The last time I took this long to make another post, I ended the blog. dunno if that’ll happen here as the reasons are quite different.
On this last night of 2010 I am simultaneously optimistic and pessimistic.
I am optimistic that my family and I will make it. Indeed, we may do better than just make it as there’s a strong possibility 2011 will see me re-employed. I hope.
I am pessimistic because I keep running the numbers on the national scale and see another economic problem. Some of the potential doomsayer elements just make it worse, as at this point I cannot see us escaping another recession in 2011.
Recessions are, simplistically, when there are too many goods and services for the demand. They typically happen in one of two events. The most common is that there’s an overage of supply and businesses must quit working to allow the inventory to clear. At a small scale this happens all the time. When it is industry wide, more typically influencing numerous supporting industries, we tend to have a national slow-down. Nobody wants to add more money to a non-profitable pile and will wait till it clears out. The second most common is that we get a defacto deflation. It might be due to a liquidity trap, where the money is there but it’s not moving. It might be due to a credit collapse where credit — money except when it isn’t — goes away. It might be due to classical deflation of removing money from the game. Regardless, we once again have too many goods for too little money and have a recession while the balance. (Note in the second case that if there was money there’d be demand. It matters.)
The big money suck that triggered this most recent was the housing collapse when house prices fell below the money invested in them. Now it’s pretty apparent that foreclosures are going to get restarted this year. When they do it won’t stimulate the market. Instead we’ll have a large number of empty houses on the market — a supply driver for the recession. Since much credit is still based on those, it’s going to freeze as well. Add that there’s a strong correlation between foreclosures and bankruptcies and you get a host of people unable to spend freely, again.
I think the Big Day for this will be around March 31. You see, around that time the continuing resolution that got passed ends. And that means the 2011, not to mention the 2012, budgets must be in to Congress. And we get the fact that the Republicans intend to cut.
I’m a keynesian because historically keynesians have been right. Add to it, however, let me give the basic reasoning in this instance in non-technical terms.
When a recession happens, businesses don’t make money. Businesses tend to operate with little slack as slack when times are good means lower profits. As a result when times turn bad, and turn bad enough, they have to cut people. They certainly can’t keep going despite the loss. When these cyclical events are across industries, and even multiple industries, we get increased unemployment.
What government can do is provide the money to keep things going till the businesses recover. It acts as a reserve that can be spent in rough times. Theoretically, government then collects enough to recover in the good times. There are a lot of reasons why the collection doesn’t happen to the extent it should. On one hand there’s the desire to spend even more. On another hand there’s a hatred of paying taxes, and “why should I pay more now?” is a not uncommon expression. Bottom line, the deficit, created to keep the bad from being THAT bad, remains during the good instead of being diminished.
But that’s all a digression. This time we’re not going to get that buffer. When we hit the rough there are a number of people who control the purse strings who have decided it’s better for us to reduce the deficit regardless. Oh, and to reduce taxes some more. Quite simply, they think we need to destroy ourselves to save ourselves — though they will not phrase it that way.
Deficits and taxes are so evil in their minds that the suffering of large numbers of their fellow citizens is insignificant.
We’re going to have another recession. I don’t know how bad it will get — I don’t think it’ll be another Great Collapse because I don’t think most people in congress, regardless of party, are willing to be that blatant.
But there are some zealots in place, so they might be willing to bring it all down for principle’s sake.