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How can the recession end?



November 18, 2008 – Comments (1)

I'm sure I'm not the only one who gets depressed reading the never ending series of bad news and stats that just keep getting worse, so I started thinking about how on earth could this all end?

 I grew up the son of a union carpenter and remember my dad scrounging around for what ever work was available even if it was only a few days when the inevitable downturns in the cyclical construction industry hit. I guess that experience gives me a little perspective that recessions happen but they also eventually end. So I try to go back to the one's I can remember and figure out how they ended to give me some perspective on this one.

The first thing that came to me about how they end is I don't really know. You're in a recession, the news everyday is horrible, everybody is an expert on why we are in this mess but nobody seems to know how we get out and it just seems like this time we won't recover. But eventually the bad news subsides, little bits of good news start peeking through the rubble at first no one believes it's sustainable but eventually the good news is persistent enough that low and behold we actually did recover.

 Well that wasn't real helpful but thinking about it a little more I think there is probably a common framework for how we get in and out of recessions.

 1. There is something unsustainable in the economy that finally falls apart that starts the downslide.

 2. The bad news about the correction in the unsustainable aspect of the economy causes fear of a recession which causes people to hunker down which causes businesses to cut back and you have a negative feedback loop that seems like it will never end. Every day businesses announce more job cuts, the unemployment numbers keep rising and the country seems paralyzed.

3. Businesses can't fire everyone, eventually  the bulk of the people who will be losing their jobs will have done so and my hunch is this is the seeds of the recovery. While the downsizing is going on a large portion of the workforce is afraid of losing their jobs and in hunker down mode. Once the bottom is in and the people still in the workforce feel comfortable they are safe they feel more free to spend again. This eventually leads to hiring and at some point we all feel there is a real recovery under way which reinforces it in a positive feedback loop.

 Just a hunch but maybe one saving grace in the shear ferocity of the current downturn is a little quicker start to a recovery. It looks like the job losses are going to happen in more or less one fell swoop and it's also making things a lot more affordable for those who don't get the axe. Maybe just maybe this becomes the seeds of a recovery in the not to distant future.

Anyway I thought maybe a little drop of optimism in a sea of pessimism might help a few others cope.



1 Comments – Post Your Own

#1) On November 18, 2008 at 7:28 PM, Harold71 (< 20) wrote:

The market will work it out.  Government intervention will probably continue to slow this inevitable process.

The solution is to allow the market to have price discovery.  There is no easy way out of that.  I advocate true capitalism and most importantly the transition to sound money.  You have to focus on the monetary system itself to understand how we arrived here.

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