My two bit addition to the diatribe on Goldman Sachs so ably launched by Matt Taibbi

By now the whole of USA and perhaps most of the developed world knows and maybe accepts in some if not full measure, the infamy of the loathsome Goldman Sachs (GS) as the 'giant vampire squid' of the financial world.

So when I came across this ill-timed, uninformed and irrelevant tribute to GS supposedly as part of a organizational principles and virtues primer:
http://sabhlokcity.com/2011/10/some-serious-food-for-thought-the-14-principle-of-goldman-sachs/

I could not  resist providing some strong rejoinders, which I am reproducing below. As it happened with my earlier exchanges with this incorrigible  shifter of stances who confuses facts and opinion, the exchange was uneven and rough.

My first rejoinder:

Very few can quarrel with the 14 principles that have been outlined above. The only and big problem is with the choice of the role model as Goldman Sachs!!! (GS)  of  all the people and corporates in the developed world?!!!!. 

 I don't know what FTI thinks or knows about GS. Currently many in US agree that it is veritably the "Gaint Vampire Squid" of the finance world. 

It is one of the titans of  the 'Capitalist Casino' world of the US and the West. It undertakes what can be fairly described as 'Casino Banking' which is more popularly  known by its glorified term of 'Investment Banking'

 Most of its income comes not from SERVING customers, but from taking/placing highly levered bets on anything and everything under the sun from its prop. trading desks and systems.

Its huge exposure to and 'partying' in the huge and monstrous Derivatives market of close to $ 50-60 Trillion present a very real threat to the global financial and economic ecosystem.  So it is a puzzle how these 14 principles 'underpin' its work. Nice term! to use. But there is very little factual basis to such high sounding phrases being applicable to GS. 

What is not probably included in the links below is that GS also holds the distinction of advising the Greek Govt. to cheat their way into the Euro club by masking their fiscal books and figures using 'Interest Rate Swaps' and 'Currency Swaps'. It of course got huge fees for pulling the wool over the eyes of  Euro zone  Inspectors and regulators

If possible do go  thru these links below. There is lot more of dirty linen about GS that is being washed and re-washed in the internet. This is just a sampler

http://www.sec.gov/news/press/2010/2010-59.htm  (SEC charging GS with Mortgage fraud)


http://www.huffingtonpost.com/2010/04/16/goldman-sachs-fraud-expla_n_540938.html#s81812&title=Goldman_Creates_A ( Explanation of the GS Mortgage Fraud)

http://www.huffingtonpost.com/2010/04/17/germany-vs-goldman-sachs-_n_541707.html ( German Govt chasing GS for CDO/CDS fraud charges)

http://www.huffingtonpost.com/2010/04/17/goldman-sachs-gave-more-m_n_541606.html (GS bribing and greasing of US politicians and poll campaigns)

http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405 (Matt Taibi's detailed and thorough exposition of GS manipulation of most post-depression era asset and financial bubbles)

No offence meant. I just love being a 'devil advocate'

Now let us look at the silly response  below of this apologist  who has no qualms about his ignorance of  the general economic current affairs or the unsuitability of his illustrations.

Sanjeev Sabhlok says:

October 10, 2011 at 12:40 pm

This is not a discussion re: Goldman Sachs of which I know little and have no time or interest in investigating. Should its manipulations be found to be illegal the relevant guilty parties should be prosecuted. That’s the purpose of capitalism – to ensure justice and accountability.

The principles, though, are robust and valid.

It however does not stop with this. Very eager to parade his half-baked economic theories in everything, SS goes on to make some ridiculous tall claims about capitalism and its purpose. One thought that systems and structures and not economic systems ensured justice, but apparently not according to the genius of SS. And who is going to hold GS accountable for its manipulations and prosecute it, the pathetic SS!!, whose ridiculousness and monumental delusion puts even Don Quixote to shame

This surely had to meet with another response below:

While I agree that you were not discussing GS in your article, yet still why quote the example of GS of which by your own admission you know very little.  Why not somebody else? My suspicion is that there are very few white knights in shining armor in the Corporate domains of the US that can do the work of restoring faltering faith of millions in the justice of current capitalist systems. I would love have some such examples. GS just happens to be a shot in the dark from you. 

