Small Recession now....Big Recession later?

[dvcgirl]

Interesting article in Fortune today about the Federal Reserve's big dilemma, and the author's opinion is that Ben Bernanke is falling into the same trap that the Fed fell into before.....cutting rates now with the idea that inflation isn't that bad now, and they'll deal with that later, once they get the economy back on track.

This is exactly what the Fed did back in the 70s and inflation got away from them. They pumped money into the system already ripe with inflation (exactly what we have now), which stoked the inflationary fires even more.

I happen to agree with this article. I think we need to take some pain now, let the economy contract a little bit now, rather than a *whole* lot down the road. It took a very aggressive hike in rates in the late 70s/early 80s to pull us out of the deep recession of the 70s.

With no new "bubble" on the horizon to pull us out of this current mess, it appears that the road ahead will be rocky indeed.

http://money.cnn.com/2008/01/18/news/economy/cure.fortune/index.htm?cnn=yes

 

[simpilotswife]

I was just talking about this with someone the other day. The Fed is pretty much between a rock and a hard place right now. While lowering interest rates may help in the short term, lowering the interest rates could contribute to an inflationary spiral similar to what we saw during the Energy Crisis of the 70's.

The really tough part for the Fed is that no one wants a recession....it's an election year so there is a lot of pressure to "fix" it. What would really help the economy would be for energy prices to drop or for someone to finally unveil an efficient alternate energy source.

OPEC (and the oil companies) need to realize that the current prices of oil will have an effect on both the US and China economies. The US is the biggest importer of Chinese goods, if no one has money to import from China-boom there goes China's economy as well.

An efficient alternate energy source while requiring extensive capital outlay would provide a two-fold benefit to our economy. 1) we would no longer be at the mercy of the oil-producing business sector and 2) the costs to convert to a new energy source could drive our economy for the next decade or so. A win-win scenario all the way around.

It should be interesting to see what happens. Sadly if the democrats do win the Presidential election and we wind up in an inflationary spiral no one will look back to see that the mess was created by GWB and his presidency....rather they will point and say "see what happens when the Democrats run our country".

 

[dvcgirl]

I was just talking about this with someone the other day. The Fed is pretty much between a rock and a hard place right now. While lowering interest rates may help in the short term, lowering the interest rates could contribute to an inflationary spiral similar to what we saw during the Energy Crisis of the 70's.

The really tough part for the Fed is that no one wants a recession....it's an election year so there is a lot of pressure to "fix" it. What would really help the economy would be for energy prices to drop or for someone to finally unveil an efficient alternate energy source.

OPEC (and the oil companies) need to realize that the current prices of oil will have an effect on both the US and China economies. The US is the biggest importer of Chinese goods, if no one has money to import from China-boom there goes China's economy as well.

An efficient alternate energy source while requiring extensive capital outlay would provide a two-fold benefit to our economy. 1) we would no longer be at the mercy of the oil-producing business sector and 2) the costs to convert to a new energy source could drive our economy for the next decade or so. A win-win scenario all the way around.

It should be interesting to see what happens. Sadly if the democrats do win the Presidential election and we wind up in an inflationary spiral no one will look back to see that the mess was created by GWB and his presidency....rather they will point and say "see what happens when the Democrats run our country".

I agree with you completely on the energy thoughts. The only thing I am really beginning to wonder about is whether or not the Saudis can raise production enough to really impact prices. There are a growing number of experts who believe that they can't go up much more than what they're pumping now. And even if they can go up a bit more, the rate of depletion of other fields around the world is at such a rate that any increase won't make up the difference.

This is *the* big deal for our world for the next 10 years, and most people aren't paying attention to it. Right now, oil will drift down because demand will drop a little bit. This is actually really bad as attention will drift away from alternative energies again as gas prices come down a bit. This is setting us up for big, big problems down the road.

I really do believe that we need to begin shifting from a consumer society who saves nothing and spends everything to an saving society that begins to plow investments into a new energy infrastructure.

