"As long as excessive debt is not digested, both monetary and fiscal policies are inefficient. There is not much of an alternative. Either to let the economy collapse, in order to reduce debts, and then use fiscal policy to revive it, or inundate the insolvent economy with public credit, to avoid the collapse, and loose the ability of fiscal policy to pull it out of a prolonged lethargy. Either a horrible end or an endless horror."
After the Crisis: Macro Imbalance, Credibility and Reserve-Currency: André Lara Resende
I don't know why I wrote this, but I did. It of course goes with the tune of "Footloose"
I been trading, so bad
Stopped out again, been had.
401k, for what?
Don't tell me how much I've lost.
I get this feeling
That debt is just holding me down
I'll send mail jingling
After buying a condo downtown!
Tonight I gotta get
Shoots, Green Shoots
Kick off your perm'bear shoes.
Please, B'rnanke.
Give me some money for free!
I heart, the TARP
Bonuses pay for my cars.
Lose your clues
Everybody get Green Shoots!
This rally's so cool
Antigravity rules.
Dig way down, in the news
You're yearning, burning for some
Somebody to tell you...
That the rally ain't passing you by!
I'm trying to tell you...
It will if you don't BUY BUY BUY!!!!
You can fly if you'd get Green
Shoots, Green Shoots!
Kick off your perm'bear shoes.
Oowhee, Tim G
Print it, Print it for me
Whoa, Big O
Another trillion to go.
Snooze the news
Everybody get Green Shoots!
First - Pass the TARP immediately
Second - You bail out the AIG.
Third - Now take ahold of GM.
Four - Whoaaaa, I'm making the
Shoots, Green Shoots...
Kick off your perm'bear shoes.
Please, Pelosi
Another house subsidy!
Oohwee, CNBC
Keep on lying to me!
Lose, your blues
Everybody get Green Shoots!
Again showing my ego, a depression is when I'm out of work.
Of course that might happen at any time, my problem is still with the GDP numbers presented. If this is only a 4% drop in GDP, a real depression would be... depressing.
One Bilderberger said that, “the banks themselves don't know the answer to when the bottom will be hit.” Everyone appeared to agree, “that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.”
Further, “someone from the IMF pointed out that its own study on historical recessions suggests that the US is only a third of the way through this current one; therefore economies expecting to recover with resurgence in demand from the US will have a long wait.” One attendee stated that, “Equity losses in 2008 were worse than those of 1929,” and that, “The next phase of the economic decline will also be worse than the '30s, mostly because the US economy carries about $20 trillion of excess debt.
Until that debt is eliminated, the idea of a healthy boom is a mirage.
But the MSM, the pundits, the economist assclowns, and Obamanomics all say recovery is just ahead with many green shoots springing up
“that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.”
And didn't 'level headed and well grounded' Elizabeth Warren just ask for a rerun of stress test
Does this mean that Japan will be slipping technically into a depression? It is now at an annualized rate of decline of 14.2%. Just curious. WSJ Error Page - WSJ.com
"As long as excessive debt is not digested, both monetary and fiscal policies are inefficient. There is not much of an alternative. Either to let the economy collapse, in order to reduce debts, and then use fiscal policy to revive it, or inundate the insolvent economy with public credit, to avoid the collapse, and loose the ability of fiscal policy to pull it out of a prolonged lethargy. Either a horrible end or an endless horror."
After the Crisis: Macro Imbalance, Credibility and Reserve-Currency: André Lara Resende
~~~~
And who owns this debt ? The wealthy, the pensions, the banks ...
And they will protect their wealth until it's worthless as the economy crashes ...
Harvard Joseph Schumpeter argued that there was a "presumption against remedial measures which work through money and credit. Policies of this class are particularly apt to produce additional trouble for the future." From Schumpeter's perspective, "depressions are not simply evils, which we might attempt to suppress, butforms of something which has to be done, namely, adjustment to change." This socially productive function of depressions creates "the chief difficulty" faced by economic policy makers. For "most of what would be effective in remedying a depression would be equally effective in preventing this adjustment."
...
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...
Japan's GDP dropped 14% in the first quarter. Beat estimates, tho, so the market is up. If they rally another 300%, they'll make the 1989 investors break even.
"You obviously have a lot of free time on your hands, but I liked it, thanks."
I don't actually have that much free time on my hands. It was one of those things that starts off as an idea (Hey, you know what would be funny... if someone with way too much time on their hands put Green Shoots to Footloose...) then got stuck in my head until it finally got written.
Brazil says it is to offer $10bn in financing to the IMF to help improve the availability of credit in developing countries. It is the first time that South America's biggest economy has ever made a loan of this kind. Brazil's Finance Minister Guido Mantega said it was part of a united approach by Brazil, Russia, India and China to help boost global financial stability.
He said China had plans to invest $50bn and Russia $10bn.
In the past Brazil was more accustomed to seeking help from the International Monetary Fund and the fact that it is now able to offer a loan instead is a striking indication of how its position has changed.
Ahhh remember the days of yesterday when it was America doing most of the loans.
Now Uncle Sam says 'buddy can you spare a dime'....How sad that wanton greed by the elites prevailed in America
Gorbachev warns that the world’s current economic model, created by “America’s elite,” is “cracking”
Point of FACT: Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !
As it comes undone, many will suffer, he predicted. “Including the United States.”
In many respects he's right but most Americans today are too ignorant or complacent to demand REAL change
GDP = GDI is income not wealth. If you want to subtract the deficit from something you would subtract from the net assets of the country which is probably 10-20 times GDP..
This whole 'financial crisis' and 'worst recession since the 30's' was in actuality merely a
shakeout caused by the collapse of Lehman, an is manifested by a sudden, but temporary dip
in GDP & profits. Things are returning to exactly to how they were before. Nothing
fundamentally changed. The economies of India, china, Hong Kong, Russia, Brazil, Mexico have been insulated, in fact.
long MA POT GOOG but still a bear
ac, i guess we will know in about 24 months, but I agree the world wide nature of the downturn has to be a factor in if it gets labeled a depression. I have been feeling more and more like the moniker of the Great Recession really fits this one, or jus GR for short
I don't have patience and I wanna know NOW!
Actually I hope we have a much better picture in 12 months, I did say I had no patience right? But with the pressure on bond rates, the house of cards being propped up by free money may start to shake sooner than later.
"up go the futures...hong kong on fire...this market cnnot be stopped. glad I'm not short"
The bears have to September to right the ship. If it hasn't retanked by then, the backlash will be severe. I would advise people like Karl Denninger to buy bodyguards.
Mexico insulated, you cant be serious, they have only 3 legal sources of FX, Oil, falling like a rock as Cantarell runs dry, although the rebound in prices will hurt. Remittances, with unemployment high here esp in construction that is running dry and Finally tourism, the piggy flu and the drug wars on the boarder are drying that up, not to mention a trip to Cabo or Cancun is equisitly discretionary and all discretionary spending is going to stay down for a long time. If we legalized pot, there would be no source of income for Mexico at all.
Things are returning to exactly to how they were before. Nothing
fundamentally changed. The economies of India, china, Hong Kong, Russia, Brazil, Mexico have been insulated, in fact.
long MA POT GOOG but still a bear
mmckinl -
As Rajesh pointed out, it is kind of an apples and oranges thing, but servicing the debt, and future cost and drain have to be included, and I would bet $1 those estimates are way off like many other of the data points.
In no way am I an expert, I'm here to learn actually but I have learned to smell fishy statistics. I don't know why they stink, but the smell is overpowering.
bobn, true but only the portion held by foreginers, The T notes held by your domestic insurance company or indivdual would be an asset domestically ofsetting the govt liability
Dirk van Dijk (profile) wrote on Wed, 6/10/2009 - 9:47 pm
ac, i guess we will know in about 24 months, but I agree the world wide nature of the downturn has to be a factor in if it gets labeled a depression. I have been feeling more and more like the moniker of the Great Recession really fits this one, or jus GR for short
I am curious, if the Treasuries market goes south, how will this change your assessment?
I see financierr hasn't gained much insight since his previous handles. The linked site hasn't got better either. It's changed, sure, but going from a joke to a bore is no great consolation.
Dirk van Dijk - true but only the portion held by foreginers, The T notes held by your domestic insurance company or indivdual would be an asset domestically ofsetting the govt liability
Huh?
That only makes sense to me if the Government had no intention on paying back the domestic holders.
Oh wait, OK.
Depression or not, we have to deal with the following fact on ground.
We are about 11 trillion dollars in debt and running yearly deficits of about half a trillion dollars (two trillion this year?). Just the interest payments will be upwards of half a trillion dollars (412 billion in 2008).
If the interest payments are not to overwhelm us in the future we have to raise taxes and cut spending, repudiate the debt or try to inflate away our debt.
Which option do you think our politicians are going to take?
As someone (Schiller?) once said "in today already walks tommorow"
I think we'll keep borrowing until it becomes obvious that we cannot pay it back at which time (around now?) we are going to try and inflate. If we were going to pay down our debt we would have started on it already years ago.
The government could also mandate that 401(k)s, IRAs etc should have a large fraction invested in treasuries. But that would be just as unpopular are raising taxes and cutting spending. So monetizing the debt, if that's the right phrase, seems to be the most likely outcome.
All this is assuming that there will be no social or political dislocations. Hardly a given.
(Oh, a related observation, healthcare costs keep going up. Higher education keeps going up. Even with jobs, can Americans afford to live in America?)
Tim Waiting said,
"Analysts currently see earnings reaching a trough of about $38 for the third quarter. I can't say if that's right but it does seem reasonable."
I assume that's annualized earnings of $38, not one quarter!... I mean, analysts are an optimistic lot, but that's a little much!
ppk -
Or they could just go the Argentinian route and nationalize all the pensions, 401K, IRA's, etc.
Oh, that Checking account is already swept nightly, Savings is fractional, FDIC soon be tapped. The Government will go to where the money is if it needs it, and they seem to be addicted like a crack head.
More importantly that is as reported annualized earnings of $38. Of course it has become unfashionable to look at that, now it's all operating earnings which thanks to financial rules is much higher.
Since when do we get excited about 2 pts on the /ES?
I'll grant you that the shorts are trading against SkyNet. But from a technical perspective, if they can't get the S&P to close above 950 for the week, "this suckahs going down" to quote our last Prez.
Byzantine_Ruins, I think mea culpa is the wrong term - I doubt anyone will blame me for a depression. If we get there - I'll definitely admit I was wrong! Hey, I have no crystal ball - hopefully I get more right than wrong, but forecasting is hard - especially about the future
Dirk, I think Great Recession is a good name (until someone comes up with something better).
Couldn't post from work today, and damn that was a teethgrinder, but there were a couple of things that caught my eye:
TNX went vert at the auction open, having already ticked up from 3.90 to 3.94, it went to 3.98 in, ooh about a minute.
Both VIX and TNX did the same J pattern between 1:30 and 1:45. VIX jacked 3% up to 5% above the open, before easing down evenly for the rest of the day. TNX touched 4% in the same 15 minutes.
No corresponding movement at all between VIX and Dow during the spike.
Closing 5 min Dow volume was close to 40m, at least 4x open.
While most eyes were on the 10-year and 30-year points of the curve, the relatively greater increase was at the 3-year.
So, there y'all are sir, checked under the hood, jus fine. Years of happy motorin ahead of you...
"As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...... Of course Professor Delong disagrees (as do I)."
Awe, come on CR, we'll get you to join the Austrian camp eventually. We Austrians are always a nice and stable and smoothly growing group; we are not prone to excesses. But please, just don't ask us any of us for a loan!
