Ask HN: Are we heading for another recession?
What are your thoughts on the economic development in the near future?
So a local recession is likely already happening. The question is whether or not this spreads to be a full US-scale recession.
I do believe that the technology sector is in the end-stages of a bubble, but whether or not that causes a drop in GDP is another question. The WeWork IPO-failure, as well as Peloton IPO drop, has shown that "tech" companies are not as valuable as VCs thought they were. (WeWork isn't $40 Billion as Softbank expected but is instead ~$10 Billion).
So now what? Well remember: 2008 was a "Great Recession", and 2001 was a recession but mainly isolated to the tech-sector. A recession like `91 (~8% unemployment) is probably what people should be thinking about from history.
There's probably no chance of another 2008-like "Great Recession". But the US economic cycle cannot boom forever, and we've been booming for nearly 11 years now. Some kind of recession is inevitable.
Would you suppose that the failure of their IPOs points more at the lack of a bubble? I mean to suggest that in a bubble / "irrational exuberance", these IPOs would be more likely to succeed, and after, the value of their public stock would go up dramatically because investors were being overly optimistic and speculative about these companies. Instead investors determined they were overvalued prior to even entering the public market. To me, the failures indicate the lack of a bubble.
Although I wonder about the bubble-iness of the gig economy. I've had increasingly bad experiences with it (more on the side of a customer), and I assume workers have worse experiences. I 'feel' like something's got to give at some point, where you'll see over some short period of time, a ton of people just begin to opt out from the "gig" economy on both sides (as customers and workers), aside from the fact that many workers depend on it.
Earlier this year, Uber IPO'd and raised $8.1 Billion in public money. It then _immediately_ lost $5.236 Billion in Q2. https://investor.uber.com/news-events/news/press-release-det...
Public investors are weary about giving more money to Silicon Valley startups because the public has already lost so much money this year on other bets.
Yes, "irrational exuberance" is going away today. But there are many, many companies that the public has bought into this year and last year, at HUGE valuations. But this only confirms what I believe to be the deflating of the new-tech bubble.
Uber is laying off staff and cutting costs. Future investors and future IPOs are "poisoned" due to how poorly Uber has done. Anyone else planning on IPOing in this environment is going is going to have more trouble.
The public is going to increase their scrutiny of future tech IPOs. If Uber did that poorly, who else may be a trap?
Who isn’t profitable or has razor thin margins? Who is heavily levered up with debt? That’s how you find who will be naked when the ocean goes out.
1) Capitalism needs ever-increasing consumption to sustain itself. Imagine a metric: amount of stuff consumed by a person on average. If that number doesn't increase every year, you get a recession. Keep an eye on consumer spending and M1 (the velocity of money). (btw, this is why the long term view of capitalism is grim, it ultimately cannot be sustained. but who knows maybe we learn how to harvest metals out of meteors and we all have our own private jets in 100 years. that would be great for capitalism)
2) Most recessions are triggered by a catalyst. The most recent one was caused by financial instruments that over-leveraged real-estate. It won't be that this time, but there are others at play now. Student debt defaults could rise if unemployment dips, causing another lending crunch, but likely only debt holders would be hit hard (localized recession). I am also keeping my eye on the overnight repo market - banks are holding less cash and it's causing some interesting new problems at the fed, but unclear how that could ripple to the economy. Certainly the trade war could push up the cost of goods as well and cause consumer spending to dip. A lot of economists have been searching for a catalyst scenario but there doesn't seem to be one.
3) Slower growth could be the new-norm. There is a large chance financial assets won't see the kind of appreciation over our lifetime that our parents saw. It is possible that 1970's era stagflation could return.
4) Liquidity trap, maybe? The aforementioned fiasco that unfolded this past week in the repo market would signal a potential risk.
Are we headed to a recession? Hard to say.
https://2016.trade.gov/publications/ita-newsletter/1010/serv...
I work for a multi-billion dollar company and we just sell ones and zeroes.
M1 money supply is not typically used as a measure of economic growth. Money supply can increase while the economy is tanking (see Venezuela). Real gdp or other similar figures are typically used.
I'm using the standard dictionary version of capitalism: "an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth."
It hasn't. That's only true for a very specific aspect of capitalism, which is the speculation based, "buy equity and resell it later at a profit" model. But nothing specifically dictates that capitalism has to work this way. Investors can get a return on their investment through, for example, dividends. One could also argue that in a truly free market / capitalist environment, a LOT of the trappings of contemporary "capitalism" would not exist... corporations, for example, violate the connection between one's actions, and liability for the consequences of those actions. We rationalize that buy saying it encourages investment (and it probably does) and allows larger companies (it does)... but one can fairly ask if those ends justify allowing this violation of fundamental principles.
On the topic of corporations, I can see the point about liability. There could be a world without corporations, and instead use partnerships with pass through liability. I wouldn't take that trade though, because if anything the world needs more innovation, and for the most part the liabilities are financial, and the counterparties are aware of the risk. Some liabilities do seem unfair to limit liability, for example environmental ones, because it hurts people who never agreed to assume any of the risk.
Yeah, I think that's true. If people expect perpetual growth, that seems to imply constantly growing revenue, which would seem to imply the need for constantly growing consumption, which would seem to imply the need for perpetual population growth, etc. My only point is that capitalism, in "textbook form" at least, doesn't specifically demand that. Now, maybe it's an inevitable emergent aspect of capitalism... I honestly don't know. Whether or not that is the case would be an interesting thing to research.
Ex. Price of oil doesn't count in future damages from climate change -> inputs to product are cheaper -> corporations profit while everyone is negatively impacted.
You really need a free market, with any global negative externalities taken care of by a government. I don't see why people (not talking about you) don't understand this.
I would argue that, in a truly free market, the "corporation" as such, would not exist at all. Consider that corporations are legal fictions created by the State and could not exist without the government granting their special "limited liability" status. That in and of itself is a market distortion.
IOW, if you, me and 10 other people get together, start a business as a "partnership" and build a bridge that collapses and kills a bunch of people, each of us, as owners, can be held liable individually for the damage/deaths involved. If we form a corporation, references to "piercing the corporate veil" aside, none of us stand to lose anything more than the amount we invested in the corporation. "Corporations" where created specifically to enable businesses to have larger numbers of owners ("investors"), and part of that was achieved by placing that artificial limit on the liability of the individual owners[1]. The reason for this was nominally a Good Thing, because it allowed larger businesses that could take on risks that smaller businesses would not be able to handle. But one can certainly question if that trade-off was justified... and as I argued before, as a distortion of true "free market" principles, this construct would not exist in a world which strictly held to pure laissez-faire / free-market capitalist ideals.
That said, I will say that there is a semantic aspect to all of this... the term "corporation" has a particular legal meaning in modern times, but the word in the popular vernacular, it is used differently in different parts of the world, and the meaning has changed over time. So just to be clear, when I say "corporation" I specifically mean the modern shared-stock / limited-liability corporation which is a legal fiction created by the State, upon registration by the owners.
[1]: https://en.wikipedia.org/wiki/Corporation#Limited_liability
Eventually, companies stabilize themselves, or maybe the US Government steps in for hiring / temp work. If the US Government steps in every time however, that creates "moral hazard", so its not something that policy makers like to rely upon.