We now all know the limitations of Standard and Poor, what they missed and what they didn't, why to blame Republicans, why to blame Obama, and that Austerity is the new watchword in the US, while rioting has taken everyone's imagination in the UK (wow, aren't we timely?) Most of us are worried that the US will slip back into a recession. You shouldn't be.
The reason you shouldn't be worried is that the good news is that the US was never *really* out of a recession. Sure, in economist terms, we technically had some quarters of growth and a nice extended stock market rally, but in the net, what really changed for most people? Unemployment declined only marginally and stayed above 9% during the entire period - 5 years ago 9% would have been a crisis, not a rallying point. Functionally, close to 20% of the US population is unemployed or under-employed. The housing market, into which much of our "wealth" was poured early in the century has never recovered. Energy and food prices have undermined household security, and more people are food insecure in the US than at any time since the Great Depression. Consumer spending, which is used to drive recovery has been stagnant.
Economists have been looking for a short term recession cycle - looking so hard that they found it, but we're not in a recession like some recent ones - we're in a deeper crisis. Consider Ken Rogoff's analysis:
Recessions, he argues, imply a very particular economic phenomena: a business-cycle recession, in which the drop is quick, and the recovery is usually similarly swift. That is not what we're in. That is not what financial crises are. And mistaking one for the other has, in his opinion, cost us a fortune.
Financial crises are not about the business cycle falling out of whack. They're about debt. Lots of it. And that's why they're so resistant to efforts to speed a recovery. Whereas you normally get out of a recession by lowering interest rates and persuading consumers to spend, the period after a financial crisis is marked by consumers trying to dig out from under a mountain of borrowed money. You can accelerate that process, but it's hard to do. But first you must correctly diagnose the problem.
Rogoff has suggested we call this period the "Great Contraction" in order to distinguish it from more normal recessions. You may or may not like the name, but consider this: When we talk about double-dip recessions, that implies, as the National Bureau of Economic Research has said, that the recession ended in summer 2009, and we've been recovering ever since. The Great Contraction, conversely, suggests we have been, and remain, mired in an ongoing financial crisis. Which better describes the economy you see?
As I've been arguing since 2007, this is a long-term phenomenon, one that we can't get out of. There have been brief periods of growth and impressive stock market rallies in other extended financial crises - in the 1970s we technically came "out" of a recession - although job growth didn't really start before the next recession began. But who remembers the mid-1970s as a period of growth? The Great Depression had some of the biggest stock market rallies in history - but who thinks of that as a period of great market rallies? Japan's lost decades included periods of recovery - but ultimately people describe the last 20 years of Japan as part of the larger picture of decline - and Americans lack many of the things that made the lost decades milder, like good savings rates.
Profound, rather than shallow financial crises average a decade or more in length in modern times. This is a hard truth, but a truth nonetheless - but one that most people in leadership roles, or invested in markets cannot afford to believe. Markets depend on tinkerbelle thinking, on confidence and belief - even if wholly misplaced. Thus we cannot afford to see what's in front of our eyes - better call it an unexpected double dip, rather than a logical part of a larger tragedy.
Think, however, about what you personally might have done differently if, in 2008, you'd realized you were in for 10 years of potential unemployment, economic insecurity, decline, instability. How would that change your life? That's a question to ask ourselves - and ask ourselves now. Most of our deepest assumptions rest on a growth that seems increasingly unlikely - what we are facing isn't just austerity (although that's a start) but a rethinking of our priorities - we need to recognize the long haul for what it is and begin to prepare.
Sharon
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2008 was when i started paying attention and working out that what i wanted wasn't really what everyone else seemed to want and i realised that sleepwalking was a fantastically more common phenomenom than I realised.
I would have bought a house sooner, it may be too late now, but that was always a necessary risk.
But don't worry, the DOW just stopped dropping off a cliff and recovered by a little. So not only will the price of oil go down now to match the reduced share price (probably) but the markets have "recovered".
Huzzah.
When stocks "not falling off a cliff" is met with rejoicing, you know things are bad.
Rethinking priorities is high on my "to do" list as it has been since 2008. Making my family more resilient has been top of the list and continues to be. More gardening, more canning, more community.
