The 3 Main Reasons Behind This Recession

Warren Buffett recently said that the US is already in a recession and I totally agree with him.

Buffett added that it is “perhaps not in the sense that economists would define it” with two consecutive quarters of negative growth, “but the people are already feeling the effects,” said Buffett. ”It will be deeper and last longer than many think.”

There are 3 main reasons behind this recession:

• Demand pull inflation due to rising oil and food prices (the main thrust behind the recession)

When people spend more money on food and oil, they will have to spend less on other consumerable goods.

Take a look at the consumer confidence survey:

• Cost push inflation affecting the transport, courier and airline industry due to rising oil prices

Many stocks in these industries are already trading near their 52 week lows while they continue to absorb the high costs of oil.

American Airlines (AMR) is at $6.32. Its 52 week low is $6.00 while its 52 week high is $29.32.

Delta Air Lines (DAL) is at $5.50. Its 52 week low is $5.37 while its 52 week high is $21.80.

Federal Express (FDX) is at $86.83. Its 52 week low is $80.00 while its 52 week high is $119.10.

• Aftermath of the sub-prime crisis and the ensuing credit crunch

Although many analysts believe that the credit crunch is easing, they are still taking write downs and I believe that it will continue for some time

It seems that an economic slowdown during the 2nd half of 2008 seems increasing likely.

Comments

[dectra:]

Wait!!! According to the White House and the GOP we're NOT in a recession......

Yea, Right.

7 Years of GOP control and all we have to show for it is a shrinking tax base and a bloated war machine.

Can't wait for Jan 20th...

2008 May 27 08:52 AM

[RK:]

I am confused. What is your definition of recession? Based on consumer sentiment? Is that what your article is saying?

2008 May 27 09:34 AM

[phurt:]

RKoo,
I may be wrong, but I believe that the technical definition of a recession is three or more quarters of negitve growth (shrinking?) in the economy. Since most recessions barly last a year, by this definition by the time we know we are in trouble, we are already through the worst of it.

Dectra,
I agree with your sentaments... And I am wondering if I should hold my breath for the 20th... That said, by definition we are not in a recession, we've only had two bad quarters. Also the main driving influeince on this recession, the price of oil, is not counted in the state of the economy (along with the price of food, as both are "too volitile". Hey, the economy is good, as long as you don't use any energy or eat anything... Wait a moment, if I don't eat, I'll loose weight... talk about a shrinking tax base).

2008 May 27 10:20 AM

[Joyful Alte...:]

And it has something to do with the government borrowing all those billions abroad to wage a pointless war that benefits only cronies with cost-plus (and no penalties) contracts.

2008 May 28 08:34 AM

[GMC:]

dectra, what you say: "7 Years of GOP control and all we have to show for it is a shrinking tax base and a bloated war machine." is pretty on target; however, politicians only do what their constituency demands/allows. WE are the one's who let it happen and WE need to fix it. I don't think the Dems or GOP will do it without the electorate demanding it.

2008 May 28 08:38 AM

[Carp:]

Hey, Dectra, if you think the D's are going to fix anything, I've got bad news for you!

2008 May 28 08:46 AM

[vaduz:]

lets hope obama really is going to change quite a lot of things, and leaves irak fast

2008 May 28 11:45 AM

[Jimbo:]

Dectra, you must have gotten into the fermented Koolaid. The Democrats are heavily favored to control all branches of government. As bad as Republicans have been, just wait til Pelosi,Reid, and Obama take control. The market will dive bomb the first trading day after the election.Then we will have four years of Jimmy Carter redux.

2008 May 28 11:45 AM

[sivere:]

At this juncture in history, we are getting hit with multiple punches simultaneously. We have a speculative bubble unlike anything we have ever seen (i.e., tulip bubble, etc.). This bubble CREATED the housing crisis. We have a serious energy problem, caused at least by a combination of US foreign policy (Iraq invasion), middle east geopolitics (related to the first point- Iran vs. US and Israel, Israel vs.the rest of the middle east, US support for Israel, Europe vs. US, etc.). Add to that the dynamic growth in China, India, and Asia in general, vying for the same oil, with no easy way to crank up production, plus an at least temporary food shortage, and we are potentially in a heap of trouble.

Now the peak oil folks are saying, 'see, we told you so' (high gas prices, political turmoil), and the environmentalists are saying ,' see, we told you so ' (food shartage, storms, bad weather).

We need to keep cool heads at this point. First, there is evidence enough that the various political situations, including relative falling petroleum supply (i.e., we cannot just crank up oil supply to meet demand) coupled with a panicked rush to commodities due to the financial collapse and various derivative contracts, shorting, etc. are big factors in the energy issues.

Now, peak oil eventually may be real, and with half the world waking up and developing, we need to take the underlyiong theory seriously. I think $120+ barrel oil may end up saving us IF we act NOW to start developing alternatives. We need tax incentives, government sponsorship, as well as good old American ingenuity to kick in NOW.The $120/barrel oil creates the economic framework to make alternatives possible.

This is not the time to give up as some of the more liberal peak oil advocates imply we should. A wise Catholic Saint once said something like 'Know that God can do anything, but act as though He will do nothing'. Let's not forget there is a God, and He could be testing us, He could be punishing us. We do not know for sure. But do not give up. Turn back to some of our basic Christian values (and natural law in general), think about what we are doing and why, and let's roll up our sleeves to solve this issue- not just prepare for the end, and hide in the wilderness. It is not all criticism for the more liberal peak oilers- some of their ideas about reviving urban living are not all bad, and make sense certainly in the short to medium timeframe. Much of their criticisms of suburbia deserve some consideration.

Let's also not get all tied up with Gore gloom and doom over highly speculative theories about disasterous human induced CO2 warming of the planet. In fact we may be headed for a little ice age! Let's develop any energy source we can, and not let the environmentalists tell us (especially the U.S., China and India which have extensie coal reserves) that coal is out because of the CO2 problem. This is pure insanity at this juncture. If the peak oil problem is allowed to play out because of our inaction, you will see an environmental disaster of unimagineable proportions. Even the anti-Christian Malthusian Darwinists could not create a scenario so hororible (though God knows they keep trying).

Turn back to basic values, including. God, country and family, roll up your sleeves, do not give up, and let's work together (with the rest of the world) to solve the problems ahead of us.

siv0.com
TakeBackTheFed.com

2008 May 28 12:36 PM

[rchand26:]

hey can someone really explain to me all this recession thingy in more simple words. i have not really done anything to do with economics (being a medical student) but i do take considerable interest in it. all i can decipher from all this is that the carelessness of the US economic management and excess of credit being taken by the people in the us has really put US in excess debt. therefore, US being the worlds largest economy had alot of other economies like australia dependant on it, i mean not completely but to an extent and thus such carelessness in the US economy has really disrupted the "equilibrium" in the world economy. i cannot seem to get the fact like who decides all this. please or is there any website i can refer to. this is actually interesting.

2008 Dec 02 01:19 AM