Possible Recession?

[comrade]

Since there seems to be a lot of fears that the US economy is headed into recession and that it may pull everyone else into recession I was wondering if anyone could enlighten me as to why the US may hit a recession, why it would pull the world into one(possibly) and what kind of impact it would have on you or me?

[burn_this_city]

^^ wont that just create a bigger problem down the road??

[Flames89]

They drop the interest rate in an attempt to increase aggregate demand (increase consumer spending, business investment, exports via a lower dollar). This is a tool to manage an economy and stop it from slowing down to the point where it becomes negative (recession).

The one thing that is scaring everybody though is that it can result in inflation, as essentially there will be more money chasing the same number of products out there - which leads to higher prices. This fear is brought up by those that say we are in inflationary times already if we look at the price of oil and food.

I think this inflation metric is now skewed in this day and age, as oil is not a commodity and since food has been used for energy, we are changing the inherent "use" of the product for which inflation was derived.

So good for the cut. It is needed and is a basic tool.

Heck, I think most of this recent crash was started because of good ol' George W. Bush thinking he can play the Fed and fix things. When he stated that their government would change their fiscal policy, the rest of the world showed how much faith they have in him by dumping. Essentially saying that "if that lunkhead thinks there may actually be a problem in America, then f-it, we are out of here cause that means 1) it is actually really bad and 2) we have no faith in his ability to help."

The Fed though is respected and by putting this through quickly they show they are nimble enough to respond to any "emergencies"

[llama64]

Maybe I'm just being ignorant but isn't this basic economics? The business cycle and all? Why is the US Government actively trying to stop a natural economic force?

I was watching CNN on Sunday and they were having some discussion over what to do with the Bush Bucks plan. On woman was suggesting everyone should either reduce their credit debt load or put the money in a bank. The other guy was complaining that such a plan would defeat the purpose of the money give-a-way by removing it from the economy.

Given that every tool has been used more or less unsuccessfully over the past decade to stave off this recession, perhaps people should just let it happen.

I dunno... I have a very basic understanding of such things so feel free to rip me a new one

[Top Shelf]

Well, it doesn't look like this emergency rate cut has helped, the Dow is still down 450 points.

http://www.foxbusiness.com/markets/a..._444468_2.html

[Flames89]

There was no doubt the Dow would be down today, more than $90B was lost on the TSX alone yesterday.

It just helps create a floor, and reassures investors. It softens the landing, and positions the economy for a recovery - though recession could still occur these monetary tools (Keynsian, no?) are there to help, not to be a cure.

[Bob]

Originally Posted by fotze

The US just dropped interest rates by 3/4's to try and stop the bleeding.

Whoa! That came out of nowhere! I guess it's having some effect, the Dow is presently only down around 2.25%, when it could be much much worse. The TSX is even in positive territory.

[Top Shelf]

Well, from what I can interpret, it is a panic move by the Fed. How does that influence the psychology of investors?

There are serious frickin problems in States and I think this is just the beginning.

[Cowperson]

Originally Posted by llama64

Maybe I'm just being ignorant but isn't this basic economics? The business cycle and all? Why is the US Government actively trying to stop a natural economic force?

I was watching CNN on Sunday and they were having some discussion over what to do with the Bush Bucks plan. On woman was suggesting everyone should either reduce their credit debt load or put the money in a bank. The other guy was complaining that such a plan would defeat the purpose of the money give-a-way by removing it from the economy.

Given that every tool has been used more or less unsuccessfully over the past decade to stave off this recession, perhaps people should just let it happen.

I dunno... I have a very basic understanding of such things so feel free to rip me a new one

It's cheaper and easier to preserve confidence than it is to create it.

Remember that.

Since central bankers around the globe began co-ordinating policy in the early 1990's, global downturns have tended to be increasingly shallower.

In fact, if I'm not mistaken, the last few years were the first time in many a decade that all four corners of the earth were growing simultaneously.

In this instance, we're almost talking ourselves into a recession.

Cowperson

[Flames89]

Originally Posted by Top Shelf

Well, from what I can interpret, it is a panic move by the Fed. How does that influence the psychology of investors?

There are serious frickin problems in States and I think this is just the beginning.

Everyone knew already that the Fed was going to cut .5% next week. So this was already priced in. About 25% of investors thought that the movement was going to be .75%.

