What if We're Headed for a Recession?

We have a case of the slows.

It was already bad enough earlier this year. Growth was meager. Jobs barely kept up with a rising population. Consumer confidence, while up from 2009, was still pitiful.

Then August hit. First came the debt-ceiling melee. Then Europe snuck back into focus. In an echo of 2008, the solvency of a major bank came into question. Consumer confidence fell to the lowest level since early 2009. A new Gallup poll finds that 30% of those with a job worry about being laid off. Only a fraction ever will be, but that sense of fear can be self-fulfilling. If all of this is much ado about nothing, we're doing a good job convincing ourselves otherwise.

What it all means, no one knows. Several smart people, though, are beating the recession drum again. Here are four things to keep in mind if they're right.

1. The levers are all pulled
There's a standard remedy for recessions. The Federal Reserve cuts interest rates and makes some noise about being serious on employment. Congress fires off some sort of stimulus -- tax cuts, infrastructure campaigns, the extension of unemployment benefits, what have you.

But all of those levers are now pulled, or have become politically unpullable. Should we fall back into a recession, the only available response might be a shoulder shrug.

Most studies found that the 2009 stimulus package saved or created jobs, but this is controversial enough to render the thought of another stimulus package dead -- one can't prove a negative, so convincing people that it would have been worse without stimulus is a tough sell. The current payroll tax cut is opposed by Republicans; most other tax cuts are opposed by Democrats. All of these could (or did) help prevent calamity but have become so politically venomous that they're now untouchable.

The Fed does, in theory, still have some levers to pull. Interest rates are already at zero, but any central banker with a printing press still has bullets to fire.

The problem is that another round of quantitative easing likely wouldn't do much for the economy. Why? Same reason the last round disappointed. What we need is demand, and we won't get that until we're done deleveraging. Printing money isn't going to help in that situation. They call it a liquidity trap (PDF link), and it's about as cool as a cold sore.

2. It might not be that bad
This is somewhat of a counter to the first point.

There's a prevailing sense that any lapse back into recession will be a repeat of 2008-2009: unemployment doubling, banks imploding, the Dow (INDEX: ^DJI) falling 60%, trade utterly collapsing, with years of misery to follow.

I never get tired of mentioning recency bias -- the tendency to think the future will look like the recent past. Assuming that the next recession will be like the last is a prime example of that flaw. We've had 10 recessions since 1948. The average saw GDP fall 1.7%, unemployment rise just over 2%, lasted for 10 months, and recovered swiftly thereafter. They are painful, but nothing like 2008.

And there's indeed reason to think that a looming recession will be less damaging than the last. Banks have more capital now than they did in 2008. Consumers have less debt. Home prices are far closer to a sustainable average. Businesses are leaner, free of layers of redundant workers who can be laid off without hurting sales.

There are few levers left to pull to help fight a recession, but that might be OK. We may not need them.

3. Definitions don't matter
When asked if we're headed back into a recession, bears like to argue that we're not, because we never recovered from the first one.

They consider this a devastating rejoinder, but it merely highlights that whether we're "officially" in a recession doesn't matter at all.  

The official declaration of recessions is made by the National Bureau of Economic Research. These folks seemingly wield power, but their press releases really shouldn't affect anyone. Most recessions aren't declared until well after the fact -- the last recession began in December 2007, but wasn't announced until a full year later. 

What matters are your personal circumstances. Are you unemployed? Then the economy hurts whether the NBER says we're in or out of a recession. Are you gainfully employed, debt-free, and saving money? If yes, then why should you care if a group of economists says things are bad? You shouldn't. So don't.

4. Recessions bring opportunity
1933. 1953. 1982. 1990. 2002. 2009.

Two things are special about these years. They were the peak of recessions, and they were some of the best buying opportunities of all time.

And it's not just stock opportunities. Recessions force businesses to think critically about strategy. They shake out weak companies and make room for true leaders. They push unemployed people to become entrepreneurs. They force consumers to shed debt. It's not a stretch to say most of what makes today's economy great has roots in a past recession. They are the true meaning of a necessary evil.

What do you think? Chime in below.

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 02, 2011, at 11:57 AM, TexasSBW wrote:

    #4) Recessions bring opportunity - They push unemployed people to become entrepreneurs.

    Yes, yes, yes!

    This is so true. I wish people would channel their energies into creating their own jobs / careers / businesses instead of complaining about how the other guy is making a mess of things.

    Thank you for those words of wisdom.

    http://TexasSmallBusinessWebsites.com

  • Report this Comment On September 02, 2011, at 12:07 PM, wolfman225 wrote:

    +1rec. Great article.

    I vote for the "shoulder shrug" option. I know nothing about the macro of economics (only a little about the micro), so every time some "economist group" or "think tank" comes out with their latest prediction or comment about the state of the US or world economies, I just shrug my shoulders, eye the rising level of BS, and keep paddling as hard as I can.

    Unless you are among those who are already bullet proof (mid-8 figures or higher) I don't really see any other choice. That doesn't mean I'm out of hope for the future, just that until things have provably turned around, even the "rich" (7 figures) aren't any more immune from eventual disaster than the rest of us. It'll just take them a little longer (and farther) to fall. Just MHO.

  • Report this Comment On September 02, 2011, at 12:33 PM, positivebob wrote:

    If people weren't getting unemployment $$ for years they would have an incentive to find work or start own company or......

  • Report this Comment On September 02, 2011, at 12:38 PM, TMFHousel wrote:

    ^ Yeah, those hogs living like kings off of $250 a week!

    Multiple studies have shown that extending unemployment benefits has a negligible impact on current unemployment. The Federal Reserve Bank of San Francisco crunched the numbers and found that those receiving unemployment benefits only remain unemployed for about a week longer than those who do not.

  • Report this Comment On September 02, 2011, at 12:42 PM, ShaunConnell wrote:

    ...definitions do matter, folks. If you're trying to figure out where the economy is going, you need to organize your thoughts where words actually have set meanings. Otherwise, you're just making crap up.

  • Report this Comment On September 02, 2011, at 12:45 PM, wolfman225 wrote:

    ^Really, Morgan? I'm not saying it's not true, but I've seen a lot of articles that say the percentage, and total number, of long-term unemployed (those out of work 6-9 months or longer) or underemployed is at an all time high.

    I'm not saying these people doen't deserve help, but there's no denying that having a firm deadline is a great motivating factor to getting a job (whether it's the job they "want" or not). I have read articles that quote people actually saying that they have refused to take a job because it "doesn't pay enough more than my benefits" to make it worthwhile to get off the couch!

  • Report this Comment On September 02, 2011, at 12:49 PM, ShaunConnell wrote:

    I have several friends who don't have jobs because it would cut how much they earn per week -- unemployment benefits keep them unemployed longer. People respond to incentives.

    And the notion that there are no jobs is silly -- there are plenty of jobs if you have skills. If you only have one marketable skill set, that's a dumb choice on your part and you shouldn't force society to pay for your existence when you reap the consequences of those bad choices.

  • Report this Comment On September 02, 2011, at 12:50 PM, TMFHousel wrote:

    ^ Yes, but would the percentage of long-term unemployed be lower w/ out unemployment benefits?

    The anecdotes say yes, and by a lot. Studies I've see of those who have crunched the numbers and looked at the whole picture say yes, but by a very small amount. The overwhelming majority of the long-term unemployed would kill for a job.

    Take it as you wish. Econometrics obviously are not perfect. But neither are anecdotes.

  • Report this Comment On September 02, 2011, at 12:53 PM, TMFHousel wrote:

    Sorry, the above comment is a response to Wolfman.

  • Report this Comment On September 02, 2011, at 12:53 PM, nick1200 wrote:

    ^Deadline or not you just pointed out something very important. Wages for middle and lower class workers have remained stagnant for about 30 years. Many corporations threaten to move overseas if the workers don't accept lower pay and less benefits, then when the workers agree to work for less, they move the jobs overseas anyway.

  • Report this Comment On September 02, 2011, at 12:55 PM, TMFHousel wrote:

    <<I have several friends who don't have jobs because it would cut how much they earn per week -- unemployment benefits keep them unemployed longer. People respond to incentives.>>

    I don't doubt it. But again, "several friends" isn't conclusive in an economy of 300m+ people.

