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Was this recession avoidable?

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  • Was this recession avoidable?

    Hindsight is 20:20, but I feel I am pretty clear on how this played out in real-time. Decisions were made to take on dramatically more national debt to pay workers at a time that there was a lot of cash and a competitive labor market and this greatly exacerbated these trends. Things seem worst for those who haven't benefitted from the wage increases that the labor market has driven but are still paying higher prices (nurses seem to be doing well in a lot of areas, not so much social workers?). It feels more 'tragic' than before as it was more related to clear actions taken then the 2008 financial crisis. But I could be wrong?

  • #2
    What do you mean about the 2008 crisis? Do you not think actions were taken making it tragic?

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    • #3
      Originally posted by gvs.psych View Post
      Hindsight is 20:20, but I feel I am pretty clear on how this played out in real-time. Decisions were made to take on dramatically more national debt to pay workers at a time that there was a lot of cash and a competitive labor market and this greatly exacerbated these trends. Things seem worst for those who haven't benefitted from the wage increases that the labor market has driven but are still paying higher prices (nurses seem to be doing well in a lot of areas, not so much social workers?). It feels more 'tragic' than before as it was more related to clear actions taken then the 2008 financial crisis. But I could be wrong?
      If you really want to dig into the weeds of macroeconomic theory, I recommend reading up on the Austrian School of Economics. It teaches us that boom-bust cycles (what we call the "business cycle") are simply caused by artificially low interest rates. When interest rates are low, speculative ventures or gambles are cheaper to finance. When interest rates do go up, these ventures that had no solid economic footing will go bankrupt, as they should. It's like death and decay in biology.

      You can start by reading books by people like Ron Paul such as "End the Fed" or by looking at works published by the Mises Institute. This is a good place to start.

      https://mises.org/begin

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      • #4
        Yes preventable if fed was responsible and not asleep at wheel hooked on own supply. Instead they enabled bubbles in basically all asset classes

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        • #5
          Originally posted by Panscan View Post
          Yes preventable if fed was responsible and not asleep at wheel hooked on own supply. Instead they enabled bubbles in basically all asset classes
          If you look at AP reporting on the matter, the Fed starting pursuing an “equity” agenda as it pertains to their unemployment mandate right around the pandemic. What does that mean? Well, supposing they want to keep interest rates lower so that ALL can eventually enjoy low unemployment. That extends the low interest cycle too long (and paradoxically but predictably ends up hurting the very people they were trying to help with their policy through inflation). (Note, the House of Representatives literally just passed a bull trying to codify this mandate into law.) Furthermore, you have to also recognize that some of this is supply chain driven too. And some of this was the federal government pouring gas on the money supply side fire. So to say the Fed is all to blame here isn’t accurate.

          Regarding 2008, why do you not consider that a consequence of “actions taken”?

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          • #6
            Originally posted by Panscan View Post
            Yes preventable if fed was responsible and not asleep at wheel hooked on own supply. Instead they enabled bubbles in basically all asset classes
            Sorry that reply was meant for the OP

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            • #7
              Avoidable? Yes.

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              • #8
                I'm taking the other side, that there will not be a recession in the next 2 years. I like the risk:reward (but could be wrong).

                I dislike following narratives, not because I don't like stories, but I have found them to be unprofitable.

                In investing you make a return by selling stories or figuring out how they end.

                If you are a consumer of stories, that's enjoyable and feeds your bias, but often not very profitable.

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                • #9
                  Originally posted by ENT Doc View Post

                  If you look at AP reporting on the matter, the Fed starting pursuing an “equity” agenda as it pertains to their unemployment mandate right around the pandemic. What does that mean? Well, supposing they want to keep interest rates lower so that ALL can eventually enjoy low unemployment. That extends the low interest cycle too long (and paradoxically but predictably ends up hurting the very people they were trying to help with their policy through inflation). (Note, the House of Representatives literally just passed a bull trying to codify this mandate into law.) Furthermore, you have to also recognize that some of this is supply chain driven too. And some of this was the federal government pouring gas on the money supply side fire. So to say the Fed is all to blame here isn’t accurate.

