Economic Crisis

[CatherineM]

While watching the news this morning, the issues of recession and credit crunch were wall to wall. I started thinking about my parents and the Depression. I'm probably one of the few on Phatmass whose parents lived through the Depression. My mom had an easier time of it because her dad kept his job, and they lived on a small farm in Oklahoma, so made most of their own food. My dad had been orphaned by the Spanish Flu in 1918, and lived with his widowed grandmother in a 6 floor cold water walk-up in NYC. She took in laundry, and he took care of the trash and coal for the building. They were already poor when 1929 hit, and that year his grandmother got sick and couldn't work, so he quit school and went to work driving a truck when he was 14. She lingered for 7 years before she died, and he joined the Army.

I once heard a description of the difference between a Depression and a Recession is that in a Recession, your neighbor loses their job, and in a Depression you lose your job. I have been wondering this morning, where is this stuff all going to. I mean are we going to be telling our kids and grandkids about what it was like right before ******. What will they call this era later?

Do you guys think things are going to get bad, and if so, how bad?

[Thy Geekdom Come]

[quote name='CatherineM' post='1656678' date='Sep 16 2008, 11:15 AM']While watching the news this morning, the issues of recession and credit crunch were wall to wall. I started thinking about my parents and the Depression. I'm probably one of the few on Phatmass whose parents lived through the Depression. My mom had an easier time of it because her dad kept his job, and they lived on a small farm in Oklahoma, so made most of their own food. My dad had been orphaned by the Spanish Flu in 1918, and lived with his widowed grandmother in a 6 floor cold water walk-up in NYC. She took in laundry, and he took care of the trash and coal for the building. They were already poor when 1929 hit, and that year his grandmother got sick and couldn't work, so he quit school and went to work driving a truck when he was 14. She lingered for 7 years before she died, and he joined the Army.

I once heard a description of the difference between a Depression and a Recession is that in a Recession, your neighbor loses their job, and in a Depression you lose your job. I have been wondering this morning, where is this stuff all going to. I mean are we going to be telling our kids and grandkids about what it was like right before ******. What will they call this era later?

Do you guys think things are going to get bad, and if so, how bad?[/quote]

I've long expected that things would get bad. At the same time, I don't think we're anywhere near a depression right now. Things crumble and then pick back up, it just goes in cycles. What is truly upsetting is how the wealthy squander their money or worse, steal from those who don't have enough money. You'd think the way some of these companies nowadays charge for their products, even if we were in a depression, they'd keep their prices up. We have an entire generation of selfish adults who never truly grew up; they have no family values and they see one another as means to an end. Now, I ask you...what will happen when this generation does face a true economic crisis?

That's what makes me worry. It's not the lack of money, it's the fact that I'd expect riots, violence, stealing, and more.

[homeschoolmom]

[quote name='Raphael' post='1656679' date='Sep 16 2008, 11:21 AM']That's what makes me worry. It's not the lack of money, it's the fact that I'd expect riots, violence, stealing, and more.[/quote]

This is a good point. I think back in the 30s there was a sense that, as Americans, we were all in this Depression together and you would help your neighbor as much as you could-- maybe even buy things you didn't need (pencils, eggs etc) because it was their only way of making a living. I'm just not sure that would stand up today. People (in general) are not used to self-sacrifice or having to make due. Americans (myself included) have a messed up sense of "needs" and "wants"

[Ash Wednesday]

I wouldn't say we're near a depression at this point. I'm self-employed and my agent said things have been going okay for now, and usually advertising is hit pretty hard. I'll keep praying, though. I agree with Micah's concerns about how humanity would react to poverty now compared to the past.

I think perhaps in some small towns you would still see a lot of the old spirit of teamwork and looking out for your neighbor. But in the big cities? Not so much.

[LouisvilleFan]

[quote name='CatherineM' post='1656678' date='Sep 16 2008, 12:15 PM']I once heard a description of the difference between a Depression and a Recession is that in a Recession, your neighbor loses their job, and in a Depression you lose your job. I have been wondering this morning, where is this stuff all going to. I mean are we going to be telling our kids and grandkids about what it was like right before ******. What will they call this era later?