My point was  not about principles per se , but the fact that individuals and organizations do not act and deliver on their own mission statements is itself a matter of grave concern. If you peruse typical Organization mission statements, you may distil not just 14 but  140 principles.  But of what use is the validity and robustness of principles when they are more observed in their violation than and in compliance like GS does with impunity.

If the purpose of Capitalism is to ensure justice and accountability, why is it failing in ensuring that very thing in the Mecca of Capitalism (USA)? The masses of the US are painfully aware of this failure. 

You said "Should its manipulations be found to be illegal the relevant guilty parties should be prosecuted"

 In the wake of the Internet bubble bust in the early 2000's, GS was pursued by SEC for IPO norms violation, price manipulations, insider trading, and nstead of prosecution, let off lightly with a settlement of 'chump change' of a few million $ when it made billions of  $ in profits from the Internet bubble manipulations. 

The proof of the pudding is in the eating. White collar crime is rampant in USA and is still continuing in broad daylight. The system has hardly brought any of these criminals to book. The capitalism in USA has miserably failed that test. 

Welcome to a new class of ‘Economists’ and Policy makers – THE AUSTERITARIANS

We have heard enough about libertarians, liberals, socialists, institutionalists and their views and policy prescriptions. They are just opinions because we don’t see them put to work anywhere in the society or economy, if we were to hear the Keynesians and the monetarists or believe them. 

I am sure the Austrian school of economists are not going to like this. But this emerging class of economists and technocrats that are heading the infamous ‘troika’ of IMF, ECB and the EU, also stand for debt reduction. The only difference is that while Austrians do not favor debt build-up, the ‘Austeritarians’ don’t mind a debt pile-up because they have a ready medicine. That sure-fire medicine is called austerity measures. 

This is the bitter medicine that the troika and its varied institutional incarnations prescribe, impose and administer whenever there is  an economic and financial crisis caused by excessive debt build-up. The more bitter the medicine, the more effective and imperative it is sold as.

This troika has already subjected the countries of Greece, Portugal and Ireland to the torture and misery of their austerity potion and cocktail.  Italy is next in the line of firing and is already on the verge of having this bitter pill of austerity measures forced down its throat.  

The Austeritarians are not called that for nothing. Their austerity prescription is very typically and uniquely unfair, unjust and biased.  This can be seen from the ingredient mix that this cocktail carries

Cuts on Greece:

•    Public sector wages to be cut by 20 per cent, and wages of state-owned enterprises to be cut by 30 per cent
•   30,000 civil servants to be put on partial pay — meaning 60 per cent of regular pay for one year
•  Monthly pensions above 1,000 euros to be cut by 20 per cent;
• Monthly pensions at the same level for existing retirees under 55 to be cut by 40 per cent
• Health spending to be cut by 310 million euros ($432.2 million Cdn) in 2011, a further 1.8 billion euros between 2012 and 2015
• Education spending to be trimmed through merging or closing of 1,976 schools
• Defense spending to be cut by 200 million euros in 2012, and 333 million every year from 2013 to 2015

Taxes

• The tax-free income threshold to be lowered from 12,000 to 5,000 euros
•  In an effort to raise money for the growing number of unemployed, the country is to introduce a "solidarity levy”" of between one and five per cent per household, which will be raised twice in 2012
• Taxes on gas, cigarettes and alcohol to increase by one third; luxury taxes to be levied on items like pools and yachts
• The rates for the value-added tax (VAT) — similar to Canada's HST — to increase

Government sell-offs

• Selling 10 per cent of Hellenic Telecom to Deutsche Telekom for 400 million euros
• Selling stakes in various banks, utilities, ports, airports and land holdings in 2011/2012
• Privatization of the state lottery, Athens and Hellenikon airports, four Airbus A340 aircraft and 2004 Olympic venues, hotels, beaches, marinas and casinos. Also the main gas distributor, petrol refiner, the main railway operator and the motorways.

