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August 11, 2009


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I doubt it - LTCM, the Internet crash, 1987 share market crash etc etc etc. - very few people (including the regulators and politicians) changed their behaviour after these events. Why would this time be any different? It's not like we are back to the situation we had during the great depression.

I remember the price freezes when there was high inflation, energy crisis, Saving and loan failures, early 1980's recession with 12 percent unemployment, the 1987 crash and the tech bubble. Most people I talk to only remember the tech bubble. I was more anxious in those past economies than the current.

This recession was caused by energy price shock (Paying $200 a month more for commuting to work is $200 less to pay the mortgage Payment). The recesion would not have gone this deep if the stimulus money would have been given to the consumer instead of lining pockets at the top of the economic food chain. Cash for Clunkers is proof of that. Right or wrong This is a consumer economy and Human nature will prevail.

What recession?

It'd be hard not to, when money is counted twice for GDP numbers - once when it is earned and then again when it spent. The logic of that, once you follow it, could be endless. The ideology is that spending grows the economy - but look where that got it. An economy dependent 70% on consumer spending and services. What I'm learning is that the "honest numbers" way of growing an economy is to have a decent amount of real savings. At least the banks have built up considerable reserves now, hopefully they will keep much of them.

I think what we are seeing is a reactionary saving habit fostered by fear. I don't think this represents a fundamental shift in people's saving philosophy. When the skies turn blue I think the money will flow out of the bank and back into the cash registers. But, I hope I'm wrong.

I agree with Craig and the rest that say that this is temporary. This recession isn't deep enough to affect the behavior of all but a few. Some will make changes, but most will not. We may be surprised if the Health Care is changed in a significant way and they enact the 'Cap and Trade' legislation. This could contract the economy to where this recession is longer and deeper then expected. This might change behavior more fundamentally.

I'm not American, but I think I can comment as well. I agree that people will go back to their old habits. Except for one thing:

My impression is that there's growing frugality/handle-your-money-wisely trend, as a reaction against the overspending all around us. I mean, look at the rapidly expanding number of blogs on the subject (frugality, early and normal retirement planning). Every blog seems to inspire ten people to create their own and get a hold of their finances. At any rate, it's growing faster than, say, gardening blogs. I doubt it will ever be mainstream, but it's growing, and this recession seems to speed things up.


"This recession was caused by energy price shock"

When a camel is loaded up with a load two times bigger than it should have and someone adds a straw to the load and breaks the camel's back, it's not really the straw that broke the back regardless of the cliche', it's the oversized load that never should have been there in the first place.

Over-extended consumers, consumer debt and excessive mortgage debt using mortgage products with escalating payments caused this mess, not energy prices.

People will change their behavior when they come to the conclusion that their old behavior was a really bad idea, a dangerous idea, a downright frightening idea, an idea that could cause them and their family extreme pain and suffering. That's why the great depression so deeply affected so many. We are a long ways from that for most people. I think things are still going to get worse so we will see how far we go down the fear road but until the fear is palpable and you can see it very large percentages of American's faces on a daily basis, nothing significant will change.

People do not make radical sweeping changes in response to short lived events that had minimal consequences. What have the consequences been thus far? Many people have lost houses that they never should have been in and never had been in before and are now renting or living with family. Many people are losing their jobs but unemployment benefits have been extended from 6 months to 18 months. They have huge debts and the credit card companies are trimming their limits but most are still buying what they need they just can't get some of what they want.

People aren't on the street (just moving to appartments and rents are going down), they aren't starving, their heat hasn't been turned off, their kids still have clothes, food, etc. For the most part what people are experiencing in their daily lives is not much different yet than any other recession. Until it is drastically different and people make a direct and undeniable link to their behavior and the consequences there will be no enduring change in behavior.

In fact without such a link a change in behavior would be somewhat irrational. Why would you change something that you didn't think was a problem and the circumstances of the current day don't seem to make it obvious that there are any serious consequences of the behavior that you felt was fine in the first place.

I guess I have been an "Immigrant Odd Ball" my whole life since coming to North America 53 years ago.
I have been doing pretty much what the author is suggesting my whole life - no changes required.