As far as earning on the SP500, whenever I start feeling like things are looking good, I go out to: http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS
For a little reality check, somehow the analyst and estimates have been so wrong and constently revised down for the last few years, I don't know why anyone still listens to them. Heck, even the SP analyst say they don't trust the numbers at many a report.
I think we will be close to the bottom when you mention the stock market and everyone wants to punch you out, and all hope is lost, then we may have fair valuations and a "new normal". Until then it's propped up with hope and the FED pumping money.
Not that some people are not making money out of this, I just know it's not me.
Strong buying by China in recent months has gone to build up stockpiles of commodities such as iron ore, aluminum, copper, nickel, tin, zinc, canola, soybeans and crude oil, and might not be sustainable, The New York Times reported June 10, citing commodities and shipping executives. At least 90 freighters holding iron ore off Chinese ports face waits to unload because storage at the ports is overflowing, yet Chinese steel exports are still weak. Moody’s Investors Service on June 10 said it was giving a negative outlook to base metals, mining and steel in Asia and the Pacific."
byz-
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things." if we could legalize drugs, then yes, there would be less criminals to chase so we could get buy with fewer cops. in the context of the thread though -- California's budget woes -- reworking our federal justice system wasn't really on the table. i'm gaming this budget cutting scenario in, what i consider to be, real world conditions. we may have no choice but to legalize heroin in the future, but i don't see that happening in the next 50 days.
you said --"Feeding the hungry, fixing the streetlights enforcing weights and measures, they are all just as essential, so there can't be a "place" to start, because this can't be a little trim around the edges, the pie needs set down and cut up anew, with everyone getting a smaller slice and learning to deal with it." -- there has to be a place to start. maybe i'm getting old, but smashing the system and starting anew sounds a little like the cultural revolution in china. i'm to much a part of the system to let that happen willingly. the cutbacks need to be orderly and sensible. it has to be done this way to avoid causing a collapse. we are collapsing already? well, let's pull together and try to save the best parts of the system. yes, that will be agonizingly difficult but this is an all-or-nothing game, we'll have to work this out.
i agree somewhat with your view of cops but i have too many positive personal experiences with them to allow me to see them as such caricatures. you didn't mention firefighters, a favorite punching bag of many. i agree that some of their benefits are excessive and have room to be trimmed, but why the popular indignation showered on these guys? i suggested that people should complain about someone else(administrative personnel). someone suggested that firefighters are more recognizable than admin types. probably right. you might think that i tear up every time i see a flag waving in the breeze and think that all "those who serve" are hero's. that is not how i see the world. many of them, particularly military and police, are ignorant, insecure, xenophobic, and racist.
i think that we disagree more about the course than the destination.
ppk -
Pointing back to a number of my rant's and many other people.
How can you plan, invest or even save when the rules change every week, not to mention the unforeseen consequences.
Any tax break can be easily undone, and believe me, even though the private citizens 401K has turned into a 201K, the Government will come after our money before they seriously adjust the pensions for their power base.
Maybe I'll just stop posting for a while, I'm depressing myself.
Tim waiting for 2012, maybe - I'd say that is more likely than the immaculate recovery that I'm hearing about in some circles (although both seem very unlikely outcomes to me).
Is the surge in applications for firefighter positions due to a revitalized spirit of heroism and service? Or is it just the best option to cut to the front of the chow line?
Beings most 401K and IRA's have taken a big hair cut how about those pensions? They played the casinos and lost so why do they get away with no pain? Cut them in half then I will listen to reason from their.
Nationalizing everyone's retirement funds is straight out of the Argentinian playbook.
Seems like we are following it so far. Populist tyranny of the minority over the majority. Mix in a little fear and predictions of mass chaos unless. ---
by sellin today, and buying the bridge to somewhere is better than driving on a bridge to nowhere.
it is natural for oil prices to rise, it is natural for a liquid natural gas solution to bridge the change towards wind and solar solution set ....its natural for America...to pay a higher level of capital required for the American banks to be considerably higher than the US government prices for oil. US Banks and Oil are in Contango.
I'm really a good guy, Im rootin for the change.
Im only an idiot at werk.
Maybe I'll just stop posting for a while, I'm depressing myself. -- Kauai_Kahuna
I try to tell myself that there must be an oppurtunity here somewhere in the middle of this downturn. One has to keep one spirits high somehow...... But as you say the worst of it is that the rules keep changing.
How does it go? " Against stupidity, the gods themselves contend in vain" ?
On the subject of firefighters, I have two brothers, one a Fire Captain for Huntington Beach, one a Battalion Chief for LA County. The HB cap. has a cushy job, makes six figures and has time to learn the guitar, work out, study, ect. while on the job and will have 80% salary for life +health ins. The Chief has worked much harder for 30 yrs in Watts, LA but he makes around $250k and will also retire with 80% for life. He has risked his life several times and manages fires in Catalina, forests and LA high rises. Firefighters today with sprinkler systems and concrete and stucco are not as busy as the days of wooden structures (the Great Chicago fire). True they are first responders (EMT's) but in coastal upscale cities, they are way overpaid and will become a burden on city coffers as the ranks of retirees grow.........
Pensions and 401Ks == Capacitance
Cash flow == Current flow
Feds are only concerned with maintaining cash flow through the economy.
Pensions and 401Ks are bookkeeping matters not important for the immediate future.
If you think the rules keep changing, then you haven't figured out the rules.
CalculatedRisk (profile) wrote on Wed, 6/10/2009 - 10:14 pm
Byzantine_Ruins, I think mea culpa is the wrong term - I doubt anyone will blame me for a depression.
You did it, CR! It was during one of those hikes! I just know it!
If we get there - I'll definitely admit I was wrong! Hey, I have no crystal ball - hopefully I get more right than wrong, but forecasting is hard - especially about the future.
My feeling is, that this is a flight-to-yield bubble. Artificially low interest rates led to malinvestment across a global spectrum of sectors because people had to accept unreasonable risk to get acceptable yield.
At what point along the long road of horrible unintended consequences and fiat currency debasement that follows should I expect to hear "wow, it would have been better to let those damn banks fail." It seems like that is important, not because I want to dance around triumphantly, but because I think that there is a policy of spending in the teeth of a downturn that needs to have some careful examination and criticism.
I really respect guys like you and Dirk who put your nuts out there by being economic forecasters in a way I'm not, but I am very afraid that we are going to see an institutional response from the economic orthodoxy that borrowing our way out of debt would have worked if we'd just done it "more and sooner". I'm not looking for some specific commitment, just trying to make sure that if this all turns out to be a horrible policy error, people whose opinion matters will really consider some of their basic suppositions about things like economic cycles. I hope that you, the Kruginator, Dirk and other orthodox economists will keep an open mind about this because I feel like the economics establishment is going to try very hard not to learn anything if their assumptions prove wrong.
I just want to do my part to make sure that there are lessons learned from this in the corpus of the practice of the dismal science.
@ girlbear (profile) wrote on Wed, 6/10/2009 - 7:34 pm
Nice post !
'burden on city coffers as the ranks of retirees grow......... '
You nailed what America is facing as it goes into decline
When enough Americans have had enough financial pain then its Federal, State, and Local gov people welcome to the REAL sobering reality world
Q: Why is the government making hedge and pension fund managers kick in $30 billion?
A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.
Q: Why isn't this just a massive giveaway to yet another set of financiers?
A: The private managers put in $30 billion and the government puts in $970 billion. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year. In this case, the private managers' returns can be thought of as (a) a share of the portfolio's total return proportional to their 3% contribution, plus (b) a "management incentive fee" of (i) 0% of the capital value and (ii) between 0% (if the portfolio returns 3% per year) and 9% (if the portfolio returns 10% per year)--much less than hedge-fund managers typically charge.
Q: So the Treasury is doing this to make money?
A: No: making money is a sidelight. The Treasury is doing this to reduce unemployment
So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.
Q: And firms that ought to be expanding can then get financing on good terms again, and so they hire, and unemployment drops?
A: No. Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.
Q: Oh.
A: But all is not lost. This is not all the administration is doing. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.
I have great respect for firefighters who battle wildfires. The ones in coastal CA, who work 24 hours shifts (at their liking) and collect overtime for the last 16 hours can kiss my ass. They should work 8 hours shifts with no OT, like the rest of us dumbasses. I see them in the grocery store buying 10 ingredients for one dish, while they're on the clock, with the truck outfront.
I have great respect for firefighters who battle wildfires. The ones in coastal CA, who work 24 hours shifts (at their liking) and collect overtime for the last 16 hours can kiss my ass. They should work 8 hours shifts with no OT, like the rest of us dumbasses. I see them in the grocery store buying 10 ingredients for one dish, while they're on the clock, with the truck outfront.
Lets take a look at the -4.0 estimate for 2Q GDP for a minute. In the 1Q net exports added 2 pull ponts to GDP, so if the trade def had not improved vs. 4Q we would ahve been down 7.7% not 5.7%. However trade deficit worsened in April, nothing dramatic, but the absence of the positive will hurt, and given oil prices net exports are going to be much worse in May and June. Retail sales have not been too great in the 2Q so far, although auto sales are much better than 1Q (but still suck) but somehow a 1.5% gain from PCE does not seem to be in the cards. Drag from E&S will not be as big, but with overall cap util below 70% and mfg util below 66%, who would want to spend much more on E&S? Construction spending was up slightly in April, however, housing starts are far from flying high (good thing but not for 2Q GDP). I doubt that the increase in CRE spending will continue given where the archetects index was back in Sept/Oct. So for investment, the only real potential positive is from inventories, but note that the move from -6.1 to -5.7 in the first revision was from less of a inventory drag in 1Q. Govt spending is def going to be up at the Fed level, but will it be enough vs. reduced spending at S&L level to give much of a boost. So how happy will people be if we imporve from -5.7 to -4.0 and it is all due to inventory restocking. How much of that will be volentary build (the good type) and how much just goods piling up due to no demand. GDP could easilly surprise to the downside in2Q
Did anyone watch the Erin Burnett "Dollars & Danger" CNBC (I know MSM!) about investing in Africa earlier this eve? Very interesting.......saying it is the next/last frontier for high return on investments (oil, copper, diamonds, cobalt, tourism). Of course they have no roads no much electricity and infrastructure........no place to go but up?
China is over there big time but they bring their own labor force, do not employ the nationals...
One aspect of the depression will be living in a top $ zip code with listed home asking prices averaging $620/sq ft, with last year's sales prices around $500/sq ft, and seeing the neighbors $2.5mil, 5/4, 5300 sq footer go for $670K, $126/sq ft.
If you think the rules keep changing, then you haven't figured out the rules.
With out a doubt, I'm clueless. Which is why I'm here.
Of course, when it comes to the Federal Government, I'm pretty sure most of the rules are ignored at one time or another for expediency, National Security, you pick the excuse. Therefore, I fall back to my old standby. Those with the gold make the rules, I just can't see the future.
I agree 401(k) allocations aren't very important, but pensions are a different story.
When pensions get cut, all kind of bad economic and social things happen. More illness, nursing homes, welfare and homelessness.
Less confidence in the financial system and government, less money retired people have to spend and circulate, and (because most pensions are taxable) less tax receipts and more PBGC burden.
The biggest pension system, of course, is Social Security, even though it's technically a social insurance system. Politicians are deathly afraid of any proposal that would reduce the Social Security benefits of current recipients by even one penny. That's why Medicare B premiums can't go up in a year when there is no Social Security COLA, like probably next year.
Cutting Social Security or pension benefits of current recipients would bring a lot of angry old people out into the streets. That's something you don't want to see.
Plant some food bearing trees. Get into permaculture. It's implicitly a future affirming activity, an investment, and it's sane.
OT-
Actually I have been reading up on aquaponics, I'm wondering if I can set up something on my balcony to grow herbs, tomatoes, maybe some hops.