My spouse exemplified your last paragraph, Sharon, after taking the 2008 hit. Starting with "Your Money or Your Life" by Joe Dominguez and Vicki Robin, she has undergone radical simplification, bringing me along in the process, though I am not in the market and did not feel the hit directly.
My own learning started in the mid-90's when my then-wife, who once lived on welfare for a couple years, and I and our children took part in a "poverty-week" where we and many other persons in Ottawa, Canada made the effort to subsist on welfare amounts for a week, to learn a bit of what it would be like for those who live that life continually. Since that time, other than the mortgage and for a car, I have incurred no debts, and have adopted a "cash first, then buy" attitude, while I slowly built up savings and self-reliance. Hopefully this won't have to be used, so I can help the kids and others when they need it.
Thanks for an excellent post, Sharon. I have shared it with a few persons already.
I like "The Great Contraction" as a tagline for this mess we're in. It can be considered an analogy to labor - painful, intense, bloody, and with life-long repercussions!
The really scary thing about the rioting is that there isn't really any real anger behind it just selfishness and unthinking greed. The perpetrators have discovered that with access to 'social' media they can inter-communicate and organise as never before. This together with the realisation that the police can't be everywhere at once has led to this awful situation.
While it is currently a UK problem, how long before similarly minded people realise they can do the same thing in any country?
Beware the Zombie Hoards!!!
The kids who are rioting have realized for a long time, down deep in their souls, that the system is rigged and they are not ever going to be a part of the winning side. This is a police provocation and then police stand down...I was in the UK when this started and watched the police just standing down to let this all get started on the first night. Now they will bring in the big guns...water cannons (never used before in England) to quell these "rioting hooligans"...because "the people are demanding the police DO SOMETHING".
How convenient to get pre-martial law in place in UK for when austerity really kicks in this winter..and when heating oil goes up 18% (already announced in English newspapers) and when unemployment gets even higher and peoples' pension checks are reduced (already happening in UK). Yes, while the bankers rip us all off of everything we own, let's blame a bunch of kids for looting and stealing sneakers and all of the other things they see on tv ads (from US) that they dont have a chance of ever being able to buy.
Don't let them divide us...we and all those kids are the victims of massive wealth transfer up and up to the top 5% who OWN EVERYTHING.
@Cameron. I accept what you say about the polarisation of British society but for many the 'police provocation' in Tottenham is only an excuse and not the reason for their behaviour.
Also, the police stood down because they did not have the manpower to handle large numbers of arrests - each person arrested takes 3 policemen off the streets.
What I find so sad is that these thugs are destroying their own communities. They haven't just attacked the premises of chain stores and banks but also small corner shops and privately owned businesses. They have set fire to some of these premises with no concern for the occupants of the flats above them.
I expect that many of the destroyed businesses are gone forever. Did they stop to think of the impact on their family and friends ( I am quite sure they don't stop to think about the wider community), and the fact that they will have to go further to buy a pint of milk or a newspaper in future and that it will be even more expensive? I doubt it.
And what happens when they have trashed all the shops - will they decide to attack the schools next? Or will they decide that the Olympic Park would be more impressive?
I am as angry as you about how our future has been destroyed by the greed of capitalism but what is happening now DOES need to be stopped before it gets totally out of hand. This country can't afford to let this situation get any worse than it already is.
"The kids who are rioting have realized for a long time, down deep in their souls, that the system is rigged and they are not ever going to be a part of the winning side."
It is how all revolutions take place.
When you have nothing to lose, then why not revolt?
But the rich are obsessed with the short term and don't want to consider that their actions will pauper them. I guess they're hoping that they'll have died fat and happy before the shit hits the fan.
We would not have changed what we did in 2008. We knew that things were never going back to the way they were. We have hunkered down and are doing our best to teach our children about the new "normal". When the social contract breaks down between government and the governed "riots", "protests" and such will occur.
Take care and thanks for posting.
Kate
"I expect that many of the destroyed businesses are gone forever."
Far more have been moved to China or Thailand.
Yet YOUR ability to buy cheaper products is considered illegal. See "Grey Imports".
The biggest destroyer of these kids futures and the biggest single cause of the problems you bemoan are the short-term greed of an "investor" market where there is no INVESTING going on, just hoovering up the money before someone else gets it all.
I realized somewhere in the 2008-2010 time range that the only stable job is the one you provide for yourself. Time to get your hustle on, everyone.