Economy and Recession

[Mischief007]

I need as much info as possible. I have a strong gut feeling that America (US and Canada) are heading for a recession. Bank of Canada is going to raise the rates again (third time since September). I know "they" know what they are doing but noone can predict humans. There can be strong leads that the economy is growing too fast but if they make one wrong move they can stall the economy and put countries into a recession.

This is where we are heading. Don't know when but it will come.

Any insights that you guys can provide would be great since I know anything in this terms of sorts. I just follow the news.

[zenkidori]

headed for recession? man we've been in recession for a while.

[Mischief007]

Explain......

[pdanev]

Iirc US GDP figures, in pure economic sense there is no recession. Don't know about Canada though.

[Ultra_Kool_Dude]

Originally Posted by pdanev

Don't know about Canada though.

Canada = US

I think...

There are a lot of fundamental problems with the North American economy, but I think the downturn will happen slowly over the next 20 years.

I'd say as industry moves to Asia, and info/tech industries grow here in North America, the divide between rich and poor will increase. I also think there will be a big drop in the number of "jobs" (the kind any Joe can do).

Being a US citizen won't guarantee a $50k job in 20/30 years, because you'll have to compete with dudes in India for the same jobs.

[jensked]

Originally Posted by Ultra_Kool_Dude

I'd say as industry moves to Asia, and info/tech industries grow here in North America

The production of goods that require lots of labour (cars, textile) will shift to Asia and other parts of the world where labour is cheap.
Western countries have high labour costs and will have to specialize in the production of goods that require lots of money or technology, because that is the factor we have loads of.

[haha604]

Well the problem is that the Chinese and the Indians have the brains to take high tech IT jobs too. Looking at the high school drop out rate in America does lead one to worry about the fortunes of the American poor in the near future.

[Mischief007]

Even if all the production in the cheap labour moves there, eventually they will start asking for more money, job security, etc. Just like what is happening here. To me it looks like a whole circle the whole time. It's cheap labour now but will it be like that forever? Don't think so.

[haha604]

As an economics student, I would like to offer my limited view of the issue. As I see it, there are two economic concerns in the near future:

1) the housing price bubble will cause an economic disruption of quite a large scale when it bursts, leading many households to feel poorer and hence cause consumption to drop. Furtheremore, so much resources that could have been put to more productive use ended up in real estate on mere speculation of price rises. As a result, productivity growth would not be as high as it could be in the near future.

2) If the price of oil goes significantly higher, it could trigger an inflation-wage upwards spiral, where an increase in one leads to an increase in other. Firms will cut spending and employment will fall. This is recession 70s style.

If you are interested, go to your city's central library and borrow some recent issues of a magazine called "The Economist." I subscribe to it and think its great, better than many economics course I have taken at school. You can find some recent articles on www.economist.com

[haha604]

Originally Posted by Mischief007

Even if all the production in the cheap labour moves there, eventually they will start asking for more money, job security, etc. Just like what is happening here. To me it looks like a whole circle the whole time. It's cheap labour now but will it be like that forever? Don't think so.

That's true, but what will an American without an high school education (and there are lots of them) do in such a world? America needs to prop up its education system, and fast. Too many blacks and latinos are left behind in ghettos, and it seems like their only way out would be to join the army or to become a sports star.

[Renesis]

I'm all for them raising interest rates for like 2 years, cause I have cash to stack up...

after that I'll start spending it so they better go down again

[Mischief007]

Thanks haha604. I appreciate the web site.

About the education. There should be no "you can drop out at 16". That's the dumbest thing I've heard in this world. It should be re-inforced and governments SHOULD be playing a big role in this.

[Tomo Motorsport]

Here in the US we've actually had some inflation with prices being raised for everything, but wages staying basically the same. I think that by raising interest rates will slow down the blitz of raising house prices, thus lowering house prices and lowering inflation, since prices will have to drop in order to stimulate more purchasing.

