A Recession Brought About by Fear Alone

This post will be brief.  I wanted to point out that the over all health of businesses, consumers and governments is all pretty healthy.  However, fear that these various economic groupings are not as healthy as believed is actually planting the seeds for a recession.  This situation is utterly unique in my, almost 20 year, career.

For a change a recession may not be caused by overproduction or overcapacity or an overly generous money supply.  Instead, the next recession will be caused by fear itself.  If this ends up being the result it’s my opinion that it will be because the last recession’s institutional causes will not have been rectified.

Here I am referring to the simple model I proposed almost three years ago for resolving the recession:

1. The institutions that got us here have to change
2. The people that got us here have to change
3. The ideas that got us here have to change

In terms of a report card, I think that I would have to say that in none of the above cases has the simple criteria been met.  Some of the institutions went bankrupt, but many of them (e.g. Goldman Sachs, Bank of America, etc.) are still operating with very similar business models.

The people that got us here have changed in a limited fashion.  Politicians have been voted out of office and some CEOs have lost their jobs.  But mostly the people are the same.

As for the ideas that got us here, there was a sweeping financial overhaul bill passed but the various regulatory bodies are still in the process of writing the rules called for by the legislation.  Meanwhile, some of the hardcore Republicans are talking about repealing the financial overhaul bill if they regain both the Senate and the Presidency in 2012.

Is it any wonder that the fear caused during the Great Recession has yet to be fully killed off?

Jason