What is so bad about a recession?

first of all, no one in their right mind is suggesting what you assert. which means obviously no one of any repute is panicking, either. second, it's an election year. third, doing nothing to stimulate the economy in a recession is, arguably, a rather poor way to go about getting the economy out of one.

and your description of the great depression as "problematic" is quite the cute understatement.

If you actually owned things and had money you would understand why people are panicking.

Probably a college student with no assets and all bills paid for by someone else.

I wouldn't say that only one recession has been problematic, but I agree that people generally overreact to recession. We aren't headed for a repeat of the great depression or anything like that. People like to act like everything is going to hell every time any economic indicator gives us any bad news at all.

test.com wrote:

Probably a college student with no assets and all bills paid for by someone else.

Not quite. I've got quite a bit in the market. But I'm also thinking long term so a many month dip doesn't affect me. In fact, I think of it as a buying opportunity.

chuck d wrote:

first of all, no one in their right mind is suggesting what you assert. which means obviously no one of any repute is panicking, either. second, it's an election year. third, doing nothing to stimulate the economy in a recession is, arguably, a rather poor way to go about getting the economy out of one.

and your description of the great depression as "problematic" is quite the cute understatement.

Did you listen to Bernanke this morning? He supports a huge stimulus bill to put more cash into the system. Plus, he has been lowering the fed funds rate, and will do so for quite a long time.

True though, the election year probably has quite a bit to do with it. It is likely nothing more than lots of propaganda for the D's.

Lastly, how would you describe the Great Depression? Of course it was problematic. I wasn't going into that more for obvious reasons of how bad it was.

It's not just about the market.

In a recession production goes down. When production goes down, people lose jobs. If you were about to lose your job you would panic too, even though you would probly find a new one in a few years. A few years without a job sucks, so does a few months. Also, if you were about to retire, you would not look at the dip in the market as a buying opportunity, but rather as a few more shitty years of shitty work.

There won't be a recession this year but there is a lot of uncertainty. There will be slow growth in every quarter. Whoever gets elected next year, Democrat or Republican, will eventually raise taxes to pay for the war and for infrastructure improvements. Do you remember that bridge that collapsed in Minnesota? As much as people hate paying taxes, they don't want to drive over unsafe bridges. If other countries decide that they don't like a weaker dollar and move to the Euro as a primary reserve currency, then you'll have your depression. The good news is that 2008 will be over in 12 months.

Why the big deal? - PAIN, in the form of unemployment.

It all trickles down.

There is a recession every 7-10 years and it is good for "cleaning out the dead wood" in terms of companies, etc. but the end result is often higher unemployment, low/no/reduced wage growth, less money made available for city government and city services, less money available for charities, etc.

Recession - as someone astutely pointed out, is not about the market. Recession is about your job - when companies have low earnings and no one is buying many goods, then a company must cut back on expenses (with employees being a large expense) or go out of business. If you are on the receiving end of job cuts then it becomes problematic on a personal level. Performance on the job often means nothing - especially when an entire branch is closed or an entire department is cut.

It depends on your job. If you are in a recession proof job (think government employee of some kind) then it is no big deal (forgetting for a moment the impact of an eroded tax base). In fact you might be better off because the price of goods won't rise as much as they might in boom times and also keeping up with the investment banking joneses will be easier because they won't be buying new cars, they will be out of work.

If you are in a job that involves the manufacture, transport, sale, etc. of non-essential items then you may be out of work or make less money than usual. This means you might have to sell your home, or change your lifestyle. That has an impact.

On a macro level, if people don't have money, they don't buy things. If things are not being bought, then jobs that provide those things go away. People that did those jobs may have to resort to government support more than usual. This puts a greater burden on social systems and could increase your taxes, or reduce the amount of non-essential services the government can afford. That affects everybody.

That is a very broad description - and is admittedly open for debate.

why the big deal? wrote:

Is this a myopic view? Possibly.

However, what is the big deal about a recession? Why all of the talk of the big R word? The economy goes in cycles. Most years it is up, some years it is down. In fact, there is a recession every 7-10 years, is there not? I am all for cutting taxes, but why all the "drop interest rates to nothing and put thousands of dollars in everyone else's pockets to spend spend spend!"