  • Report this Comment On September 02, 2011, at 12:56 PM, aeilers01 wrote:

    What if we actually need to use the correct term for where we are going: Mega-Depression. Duh! We have been in a perpetual recession since 2008. Doesn't anyone see that the jobless rate proves that?

    Why all the market cheerleaders? Why not face the facts and prepare?

  • Report this Comment On September 02, 2011, at 1:04 PM, TMFHousel wrote:

    <<And the notion that there are no jobs is silly -- there are plenty of jobs if you have skills. >>

    This is only true to a point. There are 4.5 unemployed for every job opening.

  • Report this Comment On September 02, 2011, at 1:06 PM, slpmn wrote:

    I'm going to go out on a limb and guess that many who bash unemployment payments believe that tax cuts are a good way to stimulate the economy. The reality is, they are two ways of accomplishing the same goal - giving people money to spend to prop of the economy. Unemployment payments are a very efficient way to do that because you are giving the money to people who will almost certainly spend all of it. Tax cuts on the other hand? Well, I can tell you I didn't spend my tax cut savings. I just saved more. Nice for me, but doesn't really do much for the economy.

    Stay focused on the big picture. It's not about the unfairness of watching your neighbor in the Mcmansion with four flat screens and three cars who has been on unemployment for a year. Its about preventing the economic death spiral that would result if millions become unemployed and their spending dropped 80% because there was no government safety net. I can't even believe the merits of this stuff is still being debated.

  • Report this Comment On September 02, 2011, at 1:09 PM, CluckChicken wrote:

    "I have several friends who don't have jobs because it would cut how much they earn per week -- unemployment benefits keep them unemployed longer. People respond to incentives."

    I was unemployed about 10 years ago for 7 months. I discovered that it is actually more difficult to get some of those jobs that pay less than what you get for unemployment benefits then one would think. Usually the issue is that the employer feels that you will leave once something better comes around but also some fear that you will eventually take their job.

  • Report this Comment On September 02, 2011, at 1:24 PM, emferguson wrote:

    Other commenters focused on the first part of this comment by ShaunConnell, "I have several friends who don't have jobs because it would cut how much they earn per week -- unemployment benefits keep them unemployed longer. People respond to incentives."

    As true as it is his few friends don't indicate anything --- maybe he associates with people inclined to game systems --- the part about keeping unemployed people unemployed longer makes no sense, because we're talking about the aggregate. The jobs his friends won't take will be taken by somebody, so the unemployment rate would still go down. In other words, there's no way unemployment benefits could cause unemployment. Maybe in a booming job market where someone receiving benefits could sit and wait for the perfect job, but even in the 90's we didn't have that.

  • Report this Comment On September 02, 2011, at 1:29 PM, cccisback wrote:

    Question: Do the federally published unemployment numbers include those who are still unemployed after their benefits run out?

  • Report this Comment On September 02, 2011, at 1:34 PM, wolfman225 wrote:

    ^nope. Once you fall off the benefit rolls, you fall off the "official" count.

  • Report this Comment On September 02, 2011, at 1:35 PM, wolfman225 wrote:

    ^ditto for those who have given up looking all together.

  • Report this Comment On September 02, 2011, at 1:37 PM, TMFHousel wrote:

    ^ That isn't quite right. They won't show up on the weekly jobless claim numbers, but they are still part of the labor force and thus included in the monthly unemployment numbers as long as they are seeking work.

  • Report this Comment On September 02, 2011, at 1:40 PM, TMFHousel wrote:

    To elaborate: "During 2008, only 36 percent of the total unemployed received [unemployment] benefits, according to the B.L.S."

  • Report this Comment On September 02, 2011, at 1:40 PM, catoismymotor wrote:

    I decided long ago that we are in the eye of a financial hurricane. The "last recession" is not over.

  • Report this Comment On September 02, 2011, at 1:50 PM, craineum wrote:

    No wonder Diageo is one of two in my watchlist that is up today!

  • Report this Comment On September 02, 2011, at 1:50 PM, FDRpart2 wrote:

    To: slpmn & ChuckChicken.

    Your points are right on.

    I hope Prez. Obama channels FDR next week.

    He needs to go big like FDR did to save economy from the last Republican Great Depression.

    I can't believe the Dems don't compare notes and point out that FDR had to clean up Coolidge/Hoover Laissez-faire disaster and after Clinton inherited Papa Bush recession and left Baby Bush with a surplus then 8 years later Obama gets to inherit the 2nd Republican Great Depression. How many times do Dems have to clean up GOP laissez-faire "supply side" voodoo nonsense?

  • Report this Comment On September 02, 2011, at 3:19 PM, TomBooker wrote:

    I guess this makes me a Bear

    The "Recovery" has been a Schism Event. Grossly generalized, either you have a job and recovered, or you didn't and got the Diet-Recovery. It has generated First Class Consumers and Second Class Consumers for the near/coming future. Household finances and housing, and de-leveraging can impact either Class. But the one-time Middle is clearly being hit harder.

    Large Businesses and Corporations have been in the catbird seat as far as attention from the Fed and Washington. Add in Emerging market proceeds.

    Meanwhile, the Demand side in the US has gotten bupkiss. In a double-dog IMHO, No-jobs is a result of No Demand, not "uncertainty", nor the other 10 reasons which are similar to "the dog ate my homework". The reason Wash DC has done zero for jobs this year, and has been Deficit obsessed, is because they have no intention to seed the Demand side, due to ongoing Supply Side incentivized personal commitments.

    So here's the Diet-Recovery.... with the BLS numbers as unwound as possible... July 2011

    There is 9.1% unemployment.

    13,931,000 officially unemployed , who want/need jobs

    8,396,000.people who want/need fulltime jobs but can only find part-time work.

    http://tinyurl.com/3r66frf

    Here comes the head-in-the-dirt number....

    6,570,000 people who are not part of the labor force who want a job, and this group isn't part of the official unemployment rate.

    OK?

    A13,931,000 unemployed

    B 8,396,000 part time

    C 6,570,000 still visible but don't count.

    D X,XXX,XXX people missed 1 month of sending out resumes. We won't count them, because the BLS can't see them.

    ABC These are people who ALL want a job, that the BLS can "see".

    The civilian labor force for July 2011 was 153,228,000

    The July 2011 unemployment rate for those officially unemployed, part-timers who need full time and all of the people not counted who report they want a job: A+B+C

    18.09%

    What happens to the unemployment rate if we just add in these people who want a job, but aren't counted, , and don't count those who have part-time work? Then, the unemployment rate becomes: A+C

    12.83%

    But there is a hidden beauty in the numbers. Because the people who want a job, but aren't counted as part of the civilian workforce, (whether they were prior employed or coming out of college) have been lowering the Total Civilian Workforce number while vanishing from the headliner Unemployment number%.

    So lets look at how much of our civilian population is being utilized:

    http://tinyurl.com/3q4xyna

    Congratulations, it's 1984 or the '70s. And the headliner employment number back then, was just a quarter step above sucks.

    So here comes the big number...

    To get to normal employment% by the end of 2016, we have to create 250,000+ jobs every month until then.

    That's a lot of waiters/waitresses and landscapers.

    That statement does lend to hyperbole. But just a second. Actually, we have done an excellent job of making our companies as dollar-wise as possible...

    For a prior 19 yrs (not even counting the disastrous impact of 2009-to-date) about 96+% of the net new jobs created are "untradable". In other words, if it can be done off-shores, it is. That removes any possibility of traditional tradable jobs to be created to meet the 250K/mo quota.

    And it gets even better....

    The #1 creator of those non-tradable jobs has been the Federal, State, and Local governments. (#2 is Healthcare)

    So the 8 million net new jobs created on credit/debt between 2001 to 2008 are gone. Plus we're now hailbent on killing the main goose. (except for the Dept of Homeland Security which has now accrued more office building square footage, than the entire US Military. And 60% of all Executive Branch agencies have some form of "security" as one of their top 5 imperatives.)

    Exec Summary, and link to the Research on tradable jobs, if so inclined..

    http://tinyurl.com/3osvv5k

    Back to the Recession... and the hard fact...

    Unless we invent some new technology like Time Travel or Quantum Dimension Jumping, we have labor demand in the US, which has no room for millions of able bodied US-type people.

    So here's the only the deals....

