Saturday, July 05, 2008

What are recessions and bear markets?

I'm reading picky definitions, e.g. a bear market is one that drops 20% in two months, and a recession is two quarters of negative GDP.

Says who?

What we're in now waddles and quacks like a duck, and darned if it isn't a duck. I say we're in a recession and a bear market, and have been so since the year 2000. A recession, because our manufacturing industries are in steeper decline and will take the rest of the economy down slowly with them*; a bear market, because the stockmarket is more likely to go down than up, over the course of the next year or two.

I once paid for a repair to a slow leak in one of my tyres, and only when I ran over a nail did I discover that the repair had been effected using an old-fashioned inner tube. It went totally flat in two seconds. Thank goodness I wasn't on the motorway. Now, any problems, I get a new tyre.
Monetary inflation was used as an inner tube to repair the economy from around 2003 on. Subprime was the nail.

* For corroboration see "Alice" on the UK current account deficit and our declining trade.


dearieme said...

Nice analogy. We tend to look at the electronic indicator boards that tell us how full the local car parks are. At 1:00 pm today, two of them were full-to-bustin'. And yet we have lots of empty shop sites in our most recent shopping centre. Conflicting messages here.


Thanks, DM.

Shops: lots looking, not many buying - a sign of DEflationary expectation, where hard goods are concerned. I don't think everyone is so badly-off as the press is chorusing - if pasta is up 40%, it's still incredibly cheap.

But it's a time when the poor will get poorer, unless we can afford to maintain the real value of social benefits. Fischer ("The Great Wave" says that in the late stage of an inflation cycle, food and energy costs go up, but real wages decline. I understand that the decline in real earnings has been going on in the USA for a decade.

Fischer also repeats a point, that one cause of the French Revolution was that, thanks to better food distribution systems, the poor didn't starve to death as a result of the bad harvests of 1787-89. So they were hungry, but had enough energy to get together and destroy the system. Hope this doesn't give the latent (becoming blatant?) fascists in our ruling/managerial class any ideas.

Wolfie said...

Yes, excellent analogy.

hatfield girl said...

One reason for the rise of fascism in Italy was that the Italian army returned victorious, having lost very few men, unlike the UK, and were determined to find a means of enjoying their victories. The rigid economic and class system extant collapsed, unable to force them back into the 18th century.