Uncomfortable Answers to Questions on the Economy

[groovedaddy]

You have heard that Fannie and Freddie, their gentle names notwithstanding, may cripple the financial system without a large infusion of taxpayer money. You have gleaned that jobs are disappearing, housing prices are plummeting, and paychecks are effectively shrinking as food and energy prices soar. You have noted the disturbing talk of crisis hovering over Wall Street.

Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.

Job losses will probably accelerate through this year and into 2009, and the job market will probably stay weak even longer. Home prices will probably keep falling, shrinking household wealth and eroding spending power.

“The open question is whether we’re in for a bad couple of years, or a bad decade,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund, now a professor at Harvard.


Is this a recession?

http://www.nytimes.com/2008/07/19/business/economy/19econ.html?th&emc=th

[caledesi]

1. It's a recession in THIS house. I tell bill collectors 'It's all in

your mind!'(doesn't work) :evilgrin:

[FirstLight]

2. I loveit!

I should try that with the Education dept about my defaulted student loans!

:rofl:

[Hydra]

3. Good information interpreted by a moron

They keep talking about how Americans can't afford their lifestyles and shouldn't have been borrowing money...

WHERE DO YOU THINK MONEY COMES FROM?

If people don't borrow, money isn't created. If it isn't spent, people lose their jobs, which removes more money from the system.

As long as the banks are keeping the tap closed, and as long as we import more of our stuff than we create, we're going to slowly starve.

[upi402]

11. The country that makes stuff and sells it to other countries...

wins!

And we lose - thanks to corporatism and arrogant prideful short-sighted greed.

[Common Sense Party]

4. A paragraph many will gloss over:

"But, despite what some doomsayers now proclaim, this is not the Great Depression, when unemployment spiked to 25 percent and millions of previously working people woke up in shantytowns. Not by any measure, even as your neighbors make cryptic remarks above dusting off lessons passed down from grandparents about how to turn a can of beans into a family meal."

It's bad. It's not Great Depression bad, despite the DU prophets of doom and gloom.

[groovedaddy]

5. How many people hold 2 or 3 jobs? I suspect many

and I doubt the employments numbers reflect this fact. Because of this, the number of jobs doesn't really reflect how many people are actually working.
The Federal Government doesn't actually set a very good example on credit.

[Hydra]

6. Read further in the article

As I pointed out, the author is a moron, but his facts are good.

In one respect, Mr. Blinder added, this is like the Great Depression. “We haven’t seen this kind of travail in the financial markets since the 1930s,” he said.

The pronouncement that we are not in the Great Depression 2.0 is just the media working hard to keep people spending and not making runs on banks. Almost every number they have published says "Worst since 1930s/Depression" and they keep hanging on the 5.5% unemployment number, even though it is laughably incorrect.

"Don't worry, it's not even a recession! Ignore the facts and listen to us!"

The funny thing is that they give us the facts...they must think we're morons not to put 2 and 2 together.

[Common Sense Party]

7. And I completely disagree with that assessment.

This is NOWHERE near as bad as the Great Depression. Things will be tough and ugly for awhile, but it is hyperbole to suggest that this is anything like the Great Depression. We have short memories.

[Hydra]

8. Disagree all you want

But this was a deliberately created crisis, not unlike the first depression.

3 bailouts so far and no economic turnaround...how much more debt should we be asked to take on before things will improve?

[happyslug]

9. You have to understand the Great Depression to understand why the comparison is accurate.

As WW1 Ended, the US and the Rest of the world went into a major Recession. In the US this lasted till 1921, enough time to get a Republican. Prior to WW1 the US had been a net debtor nation, we owned money money then people owed us. WWI changed that and the US became a net Creditor Nation, and remain so till Reagan. Now the US quickly came out of the Recession of the early 1920s and entered the 1920 boom period. The problem was the rest of the world did NOT. Germany would have its inflationary period in the mid-1920s as it tried to pay its obligations under the Versailles Treaty AND provide Government Services, but Britain and France were NOT that much better off (Britain even having to CUT the wages of its Servicemen to balance the Budget in the mid-1920s, which lead ot a Mutiny in the British Fleet).

