Worst Recession since WWII?

[dvcgirl]

This is the subject of an Fortune magazine article interviewing famed investor Jim Rogers. Here's a blurb from the article (article link posted below).

"Conceivably we could have just had recession, hard times, sliding dollar, inflation, etc., but I'm afraid it's going to be much worse," he says. "Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."

And you know, nobody wants to believe that it could be *that* bad, but I would say that there's a possibility at this point. I saw an interesting chart today, one that shows our GDP (Gross Domestic Product), or how our economic growth is measured. This chart shows what the GDP would have been without Mortgage Equity Withdrawals. It's amazing....it shows that without mortgage equity our "3 quarter shallow recession in 2001" would have been a 2 *year* recessionary event. And it shows that from 2003-200 we would have had GDP in the 0.25-0.75% range only getting above 1% GDP in 2006. So, we went from one bubble right to the next.

And this comes back to what I've been asking for quite awhile....where do Americans get the money to keep GDP growing as consumer spending now makes up 72% of GDP. We've got the worst credit crisis since the depression, still unfolding. Lending continues to tighten.

Here's that chart of GDP with and without Mortgage equity withdrawals.

http://photos1.blogger.com/hello/243/2888/640/GDPMEW.jpg

And here's the Fortune magazine article:

http://money.cnn.com/2008/01/30/new...gers.fortune/index.htm?postversion=2008013109

 

[TenThousandVolts]

Oh wow- that chart showing the gdp with and without the equity withdrawl is wild! I would like to see the year 2006 GDP with/out MEW. I am guessing it continued with the trend. I am very concerned about the economy and have been feeling very much like a squirrel who needs to stockpile his nuts for the winter lately. The more I read- the more I feel that way. However when I read statements like "Worst recession since..." I take those hyperbolic kind of statements with a grain of salt, knowing many newspapers, magazines, journalists have polital leanings... I understand the economy is very bad- I am just a skeptic when I see a quote like "“We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene.”

OT: dvcgirl- I love your articles and insights- do you mind me asking: what is your occupation?

 

[dvcgirl]

Oh wow- that chart showing the gdp with and without the equity withdrawl is wild! I am very concerned about the economy and have been feeling very much like a squirrel who needs to stockpile his nuts for the winter lately. The more I read- the more I feel that way. However when I read statements like "Worst recession since..." I take those hyperbolic kind of statements with a grain of salt, knowing many newspapers, magazines, journalists have polital leanings... I understand the economy is very bad- I am just a skeptic when I see a quote like "“We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene.”

OT: dvcgirl- I love your articles and insights- do you mind me asking: what is your occupation?

I take those statements with a grain of salt too....believe it or not . But they make great topics for conversation, which I enjoy . I always think about the motivation behind the person saying it. I also take the Larry Kudlowish bullish comments with a huge grain of salt as well. Usually I split the difference, which would in this case mean a 2001-type recession. The world won't end, we'll slow down awhile, and we'll all move on.

However, we're really overdue for a more serious recession. And while home equity won't completely dry up, there are a few of us left out there with good credit and some equity left ......overall, home equity can't save us this time. The ongoing financial crisis really complicates matters as well. And that's far from over.

And so I am leaning toward the idea that this recession will be more serious. And like you....we're beefing up our emergency fund (and it's already pretty beefed up!), cutting back on spending and staying extremely defensive with our investments. I definitely think we're in a bear market....and that the markets will head much lower before it's over.

On the positive side, we bailed before the market tanked (unlike in 2000), and so I'm looking forward to some fabulous stock prices in a year or so.

 

[JonS99]

For the long term good of the country and the attitude of its people, would a recession be a bad thing??

 

[dvcgirl]

For the long term good of the country and the attitude of its people, would a recession be a bad thing??

No, in fact, I think a recession in some regards would be a good thing. One look at the chart I posted shows that people are spending money that they clearly should not be spending.

I have a bear-bull-bear-bull outlook on things these days.....very bearish in the "near term" (next 1-2 years). Bullish in the "short term" 2-5 years out because we may see a nice run-up in the markets once this recession/bear market ends. And then very bearish long-term....about 5-10 years out when our country and the world realizes that we're in big trouble with respect to energy. Unfortunately, I think we'll struggle in this regard for quite awhile. In the "distant-future" about 20 years out, I am hopeful about our future again.

Investing during the next twenty years will be interesting for sure....

 

[ceecee]

I don't think a depression (like WWII) would be good for the country! Although it would teach people that everything is not so disposible.