    Either everybody gets a haircut together and we use it to pump the Demand Side... or

    We annually put a few million people on a barge, cut the lines, and give it a push out to sea.

    We have, of course, to-date chosen #2. with the exception of the trillions padding the Banks. For that, we definitely used choice #1, except at the expense of the demand Side.

    What does a peek at #2 look like in real terms.... we have gone from 28 million people to ~48 million on Food Stamps in less than 3 yrs. I can't claim a cause and effect relationship, but if I overlay what someone might call the "real"(U6) unemployment number (mentioned above), there is something similar in the two.. yes? no? I believe they call this downward pressure.

    http://tinyurl.com/3dv4u6s

    So when most of the reductions and stability of the headliner number has been because of people moving to the Zero-income edge of visibility... you tell me that this has been anything except a Diet-Recovery, and I will choose to maintain my bad attitude for reality sakes..

    Morgan is correct, and the Demand Side/Consumer looks like they will likely get little love.

    A great idea is Re-fi's for homeowners who are getting by, but in a terrible trend.They can't Re-fi because somebody in the house is under- or un-employed. It's complicated but the way it works out for the Fed's balance sheet, DiMarco watching Fannie and Freddie, questionable assets being resolved into reality, and the Gov't's need for the Fed to get cash for US Treasuries works out to at least something to get the weight off of People.

    This idea went completely unnoted.

    We are way past the point of "bread and circuses", band-aids, and a glass of water.

    And for some good solution, we stockholders are going to have to take our share of the hit.

    We can keep feeding the Large Companies and Corporations forever, and we'll get by.

    But these numbers are overwhelming, and it is possible that "forever" will be Simon Johnson's "..until the riots start."

    That's over the top, but we need to be going after unemployment in historic proportions. Although we have refused to see it, there is major human tragedy already here.

    The Demand Side has to get some relief. Monetary policy needs something to work with, only fiscal policy which gets directly into the Demand Side/Consumer's pocket will have enough effect .

    We stockholders are being stupid, to think a segmented positive Economy will not have some profound Societal critical mass.

    How ever it works out, it's currently that legendary bullet which you don't hear or see coming.

    Until we face up to it.

  • Report this Comment On September 02, 2011, at 3:25 PM, MyDonkey wrote:

    The question is not IF we're headed for a recession, but WHEN.

    For an idea of where we're headed and what to do about it, I suggest looking at a new book out this week: The End of Growth.

    You can read several chapters of it online; chapter 6 is available here: http://richardheinberg.com/231-who-killed-economic-growth

  • Report this Comment On September 02, 2011, at 3:47 PM, FDRpart2 wrote:

    to TomBooker:

    LOL. "out to sea on a barge"

    You nailed it...it's a demand side problem.

    So I ask again....(see above) why do dems always have to clean up GOP discredited "supply side" voodoo nonsense?

    Obama, please channel FDR next week and go big !!

  • Report this Comment On September 02, 2011, at 4:33 PM, AlphaVolume wrote:

    finally! a great artcile of fool.com!

  • Report this Comment On September 02, 2011, at 5:24 PM, ShaunConnell wrote:

    Morgan,

    Anecdotes are of course powerful in understanding economics -- they give us insight in creating the theory. People respond to incentives and almost everyone knows of people staying unemployed longer because of the benefits.

    Comparing the data between those who take benefits and those who don't -- in the same economy -- is a laughable way to measure the difference because there's a reason the people who /didn't/ take unemployment /didn't/ take it.

    Hint: they don't need the money. And yes, if you don't need the money as much, there's a good chance you won't take the next available job you can find.

    Basing your economic theory on a superficial look at data makes no sense -- base your economic theory on human behavior and you'll be off to a much more likely conclusion.

  • Report this Comment On September 02, 2011, at 5:28 PM, ShaunConnell wrote:

    "This is only true to a point. There are 4.5 unemployed for every job opening."

    The skilled jobs don't have anywhere close to that many people skilled enough to even apply. There are labor shortages in plenty of industries.

    The problem right now is that fewer people learn skills now than ever before. This is obviously not good.

  • Report this Comment On September 02, 2011, at 5:36 PM, TMFHousel wrote:

    <<Anecdotes are of course powerful in understanding economics -- they give us insight in creating the theory. People respond to incentives and almost everyone knows of people staying unemployed longer because of the benefits.>>

    Anecdotes are powerful if you're looking to make a point. If you're looking for the truth, not so much.

    <<There's a reason the people who /didn't/ take unemployment /didn't/ take it. Hint: they don't need the money. >>

    More likely: they didn't qualify, or exhausted their benefits. I'm willing to bet that the percentage of people who are eligible for free money and turn it down is near zero.

    <<Basing your economic theory on a superficial look at data makes no sense -- base your economic theory on human behavior and you'll be off to a much more likely conclusion>>

    Reminds me of the classic line: "I've already made up my mind. Don't both me with your 'facts.'"

  • Report this Comment On September 02, 2011, at 5:53 PM, TruffelPig wrote:

    This is the nth article like this I am reading. We never really got out of the last recession and these are still aftershocks. It will get better eventually.

  • Report this Comment On September 02, 2011, at 7:21 PM, ShaunConnell wrote:

    Two of your three responses have no argument besides "Oh yeah, well you're close minded." The irony is obvious.

    That said, the statistics don't conflict with the notion that you know -- people respond to incentives. Crazy stuff.

    Unemployment 1.5% worse due to people getting paid to not accept low-paying jobs:

    https://mm.jpmorgan.com/stp/t/c.do?i=C5DA5-877&u=a_p*d_3...

    Ignoring human behavior because you prefer a more comfortable theory is just intellectual slothfulness.

    If you're going to make a career out of writing about money, learn economics. "People respond to incentives" should be a good first principle to figure out.

  • Report this Comment On September 02, 2011, at 7:23 PM, ShaunConnell wrote:

    Oh, and saying you'd "bet" that people don't accept unemployment when they're well off is laughable -- unless you think everyone is willing to swallow their pride after decades of success to get 2-400 per week. Not likely.

    Again, economics is the study of human behavior. When your statistics appear to contradict human behavior, you've either found a psychological breakthrough and are getting a Nobel Prize, or you're misinterpreting the math.

  • Report this Comment On September 02, 2011, at 10:40 PM, slpmn wrote:

    "People respond to incentives" is about as simplistic a generalization one could make when discussing the merits of unemployment benefits. I wish the world (or even the economy) were that simple.

    I agree there is some unknown fraction of the unemployed who wait an extra few weeks before they start looking for work because they know they will get an unemployment check. So what? It's not the purpose of unemployment, but it's also certainly not a reason to argue against it.

    Aside from the fact that unemployment exists to keep the economy from collapsing (they take the check, spend it, thus keeping revenue flowing to businesses, which can then stay in business or avoid laying more people off, etc., etc.), what is wrong with the notion that someone previously gainfully employed in a well-paying job does not have to panic and take a bad job just to keep his family fed? How would that be efficient or desireable from an economic standpoint? Ideally, you want someone skilled working up to their capacity, not underemployed because they had to take whatever job they could get days after being laid off just to keep a roof over their family's head. What purpose does that serve, beyond making jealous people feel better?

    As you say, "economics is the study of human behavior". Well, there is a lot more to economics than "people respond to incentives".

  • Report this Comment On September 02, 2011, at 11:49 PM, TomBooker wrote:

    "Unemployment 1.5% worse due to people getting paid to not accept low-paying jobs:

    https://mm.jpmorgan.com/stp/t/c.do?i=C5DA5-877&u=a_p*d_3...

    Ignoring human behavior because you prefer a more comfortable theory is just intellectual slothfulness."

    If you are going to be a psychologist, you need to read past the abstract.

    This is a theoretical math model. It is filled with correlated assumptions which have no foundation of statistical reliability or validity to an aggregate conclusion.

    It makes no consideration at all for external forces.. it completely obviates the fact that extended benefits always occur during highly resistant unemployment. And this is the most resistant unemployment in US history.

    When Nicholson and Needels published the anchor research in 2006. They had no data for 2008-now. It is a one time variance because the Great Depression is immersed in such statistical unreliability.

    One of the hallmarks of statistical analysis is that you can predict when you are wrong. That's what the BLS has done for 3 yrs, and how they could understate 6 mos unemployment nominals by 500,000.

