Major Economic Dislocation

[DanS]

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?

I think that leftist economists and intellectuals have no special insight into what is happening now. They don't really believe in market economics, so I wonder why they would be looked to as experts on market economics.

[Fake Boris]

Originally posted by 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.

Why did interest rates go down?

[Fake Boris]

Originally posted by DanS


I think that leftist economists and intellectuals have no special insight into what is happening now. They don't really believe in market economics, so I wonder why they would be looked to as experts on market economics.

Ridiculous post of the year.

[asleepathewheel]

Originally posted by Oncle Boris
working class has to borrow to fuel consumption and buy a house ->

Here's an idea working class-get a second job and save up for a down payment before getting that house. Also-don't refi after 2 years and use the cash to buy an expedition. kthx.

[Fake Boris]

here's an idea bankers get second job in chinese factory to refund bailout kthx

[notyoueither]

Originally posted by Barnabas
Perhaps this is like 1929 again.

1929 is a frightful number.

Even if the situation becomes severe enough to be comparable, many will be covered by social programs that simply didn't exist in the 30's. Things would play out differently.

I wouldn't want to be poor and living in an undeveloped country though.

[notyoueither]

Originally posted by 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.

How many businesses will not survive the adjustment?

Could growing failures and increasing unemployment feed on each other to prolong and worsen conditions?

[KrazyHorse]

Originally posted by Oncle Boris


Why did interest rates go down?

http://en.wikipedia.org/wiki/Paul_Volcker

[DanS]

No doubt many businesses will go under, which will feed unemployment, thereby prolonging and worsening conditions.

But that's what happens in a recession. It has been so long since we've had a real recession that we hardly remember what it feels like.

[DanS]

Originally posted by KrazyHorse
http://en.wikipedia.org/wiki/Paul_Volcker

(And other central bankers around the world.)

[notyoueither]

Originally posted by DanS
No doubt many businesses will go under, which will feed unemployment, thereby prolonging and worsening conditions.

But that's what happens in a recession. It has been so long since we've had a real recession that we hardly remember what it feels like.

So, there's the question. How long and how bad?

I'm thinking the change in consumer behaviour, both voluntary and forced, combined with a shell shocked financial system will lead to far longer and far worse than most are thinking.

At what point does a recession become a depression?

[Barnabas]

The problem is that no one really knows what is necessary to finally solve the economic problems.

In Argentina we had a recession that lasted 5 years, 1998 and 2002, because we had pegged our currency to the dollar and we didn't want to devaluate, finally we were left with no other choice but devaluating and the economy started growing almost right away.

But now, there is not an easy answer, like, "do that, it may be painful, but it will solve the problem and be good in the long run" now no one really knows what to do.

The 1929 crisis only got definitely solved because of WW2

[notyoueither]

Originally posted by Barnabas
The problem is that no one really knows what is necessary to finally solve the economic problems.

In Argentina we had a recession that lasted 5 years, 1998 and 2002, because we had pegged our currency to the dollar and we didn't want to devaluate, finally we were left with no other choice but devaluating and the economy started growing almost right away.

But now, there is not an easy answer, like, "do that, it may be painful, but it will solve the problem and be good in the long run" now no one really knows what to do.

The 1929 crisis only got definitely solved because of WW2

Isn't that a bit of a myth?

Overall though, I agree. There seem to be mixed messages about what should be done to try to head things off. Some people are yelling for government spending and intervention. Others are pointing out that may be counterproductive. Confusing.

[DanS]

Originally posted by notyoueither
At what point does a recession become a depression?

The word "recession" should be used with caution. "Depression" counts about 10x in that regard.

That said, just as recessions come in all shapes and sizes, so do panics and depressions. For example, do you consider Japan's Lost Decade a depression? You might also be interested in the Long Depression from 1873 to 1896.

http://en.wikipedia.org/wiki/Long_Depression

Even though the phenomenon was worldwide, some countries fared better than others.

[DarkCloud]

NYE- Well, I doubt the recession will be as long as you state...

I see another round of collapses of companies coming in Jan/Feb as they report poor earnings for December.

Notably, December may not be as bad as everyone fears- some shopping days extra got pushed into it this year that weren't there last year. Still, Dec. won't be good... ... ...

So- let's assume that the companies collapse in Jan/Feb. IF things stabilize and OPEC can finally get its act together, the rundown in oil prices will probably end- will go no lower than 35/40 dollars. Then oil will begin slowly to ride up to 60 where it should probably have been based on existing demand and resources (instead of rocketing to 140 like it did this summer) - the 9 month forward purchasing of oil is around 60-80 from what I recall, so there is consensus for this view.

Well, 60/oil won't kill foreign trade or airline transport. But currently 40/oil is actually helping drive down commodity prices across the board- which is good for companies that are producers- they can lower prices so that consumers can afford them.

---I have no crystal ball beyond Feb's oil bottom and second round of economic collapses.

But IF credit is still liquid and oil plateaus at $60/barrel, then I think the worst will behind the world economy and the US should start coming out of the recession around March/April.

IF credit crashes, or Democrats bail out too many companies and homeowners, the recession might very well linger for quite a good time... ... Housing prices need to drop to realistic levels.

Kramer, of Mad Money, seems to think Housing will level out around July/August 2009.

Hopefully the democrats reinstate some trading rules and restore order to the financial world... this should help reduce volatility.

and hopefully the Democrats don't kill free trade If they do that, then the US economy is doomed (no cheap goods to buy; therefore, no purchases), and therefore, other economies are doomed as well.

Once all these things hit bottom, we can begin to see an uptick.

So, I suppose a final bet:
Worst Month: Late Jan to Early March 2009.
Recovery: May 2009 to June 2010.

Worst case scenario is that Oil either goes to 140 or oil stays at 40. If oil goes to 140, lots of companies won't be able to afford recsources. If oil stays at 40- then all those alternative energy companies are going out of business or dragging the government down with them into debt.

- I honestly bet that if oil stays at 60-90, we'll see some amazing technological advances in alternative fuel around 2011-2013 that should make everything a lot cheaper and a lot more efficient; thus saving the world from recession. "Everyone will need a thneed" because a "thneed" will save them cash.

- Tablet PCs will also come online in a big way and be used in Universities as substitutes for textbooks around 2012- increasing productivity even more. This may destroy the publishing industry since the books will have to be cheaper, and the IP will have to be protected, but it will save thousands per student per year on school books. And it will make millions for tablet PC makers.

- Technology is our savior.