A Different Kind of Recession
If the GDP data eventually shows that we are in a recession, I think it will turn out to be a lot different from the last recession.
- A weak dollar keeps exports strong.
- Deficit spending on Iraq keeps the economy stimulated.
- The real-estate mania did not result in billions of dollars wasted on worthless dot-com’s as the stock mania did in 2000. Instead we are left with a lot of perfectly good houses and condos. Pets.com was a total loss, but while developers might not make their profit goals on Miami condos, I don’t see any high-rises being torn down. Instead of smoking craters, we are left with shinny new real estate this time around.
- There was no mania in US stocks in 2007 like there was in 2000. Americans put their money in other countries like China and India, and commodities like oil and gold. So, we are unlikely to see anything anywhere near the historic decline we saw in the S&P 500 during 2000, 2001, and 2002. We are simply not unwinding a massive bubble.
- Businesses have been running a tight ship in regard to inventories. So, we don’t need to layoff lots of workers until excess inventory is worked off.
Many of us are expecting this recession to look like the last one, like generals fighting the last war. It probably won’t turn out that way.