    Nicholson and Needles will tell you their conclusions don't necessarily apply, because their variances didn't provide for 28 million people who want work. And a velocity and duration of unemployed individuals beyond any historic high.

    It's like saying people's basements get wetter in hurricanes, than in Summer showers. And it's the people's behavior which makes it so.

    Finally, correlation has never been cause and effect. Both you and the author are hanging a cause/effect relationship without the slightest discipline of control and sample groups.

    You have to actually interrogate the individual for incidence of behavior, rather than guess that some other research applies.

  • Report this Comment On September 03, 2011, at 10:33 AM, MrsCathyGF wrote:

    Morgan, Thank you for all the very reasonable perspective. We really do need someone to push the media, govt, talking, etc out of the way, so we can see the forest for the trees. Please stay clear headed and reasonable. This reader is getting a fine education from your articles, and will until the cows come home.

  • Report this Comment On September 03, 2011, at 11:30 AM, daveandrae wrote:

    1. 2011 year over year s&p 500 second quarter earnings grew 17% against a U.S. GDP backdrop of 0.7%.

    Obviously, the s&p 500 companies that contribute the most earnings power to the index are far more GLOBAL than they were even five years ago.

    2. Friday, the index closed at 1174. A mark it first achieved thirteen YEARS ago. Back then, the US was a 10 trillion dollar economy.

    Today, it is a 14 trillion dollar economy.

    3. Over the last five years, average aggregate earnings (2006-2010) for the s&p 500 come in at 76 dollars a share. The average p/e ratio over the last 80 years is 14.5

    14.5 x's 76 = 1102.

    4. The ten year treasury bond just fell below 2%. This Tuesday, my Pfizer dividend will be reinvested at a dividend yield of 4.33%, which will, no doubt, be raised AGAIN before year end. Eleven years ago, those yields were diametrically inverted. 1% to 6%.

    Taken as a whole, a "recession" is pretty much "priced into the market"

  • Report this Comment On September 03, 2011, at 11:37 AM, Bert31 wrote:

    I think point # 4 is the most important and should be the #1 point, if not the only point. I officialy became a MF member in 11/09 and subscribed to my first newsletter in 3/10. For the past 18 months I have ruefully pondered if I had perhaps missed out on the bexst investing opoportuninty of a lifetime and start building serious weatlh.

    With this pullback in August, I have had the opportunity to buy stocks that were previously entirely to expense, and I see the businesses in no way effected by the S&P downgrade that made them go down with the rest of the market. As you stated we may not know wheter we are in a recession until after it is over, and it may not matter as by a lot of measures we are not much better off then when it ended in 6/09, in my opinion.

    My hope is that prices on growth stcoks who have solid underlying businesses will remain at low P/E's long enough for me to pick a few more shares at relatively cheap prices.

  • Report this Comment On September 03, 2011, at 12:43 PM, 123spot wrote:

    #1 @ positivebob, I hope negativebob never shows up #2 @ daveandrae, helpful and concise, thank you. Spot

  • Report this Comment On September 03, 2011, at 1:36 PM, Sparkynet wrote:

    Nice article. It seems that the data I'm seeing suggest the private sector is plugging along at a slow pace. The majority of the unemployment figures out recently show federal, state, and local government is the sector shedding jobs. In the long run this is probably a good thing - been to the DMV lately? I don't think a recession is coming, just a long slowdown. On the other hand, I've done some exhausting research on the last 100 years. Each time a recession hit, the Cubs did not win the World Series. The Cubs won't win the World Series this year. Scary.

  • Report this Comment On September 03, 2011, at 2:55 PM, mamastox wrote:

    I'm officially exhausted from reading this Big Brained, informative, intriguing, insightful, Kool-aide ridiculous, and utterly hilarious commentary. Great Job everyone, I'm taking a nap.

  • Report this Comment On September 03, 2011, at 3:47 PM, addikt06 wrote:

    Yes normal recessions are good for the economy. It's like getting the bad stuff out of the system.

    HOWEVER this recession we're talking about is going to take down the major banks. This is NOT good for the economy because it creates the risk of bank runs and destroys consumer confidence. I don't think most of you are properly understanding the dire situation we're in... most just want Bernanke to print more money and have the good times continue which he will. He will be forced to destroy the dollar because government is completely and utterly useless.

    We never technically came out of the 08 recession. The bull markets were due to massive injection of free money from government and Fed, it was not due to fundamentals because if it was we wouldn't be talking about a recession two years later.

  • Report this Comment On September 03, 2011, at 4:01 PM, TMFHousel wrote:

    <<We never technically came out of the 08 recession. >>

    Well, we technically did. Whether people's individual circumstances made it feel otherwise is what's in question.

  • Report this Comment On September 03, 2011, at 4:13 PM, addikt06 wrote:

    <<Well, we technically did. Whether people's individual circumstances made it feel otherwise is what's in question. >>

    You are wrong. The technical definition of recession does not take into account extraordinary measures of printing money and socializing losses. This time too if Ben print money do you think we're out of the woods? If so I again disagree with you... we've already tried printing money twice and everyone knows it's just kicking the can down the road. The fake euphoria it creates in wall street does not translate into jobs. In fact companies are sitting on trillions of dollars of cash, why do you think they're not hiring? it's because there is no demand and this is self-repeating vicious cycle. The unemployment numbers are tweaked to look good (as in people who leave the work force due to rejection just disappear) but even so these numbers are terrible over the last two years.

    The point I am making is the growth in last two years was mostly due to injection of money from fiscal and monetary policy. The idea behind those stimulus is that once economy picks up the money supply is reduced, interest rates go to normal levels and employment improves.

    This did not happen. Employment has worsened over last couple of years and wall street has become a drug addict of free money from Fed.

  • Report this Comment On September 03, 2011, at 4:22 PM, TMFHousel wrote:

    "You are wrong. The technical definition of recession does not take into account extraordinary measures of printing money and socializing losses."

    That's a logically incoherent response to my comment.

    We did technically exit the recession in 2009. Fact. Whether that technicality is meaningful or not is what's debatable. For many, today is most certainly recessionary. For others, it's never been better. What matters are your personal circumstances, not what NBER says.

  • Report this Comment On September 03, 2011, at 6:12 PM, TomBooker wrote:

    Beat me to it.

    The only thing we did do was "technically" come out of the Recession. I just can't act like it's business as usual when 20% of the population is on Food Stamps. The only thing that's different than Dickens about that is our absence of debtors' prisons. Although I don't want to give anybody any ideas for further penal entrepreneurship.

    One thing was weird about the NBER call this time. Their Seer recipe for their secret sauce is not regressive, it's cut-off. Right about the date which would become the end of the Recession, one of their retrospective-Oracles was interviewed and said how they would never call the recession end with the employment headliner at 9+%, without a significant improving trend.. no matter how swell everything else looked.

    He more than implied that it's a "standard of living" issue for the NBER. GNP, more than GDP.

    He must have gotten his sss fired for not being a Team player with "green sprouts" all around.

    BTW, "green sprouts" remember that?

    No wonder we're in a state of retarded development.

  • Report this Comment On September 03, 2011, at 7:29 PM, addikt06 wrote:

    <<That's a logically incoherent response to my comment.

    We did technically exit the recession in 2009. Fact. Whether that technicality is meaningful or not is what's debatable. For many, today is most certainly recessionary. For others, it's never been better. What matters are your personal circumstances, not what NBER says. >>

    Someone who can't even defend their understanding is in no position to be talking about "logical incoherency"... reread what I wrote, you will probably get it after a while, I hope.

    And please stop posting blanket statements like "For many, today is most certainly recessionary. For others, it's never been better."

    Stats? or just personal opinion? seems like the latter to me.

    By the way, your profound blanket statements are true in any times. Unless I'm missing something and government is lying about unemployment, consumer confidence and hundreds of other stats, for most of us this is NOT a good time. Millions are unemployed and the ones employed don't feel good about the economy. Hence we are talking about a possible recession.

    Lastly please don't assume that people on the other side are not doing well. I am probably richer than you in real life :) unless you're something special, you can drop this "I am doing well maybe you're just poor" nonsense.

  • Report this Comment On September 03, 2011, at 10:22 PM, TopAustrianFool wrote:

    "4. Recessions bring opportunity

    1933. 1953. 1982. 1990. 2002. 2009."

