Wednesday, September 23, 2009

Burning Down The House

I am, in a strange sort of way, sorry to see the "recession" leave so quickly (if it indeed is leaving us). Not that I find subdued traffic, diminished restaurant queues, and elastic pricing unpleasant, of course, but I do not wish more suffering upon fellow citizens than necessary. And I understand that large complex processes (such as humanity's combined economic activity) are difficult to attenuate in the best of times, and that in the heat of the moment, faced with what was a quite real threat of systemic collapse from loss of confidence, the cost vs. benefit of letting the house fire burn itself down vs. the quite heightened risk of the fire spreading IMHO justified action. We can quibble about the details, for I am no apologist for four-letter financial program acronyms that give away our collective money without extracting an appropriate slice of flesh on our collective behalf. However, I just have a gnawing feeling that the "recession" (as perhaps did each post-1981 recession) left much of its work unfinished. Leveraged spec still rules, and what wasn't killed one might argue, is perhaps even stronger. Despite falls in counsumer credit, overall credit growth (according to David Pearson) remains positive as Feds have picked up the slack (for now). Little in the way of debt-to-equity conversion has been been realized. Aggregate energy use remains profligate (and likely unsustainable) contributing to the still-sorry state of America's current account, which is bloodier-red than Omaha Beach in 1944. Expectations of what IS, what should be sustainably normal remains elevated; real estate agents (and stock brokers) are as ubiquitous as ever, and the People still have no clue that they ARE The State. Employing the house-fire analogy again, it's as if the flames were nipping at the home of the despised and uncivic-minded neighbors, whose children were the neighborhood bullies, who neglected their property, free-rode upon others' initiatives, and whom most would have been happy to see depart - even under such beastly incendiary circumstances. But now, with the fire extinguished, the smoke has cleared and the damage is such they will be staying, so long as their Prop-Cat insurer stays afloat and makes good their claim). Perhaps they will be slightly chastened. Perhaps they now will tend to essential electrical repairs, remove the rusting hulks from the yard, and their children might no longer smoke in bed. And so this recession leaves the proverbial house uncleaned, excess capacity unremoved, less-than-competitive enterprises continuing to pursue less-than-successful practices, corporate rent-seeking run amok, specs (even those who flamed-out spectacularly) unchastened, and hubris emblematic (ironically through the good graces of the very public saviours now-scorned by those emboldened [again]). Though I do not deny that I possess a curmudgeonly streak, this feeling is not mean-spirited, but just Calvinistic. As such, perhaps we should endeavor to collectively expend an appropriate effort upon BOTH the qualitative nature of growth, and the quality of down-cycle, each unnatural and akin to using one's weak, opposite, hand. It isn;t pleasant, but it is decidedly useful in the longer run.


Unknown said...

This post certainly sums up my view of the crisis, and while you are "sorry" but, only in a strange way to see the end of the recession, I am quite dumbfounded by the cockroach like instincts of the financial-set.

I do however not believe that this matter is over by a long stretch, and as someone whose family suffered, literally, not figuratively, from bad neighbours who eventually disintergrated into social metldown, I am a believer in the big wheel turning.

A number of times I have made the same points regarding the world's finite resources and financial markets hubris, but people think I'm weird-note how many comments this post has received!

I am a capitalist in my head and to some extent a socialist at heart, and well identify with your "Calvinistic" view. The middle and upper classes of the world have simply lost the plot and a recalibration of expectations and needs is well overdue.

Despite Mr Bernanke's best intentions, the "market" will have its way with those "high" on debt and overconsumption, its just a matter of time.


David Pearson said...


Its good to see you posting again!

One legacy of the "nasty neighbor survival" is important from a historical perspective.

Throughout American history there was a battle over the currency between populists (workers and farmers) and the bankers. You know -- cross of gold and all that. The bankers always won, and the economic ascendancy of the U.S. benefited from the result, which was reserve currency status.

Now find me a banker that favors a stable currency. There are none. This change began in 1998 and now has become a "fixture" on the political scene. There is no constituency for a strong dollar, other than populist consumers (no one is a "worker" any more), who are, for the moment, leaderless.

FDR foisted dollar devaluation onto an unwilling Wall Street. Today, the same group -- our nasty neighbors -- now cheers the phrase "extended period" every time it appears. They are even stronger proponents of a weak currency than organized labor was in the past, because Wall Street has become a single-issue interest group. One thing matters, and that is the continuation of the carry trade.

There can be only one outcome from this trend, assuming that consumers are not able to organize against it. We may have multiple deflationary scares between now and then, but that doesn't change the destination.

Pablo said...

To my point, SP500 is now in a secular Bear Market a la Nikkei...
It's started when Tech Bubble burst in 2000, Greenspan low rates just helped revive the economy and transfer wealth to the east part of this world. This crash of 2008 is the continuation of 2000 crash and it would also lead some bull market.

The only way that US prevent this secular bull market is production industry comes back to US, and generate profitable business.

We are still and industralized driven world and to my mind, this is the only true way of wealth.

Further details here:

burnside said...

I believe the Recession party have stepped out for a cigarette and will return shortly.

Rather awkwardly, the busboys have cleared and reset the table without consulting the waiters.

Also, the check has not yet been presented for payment.