Use talapia fish, when they get too big, eat them.
Somehow I just think it's not as easy as some make it out to be.
One aspect of the depression will be living in a top $ zip code with listed home asking prices averaging $620/sq ft, with last year's sales prices around $500/sq ft, and seeing the neighbors $2.5mil, 5/4, 5300 sq footer go for $670K, $126/sq ft., here for example: 15706 Las Planideras, Del Mar, CA 92014
The current credit cycle began around 1982.
Historically, the up and down cycles last 25 years.
Therefore, we are at the end of the current up cycle.
See graph #3 in Mish's article -
It's a gross exaggeration but this equation is a simple model
K => R x D, where K is a konstant of yearly economic growth, R is average interest rate and D is total debt.
As D rises, R must fall to maintain parity.
If R stops falling, Bad Things happen, like the reversal of the cycle.
There.
There's the Fed's whole policy for you in one equation.
The subprime blowout can be interpretated as an attempt to circumvent the end of the 25-year up cycle.
You can see it in the long-term rate fluctuations-
The breakout to the upside coincides almost exactly with the start of the housing blowout.
Refinancing into short-term instruments created an a short-term illusion that R was still falling.
If R reverses, Feds blow up because they're carrying so much short-term debt.
To make it simpler -
People like to complain that the unions killed GM by demanding benefits in excess of what was sustainable.
Replace "unions" with "investors", "GM" with "United States" and Fed policy is defined. Investors (debt) have to be forced down to rates which correspond with sustainable real growth of the economy. That's essentially what happened between the Great Depression crash and WWII, Investors were forced into very low-yield returns which were below the rate of true growth, allowing the rest of the population to either default or grow out of debt.
Q2 is a known bad and a selloff retesting that thesis is sound. along with a liqudity drawdown with oll spike.
So was 08/4q, 09/1q. But here we are up well above the normal 33% bear market rally. Green shoots, open manipulation, who knows. But everyday more people are being sucked in be it through 401k, pensions, tax debt. Can someone stop the world, I want to get off.
I've got 6 hops vines growing up my fences. They're easy to propagate, hardy, and lovely. I doubt I need to sell you on their pharmacological benefits.
As for the fish, give it a shot. It probably is difficult, but that's the case with most productive activities. I'm lucky enough to have a 11/2 acre pond that I've stocked with bass and bluegill. There are some pioneer catfish that just showed up too. I'm going to break out the rod sometime this summer. The sooner you get started, the sooner it pays dividends.
Are we talking about pension payouts or allocations?
I'd agree that payouts are a problem because, once again, they're cash-flow items.
Allocation changes could create the illusion of a fix without affecting cash flow, though.
In other news, the American Medical Association opposes the public option for health coverage. Without it there is not going to much incentive for the insurance companies to keep costs down.
Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier.
Broward, that is the problem in an nutshell.............with Shedlock. He tries to break everything down into equations and "cycles". That isn't always the case. Sometimes a subprime bust is just a..........subprime bust. Like the one in 1998. This one was just bigger.
America has alot of things the rest of the world demands. We just need the political will to be allowed to sell it.
You make a great point here. Clearly, orthodox economists got this thing all wrong. Funny thing, professional economists get to be wrong over and over.
Why is Bernanke taken seriously when he told the world that "subprime is contained", then the whole system fell apart? Is it because everyone knows he is secretly just playing a confidence game, so well, he had to say that.
Is it ego that keeps them from admitting they really don't understand what is happening?
I know this economics thing is hard. I've got my own opinions and biases, but I try to learn about ideas from every angle, admit when I am wrong, revise my world view and try again. Why can't more trained economists do the same?
I've got 6 hops vines growing up my fences. They're easy to propagate, hardy, and lovely. I doubt I need to sell you on their pharmacological benefits.
Please take this as nicely as possible.
I HATE YOU!. Evil green face jealousy coming out.
Actually my only real concern is my local nazi association, and the hop vines going crazy and taking over the apartment above me.
"Artificially low interest rates led to malinvestment across a global spectrum of sectors because people had to accept unreasonable risk to get acceptable yield."
So, what does that tell you, that 'people' had to abandon reason? I think it might tell you that the flaw is, first of all, in us.
Given what we are, there will always be crises, always flights from reason. On our own, we always verge on going out of control.
Externalized Costs -
That sounds like a great mini garden, the thing with aquaponics is no soil, just gravel and the water from the fish tank is pumped up to provide the nutrients for the plants. Your list sounds like what I would like to have, but I don't know how the rose's would do. Maybe some night ginger.
Back when I was in my teens, I had a green thumb. I seem to have lost it lately but I do want to get it back. Finding good fresh tomatoes is pretty hard, and my body tends to go nuts eating green picked and gassed to be made red stuff.
The credit cycle is a well-defined and understood thing, Mish didn't invent it, he understands it.
If "investors" are demanding higher than sustainable returns from an economy, the rate of payment can be maintained for a short period, especially if the debt starts off small relative to the size of the economy. But eventually, real returns can NOT be greater than what an economy can generate. Period.
If unions killed GM by demanding greater-than-possible benefits, why can't investors kill the U.S. economy by demanding greater-than-possible returns?
With a little trimming now and again, I don't think that'd be a problem. One thing to consider is location. In southern regions hops are ornamental.
Thanks for understanding, I have heard they can grow here, but I have yet to talk to someone that actually does it and gets any good yields. Just another reason for wanting a single family home, but the time is not right yet.
K => R x D, where K is a konstant of yearly economic growth, R is average interest rate and D is total debt. As D rises, R must fall to maintain parity.
Bravo Broward. But after watching Who'sayin spend and the 10 year yields rise it looks to me like R&D are going even higher.
bANK fAILURE -
NatGas and Canadian Trust was a habit I gave up three weeks ago.
I just was not up to the pain any more. Cash is too important for me right now if things break badly, and if I am going to give any lip service to cycles, the next month or so will tell me what is coming, I hope.
Otherwise, I just decided if I'm in a hole, I'm going to stop digging.
Of course, if I find myself in Hell, I'm going to keep on driving through.
So what's to prevent money from flowing to foreign markets? Capital controls?
That's a good question. The model works well for the United States and it could be applied to the world in general but transition points are hard to know or predict. I suspect that part of the Fed's plan (hope) is to draw China and India into the system and modify the credit cycle. In fact, I think that's been part of the goal all along, since NAFTA.
I don't think it matters in the end, except for a little delay time. The Feds can control U.S. funds and force paper to accept a 3% return but I dont' think they can do it to everyone else around the world.
awgee, you can quibble or even have serious reservations about how all sorts of the econ stats are constructed, however as long as they are consistent over time, they give you a baisis for comarision and also a common frame of reference that everyone can discuss. GDP is the biggest aggragate measure of all things economic (I have great sympathy for the RFK critisism of it) it is also a statistic that is computed more or less the same for all major countries thus facilitating int'l comps
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...
Of course Professor Delong disagrees (as do I). - CR
:: ::
No offense but I tend to side with Schumpeter on this one. You can maybe avoid a specific 'inventory correction' recession via stimulus but you can't avoid a 'long wave' down part of the cycle whether we define it as 'depression' 'stagflation' or 'lost decade'. Not forever anyway - eventually 'creative destruction' wins out.
I think the failure De Long & other Keynesian dogmatists make when looking at Schumpeter is that JS isn't limiting himself to a steady state system. Keynesian fiscal or monetarist interventions 'work great' over short periods of time where techno-social system is fairly 'static' or at least temporarily 'steady state'...
But the forces building up to produce 'depressions' aren't temporary and they aren't just monetary & fiscally induced. They are the result of social & technological forces spread over long periods of time. Schumpeter was fascinated by the role innovation [& it's opposite 'commoditization'] played in the boom & bust phases of long waves. The big cycles seem to take 40 years or so to play out. 'Stimulus' isn't going to move that along.
Which makes capitalism weak and open to system changes. That is why more "primitive" forms of economic thought has been banished ie Austrian school.
My grandfather lived in Germany in the 1930's and it was a educational experience.
FWIW, I would argue your wrong on Keynes. It was the structural crisis when Keynes thought intervention was needed the most, while leaving the "normal, inventory" like recessions alone. If you didn't, the economy would crater destroying confidence and causing the depression to last years and years which was unnecessary.
IMO, Keynes would have scoffed at the attempts to "cure" the 2001 slowdown. That is what threw it over the top.
We can't help that the dogmists like Delong can't get that fact. It is just the way they are. Just like Ron Paul promising no more bust cycles with his "programs".
sneering nihilist (profile) wrote on Wed, 6/10/2009 - 10:23 pm
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things."
Then why are you attacking critics of it? Why are you supporting people who earn their living imprisoning people you admit are essentially innocent of real guilt but who are willing to portray them as terrible monsters in order to manipulate the public? Those guys aren't draftees, they get up and go in willingly, every day. They cash their paychecks and their pension checks. How are they heroes of the public trust when they are willingly and voluntarily doing something morally wrong with money we collectively don't have?
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things." if we could legalize drugs, then yes, there would be less criminals to chase so we could get buy with fewer cops. in the context of the thread though -- California's budget woes -- reworking our federal justice system wasn't really on the table.
It seemed to me like you were just kind of going off. Pardon me if I missed the part where it was some sort of structured response to the California crisis.
there has to be a place to start.
Yeah. A big empty spreadsheet with a conservative estimate of tax revenues over time period at the top and a total dedication to a greater-than-zero value on the last line.
maybe i'm getting old, but smashing the system and starting anew sounds a little like the cultural revolution in china.
Or the American revolution in America. Remember how you are the product of a revolutionary state? The "shot heard round the world" and all that?
But, more specifically, I'm talking about a zero-based rebudgeting process where outlays are made to match inflows with a healthy surplus. This is not smashing the state. Nor is undertaking serious reforms of a bloated and unjust police & prison industry.
i'm to much a part of the system to let that happen willingly.
There you go. The word you are looking for is not "old", it's "co-opted". Too bought into your place in the system to willingly undertake necessary systemic reform for fear of endangering your place in the established order.
the cutbacks need to be orderly and sensible. it has to be done this way to avoid causing a collapse. we are collapsing already? well, let's pull together and try to save the best parts of the system. yes, that will be agonizingly difficult but this is an all-or-nothing game
No. The world will not end. Your special place in it may end, but ultimately, you are not a beautiful and unique snowflake without whom the world will fail to turn. You, and all of us, will be dead very soon. Then our heirs -- direct and indirect -- will be left to conduct business with the remainder of our assets. What we save or don't save doesn't matter, what we pass on to those who come after, that matters. The Ancestors planted s we could harvest and many died in the planting. What sort of Ancestor will you be?
i agree somewhat with your view of cops but i have too many positive personal experiences with them to allow me to see them as such caricatures.
You meet two guys, identical in all ways. One give you a twenty dollar bill and helps you across the street. The other one pepper sprays you, has three friends beat you, and then throws you in prison for assaulting him by smashing your fist into his face so damn many times, which harms your employment prospects for the rest of your life and costs you thousands of dollars. Which has had the bigger impact on you? "A few bad apples spoil the barrel" is never truer than in the field of policing.
you didn't mention firefighters, a favorite punching bag of many. i agree that some of their benefits are excessive and have room to be trimmed, but why the popular indignation showered on these guys?
In my city, they helped substantially in bankrupting it for collective personal profit, and the favor they did in the other direction was keeping a crooked-as-shit mayor in power for a payoff. I don't know, why do you think that gets people wound up?
i suggested that people should complain about someone else(administrative personnel). someone suggested that firefighters are more recognizable than admin types.