 

[mickeyfan2]

For the long term good of the country and the attitude of its people, would a recession be a bad thing??

One of the "good" sides of a recession is that some companies need to release under performing workers. They can have a layoff and blame the recession. These employees were hired when the desired workers were not on the market. Some companies will release these desirable workers and then the other company can get who they really want. In general the good workers are not released in the first wave, but will be picked up first.

 

[mickeyfan2]

I don't think a depression (like WWII) would be good for the country! Although it would teach people that everything is not so disposible.

Sadly humans have short memories. We are programmed to remember the good and forget the bad. One can see that when somebody say I did X and Y happened. The problem is Y did not happen 100% of the time. They just forgot that A, B, C and D were also results of doing X.

 

[punkin]

Not a "good" thing, but maybe necessary. The market needs to correct itself. (disregard the smilies again. DD really likes them so they go on all my posts)

 

[TenThousandVolts]

(disregard the smilies again. DD really likes them so they go on all my posts)

That is so funny, especially on the recession thread.

recession

 

[punkin]

DD doesn't actually read the threads (or my post) before she adds the decorations.

I like to have her near me when I am on the computer and she reads next to me. She's my baby (9 yo).

 

[MrsPete]

This chart shows what the GDP would have been without Mortgage Equity Withdrawals. It's amazing....it shows that without mortgage equity our "3 quarter shallow recession in 2001" would have been a 2 *year* recessionary event.

This is a perfect example of how we -- either as individuals or as a nation -- can do what's good for right this minute (i.e., withdraw equity from our houses) . . . or we can do what's good for the long-term (i.e., pay off our houses).

 

[pearlieq]

Investing during the next twenty years will be interesting for sure....

If by "interesting" you mean chewing a roll of Tums every day.

I try to keep telling myself "we're buying cheap, we're buying cheap". It usually works. We've got about 35 or so years left until retirement, and I can imagine we're in for a wild ride. But then, who hasn't, in retrospect?

We're doing what we can. DH is pretty well settled in a government job, so while he's not earning market rate, at least he's got a lot of stability. I'm holding on to a job I don't really like pretty much just to pad the nest as much as I can. We run fairly lean, so I'm confident we'll be as OK as one can reasonably expect.

But I've got to tell you, the chatter can sometimes get to me. I find the more I see or hear, the more anxious, scared, and depressed I feel. I'm still trying to find the line between burying my head in the sand and driving myself crazy!

 

[runwad]

I read an article yesterday on MSN that compared what we're going thru to what Japan went thru in their decade long recession. It was kinda scary how we parrelled them so much. They too had a housing market run-up followed by a credit crisis. Anyone else read anything on this?

 

[dsanner106]

We may be headed for a recession, but the GDP is still up through last month, so it can't be declared until july at least. We should never have the sort of depression we experienced in 1929, or even a black friday driven recession like 89 again. The market had no controls on it and could tumble without check in the past, no longer a possibility. In addition, the great falls of the past were from stockholders cashing out in mass with no one sinking money in. Now, most money entering the market daily is from mutual fund investing, the majority of which is automatically invested through our retirement funds. Even if individuals cash out, hundreds of millions will flow in from the investment plans. As a matter of fact, mutual fund managers are smart enough to know that when the market drops, they need to buy. This will cause a bounce if there is a drop. Yes, the market is inflated right now, and needs to drop a bit, but I don't forsee a plunge

D

 

[Kay1]

I read an article yesterday on MSN that compared what we're going thru to what Japan went thru in their decade long recession. It was kinda scary how we parrelled them so much. They too had a housing market run-up followed by a credit crisis. Anyone else read anything on this?

Yes, but the difference is that the Japanese have and had a high personal savings rate.

Really, if you want something to worry about, read this charming article:

http://www.atlanticfreepress.com/content/view/3311/81/

And this from a very mainstream character.

 

[runwad]

Yes, but the difference is that the Japanese have and had a high personal savings rate.

Really, if you want something to worry about, read this charming article:

http://www.atlanticfreepress.com/content/view/3311/81/

And this from a very mainstream character.

 

[Disneycrazymom]

I do hope that he is wrong! That article is very scary. What can we do to help our families ride this out? We are doing ok now but no way are we prepared for that!

 

[MaryKLady]

...there are a few of us left out there with good credit and some equity left.

I'll drink ($.50 WalMart soda) to that!

 

[wulfgeat]

This does seem a bit far fetched. I have wondered though if all the 401(k) accounts are inflationary. Lots of money chasing the same products. We would definitely be on more sound footing the federal government was not already so deeply in debt and going further every year.