Avinash_Tyagi said: I am fully aware of the stress tests, but I have yet to see any evidence that the large banks are suffering any greater with unemployment nearing 10%. Yes it could be that when unemployment hits a higher level we could see greater fallout, but for the moment the evidence supports that the larger banks are stabilized. Did I say there was no debt NJ5, no, I just said that consumers aren't feeling it as badly as your OP source believes it to be, sure they have pulled back, but if it was really that bad, we'd have seen much greater pullbacks on everything but the bare essentials, instead we see people being smarter shoppers. The reason I believe that the economy will be in recovery by next year is the economic indicators, seem to indicate that while we are in a recession still, we are nearing the bottom.

Things take time to have their impact. The banks have recently raised capital, it takes time to burn it.

What's your evidence to say consumers aren't just buying essentials? Clearly not all consumers are doing that, then again I'm sure even in the Great Depression some people still lived richly. Things aren't black and white, they're grey, we just have to see how grey they get.

The economic indicators float around even in a recession. Small corrections in industrial output don't mean the recession is near the end.

 

Well we'll just have to wait and see then won't we.

Because things like LCD sales and blu-ray and video games and other stuff that aren't essentials are still going, a little depressed, but not a collapse, sales at specialty and gourmet and upscale locations hasn't died out, yes things are despressed, as is expected in the recession, but it isn't a meltdown at the moment.

Leading indicators tend to be a composite, which is why I put a little more stock in them, now you're right its not enough on its own, that is why I didn't say that its certain the recession is over, i'm just saying I believe it will be over next year, I may be wrong, it has happened on occaision.

Avinash_Tyagi said: Well we'll just have to wait and see then won't we. Because things like LCD sales and blu-ray and video games and other stuff that aren't essentials are still going, a little depressed, but not a collapse, sales at specialty and gourmet and upscale locations hasn't died out, yes things are despressed, as is expected in the recession, but it isn't a meltdown at the moment. Leading indicators tend to be a composite, which is why I put a little more stock in them, now you're right its not enough on its own, that is why I didn't say that its certain the recession is over, i'm just saying I believe it will be over next year, I may be wrong, it has happened on occaision.

Entertainment is a necessity and inexpensive forms of entertainment, like television, moives, music and videogames tend to thrive in economic downturns because people invest their "Savings" from other areas (not buying a new car, not going on vacation, not eating out, etc) to make them feel better about saving money ... Beyond that, I still see people spending money myself but it is entirely sale driven. When companies are regularly offering items at sale prices that were (typically) reserved for a couple of seasonal sales a year (40% to 60% off), and sales are still down, it should be a fairly good indicator that the economy is in poor condition.

People are still eating out, going on vacation and buying cars (not American, but who can blame them), as well as dong the forms of entertainment that you mentioned, yes everything is depressed and people are looking for sales and good deals, but that is expected, it wouldn't be a recession if that wasn't happening, however it shows, that the economy isn't in a massive retraction that would indicate that things are going to get much worse, it just shows people are being cautious but not panicking.

Avinash_Tyagi said: People are still eating out, going on vacation and buying cars (not American, but who can blame them), as well as dong the forms of entertainment that you mentioned, yes everything is depressed and people are looking for sales and good deals, but that is expected, it wouldn't be a recession if that wasn't happening, however it shows, that the economy isn't in a massive retraction that would indicate that things are going to get much worse, it just shows people are being cautious but not panicking.

It seems you're assuming that a severe contraction needs to be severe right from the start. No one is saying the sky is falling and there's misery everywhere, that's not what a prolonged and severe recession means.

 

Viper1 said: No, WW2 was nothing more than a production and employment bubble itself. There were still dozens of facets of the depression still lingering during the war. It wasn't until AFTER the war that the depression truly ended. Viper1 said: Didn't I just get finished saying the war was its own bubble?  It was government propped up employment, it wasn't economic market based.  Sure, it looks good on paper but we still were not out of the woods yet.

 

This argument is just plain ludicrous and unsupported by the facts.  It is true that you saw normal contraction after WW2 ended, which should surprise no one since GDP was growing close to 12-15% annually, which is simply unsustainable even for an aggressively strong economy like China.  But after about two years things completely levelled out and any sign depression was long gone.  Government spending ended the Great Depression.  This especially rings true when you look at the unemployment numbers before and after WW2.

You keep talking about a bubble, but when did the bubble pop?  A bubble is not a buble unless there is a subsequent burst of that bubble.  The unemployment numbers certainly don't reflect a bubble.  Most economists agree that something in the 4.5-6% range is full employment for America.

