Why This Recession Is Different

I think most people are already sensing that this recession is a bit or a lot different from those we have been through in modern times. It is longer than most already and it is being touted as worse than most. And I believe we are just getting started. So why is it so different? Let me note a few variables that may make this time around a bit different:

1. Consumer spending got the U.S. out of its recession the past couple of times around, but this time we have the opposite. Consumers are spending less, paying down debt and actually saving money. No consumer rescue this time, despite how much money the government throws at consumers;
2. This crisis is global. There are virtually no countries escaping its impact. Which means there are no good global economies to support those that are lagging.
3. There is no sweet spot in our U.S. economy. Real estate rising helped in prior recessions and other areas seemed to be okay, but not this time around.
4. The consumers in the U.S. have been living off debt for a long time to the point where they spent more than they made. Wages under eight years of Bush admininstration did not increase much at all. Reversion to mean is unavoidable and painful.
5. The financial companies have lost their traditional ways of making big bucks and their traditional ways are still haunting them with losses. I think they will still be haunted into 2010 until the real estate market bottoms.
6. Tens of trillions of dollars in credit default swaps make any orderly wind down of insolvent institutions incredibly complicated. Every company that may go down may take down others because of it.
7. The U.S. does not have an sustainable economic plan. Way too much of our economy, as in GDP, is based on consumer spending. Transitioning to a more reliable model will take many years.

There are more reasons, but these will do for now.

Disclosures: None