The Recession: How Long and How Strong?
April 17, 2008

We were at a patisserie in Tribecca. It's me, AS (a restaurateur), JF and ES (executives with large companies), and AE (an attorney). We were talking about the recession, comparing it to other recent recessions.


"The last recession, in 2002, was relatively mild," AS pointed out.


"But that was before the real estate market fell apart," AE said.


"And before the dollar started tumbling," JF added.


"And before inflation reared its head," I said.


"When you think about all that it seems much more ominous. Yet even today in the newspapers half the articles I read were still asking the question: is there a recession at all?"


"It's crazy," I said.


"You can see it even in my restaurant," AS said. "My best customers are coming in less frequently. And overall the tabs are getting smaller."


"The cost of gasoline is making everything more expensive," JF said. "My company is having a tough time holding profit margins at respectable levels. It's getting tougher every day."


"It's inflation. It's debt. And it's the collapse of the dollar," I said. "A triple whammy. It will be hard to imagine that the recession won't get worse."


"I agree," ES said, "Yet nobody in the mainstream press seems too concerned. In fact, lots of people are saying that everything will be fine in a year or two. Nobody agrees, not even the experts. For us, all this disagreement makes it difficult to write business plans and schedule acquisitions."


"Everybody in my industry is worried," JF admitted. "There will be jobs lost. This is not a time you want to be out there looking."

.

"AE doesn't have to worry," AS said. "Lawyers and bankers always make money. The worse things get, the better the lawyers will do."


Nobody argued with that.


"This war has cost us three trillion dollars," AS said. "Three trillion dollars we didn't have to begin with."


"Our competitors, like China and Japan, have been bailing us out," JF said. "They've been buying dollars and getting punished for doing so. But this is only a temporary fix and it's only scratching the surface. I don't know how long it will be before the give up."


"It's true," I said. "It's just a surface fix. I read something the other day that blew my mind. David Walker, the former Comptroller General of the United States, said that the government has incurred a $53 trillion debt for future Social Security and Medicare benefits. He said that figure is up from $20 million at the start of this decade. What's worse is that it is rising by $2 million to $3 million a year."



"Fifty three trillion dollars? Are you sure it wasn't 53 billion?" AS wanted to know.


"I'm sure," I told them, but I could see they didn't believe me.


"One thing is certain," AE said. "It's going to get worse before it gets better. I read that almost 3 million American homeowners were behind on their mortgages at the end of last year. And another million were listed ‘at risk' of imminent foreclosure, according to the Mortgage Bankers Association."


"Most of those people are holding mortgages that are larger than the value of the houses," ES pointed out.


"Which means they have no vested interest in the houses," AS said. "It's cheaper to let them go."


"When you have no skin in the game, it's easy to quit," ES said.


Again, nobody argued with that point.

posted by M. Masterson @ 5:13 PM,

1 Comments:

At 9:53 AM, Anonymous Leonard Klaatu said...

When others are quitting all around you - it should be easier to commit to be among the last standing.

 

Post a Comment

<< Home