Thus the Boom of the Roaring 20s was only in the US. The first sign that the boom was bad was in 1927 when Rural American went into a recession. Hoover was elected in 1928 (more do to the Democrats picking a Wall Street Favorite, Al Smith, a anti-prohibition Catholic from the Tammany Hall machine of New York City to run against the Man who help feed Europe at the End of WWII). The Stock Market peaked in the Summer of 1929, and suffered its Crash in October 1929, but almost fully recovered from that Crash by March 1930. In was following March 1930 that the Depression took hold, as one bank after another either failed, or just closed up do to a lack of currency (Mellon Bank of Pittsburgh was the last bank open in the US but it even had to close before FDR was installed in office on March 4, 1933. The "Sucker Rally" that went from October 1929 till March 1930 took out most of the investors who had survived the October Crash. This contraction lasted from August 1929 till March 1933, 43 months (The Second longest in Duration, the longest being 1873-1879, Considered by most people the worse decade prior to the Great Depression, it lasted 65 months).

In many ways we are in the period like August 1929 till March 1930, things are declining, but not that bad. The Stock Market crash had been bad, but that had been mostly made good by March 1930. Things were looking down, but no great problems YET. Then the slow decline of March 1930 till March 1933. That was a killer. The 1929 Crash is considered only the FOURTH worse Crash in US History, but it was followed in 1932 by the WORSE CRASH EVER. What Connects these two? The slow decline in the Stock Market that started in March 1930.

List of US Recession:
http://www.nber.org/cycles.html

Worst US Recession, 1932:
http://mutualfunds.about.com/cs/history/p/crash1.htm

Now if you notice the Recession of 1929 consists of both the 1929 and 1932 Stock Market Crashes. The Economy did NOT start up till FDR closed down ALL banks for a "Bank Holiday" and then opened them up with Federal Protection for investors (Basically what we now call FDIC insurance). This one, two punch made sure the US would NOT fully recover till 1954 (In Dollar terms that was done by 1937, but in 1929 Gold was $20 to an ounce, in 1937 it was $35 an ounce, thus you will hear people use the 1937 date because Dollar for Dollar 1937 equaled 1929, but if you use 1929 constant Dollars it is not till 1954 that the US Stock Market equals 1929).

Another recession kicked in in 1938, but that was the end of the depression, things were no longer stagnating, as it had been from 1933-1938 but things were on the upswing.

Thus it looks more and more we are facing a 1929-1933 type recession, a long hard recession followed by a stagnant recovery (and what recovery we will see will be Government provided). I agree we are NOT in a post-March 1930 period, but we are in the 1937-1930 period when things look bad, but will get worse before thing get better. Major disruptions in people's lives will occur, people will want solutions to their economic situations, solutions good and bad. If you looked forward from 1929, you saw the rest of the world already in a Major Depression and the US following them, and given the great heights he US economy had been in the mid to late 1920s, full sign that the fall will be great, but the extent is unknown.

This is where Americans are comparing today's economy with the Great Depression, not the results of the recession that occurred 1929-1933, but looking forward to that recession knowing it will be great.

[Pale Blue Dot]

10. Thank you.

What books do you recommend on the Depression?

[groovedaddy]

12. The boom - bust cycle of capitalism - overdue for a big one?

Over speculation created the "Great Depression," known and encouraged by the wealthy elite who pulled their money out of the stock market prior to the 1929 crash.
FDR / The New Deal brought on many changes (most regulatory in nature) to prevent another such "depression." These changes were far reaching enough, that one group of wealthy people attempted to organize a coup to overthrow FDR (read about Gen. Smedley Butler's role in this).

In 1980, Jimmy Carter and a Democratic Congress did away with usury laws that limited what banks could charge in interest and fees. Once Reagan was in office, the deregulation flood gates were opened in the financial industries (leading to the Savings & Loan failures - largest since the "Great Depression"). The same companies could now own Investment banks and Retail banks, setting the stage for "insider trading." Most of what FDR & the New Deal had done, was rapidly being undone. These actions are designed to aid the already wealthy in sucking broad swaths of wealth from the middle class (through gaming the investment system) and the working class (by suppressing wages through competition with sweathshops in underdeveloped countries, courtesy of NAFTA & GATT (WTO)).

Whether you consider yourself a socialist or not, Karl Marx's analysis of the problems of capitalism were accurate and still apply: capitalism goes through boom and bust cycles. The tendency of capitalism is almost always toward monopolism (happening today in key industries/sectors). FDR/The New Deal, applying Keynesian economics (spreading the wealth out to all people) sought to mitigate the worse aspects of these swings in a capitalist economy. Many of the rich hated FDR for what he was doing. But had he not done, it is likely we would have ended up with a socialist government (or overtly fascist in reaction).
With all or most of these measures instituted by FDR/New Deal going by the way side, we are being set up for a mighty fall. We are not there yet, but all the signs are pointed in that direction.