[pdanev]

Originally Posted by haha604

As an economics student

Not hijacking this thread, but a small OT question from a fellow economics student. Which year, which uni?

Financial times is good too btw, in paricualr because I get it for free.

[haha604]

Hey pdanev, I am in my fitfth year at the Uhiversity of British Columbia in Vancouer. In fact, I will be done with school by Decemeber this year. You?

And yes the Financial Times is a good newspaper too. It seems strange, but Britain probably produces the best and worst papers at the same time .

[pdanev]

3rd and last year bachelor, Maastricht, Netherlands, will be done hopefully next year by december or so.

[hokiethang]

Originally Posted by Mischief007

Thanks haha604. I appreciate the web site.

About the education. There should be no "you can drop out at 16". That's the dumbest thing I've heard in this world. It should be re-inforced and governments SHOULD be playing a big role in this.

I dunno, I personally having spent the time and effort to graduate high school and get a college degree, think that people who want to drop out at 16 should be allowed to. If they want to screw up their life, that's their choice. I also don't want those same people asking for money when they can't afford to survive. Public (K-12) education is free here in this country, and if you want to not take advantage of it, then that should be your fault and you should have to accept those consequences. There are problems with our public education system, but forcing students who don't want to be there to stay isn't the solution.

As for the general state of the American economy, I think its in unstable territory right now. The tech industry is definitely on an upswing (as is evidenced by the great number of jobs available for graduating students), but it isn't going to repeat what happened in the late 90's, as VC isn't easy to come by. I don't really fear that China and India will take the high tech advancement away from the US, as those countries currently serve as cheap sources of labor for American innovation.

The difference between American software engineers and Indian software engineers is quality. More and more American software developers are bringing software back to the states to be written, because fixing the quality problems with software is beginning to cost more than they are saving by sending it out to be done. Microsoft for example only uses Indian code houses to write non-core parts of software (such as libraries for development tools, and sub modules for products) and the major products like Windows and Office are developed entirely in the United States.

I don't think that India and China will ever surpass the US in technology, as US companies tend to hire the best and brightest and bring them here to work, instead of letting them go off and start competing businesses. If India and China were to dump trillions of USD into research, as is done here in the states, they might begin to move towards us technologically, but by then, it's likely that we will be even further ahead.

[haha604]

Sometimes its not a matter of intelligence but a matter of luck. A kid born into a ghetto is faced with drugs and all sorts of problems from birth, so naturally he has a lower chance of completing high school than a kid born into a clean family. Furthermore, schools in ghettos are generally a lot worse than schools in the suburbs. When they grow up and can't find jobs, they will naturally turn to crime. So even if you don't want to pay any taxes to support their living, their illiteracy will harm you in other ways.

As for the US holding the technological reign forever, human history proves otherwise. China was at the top for thousdands of years, and now it has to play catch-up. It is true that China and India will not outcompete the US in all technological sectors, but in new scientific frontiers everyone is on a much more level playing field (eg. genetic research). A recent example would be Japan. It is not an exagerration to say that Japan basically elminated the entire US consumer electronics industry when nobody expected it to.

With regards to the IT industry, the workforce in Sillicon Valley is unproportionately represented by Indians and Chinese. There is no gurantee that the best minds will stay in the US, given that both the Indian and the Chinese government are trying their best to lure talents back, and that the quality of life is getting better in both countries. I am no Microsoft insider, but I would guess that Microsoft is writing its core products back home not only due to the superiority of the US workforce, but also due to concerns for security. You don't want an engineer to steal your piece of work in India where there is much less copyright protection for a US company.

[SiR_dude]

Back to the economy...I think it's going to slow down a bit, but not quite recession style (I'm talking Canada..specifically Ontario, 'cause I don't know much else :p). That's the reason the BOC is raising interest rates - the economy has been going strong for a while, and they want to keep growth and inflation in check. If it weren't for those huge ass huricanes, we'd have seen even higher hikes in the interest rates (the huge spike in fuel dollars decreased spending money).

That sucks for me, because my mortgage starts next week