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David's Macro Blog

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Tag: Great Recession

The economy during the Great Recession rivals the collapse during the Great Depression. Never has the economy contracted this much and the recovery been this slow. Millions of Americans resorted to unemployment benefits to make ends meet, many for the first time in their lives.

The most shocking aspect of the Great Recession is the slow recovery and the length of time people are unemployed. In fact, Congress extended unemployment benefits to 99 weeks.

60 Minutes interviewed the “99ers” in San Jose, California, the high tech capital of Silicon Valley.

Many of the 99ers are people in their prime earning years of 40’s, 50’s, and 60’s. They should be stocking away excess earnings for their children’s college fund and their retirement. Instead, they are liquidating their 401 K’s and IRA’s to pay their mortgage and grocery bills.

The economic crisis in Silicon Valley is so severe that many people with PhD’s, Master’s and college degrees find themselves unemployed for the first time in their lives. Instead of saving for retirement and paying payroll taxes to fund the government, they are drawing benefits from the government, resulting in a trillion-dollar annual budget deficit.

One of the best quotes:

[The 99ers are] too young to retire, but too old to rehire.

After watching this video, ask yourself these questions and comment on your thoughts below:

  1. Who would you hire of the people profiled?
  2. Do you believe these people will ever again make $70,000, $100,000, or $200,000 per year?
  3. This the high unemployment college educated workers due to the global economy?
  4. Is $100 billion on 99 weeks of unemployment benefits money well spent by a government with over $10 trillion in national debt?

Source: 60 Minutes – Unemployment Benefits: The 99ers

Are you an expert if you make mistakes? 

Are you an expert if you make BIG mistakes?

Are you still an expert if you miss the biggest financial bubble in world history?

Let’s consider these questions while reviewing some quotes from the so-called “experts” just prior to the 2008 financial collapse and the start of the Great Recession.

“I believe that the general growth in large [financial] institutions have occurred in the context of an underlying structure of markets in which many of the larger risks are dramatically — I should say, fully — hedged.”

— Alan Greenspan, 2000

“Even though some down payments are borrowed, it would take a large, and historically most unusual, fall in home prices to wipe out a significant part of home equity. Many of those who purchased their residence more than a year ago have equity buffers in their homes adequate to withstand any price decline other than a very deep one.”

— Alan Greenspan, October 2004

Financial innovation means “shocks may be less likely to result in the type of trend amplifying, self-reinforcing dynamic for sustained periods of time that can threaten the stability of the financial system… but it is unlikely to have brought an end to the periodic tendency of markets to experience waves of mania and panic.”

“Improvements in lending practices driven by information technology have enabled lenders to reach out to households with previously unrecognized borrowing capacities.”

— Alan Greenspan, October 2004

“The use of a growing array of derivatives and the related application of more-sophisticated approaches to measuring and managing risk are key factors underpinning the greater resilience of our largest financial institutions …. Derivatives have permitted the unbundling of financial risks.”

— Alan Greenspan, May 2005

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

— Ben Bernanke, July 2005

“In the financial system we have today, with less risk concentrated in banks, the probability of systemic financial crises may be lower than in traditional bank-centered financial systems.”

“The Federal Reserve is not currently forecasting a recession.”

— Fed chairman, Ben Bernanke, January, 2007

“At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.”

— Fed chairman, Ben Bernanke, Congressional Testimony, March, 2007

Final Questions:

  • Should an expert still be considered an expert AND be in a position of power and influence to repair the economy/financial systems after they didn’t even see it coming?
  • Why do professionals with significant academic training, industry experience, and extensive access to real-time data mis-interpret the fundamentals and say things that look foolish in retrospect?

Perhaps the best quote to summarize the situation:

“The economy depends about as much on economists as the weather does on weather forecasters.”

What do you think? Do you have a favorite expert quote not shown above? Comment below and let me know.