    You are mixing depressions and recessions.

  • Report this Comment On September 03, 2011, at 10:24 PM, TopAustrianFool wrote:

    "We did technically exit the recession in 2009. Fact."

    True, but we did not technically exit the depression of 2008.

  • Report this Comment On September 03, 2011, at 10:24 PM, ershler wrote:

    ShaunConnell,

    I immediately thought of the quote by Marsellus in Pulp Fiction about pride when I read your last comment.

    I had a $400,000 net worth, $75,000 in cash and minimal expenses when I was 23 but I still applied for and received unemployment benefits. Even if you don't think there should be unemployment benefits I don't see a reason not to apply for them if you qualify for them.

  • Report this Comment On September 03, 2011, at 10:35 PM, TopAustrianFool wrote:

    " Recessions force businesses to think critically about strategy. They shake out weak companies and make room for true leaders. They push unemployed people to become entrepreneurs. They force consumers to shed debt. It's not a stretch to say most of what makes today's economy great has roots in a past recession. They are the true meaning of a necessary evil."

    Actually, you mean depressions. And yes they are a necessary evil for capital restructuring of the economy. But these only occur because the Fed printed money causing a boom of malinvestment in capital equipment, projects and labor that will not bear fruit since the apparent savings, (apparent because artificially low interest rate signal savings that are not there), mean a future demand that will not materialize. If the Fed stops inflating you will see an end the Boom-Bust Cycles. And real growth will ensue. The current coming recession is due to restructuring of malinvestment due to QE1 and QE2 so expect the following:

    1. unemployment will increase and then settle at a higher rate than 9.1% which is current.

    2. all this restructuring will continue until March or April 2012.

    3. At which point if the Fed does nothing, growth will start again, the stock market will continue to show gains and we may actually have a more lasting recovery. If the Fed does QE3 then in 4 years we will be in another recession.

    There. I just gave you a prediction based on the Austrian School of Economics as I understand it. Watch and lets see.

  • Report this Comment On September 03, 2011, at 10:40 PM, TopAustrianFool wrote:

    And by the way you love to speak of bias, in avery condecending manner, but you show plenty of it. Now that your Keynesian experiment is failing, all of the sudden recession, smechession, not so important. Right? Only your individual situation is what matters? Give me a break.

  • Report this Comment On September 03, 2011, at 11:46 PM, Melaschasm wrote:

    Unemployment benefits do significantly increase the unemployment rate. This has been proven many times by a variety of studies.

    When you read a study claiming that the unemployment extension did not significantly increase the long term unemployment rate, you need to look closely at the way the terms are defined.

    Extending unemployment from 6 months to one year significantly increases the average length of unemployment.

    However, these studies define 'long term unemployed' to be those who are unemployed for more than one year. Most people will get serious about finding a job when they only have a couple months of unemployment left, and will desperately take any job after their benefits run out.

    It is not surprising that the number of people unemployed for more than one year does not change much for any level of unemployment benefits which do not extend beyond one year. If unemployment benefits were extended for two years, then a very large increase in the number of 'long term unemployed' would occur.

  • Report this Comment On September 04, 2011, at 9:30 AM, daveandrae wrote:

    I can't wait to read these responses a year from now. It's starting to sound like March of 2009 around here.

  • Report this Comment On September 04, 2011, at 10:07 AM, joeblou wrote:

    What about the other side of unemployment benefits. They are like welfare for corporations to have someone to sell to when noone else is buying. Just like food stamps help farmers compete with other countries that help food sales directly. We have only extended unemployment benefits as needed to delay a jobs program til the last minute.

    I know people that used unemployment benefits to learn a new skill where writing mortgages etc. People often have to move to a new job which takes time.

    Is the unbalance in incomes a significant problem with demand or is that just so obvious we cant see it. If so we are

    like shooting ourselves in the foot

  • Report this Comment On September 04, 2011, at 10:58 PM, NOTvuffett wrote:

    Hey Morgan,

    "1. The levers are all pulled." First of all, this tells me the world doesn't work the way it does in their models. We can all see that pulling these levers has been an abject failure, and doubling down on it would be stupid despite what Krugman says.

  • Report this Comment On September 05, 2011, at 6:01 AM, steelerfan22 wrote:

    The group who are responding are all "fools" including me. I think that we should not focus on what is or what caused inflation but rather what we do to prevent the sting of inflation on our portfolios. I would like to see Motley provide some advise to us poor fools with their best guess regarding a recession and some guidance based on that best guess.

    Respectfully

    A new fool

  • Report this Comment On September 05, 2011, at 6:03 AM, steelerfan22 wrote:

    Correction to the above comment - I mean a sting from a recesion

  • Report this Comment On September 05, 2011, at 7:24 AM, TopAustrianFool wrote:

    "what we do to prevent the sting of [recession] on our portfolios."

    You keep doing the same... Buy good companies, for long term. Save some cash so that you can take advantage of deflatio during recessions.

    And if you actually want to learn to predict recessions within 12 to 14 mo, you need to study the Austian School of Economic's Business Cycle.

  • Report this Comment On September 05, 2011, at 10:36 AM, HowthCastle wrote:

    Pulling the levers was not a failure. In February, 2009, the economy was losing 200,000 jobs a week and the loss rate was rapidly growing, as it had been doing for over a year. Similarly, the Dow had fallen to 8,000 and the rate of fall was growing, and had been doing so for over a year. We seemed to be headed for a major depression. As soon as the stimulus passed, both of these loss rates began to decrease. We were headed for a calamity that was averted. It was, however, a bunt when what we needed was a clout.

  • Report this Comment On September 05, 2011, at 10:47 AM, HowthCastle wrote:

    To see the Dow, go to http://money.cnn.com/data/markets/dow/?page=2

    change time dropdown to 5 years.

  • Report this Comment On September 05, 2011, at 11:08 AM, TopAustrianFool wrote:

    @HowthCastle

    "We seemed to be headed for a major depression."

    We are in a depression thanks to the levers. Which disrupted capital restructuring of the economy. Without the levers we would have recovered in 12 to 16 mothns like every other depression without govt intervention. Yet we are here 4 yrs later.

    The Fed tripled the money supply, $1.2 Trill in printing. That's what you call a bunt? You obviously have no concept of what a $1 Trill means. Just keep repeating the Keynesian talking points to yourself, I am sure you will feel better eventually.

  • Report this Comment On September 05, 2011, at 12:11 PM, HowthCastle wrote:

    Let me get this straight: The economy is in free-fall. We pull the levers. Free fall stops. Therefore, all our problems are caused by pulling the levers.

  • Report this Comment On September 05, 2011, at 12:16 PM, HowthCastle wrote:

    If you think we are in a depression, then you have no idea what the Depression was like. (It is, of course still possible we are heading there.)

  • Report this Comment On September 05, 2011, at 3:23 PM, DrDoom1929 wrote:

    Recession or depression the economic label does not matter. It is the underlying reality that must be of concern. Plainly if all resources have been consumed all the money and economic policy in the world cannot solve what is scientifically impossible to remedy. This is bear market. And it will be the Mother of Bear Markets and there reasons behind it..

    www.firstfinancialinsights.blogspot.com

  • Report this Comment On September 05, 2011, at 3:49 PM, maiday2000 wrote:

    "Reminds me of the classic line: "I've already made up my mind. Don't both me with your 'facts.'""

    Boy if there ever was a case for the pot calling the kettle black, this was it.

    A study is only as good as the data that goes into it. You cannot find a good conclusion if you don't (or can't) measure all of the variables.

    The study from the SanFran Fed looked at the problem very one-dimensionally. People don't take lower paying jobs if they have unemployment benefits. There are studies that show a lot of people don't even look for jobs until they are within four weeks of their benefits running out.

    I am not saying unemployment insurance is a bad thing, I am just saying that to say that continuing to extend the benefits because of some study that purports to say that people receiving benefits are only out of work a week longer than those who don't is ludicrous.

  • Report this Comment On September 05, 2011, at 4:38 PM, TigerPack1 wrote:

    "A" for effort.

    Economic output has actually been in decline all year, but has been covered up by deceitful government reporting of CPI. If you use an accurate CPI reading of 5% or 6% YoY, 2011's economy has been moving backwards since January, in terms of real inflation adjusted "output." The entire QE2 stock market advance has been based in fiction and wishful thiking, despite the facts. Oh well!

