Interesting article and commentary. Do you have the
URL for the original? Maybe it is there and I am blind
but I don't see it.
Cheers, ken hanly
--- Jim Devine <[EMAIL PROTECTED]> wrote:
> [my comments in brackets -- I corrected some errors
> and added a final paragraph]
>
> 17 reasons America needs a recession Think positive,
> this 'slow motion
> train wreck' is good for the U.S.
>
> By Paul B. Farrell, MarketWatch
>
> Last Update: 6:53 PM ET Nov 19, 2007
>
> ARROYO GRANDE, Calif. (MarketWatch) -- Yes, America
> needs a recession.
> Bernanke and Paulson won't admit it. And investors
> hate them. We're
> all trapped in outdated 1990s wishful thinking about
> a "new economy"
> and "perpetual growth."
>
> But the truth is, not only is a recession coming,
> America needs a
> recession. So think positive: Let's focus on 17
> benefits from this
> recession.
>
> To begin with, recession may be an understatement.
> Jeremy Grantham's
> GMO firm manages $150 billion. In his midyear report
> before the credit
> crisis hit he predicted: "In 5 years I expect that
> at least one major
> 'bank' (broadly defined) will have failed and that
> up to half the
> hedge funds and a substantial percentage of the
> private-equity firms
> in existence today will have simply ceased to
> exist."
>
> He was "watching a very slow motion train wreck." By
> October, it was
> accelerating: "Train hits end of track at full
> speed."
>
> Also back in August, The Economist took a hard look
> at the then
> emerging subprime/credit crisis: "The policy dilemma
> facing the Fed
> may not be a choice of recession or no recession. It
> may be between a
> mild recession now, and a nastier one later."
>
> However, the publication did admit that "even if a
> recession were in
> America's long-term economic interest, it would be
> political suicide"
> for Fed Chairman Ben Bernanke and Treasury Secretary
> Henry Paulson to
> suggest it.
>
> Then The Economist posed the big question: Yes,
> "central banks must
> stop recessions from turning into deep depressions.
> But it may be
> wrong to prevent them altogether."
>
> Wrong to prevent a recession? Why? Because
> recessions are a natural
> and necessary part of the business cycle. Remember
> legendary economist
> Joseph Schumpeter, champion of innovation and
> entrepreneurship?
>
> Economists love Schumpeter's "creative destruction:"
> Obsolete firms
> get destroyed and capital released, making way for
> new technologies,
> new businesses, like Google. And yet, nobody's
> willing to apply
> Schumpeter's theory to the entire economy ... and
> admit recessions are
> a natural part of the business cycle.
>
> Instead, everyone persists in the childlike fairy
> tale that "all
> growth is good" and "all recessions are bad," a bad
> hangover of the
> '90s "new economy" ideology. So for the folks at the
> Fed, Treasury and
> Wall Street, "eternal growth" is still America's
> mantra.
>
> Unfortunately, the American investors' brain has
> also developed this
> blind obsession with "growth-at-all-costs," coupled
> with a deadly fear
> of all recessions, as if recessions are a lethal
> super-bug more
> powerful than Iran with a bomb.
>
> Our values are distorted: It's OK to be greedy and
> overshoot the
> market on the upside -- grab too many assets, take
> on too much debt,
> make consumer spending a religion, live beyond our
> means, ignite
> hyperinflation along the way. Growth is good, even
> in excess.
>
> [!!??!! -- hyperinflation is not currently in the
> cards. It also
> seems unlikely, unless the US government falls
> apart.]
>
> And yet, recessions are a no-no that drives
> politicians, economists
> and investors ballistic.
>
> Well, folks, you can block all this from your mind,
> you can argue that
> recessions are not a part of Schumpeter's thinking,
> that they are
> inconsistent with your political ideology. But the
> fact is, we let the
> housing/credit boom become a massive bubble, it
> popped and a recession
> is coming. So think positive, consider some of the
> benefits of a
> recession:
>
> 1. Purge the excesses of the housing boom
>
> No, it's not heartless. Not like wartime
> calculations of "acceptable
> collateral damage." Yes, The Economist admits "the
> economic and social
> costs of recession are painful: unemployment, lower
> wages and profits,
> and bankruptcy." But we can't reverse Greenspan's
> excessive rate cuts
> that created the housing/credit crisis. It'll be
> painful for everyone,
> especially millions of unlucky, mislead homeowners
> who must bear the
> brunt of Wall Street's greed and Washington's policy
> failures.
>
> [This author should quote Andrew Mellon, Treasury
> secretary during the
> 1920s: "liquidate labor, liquidate stocks, liquidate
> the farmers,
> liquidate real estate." His whole idea is that a
> recession would purge
> the imbalances from the US economy -- i.e., those
> factors that are
> screwing up financial and real-world markets. This
> is a very 19th
> century way of looking at things. For example, Marx
> saw the bankruptcy
> of thousands and the destruction of a lot of capital
> as the result of
> a recession ("crisis") and also as allowing a new
> recovery.
>
> [Of course, neither Mellon nor Marx anticipated that
> a cyclical
> recession could cause the US economy to jump the
> rails, going from a
> normal business cycle to a serious depression. Okay,
> Marx had some
> ideas along these lines. In some Marxian
> interpretations, a serious
> recession would encourage revolution.]
>
> 2. U.S. dollar wake-up call
>
> Reverse the dollar's free fall and revive our [i.e.,
> US capitalist]
> global credibility. Warnings from China, France,
> Iran, Venezuela and
> supermodel Gisele haven't fazed Washington.
> Recession will.
>
> [I don't see why a recession would do this. If the
> US recession "goes
> global," it won't just be US imports that fall,
> helping the US$. It
> will also be foreign exports (US imports) that fall,
> which would hurt
> the value of the US$. ]
>
> 3. Write-offs
>
> Expose Wall Street's shadow-banking system. They're
> playing with $300
> trillion in derivatives and still hiding over $100
> billion of toxic
> off-balance sheet asset-backed securities, plus
> another $300 billion
> hidden worldwide. A lack of transparency is killing
> our international
> credibility. Write it all off, now!
>
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