Holiday cheer attempted
By Doug Thompson
Some say the recession might not last long.
OK. I don’t believe it either. What’s a wise guy to do, however? Write something depressing over the holidays?
Robert Samuelson of the Washington Post talks about how central banks worldwide have slashed interest rates. The Bank of England is now offering the lowest interest since its founding in 1694, he says. The article leaves room for doubt that this coordination is the result of planning. So far it seems to be the following of the same playbook. Still, unison is unison. More important, low interest is low interest. We’ll see what happens.
One of the more bizarre theories I’ve seen is that the recession will end soon because we’ve already had one. The theory goes that most recessions since the big one in the 1930s have only lasted a year to a year and a half. Economists recently admitted we’ve been in a recession for a year now. Ergo, prosperity’s just around the corner.
Somehow, I don’t think this recession is like most recessions. Neither does Bill Fleckenstein over at MSN Money: “Most of the recessions in this country over the past 50 years were caused by the Federal Reserve raising interest rates to battle inflation. The two most recent recessions, though, were created not by Fed tightening but as a consequence of its reckless easy-money policies followed by the exhaustion of, first, the tech-stock bubble and, later, the housing bubble.”
“Thus, this is not a recession that can be easily stopped by the Fed simply relaxing monetary policy, as might have occurred in the old days,” he goes on. “Of course, the Fed hasn’t just relaxed policy — it has moved the monetary equivalent of heaven and earth.”
The newly minted Nobel laureate Paul Krugman says in the New York Times that he’s “fairly optimistic about 2010.” That’s the good news. He prefaces that by saying we’re in for months, maybe a year, of “economic hell.”
“Too much of the economic commentary I’ve been reading seems to assume, however, that (two years of government stimulus spending is) really all we’ll need — that once a burst of deficit spending turns the economy around we can quickly go back to business as usual,” Krugman writes.
Recent prosperity was dependent on a bloated housing bubble that isn’t coming back, he writes. Future spending will depend on real wages, not on borrowing off an inflated value in your house. People will be able to make a living, but the wild spending won’t come back.
This has global consequences. China, for instance, has an economy built around massive exports to the United States, as Krugman and others point out. China will miss massive American spending too.
Whatever else is going on, the Thompson house has been spared any layoffs so far. The prospect of it, however, is not unimaginable anymore. That has an effect.
Christmas will be ample but not as lavish as before. The amount we’ve spent on gasoline is less than half as much as a few months ago. The saved money is going straight into paying down debt. We’re not nearly so bad off debt-wise as the average American household either. In fact, we look positively frugal when you look at the national statistics.
There are no big-screen TVs in our future. We will concentrate on fundamentals. I suspect most other Americans will too. We did pick out charities this year and contributed to them for Christmas, with our kids full agreement. Even they know times are tough.
To quote Warren Buffett from another context, it’s time to consider that the length of the hangover might be proportional to the size of the binge. I’ve no doubt that future generations will forget all the lessons of this one. This generation, however, will never let itself get stretched this far again. Frankly, this is not a bad thing. We need to buy less from China and we need to buy less imported oil. We need to add up how much we spend on interest every month. We need to take a hard look at government spending.
We need to get our house in order. Doing that, even if forced, is not a wholly bad thing.