 

And compare the unemployment numbers too:

For the 1940's and 1950's era.  Unemployment is the purple line.  Following WW2, unemployment never broke 7% until the 1970's.  Where is this employment bubble you are referring to?

NJ5 said: By the way, since we're talking about the stimulus I found this graph, which consists of the White House's original pitch for the stimulus, plus 5 months of data of what actually happened in terms of unemployment. This should tell you how much the effect of the stimulus plan is understood by those who proposed it... Dark blue line - the White House's estimation of unemployment with the stimulus plan. Light blue line - the White House's estimation of unemployment without the stimulus plan.  Red dots - what actually happened

So...you are faulting them that the economy was much worse than everyone predicted.  It seems like you should be making the opposite argument.  If anything, that means a stimulus package was more necessary than we thought.  Almost all economic data, particularly the rate of economic contraction we are going through, demonstrates that the closest parallel to this current economic crisis is the Great Depression.  In two years, unemployment rose 10% after the bubble burst that led to the Great Depression.  Without something like TARP and the programs like the stimulus that followed, it would have been highly likely we would have seen something comparable.

And unemployment is currently around 9.5-9.7% if you continue to extend over the "red line" on your graph, which means that you are already seeing unemployment reach a bottom.  It will break 10%, but I question if it will make it up to 11%.

Really TARP was one of the smartest decisions Bush ever made.  If you want a one way ticket to a depression, allowing the banking sector to collapse is the best thing you could possibly do. 

 

NJ5 said: Avinash_Tyagi said: People are still eating out, going on vacation and buying cars (not American, but who can blame them), as well as dong the forms of entertainment that you mentioned, yes everything is depressed and people are looking for sales and good deals, but that is expected, it wouldn't be a recession if that wasn't happening, however it shows, that the economy isn't in a massive retraction that would indicate that things are going to get much worse, it just shows people are being cautious but not panicking. It seems you're assuming that a severe contraction needs to be severe right from the start. No one is saying the sky is falling and there's misery everywhere, that's not what a prolonged and severe recession means.

No i'm not assuming anything of the sort, i'm saying to get to the stage that you seem to believe it will get to, things need to get a lot worse, I don't see evidence of that happening, I see us being at about this level for another 6 to 12 months before things start to turn upwards.

Avinash_Tyagi said: NJ5 said: Avinash_Tyagi said: People are still eating out, going on vacation and buying cars (not American, but who can blame them), as well as dong the forms of entertainment that you mentioned, yes everything is depressed and people are looking for sales and good deals, but that is expected, it wouldn't be a recession if that wasn't happening, however it shows, that the economy isn't in a massive retraction that would indicate that things are going to get much worse, it just shows people are being cautious but not panicking. It seems you're assuming that a severe contraction needs to be severe right from the start. No one is saying the sky is falling and there's misery everywhere, that's not what a prolonged and severe recession means.   No i'm not assuming anything of the sort, i'm saying to get to the stage that you seem to believe it will get to, things need to get a lot worse, I don't see evidence of that happening, I see us being at about this level for another 6 to 12 months before things start to turn upwards.

Exactly.  Things don't just go over the cliff unless something pushes them over the cliff.  Its simple cause and effect.

6 months ago - yes, we were definitely in danger of going over the cliff.

Now - people are no longer worried about going over the cliff, they are just worried that it will take us longer to get back to normal than we thought before.

The difference between those two states of mind is considerable.  One reflects utter panic, which is what leads to things like a Great Depression.  And I don't think anyone would argue that we have "gone over the cliff" so to speak.  The banking system toppling over was the main reason that would have happened, and the banking sector has already recovered considerably notwithstanding more foreclosures on the horizon.

The second state of mind, the current one, just reflects people are used to being in a recession and wanting it to end more quickly.  That strongly suggests we are in the transitional phase from contraction to recovery as there is not really anything on the horizon that would make this recession significantly worse.

That's only true if it gets proven that the stimulus package is the best way to deal with the economic downturn... and that's not proven.



Why does it mean it's a bottom?

I know that U3 unemployment only increased slightly in the last month, but that's more due to the way the measure is calculated than due to a real improvement in the situation.

Why do I say this? Because the USA job losses in June were not very different from the previous months (around half a million), yet the unemployment rate only increased marginally. The reason is that U3 unemployment doesn't include people who stopped looking for a job and other discouraged workers.



However, the US is repeating Japan's early mistakes when dealing with a banking crisis. Shifting debt around or hiding it under the carpet. That was a one way ticket to a decade of deflation over there.