There tend to be fewer "braves" on the bureaucratic payroll and more "chiefs". In places that are "brave heavy" we should cut the braves. In places that are "chief heavy" we should cut the chiefs. Ultimately, we need to cut like crazy in every aspect of everything until we get an apparatus of state that works within its means.
many of them, particularly military and police, are ignorant, insecure, xenophobic, and racist.
Then they require discipline. Their bad behavior is tolerated, even encouraged, because they are proxies for social aggression and worshiped as hero figures. If this is not tolerated, or even encouraged, it will cease. People are products of expectations and institutions are even moreso.
Or they could just go the Argentinian route and nationalize all the pensions, 401K, IRA's, etc.
KK: that tuned out real well for the Argentines. Right after the Argentine government nationalized the private pensions, a vulture hedge fund that owned defaulted Argentine government bonds got a US court order seizing the US assets of the formerly private pensions. The Argentine savers couldn't catch a break: their savings were being stolen either their government or a vulture hedge fund.
Eras End -
'creative destruction' wins out."
Countered by innovation and productivity increases.
That works until you move to a smoke and mirrors services based economy running a substantial trade deficit.
After a while you either sell your soul, or you have nothing of use that has not been copied from you, and improved.
Sorry, just too many flaws shouting out at me on that. Of course I'm usually wrong.
My grandfather lived in Germany in the 1930's and it was a educational experience.
I bet it was.
Have you ever read any of Remarque's books? Wiki. He wrote 'All Quiet On The Western Front' but also a number of very good books about Germany in the 20s & 30s. A 'Night In Lisbon' a novelized account of refugees trying to escape Nazi Germany. The 'Black Obelisk' is about living during the 'Great Inflation'. Both are fabulous reads.
With state outlays about to get torpedoed; the Chinese and Russians putting a leash on Bennie's quantitative easing and, hence, Obama's and Congress' spending; and the Congress terrified of stirring the masses with higher taxes; we'll see a nice acceleration in the downward movement of GDP in the second half of this year.
And, we'll be in an undisputed depression in 2010.
Oh I was not proposing it, more of a what might be next thing.
My point was the Government is addicted to my money, and they want their fix, and either they break the habit or we are going to be indentured servants for the rest of our lives, and our children, and their children, etc.
So what's to prevent money from flowing to foreign markets? Capital controls?
You have until June 30 to report all your foreign accounts to the US Treasury. The forms have changed this year. Now you have to report the name and address of the foreign financial institution plus the highest balance in the account during 2008 calendar year.
"That works until you move to a smoke and mirrors services based economy running a substantial trade deficit."
Tell me about it, been yelling for years to death ears.
"Have you ever read any of Remarque's books? Wiki. He wrote 'All Quiet On The Western Front' but also a number of very good books about Germany in the 20s & 30s. A 'Night In Lisbon' a novelized account of refugees trying to escape Nazi Germany. The 'Black Obelisk' is about living during the 'Great Inflation'. Both are fabulous reads."
Nah, maybe I should. Grandpa doesn't remember much about the 20's, he was a young kid. But came to age in the mid-late 30's. Hitler's beliefs about the United States changed as well. He thought the United States was a ally of the Germans in the 1920's, but changed in the 1930's to the United States was invented by Jews to destroy and pillage Europe. That is what they were taught by the late 30's in Hitler youth camps as they prepared for war.
Of course after grandpa left Germany to come into the US after the war(he survived the Russian front) he joked about FDR's NRA and called it "Roosevelt youth".
That works until you move to a smoke and mirrors services based economy running a substantial trade deficit.
The smoke and mirrors you described is the fuel that feeds the fire called 'creative destruction'. But it isn't a smooth ongoing process... it is steady and smooth until it isn't. Like a forest that hasn't been burned in a while... the more duff on the forest floor the hotter & more destructive the eventual fire will be.
pavel.chichikov (homepage, profile) wrote on Wed, 6/10/2009 - 11:07 pm
So, what does that tell you, that 'people' had to abandon reason? I think it might tell you that the flaw is, first of all, in us.
I think it tells me that Alan Greenspan was a dumbshit. People had to do what they had to do to escape inflation, there was no other choice, that's how the monetary system works. It's not a natural pheonomenon, there's one guy at the center and he made these exceedingly bad choices while controlling a system deliberately designed to exert a compelling influence on the investment choices of America.
Given what we are, there will always be crises, always flights from reason. On our own, we always verge on going out of control.
That's life. The original asylum run by inmates. That's why expectations and ritual are so important. I don't really have your terror of disorder. Life is messy. You muddle through.
"The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade. "
(snip)
"The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-zero point eight), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (zero). "
.....put down proven concepts and legalize drugs - those are the remedies for "what's ailin' us"?...........I wonder if they espoused the legalization of alcohol as a possible cure for the Depression as well? Nite all..........
The Economist reported:
“A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years.”
If the credit cycle historically lasts 25 years, why does your breakout chart consist of only 4-years (plotted on a weekly basis)?
I plotted the annual average rates and they don't look anything like your chart (fairly flat from 2003-2006). I don't see any correlation. I just see noise.
I looked at Mish's K-Cycle charts on the 10 year treasury and interest rates and although the graphs suggest some kind of cycle, it's hard to buy into a cycle that looks like a triangle. Feel free to refer me to a more in-depth resource on the K-Cycle.
What I really came to post was the idea we may be headed into a depression simply because nobody really sees a depression ahead. If I read my history right, nobody believed the Great Depression was a depression until most of the shoes had dropped.
Who were all those homebuilders building all those homes for?
I fear they were not the only producers forecasting an increase on next year's sales based simply on last year's sales.
Is anybody taking into account that real unemployment is 16.4 percent and will probably reach twenty! This change to U3 during the Clinton admin. has masked alot of the pain.
Oh no the D word! First?
A Depression is when CR is out of work.
Does it matter.. definitions are ok till they stop working.
What about Japan?
Rather appropriate. From Euro watch blog
"As long as excessive debt is not digested, both monetary and fiscal policies are inefficient. There is not much of an alternative. Either to let the economy collapse, in order to reduce debts, and then use fiscal policy to revive it, or inundate the insolvent economy with public credit, to avoid the collapse, and loose the ability of fiscal policy to pull it out of a prolonged lethargy. Either a horrible end or an endless horror."
After the Crisis: Macro Imbalance, Credibility and Reserve-Currency: André Lara Resende
I don't know why I wrote this, but I did. It of course goes with the tune of "Footloose"
I been trading, so bad
Stopped out again, been had.
401k, for what?
Don't tell me how much I've lost.
I get this feeling
That debt is just holding me down
I'll send mail jingling
After buying a condo downtown!
Tonight I gotta get
Shoots, Green Shoots
Kick off your perm'bear shoes.
Please, B'rnanke.
Give me some money for free!
I heart, the TARP
Bonuses pay for my cars.
Lose your clues
Everybody get Green Shoots!
This rally's so cool
Antigravity rules.
Dig way down, in the news
You're yearning, burning for some
Somebody to tell you...
That the rally ain't passing you by!
I'm trying to tell you...
It will if you don't BUY BUY BUY!!!!
You can fly if you'd get Green
Shoots, Green Shoots!
Kick off your perm'bear shoes.
Oowhee, Tim G
Print it, Print it for me
Whoa, Big O
Another trillion to go.
Snooze the news
Everybody get Green Shoots!
First - Pass the TARP immediately
Second - You bail out the AIG.
Third - Now take ahold of GM.
Four - Whoaaaa, I'm making the
Shoots, Green Shoots...
Kick off your perm'bear shoes.
Please, Pelosi
Another house subsidy!
Oohwee, CNBC
Keep on lying to me!
Lose, your blues
Everybody get Green Shoots!
Again showing my ego, a depression is when I'm out of work.
Of course that might happen at any time, my problem is still with the GDP numbers presented. If this is only a 4% drop in GDP, a real depression would be... depressing.
Nice post and graph CR but since I was pigged allow me to post this again which belongs here spot on !
Just took another look at this again and glad we had this reporter who nailed it
The Bilderberg Plan for 2009: Remaking the Global Political Economy
The Bilderberg Plan for 2009: Remaking the Global Political Economy
One Bilderberger said that, “the banks themselves don't know the answer to when the bottom will be hit.” Everyone appeared to agree, “that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.”
Further, “someone from the IMF pointed out that its own study on historical recessions suggests that the US is only a third of the way through this current one; therefore economies expecting to recover with resurgence in demand from the US will have a long wait.” One attendee stated that, “Equity losses in 2008 were worse than those of 1929,” and that, “The next phase of the economic decline will also be worse than the '30s, mostly because the US economy carries about $20 trillion of excess debt.
Until that debt is eliminated, the idea of a healthy boom is a mirage.
But the MSM, the pundits, the economist assclowns, and Obamanomics all say recovery is just ahead with many green shoots springing up
Then Japan is in a depression? Closely followed by Hungary and perhaps Germany?
blahger (profile) wrote on Wed, 6/10/2009 - 8:12 pm
I don't know why I wrote this, but I did. It of course goes with the tune of "Footloose"
There are some great lines in here. Had me LOL.
blahger -
I don't know why I wrote this, but I did. It of course goes with the tune of "Footloose"
You obviously have a lot of free time on your hands, but I liked it, thanks.
“that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.”
And didn't 'level headed and well grounded' Elizabeth Warren just ask for a rerun of stress test
Does this mean that Japan will be slipping technically into a depression? It is now at an annualized rate of decline of 14.2%. Just curious.
WSJ Error Page - WSJ.com
Worth Repeating ...
nova
"As long as excessive debt is not digested, both monetary and fiscal policies are inefficient. There is not much of an alternative. Either to let the economy collapse, in order to reduce debts, and then use fiscal policy to revive it, or inundate the insolvent economy with public credit, to avoid the collapse, and loose the ability of fiscal policy to pull it out of a prolonged lethargy. Either a horrible end or an endless horror."
After the Crisis: Macro Imbalance, Credibility and Reserve-Currency: André Lara Resende
~~~~
And who owns this debt ? The wealthy, the pensions, the banks ...
And they will protect their wealth until it's worthless as the economy crashes ...
bANK fAILURE, I retired a few years ago ... so I guess that meets your definition.
nova, this is from Brad DeLong "Sliding into the Great Depression"
Harvard Joseph Schumpeter argued that there was a "presumption against remedial measures which work through money and credit. Policies of this class are particularly apt to produce additional trouble for the future." From Schumpeter's perspective, "depressions are not simply evils, which we might attempt to suppress, butforms of something which has to be done, namely, adjustment to change." This socially productive function of depressions creates "the chief difficulty" faced by economic policy makers. For "most of what would be effective in remedying a depression would be equally effective in preventing this adjustment."
...
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...
Of course Professor Delong disagrees (as do I).
best to all.
Japan's GDP dropped 14% in the first quarter. Beat estimates, tho, so the market is up. If they rally another 300%, they'll make the 1989 investors break even.
"You obviously have a lot of free time on your hands, but I liked it, thanks."
I don't actually have that much free time on my hands. It was one of those things that starts off as an idea (Hey, you know what would be funny... if someone with way too much time on their hands put Green Shoots to Footloose...) then got stuck in my head until it finally got written.
Glad you liked it.
Well my "man on the street" poll shows.....they are depressed. It's official in my book.
Depression is when the populace loses faith in government to move us out of a protracted recession.
Depression is in the eye of the bagholder.
C
how about trotting out steinbeck?
a depression is when a woman who just miscarried breastfeeds a grown man because he is starving to death?
I envision a lot of suffering between the -4.2% and that -10% line. I hope it doesn't get there. I'm depressed enough.
CR,
Very nice, just from a quick look it has it all. Nazi's, poetry, and economics.
