I'll admit that I've never understood economics. It's like talking backwards at me: I might figure out half of what you're saying, but ultimately I just don't get what you're trying to tell me. So I don't know why we're in a recession, or how a stimulus is supposed to help, despite watching this crap on the news every single day.

Anyways, I saw an article (http://news.yahoo.com/s/ap/20090212/ap_on_bi_go_ec_fi/retail_sales) on Yahoo news about how retail sales went up 1% in January, the first rise in 14 months, and how it was completely unexpected. It got me to wondering, how do we know that this recession is going to last however long? How did we even get here in the first place? I've seen the charts that imply that recession tends to follow war, but if that's the case, how does that happen? Is it because of the housing bust? Or is that just another symptom? Or is it because banks are failing because of the housing bust? Or are there other factors entirely?

Anyone with the knowledge that can break this down in a way the typical layman could understand? Because this shit confuses the hell out of me.

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I will try and answer this in the most constructive way possible.

Part of the reason you are confused about this issue is that there are several explanations for what happened, though it is my belief that the strictly economic answers are lacking as the recession is a socially constructed phenomenon. The answer is not nearly as complicated as the media makes it out to be though.

To get the simple things out of the way ahead of time - we don't *know* how long the recession will last. Anyone that claims to have a concrete date for the duration is a liar. There are far too many factors on a global level and many unknowns in our country itself to create a workable equation for the end of a recession this large and embedded. There were people saying the shrinking of the market would only last a month or two early on, but most people are just guessing or using very rough figures and historical projections.

How we got here in the first place? That is a highly complex answer but it perhaps can be most easily explained using some of the ideas from our old friend Karl Marx. Some may disagree with my use of this ideology but if you accept the recession as socially constructed, applying Marx is the logical progression. Anyway, it all goes back to the idea of exploitation of the laboring class and the belief that capital (wealth) is an accumulation of crystallized social labor. In the case of this recession we saw a chain reaction where the wealthy were exploiting the laborers through a variety of risky economic practices including issuing large amounts of credit to those that could only questionably pay the money back. On top of the practice alone being rather shady, there was also the fact that many were poorly informed of the monthly payments they would be need to make in order to keep up with said credit (heavily in the form of loans). This is a case of exploitation coming back to haunt those who were ill prepared for a poor economic scenario, but hurting everyone in the end via capitalism.

Now the credit practices wouldn't have been a big deal under a healthy and growing economy, but even the slightest shrinking can cause decreased salary/hours or eventually unemployment. (Skipping a load of details to save time) This evolved into a substantial credit crisis which is a problem on a global scale as the markets are so intertwined that major losses in connected sectors can hurt everyone. In this case it was the financial institutions which were hit the hardest. This hit people particularly hard as they use credit to finance houses or cars which they could not normally afford. It meant that large numbers defaulted on mortgages (no money back into the banks) or stopped spending their normal monthly sum. Lack of spending and a shaky credit market quickly saps consumerism, and profit margins in turn. If laborers are still working but no longer spending, it quickly becomes a supply and demand situation where prices drop and competition increases. This has a variety of effects but hurts profit margins of nearly every industry and can seriously hurt foreign markets who lack the diversity of a full blown capitalist economic center. (See the nation budget of Iraq etc).

In this case, war has little if anything to do with our financial situation. Much of the effects of war come from the social climate created by the war experience, and in the case of the US in the past few years the general public is far from a wartime atmosphere even if we are indeed engaging targets in foreign lands. People will argue that we have economic motivations for all sorts of things, but in this case the recession likely would have hit regardless of foreign policy.

So it basically all comes back to human greed and the embedded nature of our financial institutions.

Or at least that is the way I see it.

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The United States-based National Bureau of Economic Research (NBER) defines economic recession as: "a significant decline in [the] economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.

Or laymans terms...

People out of work=less people with disposable income to spend=less products and goods sold=prices go up on stuff= even less people can afford them=less products and goods sold=less people needed to make goods=more people out of work.

Was-Rinse-Repeat

Stimulus=getting money back in companies/peoples hands so they can buy more shit. Or to monitor honey bees. Take your pick.

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"Every normal man must be tempted at times to spit upon his hands, hoist the black flag, and begin slitting throats." -Henry Louis Mencken
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VEGETARIAN -Noun (vej-i-tair-ee-uhn): Ancient tribal slang for the village idiot who can't hunt, fish or ride.

Tyral:

Listen to these two NPR radio shows. Seriously. No nonsense, non-financial guru explanation of how we got here.

Both are available as MP3s for free to download and listen to and they really made things clear for me about the how and the what. First one is called "The Giant Pool of Money" and is about what happened with the housing bubble:

http://www.thislife.org/radio_episode.aspx?episode=355

The second is called "Another Frightening Hour about the Economy" by the same team to explain what happened to the credit markets as a direct result of the housing stuff, and why this is some bad mojo.

http://www.thislife.org/radio_episode.aspx?sched=1263

You won't regret listening. You will come away with a much better understanding of the situation.

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Just as a small correction --

A deep recession occurs when people are low on income in general, not simply disposable income, though disposable income certain plays an important role.