I don't go near banks - Credit Unions are co-operatives and much cheaper.
I avoid paying interest at all costs - just on homes that were paid off 17 years ago.
We shop at Costco for many things, including gas which is the lowest price in town.
We eat out at three inexpensive neighborhood restaurants - I am not a big tipper but they love us there.
We use credit cards that have the best possible rewards and pay them off every month.
I do all of my own gardening, wash my own cars, fix most things myself when needed.
I grow tomatoes, bell peppers, cucumbers, beets, carrots, kohlrabi, zuchinni and butternut squash, apples, plums, oranges, lemons and tangerines.
Being a tea drinker I don't waste lots of money at Starbucks on Lattes!
I buy my Coogi and Tundra $300+ sweaters and Tommy Bahama $150 shirts on eBay, gently worn at minimal cost.
I took full advantage of company programs for getting a post graduate degree part time.
We both always put the maximum into retirement accounts, especially ones with employer matching.
Our house wine is Two Buck Chuck from Trader Joe's, $23.88/case - try it, it's GREAT!
Biggest difference of all - I did my own investment analysis, 20.34% annual compound return last 15 years until getting out in 10/2007 and going into Muni Bonds and CDs.
I also believe in "Spare the Rod and Spoil the Child" and have three great adult children, two are already millionaires, the youngest is getting close.
We are still saving - old habits are hard to change.
One exception - we now fly business class on our annual foreign vacations.
So there!

This recession wasn't caused by rising energy prices, it was caused by unbridled GREED on Wall St.

Old Limey, you sound like a "millionaire next door." Congratulations and thanks for sharing your story.

Behavior will definitely change. For a while. And then, guess what? It will change again. The old 7 fat years followed by 7 lean. Back and forth.

Coming from a 23 yr old recently out of college with a good head on his shoulders saving/investing wise. It teaches me that people that make the smart decisions are the ones who will be hurt the most... better off spending all your money, living on welfare, using soon to be universal healthcare,no employment, no worries tho the govt will always be there to bail me out. Makes me sick knowing that the government handles their fiannces just as well as the american people.

Sorry saw the post and had to reply

The recession will impact some peoples habits certainly. Probably only a small minority will really change. People may be less willing to take risks in their investments. Unfortunately some people will go overboard in risk avoidance and distrust of banks and end up shoving cash in mattresses or hoarding bars of gold.

I don't think people's habits will voluntarily change. I do think constriction of consumer credit, and of course the collapse of the housing market, will enforce a long-term downgrade in lifestyle for a considerable number of people.

You have my full sympathy.

It is really sad to see the great damage that politicians have done to the "Old America" that worked so well for a very long time. I'm a Democrat but both parties have to take big shares of the blame. America power peaked at the end of WWII, thanks to the "Greatest Generation" that came out of the Great Depression. In 1945 it was the world's only Superpower and the saviour of Europe. The post war period was very prosperous for lots of Americans but it has been going down hill badly this whole decade.

The best government regulation is no government regulation - start of big deficits.
Trickle down economics - cut the taxes for the rich - the benefits trickle down to the workers - Ronald Reagan.

NAFTA hurt more than it helped - that happened on Bill Clinton's watch.

America hardly makes anything these days, manufacturing has all gone overseas to China, Vietnam, India, Thailand, and anywhere else that has a low labor rate and pathetic conditions for its workers. Non of the recent presidents have done anything to stop this.

What did the Korean and Vietnam wars achieve other than the slaughter of lots of young Americans - these started under Harry Truman and Lyndon Johnson.

What has the Iraq war achieved other than the loss of 4000+ young American lives and an expansion of our national debt to be passed on for future generations to pay - started by George W. Bush.

Lack of regulations allowing terrible risky decisions to be made by many of our largest corporations - AIG, GM, Chrysler, Fannie Mae, Freddie Mac, Countrywide Mortage, Citi Bank, Bank of America, Wachovia Bank, Lehman Brothers, Bear Stearns etc. etc.

Year ---- National Debt
1945 --- $258 - Billion End of WWII
1956 --- $272 - Billion When I came here
1981 ---- $997 - Billion Ronald Reagan elected
1989 - $2,597 - Billion Ronald Reagen left office
1992 - $4,064 - Billion When I retired
2000 - $5,776 - Billion George W. Bush elected
2008 - $9,229 - Billion George W. Bush left office
2009 $13,000 - Billion Estimated for year end.

This is an example of exponential unsustainable growth - it's a Bubble headed for Collapse.

It would have been better if we had a harder collapse in late 2008, & 2009. Then we would have had a more durable recovery.

Instead the clowns at the FED and White House are taking the policy route for us to relive what Japan when through from 1989 to now- 2 lost decades in housing / asset bubble pricing and stock market gains. I've been to Japan and talked to the people there- the country has good infrastructure and nobody is starving. But the opportunities are gone and the heydey of Japan being the world superpower is a long distant memory. People get by but people work until their 40's still living with their parents. There is disposable income for buying small things but very few own cars or property.

