Monday, March 02, 2009

Recession: When will it end?

Great article by my DIGG buddy UnlawflCombatnt

The same situation exists today that existed in 1929. There has been no cause for our GDP to expand since 2000. We grew based on increased debt-financed spending, overvalued homes, and derivatives thereof. But there was little additional real wealth produced, other than homes. And the artificially created over-demand for homes caused more to be produced than there was any wage/income-financed demand for.

Credit/debt-financed demand is not real demand. And when supply is increased in response to credit/debt-financed demand, there is an oversupply in real terms. And once that credit/debt source of demand contracts, so does the demand it created. At that point, the oversupply becomes apparent. The oversupply reduces demand, and reduces the value of all of the debt instruments created from that supply, and reduces the demand for all goods & services that were financed from the artificial paper wealth created by the instruments and their overvalued collateral.

And the loss of this artificial demand, coupled with the reduced demand from decreased "wealth effect," reduces demand for labor to produce goods and services. That, in turn, reduces "real" demand, by reducing both employment and wages.

So once again, what do these "experts" think is going to bring us out of this recession? What new source of demand will come along? What new product or industry will there be to create goods that there will be a demand for -- a product that consumers will purchase -- a good whose production will provide employment for American workers, giving workers the income to restore production demand, and employ still more workers to make that good?

Where is that new industry? Where is that new good that consumers will purchase? If the experts can't answer that question, then how can they predict a recovery? How can they predict a recovery if they have no idea what growth engine will arise anew, or whether one will arise at all?

I think we're in for an L-shaped De-pression. I think it will be many years before our economy returns to a $14 trillion GDP.

Yet it is politics and greed, not actual economic reality, that will prevent our recovery.

2 comments:

commoncents said...

Great post!

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http://www.commoncts.blogspot.com

amandaleighdupree said...

this is hilarious! sadly true...but hilarious nonetheless!
I can almost hear your voice getting higher and higher, finger wagging to the sky, sweat pouring off the brow =)