Less products and goods sold does not result in an increase in prices. When supply is the same but demand decreases the price of goods decrease. This is exactly what happened (think car prices, computers etc). *note that often the price of goods "feels" higher since there is less money to spend, or so people feel*

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I second Rugen's suggestion. It's worth it. Good, clear explanation in laymen's terms.

I always just wondered where the money went in these situations.

The businesses don't have money, the banks don't have money, the people don't have money...where'd it all go? =O

china!

See, this is exactly the question that goes through my head. Seriously, where is all this wealth? We had it just two years ago. I can't imagine that it's all disappeared to another country. If that were the case, how would we get out of this?

I'll listen to those NPR shows, see if I can wrap my head around it.

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Depends on what you define as "wealth". If by wealth, you mean liquid assets, then I think the answer as to why we're in this position is staring you right in the face. To put it simply, some people were very, very, very full of shit.

Unless I am mistaken, and I may well be, this isn't a zero sum game. It isn't a case of "well, we HAD the money and now THEY do." I believe this is part of the whole speculation and consumer based economy thing.

But I'm not a finance dude. At al. It is just a sense I get from the things I've read and heard over the last year. I am sure someone will correct me if I am wrong.

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One pretty simple example of where "all that money went" is at the heart of the housing crisis.

1999: A couple buys a home for $100,000. They get a standard 30yr fixed mortgage with $10,000 down.
2001: The home is now valued (by the tax commission) at $110,000. They decide it's time to redo the kitchen and finance this by refinancing their mortgage for the original $90,000 and then the additional $20,000 in new value. They had no more money, just increased value in their home. They get another stamdard 30yr fixed rate loan but now they get a 100% loan with 0 down.
2003: The home is now valued at $125,000 and the housing market is being sold as an investment in their future. They decide the house needs to be made current to retain value and continue adding value. They refinance into a 30yr adjustable rate loan for $125,000 with a 5yr readjust schedule (honestly this is the one area I don't know much about as I always had fixed rate loans).
2005: Time for a bigger house. They list their home at $200,000 and find a home worth $250,000 that they can barely afford. So, they get an interest-only loan in order to get in the home, assuming that values will contrinue to rise and they will be able top refinance easily.
2008: The interest-only period has expired on their mortgage and their payments skyrocket, while at the same time because other loans have already reset adjustable rates and those people had put their homes on the market values have eroded and they now owe more than their home is worth.

The above is kind of what had been happening in the housing market. For this couple, here was no money that disappeared, only value. But as they chose to increase their indebtedness each time the value increased this value-based money entered the economy and created jobs in construction, real estate, furniture stores and boost the economy for the entire community they lived in. When the housing values declined, this couple was left with nothing but debt without enough assets to justify the debt and because it wasn't a single family doing this but had largely become an accepted practice the effect was exacerbated.

Now, I'm not saying that this was the only reason we find ourselves in recession, but it is one of the biggest: consumerism financed by increasing debt based not on increased income but on housing values.

I apologize for the typos in the above post.

One of the problems they are having up the road in Wilmington (where DHL is pulling out) is people have worked there for 15+ years, have homes, but no job now. The market is shit to begin with, and extra shitty there since everybody is trying to leave town because there are no jobs (very small town where everybody worked for/because of DHL)

So, now people have no job, and if they try to leave town to get work they can only hope to sell their house for a fraction of what they owe.

That's tough.

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I'm no economist either but I would not be at all surprised if there's just a shitload of devaluation going on all across the board. Bush borrowed and borrowed and borrowed and inflated our debt to unprecedent proportions, and I can't imagine that simply wouldn't have any effect on the value of our currency.

It's a worldwide recession, but when *everyone* does business with the United States and our currency plummets, it doesn't matter what shape other countries' currencies are in, it's still downhill.

Just a thought.

I found this article yesterday and meant to start a thread, but it works here. This is a list of the top 25 people to "blame" for the economic crisis.

Really, it's mind boggling how many people royally screwed up.

Actually, lots of these people are wealthy... so maybe I should say "boggling how many people these people screwed over."

If you get a chance, it's worth running through the 25 people. It's amazing how many unique situations imploded to make this happen.

http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350,00.html

And yet, did similar situations only occur when we were on the brink? Or did we, as I suspect, always have those situations with similar culprits over the past decades but never bothered to notice because they didn't implode and they didn't implode because something didn't send them over the edge - such as massive inflation or generally shitty economic conditions.

I have trouble buying that these situations were massively unique and only happened right when we went under. More likely that - while they all shared some responsibility for the domino effect, it was in fact a domino effect where initial poor economic conditions provided the first domino to tumble.

(Just to be fair I'm not laying the blame solely on Bush, far from it. I think we had this recession coming for a quite some time.)

Of course these situations are not specifically unique. We have had multiple scandals where things have fallen apart. The difference this time is the scale of the corruption.

Imagine Enron x15 or so.

http://www.ted.com/index.php/talks/barry_schwartz_on_our_loss_of_wisdom.html

Awesome talk about how rules and incentives are not enough, and how strict adherence to rules makes things worse.

http://www.thisamericanlife.org/Radio_E ... pisode=375

They've come out with a third installment called "Bad Bank":

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