Major Economic Dislocation

[notyoueither]

The credit economy of 1970 to 2007 is done. Stick a fork in it. It's cooked. Done like dinner. Over. Finito.

The band plays on, but the iceberg has been struck and the forward compartments are flooding.

We haven't yet seen the worst shocks. Why do you think banks are stashing cash like squirrels on speed?

The legs of the American economy were built on cheap and easy credit to fuel consumer spending. The North American economy, and Europe to some extent, has been based on selling **** to each other on borrowed coin. Welcome to a services economy.

What happens when the currency of the economy (credit) gets short?

The legs of the economy get kicked out. That's what.

Be prepared for a very bumpy 3 to 5 years. It could be that short.

[Theben]

Ever the optimist.

[ZEE]

[Lancer]

I might be ready, like to think so. One more rice field to buy.

[DanS]

Did you get laid off or something, NYE?

[notyoueither]

Did you get laid off or something, NYE?

No, but I think this is more serious than many people do.

[Dauphin]

Perfect storm?

[Fake Boris]

Leftist economists and intellectuals are clamoring all over the place that the crisis was caused by the increasing disparity between the wealthy and the working class.

Too much capital (relative to GDP) -> speculative bubble -> working class has to borrow to fuel consumption and buy a house -> until they are unsolvable.

What do you guys think?

[Kuciwalker]

the increasing disparity between the wealthy and the working class.

Too much capital (relative to GDP)

The one does not imply the other. In particular, you need to show me data to convince me that the total value of capital in the economy, vs. total personal wealth, is actually larger than in the past.

Of course, they you have the problem that a lot of stuff in Column A is also in Column B (e.g. houses).

[Darius871]

Originally posted by Oncle Boris
Leftist economists and intellectuals are clamoring all over the place that the crisis was caused by the increasing disparity between the wealthy and the working class.

Too much capital (relative to GDP) -> speculative bubble -> working class has to borrow to fuel consumption and buy a house -> until they are unsolvable.

What do you guys think?

Aside from Kuci's point about the underlying assumption, even making that assumption I wouldn't be so certain that speculative bubbles would be so much less likely had the working class had more capital. They would have saved a good chunk of it, those savings would have been used in the market by mutual funds etc., and this would contribute to the very same bubbles. That, and many investment bankers themselves pumped up the speculative bubble with borrowed money, and they would have made that same borrowing even if the working class had more capital (in fact they probably would have made the borrowing from the working class).

Since working class folk do tend to spend more than save when compared to the more wealthy, their contribution to speculative bubbles might have been less at least. But since real estate was considered the big money-maker back then, they probably would have got on the same bandwagon that the rich did. Just a thought.

[notyoueither]

Originally posted by Dauphin
Perfect storm?

Kind of.

The full consequences of the banking system disruptions are still coming, and there's more grief for the banks on the way.

GM and Chrysler were sick even in good times and quick to 'fail'. Inability or unwillingness of consumers to spend will effect others. It will certainly effect employment far more than we've seen so far.

[Barnabas]

I was reading an article which said that here (in Argentina) we will probably have to handle half a million immigrants from Paraguay, Bolivia, Peru, Chile and Uruguay, + an uncertain number of Argentine immigrants, probably hundreds of thousands living in the USA, Spain and other foreign countries who would return, without forgetting the poor people who live here and never left.

All because of the international economic crisis.

I think we will see mass movements of people in the next five years, and that this crisis will be really bad. I am not that scared because I am used to economic crises, but it is never nice.

Perhaps this is like 1929 again.

[Cort Haus]

I agree with NYE. We've been fuelled on the bull**** economy for decades and now the chickens are coming home to roost.

Although, I'm not sure about the 3-5 years. It could be much longer than that, if not indefinitely. All the real wealth is now created in the east, and with the collapse of the illusion and the dismantling of most of the manufacturing economy in the west, we have nothing to sell.

[Dauphin]

I think that an exaggeration, if you consider what came out of Asia 10 years ago.

[DanS]

I take a contrary view to all this. The buildup in credit was a result of low and steady interest rates as well as political stability. People haven't saved much, because they don't need to save much.

These factors haven't changed and probably will not change. So instead of seeing negative savings rates like in the US, Americans probably will have a 5-10% savings rate. This may result in a recession that is worse than average as everyone adjusts to this new reality, but it's nothing really Earth-shattering.