Some of the bulleted points above in the cuts are highlighted in bold to emphasize what they really mean, a drastic reduction in the welfare of general community imposed by diktat. Hitting retirees below the belt by not only reducing their entitlements when they need it most, but also compromising on healthcare is also another ‘necessary evil’ of austerity induced ‘reforms’. Added to this injury is the insult of reduction in education spending and shuttering down of schools. Are any banking or financial institutions being told to shut down in Greece and Ireland?. Isn’t a ‘50% Hair-cut’ a big austerity attack on the banks and the ‘big bad bond market’?!!

All of this and more, just to release a measly tranche of 8 Billion EUR!!! Is any of this helping Greece? What a trite question to ask?! Have we not heard enough of the failures of these harsh measures. But that is not really the point.

1. Does austerity mean punishing the masses for the ills, evils and sins of the elite and the elected?
2. Does austerity mean a back-door repeal of not just welfare state but of the welfare and humanistic orientation of an economy and system under the guise of ‘fiscal restructuring’?
3. Does austerity mean forced privatization of even utilities and transfer of wealth to troika favored agents and institutions (If Deutsche Telekom is so near, can Deutsche Bank be very far!!!) under the pretext of smaller government?.

This is elitist fraud and tyranny of the masses hiding behind the veil of austerity and economic discipline.

This is worse than austerity, it is sheer brutality!! May we call the economic technocrati of EU the ‘BRUTALITARIANS’

Regulations Not a Major Cause of Layoffs

Studies: Regulations Not Major Cause of Layoffs 

Here's an article from Newsmax.com that should cause some displeasure to economic right and the libertarian hoi polloi that is not satisfied with any amount of deregulation and  looks down upon government as a 'regulatory hound' 

While government regulations do lead to job losses, the overall effect is minimal. Economists’ analyses and federal statistics show that few job losses are a result of tougher regulations, The Washington Post reports.

 

The Bureau of Labor Statistics collects data from companies that lay off workers. According to information provided by company executives, 0.3 percent of those laid off in 2010 lost their jobs due to “government regulations/intervention,” while 25 percent were laid off due to a slowdown in business.

 

For instance, the Post noted that while utility provider AEP will cut 159 jobs when it closes a decades-old coal-fired power plant in Ohio due to new rules from the Environmental Protection Agency, the company is building a new natural-gas-fired plant an hour away from the old plant. Hundreds have been hired to build it, and when completed next year it will employ 25, with a significant reduction in pollution.


“If you’re a coal miner in West Virginia, it’s not a great comfort that a bunch of guys in Texas are employed doing natural gas,” Roger Noll, co-director of Stanford University’s program on regulatory policy, told the Post.


“Some people identify with the beneficiaries, others identify with those who bear the cost, and no amount of argument is ever going to change their minds,” Noll added.
Economists say that there is little evidence that regulations bring about massive job losses, nor that rolling them back will lead to a job boom.


“Based on the available literature, there’s not much evidence that EPA regulations are causing major job losses or major job gains,” Richard Morgenstern, who worked at the EPA starting under the Reagan administration, told the Post.


A study by Morgenstern and others looked at the effect of regulations on pulp and paper mills, plastic manufacturers, petroleum refiners, and iron and steel mills between 1979 and 1991. The study concluded that higher spending to comply with environment rules did not cause “a significant change” in industry employment and when jobs were lost they were often made up in the same industry.


“The notion that we should deregulate everything because we have a recession is completely wrongheaded,” Noll said, adding the government could outlaw tractors and create jobs in the fields but that “would not be a legitimate social goal.”