This country has survived every single recession it has been in, with only one becoming problematic. Our economy is nothing like it was in the mid 20s, so why the panic now?

1) Recession CAN be a big deal. Japan is still in one that started in 1991.

2) Recessions though aren't the end of the world -- for Japan or the US.

3) Still good to avoid them if possible, or at least to try to minimize them. Prolonged recessions lead to loss of jobs which further slows the economy and increases crime.

4) You are right to think of a dip in the stock market though as a buying opportunity. It certainly is. Do recognize that the stock market isn't tied to a recession at all. They tend to go hand in hand, but a recession is based on economic growth or contraction. The stock market isn't factored in that at all.

5) Panic is silly though. People who panic are people who were not prepared. You prepare yourself for a recession in several ways -- be debt free, have 6 months of expenses saved, have skills that enable you to get a variety of jobs, be prepared to make lots less than you currently make if you have to. So, what if you lose your $75,000 a year job and can only find one that makes $40,000? If you spent as much as your income allowed, then you're stuck. If you didn't, and you have that emergency fund of 6 months saved, then you're golden. Keep the lower paying job until the economy stirs up again and then get back to what you should be making.

6) Dropping interest rates is not necessarily a bad idea. People start small businesses with the help of SBA loans. SBA loans are tied to the Prime Rate. In September the Prime Rate was 8.25%, and SBA loans were being offered for 10.25% -- that's pretty high. Today the Prime Rate is 7.25%, and SBA loans are 9.25% (about). If Berkanke lowers rates again (and he will) it just helps people wanting to start small businesses all the more. It also helps banks, because in times of high interest rates AND recession or near recession, people don't want to borrow money, so to get customers, with lower rates, banks will get some business they wouldn't have had.

In the grand scheme of things, you are right -- no need to panic, even in times of recession (which we are not in yet but may be soon -- need two successive quarters of economic contraction to be in a recession; so technically we could be in the midst of what turns out to be a recession, but it isn't defined yet).

Recession, reschmession.

Flagpole,

Tell me what happens if one of your mutual funds suddenly issues 10% more shares? Say your MF is worth $100 million and there are 10 million shares, then MF issues another 1 million shares? What happens to the value of the shares that you hold?

Recessions reduce tax revenue and adversely affect corporate welfare gifts, subsidies and handouts to farmers, ear marks, and pork-barrel projects, and that's how you get elected, Einstein !

um, japan is not in a recession. and they certainly have not been in one for seventeen years.

AmericanXpress wrote:

Flagpole,

Tell me what happens if one of your mutual funds suddenly issues 10% more shares? Say your MF is worth $100 million and there are 10 million shares, then MF issues another 1 million shares? What happens to the value of the shares that you hold?

If they bring in another $10 million to pay for the shares, nothing changes. If they dilute the shares where the old 10 million shares are now the 11 million, then your value would go down about 9%.

why the big deal? wrote:

Is this a myopic view? Possibly.

However, what is the big deal about a recession? Why all of the talk of the big R word? The economy goes in cycles. Most years it is up, some years it is down. In fact, there is a recession every 7-10 years, is there not? I am all for cutting taxes, but why all the "drop interest rates to nothing and put thousands of dollars in everyone else's pockets to spend spend spend!"

This country has survived every single recession it has been in, with only one becoming problematic. Our economy is nothing like it was in the mid 20s, so why the panic now?

Because when a recession hits, people lose jobs. When people lose jobs, they can't pay their bills. When you can't pay your bills, life becomes very unpleasant. Also, because America can become a third-world country if we're not careful.

If you actually owned things and had money you would understand why people are panicking.

Canuckster wrote:

It depends on your job. If you are in a recession proof job (think government employee of some kind) then it is no big deal (forgetting for a moment the impact of an eroded tax base).

I would add most health care jobs to this. Also, if you're a recent college graduate you are going to have a more difficult time finding good jobs during a recession. If businesses don't need to make a hire immediately, they won't do it in times of uncertainty.