I didn’t mean to imply that there is no inventory recession. There is. But there are two principle types of recessions, inventory and credit/debt. The recessions we have seen for the past 75 years or so have been inventory recessions. These are caused by the central bank artificially manipulating the interest rate of loans, which sends signals to the markets. When the interest rates drop, money is cheap and easy and there is a lot of it. People misread this as being a sign that the economy is booming. People borrow thinking there is an increase in consumer demand when there is not. They hire workers, increase production, and then watch their output accumulate as there is no market to purchase the goods. They then have to reduce their headcount and sell at a reduced profit (or loss). These are the mild types of recessions.
The last time we saw a major debt-based recession was the 1930’s.
Unfortunately, debt-based recessions also cause inventory recessions. That is why unemployment is NOT a lagging indicator of this “recession” as many economists inaccurately claim. That is true in an inventory-based recession, as the last thing to happen is that companies re-hire after they’ve cleared out their inventory. In a debt-based recession, unemployment is a leading indicator. Businesses are letting people go as they try to adjust to the credit expansion and the debt overload. Those unemployed then stop purchasing which causes further contractions in the economy, which leads to further unemployment.
We are experiencing both types of recession at the moment, and it is only going to get worse. Much worse. Because we have not cleared the debt saturation and bad loans out of the economy.
I’ve had my tag for quite some time. I advise that everyone prepare for very hard times.
As I’ve been saying, we are at the brink of a global economic depression that will make the 1930’s look like the Roarin’ 20’s.
Thanks for explaining the difference. Regarding “money is cheap....People misread this as being a sign that the economy is booming.” I don’t think that is the case this time. I’m sure there are many like me who are paying down their HELOCs at 3.25% as fast as they can. However, unlike many, most of my equity is in rentable real estate (neglected for 10 years while caring for dying relatives), to which I am also alocating funds for reparing and improving. Fortunately, I live in an area were moderate to lowish income rentals will always be wanted. If it really hits the fan, I can always lower the rents.
Meanwhile, I have been working on an idea that might help. Experts have said that one of the problems now is that with all the lay-offs, downsizing, etc. that there are many inefficiencies regarding new hiring and unemployment. This plan would tackle that issue head on. If you would like to know more, private message me. I need an incentive to get transferring, updating, and computerizing what I have written the old fashioned way. An interested, knowledgeable, and friendly audience and critic would add motivation. I can send a summary and if you are still interested more as I put it in Open Office.