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  • Recessions, depressions, panics and other redefinitions - Eric Janszen

    Recessions, depressions, panics and other redefinitions

    We are more than one year into an official recession and even our casual readers are coming to realize that self-reinforcing feedback loops of falling demand and rising unemployment are only just beginning. I am often asked how much longer the recession has to go, and if it drags on for another year or more, at what point do we stop calling it a recession and start calling it a depression? A widespread misunderstanding about the two terms holds that recession and depression are the same phenomena differentiated by degree, that a recession that drags on long enough becomes a depression. But this ignores the history of the terms.


    Both terms describe an economic contraction, a reversal of economic growth, specifically falling output. Before "recession" the term "depression" was used, and before that others, with use evolving over time. A severe contraction brands the current term in any era politically impallitable for future use by economists who hope to stay on the right side of the status quo. I find JK Galbraith's take on it illuminating.
    "Chapter 9, The Price: Redefined definitions: panic, crisis, depression, recession, growth correction (Page 113):

    Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went
    Look for the term "recession" to fall into obscurity after this recession -- the association will be too dark. The next economic contraction will carry some other label. I propose the word "economic transformation" -- it sounds like it could be a good thing.

    On a lighter note, we've compiled this history of advice that we have received from the majority of certified financial planners and wealth managers since iTulip's inception in 2001:
    • Year - Advice: "Reason."
    • 2001 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
    • 2002 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
    • 2003 - Sell gold, buy stocks: "The market's bottomed and gold has peaked."
    • 2004 - Sell gold, buy stocks: "The market's going up and gold has peaked."
    • 2005 - Sell gold, buy stocks: "The market's going up and gold has peaked."
    • 2006 - Sell gold, buy stocks: "The market's going up and gold has peaked."
    • 2007 - Sell gold, buy stocks: "The market's going up and gold has peaked."
    • 2008 - Sell gold, buy stocks: "The market's experiencing volatility and gold has peaked."
    • 2009 - Sell gold, buy stocks: "The market's bottomed and gold has peaked."

    The gold price will peak some day, but we're glad we haven't been holding our breath on gold since 2001 or Treasury bonds since 1998.






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    Last edited by FRED; 01-31-09, 05:50 PM.

  • #2
    Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

    I am dialed in to "Itulip Fm", just thinking the other day that is about time a cental bank threatened a massive Gold sale......& Germany started making "Statements"...........just like Italy Ref the "Massive" IMF Gold sell off that was about to happen.........the one didn't........just like the others!

    Mike

    Comment


    • #3
      Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

      Originally posted by Mega View Post
      I am dialed in to "Itulip Fm", just thinking the other day that is about time a cental bank threatened a massive Gold sale......& Germany started making "Statements"...........just like Italy Ref the "Massive" IMF Gold sell off that was about to happen.........the one didn't........just like the others!

      Mike
      Russia sold $10bn reserves to stabilise the rouble, perhaps incl. some gold.
      It's Economics vs Thermodynamics. Thermodynamics wins.

      Comment


      • #4
        Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

        Originally posted by *T* View Post
        Russia sold $10bn reserves to stabilise the rouble, perhaps incl. some gold.
        They are NOT THAT stupid.

        Comment


        • #5
          Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

          my favorite nomenclature comes from economist alfred kahn [father of airline deregulation]. during the carter administration he was admonished to avoid the fearful "r" [recesssion] word, so he predicted a terrible banana for the economy.

          Comment


          • #6
            Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

            Why only GOLD as alternative investment?

            Both Silver and Oil appear extremely oversold relative to Gold at this point. IF you believe that the govt is going to print until they get what they want (lower dollar relative to asset prices) wouldn't the 'diversity' offered by silver and oil make sense along with your gold? Or is it just too early?

            It strikes me that even if the economy does respond/strabilize that investors that do want to move out of treasuries/CDs will prefer an economically sensitive asset which cannot be looted away by corporate executives. Silver and oil vs. common stock?

            Comment


            • #7
              Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

              Originally posted by stockman View Post
              Why only GOLD as alternative investment?

              Both Silver and Oil appear extremely oversold relative to Gold at this point. IF you believe that the govt is going to print until they get what they want (lower dollar relative to asset prices) wouldn't the 'diversity' offered by silver and oil make sense along with your gold? Or is it just too early?

              It strikes me that even if the economy does respond/strabilize that investors that do want to move out of treasuries/CDs will prefer an economically sensitive asset which cannot be looted away by corporate executives. Silver and oil vs. common stock?
              You've Got it in one.

              Gold is a lousy investment at the moment. to me it is insurance that i bought and will probably keep but nothing more. If gold goes to $2500 and the dollar gets hammered well you have only preserved your wealth.;)

              Comment


              • #8
                Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                Originally posted by Techdread View Post
                You've Got it in one.

                Gold is a lousy investment at the moment. to me it is insurance that i bought and will probably keep but nothing more. If gold goes to $2500 and the dollar gets hammered well you have only preserved your wealth.;)
                if gold is such a lousy investment, how come it is near or at all time highs in about every other currency except maybe the USD?

                What other investment has done as well?

                Comment


                • #9
                  Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                  Originally posted by Techdread View Post
                  You've Got it in one.