The US is gearing up for something like this. It will be a long slow grind and not a quick pop & recovery. Thank Uncle Ben and Uncle Obama for sticking a fork in America. But really it's not just them and it's a bit extreme to stick them for all the blame.

Other tangible factors:

-Baby boomers heading into retirement, drawing down consumption and pulling money out of stocks & speculative real estate.

-Excessive gov't borrowing and monetizing of bad bank assets on the taxpayer will result in slow growth because the debt servicing will come from increased taxes or reduced spending, both of which will take away from growth.

-Unemployment will stay high under these conditions keeping wage growth negative or low, this will make it harder to re-enable the next bubble.

-All developed countries will keep pushing a zero rate interest policy until they are forced to raise rates by the market- by the market threatening not to buy dollars or Euros, etc.

If rates go up housing and stocks will take a big downturn, may be what we need to clear the deck and get into a durable recovery.

Just my $0.02, in a rambling way.


"This recession wasn't caused by rising energy prices, it was caused by unbridled GREED on Wall St." - Old Limey

Wall street has always been greedy, as is the rest of society. Identifying GREED as the cause isn't really enlightening.

What caused this recession wasn't rising energy costs, nor greed. What caused this recession was that the people/companies making loans weren't on the hook for the risk. If you know you can make a loan and take in the profit, but that if it goes bad it's someone else's problem, you're not going to be all that discriminating about what loans you give out. When lending institutions let consumers take out loans for too much money, consumers overpay for products, and generate bubbles (which is what we saw in housing.)

I don't think CONSUMER behavior will change in the long term... but maybe INVESTOR behavior will. Consumers will still run with as much credit as they can get away with and feel comfortable with, but investors may not be as willing to buy risky products (aggregated liar loans / ARMs and such) from the banks/lenders/credit institutions. Thus, those institutions will have to be more careful generating those loans in the first place.

Old Limey said:

I took full advantage of company programs for getting a post graduate degree part time.

Cool, where do I sign up?

I do think that the recession will have an impact on spending. The recovery this time will be slow. We are likely to be plagued by continued falling prices of homes, more credit issues, etc. That will continue to cause fear in many Americans. As such, this prolonged fear will have a longer term impact that will drives habits to control spending and put some money into savings in an effort to feel more secure. As a related note, legislation and tighter credit will also put up more barriers to those that would have otherwise taken on even more signficant debt.

You're a bit late I'm afraid.
In 1961 I signed up for an MS program at the oldest university in California, founded in 1851.
It was called the Early Bird Program and classes ran from 7am - 10am for engineers that were employed full time. My employer required that any missed working time be made up.
Students paid the tuition which was $40/unit, my employer gave a 100% refund for a grade of B or higher.
I graduated in 1963. I just checked their website, the program is no longer offered and tuition is now $710/unit.

I'd second Old Limey that now may not be the best time.
My employer used to have a very generous program with full tuition reimbursement and time off (nope, no time make up required, my employer is more interested in what you accomplished than how much time you spent at work). I am not sure if the program is still there - I think it is but it may be more difficult to get approval.

But... As I was trying to find out more details about our current reimbursement (from home so I googled rather than searched intranet), I stumbled upon this thread that lists companies that offer tuition reimbursement:

This list is from 2007, so certain things may have changed with this crisis, but this is a start.

Also, in many fields you can get assistantships.

No, behavior will not change. This recession has not hit enough people hard enough. Too many still want to believe the government can fix everything with minimal effort on their part.

The biggest reason why a lot of people are saving now is because they are effectively being forced to because the banks are not handing out credit cards, mortgages, and home equity loans like candy.

I'm seeing it already. I have some relatives who pinched pennies for a year or two, and now that things are better for them, they're spending just as large (maybe larger) than they ever did.

@Mike Hunt: you should have a look at Marc Faber. A clever guy. Basically he argues what you're saying, but with artificially low interest rates (to support the economy medium term) by means of continued money printing (if all countries print together, as is happening today, they can go on forever).

If you have a desirable skill set you can look for a job at a university and work as a staff member. Most schools have some sort of tuition benefit. That's what I am doing right now. I start my Post-Bach in two weeks. The benefit has its restrictions but will cover about half my costs.

As for the original question, some people will learn, and some people won't.


Thanks for the reference. I guess time will tell on what strategy works. But as a buyer of treasuries I wouldn't buy if it is printed garbage unless the yield rates reward me for this... can't print money like crazy and keep the yield low.


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