Ustwo

I keep hearing how bad the economy is or will be or whatever but outside of people turning the housing market into the next ponzi scheme I am having a hard time seeing this happening in a major way.

My reasoning is simple, anecdotal, but was right for the last 'recession' too.

People are still shopping, and shopping like its going out of style in pretty much the entire Chicago area. I'm waiting in lines worse than xmass from Costco to Best Buy, Stein Mart, Borders, to Tiger Direct.

Now I'm not an economic wizard, its a section of my education I have only basic knowledge of, but I'm just wondering whats so 'bad'.

Unemployment is still very low, interest rates are low, yea some people who never should have had some homes will lose them but I just don't see where this looming danger is.

I'm thinking economists job is to make predictions and repeat them enough that people react to them as if they were true, making them in fact come true.

So those of you who are into this sort of thing, enlighten me, whats the problem exactly?

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Charlatan

The only thing that can be bad about that kind of shopping is if it's done on credit that can't be paid back.

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Crompsin

... because WASPy upper middle class Chicago is a perfect representation of the entire United States, including the poverty-stricken south and the especially FUBAR'd housing issues of the east middle coast.

...

"Big city... big city nights..."

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Ustwo

Yea I mean its only like 4 million or so people here, and I only work in 3 very different neighborhoods.

The Costco was about 1/2 immigrant, Hispanic or otherwise.

But thanks for playing.

Agreed, and obviously I have no idea, but honestly its been crazy here. Its been this way for the last month or so, I've had to do a lot of diverse and budget oriented shopping for my new office. Discount furniture store in a blue collar area to electronics, all have been jammed.

This is a serious question, not a political one, I have a major investment going in this new location, so I'd like to know what I'm in for, so far I haven't seen any major slow downs.

The only businesses who I know have had issues are some restaurants but that seems to have been weather related, we got more snow in Chicago this year than in quite a long time.

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Crompsin

This just in: One Cost-Co makes a nation.

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Ustwo

an·ec·dot·al

2. Based on casual observations or indications rather than rigorous or scientific analysis:

Thanks for that update, I'm sure I didn't mention that in the original post.

But I was looking for someone with some knowledge of the subject, not someone looking to argue with one liners. If I wanted that I'd have posted in politics, as I don't personally know.

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Charlatan

I wouldn't use the success or failure of restaurants to be an indicator of economic hardiness... The success or failure of restaurants often has little to do with the ability of people to pay for the food and everything to do with mismanagement.

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Ustwo

True, and I'm not using them directly. Though they are packed as well and people going out to eat and willing to wait in line for it can't be financially in trouble, unless they are idiots.

I've known restaurants themselves that were very busy and closed due to poor management (read the employees were robbing the owners blind).

I do know a couple of restaurant owners who were complaining about last month but they both blamed the weather.

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Baraka_Guru

This has something to do with it:
U.S. savings rate hits lowest level since 1933: Consumers depleting savings to buy cars, other big-ticket items

Trend analysis indicates that Americans are now, on average, spending more than they earn. Canadians aren't much better off. This can't continue indefinitely, and the longer it goes on, the harder the shit will hit the fan.

Compound the problem with the sub-prime mortgage crisis and the likelihood of a recession, this could very well be a recipe for disaster. But, on the positive side of things, Americans are well known to be resilient in bad times. This will be no hell in a hand basket, nor doom and gloom. Bad times maybe.

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Cynthetiq

Baraka, I'll agree that many countries are living in an extended credit euphoria.

Iceland, Canada, UK, US, Germany, are ones that I read about stating the same things. Large debt loads exceeding income.

I agree that I see many people still shopping in Times Square and SoHo. People walking around with shiny new bags full of new items that weren't just $20.

Restaurants are full of people, bars are full of people.

But this is NYC, so I'm not quite sure what to make of it since I've always seen people shopping here since 1991.

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Ustwo

But why is a recession likely?

Saying something is cyclical is fine and good, a lot of things are, but saying that doesn't explain WHY just that you know they come and go in a cycle. I've heard this in relation to the economy but why should we expect a recession beyond we tend to get them now and then?

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Willravel

I was under the impression that the economy gets bad when the Canadian Dollar is worth more than the USD when the Canadian Dollar hasn't really changed in worth for a while.

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Baraka_Guru

This is an excellent question. I'm no economist, but I'll give this a try.

The cyclical thing is a big one. Most people are either ignorant of long cycles, or they think they can go about their merry way and not worry about them. There is little we can do about them as consumers, so it's a matter of knowing what's happening and acting accordingly.

The other factors, I think, are related directly to consumer spending and investor strategies. When you have things like negative equity outcomes from far too many sub-prime mortgages, people will suddenly find themselves in bad situations and they will slow their spending. Same goes for those who rack up too much credit and find their interest payments are now wiping out their disposable income. This also slows spending. When you get factors like these during a bear-market economy, you have investors getting burned as well. They too become more defensive and park things in safer places (like cash) or they simply lose money in the markets.

All of these factors exacerbate the problems of an already existing recession. In recessions, you need people to spend money. If they don't have any to spend, you're economy goes through fits and starts, if not unpleasant heaves.

When consumer confidence plummets, markets get jittery. It's a domino effect. People lose jobs, and things just keep spiraling. This is why you find some governments spending a lot of money at this time, to keep the cash flowing somehow as they weather the storm.

Yeah, Canadian Dollar looks good because of the shaky American Dollar, plus such things as high oil prices and a somewhat stable economy (i.e. job rate is good). But we should expect repercussions from the American economy hitting the rough patches.

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"Humankind cannot bear very much reality."