Ignorance of the impact of Financialization of assets gone astray - Riposte to an instance of its shallow and poor apology

 I am usually loath to quote again this ignoramus called Sanjiv Sabhlok from FTI, who though he holds a degree in economics from a University in USA, is direly in need of going back to the school of real economics . But he is not alone in furiously peddling economic drivel. So he serves as a very good specimen of how little factual basis and reasoning is contained in many of the libertarian economic views.

The link below contains  a plagiarized pitch for derivatives from this worthy

http://sabhlokcity.com/2011/10/info-for-the-occupy-wall-st-movement-entrepreneurs-get-only-2-per-cent-of-the-wealth-they-produce/comment-page-1/#comment-64577

I reproduce below my riposte to his misguided pitch

Apropos derivatives :As quoted by you

"These are HEDGING instruments for future risk. They smooth and minimise risk. They also allow people to speculate on future asset prices, thus deepening and thickening the financial markets, permitting a range of investment options suited to individual risk preferences. The “written” value of these instruments is far greater than global GDP, but that is because these incorporate entire exchange values between parties to the instrument. Particularly when you consider future asset values, their total nominal value will naturally seem very “inflated”."

I will reserve my detailed opinion till I can go thru the references cited by you. But based on my knowledge and information of the current trends in derivatives, I feel less inclined to agree with the above sales promotional pitch about  derivatives driven speculation deepening, broadening and thickening financial markets.

If I am permitted an analogy from the insurance industry, the obverse side of speculation in the coin of financial arrangement  is the 'absence of insurable interest'. In the interests of advancing the objective of promoting depth, breadth and liquidity of  financial transactions/system diluting  the principle of  existence of insurable interest is inevitable. But it is necessary to have limits on how much this tenet can be compromised.

For example the GDP size of major economies do not exceed 100 T. When compared with the size of the 650 T, it seems a leverage of 6.5 which may seem deceptively manageable. But if  it is compared with the US real/physical economy ( approx 10 T if the financial economy is excluded), the leverage will be 65 times, which is scarily huge and disproportionate. Even the argument of exchange values between multiple parties is accepted, the size of option/instrument value is increasing not only because of multiplicity of counter-parties but due  more to layering of speculative bets. 

There is another feature that is somehow escaping the attention of  economic and regulatory experts, which is that opaqueness and complex structuring of these instruments is in fact becoming their defining feature. 


How can opaque and complex instruments smooth and minimize risk?. 

If the MBS fiasco has been blamed on lax housing regulation, then what about the LCTM hedge fund collapse event. That is considered a classic case study in how complex layered instruments can trigger cascading defaults when bets start unwinding. The argument of future values of underlying assets causing inflation in the designated value of derivatives is not convincing either since that will raise the question of methodology of estimating future values of commodities/asset. What conservative or reasonable discounting or NPV method would justify a future value of even 5/10 times the current value of an asset, let alone higher ones that have ballooned the size of  this market

My point is that regulation apart, there is a serious need to rethink the whole economic and social utility of this kind of shadow economy or banking system. This shadow economy thrives on opacity and secrecy.

You cannot regulate something that is opaque and non-transparent. 

It is no surprise then that the financial industry always protests/browbeats any attempt to regulate the derivatives market.  The few rare attempts to look into any financial reform is always painted as an effort/conspiracy  to strangle the liquidity and depth of financial markets


PS: Expectedly the 'great expert' on derivatives had no answers to any of these questions or posers. It is really a tragedy that 'economists' like him have very little respect for facts, criticism or knowledge of critics.

Ignorance of the scope, impact and repercussions of Financialization of assets gone astray

The link below carries the comments of one of the many irresponsible and reckless apologists of the laissiez-faire and orthodox free-market ideas that go by the fashionable name of libertarianism 

http://sabhlokcity.com/2011/10/info-for-the-occupy-wall-st-movement-entrepreneurs-get-only-2-per-cent-of-the-wealth-they-produce/comment-page-1/#comment-64484

Below is my response to the cavalier claims and remarks of the author above:

While the author of this post claims to be one with the  views and sentiments of Chris Hedges, his subsequent 'reasoning' gives it all away.

