The progressive recession

[mechromancer]

I'm starting to think that the warning cries about how this financial mess will bring doom to the average American are unfounded. I also can't muster any sympathy for the majority of the foreclosure cases

Comments

[peretski]

Think about the situation if:

you're sending a kid to college and a college loan gets denied 5 days before the semester starts (happened in MA)

if everyone is buying used cars or econoboxes, what happens to the already fragile auto makers, and those employed by the auto industry?

What happens to small businesses (notably restaurants or housing construction contractors) that rely on a line of credit from a bank? what happens to their former employees?

What happens when federal tax revenue is so reduced that they no longer offer aid to states, causing state taxes to increase, causing local cutbacks or tax increases? It is a trickle-down of financial pain.

I agree that there are many things a middle class worker can do to reduce any personal downside, but those already exposed in one form or another (lost a job, rent a property that was foreclosed, sending a kid to college) get a very quick view of what a short credit market is like.

[mechromancer]

I'm honestly most worried about guys like you, and how this might affect startups and new ventures.

This may not be the case in the future, but it seems the tightening of credit has come through a increase in the lending standards. Low risk borrowers seem to still be getting lines of credit.

I also don't buy the consumer economy uber-alles models that alot of economists tout. It seems like that high amounts of consumer spending get us a lot of economic activity at the cost of a huge trade deficit.

Even if you buy an American car, it's still 30-70% foreign components. I don't bring that up for some kind of "america-first" argument, but for its effect on the trade deficit, which is closely tied to the credit markets. We need the credit markets as they were so we can get out money back out of China.

So I'm suggesting that if the trade deficit shrinks by the same order of magnitude as the reduction of Chinese buying American bonds, this might not be a such bad thing.

[katejaneway]

The recession also has to do with millions of people losing their jobs, due to the companies they work for closing or being sold. The day the Bailout failed in the House over a trillion dollars were lost when the stock market went down the 777 points.
It also means the government will have to make cuts in their budget, for schools, public services etc. Schools already started to make budget cuts and let faculty & staff go, which is increasing the number of kids in classrooms.
Hopefully the House will pass their bailout plan today and Bush will have the good sense to close the Stock Market before it happens. OR they House will vote *after* 4pm. I can't believe no one had the for-thought, because although 700 billion is a lot, the stock market lost waaaay more that day.

[illyrias]

What it comes down to is the decline in the stock market doesn't really correlate to "lost" money while the 700 billion almost definitely is "lost", gone for good, and never coming back. Personally my investments have been hit, but I don't plan on cashing out for many years. If the economy doesn't right itself by then, I am (and all of us are) screwed in many other ways.

"because although 700 billion is a lot, the stock market lost waaaay more that day."
And 40% more isn't waaaay more.

[katejaneway]

When it is over $400 billion more it is ^_^

Especially when 20 billion dollars could probably end hunger and disease in Africa.

[mechromancer]

The dow jones is still up 10% from 5 years ago. Go look at the charts.. markets go up, and they go down.

[anonymous]

I'm with mechromancer on this one. I am not sold on the plan at all. It's a vague and powerful piece of legislative bullshit that is further being crapped on with incentives like every other bill in the past X years to get it passed

[katejaneway]

"That's great that Bush, Obama, and Mccain all want this pass, but if Obama/Mccain want to use this issue they are really going to have to tell people exactly why letting the banks go down is a bad thing. They haven't done that yet, no one has. Finding out what will happen involves research, knowledge of the economic system, and an imagination."

There's a little thing circa the 1920's called the Great Depression :)

[anonymous]

I don't think I've heard anyone that is a serious economist say this will come close to the great depression, and I don't listen to fearmongers.

-adam j.

[katejaneway]

Well true, but isn't it going in that direction? The depression was bad because the banks went bankrupt and couldn't get back all the money they invested into the stock market. If 8/10 of the biggest banks in the United States go down, what happens to everyone's savings & investments?
I keep hearing that millions of people will become unemployed.

Another example is European nations have already bailed out five of their largest banks, since they're experiencing the same economic crisis that we are. I am not sure what the effects of this are yet, but it's another example for you.

Hey at least this House vote today is going on after the market has closed.

Although I have tried to read all the articles I come across on this crisis, because I still don't feel like I totally understand it. The Washington Post usually puts up 5 or so articles a day, and I find that they've been the most informative, from what I've seen of local news & pop-news like CNN & MSN.