Depression replaced the term panic because it sounded better. We had a few panics in 2008
Callme Retired wants for nothing.....
an income stream to satisfy the "needs", guaranteed, and not negotiable. I got mine and "after me the deluge"...
"Depression is when the populace loses faith in government to move us out of a protracted recession."
~~~~~
It might also be the deflationary spiral that is crashing credit and slashing payrolls
thanks to an unsustainable economic model based on fractional reserve banking
and geometrically escalating debt ...
Sneering nihilist: that part of the "Grapes of Wrath" stuck with me too. My grandpa, the butcher, made soap out of fat, and they were fortunate.
Hang on, is this centennially adjusted?
C
Nihilist, left you a pigged post on the last thread, but it's long so I'm not going to respam it. Sorry for the delay, had to pet the spouse's head.
CR:
Of course Professor Delong disagrees (as do I).
Curious what the conditions for a mea culpa are.
I second Byz.
Comrade Coinz
"I envision a lot of suffering between the -4.2% and that -10% line. I hope it doesn't get there. I'm depressed enough."
~~~~
Instead of killing Zombie Banks they will kill the economy so that we get to -10% at -1% a year ... just like Japan ...
That's their "best" scenario ...
BBC NEWS | Business | Brazil to make $10bn loan to IMF
Brazil says it is to offer $10bn in financing to the IMF to help improve the availability of credit in developing countries. It is the first time that South America's biggest economy has ever made a loan of this kind. Brazil's Finance Minister Guido Mantega said it was part of a united approach by Brazil, Russia, India and China to help boost global financial stability.
He said China had plans to invest $50bn and Russia $10bn.
In the past Brazil was more accustomed to seeking help from the International Monetary Fund and the fact that it is now able to offer a loan instead is a striking indication of how its position has changed.
Ahhh remember the days of yesterday when it was America doing most of the loans.
Now Uncle Sam says 'buddy can you spare a dime'....How sad that wanton greed by the elites prevailed in America
Gorbachev warns that the world’s current economic model, created by “America’s elite,” is “cracking”
Point of FACT: Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !
As it comes undone, many will suffer, he predicted. “Including the United States.”
In many respects he's right but most Americans today are too ignorant or complacent to demand REAL change
What happens when you subtract the deficit from the GDP? Like real companies have to.
Anymore national socialists on the rampage tonight? Bizzare how they show up now, where were they 3 years ago? Who is controlling their strings?
t-pain is investing in gold and diamonds.
T-Pain And His Big Ass Chain!
GOLD to $2000!
Green shoots for all. Who wants to bet he makes money on that chain.
GDP = GDI is income not wealth. If you want to subtract the deficit from something you would subtract from the net assets of the country which is probably 10-20 times GDP..
byz --
nice post. working on a reply. might take me a while. i'll email it to you if you have to leave in the meantime.
How does this graph fit the definition?
up go the futures...hong kong on fire...this market cnnot be stopped. glad I'm not short
good articles Econ & Finance Articles Updated Daily
This whole 'financial crisis' and 'worst recession since the 30's' was in actuality merely a
shakeout caused by the collapse of Lehman, an is manifested by a sudden, but temporary dip
in GDP & profits. Things are returning to exactly to how they were before. Nothing
fundamentally changed. The economies of India, china, Hong Kong, Russia, Brazil, Mexico have been insulated, in fact.
long MA POT GOOG but still a bear
good finance articles Econ & Finance Articles Updated Daily
ac, i guess we will know in about 24 months, but I agree the world wide nature of the downturn has to be a factor in if it gets labeled a depression. I have been feeling more and more like the moniker of the Great Recession really fits this one, or jus GR for short
Dirk van Dijk -
ac, i guess we will know in about 24 months,
I don't have patience and I wanna know NOW!
Actually I hope we have a much better picture in 12 months, I did say I had no patience right? But with the pressure on bond rates, the house of cards being propped up by free money may start to shake sooner than later.
After adjusting for any inflation we will get there by next year.
Just how long into the GD were they still considering it a GR???
I'll do somehting I do quite often.
PTRY took 10% todayconsumer discretionary tied to bubbas truck pumping gas in the south, stock could easily go to 10 clownbucks.
not investment advice.
"up go the futures...hong kong on fire...this market cnnot be stopped. glad I'm not short"
The bears have to September to right the ship. If it hasn't retanked by then, the backlash will be severe. I would advise people like Karl Denninger to buy bodyguards.
Mexico insulated, you cant be serious, they have only 3 legal sources of FX, Oil, falling like a rock as Cantarell runs dry, although the rebound in prices will hurt. Remittances, with unemployment high here esp in construction that is running dry and Finally tourism, the piggy flu and the drug wars on the boarder are drying that up, not to mention a trip to Cabo or Cancun is equisitly discretionary and all discretionary spending is going to stay down for a long time. If we legalized pot, there would be no source of income for Mexico at all.
sneering nihilist (profile) wrote on Wed, 6/10/2009 - 9:43 pm
nice post. working on a reply. might take me a while. i'll email it to you if you have to leave in the meantime.
I'll probably head to bed shortly so assume I'm gone. Mr. Sandman is beginning to apply the eyelid weights.
Kauai_Kahuna
"What happens when you subtract the deficit from the GDP? Like real companies have to."
~~~~
Great insight, first time I've heard that question posed ...
If you want to subtract the deficit from something you would subtract from the net assets of the country which is probably 10-20 times GDP
If you want to subtract something from net assets, wouldn't be the national debt, not the deficit?
Things are returning to exactly to how they were before. Nothing
fundamentally changed. The economies of India, china, Hong Kong, Russia, Brazil, Mexico have been insulated, in fact.
long MA POT GOOG but still a bear
good finance articles
What? Good finance articles?
So, I guess everyone needs to be antidepressants? BTW, they're great.
mmckinl -
As Rajesh pointed out, it is kind of an apples and oranges thing, but servicing the debt, and future cost and drain have to be included, and I would bet $1 those estimates are way off like many other of the data points.
In no way am I an expert, I'm here to learn actually but I have learned to smell fishy statistics. I don't know why they stink, but the smell is overpowering.
bobn, true but only the portion held by foreginers, The T notes held by your domestic insurance company or indivdual would be an asset domestically ofsetting the govt liability
Market's P/E Ratio Surges: What Does This Mean?
Analysts currently see earnings reaching a trough of about $38 for the third quarter. I can't say if that's right but it does seem reasonable.
Market's P/E Ratio Surges: What Does This Mean? -- Seeking Alpha
Dirk van Dijk (profile) wrote on Wed, 6/10/2009 - 9:47 pm
ac, i guess we will know in about 24 months, but I agree the world wide nature of the downturn has to be a factor in if it gets labeled a depression. I have been feeling more and more like the moniker of the Great Recession really fits this one, or jus GR for short
I am curious, if the Treasuries market goes south, how will this change your assessment?
financierr (homepage, profile) wrote on Wed, 6/10/2009 - 6:46 pm
Are you Tim Geithner
I see financierr hasn't gained much insight since his previous handles. The linked site hasn't got better either. It's changed, sure, but going from a joke to a bore is no great consolation.
C
Byz,
Don't you mean when the Treasuries market goes south?
"Footloose", the financial version, is very clever. Thanks for that.
Dirk van Dijk - true but only the portion held by foreginers, The T notes held by your domestic insurance company or indivdual would be an asset domestically ofsetting the govt liability
Huh?
That only makes sense to me if the Government had no intention on paying back the domestic holders.
Oh wait, OK.
Depression or not, we have to deal with the following fact on ground.
We are about 11 trillion dollars in debt and running yearly deficits of about half a trillion dollars (two trillion this year?). Just the interest payments will be upwards of half a trillion dollars (412 billion in 2008).
If the interest payments are not to overwhelm us in the future we have to raise taxes and cut spending, repudiate the debt or try to inflate away our debt.
Which option do you think our politicians are going to take?
As someone (Schiller?) once said "in today already walks tommorow"
I think we'll keep borrowing until it becomes obvious that we cannot pay it back at which time (around now?) we are going to try and inflate. If we were going to pay down our debt we would have started on it already years ago.
The government could also mandate that 401(k)s, IRAs etc should have a large fraction invested in treasuries. But that would be just as unpopular are raising taxes and cutting spending. So monetizing the debt, if that's the right phrase, seems to be the most likely outcome.
All this is assuming that there will be no social or political dislocations. Hardly a given.
(Oh, a related observation, healthcare costs keep going up. Higher education keeps going up. Even with jobs, can Americans afford to live in America?)
Tim Waiting said,
"Analysts currently see earnings reaching a trough of about $38 for the third quarter. I can't say if that's right but it does seem reasonable."
I assume that's annualized earnings of $38, not one quarter!... I mean, analysts are an optimistic lot, but that's a little much!
ppk -
Or they could just go the Argentinian route and nationalize all the pensions, 401K, IRA's, etc.
Oh, that Checking account is already swept nightly, Savings is fractional, FDIC soon be tapped. The Government will go to where the money is if it needs it, and they seem to be addicted like a crack head.
Oh, Brad DeLong disagrees. That makes me hopeful.
[/sarcasm}
Kauai_Kahuna
mmckinl -
As Rajesh pointed out, it is kind of an apples and oranges thing, but servicing the debt, and future cost and drain have to be included,
~~~~~
But you are correct, without those deficits that economic activity has to be subtracted from GDP ...
The deficits are necessary but they mask the true depth of the GDP drop ...
More importantly that is as reported annualized earnings of $38. Of course it has become unfashionable to look at that, now it's all operating earnings which thanks to financial rules is much higher.
Anymore national socialists on the rampage tonight?...where were they 3 years ago?
In the White House.
up go the futures
Since when do we get excited about 2 pts on the /ES?
I'll grant you that the shorts are trading against SkyNet. But from a technical perspective, if they can't get the S&P to close above 950 for the week, "this suckahs going down" to quote our last Prez.
Kauai_Kahuna -
Yes it's a possibility. But that would be politically unpopular. IMHO our leaders will take the path of least resistance.
Byzantine_Ruins, I think mea culpa is the wrong term - I doubt anyone will blame me for a depression. If we get there - I'll definitely admit I was wrong! Hey, I have no crystal ball - hopefully I get more right than wrong, but forecasting is hard - especially about the future
Dirk, I think Great Recession is a good name (until someone comes up with something better).
best to all
TJ - tend to concur.
Couldn't post from work today, and damn that was a teethgrinder, but there were a couple of things that caught my eye:
So, there y'all are sir, checked under the hood, jus fine. Years of happy motorin ahead of you...
C
But that would be just as unpopular are raising taxes and cutting spending
No, it wouldn't.
Raising taxes and cutting spending are immediate cash flow items.
Altering 401K allocations pushes the real decision into the future.
IMHO our leaders will take the path of least resistance.
Usually, the path of least resistance is copper, silver or gold.
I suggest we call it "The Panic of 2008-2020".
I dont blame you CR.
I moslty blame ? Hu iz Yu?.
Just what time was the actual beginning of the housing boom? Q1 1997 or Q4 2001.
"As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...... Of course Professor Delong disagrees (as do I)."
Awe, come on CR, we'll get you to join the Austrian camp eventually. We Austrians are always a nice and stable and smoothly growing group; we are not prone to excesses. But please, just don't ask us any of us for a loan!
As far as earning on the SP500, whenever I start feeling like things are looking good, I go out to:
http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS
For a little reality check, somehow the analyst and estimates have been so wrong and constently revised down for the last few years, I don't know why anyone still listens to them. Heck, even the SP analyst say they don't trust the numbers at many a report.
I think we will be close to the bottom when you mention the stock market and everyone wants to punch you out, and all hope is lost, then we may have fair valuations and a "new normal". Until then it's propped up with hope and the FED pumping money.
