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Posts Tagged ‘US Economy

China, hold my hair back: In Defense of Recession.

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Recession is a nasty word. It means sacifice and pain to many. It touches everyone, rich and poor. However, it is simply the economy`s way of screaming `last call` at the end of a good party. A recession is the economic equivalent of a hangover.

The last decade saw an unprecedented economic boom for the entire world. It was a boom built on cheap credit and a consumer driven US economy. A series of must-have consumer items paid for by mortgage equity withdrawals  placed flat screen tv’s in many homes and new cars in many driveways. The house became an ATM and China turned into world distributor of all goods and credit the equity in your house could buy. Global wealth appeared to be increasing. It was a no money down miracle!

However, nothing comes for free. There is always a price to pay. Growth was accumulated up front.  And that’s where a recession comes into play. The hangover after binging on fast food and cheap beer (it tasted good at the time, didn`t it?).

Recessions tend to bring things back to normal. It is a purge of excess. A return to normalcy.

Global policies must recognize that a recession is a nasty, but natural part of the business cycle that is exacerbated by excess. A managed recession is the best case scenario that will rationalize businesses (i.e. those which are built on cheap credit and a consumer that has no limit on spending need to be shuttered or diminished) and set the stage for future growth.

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February 18, 2009 at 4:29 am

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Anti-Stimulus

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Part of the process of going through a recession is rationalization. Old businesses fail and new businesses emerge. As Obama steps up his attacks on the excesses of the past decade, we will see more and more businesses complain about  “Anti-Stimulus”.

Las Vegas has recently become target number one, as many businesses cancel retreats or conferences in the city of sin. It has become unfashionable or unwise for corporations to plan trips to the city, as the increased scrutiny on spending leads to less business travel. The travel industry is really going to take it on the chin with many layoffs and reduced wages. These casino heads do have a point that recent Obama speak has been populist and damaging to their industries.

It is unfortunate that many companies are simply wasting money by canceling and rebooking trips closer to home, as the cancellation charges can be hefty (Goldman Sachs reportedly canceled a conference in Las Vegas by paying a 600,000 USD cancellation fee and then having the same conference closer to home just to avoid the evening news).

Two thoughts: will the waitress who survives on tip revenue find these developments helpful in taking care of her family, or is Las Vegas just an exaggerated example of what is wrong with America?

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February 17, 2009 at 11:26 pm

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Poetic Realities

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Cuomo coined the phrase that you “campain in poetry, but govern in prose”. Another way of saying this is that you campaign in rhetoric, but govern in reality.

Obama’s short honeymoon officially ended with Geithner’s economic announcement. Panned by the markets, it became just another example of the lack of specificity that the Obama administration has demonstrated in the many announcements since taking office. It makes me think that the transition from campaigning to governing has not been easy for Obama and his team. He must shift from campaign mode into governing. He is finding out that this isn’t too simple.

The economic announcement was not the first time Obama has mistaken campaigning for governing. He uses nuance to really muddle what he is trying to achieve. An example of this would be his job creation plans. He claims that his plans will create or save 4 million jobs. There is no way to measure job preservation. Saving a job is not the same as creating one. If unemployment stabilizes at 10%, will he claim that it could have been worse and he has saved 4 million jobs and an even worse unemployment rate from occuring? I hope not. Stopping the bleeding is important, but job creation not saving is the real key to recovery.

The reality is that time is ticking. People are losing their jobs, they are unable to pay their bills. These kitchen table issues will become a real problem for the Democrats, as Obama will not be judged over the next 4 years. Public perception will be much more immediate. With House elections in 2 years, his plans must be put in place sooner rather than later.  Announcements that lack specific plans or plans that are laced with non-commital or measurable language will leave the world wondering if there is more behind the man with the moving oratory.

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February 13, 2009 at 12:35 am

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