    I take issue with #2, because of #1. The odds are the next recession will be WORSE than 2007-2009, for the reasons listed in #1. That would make more logical sense to me, anywho.

    FLASH DEPRESSION is well underway as Europe implodes, Japan is in recession and India and China are slowing dramatically during the summer.

    Stocks are NOT cheap if the "E" disappears quickly, in the P/E equation. Business profits the last two years are based on the unsustainable PONZI scheme being run by the FED. Without a free market foundation for the economy, determining accurate P/Es or Es is complete folly.

  • Report this Comment On September 05, 2011, at 4:49 PM, TopAustrianFool wrote:

    "If you think we are in a depression, then you have no idea what the Depression was like."

    You mean the Great Depression? The adjetive of "Great" implies the existance of just a depression. You seem to be the one who doesn't know how it was then, during the Great Depression. The govt pull levers with Hoover. FDR expanded the levers, both in size and number. And when it failed he kept pulling them. Turning what would have been a 12 to 16 month depression into a 20 year depression of multiple recessions.

    FDR said once that the govt ought to do something and if that doesn't work, do something else. If the govt. had done nothing we would have gotten out that 1929 depression, and the 2008 depression in 12 to 16 month. Just like we did in the depressions of 1821, 1837, 1919 and many others.

  • Report this Comment On September 05, 2011, at 5:17 PM, daveandrae wrote:

    Six year s&p 500 earnings history....

    2006 -87.72

    2007- 82.54

    2008- 65.39

    2009- 60.8

    2010- 83.66

    End of 2nd quarter 2011 - 93.04

    Do you see a "recession" in corporate earnings?

    I don't.

    In fact, s&p 500 corporate earnings are now at an all time high against historically low interest rates! A beautiful combination if you're running any kind of business.

    Thus, one of two things must be true.

    1. Either forward earnings are going to completely collapse, as the index has gyrated around the 1174 level for the last thirteen years or...

    2. The secular bull market which began in 2009 has much, much, further to go, and sooner rather than later, the market is going to rebound rather violently to its 80 year average p/e ratio of 14.5

    Given the fact that my own personal business is enjoying its best September in over three years, the negative sentiment of this forum, the fifth consecutive year of equity mutual fund redemptions, and "investors" are sitting on 26% cash levels earnings 0% interest, I would vote for the latter.

  • Report this Comment On September 05, 2011, at 8:50 PM, addikt06 wrote:

    <<daveandrae>> You are only number crunching and not looking at why these companies are so profitable now. Most of the costs of producing goods and providing services have been shipped to China, India and other third world countries which do it for dirt cheap.

    If things are so well, why are companies not hiring and sitting on trillions of dollars of cash? same with banks, why are they not lending to businesses and buying treasuries instead? why do we have persistently high unemployment? why is there all this talk about lack of demand? and what's with all this persistently poor economic data? The real economy is hurting and there has been no exception in the past where fundamentally an economy is doing poorly (high unemployment, low consumer confidence, etc.) and the stock market has gone in opposite direction. The bull markets of 2009+ were fools bull markets because the run up was due to fiscal stimulus and money printing from Fed and this is precisely what wall street is hoping for on Sept 22.

  • Report this Comment On September 06, 2011, at 12:47 AM, daveandrae wrote:

    ^

    The economy works, first, and most importantly, from a micro level.

    I have a business. I pay taxes. I am a long term equity investor.

    Thus, I am on the "front line".

    If the economy around me were truly deteriorating, I would have noticed it by now.

    It is not. In fact, it is beginning to accelerate.

    I was in the same position in December of 2007, when the local economy WAS deteriorating AND beginning to decelerate. The difference between the two time periods are as different as night is to day.

    Unfortunately, people like you don't want to hear things like this. Thus, my advice to you would be to simply turn off your television, stop reading articles on the internet, step outside your front door, go for a long walk, and take a hard look around.

    Do you see expansion or contraction?

    Is your community growing, or shrinking? Are the roads being paved, or are they falling apart. Are people buying houses in your neighborhood or are there multiple signs for sale? Are people going out, or staying in? Are your friends and family finding work, or are they still looking for jobs?

    Now I don't know what is going on where you live, but there is absolutely, positively, no economic recession here. The houses in my neighborhood have all been sold. The roads are being paved. The shopping malls are packed, and everyone I know has a job. In fact, businesses in my area are having a hard time finding skilled workers.

  • Report this Comment On September 06, 2011, at 8:01 AM, TomBooker wrote:

    Where the hail do you live? Down the road from Dick Cheney in Montana?

    Corporations have re-fi'ed on a yield curve that originates at .25% with the 10yr at an all-time historic low of 1.95%. Yet there are 25 million prime homeowners who are up-to-date on their mortgage payments, and can't re-fi below their 5-7% interest rate.

    Food stamps recipients have gone from 28MM to 48MM in less than 3 yrs.

    There are 28MM people unemployed or working part-time who want jobs.

    If i were you, I'd dig a wide moat around your gated community, and start thinking about who you are going to lay off in the EU group of your financial services company.

  • Report this Comment On September 06, 2011, at 10:00 AM, wrenchbender57 wrote:

    @FDRpart2: I keep wondering whether FDR didn't start this modern day boom/bust cycle? Yes, he did a great job getting us out of the Depression. But, it seems that ever since we have had boom/bust/boom cycles over and over again. Could it be that too much government interference in our markets is the root cause of these extreme cycles? For instance, the long term low interest policies of Alan Greenspan combined with the policies of Fannie Mae seems to have contributed to the housing balloon and subsequent bust. Seems like the role of government should be to regulate and to stimulate. But, it also seems that too much of either causes huge problems. Of course the opposite also seems to be true. At least in the case of inadequate regulation of the financial industry practices that lead up to the last stock market bust. The conclusion seems to be that the government must walk a fine line but cannot solve all of our financial problems by itself. Private businesses and private industry must be part of the solution to our financial problems.

  • Report this Comment On September 06, 2011, at 12:30 PM, Doris411 wrote:

    I've never understood how the people who have exhausted their unemployment benefits are included in the unemployment rate.

    I know from bitter experience that I didn't magically find a job when I stopped qualifying for benefits, but how does the bureau of labor statistics know that I still need one, and haven't settled down to live off my dividends?

    Can anyone explain the process?

    As a point of information, the unemployment agency can, at any time, demand to see a beneficiary's work search records. If they determine that said person was not seriously seeking employment, they can demand repayment of all benefits paid out. So much for sitting back relaxing until the last few weeks of eligibility.

  • Report this Comment On September 06, 2011, at 12:37 PM, TMFHousel wrote:

    <<I know from bitter experience that I didn't magically find a job when I stopped qualifying for benefits, but how does the bureau of labor statistics know that I still need one, and haven't settled down to live off my dividends?>>

    They might not know about you specifically. The unemployment statistics that get reported are based off of relatively small samples extrapolated out through the entire economy. The household survey used to calculate the unemployment rate is based on a survey of 60,000 households.

  • Report this Comment On September 06, 2011, at 12:41 PM, jdmeck wrote:

    "Deadline or not you just pointed out something very important. Wages for middle and lower class workers have remained stagnant for about 30 years."

    The above is just not true. Corporations pay out more in wages and benefits each year. Don't blame the corporation for inflation and the government stealing more of your pay.

  • Report this Comment On September 06, 2011, at 12:44 PM, TMFHousel wrote:

    ^ It's real wages per capita that are important. And they've been mostly stagnant for decades, depending on group.

  • Report this Comment On September 06, 2011, at 12:55 PM, whereaminow wrote:

    ^ Morgan, you are committing a fallacy by confusing real wages per household with real wages per individual. The latter have risen. The former have not because household composition has changed.

    Socialists/Statists/Authoritians of all stripes like to substitute in wages/house and say, "see, wages have stagnated and the rich are eating the poor". It's nonsense. Don't be the ten millionth journalist to screw this up.

    And please take a class at the Mises Academy so you can learn to be a good economist. Thanks.

    David in Qatar

  • Report this Comment On September 06, 2011, at 1:21 PM, TMFHousel wrote:

    ^ It's not nonsense or screwing it up.

