new, smaller economy?
That might work except that new people keep getting born. If the population grows but resources remain fixed then sooner rather than later everyone has a lot less.
Put it this way. Divide $100 among ten people. Now divide $100 among twenty people. Sooner or later, that $100 is going to have to get divided among more and more people.
February 27th, 2009 at 5:46 pm
Re: And in terms of the market and comparisons to 1929, we are still in early 1930
The official recession started over a year ago, and the housing collpaes began well before that. That puts us somewhere in 1931, relatively speaking.
February 27th, 2009 at 6:56 pm
“Today we have hindsight and 80 additional years of economic wisdom,”
With that wisdom the greatest credit and monetary expansion of all time, by several orders of magnitude, occurred. We are not having a recession. We are having a deflationary debt collapse. That is what the Great Depression was by the way but that one was much smaller. Then too people were far more self sufficient and the levels of household debt were minuscule by comparison to now.
80 years of wisdom amounted to throwing out 200 years of monetary and credit common sense. Our wealth was borrowed. Not just the McMansions and Hummers we decry but so much more. Our elites insisted that wealth meant inflating asset values. Our conservative elites insisted not only that but that everything that was paid for and shared in common had no value. None at all.
February 27th, 2009 at 6:58 pm
Nick, while the 6% figure isn’t reason to panic unto itself, you’re hugely underestimating its significance.
1. Yes, it reflects a 1.5% drop in overall GDP, BUT IN ONLY 3 MONTHS. If we’ve been in the recession since the previous December, it means our actual GDP shrinkage for 2008 was considerably higher.
2. Also, what positive indicators are saying that the economy is in any way improving? If we’re shrinking this fast now, how far will we fall while Geithner assfucks us with the banks? Nobody (except the Cassandras) is predicting a 6% drop for 2009. We’re completely unprepared for that kind of hit.
3. “We’ve learned our lessons in 80 years.” Funny comment that, since the House Minority Leader just disavowed THE PAST 80 YEARS OF HISTORY. The Republicans are trying to erase everything that we’ve learned about dealing with recessions. If they retake power, we are MEGAFUCKED. I mean, it’s just over.
_______________
I’m not saying this figure is devastating, but if we act like we’ll only need the ARRA then we will be in Depressionland.
February 27th, 2009 at 8:22 pm
The issue is that if the analogy with mid-90s Japan is correct that the problem with the bank sector will not allow for steady growth to resume again and we might enter an era of 0-0.5 growth which inimical and problematic.
Welcome to the future, though it doesn’t need to be inimical.
February 27th, 2009 at 9:15 pm
A wider trade gap than previously reported — that is, fewer American goods being purchased abroad
Technically, this means fewer American goods purchased abroad and not quite as fewer many foreign goods purchased here. If our imports drop by the same amount as our exports, the trade gap stays the same.
Re: And in terms of the market and comparisons to 1929, we are still in early 1930
The official recession started over a year ago, and the housing collpaes began well before that. That puts us somewhere in 1931, relatively speaking.
“In terms of the market” does not mean the same as “in parallel real time.”
February 27th, 2009 at 11:26 pm
Do you think the stimulus and the housing plan will work? I wonder. The deficit is going up and inflation may be just around the corner. I saw a good article on this on
http://www.recessioninfocenter.com
February 28th, 2009 at 2:15 am
Re: That is what the Great Depression was by the way but that one was much smaller.
Relative to the economy of the time the Great Depression was much larger. Moreover the Great Depression would have been just a nasty recession had not the Federal Government made it much worse by:
A) Contracting the money supply
B) Killing foreign trade with the Smoot Hawley tarrif
C) Cutting government spending and raising taxes
Also: Banks were allowed to fail totally and completely. Bye-bye savings and checking accounts– and any funds en route to and from the failed bank as well.
Also: the complete lack of any sort of safety net.
The above drivers do not exist today. We are NOT forcing an ugly recession to become a new Great Depression. At most we will have a Little Depression (mainly because lots of political drama-queen types want to call it a Depression). Most likely by this time in 2012 the grim present will be as much a bad memory as 1981’s grimness was during “Morning in America” (1984).
Re: “In terms of the market” does not mean the same as “in parallel real time.”
The stock market is not a good guide to the economy as a whole. Unless perhaps you remember the Depression of 1987 that no one can recall? The 30s Depression began with a Stock Market collapse. The current market fizzle is an epiphenomenon this time around. This fiasco began with the housing market collapse. I would date our Black Friday to February of 2007 when New Century Inc (one of the largest and most reckless of the “new” mortgage lenders) went belly up.
February 28th, 2009 at 5:19 am
“New demand is going to be needed.”
Certainly not Old Demand, as we had in 1969. How about the same demand delivered with better efficiency. What do we need? A two thirds reduction in energy usage in the portion of the constrained transportation sector.
The Current Demand are Krugman’s “Stranded in Suburbia” consumer group, they are on consumption strike. Lower the cost of inventory management and they go off strike. Simple.
Housing has lower than expected utility because of a transportation constraint. Solve the transportation constraint, energy efficiency improves through the chain, exports and imports become more efficiently arranged.
I don’t think it is bullet trains.
February 28th, 2009 at 9:47 am
The problem with great depression was as much the original crisis as the policy response to it. Today we have hindsight and 80 additional years of economic wisdom, so we are unlikely to repeat the same mistakes.
You haven’t been listening to the GOP.