                  Gold is a lousy investment at the moment. to me it is insurance that i bought and will probably keep but nothing more. If gold goes to $2500 and the dollar gets hammered well you have only preserved your wealth.;)
                  And if stocks manage, say, 5% and the dollar tanks?

                  Comment


                  • #10
                    Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                    Originally posted by stockman View Post
                    Why only GOLD as alternative investment?

                    Both Silver and Oil appear extremely oversold relative to Gold at this point. IF you believe that the govt is going to print until they get what they want (lower dollar relative to asset prices) wouldn't the 'diversity' offered by silver and oil make sense along with your gold? Or is it just too early?

                    It strikes me that even if the economy does respond/strabilize that investors that do want to move out of treasuries/CDs will prefer an economically sensitive asset which cannot be looted away by corporate executives. Silver and oil vs. common stock?
                    Fungible, Fungible, Fungible, zero counterparty risk. (not as heavy for same dollar amount of silver). Gold is the ultimate, best insurance. And the premium on the insurance is going up faster than anything else.

                    Increasing chaos "could" cause energy prices to decline further, but not likely. Increasing chaos only adds to the dollar gold price.

                    We are not talking an investment here, we are talking saving your ass because everything else is literally too risky or too uncertainm or counterparty risk is too damn high. For these reasons, yes gold. It is the only thing that covers so many bases simultaneously and does it so effortlessly.

                    Disclaimer, while EJ is 80% treasuries and 20% PM I'm the exact opposite in my allocation, just so you know my (IMHO well founded and well researched;)) bias.

                    Comment


                    • #11
                      Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                      Reminds me of a George Carlin routine about how language changes to obfuscate:
                      In the first world war, that condition was called Shell Shock. Simple, honest, direct language. Two syllables, Shell Shock. Almost sounds like the guns themselves. That was seventy years ago.

                      [WWII] ...Battle Fatigue...

                      [Korea] ...Operational Exhaustion...

                      [Vietnam] ...Post-Traumatic Stress Disorder. Still eight syllables, but we've added a hyphen! And the pain is completely buried under jargon. Post-Traumatic Stress Disorder.

                      I'll bet you if we'd of still been calling it Shell Shock, some of those Viet Nam veterans might have gotten the attention they needed at the time. I'll betcha. I'll betcha.

                      Comment


                      • #12
                        Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                        Originally posted by EJ View Post
                        Recessions, depressions, panics and other redefinitions

                        We are more than one year into an official recession and even our casual readers are coming to realize that self-reinforcing feedback loops of falling demand and rising unemployment are only just beginning. I am often asked how much longer the recession has to go, and if it drags on for another year or more, at what point do we stop calling it a recession and start calling it a depression? A widespread misunderstanding about the two terms holds that recession and depression are the same phenomena differentiated by degree, that a recession that drags on long enough becomes a depression. But this ignores the history of the terms.

                        Both terms describe an economic contraction, a reversal of economic growth, specifically falling output. Before "recession" the term "depression" was used, and before that others, with use evolving over time. A severe contraction brands the current term in any era politically impallitable for future use by economists who hope to stay on the right side of the status quo. I find JK Galbraith's take on it illuminating.
                        "Chapter 9, The Price: Redefined definitions: panic, crisis, depression, recession, growth correction (Page 113):

                        Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sidewise movement or a rolling readjustment. Mr Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction.'" - Money: Whence It Came, Where It Went
                        Look for the term "recession" to fall into obscurity after this recession -- the association will be too dark. The next economic contraction will carry some other label. I propose the word "economic transformation" -- it sounds like it could be a good thing...
                        Merrill's Rosenberg on the Depression.

                        You'll find his position has much in common with iTulip, surprising for a Wall Street financial firm, but not for Rosenberg or anyone who has followed him over the years [he's a Canadian who used to toil in obscurity north of the border]. His estimate of another $4 to $6 Trillion of leverage yet to be extinguished - "...it is truly difficult to believe that we are anywhere but in the early stages of this credit contraction..." was almost as sobering as reading iTulip commentary :p
                        Attached Files

                        Comment


                        • #13
                          Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                          Originally posted by GRG55 View Post
                          Merrill's Rosenberg on the Depression.

                          You'll find his position has much in common with iTulip, surprising for a Wall Street financial firm, but not for Rosenberg or anyone who has followed him over the years [he's a Canadian who used to toil in obscurity north of the border]. His estimate of another $4 to $6 Trillion of leverage yet to be extinguished - "...it is truly difficult to believe that we are anywhere but in the early stages of this credit contraction..." was almost as sobering as reading iTulip commentary :p
                          Is it my computer, or is there some error with your attachment to Rosenberg? It shows an error when I attempt to open it, and I want to read it.
                          Jim 69 y/o

                          "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                          Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                          Good judgement comes from experience; experience comes from bad judgement. Unknown.

                          Comment


                          • #14
                            Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                            Originally posted by Jim Nickerson View Post
                            Is it my computer, or is there some error with your attachment to Rosenberg? It shows an error when I attempt to open it, and I want to read it.
                            jim, it just opened for me, no problem.

                            Comment


                            • #15
                              Re: Recessions, depressions, panics and other redefinitions - Eric Janszen

                              Thanks GRG55, I'd been looking for that.

                              Comment

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