    From BLS:

    Real income per household, 1980: $43,892

    Real income per household, 2009: $49,777

    Male real income per capita, 1980: $32,433

    Male real income per capita, 2009: $32,184

    It's only female real income per capita that have gone up, primarily because so many more are in the workforce. (The male population ratio has declined some, but not much. The male population ratio in 2006 was higher than it was in 1982.) Real female wages per capita increased from $12k to $21k between 1980-2009.

  • Report this Comment On September 06, 2011, at 1:23 PM, TMFHousel wrote:

    Again, as mentioned in the first comment, it depends on group.

  • Report this Comment On September 06, 2011, at 1:31 PM, jdmeck wrote:

    nick1211 was blaming the stagnation of wages on the corporation. As I stated that is totally false.

  • Report this Comment On September 06, 2011, at 1:43 PM, whereaminow wrote:

    ^ Morgan,

    Not only are you confused, but you are taking propaganda that comes out of the mouth of people like Marxist David Harvey and eating it up.

    http://www.census.gov/hhes/www/income/data/historical/index....

    Real per capita income per person 2009: $26,530

    Real per capita income per person 1980: $19,299

    And if you wish to get more granular, they have remained constant since 1999, not 1980. And that's no surprise because... well, we're fighting 5 or 6 wars. Last time I checked, they cost money. We're tried inflate our way out of two recessions through funny money creation, which diluted the purchasing power of the poor and middle class. And of course, government has regulated America to death.

    Now let's look at disposable income:

    According to the Economic Report of the President, http://fraser.stlouisfed.org/publications/erp/page/11119/614..., Real Dispsoable Income per person has nearly doubled over the last 30 years.

    So who is confused here? Again, the guy who eats up Marxist propaganda and uses it as economic analysis.

    David in Qatar

  • Report this Comment On September 06, 2011, at 1:45 PM, whereaminow wrote:

    Finally, here's Thomas Sowell explaining exactly why the Income Stagnation story is a total b.s. myth:

    http://www.youtube.com/watch?v=WrtoSx-NbLQ

    David in Qatar

  • Report this Comment On September 06, 2011, at 1:52 PM, 1Douggie wrote:

    From my perspective, we arn't out of the first recession so how could we have another one? Until housing construction takes off, there will be no recovery. Since that is not going to happen folks, this is the new norm for many years. I worry about my 3 Y.O. granson's and future generations whose futures were robbed by our polititions and bankers.

  • Report this Comment On September 06, 2011, at 1:56 PM, TMFHousel wrote:

    I must have missed the rule that says quoting BLS data makes you a Marxist. You're a smart guy David, but I'd like you vastly more if you kept your emotions in check.

    I don't think we disagree on much. Real income per household has increased, but that increase has been based on changes in household structure (more females working). Real male income per capita has stagnated. That was all of my original point -- the stagnation claim *is* true for some groups, and not for others.

  • Report this Comment On September 06, 2011, at 1:58 PM, whereaminow wrote:

    ^ The only person getting emotional here is you.

    "I must have missed the rule that says quoting BLS data makes you a Marxist. "

    I must have missed that rule too, because that's not what I said. I clearly said that the propaganda of Income Stagnation comes from Marxists. And yes, you ate it up.

    David in Qatar

  • Report this Comment On September 06, 2011, at 5:56 PM, FDRpart2 wrote:

    @wrenchbender57 :

    A good book that about USA, WEALTH and DEMOCRACY by Kevin Phillips

    Phillips is a former Republican and says the current conservatives and GOP have gone off the rails.

    He demonstrates how FDR's Keynsien policies saved capitalism from the so called "capitalists" who drove our economy into the ground due to Coolidge/Hoover laissez-Faire excesses. It's a very good tomb on the relationship of capitalism and democracy and how the current crop of "conservatives" confuse the two systems. In other words, economic system of capitalism does not equal freedom, but rather political democracy does ---ie: China practices capitalism without political democracy and therefore minimum "Freedom"

    Regarding Greenspan, he was part of the Ayn Rand goofy cult. Nuff said.

  • Report this Comment On September 06, 2011, at 6:02 PM, FDRpart2 wrote:

    @whereaminow (David)

    Thomas Sole is a crank. I'll take Nobel Prize winning economist Krugman's take over Tommy Sole's libertarian craziness.

    Barak, please channel FDR on Thursday. If you don't, iy will be 1937 all over again just like when FDR followed the cons advise and cut back the stimulus.

  • Report this Comment On September 06, 2011, at 6:24 PM, TopAustrianFool wrote:

    @TMFHousel,

    "Male real income per capita, 1980: $32,433

    Male real income per capita, 2009: $32,184"

    Is that "real' calculated with the Fed's scam CPI or with the real CPI as calculated before 1990?

    Don't you know that CPI after 1990 is cooked to pay lower CPI adjusted interest to the Chinese suckers and any other sucker buying war bond? If you want to speak econ, you have to use meaningful numbers.

    You have to admit that you tend to use data with a Keynesian skewness.

  • Report this Comment On September 06, 2011, at 6:44 PM, TMFHousel wrote:

    I've learned a lot today.

    If you cite Bureau of Labor Statistics figures, you've been influenced by Marxists.

    If you cite Bureau of Labor Statistics figures, you're falling for a scam to get the Chinese to buy our war bonds.

  • Report this Comment On September 06, 2011, at 7:40 PM, TopAustrianFool wrote:

    Nope... not to buy war bonds, to pay them less than the real inflation.

  • Report this Comment On September 06, 2011, at 7:55 PM, TopAustrianFool wrote:

    By the way, just because BLS is govt doesn't mean its true, correct or complete data. I couldn't care less where you get your data. To say that real income is the same as in 1980 is a highly suspicious statement. In 1980 there were no cellphones. The 1st cell phones and PC cost thousands of dollars. Now people on wellfare have cable tv and cell phones. That in itself shows you that as a society we are richer. In 1980 most houses had 1 bathroom, not today.

    So please be a little skeptical and don't fall for the bias of agreeing with whatever suits your prejudice.

  • Report this Comment On September 06, 2011, at 8:03 PM, TMFHousel wrote:

    ^ Curious, are you susceptible to biases of theories that fit your prejudices too?

  • Report this Comment On September 06, 2011, at 9:14 PM, TopAustrianFool wrote:

    Nope. I am a scientist. I only use models that work best in explaining the past and predicting the future outcomes of experiment. I don't really have preferences. And I never lie. Like Superman.

  • Report this Comment On September 06, 2011, at 9:58 PM, TigerPack1 wrote:

    http://www.shadowstats.com/

    The internet allows people to discuss the actual numbers in open, instead of relying on government data bent toward keeping a lid on the population.

    The truth shall set U.S. free.

  • Report this Comment On September 06, 2011, at 10:10 PM, TMFHousel wrote:

    The Internets also allow people discuss the merits of those discussing the merits of govt numbers:

    http://www.econbrowser.com/archives/2008/09/shadowstats_deb....

    I've always found it curious that a group of people who are obviously quite skeptical accept everything ShadowStats published as established fact.

  • Report this Comment On September 06, 2011, at 11:01 PM, TigerPack1 wrote:

    Fair enough rebuttal. You are still one of my favorites on MF.

    I keep my own numbers, and they don't look anything like the CPI for inflation the last 24 months. I encourage others to do the same, either by looking at their personal expenditures or creating a basket of goods and services in their area fo the world for comparison and enlightenment.

  • Report this Comment On September 06, 2011, at 11:08 PM, TMFHousel wrote:

    ^ I couldn't agree more! Inflation is a very personal number, as people's consumption expenditures vary wildly. If you live in NYC and don't drive, gasoline prices may be virtually irreverent to you. If you live in a temperate climate, natural gas prices may have no impact on you. If you have 7 young, hungry kids, food prices are far more important to you than others. It depends on your personal circumstances.

  • Report this Comment On September 06, 2011, at 11:17 PM, TigerPack1 wrote:

    According to low-ball government CPI, Social Security recepeints have received ZERO for cost of living raises the last 2 years. Do you really think utility rates, grocery bills, home and car insurance, gas prices, golf fees, imported clothing prices from China, etc have NOT risen at all the last two years?

