Fool.com (Blog?): It's the Debt, Stupid

[Larry]

Link.

(Apparently, you have to sign in to read the full article. I have signed in, so I'm seeing the whole thing. But the link might not work for people who aren't signed in.)

Mark Twain's saying that "history doesn't repeat itself, but it rhymes," might be one of the most abused quotes of the past three years. The quip is grounded in solid logic, but some took its meaning to a faulty level. After most recessions in the past, the economy bounced back quickly. This time, it hasn't. Thus, we must be doing something wrong. "Had the U.S. economy recovered from the current recession the way it bounced back from the other 10 recessions since World War II," wrote former Sen. Phil Gramm in The Wall Street Journal, "11.9 million more Americans would be employed." He called this the "Obama growth discount."

Truth is, the recent recession wasn't like the 10 other recessions since World War II. Most recessions are caused by a little overheating in an otherwise sound economy. Businesses adjust quickly, rehire laid-off workers in the same jobs as before, and things spring back to life.

The recession that started in 2007 was different. It was caused by an inherently unsound economy driven by debt. That dynamic changes everything, as deleveraging is like molasses in an economy's veins. When you find yourself in a debt-driven recession, the result is always the same: a glacially slow recovery. As a McKinsey & Co. report noted, "Historic deleveraging episodes have been painful, on average lasting six to seven years." More money is going toward yesterday's bills, which means less for today's and tomorrow's.

There's a lot more information at the link. In fact, it's possible that I didn't quote the most important part.

I thought it was kind of interesting, if for no other reason that because the author is looking at things more as an economist or investor than as a political ideologue.

(For the political ideologue perspective, I come to Tailgate. )

[twa]

Does that mean McD( or Mc5 or whatever) was right? :evilg:

The stimulus should have been directed to citizens to reduce debt?

Have no fear ,Recovery summer is coming(if ya can make it thru Fall,Winter and Spring:pfft:)

[mojobo]

Not to sidetrack from your thread but what do you think of this guy: http://www.youtube.com/watch?v=2I0QN-FYkpw

He was pretty much saying the same stuff as that guy only before the recession really hit. That is just a small clip of what he's been saying, he has a ton of videos on youtube where he goes into more depth. If you have the time for it you might want to watch his speech at a mortgage bankers conference he did here:

[Hubbs]

My goodness, a debt bubble presents unique economic challenges that are extremely difficult to overcome? How could anyone have foreseen this?

Does that mean McD( or Mc5 or whatever) was right? :evilg:

The stimulus should have been directed to citizens to reduce debt?

Have no fear ,Recovery summer is coming(if ya can make it thru Fall,Winter and Spring:pfft:)

McD was right and wrong at the same time. Right that consumer debt is determining the performance of the economy. Wrong when saying that printing $13 trillion would happily, smoothly, and permanently solve our nation's woes.

[Thiebear]

i spent 2 hours in a meeting with all of our finanacial analysts going over the mortgage industry again.

its rocky ahead short term that might be worse than last year. Then it gets better (hopefully)

if the citizens got that money there would be a LOT less foreclosuress and GM would have been fine.

And the banks would probably been better, and the lack of banks loaning money probably wouldn't have happened.

but thats all just a guess because we didn't so its all wishful thinking

[mojobo]

i spent 2 hours in a meeting with all of our finanacial analysts going over the mortgage industry again.

its rocky ahead short term that might be worse than last year. Then it gets better (hopefully)

I see a lot of reasons that housing prices will plummet again, but what scenario did they give for it to get better? The only thing I've seen so far is that prices are lower now than in previous years which is an awful determining factor of whether something is over or under valued.