Recessions - Natural or artifical phenomenon

I've been reading about the coming (or current) economic recession within the US.  I just saw another top article from Bloomberg talking about the affect it is having on the retailing industry.  Now, my question is this:  does something happen because it's just going to happen -- or -- does something happen because we read about it, talk about it, see news stories about it?

The economy recedes because less money is being spent.  I guess I'm seeing all this as a self-fulfilling prophecy of sorts.  Consumers are spending less, because being told we could loose our jobs - all because consumers are spending less.  GM or Ford don't need to build cars if they aren't going to be sold (so we don't need factory workers).  And Dell doesn't need to make computers or Apple iPhones.  And what do we do with all those employees that on the payroll doing nothing - well, we lay them off (oh, I forgot, we reallocate our resources utilization metrics to better position for the current demand cycles). 

Now, what happens to all those people that just got laid off?  Are they jumping up for joy, singing the praises of their employer for leaving them and their family with a paycheck - don't think so.  These people get interviewed on one of the thousands of news station or papers or blogs or websites - telling everyone else to aware, it's bad out there.  And now consumers spend even less - which makes things worse, which lead to more layoffs and more news stories.  Wow, what a cycle!!  Where does it end?

Hey, cycles happen, it's just reality.  There are ups and then downs, then ups again.  Like the tides, any economy comes in and then goes out.  The mortgage industry has probably helped here, but why not the real estate industry as a whole?  Have you noticed the prices of houses?  How much have they gone up, just in the last 5 years?  In some cases, the price has doubled - it that steady growth, or explosive growth?  Was this an industry in the process of being "re-set" - extreme peaks require balance.
 
So, my real question is -- do we cause a recession to happen by talking so much about it?  Or do they just happen - but we make it worse by talking about it?
 

 

2 comments:

  1. Good question. In answering, there needs to be a definition of "worse." If you mean a "deeper" recession, I don't think talking about it has much impact. However, if you mean "more destructive" as in longer, occurring sooner, or recurring as a number of mini-recessions, then I think talking may indeed have an impact.

    Recessions are not just dependent on consumer spending, although the current administration seems to view this as the primary engine. Recession is a indicator of stagnant or declining overall economic health. Therefore, if the economy is creating jobs, upgrading business infrastructure, and able to MAINTAIN consumer spending, you have a thriving economy. In contrast, if you have a stagnant business environment where investment is not being made, profits are going primarily to pay outrageous bonuses to executives, and stock is being propped up by cost-cutting, you are creating an environment for a recession even if you have consumer spending.

    Another point is that in many cases, consumer spending primarily benefits other countries' economies these days. For example, very few cars are actually manufactured in the US anymore (there is a big difference between manufacturing and assembling). Most electronics from televisions to microwaves are not manufactured in the US. Therefore, when consumer spends for these items, the only part that benefits the US economy are the handling charges.

    With all that said, all the talk in the world is not going to create a recession. Simply put, what goes up must come down. The housing market has been way oversold for years--even Greenspan mentioned this before he left the Fed. The stock market has been run up much as it was during the dotcom era, so it was only a matter of time before it started to correct to a more reasonable level. Then there all those companies that have been saving themselves to profitability. The lack of investment is causing a correction because they can't get must more out of cost-cutting. Add to this the fact that the government has been cutting taxes while spending more (wars are expensive), means that we are borrowing our way to prosperity. Therefore, get ready for inflation, since the solution is always to print more money.

    What really makes this recession (for the most part we are already in one) worse is that all these things seem to be coming to a head at the same time. All the talking in the world will make it neither better nor worse.

    Of course I could be wrong.

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  2. Just a few words--"Self-fulfilling Prophecy". We are the creators.

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