    Maybe by trading down the quality scale in your standard of living, you can "maintain" your existence, but this big ploy in the CPI adjustments each year (called improvements), is a sham to disguise a back-sliding economy. I have mentioned specfic examples before of the downgrade in quality of products that is used to revise the CPI measuring stick. For example, comparing organic eggs from 1940 to organic eggs in 2011 yields a completely different end result for price than comparing industrial farm eggs in 2011 to organic ones in 1940. An egg is an egg according to the government and the newer puke variety is labeled an improved, vitamin enriched product vs. the one that is actually safer to eat and tastes 10x better.

  • Report this Comment On September 07, 2011, at 5:17 AM, TopAustrianFool wrote:

    "I've always found it curious that a group of people who are obviously quite skeptical accept everything ShadowStats published as established fact."

    Actually Shadow Stats uses refernces and always shows exactly how they analyze the data. BLS does similarly, lathough not as clearly. You can actually compare both. The problem here is that people tend to just quote the numbers without checking the references and methodology. If you take the time and have some experience with analyzing empirical data you will see that ShadowStats almost always uses a methodology that reflects directly the intent of the statistical measure.

    So our best bet is to argue about the faults of yours or anyone else's cited data. Which some and you have done here but at times seem to want to avoid. Instead of countering an attack on your argument on the merits, with the fact that the data is from BLS, you should probably expand on the validity of the methodology.

  • Report this Comment On September 07, 2011, at 2:16 PM, TheMotleyTimbear wrote:

    Just anecdotally regarding the unemployment discussion earlier in the thread, as a recent graduate from a top 20 university, a large number of my fellow students were unable to find full-time work after graduation. Some live with their parents, or on their parents payroll. The foreign students were forced to return home and bring their great education to another sovereign economy to be put to productive use. 50% of my graduating class continued on to grad school because no job options were available. Others have hopped around from low-paying job to low-paying job that in no way utilize their critical thinking skills from school. The unemployment numbers do not account for my generation that is growing up without a career path. This is bad now, but worse for the future, as many of us have little to no relevant work experience and are not top candidates for productive modern economy jobs. Productivity in the future will suffer.

  • Report this Comment On September 09, 2011, at 8:34 PM, electricprunes wrote:

    You folks really have no clue about what is going on in the world. An example of this are the "years of recession" you quoted as "golden buying opportunities". Let me explain

    1933, the rise of nazi germany and stalin. Millions of real People killed. We got involved losing on 3 fronts and eventully won, but at a tremendous cost in lives and infrastructure. And you say that was a good year, you are fool if you believe it and should be glad we are not there now. The only reason the stockholders made out was on the blood of our soldiers, not because of any "entrepreneural ability".

    1948, the fall of China to the communists, the start of the cold war, thousands again killed for no good reason. We will soon be sending all of our real productive work to them. What is so good about that?

    1953, right after the Korean Police action. My cousin came home in a body bag a few years prior and is buried. Again thousands killed for nothing. Now North Korea has the bomb and propogandizes its children that we americans are nazis. South Korea sells us a car called KIA. DEo you know what KIA stands for? Killed In Action, idiot. If they tried selling them in 1954 the American people would have given them to the reds on a silver platter.

    1982, the final push to demanufacture the American industrial base. Hundreds of thousands of American WWII vets thrown into unemployment. The plants closed up and declared bankruptcy so they lost their pensions. Rich do nothings capitalized on the mess.What good was this?

    2002, the year people first realized making nothing but "ideas" in America was a bad idea. Thousands of people with desk jobs got a taste of recession for the first time. Japan already losing its manufacturing base. Communist China is building up and buying us, the U.S., now the largest debtor nation in the history of the world.

    2009, scheister bankers get bailed out of loans they should never have originated. Auto companies likewise even though many of the key parts or parts of parts are made overseas. CEO's are raking in more than they ever have while the broompusher is now the working poor. Bums who had desk jobs writing "programs" for 100k per year are living in expensive houses they can't pay the mortgages on, even now, because the banks know if they push them out they will wreck the places. It is ironic that the thrifty who saved and paid their debts live in worse housing stock than people who won't pay their mortgage. Honest people who lived within their means and have saved their money are screwed by the traitor Benjamin Bernanke and his "quantitative easing" money printing, dollar devaluation schemes. Practically all meaningful production has been shifted out of our borders. The rich keep getting richer and the middle class poorer. The poor are worse off.

    2011, fortunately we have a very powerful military even though their uniforms are made in China and India. The guns and technology of military prominence are still ours. But they do not belong to "we the people". If you look at this nations IOU's they belong in large measure to China. We used to placate ourselves by saying treasury debt was money we "owed ourselves" Now we owe it to someone else.

    It only took about 50 years for the elitist, multinationalist, money grubbing scum in this country to turn it from the greatest, most powerful economic machine the world has ever seen into the most debt ridden, gambling, crooked, non productive nation the world has ever seen. Once our house was made of gold, now its made of paper. And I am not talking physical gold here, even that has and will again burst its bubble.

    I have noted that the majority of the comments on this post have come from people who have no idea what a real crisis is. You capitalize on a nation's weaknesses to enrich yourselves. You never had a day when you weren't sure where your next meal was coming from. If our government had any brains at all it would clamp the umbilical cord on you parasites and give this country back to the people who made it what it was, not is. America First!

  • Report this Comment On September 09, 2011, at 11:33 PM, DrDoom1929 wrote:

    Recession? More like a depression as we are firmly caught in the grasp of a policy trap that cannot be cured by the alchemy of macro-policy measures.The reason economics will fail at every turn is because it is not an economic issue.That would be akin to blaming the writer of the journal entry for the write down of bad loans.

    The truth lies in the physical realities most of us deny and that are now approaching exponential magnitudes.These stark realities relate to the physical constraints of the planet realtive to the people it now carrys.The metaphorical pie is shrinking, yet those attending the dinner table grows larger by the day.

    Let us recognize that economics is not a science, but simply a field of musings and philosophy that has ascribed its own contextual logic as a definitive understanding of human activities.Indeed it is truly an anti-science that conjures up invisible hands, infinite growth and currency devices that purport to store value.When such magic is scientifically, mathematically and logically impossible. Existentialism and science is required, not myths and nefarious economic alchemy.

    Otherwise the depression and bear markets are set to possibly last for decades to come. And predicting their consequences reaches far beyond what may be humbly imagined.

    With reference to preceding comments, now I wonder what the real crisis is?

    www.firstfinancialinsights.blogspot.com

  • Report this Comment On September 10, 2011, at 12:07 AM, philmorse wrote:

    Very cool rant, electricprunes. I met a rich dude in New Hampshire who showed me all the wonderful furniture he got a steal on at Christies, the day the Japs bombed Pearl Harbor...He was the only bidder...didn't even feel guilty...in fact he was rather smug. Is he your typical investor? Yes, in a way.

    As for the rest of it, after half a century or more of bullying its neighbors America is probably about to get the depression it deserves.

  • Report this Comment On September 14, 2011, at 9:37 AM, WhidbeyIsland wrote:

    “Narcissist” refers to a person who pays little attention to other people. Fortunately, there are no narcissists participating in this illuminating discussion. Just you and me, two narcissists talking to ourselves... Everybody else is communicating in a useful and productive manner.

    Whether we call this the 2nd Great Depression or another recession, we are going through a major convulsion of our political-economic system. Many people cannot find jobs, even after searching for months or even a year. Many people are going to food banks every week. We have probably passed the point of peak oil, while still hugely dependent on the internal combustion engine for getting around.

    Robots now perform tasks on assembly lines. Artificial intelligence programs answer many telephone calls to companies. Computers and phones are morphing into androids.

    About 1-5% of our work is now done by androids, robots, or artificial intelligence instead of by humans. Probably by the end of this decade the proportion will rise to 25% to 50%. This means that about half of human beings will no longer be needed to produce goods and services to keep us alive.

    The gradual replacement of humans in the work force creates (at least) two major crises.

    1) How do we reorganize the distribution of wealth for this changing economic system, based on both exhaustion of natural resources and automated production systems?

    2) For most human beings, employment is necessary not only for participation in the economic system, but also for having a feeling of worth and purpose. As we turn into the equivalent of ethical slave owners, how do we occupy ourselves and find a reason to keep on living?

    I suggest to Motley Fool that you start a topic to address these issues.

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