Do you guys think things are going to get bad, and if so, how bad?[/quote]

My grandparents, who were born during the Depression, have told me about how people who go to restaurants, order a cup of hot water, and squirt the freely-available ketchup into the water to make "tomato soup." That kind of mental image reminds me that we're all very fortunate, simply by the fact that we have so much to lose, financially and materially speaking.

Technically speaking, the National Bureau of Economic Research defines what recession is and marks when they begin and end, but I don't think there is any technical definition of a depression. I would say recessions are primarily an economic experience, but depressions are times that define society and culture for generation of people. Consider that there isn't much music from 1991 or even the 1970s that reflects economic hardship, but much of the music, movies, and arts from the 1930s was somehow influenced by the Depression.

All that said... it's really anyone's guess how bad things could get. Much of it is psychological. When a few people start to panic, others start to panic, which is why much of the intervention you see by the government or various banks is basically aimed at buying time and preventing panic. We would all much prefer a repeat of the 1970s -- an extended period of economic recession -- over a repeat of the Great Depression, and the difference comes down to providing a sense of security and predictability in our lives.

Fortunately, we do have a lot of economic safeguards today that probably would've prevented the Depression, but we could be headed into the worst economic period since then. I'm not betting on it, necessarily, but it wouldn't surprise me either.

[exquisitebones]

[quote name='homeschoolmom' post='1656684' date='Sep 16 2008, 08:40 AM']This is a good point. I think back in the 30s there was a sense that, as Americans, we were all in this Depression together and you would help your neighbor as much as you could-- maybe even buy things you didn't need (pencils, eggs etc) because it was their only way of making a living. I'm just not sure that would stand up today. People (in general) are not used to self-sacrifice or having to make due. Americans (myself included) have a messed up sense of "needs" and "wants"[/quote]


exactly, people are not used to having to leave their comfort zone.
I own a business, and I have regularly been having people (like daily) come in and say.. "oh my husband got laid off, or I got laid off." its ramapant. and people dont know how to react.
they refuse to give up their cable, and SUVs because "it will get better"

I personally, dont see it getting better any time soon.
my nmonthly sales go down drastically each month.
and now the banks are going bankrupt. and people are scared.. did you see how bad wall street did yesterday?

*terrified*

my family grew up in the depression too, and they are all saying they hope they die before it happens again. it was that bad.

[LouisvilleFan]

[quote name='homeschoolmom' post='1656684' date='Sep 16 2008, 12:40 PM']This is a good point. I think back in the 30s there was a sense that, as Americans, we were all in this Depression together and you would help your neighbor as much as you could-- maybe even buy things you didn't need (pencils, eggs etc) because it was their only way of making a living. I'm just not sure that would stand up today. People (in general) are not used to self-sacrifice or having to make due. Americans (myself included) have a messed up sense of "needs" and "wants"[/quote]

Of course, the Great Depression was preceded by a decade (much like the 90s) of unprecedented wealth and standard of living, even for middle class people. There are a lot of parallels to consider, such as the interest in stock investing by common people. But, I think our country's reaction to 9/11 and the several natural disasters since show that we'll do what we can when people are in need. There are always a few people who take advantage of others or resort to violence during trying times, but the vast majority of us are looking out for each other.

[LouisvilleFan]

[quote name='exquisitebones' post='1656691' date='Sep 16 2008, 01:01 PM']I personally, dont see it getting better any time soon.
my nmonthly sales go down drastically each month.
and now the banks are going bankrupt. and people are scared.. did you see how bad wall street did yesterday?

*terrified*[/quote]

Well, the thing about economic cycles is we tend to project our more recent experience into the future, but often times the best thing for long-term business growth is a tough recession while the worst thing for long-term growth is extended prosperity. As conditions worsen, they also start to improve for certain industries and entrepreneurs, and gradually they create jobs and support other industries. It's how capitalism works... unpredictable, but effective over the long haul.

