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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 27, 2009 at 9:45 AM

Back to ’82 economy? We should be so lucky

Top of the News: The stunning 6.2 percent decline in gross domestic product in the last quarter of 2008 is the most severe since the recession of 1982 — the worst downturn I had seen in my lifetime. Mark Twain warned while that history doesn’t repeat itself it does rhyme. Yet sometimes it doesn’t even rhyme. The 1982 recession was caused by the Federal Reserve in then Fed Chairman Paul Volcker’s merciless war against runaway inflation. The current recession is very different.

Today’s recession was caused by a host of unsustainable practices that crashed down: a housing bubble; a banking system dangerously concentrated and gambling with exotic and complicated securities, and a historic debt burden all across the economy. None of these factors was at work in 1982. Indeed, the middle class was strong and not so exposed to the collapse of housing values and stocks. China was barely a blip on the world economy; now its course will be a major driver of recovery of instability. In 1982, America was still a robust manufacturing country. Much of that is gone. It’s been partly replaces by a tech economy unimaginable 27 years ago, but one that has also created a huge divide in skills and income.

Finally, monetary policy created the 1982 recession. Now we are witnessing the limits of the Fed, which is throwing kitchen sink, pipe hookups and old sponges at the economy, to limited effect. This is not your father’s recession. It’s not even grandfather or great-grandmother’s recession — in the 1930s, the U.S. had the world’s strongest economic base, but one hobbled by Fed missteps, the Hoover obsession with a balanced budget, deflation and world trade contraction. We also had the world’s largest oil capacity at the time, and global warming was unseen. I’m listening for rhymes, but this is a new song.

The Back Story: Whatever happened to Weyerhaeuser? Before things started to really tank, the conventional wisdom was that the venerable Northwest company would make the transition from being an integrated forest products company to a real estate investment trust. This hope, reinforced by sales of subsidiaries and a neutron bomb of layoffs at its Federal Way headquarters, gave its shares a boost in October — but it’s been all downhill from there.

The model for Weyerhaeuser’s transformation has been Plum Creek Timber — its shares have fallen, too, but not as much as WEYCO’s, and not as severely as the S&P 500. So all may continue as investors expect for Weyerhaeuser. Yet huge downturns have a way of shaking up the old wisdom. While one appeal of a REIT was that more earnings would go straight to investors, another had to be that Weyerhaeuser could start selling off timber land for subdivisions. Unfortunately, that was the old economy — arguably a mix of unsustainable debt and sprawl that may not come back, certainly not as before. So maybe Weyerhaeuser emerges from the recession as a smaller company whose future really is, as it claims, based on trees. I’m just wondering.

Today’s Econ Haiku:

Sandy Weill’s Citi

Swaggered, sleepless, heedless, ooops

Now a welfare queen

Comments | More in Banking, Macro/Big picture, Outlook


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