MCViewPoint

Opinion from a Libertarian ViewPoint

Of Two Minds – Who Would Benefit from a Severe Global Recession?

Posted by M. C. on January 12, 2023

As painful as this liquidation and repricing of risk is for borrowers and lenders, those without debt, those with cash and those with essential skills that are in demand regardless of boom or bust will all benefit. 

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Charles Hugh Smith

As painful as this liquidation and repricing of risk is for borrowers and lenders, those without debt, those with cash and those with essential skills that are in demand regardless of boom or bust will all benefit.
Who would benefit from a severe global recession? The typical answer is “no one,” as a drop in economic activity is assumed to hurt everyone. But it’s not quite that simple; there are silver linings for some in all those dark clouds.
When demand for energy plummets, the price of oil tends to drop dramatically. There are several reasons for this:
1. Price is set on the margins so a modest decline in demand can trigger an outsized drop in price. In the 2008-09 timeframe, oil fell from $147/barrel to the $30s on a modest decline in demand.
2. While oil producers always announce production cuts to maintain high process, they are under pressure to offset plummeting income by pumping more oil, not less.
3. Speculative capital floods into oil when prices are rising and exits when prices are dropping. This financialization of the energy markets exacerbates price movements up and down.
Dramatic declines in oil hurt producers and benefit consumers. As demand for goods and services declines, suppliers and retailers must trim prices and profit margins to maintain market share. This deflationary pressure benefits consumers.
As marginal businesses close their doors and marginal renters move out of high-cost rentals, landlords must reduce rents to avoid the eventual result of mass vacancies, i.e. bankruptcy. Reductions in rents benefit consumers.
Marginal homeowners and absentee landlords slide into insolvency and are either forced to sell their homes and real estate or their lenders foreclose on their mortgages and sell the lender-owned properties to reduce their losses. These forced sales reduce the price of these assets, benefiting those with cash who can now afford to buy assets that were unaffordable in the pre-recession bubble.
A deep recession also shifts global capital flows. 

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