Just out of curiousity, what kind of business or industry are you in?

Remember that autistic kid someone posted an article about last week. He and his father survived because they kept their cool out there in the midst of danger. That's the truth behind President Roosevelt's words, "the only thing we have to fear is fear itself." As long as we know our basic needs will be taken care of and we're willing to sacrifice to make some sort of income, and especially when we have family and church communities to look out for (and them looking out for us), any kind of storm can be weathered.

[exquisitebones]

i work in retail.
I own a small scale baby boutique. that focuses on sustainable goods and resale clothes.


I agree with business needing bad conditions at times.
I mean, if I can struggle through it and survive the rubbish we are in now, I am sure I will be fine in the future.
the only problem is, this has been going on for such a while now, I am not sure how much longer I can hold out.

[kenrockthefirst]

The current economy is built on a house of cards. In the US we don't produce anything anymore, i.e. we don't manufacture anything. All the Financial Services industry does is push around "financial instruments" - not even paper, simply bits and bytes - the latest being "mortgage backed securities." While house prices were going up, it was all good. Hence the feeding frenzy in which lenders lent vast sums of money - at no risk because they were simply going to turn around and sell the mortgages, which would then be bundled together as mortgage backed securities - often with no questions asked, literally, to borrowers who were desperate to get on the property ladder and would therefore go for all kinds of "exotic" loans. The whole point of mortgage backed securities was to "spread risk," and we've seen how well [i]that's[/i] worked out. The only thing that's been spread is the contagion of the sub-prime market virus that's infecting and, in many instances, killing its hosts.

[LouisvilleFan]

[quote name='exquisitebones' post='1656715' date='Sep 16 2008, 01:34 PM']i work in retail.
I own a small scale baby boutique. that focuses on sustainable goods and resale clothes.


I agree with business needing bad conditions at times.
I mean, if I can struggle through it and survive the rubbish we are in now, I am sure I will be fine in the future.
the only problem is, this has been going on for such a while now, I am not sure how much longer I can hold out.[/quote]

Yeah, small stores that lack the resources to weather tough economies are often forced to close, but even the largest companies prove vulnerable. It's just part of how things work themselves out. Only one institution on earth has survived for 2,000 years

[quote name='kenrockthefirst' post='1656733' date='Sep 16 2008, 02:09 PM']The current economy is built on a house of cards. In the US we don't produce anything anymore, i.e. we don't manufacture anything. All the Financial Services industry does is push around "financial instruments" - not even paper, simply bits and bytes - the latest being "mortgage backed securities." While house prices were going up, it was all good. Hence the feeding frenzy in which lenders lent vast sums of money - at no risk because they were simply going to turn around and sell the mortgages, which would then be bundled together as mortgage backed securities - often with no questions asked, literally, to borrowers who were desperate to get on the property ladder and would therefore go for all kinds of "exotic" loans. The whole point of mortgage backed securities was to "spread risk," and we've seen how well [i]that's[/i] worked out. The only thing that's been spread is the contagion of the sub-prime market virus that's infecting and, in many instances, killing its hosts.[/quote]

Manufacturing and financial services are two different industries, and while you're right about the mess that financial services is in, manufacturing has always been very strong in the U.S. [url="http://www.federalreserve.gov/releases/G17/Current/default.htm"]Industrial production[/url] is actually very strong, in spite of relatively weak employment numbers, which simply means that our factories are increasingly efficient. Besides, if you were to judge an industry's strength purely by employment levels, agriculture has been dying for decades.

Now employment is growing in computer services, biotechnology, research, and healthcare. Manufacturing has been going the way of agriculture for a long time: that is, falling employment, but increasing productivity and output.

