Tuesday, December 02, 2008
The Recession Is Official, but Everybody Knew (except the Bush Administration)
It’s official. We already knew it. The United States is in a Recession. The National Bureau of Economic Research (with its Business Cycle Dating Committee) announced that the official end of the previous 73 months of economic expansion occurred in December 2007. There are too many media reports to count, so go to the source, here.
It’s pretty silly, but the stock markets reacted with usual emotion, dropping almost 700 points Monday. And guess what, consumers spent out their “walletpop” on Black Friday. They didn’t even go back to the malls on Saturday. Traffic was relatively light on my day trip to Annapolis.
Along the way (say, “over the river and through the woods”) a few other sobering comments got made. The big three auto makers came back to town today (Detroit at Washington, and this time the visiting team won’t win). Ford may be in better shape than the other two (it always was, even when I bought my 97 Escort), and Chrysler shows the effects of non-transparency, having been taken private in a LBO (bad idea). But GM, with its spanky new quarters in Renaissance Center (as Michael Moore points out, the City of Detroit took over the old quarters), is playing basket lady. The financial gurus say that the best hope may be for the government to take an ownership stake. It’s debt is crushing, and bondholders face default (its bonds are trading at 30%, and, fortunately, it looks like my own Black Rock fund doesn’t have any – but I had to check). GM says that nobody will buy cars from a company in Chapter 11, although I don’t know if that’s true. (My 1979 Chevette fell apart quickly, with a bad differential, but it was, after all, a Chevette). Of major concern are huge union wages and benefits for domestic auto workers, and the 95% pay offered many laid off workers. Unions are already offering concessions.
We’ve seen core industry meltdowns before. In the 1970s, the Pennsylvania railroad went under. But now railroads seem pretty strong (just watch the History Channel’s “Extreme Trains”). What they needed was efficiency and restructuring. The Washington Times probably gets it right on some of these industries.
The other big story appears in Blogging Stocks, a report, byt Lita Epstein, that the Bush Administration had ignored the warning signs of a mortgage meltdown for a long time, link here. Actually, the “official” beginning of recession in late 2007 comports with the article: recession, which had been coming on for some time, helped soften the housing prices and pop the bubble, leading to the quick collapse of what seems now like a Ponzi scheme or a house of cards. All capitalist societies that trade and use money have business recessions or depressions. The housing collapse was going to happen. I’ve personally lived through housing sumps before, as with Texas in the late 1980s. They happen. Housing softening and collapse was going to happen again, along with recession. There simply are no exceptions to this principle. The 1950 World Book Encyclopedia uses the word “depression” ubiquitously and calls “business depression” the “new terror” but it is really very old. There’s perhaps somewhat of a moral lesson, preached by Michael Moore and others on the Left: when wages cannot keep up and when the middle class and poor become weak, a whole business infrastructure becomes more vulnerable. This time, because of the especially suspect financial structures that had been constructed to “hide” the debt, the risk to everyone from a housing collapse was especially severe.
We may owe our Constitution and federalist government to a previous debt crisis, Shay’s Rebellion, which preceded the Constitutional convention and presented debt and financial issues, demanding big style reform (from the weak governance during the Articles of Confederation), that somewhat parallel ours. This is a good thing for history teachers to note now. Maybe the next generation can learn the lesson.
Thomas Friedman is certainly right. The country does not have time for business as usual. There is no time for partisanship. Obama and Bush must work together right now, and very publicly.