Speaking of Fed cuts, our markets are closed today for MLK day, but the markets in Europe and Asia were *slaughtered* today. England down 5.5% today, France 6.8%, Germany over 7%. Dow futures are down over 400. If there was ever going to be an emergency rate cut, it will come tomorrow. If not, he'll wait until the next meeting....end of January.

 

[PlutoPony]

An efficient alternate energy source while requiring extensive capital outlay would provide a two-fold benefit to our economy. 1) we would no longer be at the mercy of the oil-producing business sector and 2) the costs to convert to a new energy source could drive our economy for the next decade or so. A win-win scenario all the way around.

Agree completely. The only fly in the ointment I see is there's really not a concensus on which alternative energy technology should be embraced for the future. Until that's sorted out it's tough to any imagine any one energy source funded to the extent that it would a) substantially help the economy and b) result in the alt energy source actually cutting down on foreign oil dependency.

 

[Mrs.Reese]

Agree here. It's another band-aid fix for something that needs major surgery. I seem to remember reading yesterday that inflation is already on the rise. Anyone have any clue as to what inflation is currently at?

 

[IluvKingLouis]

I really do believe that we need to begin shifting from a consumer society who saves nothing and spends everything to an saving society that begins to plow investments into a new energy infrastructure.

I completely agree. 20/20 had an interesting show a week or so ago about happiness. Denmark was rated the happiest country (http://abcnews.go.com/2020/story?id=4086092&page=1). In the story they noted that the Danes are a post consumerism market. They have nice stuff, but their happiness does not revolve around spending. It was quite interesting. I have been lucky enough to have spent some time in Denmark and Sweden and the people there do have a very different outlook and very different sensibilities.

I too am concerned that we are headed into a recession. I just got done reading a thread where folks are saying they've cancelled their Disney trips this year because of bills/cost of goods going up/cost of vacations going up/etc. You know the Disney vacationers are pretty die hard and it takes a real economic downturn to see this group rethink trip frequency.

 

[dvcgirl]

I completely agree. 20/20 had an interesting show a week or so ago about happiness. Denmark was rated the happiest country (9http://abcnews.go.com/2020/story?id=4086092&page=1). In the story they noted that the Danes are a post consumerism market. They have nice stuff, but their happiness does not revolve around spending. It was quite interesting. I have been lucky enough to have spent some time in Denmark and Sweden and the people there do have a very different outlook and very different sensibilities.

I too am concerned that we are headed into a recession. I just got done reading a thread where folks are saying they've cancelled their Disney trips this year because of bills/cost of goods going up/cost of vacations going up/etc. You know the Disney vacationers are pretty die hard and it takes a real economic downturn to see this group rethink trip frequency.

I agree with you....we're consumed with consumption in the U.S. I feel like as a society we're so caught up in making a living that we're forgetting about making a life (and a future) for ourselves.

In the short term, who knows, this recession may end up being a shallow one. But in the long run, it really seems to me that we need to shift away from this all-consuming, endless-shopping, must-grow economy, or we're in deep trouble.

 

[IluvKingLouis]

Agree completely. The only fly in the ointment I see is there's really not a concensus on which alternative energy technology should be embraced for the future. Until that's sorted out it's tough to any imagine any one energy source funded to the extent that it would a) substantially help the economy and b) result in the alt energy source actually cutting down on foreign oil dependency.

Germany has an excellent program to encourage solar usage. First, they require banks to loan money for solar panels at a very favorable rate, then they require energy companies to buy back excess energy at 7 times the current energy rate. The homeowners cost of the loan payment is more then covered by selling back their excess power (great deal for the homeowner). The energy companies don't seem to mind as they do not have the capital expenditure needed to generate this additional energy (so even 7x's current cost is seen as a favorable price). Plus new factories have popped up throughout Germany to manufacture the solar panels, providing good jobs and economic stimulus.

 

[Sethsmom]

DVC Girl, let me first say I love to read the threads that you start. I gain so much info from the ones you start and the ones you post in. You always get to the point.

