The recession after the recession

25 July 2009 Sören Zschoche 18 Comments Economy

Within 12 days the Dow has went up more than 1000 points and is now above 9000 again. A reason for this little summer rally could be the banks making gains again, and some signs predict that the economy brightens up again. It seems that the optimism is back. And that’s also my opinion, the enormous cyclical programs are doing their work.

But is this really the beginning of the end of the worst economic crisis after 1929? I don’t think so, because a second recession seems to appear in the year 2010.

But let me explain. The cause of the current crash was the collapse of the global growth model, which was handled by the industrialized countries for years. The model was based on consumption which was financed by credit. Huge current account deficits, a dept bubble and finally the world financial crisis were the results of this model. But the model also had positive affects, for years the Anglo-Saxon consumers had been the locomotive of the world economy. Everybody had a benefit from this model. Developing countries could produce huge amounts of goods and established new jobs for their people and the people of the industrialized countries lived a life in decadence and wastage. Suddenly artists like 50 Cent earned more than 400 Million USD at the stock markets and a company of a 23 year old guy was valued by 15 Billion USD.

But in my opinion this is over now and it won’t come back for a long time. Now the world has to pay the price for the excesses of the past. The governments of the industrialized countries can’t afford to pump more money into the system, solely the USA have accumulated a gross debt of 12.000.000.000.000 USD. However exactly here is the problem: the world needs a draft horse which gives strong impulses when the economy starts to recover in the year 2010, but the governments of the industrialized countries have to darn their budgetary holes by stopping their expenditures and higher taxes. Also the Federal Reserve can’t pump money into the system endlessly and BRIC counties like China or India are just not strong enough to play the role of the draft horse for the world.

Well, to assume the facts I agree with economists like Nouriell Roubini, Robert Shiller or Barry Eichengreen who also don’t believe that this crisis will be over that fast. Even if it seems like the current crisis has reached the bottom, which perhaps might be true. To achieve the growth we are used to, we will probably have to wait many, many years.

18 Comments »

  • | body detox said:

    the economic recession has been pretty hard on us. there is some good progress on the economy this year. i just hope that the economy will continue to recover in the following months and years.

  • Jacee said:

    i am hoping that the global economy would recover from this economic recession. life has been very hard with these massive job cuts.

  • Anthony Mallgren said:

    Taken into light of your analysis, my belief would be that we, as a country, financed the American Dream (real estate and consumer spending) at the expense of financing business. As you said, New Money got paid and we felt the brash actions of this world where currency was flowing into assets that could only produce value through growing valuations. So much money was dumped into these assets that it left no money to actually earn the money to pay for the long-term commitments that were made.

    I think it is deceptive to think of countries as components of a global enconomy rather than individualizing countries economies to model the health of the global economy. Indeed, if anyone country jumped ahead, the draft horse, it could indeed pull the globe out of recession. Although this isn’t so much of a question as to whether or not to pump money into the economy, but how to do it in a way that it unties money to finance business ventures, innovation and true value on the global landscape.

  • R Keane said:

    Decimal Place Trading caused the recession of 2008
    This recession was caused by the manipulation of stock prices on Wall Street through naked short-selling, flash trading, high-frequency trading, secret software, super-fast computers and what I feel was the main cause of this corruption: “Decimal Place Trading.” As I write this article today, much of this corruption is now slowly coming out through social media outlets such as Twitter and Facebook, along with bloggers on the internet, Yahoo bulletin boards, and the movie Stock Shock. The news media is also to blame for what has taken place in this country — including the near-collapse of Wall Street and the banking industry.
    There are many things to point fingers at or place the blame on, and I can think of a few off-hand that I would like to cover — the first being Wall Street’s regulation changes. I am no expert — I am not even a writer — but decided to tell this story since the business news media was not telling it. These Wall Street regulation changes contributed to the aforementioned problems in many ways, with the first being the removal of fractions in stock pricing. On January 29, 2001, the New York Stock Exchange, or NYSE, went to four-decimal-place trading. On March 12, 2001, the National Association of Securities Dealers Automated Quotation, or NASDAQ, followed suit. This new rule had the best of intentions as we headed toward the computer and digital world, but over time it was manipulated and companies like Goldman Sachs figured out how to take advantage of the new system. I am not sure how it happened, whether it was lobbied for years or what — but along came the biggest mistake of all with the elimination of the uptick rule in July of 2007. This rule had been implemented after the great depression, and had been in place since 1938. How could the Securities and Exchange Commission, or SEC, abolish a rule that had been in place for close to 70 years, and had worked? Put these two changes together, and you get a simple equation: greed plus corruption equals recession.
    Reports have been released on the web that Goldman Sachs made over 100 million dollars per day in 46 out of 64 trading days in Fiscal Year 2009, second quarter (April, May and June). Let me say that again. They made over 100 million dollars per day, and are still doing it as I write this letter today. But the question remains, how did they do it? There has been no report of this by any of the news media. How can this be? This corruption is 100 times the gravity of the Bernie Madoff story, and yet there has been no coverage by CNBC or Bloomberg News. Why? Goldman Sachs, upon Wall Street transitioning to fractions and the abolishment of the uptick rule, designed secret software and used this software to gain an advantage on every potential investor. Basically, Goldman Sachs became a Las Vegas poker dealer in New York City on Wall Street, turning profits on investors every trade with their super-fast computers and software.
    Richard Keane August 26th, 2009 Revised version

  • Daniel said:

    It can´t be worse that this. Hopefully we will get back on track as soon as possible.

  • Senan said:

    It’s 2 months now since this blogpost. I feel that the market is again in bubble territory. It seems mainly speculation that is driving purchases in the very companies that fell furthest until March ’09. Surely it’s a certainty that a mrket correction is on the way.

  • Pico RG said:

    I don’t think that people can change in some short time. You see if you want to have money and power you will need to work much. And there are your problems. We can direct traffic to USA but you must capitulate. Then you will be like Italy, Germany, France etc.
    Your time is over to be honest. People don’t work much in USA now as before. I guess you don’t want to suffer more. But its still your government that works, but they can not work for 320 millions of people. In one hand it is very sad that you lost so much in details when there you have so much people there.

  • Jenna said:

    the Economic recession made a lot of jobless people in my own country. We could only hope that our economy becomes strong again.

  • Mike said:

    Last month the government paid a whopping $14.93 billion in interest payments. Between 2001 and 2008 the total public debit increased from $5.6 trillion to $10.7 trillion. Currently the total public debt is approximately $11.99 Trillion (the sum of yearly debt since we became a nation). This brings our total debt to GDP ratio close to 80%.

    Read more at: Mike’s Economy Blog

  • Senan said:

    The ‘double dip’ scenario is becoming more and more likely. Surely what we’r seeing now is over-bullishness. Also data is being interpreted in a very positive way. For example, less people are losing their jobs…but of course there is less people working to begin with so the data is skewed…

  • cell phone treasure review said:

    I think within a year or maybe 2 years we are seeing one of the biggest economic collapses ever.

  • JohnnyLaw said:

    Talking about recession. Now that the gulf coast is devastated by oil it’s a nightmare for the South and I don’t think the rest of the United States has a clue how the Gulf Coast Seafood Business is going to effect restaurant sales across the nation. Get ready for things to get worse.

    JohnnyLaw
    Structured Settlements

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