Stuff Going on While We're Busy at Work Today - Part 2
What's going on "out there" that busy gents at work should keep their eye on? Let's go back to that conversation in the last post that I had with my friend. Remember that he's a real maven when it comes to politics. When you're talking to someone with his knowledge and understanding of political shenanigans, individual politicians, someone who holds passionate partisan views, it can seem like anything good or bad that happens in the world happens strictly because of the words and actions of politicians. While politicians do make some things happen, and stop others from happening, they're not omnipotent.
For example, it seems to my friend that the only reason the American GDP hovers around 2% is because the Fed hasn't cut rates, as our esteemed President desires. If not for the Fed, the "Trump Economy" would be firing at 4% or more every year. I was a bit startled hearing this, given that I couldn't see how Trump or my friend knew this. So pursuing that line, I learned that, indeed, if the Fed had cut rates, there would be no reason for the media to be pushing the idea that a recession was just over the horizon. (Such claims were clearly aimed to undermine Trump.)
Rather than get into the weeds of the likely reasons the Fed wasn't (at least so far) cutting rates aggressively, I focused on this "no recession" idea. Did my friend mean that a recession wasn't immanent, or that there's not reason to expect a recession any time soon, or that as long as Trump was President there would be no recession, if only people would follow his policy preferences - e.g., cutting rates? Now my friend is a really bright guy. And this really bright guy actually said there'd be no recession, indeed that the only reason a recession might occur - ever - would be the Fed raising rates - period.
With that, I gently reminded this gent that the way our economy works - at least in the era since the creation of the Fed - two things must always occur: inflation (they say ideally at somewhere around 2% per annum) and recessions. For better or worse (and I'd say for worse), the economy can't function properly without inflation. As for recessions, they must come because the Fed typically artificially pumps up the economy enough such that it collapses of its own weight at some point - kind of the way an over-muscled athlete on steroids will eventually burn out or injure themselves.
My insistence that a recession was going to occur and we shouldn't be surprised if that happened even if Trump were reelected didn't thrill my friend. But it did draw a grudging acknowledgement that it was possible.
Pushing the conversation to the next level, I insisted it wasn't just possible: It was inevitable. Moreover, it could be pretty wicked. Why wicked? For one thing, our national indebtedness has blown up under the last three presidents, including Mr. Trump, such that the percentage of debt to GDP will hit a danger level. And some point we could see lots of defaults, bankruptcies, and renunciations of debt on the part of companies, individuals, and some governments. (Keep your eye on Argentina and Italy, perhaps even China.) Depending on the extent of what goes under the general rubric, "implosion," we could see a worldwide cascade of defaulting debt, leading to a liquidity crisis leading to market crashes, broad and severe recessions, possibly leading to wide-spread unemployment, social unrest, even revolution in certain countries.
Not a pretty picture.
My friend clearly hadn't thought about this possibility - which surprised me, given how intelligent he is. I suggested he's gotten caught up in partisan positions that focused exclusively on pointing the finger at the opposition. Instead, he should put some thought into whether he felt he was prepared for a recession, especially if some worst case scenario were to occur. His answer shocked me. He said he hadn't thought about it and, anyway, there was nothing he could do about it.
Now, gents, here we get to something important going on that, despite our busy work schedules, we should keep an eye on. Something like a severe recession, while not pleasant to think about, isn't beyond the realm of possibilities. And I submit that prudence dictates that we take stock of how we might fare if and when a recession comes, as well as consider what measures we might take now to cushion ourselves and our families against the possible shock waves as best we can.
When you know a hurricane approaches, you don't ignore it and just go to work. You prepare in whatever ways you know will best equip you to weather the storm.
Same holds for the coming recession.
No matter how busy we might be at work, we can't remain buried in our busy-ness while a storm is brewing.
Next time I'll share some recent reading that provided me with some perspective, along with some specifics, that could help us prepare.
For example, it seems to my friend that the only reason the American GDP hovers around 2% is because the Fed hasn't cut rates, as our esteemed President desires. If not for the Fed, the "Trump Economy" would be firing at 4% or more every year. I was a bit startled hearing this, given that I couldn't see how Trump or my friend knew this. So pursuing that line, I learned that, indeed, if the Fed had cut rates, there would be no reason for the media to be pushing the idea that a recession was just over the horizon. (Such claims were clearly aimed to undermine Trump.)
Rather than get into the weeds of the likely reasons the Fed wasn't (at least so far) cutting rates aggressively, I focused on this "no recession" idea. Did my friend mean that a recession wasn't immanent, or that there's not reason to expect a recession any time soon, or that as long as Trump was President there would be no recession, if only people would follow his policy preferences - e.g., cutting rates? Now my friend is a really bright guy. And this really bright guy actually said there'd be no recession, indeed that the only reason a recession might occur - ever - would be the Fed raising rates - period.
With that, I gently reminded this gent that the way our economy works - at least in the era since the creation of the Fed - two things must always occur: inflation (they say ideally at somewhere around 2% per annum) and recessions. For better or worse (and I'd say for worse), the economy can't function properly without inflation. As for recessions, they must come because the Fed typically artificially pumps up the economy enough such that it collapses of its own weight at some point - kind of the way an over-muscled athlete on steroids will eventually burn out or injure themselves.
My insistence that a recession was going to occur and we shouldn't be surprised if that happened even if Trump were reelected didn't thrill my friend. But it did draw a grudging acknowledgement that it was possible.
Pushing the conversation to the next level, I insisted it wasn't just possible: It was inevitable. Moreover, it could be pretty wicked. Why wicked? For one thing, our national indebtedness has blown up under the last three presidents, including Mr. Trump, such that the percentage of debt to GDP will hit a danger level. And some point we could see lots of defaults, bankruptcies, and renunciations of debt on the part of companies, individuals, and some governments. (Keep your eye on Argentina and Italy, perhaps even China.) Depending on the extent of what goes under the general rubric, "implosion," we could see a worldwide cascade of defaulting debt, leading to a liquidity crisis leading to market crashes, broad and severe recessions, possibly leading to wide-spread unemployment, social unrest, even revolution in certain countries.
Not a pretty picture.
My friend clearly hadn't thought about this possibility - which surprised me, given how intelligent he is. I suggested he's gotten caught up in partisan positions that focused exclusively on pointing the finger at the opposition. Instead, he should put some thought into whether he felt he was prepared for a recession, especially if some worst case scenario were to occur. His answer shocked me. He said he hadn't thought about it and, anyway, there was nothing he could do about it.
Now, gents, here we get to something important going on that, despite our busy work schedules, we should keep an eye on. Something like a severe recession, while not pleasant to think about, isn't beyond the realm of possibilities. And I submit that prudence dictates that we take stock of how we might fare if and when a recession comes, as well as consider what measures we might take now to cushion ourselves and our families against the possible shock waves as best we can.
When you know a hurricane approaches, you don't ignore it and just go to work. You prepare in whatever ways you know will best equip you to weather the storm.
Same holds for the coming recession.
No matter how busy we might be at work, we can't remain buried in our busy-ness while a storm is brewing.
Next time I'll share some recent reading that provided me with some perspective, along with some specifics, that could help us prepare.
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