—"Burnt Norton," Four Quartets, T. S. Eliot

Elphaba

I'm "into this sort of thing" and can only rely on the economic experts to inform me. The current head of the Federal Reserve has come into line with those economists that have weighed the various factors that effect our economy and he has predicted a continued downturn.

Bush's "stimulus" package simply pumps more cash via debt into the economy with the cynical hope that the full crash is forestalled until 2009. Those damned "tax and spend" Democrats will get the blame among the population that have a five minute attention span.

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Baraka_Guru

I wonder how much of the current economic state can be directly attributed to Bush's strategy of continuing tax cuts while waging a war.

Tax and spend is one thing, but cut and spend? Hmm.... I wonder if this is worse than "cut and run."

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"The great enemy of clear language is insincerity. [...] In our age there is no such thing as 'keeping out of politics.' All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred, and schizophrenia. When the general atmosphere is bad, language must suffer."

—"Politics and the English Language," George Orwell

"Humankind cannot bear very much reality."

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Tully Mars

IMO, Because we spend more then we make. Both personally and as an nation. We've become a Visa society and the interest payments alone are weighing us down. The US government has taken to borrowing every time it needs a cash infusion, this latest boaster package is a prime example. Need money, tap that Visa, government needs cash call up China. We're leaving a mess for our kids in the hopes they're smarter then us. My guess is they are, but then again it wouldn't take much for that.

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jbw97361

I really wonder why the hell the dollar has to be worth more than any other currency in the world. A weak dollar means we will be importing less (foreign goods cost more) and exporting more (our stuff if cheaper).

Haven't the people in charge been screaming about the loss of manufacturing (or any) jobs to overseas competitors? I say let the dollar continue its slide and maybe our goods will be competitive with the Chinese crap soon enough.

The only person I can see being hurt by a weak dollar are people mailing money overseas to support relatives and currency traders.

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Cynthetiq

When we buy raw materials from other countries, suddenly our costs go up for no reason but the fact that the currency devalued.

So if I buy items from a UK manufacturer who manufactures a part I need for £0.50, which is equal to $1, and tomorrow that changes to £0.25 for $1, the cost goes up 100% for no reason overnight, thus I can only buy 50% of the same amount of goods and can only produce 50% of the same amount of product with the same $1 of capital.

I don't know what products you are buying becuase there aren't many that I can buy that say on them "Made in the USA." Many are made in China, Mexico, Pakistan, India, Indonesia, and Philippines.

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Tully Mars

That would be a great point if this were 1965 and the US was still in the export business. It isn't and we're not.

Who are these people in charge and what are they in charge of?

You seriously think the US can compete with China in the labor market? Exactly how many hours a week are you willing to work? And how cheaply are you willing to do that?

So if we are in trouble it's the fault of immigrants?

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Ustwo

Well it didn't take long to turn semi-political, but I'm still wondering if anyone has an answer.

Its not Bush's fault any more than the 2000 issue was Clinton's fault. The government can screw up the economy by making it harder to do business but a tax cut etc is not going to be causing an economic down turn.

Really I think we are dealing with some self fulfilling prophecies at this point.

Economist sees minor downturn or price increase in some index. Economist tells everyone this is a sign of a recession. Other economists say the same thing. People trust the economists and start to act as if it were a recession. Consumer confidence goes down, people spend less, and we have a recession.

Now there are some things that worry me, biofuels are consuming a lot of grain which in turn are increasing food prices, the weak dollar helps on some ends and hurts on others, I'm not sure what to make of the debt issues people are taking on, and while I think the subprime issues are being blown of out proportion they still don't help.

But those are just my casual observations, what I can't get is anything beyond 'trust the economists'. Why? I'm thinking its like trusting the weather man, only in this case by talking about a bad/good economy they can influence it.

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Willravel

This is really simple: we consume a shit ton and don't actually produce a lot compared to our consumption. The only thing we have going for us is massively strong currency. A weak dollar means that we lose that consumption. We die.

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ratbastid

A weak dollar is weak for a reason.

Very few people understand the hows and whys of the Foreign Exchange Market. I've dabbled in it--online Forex trading companies set you up with "pretend money" accounts for free, and I've lost a pretend fortune trading the Forex. So I'm no good at it, but I understand in principle how it works.

The Foreign Exchange Market is a market, just like the stock market. Just like the buying and selling activity on say MSFT on the NYSE sets Microsoft's share price, so the buying and selling activity on say USD/CAN on the Forex sets the price of the US Dollar in terms of Canadian Dollar.

The dollar loses value against other currencies (and it's ALWAYS measured in terms of another currency. There can't be an arbitrarily weak currency in a vacuum.) when traders are actively selling and the currency pair is bearish--trending down.

Currency traders do this for a living--they're constantly studying economic indicators and trends, and their WHOLE JOB is to be ahead of economic and market moves. I trust them a lot more than some economist sitting in an office or rearing his head on MSNBC. And currency traders are communicating by way of the price they're setting on USD/* that the US economy is in sorry shape and likely to head sorrier.

vanblah

Biofuels aren't the only reason for increasing food prices; and if we'd stop using corn it would make a big difference (switchgrass is one solution; but I'm no fan of biofuels as a longterm solution).

The price of gas itself is causing food prices to go up. Just getting it to you costs more. That and the fact that we import a LOT of our produce (especially during off-season) and while the dollar is weak the imports cost more.

I'm sort of with you on the whole "recession" thing ... a lot of it is sensationalized. It's no big surprise when people say the dollar is weak; or the housing market is screwed; or that the national debt is high. But everyone wants to be the "first" to tell us about a recession. Your comparison to weather forecasters is appropriate.