Not that some people are not making money out of this, I just know it's not me.
CR
I'll bet you we get to negative 12% in real terms.
Give it a year.
Manic Depression.
C
/cue lead-break.
" June 11, 2009
Strong buying by China in recent months has gone to build up stockpiles of commodities such as iron ore, aluminum, copper, nickel, tin, zinc, canola, soybeans and crude oil, and might not be sustainable, The New York Times reported June 10, citing commodities and shipping executives. At least 90 freighters holding iron ore off Chinese ports face waits to unload because storage at the ports is overflowing, yet Chinese steel exports are still weak. Moody’s Investors Service on June 10 said it was giving a negative outlook to base metals, mining and steel in Asia and the Pacific."
"Awe, come on CR, we'll get you to join the Austrian camp eventually"
Why would he want to join a fraud?
So... where are we headed ?
$50 trillion in aggregate debt with a crashing economy ...
While tens of trillions in SSI, Medicare and Pension obligations loom ...
And the solution is ?
China is stockpiling commodities and the FED is stockpiling MBS...
cant eat MBS....cant even burn it fo heat !!!!
I suggest we call it "The Panic of 2008-2020".
The Banker's Dozen.
I consider the US Dollar to be a terribly flawed currency.
Raising taxes and cutting spending are immediate cash flow items.
Altering 401K allocations pushes the real decision into the future.
Good point Broward (and Kauai_Kahuna). Maybe i ought to pay more attention to my 401(k) and IRA.....
Ask DeLong. I am sure the Keynesian Fraudsters will propose something even dumber than what we have done to date.
Decade at Bernie's
byz-
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things." if we could legalize drugs, then yes, there would be less criminals to chase so we could get buy with fewer cops. in the context of the thread though -- California's budget woes -- reworking our federal justice system wasn't really on the table. i'm gaming this budget cutting scenario in, what i consider to be, real world conditions. we may have no choice but to legalize heroin in the future, but i don't see that happening in the next 50 days.
you said --"Feeding the hungry, fixing the streetlights enforcing weights and measures, they are all just as essential, so there can't be a "place" to start, because this can't be a little trim around the edges, the pie needs set down and cut up anew, with everyone getting a smaller slice and learning to deal with it." -- there has to be a place to start. maybe i'm getting old, but smashing the system and starting anew sounds a little like the cultural revolution in china. i'm to much a part of the system to let that happen willingly. the cutbacks need to be orderly and sensible. it has to be done this way to avoid causing a collapse. we are collapsing already? well, let's pull together and try to save the best parts of the system. yes, that will be agonizingly difficult but this is an all-or-nothing game, we'll have to work this out.
i agree somewhat with your view of cops but i have too many positive personal experiences with them to allow me to see them as such caricatures. you didn't mention firefighters, a favorite punching bag of many. i agree that some of their benefits are excessive and have room to be trimmed, but why the popular indignation showered on these guys? i suggested that people should complain about someone else(administrative personnel). someone suggested that firefighters are more recognizable than admin types. probably right. you might think that i tear up every time i see a flag waving in the breeze and think that all "those who serve" are hero's. that is not how i see the world. many of them, particularly military and police, are ignorant, insecure, xenophobic, and racist.
i think that we disagree more about the course than the destination.
Peter Schiff on "The Daily Show" said he is considering running for the Senate in Conn. against Chris Dodd.....
Option ARMageddon
ppk -
Pointing back to a number of my rant's and many other people.
How can you plan, invest or even save when the rules change every week, not to mention the unforeseen consequences.
Any tax break can be easily undone, and believe me, even though the private citizens 401K has turned into a 201K, the Government will come after our money before they seriously adjust the pensions for their power base.
Maybe I'll just stop posting for a while, I'm depressing myself.
Tim waiting for 2012, maybe - I'd say that is more likely than the immaculate recovery that I'm hearing about in some circles (although both seem very unlikely outcomes to me).
best wishes
Is the surge in applications for firefighter positions due to a revitalized spirit of heroism and service? Or is it just the best option to cut to the front of the chow line?
Nationalizing everyone's retirement funds is straight out of the Argentinian playbook.
Beings most 401K and IRA's have taken a big hair cut how about those pensions? They played the casinos and lost so why do they get away with no pain? Cut them in half then I will listen to reason from their.
TJ and The Bear -
Nationalizing everyone's retirement funds is straight out of the Argentinian playbook.
Seems like we are following it so far. Populist tyranny of the minority over the majority. Mix in a little fear and predictions of mass chaos unless. ---
Is Peter Schiff related to the Wall Street Schiff that helped finance the Bolshevicks during the 1917-32 period with the capitalists?
by sellin today, and buying the bridge to somewhere is better than driving on a bridge to nowhere.
it is natural for oil prices to rise, it is natural for a liquid natural gas solution to bridge the change towards wind and solar solution set ....its natural for America...to pay a higher level of capital required for the American banks to be considerably higher than the US government prices for oil. US Banks and Oil are in Contango.
I'm really a good guy, Im rootin for the change.
Im only an idiot at werk.
Maybe I'll just stop posting for a while, I'm depressing myself. -- Kauai_Kahuna
I try to tell myself that there must be an oppurtunity here somewhere in the middle of this downturn. One has to keep one spirits high somehow...... But as you say the worst of it is that the rules keep changing.
How does it go? " Against stupidity, the gods themselves contend in vain" ?
On the subject of firefighters, I have two brothers, one a Fire Captain for Huntington Beach, one a Battalion Chief for LA County. The HB cap. has a cushy job, makes six figures and has time to learn the guitar, work out, study, ect. while on the job and will have 80% salary for life +health ins. The Chief has worked much harder for 30 yrs in Watts, LA but he makes around $250k and will also retire with 80% for life. He has risked his life several times and manages fires in Catalina, forests and LA high rises. Firefighters today with sprinkler systems and concrete and stucco are not as busy as the days of wooden structures (the Great Chicago fire). True they are first responders (EMT's) but in coastal upscale cities, they are way overpaid and will become a burden on city coffers as the ranks of retirees grow.........
Pensions and 401Ks == Capacitance
Cash flow == Current flow
Feds are only concerned with maintaining cash flow through the economy.
Pensions and 401Ks are bookkeeping matters not important for the immediate future.
If you think the rules keep changing, then you haven't figured out the rules.
CalculatedRisk (profile) wrote on Wed, 6/10/2009 - 10:14 pm
Byzantine_Ruins, I think mea culpa is the wrong term - I doubt anyone will blame me for a depression.
You did it, CR! It was during one of those hikes! I just know it!
If we get there - I'll definitely admit I was wrong! Hey, I have no crystal ball - hopefully I get more right than wrong, but forecasting is hard - especially about the future.
My feeling is, that this is a flight-to-yield bubble. Artificially low interest rates led to malinvestment across a global spectrum of sectors because people had to accept unreasonable risk to get acceptable yield.
At what point along the long road of horrible unintended consequences and fiat currency debasement that follows should I expect to hear "wow, it would have been better to let those damn banks fail." It seems like that is important, not because I want to dance around triumphantly, but because I think that there is a policy of spending in the teeth of a downturn that needs to have some careful examination and criticism.
I really respect guys like you and Dirk who put your nuts out there by being economic forecasters in a way I'm not, but I am very afraid that we are going to see an institutional response from the economic orthodoxy that borrowing our way out of debt would have worked if we'd just done it "more and sooner". I'm not looking for some specific commitment, just trying to make sure that if this all turns out to be a horrible policy error, people whose opinion matters will really consider some of their basic suppositions about things like economic cycles. I hope that you, the Kruginator, Dirk and other orthodox economists will keep an open mind about this because I feel like the economics establishment is going to try very hard not to learn anything if their assumptions prove wrong.
I just want to do my part to make sure that there are lessons learned from this in the corpus of the practice of the dismal science.
@ girlbear (profile) wrote on Wed, 6/10/2009 - 7:34 pm
Nice post !
'burden on city coffers as the ranks of retirees grow......... '
You nailed what America is facing as it goes into decline
When enough Americans have had enough financial pain then its Federal, State, and Local gov people welcome to the REAL sobering reality world
I used to try to write stuff this good. Back when my brain had creativity.
I try to tell myself that there must be an oppurtunity here somewhere in the middle of this downturn. One has to keep one spirits high somehow......
Plant some food bearing trees. Get into permaculture. It's implicitly a future affirming activity, an investment, and it's sane.
Professor DeLong on PPIP:
Q: Why is the government making hedge and pension fund managers kick in $30 billion?
A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.
Q: Why isn't this just a massive giveaway to yet another set of financiers?
A: The private managers put in $30 billion and the government puts in $970 billion. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year. In this case, the private managers' returns can be thought of as (a) a share of the portfolio's total return proportional to their 3% contribution, plus (b) a "management incentive fee" of (i) 0% of the capital value and (ii) between 0% (if the portfolio returns 3% per year) and 9% (if the portfolio returns 10% per year)--much less than hedge-fund managers typically charge.
Q: So the Treasury is doing this to make money?
A: No: making money is a sidelight. The Treasury is doing this to reduce unemployment
So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.
Q: And firms that ought to be expanding can then get financing on good terms again, and so they hire, and unemployment drops?
A: No. Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.
Q: Oh.
A: But all is not lost. This is not all the administration is doing. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.
If you think the rules keep changing, then you haven't figured out the rules.
Care to elaborate?
I have great respect for firefighters who battle wildfires. The ones in coastal CA, who work 24 hours shifts (at their liking) and collect overtime for the last 16 hours can kiss my ass. They should work 8 hours shifts with no OT, like the rest of us dumbasses. I see them in the grocery store buying 10 ingredients for one dish, while they're on the clock, with the truck outfront.
I have great respect for firefighters who battle wildfires. The ones in coastal CA, who work 24 hours shifts (at their liking) and collect overtime for the last 16 hours can kiss my ass. They should work 8 hours shifts with no OT, like the rest of us dumbasses. I see them in the grocery store buying 10 ingredients for one dish, while they're on the clock, with the truck outfront.
the US Government is the 34% owner of Citibank.
Citibank is a three dollar stock.
the entrepraneur.
the manager.
and the technician...
Dead Flowers....
Lets take a look at the -4.0 estimate for 2Q GDP for a minute. In the 1Q net exports added 2 pull ponts to GDP, so if the trade def had not improved vs. 4Q we would ahve been down 7.7% not 5.7%. However trade deficit worsened in April, nothing dramatic, but the absence of the positive will hurt, and given oil prices net exports are going to be much worse in May and June. Retail sales have not been too great in the 2Q so far, although auto sales are much better than 1Q (but still suck) but somehow a 1.5% gain from PCE does not seem to be in the cards. Drag from E&S will not be as big, but with overall cap util below 70% and mfg util below 66%, who would want to spend much more on E&S? Construction spending was up slightly in April, however, housing starts are far from flying high (good thing but not for 2Q GDP). I doubt that the increase in CRE spending will continue given where the archetects index was back in Sept/Oct. So for investment, the only real potential positive is from inventories, but note that the move from -6.1 to -5.7 in the first revision was from less of a inventory drag in 1Q. Govt spending is def going to be up at the Fed level, but will it be enough vs. reduced spending at S&L level to give much of a boost. So how happy will people be if we imporve from -5.7 to -4.0 and it is all due to inventory restocking. How much of that will be volentary build (the good type) and how much just goods piling up due to no demand. GDP could easilly surprise to the downside in2Q
Did anyone watch the Erin Burnett "Dollars & Danger" CNBC (I know MSM!) about investing in Africa earlier this eve? Very interesting.......saying it is the next/last frontier for high return on investments (oil, copper, diamonds, cobalt, tourism). Of course they have no roads no much electricity and infrastructure........no place to go but up?
