Recession Smession

This post is a response to The Latest Data: Yes, It’s a Recession by Justin Wolfers on the New York Times Freakonomics Blog, March 10th, 2008.

Dramatic unemployment increases in financial services, construction and autos will be the real shoe to drop. Who will pay for all these billions of dollars of writedowns? Oh, I forgot, the Fed has the ability to actually print more food and oil – yeah right, was Bernanke ever taught the first rule of Economics: Land is Scarce.

So how much of our newly printed paper is currently being bought by our social security system – talk about drinking your own blood. The welfare state will inevitably be forced to solve their huge inefficient costs of entitlements and armed forces.

Bank real estate bought or leased during the peak of the market will also help force the banks into bankruptcy (Is that where the word bankruptcy came from?). The question is how much of the value of the economy did we allow the financial service industry to liquidate through their credit ponzi scheme based on perpetually increasing housing prices.

China’s and India’s manufacturing will slow accordingly and the natural resource exporters in South America, Russia, Middle East and Africa will also experience a significant slowdown (think how much less copper and petroleum China will demand if America’s demand for plastic stuff, steel, and wood slows). In other words, China will also experience related unemployment in their manufacturing sector, which was built for our consumption growth (Is “consumption growth” an oxymoron?). The global economic slowdown may seem rapid in the near term, but it is a product of years of pent up rent and energy inflation (is there any other kind?) throughout the vertical integration chain of such an inefficient global production and distribution economy.

On the flip side, renewable energy growth is on the move (only growth industry in the world today) and will redefine the meaning of real or true equity (vs. today’s borrowed or non-reneawable energy economy). The growth will fulfill Shumpeter’s prediction of how true equilibrium will be achieved, where credit will only be provided on the basis of entrepeneurs assets. Tomorrow’s assets will be renewable energy and entrepreneurs will realize the value of securing their own energy at any cost, which will also drive the future value of real estate and rent. Walrus’ vision of a “desired cash balance” will also be achieved producing our most “desired” renewable dividend stream in the form of energy.

Huge innovation profits will be achieved in Silicon Valley as the U.S. manufacturing industry will strategically and desperately move from autos to solar panels and wind mills. And of course the construction and finance industries will strategically (or desperately depending on which way you look at it) b-line into the renewable energy sector financing renewable energy mortgages out of the same bank branches they recently built to expand their home mortgage businesses. Home Depot and other home distribution retailers (I can’t imagine the pain for furniture stores right now) will also be forced to provide renewable energy equipment as opposed to more housing materials.

I can’t wait as it most certainly will be a lot of fun to be alive during the renewable energy revolution. We just better hurry up and learn to appreciate the dividends of a renewable energy world!

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