If people do not quit the spending and start saving, we are all going to get in a mess. Foreclosures, evictions and collection lawsuits are increasing. When people think, I can put it on a card and worry about it later and then later something happens and they can not pay, it turns into a bad situation.

The people that I know who have talked about the "tax rebate" are going to have to use it to catch up their bills from not being able to pay them due to the higher cost of everything. We will put ours in the EF.

All of the people that think they are doing so well at this point need to be sure they have an EF. I don't think any jobs are 100% secure. We have an EF and I would love to put more in it. I do what I can to save money. We try to live way below our means. It would still be a major problem if DH lost his job.

I am with everyone about an alternative energy source but don't see it happening any time soon. There is too much money to be made in oil right now and as long as the tycoons can get it, they will. It seems like if the wind blows the wrong way, there is a need for a gas increase.

Thanks for all the info DVC girl as troubling as it can be. Just makes me tighten my spending more.

 

[Califgirl]

We've looked into getting Solar energy panels, but truth is they are just too expensive. The bids we've gotten are about $75,000, before rebates, which would make it closer to $55 or $60,000. It would take us almosts 30 years to get this cost back at todays energy rate - the panels last for 25.

I did talk to a contractor that specializes in energy effecient builiding, and he told me there is a newer product out there that is manufactured in Calif, that is a fraction of that cost. Thing is, they are making it as fast as they can and sending it to EUROPE! We can't even get it here. I'm holding out to put in solar energy until this product is available. I wish I knew the name of the company who makes it, but I don't - I just know they are in Calif.

If solar energy was cost effective (say a 10 year, or so cost recovery), I'd put it in!

 

[mickeyfan2]

We've looked into getting Solar energy panels, but truth is they are just too expensive. The bids we've gotten are about $75,000, before rebates, which would make it closer to $55 or $60,000. It would take us almosts 30 years to get this cost back at todays energy rate - the panels last for 25.

I did talk to a contractor that specializes in energy effecient builiding, and he told me there is a newer product out there that is manufactured in Calif, that is a fraction of that cost. Thing is, they are making it as fast as they can and sending it to EUROPE! We can't even get it here. I'm holding out to put in solar energy until this product is available. I wish I knew the name of the company who makes it, but I don't - I just know they are in Calif.

If solar energy was cost effective (say a 10 year, or so cost recovery), I'd put it in!

Same here.

I have also been looking into a windmill to generate electricity. We live on a small hill that is very windy and we own 10 acres. I am sure the neighbors would hate it. As of not it is too cost prohibitive to do it.

 

[Disneymucks]

Actual Wind power is being looked at very heavily as an alternative. I beleive in my last IBEW journal that they had a very interesting article on booster plants, that are wind power oriented.

 

[dvcgirl]

I think wind is great, solar is great, but what we really need in this country is an all-out Government driven Apollo Project x 10 look at every feasible way to move us away from our dependence on fossil fuels....and *now*.

We're simply running out of time for the free market to work this thing out. Most Americans are really clueless as to the extent of this energy problem (other than some grumbling about filling up their tanks, Exxon and Opec), and have no idea how much their lives can and will change....and it's not that far off my friends.

I look at the field for the Presidency and I wonder if any of them are up for the challenges we'll face in the coming years.

 

[Fizzgig]

The state of Colorado offers amazing rebates for solar power and for replacing a regular car permanently with a hybrid.

However, while my house is south-facing, I don't have enough roof space to make much of an impact on my electricity bill (right now). I got clearance from the HOA to start making "green" improvements on my traditional house, but there's only so much I can do. I think the best thing we've done so far was replace all the major appliances with Energy Star ones; replacing the fridge, hot water heater, dishwasher, and washer/dryer have halved our utility bills. I dream of a tankless water heater!

I would like to replace the roof with recycled rubber, but I'm waiting until the roof needs to be replaced. I don't want to do solar panels until the roof needs replacing, either, due to the roof damage that will entail (holes to install, etc). I'm hoping in the meantime, solar panels will come down in price, and become more efficient; Denver has the most sunny days in the continental US, and I'd like to exploit that little factoid!