Look at this statement " 80% of the cause of the problem was NOT because of whiz-bang financial engineering and mirror and smoke"

This kind of statement is fraught with extreme economic ignorance of how financialization ( conversion of a commodity into a financial product) operates. If the result is round one of financial/economic collapse with the post-Lehman Bros. credit freeze, one of the prominent causes of that was surely the mammoth growth and spread of 'Financial Innovation' in the form of derivatives like  options, swaps and futures. What these instruments do is extremely over-leverage underlying assets such as stocks, bonds, houses, currency, interest rates etc and transforming them into complex bets in the name of hedging, risk dispersion and liquidity provision. 

In the financial world it is accepted that leverage works as a double-edged sword, which is why any risk management principle would always insist on safeguards like margin, transparency and disclosure of price discovery. 

According to economic historian Justin fox, the size of this market is around 450 Trillion $, which is also an underestimate if we go by BIS sources who estimate it to be upwards of 600 T $. This is many times the Global GDP itself. 

Many monetary claims (like swap fees and CDS premiuims) are based on this extravagant figure, which has very little basis on actual asset size and value.  That itself is a big global level financial risk. This behemoth of a market violates all the principles of margin adequacy, transparency and proper disclosure of price discovery which should be bedrock of any risk management system.

Claims on this kind of fuzzy figures have triggered defaults causing sales of actual underlying assets at throwaway prices. Actual $ of subprime loan has been levered 20 time or more on the derivatives market. If an underlying risky asset like a subprime was not levered 20 times or more, systemwide run on credit claims would not have happened on  this scale. And Lehman Bros was levered more than 30:1 

This monster of a derivatives market has primarily originated from USA whose Central Bank (Fed reserve) is very unlike other Central Banks of the World. It has a mandate to sub serve certain governmental policies on inflation and employment, but is neither owned nor managed by that government. It is owned by private banks and in real sense always serves the interest of  private  banking in USA. 

To consider the Federal Reserve as a part of US Govt is itself a very big fallacy. 

The author in one of his subsequent statements show this typical ignorance by considering the Fed reserve as an arm/agent of the government.  

His next statement "but the role of the US government in forcing banks to lend to subprime borrowers and the Fed’s insistence on keeping rates so low that it became super-profitable to lend to virtually anyone.  is even worse 

If the author is really implying that US government forced subprime lending, it is very bizzare and outrageous, though he is not the first to make these kind of claims. First of all in a system like US it is not possible to force any banking institution to lend to a special category of customers. It is not like agricultural lending and loan melas by Indian national banks in the pre-1991 reform era. Such a thing cannot be done in US if a legislation does not mandate it. Also these subprime loans were rated as AAA by rating agencies who are not surely controlled by the US Govt.  In fact govt SE's like Fannie Mae and Freddie Mac hid behind these ratings to revel in the subprime party.  

The next contradiction is that if low interest rates makes it possible to be super profitable to lend to anybody, why lend mainly/mostly to subprime which are the riskiest borrowers. It could very have been lent to many other borrower types. 

Risk management and money management is the responsibility of the lender, which cannot be transferred to the Govt or central bank. 

Lowering of interest rates has manifold objectives which any student of monetary policy would appreciate. Lowering of interest rates is not a 'carte blanche' or licence to engage in irresponsible and risky lending. Blaming interest rate policy for very poor lending standards is a very backwards form of reasoning. Just because some political speeches were made by either Clinton or Bush about housing being at the center of the 'American Dream' cannot be construed as a signal to Banks to go ahead and make undocumented loans and then repackage them and onward sell them as gilt-edged Mortgage-backed securities (MBS).   

Even more dangerous is the author's tendency to absolve private sector and banks of any accountability by laying all blame on the government . The government in fact was honoring the conventional wisdom of the last 30 years that market knows best and and that deregulation is the best regulation. If US and the west were not tending progressively towards deregulation, derivatives market would never have grown to its current size.

