Sort-of agreeing with Dubya: Recession vs. Depression

I think part of the problem with the media coverage of the financial world is that it is unable to see things in shades of grey. The term recession, for instance, is often used as if it’s equivocal with a depression. It’s not. It’s quite possible to be in a recession and, aside from certain parts of an economy, not have a substantial impact on the fundamental things that affect people. The current situation in the US is bad, but nothing on the recessions of the 1980s or 1990s. It’s going to be bad for upwards of six months, particularly in the financial sector (I reckon there’s a great deal of bending the truth regarding liquidity, to keep baying morons from panic selling), but everything else will recover quickly, which will, in turn help the financial sector. And I hate to agree with George W Bush, the fundamentals of the US economy, even in its current state, are better than people think and shouldn’t be underestimated.

Consumer spending has not been affected terribly by the problems of last year. There is a lag, but it could be that many people who are now in trouble with their mortgages were not big consumers because the percentage of their income was eaten by their mortgage was already high. So the knock-on effect to the economy of defaults and loans may have been severely over estimated. And, I suspect, this is reflected in today’s US inflation data. Prices were kept low because people weren’t prepared, or able, to pay more. Oil and grain prices are to be watched as components of the CPI, and the wider international situation. There’s a fuck load of people in West China who have yet to start consuming with the rest of us. I done-gone-think there’s going to be linear growth in world consumers over the next decade as the 700 million odd people in rural China increase demand.

I think the major problem with the last four years of US economic policy is that the fed severely underestimated the stupidity of the market and how it’s often led by mood rather than rationality. If people panic it will get much worse, if people listen to Bush, and they should, because he’s right in this instance, the recession will be a bit of a pain but nothing like being kicked in the balls. Bloomberg’s coverages has been better than the competition in terms of neutrality and the rationality of its correspondents. As an armchair economist I hope to get my hands on some raw data in the next few weeks and see if I’m talking bollocks.