This Is Not a Post-1980 Recession

The following is a note I received from an attorney friend of mine:
 

I really enjoy what you write. No doubt we're in a stock market bubble. But there seem to be signs of underlying life within my firm's client base -- transactions on the rise, money being lent, etc. What are all these people missing?

This is truly the $64 trillion question.

For substantially everyone in business today, they've been "taught" to believe that in a recession, the Federal Reserve lowers interest rates, people respond by borrowing more money, and the economy turns because of higher end demand.

That's been the case since 1980.

Unfortunately, what we're experiencing bears no resemblance to a post-1980 recession -- either in cause or consequence.

What we're dealing with is the accumulation of almost 80 years of debt-funded growth -- across the consumer, corporations, and governments.

And what I see is a complete change in attitudes toward debt. Other than sovereign governments, no one wants more debt. Even worse, people with debt are trying to get to less -- either through repayment (by those able) or default (by those unable). But looking at the data, the change in behaviors is unmistakable.

What I sense some are witnessing is the seemingly "logical" post-recession borrowing directed toward what people believe are cheap assets.

Once asset prices turn down (which has already begun to happen anew) I expect that people who are doing deals today will discover that they've done nothing more than catch a falling knife.

Recent economic history has accustomed people to believe that all recoveries are V-shaped.

This one is at best W-shaped. And the second V will easily be worse than the first one as "financial staying power" (if not simply survival) drives behavior from here.