Another unfortunate and reckless statement of the author is "Btw, Obama appeared to be a total nut bar (nut case?) when he alleged that “abusive practices got us here in the first place”. Well, these were the GOVERNMENT’S OWN ABUSIVE POLICIES"

The abusive practices that Obama is referring can be clearly documented for the Credit Card industry for example. The author does not specify what the Government's abusive policies are. It is not clear what is the connotation of the word 'ABUSIVE' for the author. If lowering of interest rates and keeping it there for 1 1/2  years is abusive, he is curiously silent  on the effects when over the same period of 1 1/2 to 2 years the Fed Reserve took the interest rate up from 1% to 5.75 %. If keeping rates low were bad, why is the raising of interest rates not good. Also while free market devotees are all fired up over the Fed Interest rate policy, why are those same people quiet about the interest rate or yield on the 10 Year Treasury bond, which is not set by the Fed Reserve. It is today at 2% and market determined and beyond the control of Fed reserve  and it is not very much above the Fed rate of 0.25%. 

It is really unfortunate that in the eagerness to prove a point about one's ideology and make dramatic opinions that a very casual and  careless attitude is displayed towards serious topics of economic systems, policies and issues. 

Making brazen misstatements and claims like this just to indulge one propensity for intellectual witch hunting lowers the quality  and dignity of discourse on economic issues

Putting Growth In Its Place

ESSAY

Putting India's Growth In Its Place

It has to be but a means to development, not an end in itself

JEAN DREZE , AMARTYA SEN

Here is the link to a very perceptive and well-reasoned article by the authors on the lop-sided nature of India's economic development 

http://outlookindia.com/article.aspx?278843 

Some excerpts:

"So which of the two stories—unprecedented success or extraordinary failure—is correct? The answer is both, for they are both valid, and they are entirely compatible with each other. This may initially seem like a bit of a mystery, but that initial thought would only reflect a failure to understand the demands of development that go well beyond economic growth. Indeed, economic growth is not constitutively the same thing as development, in the sense of a general improvement in living standards and enhancement of people’s well-being and freedom. Growth, of course, can be very helpful in achieving development, but this requires active public policies to ensure that the fruits of economic growth are widely shared, and also requires—and this is very important—making good use of the public revenue generated by fast economic growth for social services, especially for public healthcare and public education.

We referred to this process as “growth-mediated” development in our 1989 book, Hunger and Public Action. This can indeed be an effective route to a very important part of development; but we must be clear about what can be achieved by fast economic growth on its own, and what it cannot do without appropriate social supplementation. Sustainable economic growth can be a huge force not only for raising incomes but also for enhancing people’s living standards and the quality of life, and it can also work very effectively for many other objectives, such as reducing public deficits and the burden of public debt. 

These growth connections do deserve emphasis, not only in Asia, Africa and Latin America, but also very much in Europe today, where there has been a remarkable lack of understanding of the role of growth in solving problems of debt and deficit. There is a tendency to concentrate only on draconian restrictive policies to cut down public expenditure, no matter how essential and no matter how these policies kill the goose that lays the golden egg of economic growth. 

There is a neglect of the role of economic growth in economic and financial stability in the European debate, with its focus only on cutting public expenditure to satisfy the market and to obey the orders of credit rating agencies."

"India’s growth achievements are indeed quite remarkable. According to official data, per capita income has grown at a compound rate of close to five per cent per year in real terms between 1990-91 and 2009-10. The more recent rates of expansion are faster still: according to Planning Commission estimates, the growth rate of GDP was 7.8 per cent in the Tenth Plan period (2002-03 to 2006-07) and is likely to be around 8 per cent in the Eleventh Plan period (2007-08 to 2011-12). The “advance estimate” for 2010-11 is 8.6 per cent. These are, no doubt, exceptional growth rates—the second-highest in the world, next to China. 