China is over there big time but they bring their own labor force, do not employ the nationals...
One aspect of the depression will be living in a top $ zip code with listed home asking prices averaging $620/sq ft, with last year's sales prices around $500/sq ft, and seeing the neighbors $2.5mil, 5/4, 5300 sq footer go for $670K, $126/sq ft.
broward -
If you think the rules keep changing, then you haven't figured out the rules.
With out a doubt, I'm clueless. Which is why I'm here.
Of course, when it comes to the Federal Government, I'm pretty sure most of the rules are ignored at one time or another for expediency, National Security, you pick the excuse. Therefore, I fall back to my old standby. Those with the gold make the rules, I just can't see the future.
I have seen an uptick in Chinese Imports, and I usually try to avoid them.
Q2 is a known bad and a selloff retesting that thesis is sound. along with a liqudity drawdown with oll spike.
what happens in Mexico stays in Mexico.....one more tequila, and you cant rememebr if you bit off more than you could chew.
nytol,
it wont be like this for long....
I agree 401(k) allocations aren't very important, but pensions are a different story.
When pensions get cut, all kind of bad economic and social things happen. More illness, nursing homes, welfare and homelessness.
Less confidence in the financial system and government, less money retired people have to spend and circulate, and (because most pensions are taxable) less tax receipts and more PBGC burden.
The biggest pension system, of course, is Social Security, even though it's technically a social insurance system. Politicians are deathly afraid of any proposal that would reduce the Social Security benefits of current recipients by even one penny. That's why Medicare B premiums can't go up in a year when there is no Social Security COLA, like probably next year.
Cutting Social Security or pension benefits of current recipients would bring a lot of angry old people out into the streets. That's something you don't want to see.
racial -
Plant some food bearing trees. Get into permaculture. It's implicitly a future affirming activity, an investment, and it's sane.
OT-
Actually I have been reading up on aquaponics, I'm wondering if I can set up something on my balcony to grow herbs, tomatoes, maybe some hops.
Use talapia fish, when they get too big, eat them.
Somehow I just think it's not as easy as some make it out to be.
the j6p of America today is now an indentured servant
too bad they don't know it yet
The elites are laughing
km4 -
the j6p of America today is now an indentured servant
too bad they don't know it yet
The elites are laughing
And trying to figure out how to hire reliable security people.
One aspect of the depression will be living in a top $ zip code with listed home asking prices averaging $620/sq ft, with last year's sales prices around $500/sq ft, and seeing the neighbors $2.5mil, 5/4, 5300 sq footer go for $670K, $126/sq ft., here for example: 15706 Las Planideras, Del Mar, CA 92014
Care to elaborate?
People are probably sick of it but ....
The current credit cycle began around 1982.
Historically, the up and down cycles last 25 years.
Therefore, we are at the end of the current up cycle.
See graph #3 in Mish's article -
Mish's Global Economic Trend Analysis: 14.01.07
It's a gross exaggeration but this equation is a simple model
K => R x D, where K is a konstant of yearly economic growth, R is average interest rate and D is total debt.
As D rises, R must fall to maintain parity.
If R stops falling, Bad Things happen, like the reversal of the cycle.
There.
There's the Fed's whole policy for you in one equation.
The subprime blowout can be interpretated as an attempt to circumvent the end of the 25-year up cycle.
You can see it in the long-term rate fluctuations-
Interest Rate Converging Triangle
The breakout to the upside coincides almost exactly with the start of the housing blowout.
Refinancing into short-term instruments created an a short-term illusion that R was still falling.
If R reverses, Feds blow up because they're carrying so much short-term debt.
To make it simpler -
People like to complain that the unions killed GM by demanding benefits in excess of what was sustainable.
Replace "unions" with "investors", "GM" with "United States" and Fed policy is defined. Investors (debt) have to be forced down to rates which correspond with sustainable real growth of the economy. That's essentially what happened between the Great Depression crash and WWII, Investors were forced into very low-yield returns which were below the rate of true growth, allowing the rest of the population to either default or grow out of debt.
bANK fAILURE -
Q2 is a known bad and a selloff retesting that thesis is sound. along with a liqudity drawdown with oll spike.
So was 08/4q, 09/1q. But here we are up well above the normal 33% bear market rally. Green shoots, open manipulation, who knows. But everyday more people are being sucked in be it through 401k, pensions, tax debt. Can someone stop the world, I want to get off.
20 of my co-workers entered a depression today. This may be just the first round of many or a one-off.
I've got 6 hops vines growing up my fences. They're easy to propagate, hardy, and lovely. I doubt I need to sell you on their pharmacological benefits.
As for the fish, give it a shot. It probably is difficult, but that's the case with most productive activities. I'm lucky enough to have a 11/2 acre pond that I've stocked with bass and bluegill. There are some pioneer catfish that just showed up too. I'm going to break out the rod sometime this summer. The sooner you get started, the sooner it pays dividends.
When pensions get cut,
Are we talking about pension payouts or allocations?
I'd agree that payouts are a problem because, once again, they're cash-flow items.
Allocation changes could create the illusion of a fix without affecting cash flow, though.
broward -
Thank you for that, I'll take some time to try and fully digest that again, but you put it into a very nice summery.
In other news, the American Medical Association opposes the public option for health coverage. Without it there is not going to much incentive for the insurance companies to keep costs down.
Underscoring the severity of California's cash crisis, Controller John Chiang, who has previously warned the state's government risks running out of cash without a budget deal, said revenues in May fell by $1.14 billon, or 17.7 percent, from a year earlier.
Cali is hurting for ka-ching for Chiang
KK-
I look out on my balcony as I write this(4x8) and see my thriving container garden:
3 tomato plants
1 strawberry plant
1 sweet pea plant
2 lettuce plants
6 pepper plants
2 bunches of green onions
numerous herbs
A rose bush and a flower plant.
No idea on raising fish to eat but judging by the number of aquariums in the world it shouldn't be that hard.
$100 invested. Fun to do. Very easy.
Broward, that is the problem in an nutshell.............with Shedlock. He tries to break everything down into equations and "cycles". That isn't always the case. Sometimes a subprime bust is just a..........subprime bust. Like the one in 1998. This one was just bigger.
America has alot of things the rest of the world demands. We just need the political will to be allowed to sell it.
Byz,
You make a great point here. Clearly, orthodox economists got this thing all wrong. Funny thing, professional economists get to be wrong over and over.
Why is Bernanke taken seriously when he told the world that "subprime is contained", then the whole system fell apart? Is it because everyone knows he is secretly just playing a confidence game, so well, he had to say that.
Is it ego that keeps them from admitting they really don't understand what is happening?
I know this economics thing is hard. I've got my own opinions and biases, but I try to learn about ideas from every angle, admit when I am wrong, revise my world view and try again. Why can't more trained economists do the same?
Nytol.
racial -
I've got 6 hops vines growing up my fences. They're easy to propagate, hardy, and lovely. I doubt I need to sell you on their pharmacological benefits.
Please take this as nicely as possible.
I HATE YOU!. Evil green face jealousy coming out.
Actually my only real concern is my local nazi association, and the hop vines going crazy and taking over the apartment above me.
"Artificially low interest rates led to malinvestment across a global spectrum of sectors because people had to accept unreasonable risk to get acceptable yield."
So, what does that tell you, that 'people' had to abandon reason? I think it might tell you that the flaw is, first of all, in us.
Given what we are, there will always be crises, always flights from reason. On our own, we always verge on going out of control.
With a little trimming now and again, I don't think that'd be a problem. One thing to consider is location. In southern regions hops are ornamental.
Investors (debt) have to be forced down to rates which correspond with sustainable real growth of the economy. -- broward
So what's to prevent money from flowing to foreign markets? Capital controls?
Externalized Costs -
That sounds like a great mini garden, the thing with aquaponics is no soil, just gravel and the water from the fish tank is pumped up to provide the nutrients for the plants. Your list sounds like what I would like to have, but I don't know how the rose's would do. Maybe some night ginger.
Back when I was in my teens, I had a green thumb. I seem to have lost it lately but I do want to get it back. Finding good fresh tomatoes is pretty hard, and my body tends to go nuts eating green picked and gassed to be made red stuff.
why does a word from pavel seem to fit.
I am the problem. We are the problem..My biggest problem is why I continue to buy natgas as the spread widens with oil...the natural bridge.
GDP is overstated because the calculated PCE is a bunch of ____.
The credit cycle is a well-defined and understood thing, Mish didn't invent it, he understands it.
If "investors" are demanding higher than sustainable returns from an economy, the rate of payment can be maintained for a short period, especially if the debt starts off small relative to the size of the economy. But eventually, real returns can NOT be greater than what an economy can generate. Period.
If unions killed GM by demanding greater-than-possible benefits, why can't investors kill the U.S. economy by demanding greater-than-possible returns?
racial -
With a little trimming now and again, I don't think that'd be a problem. One thing to consider is location. In southern regions hops are ornamental.
Thanks for understanding, I have heard they can grow here, but I have yet to talk to someone that actually does it and gets any good yields. Just another reason for wanting a single family home, but the time is not right yet.
K => R x D, where K is a konstant of yearly economic growth, R is average interest rate and D is total debt. As D rises, R must fall to maintain parity.
Bravo Broward. But after watching Who'sayin spend and the 10 year yields rise it looks to me like R&D are going even higher.
CR HaHa thanks for the response we'll see.
bANK fAILURE -
NatGas and Canadian Trust was a habit I gave up three weeks ago.
I just was not up to the pain any more. Cash is too important for me right now if things break badly, and if I am going to give any lip service to cycles, the next month or so will tell me what is coming, I hope.
Otherwise, I just decided if I'm in a hole, I'm going to stop digging.
Of course, if I find myself in Hell, I'm going to keep on driving through.
So what's to prevent money from flowing to foreign markets? Capital controls?
That's a good question. The model works well for the United States and it could be applied to the world in general but transition points are hard to know or predict. I suspect that part of the Fed's plan (hope) is to draw China and India into the system and modify the credit cycle. In fact, I think that's been part of the goal all along, since NAFTA.
I don't think it matters in the end, except for a little delay time. The Feds can control U.S. funds and force paper to accept a 3% return but I dont' think they can do it to everyone else around the world.
awgee, you can quibble or even have serious reservations about how all sorts of the econ stats are constructed, however as long as they are consistent over time, they give you a baisis for comarision and also a common frame of reference that everyone can discuss. GDP is the biggest aggragate measure of all things economic (I have great sympathy for the RFK critisism of it) it is also a statistic that is computed more or less the same for all major countries thus facilitating int'l comps
R&D are going even higher.
Yes, that's kind of my point.
Boom.
Dawg talked about it a couple of months ago.
As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later ...
Of course Professor Delong disagrees (as do I). - CR
:: ::
No offense but I tend to side with Schumpeter on this one. You can maybe avoid a specific 'inventory correction' recession via stimulus but you can't avoid a 'long wave' down part of the cycle whether we define it as 'depression' 'stagflation' or 'lost decade'. Not forever anyway - eventually 'creative destruction' wins out.
I think the failure De Long & other Keynesian dogmatists make when looking at Schumpeter is that JS isn't limiting himself to a steady state system. Keynesian fiscal or monetarist interventions 'work great' over short periods of time where techno-social system is fairly 'static' or at least temporarily 'steady state'...
But the forces building up to produce 'depressions' aren't temporary and they aren't just monetary & fiscally induced. They are the result of social & technological forces spread over long periods of time. Schumpeter was fascinated by the role innovation [& it's opposite 'commoditization'] played in the boom & bust phases of long waves. The big cycles seem to take 40 years or so to play out. 'Stimulus' isn't going to move that along.