I hope the next vehicle we buy will be a hybrid that is worth the investment.

*crossing my fingers*

 

[IluvKingLouis]

The state of Colorado offers amazing rebates for solar power and for replacing a regular car permanently with a hybrid.

Hi Fizzgig! I'm your neighbor to the south (Castle Rock). We bought a Prius a year and a half ago and the rebate was amazing!

I'm glad to hear about the rebates for solar, but we too are waiting for the cost of panels to come down. Sounds like it is starting to happen. Maybe a new adminstration will come up with some major tax incentives.

 

[dvcgirl]

DVC Girl, let me first say I love to read the threads that you start. I gain so much info from the ones you start and the ones you post in. You always get to the point.

If people do not quit the spending and start saving, we are all going to get in a mess. Foreclosures, evictions and collection lawsuits are increasing. When people think, I can put it on a card and worry about it later and then later something happens and they can not pay, it turns into a bad situation.

The people that I know who have talked about the "tax rebate" are going to have to use it to catch up their bills from not being able to pay them due to the higher cost of everything. We will put ours in the EF.

All of the people that think they are doing so well at this point need to be sure they have an EF. I don't think any jobs are 100% secure. We have an EF and I would love to put more in it. I do what I can to save money. We try to live way below our means. It would still be a major problem if DH lost his job.

I am with everyone about an alternative energy source but don't see it happening any time soon. There is too much money to be made in oil right now and as long as the tycoons can get it, they will. It seems like if the wind blows the wrong way, there is a need for a gas increase.

Thanks for all the info DVC girl as troubling as it can be. Just makes me tighten my spending more.

Thanks for the kind words, and I know that lately I'm a bit on the doom and gloom side , but I don't think there's any harm in talking about what is happening out there in the economy. It's certainly budget related. I find it all very interesting, and I think a good number of budget boarders do too.

For the first part of the year in my opinion (and granted, mine is that of one who is conservative fiscally)....it's a good idea to maybe spend a bit less than you normally do and build up savings. Short term, things are kind of grim, even medium term (say 5-10 years out), but long term, I'm hopeful that the good old American ingenuity will help us work out our problems. I do think that we're moving into a period in history where the balance of power is shifting a bit....and that will mean changes for all of us.

Don't listen to this government and the idea that it's Un-American to save money....because that is indeed the message. The key is in understanding that we can't continue on this path....it has a really ugly ending.

At this point, this recession seems like it's becoming a self-fulfilling prophesy to some degree. There's so much talk about it, well, I'm not sure how we avoid it.

 

[Sethsmom]

I feel for the people that are not listening or think they are recession proof.

I think everyone needs to listen to the gloom and doom and take heed. If it turns out to be hype, like Y2K, if nothing else, they will have saved some money and learned to budget. I would rather go into something prepared and laugh about it later than be caught with my financial pants down.

 

[dvcgirl]

I feel for the people that are not listening or think they are recession proof.

I think everyone needs to listen to the gloom and doom and take heed. If it turns out to be hype, like Y2K, if nothing else, they will have saved some money and learned to budget. I would rather go into something prepared and laugh about it later than be caught with my financial pants down.

Well, this is exactly how I feel. You can't let this kind of thinking take over your life, just think about cutting back enough to start paying down consumer debt if you have it, don't take on any new consumer debt, and start building more $$ into the budget for food and energy. If all the experts (and the dvcgirl , are wrong, you'll have more in the bank and less debt. Most people will keep their jobs and make it through a recession just fine. Their 401ks will take a beating (if they have them), but they'll come out okay.

The main point of this is that the long term trend for food and energy prices is that they're going higher. If wages stay on the path we've had, they are simply not keeping up with *normal* inflation, let alone high inflation. It's easy to just sort of miss this stuff, and before you know it, you realize that you're heading into to trouble by trying to keep up your existing lifestyle. A job loss, and no savings and lots of consumer debt...well, things can ugly quickly.