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If US or China stock market was to go down, govt will immediately infuse such massive cash that things would be back up in no time. I'm wondering this is why th

If US or China stock market was to go down, govt will immediately infuse such massive cash that things would be back up in no time. I'm wondering this is why there had been no recession past the entire decade and very likely none ahead. Somehow we have arrived at economic prosperity level where enough wealth is "buffered" to smooth out downturns.

hn_throwaway_99 7y ago
> I'm wondering this is why there had been no recession past the entire decade and very likely none ahead. I'm taking your "we've solved the business cycle!" comment as my sell signal. Everything is rosy until it isn't. I have a very opposite, pessimistic view, that this great fear of even the slightest downtown means we're just putting off the day of reckoning until it really comes crashing down. The fact is the prosperity of the past 10 years has come with huge and growing imbalances that can't continue ad infinitum. Deficits are gigantic, and at some point all this money we've been lending will require higher interest rates for people to buy our bonds. When that happens, watch out.
- crystaldev 7y ago
  You're absolutely right. You don't have to believe me but I called the last recession. It's not bad news that's frightening. It's a disproportionate government and market reaction. Governments making a lot of noise to protect weak hands. There are a lot of weak hands, many created since we "survived" the last scare, and it's not going to take much to bust them. Stay safe everybody and enjoy living history as usual.
- kmonsen 7y ago
  Even if you are right, who knows when it will happen? Chances are you cannot time the market, and it can be irrational for far longer than you think.
dcolkitt 7y ago
I think the biggest counter-argument to this is the problem of "mal-investment". In a lot of ways the business cycle operates as an explore-exploit optimizer. During boom periods, credit conditions are loose. Which allows for a large degree of innovation with new and speculative business models. This is important because as conditions and technologies change, the frontier space of what's viable needs to be explored. Tomorrow's economic titans are today's wild-eyed entrepreneurs. However most of these crazy ideas turn out to be just that. That's where the importance of recessions come in. Credit crunches and market downturns impose economic and efficiency disciplines. Firms that were coasting by on good conditions without delivering real productivity gains are culled by the downturn. The entire phase of the cycle is important to maintain a healthy economic ecosystem. My fear is that if we banish recessions to the dustbin of history, we'll find ourselves increasingly burdened with bad investments as a larger and larger share of the capital base. Instead of getting written off during a downturn, jubilant markets will just keep throwing good money after bad managers, broken business models and overhyped vaporware.
- sytelus 7y ago
  This is like an argument that we need epidemics like plagues once in a while to shake out the weaklings. It turns out that epidemics are neither effective and also they take out strong as well as weak just like recession kills many good longer-term startups. On a broader view, the amount of cash that governments like US and China able to infuse in the system at moment's notice is unparalleled. The big 5 tech alone harbors cash of $0.5T and capable to weather any storms. If you think of US or China as one organism, they have achieved enough of collective wealth and enough cash just sloshing around that any new recession can be absorbed away.
- jaredtn 7y ago
  Fantastically put! Just as periodic wildfires are necessary to clear the flammable brush and enable new growth, recessions will trim the fat and close down our least successful businesses. This creates more resources to pour into stable, or at least more promising, companies.
topmonk 7y ago
It's different this time...

hn_throwaway_99 7y ago

> I'm wondering this is why there had been no recession past the entire decade and very likely none ahead. I'm taking your "we've solved the business cycle!" comment as my sell signal. Everything is rosy until it isn't. I have a very opposite, pessimistic view, that this great fear of even the slightest downtown means we're just putting off the day of reckoning until it really comes crashing down. The fact is the prosperity of the past 10 years has come with huge and growing imbalances that can't continue ad infinitum. Deficits are gigantic, and at some point all this money we've been lending will require higher interest rates for people to buy our bonds. When that happens, watch out.

crystaldev 7y ago
You're absolutely right. You don't have to believe me but I called the last recession. It's not bad news that's frightening. It's a disproportionate government and market reaction. Governments making a lot of noise to protect weak hands. There are a lot of weak hands, many created since we "survived" the last scare, and it's not going to take much to bust them. Stay safe everybody and enjoy living history as usual.
kmonsen 7y ago
Even if you are right, who knows when it will happen? Chances are you cannot time the market, and it can be irrational for far longer than you think.

dcolkitt 7y ago

I think the biggest counter-argument to this is the problem of "mal-investment". In a lot of ways the business cycle operates as an explore-exploit optimizer. During boom periods, credit conditions are loose. Which allows for a large degree of innovation with new and speculative business models. This is important because as conditions and technologies change, the frontier space of what's viable needs to be explored. Tomorrow's economic titans are today's wild-eyed entrepreneurs. However most of these crazy ideas turn out to be just that. That's where the importance of recessions come in. Credit crunches and market downturns impose economic and efficiency disciplines. Firms that were coasting by on good conditions without delivering real productivity gains are culled by the downturn. The entire phase of the cycle is important to maintain a healthy economic ecosystem. My fear is that if we banish recessions to the dustbin of history, we'll find ourselves increasingly burdened with bad investments as a larger and larger share of the capital base. Instead of getting written off during a downturn, jubilant markets will just keep throwing good money after bad managers, broken business models and overhyped vaporware.

sytelus 7y ago
This is like an argument that we need epidemics like plagues once in a while to shake out the weaklings. It turns out that epidemics are neither effective and also they take out strong as well as weak just like recession kills many good longer-term startups. On a broader view, the amount of cash that governments like US and China able to infuse in the system at moment's notice is unparalleled. The big 5 tech alone harbors cash of $0.5T and capable to weather any storms. If you think of US or China as one organism, they have achieved enough of collective wealth and enough cash just sloshing around that any new recession can be absorbed away.
jaredtn 7y ago
Fantastically put! Just as periodic wildfires are necessary to clear the flammable brush and enable new growth, recessions will trim the fat and close down our least successful businesses. This creates more resources to pour into stable, or at least more promising, companies.

topmonk 7y ago

It's different this time...