'creative destruction' wins out."
Which makes capitalism weak and open to system changes. That is why more "primitive" forms of economic thought has been banished ie Austrian school.
My grandfather lived in Germany in the 1930's and it was a educational experience.
FWIW, I would argue your wrong on Keynes. It was the structural crisis when Keynes thought intervention was needed the most, while leaving the "normal, inventory" like recessions alone. If you didn't, the economy would crater destroying confidence and causing the depression to last years and years which was unnecessary.
IMO, Keynes would have scoffed at the attempts to "cure" the 2001 slowdown. That is what threw it over the top.
We can't help that the dogmists like Delong can't get that fact. It is just the way they are. Just like Ron Paul promising no more bust cycles with his "programs".
In case no one has posted this yet:
True or False: U.S. Economic Stats Lie
The "Pollyanna Creep" explanation, featuring John Williams of Shadowstats.
sneering nihilist (profile) wrote on Wed, 6/10/2009 - 10:23 pm
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things."
Then why are you attacking critics of it? Why are you supporting people who earn their living imprisoning people you admit are essentially innocent of real guilt but who are willing to portray them as terrible monsters in order to manipulate the public? Those guys aren't draftees, they get up and go in willingly, every day. They cash their paychecks and their pension checks. How are they heroes of the public trust when they are willingly and voluntarily doing something morally wrong with money we collectively don't have?
i agree completely with your take on the "war on terror and drugs," i call it a "war on scary things." if we could legalize drugs, then yes, there would be less criminals to chase so we could get buy with fewer cops. in the context of the thread though -- California's budget woes -- reworking our federal justice system wasn't really on the table.
It seemed to me like you were just kind of going off. Pardon me if I missed the part where it was some sort of structured response to the California crisis.
there has to be a place to start.
Yeah. A big empty spreadsheet with a conservative estimate of tax revenues over time period at the top and a total dedication to a greater-than-zero value on the last line.
maybe i'm getting old, but smashing the system and starting anew sounds a little like the cultural revolution in china.
Or the American revolution in America. Remember how you are the product of a revolutionary state? The "shot heard round the world" and all that?
But, more specifically, I'm talking about a zero-based rebudgeting process where outlays are made to match inflows with a healthy surplus. This is not smashing the state. Nor is undertaking serious reforms of a bloated and unjust police & prison industry.
i'm to much a part of the system to let that happen willingly.
There you go. The word you are looking for is not "old", it's "co-opted". Too bought into your place in the system to willingly undertake necessary systemic reform for fear of endangering your place in the established order.
the cutbacks need to be orderly and sensible. it has to be done this way to avoid causing a collapse. we are collapsing already? well, let's pull together and try to save the best parts of the system. yes, that will be agonizingly difficult but this is an all-or-nothing game
No. The world will not end. Your special place in it may end, but ultimately, you are not a beautiful and unique snowflake without whom the world will fail to turn. You, and all of us, will be dead very soon. Then our heirs -- direct and indirect -- will be left to conduct business with the remainder of our assets. What we save or don't save doesn't matter, what we pass on to those who come after, that matters. The Ancestors planted s we could harvest and many died in the planting. What sort of Ancestor will you be?
i agree somewhat with your view of cops but i have too many positive personal experiences with them to allow me to see them as such caricatures.
You meet two guys, identical in all ways. One give you a twenty dollar bill and helps you across the street. The other one pepper sprays you, has three friends beat you, and then throws you in prison for assaulting him by smashing your fist into his face so damn many times, which harms your employment prospects for the rest of your life and costs you thousands of dollars. Which has had the bigger impact on you? "A few bad apples spoil the barrel" is never truer than in the field of policing.
you didn't mention firefighters, a favorite punching bag of many. i agree that some of their benefits are excessive and have room to be trimmed, but why the popular indignation showered on these guys?
In my city, they helped substantially in bankrupting it for collective personal profit, and the favor they did in the other direction was keeping a crooked-as-shit mayor in power for a payoff. I don't know, why do you think that gets people wound up?
i suggested that people should complain about someone else(administrative personnel). someone suggested that firefighters are more recognizable than admin types.
There tend to be fewer "braves" on the bureaucratic payroll and more "chiefs". In places that are "brave heavy" we should cut the braves. In places that are "chief heavy" we should cut the chiefs. Ultimately, we need to cut like crazy in every aspect of everything until we get an apparatus of state that works within its means.
many of them, particularly military and police, are ignorant, insecure, xenophobic, and racist.
Then they require discipline. Their bad behavior is tolerated, even encouraged, because they are proxies for social aggression and worshiped as hero figures. If this is not tolerated, or even encouraged, it will cease. People are products of expectations and institutions are even moreso.
Or they could just go the Argentinian route and nationalize all the pensions, 401K, IRA's, etc.
KK: that tuned out real well for the Argentines. Right after the Argentine government nationalized the private pensions, a vulture hedge fund that owned defaulted Argentine government bonds got a US court order seizing the US assets of the formerly private pensions. The Argentine savers couldn't catch a break: their savings were being stolen either their government or a vulture hedge fund.
Eras End -
'creative destruction' wins out."
Countered by innovation and productivity increases.
That works until you move to a smoke and mirrors services based economy running a substantial trade deficit.
After a while you either sell your soul, or you have nothing of use that has not been copied from you, and improved.
Sorry, just too many flaws shouting out at me on that. Of course I'm usually wrong.
My grandfather lived in Germany in the 1930's and it was a educational experience.
I bet it was.
Have you ever read any of Remarque's books? Wiki. He wrote 'All Quiet On The Western Front' but also a number of very good books about Germany in the 20s & 30s. A 'Night In Lisbon' a novelized account of refugees trying to escape Nazi Germany. The 'Black Obelisk' is about living during the 'Great Inflation'. Both are fabulous reads.
CR, we are moving along nicely in our Greater Depression:
The world economy is tracking or doing worse than during the Great Depression (September 2009 update) | vox - Research-based policy analysis and commentary from leading economists
With state outlays about to get torpedoed; the Chinese and Russians putting a leash on Bennie's quantitative easing and, hence, Obama's and Congress' spending; and the Congress terrified of stirring the masses with higher taxes; we'll see a nice acceleration in the downward movement of GDP in the second half of this year.
And, we'll be in an undisputed depression in 2010.
"The current credit cycle began around 1982."
Broward--
Thanks for you're summary, very helpful.
NorkaWest -
That tuned out real well for the Argentines.
Oh I was not proposing it, more of a what might be next thing.
My point was the Government is addicted to my money, and they want their fix, and either they break the habit or we are going to be indentured servants for the rest of our lives, and our children, and their children, etc.
So what's to prevent money from flowing to foreign markets? Capital controls?
You have until June 30 to report all your foreign accounts to the US Treasury. The forms have changed this year. Now you have to report the name and address of the foreign financial institution plus the highest balance in the account during 2008 calendar year.
FAQs Regarding Report of Foreign Bank and Financial Accounts (FBAR)
boward (homepage, profile) wrote on Wed, 6/10/2009 - 8:22 pm
R&D are going even higher.
Yes, that's kind of my point.
Boom.
Dawg talked about it a couple of months ago.
One of those times I wish I were wrong. It's like watching a teen slasher movie at half speed.
"That works until you move to a smoke and mirrors services based economy running a substantial trade deficit."
Tell me about it, been yelling for years to death ears.
"Have you ever read any of Remarque's books? Wiki. He wrote 'All Quiet On The Western Front' but also a number of very good books about Germany in the 20s & 30s. A 'Night In Lisbon' a novelized account of refugees trying to escape Nazi Germany. The 'Black Obelisk' is about living during the 'Great Inflation'. Both are fabulous reads."
Nah, maybe I should. Grandpa doesn't remember much about the 20's, he was a young kid. But came to age in the mid-late 30's. Hitler's beliefs about the United States changed as well. He thought the United States was a ally of the Germans in the 1920's, but changed in the 1930's to the United States was invented by Jews to destroy and pillage Europe. That is what they were taught by the late 30's in Hitler youth camps as they prepared for war.
Of course after grandpa left Germany to come into the US after the war(he survived the Russian front) he joked about FDR's NRA and called it "Roosevelt youth".
That works until you move to a smoke and mirrors services based economy running a substantial trade deficit.
The smoke and mirrors you described is the fuel that feeds the fire called 'creative destruction'. But it isn't a smooth ongoing process... it is steady and smooth until it isn't. Like a forest that hasn't been burned in a while... the more duff on the forest floor the hotter & more destructive the eventual fire will be.
Duff = economic smoke & mirrors.
pavel.chichikov (homepage, profile) wrote on Wed, 6/10/2009 - 11:07 pm
So, what does that tell you, that 'people' had to abandon reason? I think it might tell you that the flaw is, first of all, in us.
I think it tells me that Alan Greenspan was a dumbshit. People had to do what they had to do to escape inflation, there was no other choice, that's how the monetary system works. It's not a natural pheonomenon, there's one guy at the center and he made these exceedingly bad choices while controlling a system deliberately designed to exert a compelling influence on the investment choices of America.
Given what we are, there will always be crises, always flights from reason. On our own, we always verge on going out of control.
That's life. The original asylum run by inmates. That's why expectations and ritual are so important. I don't really have your terror of disorder. Life is messy. You muddle through.
A recent column by Ambrose Evans-Pritchard in the UK Telegraph is called, "The Depression Quiety Deepens." Some of his observations:
"The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade. "
(snip)
"The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-zero point eight), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (zero). "
excellent post dryfly. My thinking is that Keynesian stimulus might be able to smooth transitions, but it can't change long term trends.
.....put down proven concepts and legalize drugs - those are the remedies for "what's ailin' us"?...........I wonder if they espoused the legalization of alcohol as a possible cure for the Depression as well? Nite all..........
Recession is a ruined national income statement.
Depression is a ruined national balance sheet.
Under this definition, the only two depressions in the past 100 years are the 1930s and right now.
zipflash (homepage, profile) wrote on Wed, 6/10/2009 - 9:02 pm
Recession is a ruined national income statement.
Depression is a ruined national balance sheet.
Yup, that about sums it up.
NW
I suspect that EHP could write a dissertation on it, if he wasn't otherwise engaged. Hope his exams are going well.
The Economist reported:
“A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years.”
Maybe it is too late. May I suggest the definition of depression?
For two consecutive season GDP being negative, we say it is recession.
For two consecutive YEAR GDP being negative, we say it is depression.
Broward,
If the credit cycle historically lasts 25 years, why does your breakout chart consist of only 4-years (plotted on a weekly basis)?
I plotted the annual average rates and they don't look anything like your chart (fairly flat from 2003-2006). I don't see any correlation. I just see noise.
I looked at Mish's K-Cycle charts on the 10 year treasury and interest rates and although the graphs suggest some kind of cycle, it's hard to buy into a cycle that looks like a triangle. Feel free to refer me to a more in-depth resource on the K-Cycle.
What I really came to post was the idea we may be headed into a depression simply because nobody really sees a depression ahead. If I read my history right, nobody believed the Great Depression was a depression until most of the shoes had dropped.
Who were all those homebuilders building all those homes for?
I fear they were not the only producers forecasting an increase on next year's sales based simply on last year's sales.
Oh, and Blahger, nice one! Very amusing.
Is anybody taking into account that real unemployment is 16.4 percent and will probably reach twenty! This change to U3 during the Clinton admin. has masked alot of the pain.
CalculatedRisk "I think Great Recession is a good name (until someone comes up with something better"
I'm still waiting for The Great Anti-Depression to catch on. Seriously, it's perfect considering that antidepressants will be needed in great amounts.