They moved quicker and sooner, but inline with their statements and market expectations - so I don't see it as "drastic". Hell, if George didn't open his untrustworthy yap last week the Fed may have been able to wait until their meeting next week.

[nickerjones]

also i guess they are going to do a tax cut to supposedly boost spending to help the economy... i have heard its 800 a person and 1600 a couple and i have heard 500/1000 as well ... so we will see if that helps...... they did this is in the 2001 recession scare as well but it was 300/600 and i didnt get it because i was still a dependent then ...

[RougeUnderoos]

I don't mean it as a joke, since the guy is dead and all, but Heath Ledger dying is going to trump this story in a big way. Not that it'll have an effect on this economics business, but it is going to push it down the page.

[flamesfever]

Nice call yesterday Cow, that what goes down really fast usually rebounds just as fast. I agree the real thing to watchout for is the slow downward trend, where each day you wished you sold the day before. Only then is the over exuberance in the market finally eliminated.

I think we may have some way to go before things turn around. In my experience in a bear market, the absolute low is usually tested more than once, just as the high was.

[I-Hate-Hulse]

Originally Posted by comrade

Since there seems to be a lot of fears that the US economy is headed into recession and that it may pull everyone else into recession I was wondering if anyone could enlighten me as to why the US may hit a recession, why it would pull the world into one(possibly) and what kind of impact it would have on you or me?

Here's my grossly simplified, back of napkin take.

The US is the largest economy in the world. If it slows down, demand will drop and they'll buy less from countries that export to the US, which is most countries (like Canada). With fewer orders coming to Canada, there'll be less revenue for businesses here, and hours/salary/bonuses for Joe Citizen here in Canada.

[Finner]

Originally Posted by Flames89

Everyone knew already that the Fed was going to cut .5% next week. So this was already priced in. About 25% of investors thought that the movement was going to be .75%.

They moved quicker and sooner, but inline with their statements and market expectations - so I don't see it as "drastic". Hell, if George didn't open his untrustworthy yap last week the Fed may have been able to wait until their meeting next week.

Well supposedly they are going to cut it another 50 basis points next week anyways.

[Thunderball]

Originally Posted by I-Hate-Hulse

Here's my grossly simplified, back of napkin take.

The US is the largest economy in the world. If it slows down, demand will drop and they'll buy less from countries that export to the US, which is most countries (like Canada). With fewer orders coming to Canada, there'll be less revenue for businesses here, and hours/salary/bonuses for Joe Citizen here in Canada.

Good take. Thats probably how I could try to explain it too.

That's also why our gas sector in particular is gonna feel this one. There's already a surplus of supply... now figure less business in the states, less housing starts = less demand for commodities like natural gas... especially if this winter continues to be relatively mild.

[Phaneuf3]

Originally Posted by Thunderball

Good take. Thats probably how I could try to explain it too.

That's also why our gas sector in particular is gonna feel this one. There's already a surplus of supply... now figure less business in the states, less housing starts = less demand for commodities like natural gas... especially if this winter continues to be relatively mild.

until the middle east is further destabilized by the americans invading iran.

[Thunderball]

Originally Posted by Phaneuf3

until the middle east is further destabilized by the americans invading iran.

I don't see a lame duck President doing that, nor do I see any Democrat or Republicans like McCain, Giuliani and Thompson doing that.

Not saying it can't happen or won't happen... just that its not overly likely.

[Cowboy89]

Originally Posted by Phaneuf3

until the middle east is further destabilized by the americans invading iran.

Oil prices yes, gas prices no. While high oil prices are good for Alberta, high gas prices are just as important. US lower 48 production of Natural gas is actually increasing due to new fit-for purpose rigs in the unconventional sector. Combine that with a mild winter, a possible US recession, and LNG imports serving as a psuedo-cap on prices and this could get ugly.

[mykalberta]

Until the housing situation corrects itself in the US, they are likely in for the long haul.

Some souther US vacation destination places (Florida, California, Arizona, Texas etc) have seen similar spike in housing prices as Calgary without the economic rise that Calgary has seen.

We are likely to see a 15-30% correction in those prices. If you bought your house with sound fundamentals you can survive, if you bought your house requiring it to increase in value you are going to be foreclosed on.

The fear is that most people bought because of cheap credit (and variable interest rates) and without it there could be a serious increase in the number of foreclosures etc.