The Recession Cometh II
Jenson Hagen
I wrote back on June 14, 2006 that the Recession Cometh.
Sure enough the recession came and went. Now, the economic news is making mention of a double-dip recession. Yeah, I've been predicting that one too.
So why is this happening? It's easy. All recessions are caused by resource limitations. If businesses do not have access to workers, commodities or supplies, then they cannot service consumer demand. If the consumer cannot access capital either through income (wages) or debt, then they cannot demand what businesses are producing.
They need each other. Businesses need financially sound consumers and consumers need businesses to offer products and services. If you favor one over the other and tilt the balance, then you will not reach optimal economic levels. If you encounter a resource limitation, then economic activity will be limited by the deficient resource.
Businesses are currently fairly sound overall. The big issue rests with a consumer that is broke. Wages are stagnant while credit card and home mortgage debt is way up. The consumer's access to capital is the resource limitation and Democratic leadership has not done enough to remedy the situation. They went all guns into the financial sector and cleared up that mess, but the consumer is still broke.
Until the consumer's balance sheet gets fixed, our economic activity will continue to be limited by this one specific factor. So it becomes easy to figure out what is coming over the economic horizon. Just sit back and watch statistics on consumer debt and wages. Until they improve, the recession will continueth.
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10:10 p.m.
Aug 28, '10
I find it easier to describe the economic system in a comparison to the human vascular system. Much like blood, when cash flows freely, the system thrives. However, when you develop clots, which is essentially when large amounts of capital are hoarded in an effort to "build wealth with wealth", the system begins to atrophy and die. If the economic system fully dies, of course, that capital loses its value...not unlike the value of blood in a dead body. Even Republicans know this...there's a reason why, when they're in control, when things go badly they begin extolling people to spend. Unfortunately, they "forget" to ask the right people (the ones holding 98% of the wealth), and it doesn't end up amounting to all that much. So they end up taking out loans from China and pumping that cash into the system. With Democrats, they just get the Fed to print more cash and flood the system. Neither approach is really the right one. The real answer is that you need to get that cash out from under those people sitting on it and make it flow through the system to preserve the value of it. How you do it is up to you, but that's the only real answer that holds weight.
8:51 a.m.
Aug 29, '10
A jobless recovery almost always leads to a double dip recession. After massive, ineffective spending at the state and federal levels the country is still a8 months into a jobless recovery. And yes, the cash that is sitting on the sidelines could go a long way towards becoming the engine that powers our country out of recession. Why is the cash on the sidelin?
There are a variety of reasons, but the main reason is lack of trust. When states refuse to take on their deficit spendnig, when bondholders lose equity as Obama did to GM bondholders, when unknown employment costs and taxes are looming and when foreign governments like Portugal, Ireland, Greece and Spain continue spending that is unsustainable the cash will stay on the sidelines.
12:12 a.m.
Aug 30, '10
The recession cometh? When did it leave?