                  Regarding 2008, why do you not consider that a consequence of “actions taken”?
                  this all strikes me as pretty correct.

                  and i think what you are trying to say (correct me if i'm wrong) was that 2008 was much more obviously driven by much more obviously bad policy.

                  also to the OP: i don't think we are even technically in a recession.

                  as far as gov't spending on pandemic support, i think there is quite a bit of begging the question going on there. it certainly seems to have have at least a little bit inflationary, but we also don't know the counterfactual, we could have had a total collapse of, say, rental real estate or small business. a lot of very vocally anti-gov't people quietly took that money to keep their biz afloat.

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                  • #10
                    Originally posted by Dont_know_mind View Post
                    I'm taking the other side, that there will not be a recession in the next 2 years. I like the risk:reward (but could be wrong).
                    By definition (two consecutive quarters of reduced GDP), arent we already in one?

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                    • #11
                      Originally posted by 8arclay View Post

                      By definition (two consecutive quarters of reduced GDP), arent we already in one?
                      That is one definition. If you use that one then we probably are since it appears the second quarter will also reflect a declining GDP. The NBER, which defines recessions, has a slightly more expansive definition: significant decline in economic activity over at least several months seen in real GDP, real income, employment, industrial production, and retail sales. I’d say most data suggests recessions are a natural part of the business cycle. Government and economist developed a lot of tools to to smooth the cycles over the course of the 20th century, but sooner or later both policy (artificially low interest rates, supply restrictions, excess money supply…) and human behavior (excess spending, insufficient saving, speculative investing…) will coincide to bring about a downturn.

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                      • #12
                        Originally posted by MPMD View Post

                        this all strikes me as pretty correct.

                        and i think what you are trying to say (correct me if i'm wrong) was that 2008 was much more obviously driven by much more obviously bad policy.

                        also to the OP: i don't think we are even technically in a recession.

                        as far as gov't spending on pandemic support, i think there is quite a bit of begging the question going on there. it certainly seems to have have at least a little bit inflationary, but we also don't know the counterfactual, we could have had a total collapse of, say, rental real estate or small business. a lot of very vocally anti-gov't people quietly took that money to keep their biz afloat.
                        I think you can point at both situations and point to bad policies. Though the 2008 policies were put in place in the 1990’s. Just took everyone 10 years to get drunk.

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                        • #13
                          Originally posted by MPMD View Post


                          also to the OP: i don't think we are even technically in a recession.

                          as far as gov't spending on pandemic support, i think there is quite a bit of begging the question going on there. it certainly seems to have have at least a little bit inflationary, but we also don't know the counterfactual, we could have had a total collapse of, say, rental real estate or small business. a lot of very vocally anti-gov't people quietly took that money to keep their biz afloat.
                          Government, at least partially, created an artificial need for this money due to various lockdown and restrictions. We’ll never be able to determine the results of an alternate timeline. As we’re seeing in China, what other governments do affect as, too.

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                          • #14
                            So there are technical definitions of recession, and because inflation is so high, it's hard to create enough productivity to eclipse that. Labor market is tight, but labor participation is still poor. Wage pressures are still up, but employers having difficulty finding employees qualified for stated number. Inflation data skewed dependent on which basket is included.

                            Jim Bianco said that nobody really knows what causes inflation because the number of times it's been predicted, yet never appearing until everything aligns (including human psychology). Wang, ex fed guy, said that macro is hardly a science because it doesn't really follow mathematical principles because of the unpredictable variable- humans.

                            Anyways, recessions are never avoidable if we allow the business cycle to actually take it's course.

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                            • #15
                              Originally posted by 8arclay View Post

                              By definition (two consecutive quarters of reduced GDP), arent we already in one?
                              I think 95% chance of 2 quarters of negative real GDP growth in US (q.1 and q2). But only 5% chance this would be called a recession.

                              Who knows what they will do in Europe though. My guess is they will put in some major fiscal stimulus soon to avert recession, that is what a functional government would do, but not sure if they can do that. Who knows. I think things will pull through eventually, except in the event of widespread nuclear war. Even in that case, I would prefer to die with a bit of leverage than not.

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