These dazzling figures are, understandably, causing some excitement, and were even described as “magic numbers” by no less than Lord Meghnad Desai, who argued, not without irony, that whatever else happens, “the government can still sit back and say 8.6 per cent”.

India does need rapid economic growth, if only because average incomes are so low that they cannot sustain anything like reasonable living standards, even with extensive income redistribution. Indeed, even today, after 20 years of rapid growth, India is still one of the poorest countries in the world, something that is often lost sight of, especially by those who enjoy world-class living standards thanks to the inequalities in the income distribution. According toWorld Development Indicators 2011, only 16 countries outside Africa had a lower “gross national income per capita” than India in 2010: Afghanistan, Bangladesh, Cambodia, Haiti, Iraq, Kyrgyzstan, Lao, Moldova, Nepal, Nicaragua, Pakistan, Papua New Guinea, Tajikistan, Uzbekistan, Vietnam and Yemen. This is not exactly a club of economic superpowers."

Recession - Is it really in the mind and what it really could be

Now this may sound quite dated as there are many that claim that the current recession is already behind us

But one of our friends passed onto me a story about the fall of a rising business caused by negative moods of people fearing the onset of a recession. The gist of which was:

Recession - It's all in our MIND! And we actually FUEL this recession much more than we think we do!!!

I infer that the mind being referred here is that of the average or common man or women.

It is a tragic irony of life, particularly economic life that the common who is rarely applauded for his/her contribution in a boom, surely shares blame in a downturn

In a lighter vein, a prospective economic advisor of the John McCain campaign team lost his job because he said 2 years ago that USA was in a mental recession.

Though common people read/hear about recessions, they do not stop going to their jobs. But they are thrown out of jobs. So in whose mind is the recession?, the common guy or the corporation which lays him off ?

The first stone in a business decline is always thrown by the big guns. The poor guys in jobs just try to defend themselves and mostly lose.

While it is tempting to agree with the theory of that article, it still remains a theory that has been proven false like so many other theories

There was also a theory that housing prices will keep going up

And the theory that we can have perpetual growth and prosperity

Recession could very well be in the mind just as exuberance of happiness is in the mind. But that is more like a Freudian logic which is not necessarily the best way to analyze empirical phenomena

The economic and business reasoning of recession is that it is an interruption of a business cycle, especially a boom cycle and is sometimes required to correct excesses resulting from extremes of the boom cycle

The recession could be mild or severe depending upon how much contraction is required in manufacturing and commerce to correct the excesses built up in the previous boom cycle and what is the monetary and fiscal response of the financial authorities in the respective economies. International trade and commerce introduces complexity into monetary and fiscal response to recessionary events

Cyclicality in business or the boom-bust cycle is considered unavoidable as the bias of most economic policy is towards growth and not towards stability. When growth becomes unsustainable, recessions inevitably follow. Recessions can be delayed or mitigated, but not avoided totally

Recessions are a way of correcting distortions which creep into a growth model during the boom cycle. Textbook approach to monetary and fiscal response, meaning monetary and fiscal tools that preserve currency and price stability can generally cushion the severity of recession. But monetary authorities especially in US & Europe nowadays are using unconventional methods and that too in excessive doses, which will eventually either worsen the recession or delay the recovery

Economic Depression which is obviously worse than a recession is believed to happen as a response to an unviable or unsustainable economic structure or structural patterns in one or more economies. The structural distortions in question here are:

* Purely consumption-led growth
* Growth being financed by excessive debt
* Debt being multiplied by excessive leverage
* Negative savings in the developed world
* Massive growth of a shadow financial system built on opaque instruments (exotic derivatives) with hardly any regulation and poor to negligible risk management

Some of these have started unwinding and the remaining will also start to fall apart. A few economists believe these will result in a depression, the 1st in more than 70 years


That is my ode to recession and like Shakespeare said "Sweet are the uses of adversity"

As for the future 'In God we repose our trust'