Part II - Are We Heading To A Depressing Recession?
By Richard Olivastro
March 20, 2009
Historically, any recession that lasts longer than two quarters can, technically, qualify to be called a depression. Of course, the depth and breath of the downturn will affect the descriptor economists use to discuss it and historians assign in the history books.
In part one of this series, we discussed recessions, how quickly they can come upon us; and, how growing job losses impact the general economy. We noted that all recessions, "are actually contractions... in the natural dynamics of all things economic" and, as such, "reflect the net result of both increases and decreases in consumer spending and consumption, as well as the prices of goods, services, and labor".
Now, let's move forward to discuss where we may be heading next economically; and, what has been -- and can be - the effects of government interventions.
As downturns unfold, they usually are made worse by inappropriate government interventions undertaken by politicians, who - along with special-interests groups and the media - can, and do, spin the data; and, arbitrarily select 'political economists' that support their respective philosophical agendas. The objective, of course, is to politically influence the public with the skewed interpretations offered during the downturn.
Despite the political messaging and media spin, it doesn't take long for most individual citizens to figure out what's really happening, because many of them are experiencing the direct effect of whatever the economists ultimately call this contraction - recession or depression.
Ronald Reagan understood this.
And the people knew Reagan got it, back then, when he declared, "Recession is when your neighbor loses his job. Depression is when you lose yours".
During the current contraction, unemployment - already above 8% - will continue to increase. That means the number of individuals - including those in families - who will experience the depressing effects of recession will increase dramatically.
Thus, unemployment trends, along with the anemic financial system -- broken bank balance sheets, limited credit availability, soaring debt obligations -- bodes bad news for the rest of this year, at least; and, that bad news will likely continue into next year, despite political incumbents and the Fed forecasting that the economy could begin to recover later this year or early 2010.
Realists doubt the hype coming out of the Fed and from Washington officials, and that skepticism is wise.
After all, the value of all assets held by Americans has dropped an average of 18%. And, the housing market will continue to deteriorate as the number of foreclosures and bankruptcies increase. That means the largest investment during the lifetime of the typical American Citizen has already lost significant asset value; and, depending on when they purchased their home, may have a current market value peg that is "under water" versus the amount of their actual total mortgage debt.
The best generic measure for Americans to use as a gauge for knowing that a rebound has begun is tracking the national average sale price for residential homes -- adjusted for inflation. That same measure works for any region, local market, and in every individual situation, as each level of data absorbs factors that may be unique to your neighborhood or area. Again, be sure to adjust for inflation.
Meanwhile, the interveners within the government and Federal Reserve decided -- rightly or wrongly -- that Wall Street was their priority; and fatefully opted for using a bailout approach, which has committed taxpayers to pay, over time, for the funds government has thrown into the proverbial money pit in order to bail out large banks, insurance companies, and other financial institutions.
Regrettably, the senior managers at a number of these firms were paid bonuses at the end of 2008; and -- as if once is not enough - this past weekend we learned that AIG is ready to disburse $165 Million to its top executives.
Interestingly, the public furor that will undoubtedly bubble up over this second round of bonus payouts, plays into the hands of an administration, which is demonstrating a lust for intervention everywhere, and wantonly stokes populist sentiment for still more government regulation and involvement in "free" markets (Irony intended).
While the government has no business telling a private entity how much to pay their employees, or what represents warranted bonuses -- that is a responsibility for management, stockholders and their fiduciary representatives on the board of directors -- those very individuals at AIG failed everyone - except themselves - as did counterparts at several large banks.
Instead of government doling out billions of dollars in bailouts, each of those distressed private firms -- including the Big 3 Automakers - should have the opportunity to reorganize; and, then pursue market viability with oversight by a bankruptcy judge.
And, instead of the government wasting still more billions of dollars creating 'artificial jobs' in public works projects and social support programs, the focus should be to promote -- indeed, inspire - private capital investment in 'value jobs'.
Such 'value jobs' produce things people -- in their role as consumers - actually value, i.e., are willing to buy with their own hard-earned money. This is something that can only be done in the free market, not by bureaucrats and politicians.
In retrospect, almost all economists now agree that the make work programs during the Depression Era were ineffectual as economic stimulus; and, that it took the entry of the United States into World War II to extricate the country from our economic woes.
At this point, perhaps, we can only hope that the misguided actions taken by the Bush and Obama administrations do not have the same - or similar -- deleterious effects as those undertaken during the 20's and 30's by the Hoover and Roosevelt administrations.
Unless, of course, America's Citizens decide to take back their rightful role in our republic; and, begin to vigorously exercise both their God-given rights and their personal freedoms and responsibilities certified in the U.S. Constitution.
Next time in this space, Part III: 'Responsibilities-R-Us'.
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Richard Olivastro is a professional member of the National Speakers Association, president of Olivastro Communications - an executive leadership development company - and founder of Citizens For Change.
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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.