[kenrockthefirst]

[quote name='LouisvilleFan' post='1656770' date='Sep 16 2008, 01:02 PM']Manufacturing and financial services are two different industries, and while you're right about the mess that financial services is in, manufacturing has always been very strong in the U.S. [url="http://www.federalreserve.gov/releases/G17/Current/default.htm"]Industrial production[/url] is actually very strong, in spite of relatively weak employment numbers, which simply means that our factories are increasingly efficient. Besides, if you were to judge an industry's strength purely by employment levels, agriculture has been dying for decades.

Now employment is growing in computer services, biotechnology, research, and healthcare. Manufacturing has been going the way of agriculture for a long time: that is, falling employment, but increasing productivity and output.[/quote]
Right, but back in the day, it you were an unskilled or semi-skilled farm laborer with a high school education at best, you could transition into an unskilled or semi-skilled factory job. All the folks who used to work in manufacturing aren't going to transition into some fancy job on Wall Street, not that there are any left. And while our factories may be increasingly efficient, what that really means is that they're doing more with less. The middle class is made up of people with, you know, jobs, and if those jobs go away because the manufacturing sector is become increasingly efficient, bye bye middle class.

[LouisvilleFan]

[quote name='kenrockthefirst' post='1656825' date='Sep 16 2008, 04:10 PM']Right, but back in the day, it you were an unskilled or semi-skilled farm laborer with a high school education at best, you could transition into an unskilled or semi-skilled factory job.[/quote]

There are plenty of unskilled non-factory jobs in our economy. Warehouse positions are easy to pick up at virtually any temp company. With two weeks of training, you can be a truck driver. A friend of mine is a medical janitor with only a high school education and he's earning almost as much as I am with a college education. Grunt work will always need to get done, so those unskilled jobs will always be out there. Healthcare is the place to be these days for steady work with good pay and benefits.

[quote name='kenrockthefirst' post='1656825' date='Sep 16 2008, 04:10 PM']And while our factories may be increasingly efficient, what that really means is that they're doing more with less.[/quote]

That's how capitalism enables the economy to produce more and higher-paying jobs. Emerging industries grow quickly, employing many new people, but as they mature their employment levels stall, then they become more efficient, and as their employment drops other industries are emerging to employ the next generation.

[quote name='kenrockthefirst' post='1656825' date='Sep 16 2008, 04:10 PM']The middle class is made up of people with, you know, jobs, and if those jobs go away because the manufacturing sector is become increasingly efficient, bye bye middle class.[/quote]

Most of the middle class doesn't work in manufacturing Healthcare is now about 20% of our economy. The service sector is probably the biggest sector, and that includes many well-paid skilled positions. The non-profit sector is also growing, partly because more people in our generation are willing to sacrifice salary in exchange for making a positive impact in others' lives. So manufacturing is only one of many sectors in our economy, and it's definitely not the place most college graduates are looking for work.

[philothea]

I'm not generally all that optimistic a person, but I think the economy will be fine... and I knew this was going to happen 5 years ago. The American economy is still very strong -- most people are able to buy everything they need, and lots more. When I see "poor" areas full of people driving big gas guzzlers a long way to buy their cigarettes... they're clearly not really all [i]that[/i] bad.

No doubt a bunch of profligate folks are learning some moderately hard lessons about how you can't pay for your house with wishful thinking, and you can't always buy everything that strikes your fancy. And the lenders were incredibly stupid to put themselves at risk with the ridiculous lending practices. But it really shouldn't affect too much else. (Though the stock market is always twitchy. *grumble* Bad time to start living off your IRA, I think.)

What we need for a big recovery, BTW, is some spiffy new technology. So get working, all you smart kids!

[CatherineM]

I saw a documentary last night on CBC that talked about peak oil, and they made it clear that most people think that some kind of "Manhattan Project" thing is going to eventually bail us out. Problem is that the US government financed that, and they aren't interested in financing alternative energy to that level.

I think there will be "echos." In the '30's, they didn't have things like credit cards to keep themselves afloat. I think people will use those until they just can't juggle anymore, and then there will be a big fall. I used to tell clients to plan for their bankruptcies. It doesn't matter if they get $30,000 or $40,000 written off in the end. I guess I'll spend some extra time in purgatory for that.