• Guest, The rules for the P & N subforum have been updated to prohibit "ad hominem" or personal attacks against other posters. See the full details in the post "Politics and News Rules & Guidelines."

Depression and Inflation on Horizon

Page 2 - Seeking answers? Join the AnandTech community: where nearly half-a-million members share solutions and discuss the latest tech.

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
Originally posted by: LegendKiller
It's all cyclical.

BB has done a lot of research on the GD. There were many contributors, but a massive cause was the US worrying about its currency more than its people and their ability to stay liquid and get credit when needed.
Yes economic downturns are cyclical but you must admit this one is different. The inflation of the past 8 years, most of Americas wealth in jeopardy (housing), fiscal mismanagement, constant over spending, banks failing etc.
No two economic cycles are the same, if they were, we'd be able to counter them quite easily.
No they aren't but I'm not pointing out they are the same, just that this is not some small "cyclical" event. I want to hear you say one way or another.

Inflation wasn't horrible the past 8 years.
No? Gold/Silver/Oil tripling in value because of the weak dollar doesn't show inflation? Come on LK, you can do better than that.


Most of America's wealth isn't even close, considering the base of the problem is close to 0% equity in housing, and there is little/no recourse to other "wealth", then the only "wealth" at risk is that of the owners of bonds, which you guys claim are all "rich people" so who cares, right?
This isn't just individual wealth LK, this is home values across the board, Americas wealth in general.

Fiscal mis-management and overspending, by whom?
As if you don't know and need to be told. Government.

As far as banks failing, the weak will fail, the strong will survive. It's pretty simple. Lehman Brothers has about 100bn in liquidity lines that are untapped. They probably won't fail like BSC because of that.
Well we wouldn't have to worry if they didn't have liquidity because the FED would just bail them out. Thats the lesson these banks learned this year.


 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: PC Surgeon
No they aren't but I'm not pointing out they are the same, just that this is not some small "cyclical" event. I want to hear you say one way or another.

No? Gold/Silver/Oil tripling in value because of the weak dollar doesn't show inflation? Come on LK, you can do better than that.

This isn't just individual wealth LK, this is home values across the board, Americas wealth in general.

As if you don't know and need to be told. Government.

Well we wouldn't have to worry if they didn't have liquidity because the FED would just bail them out. Thats the lesson these banks learned this year.
They are all cyclical events, things go up, then they go down, it's emotional and irrational reactions of the market. If human behavior could be moderated, then things wouldn't be of this nature, but it can't.

Gold/Silver/Oil tripling in value also has to do with the explosion of "investors" in this area, along with speculators. There's no fundamental that can support these prices.

I consider overspending to be consumer and sovereign.

It wasn't something banks learned this year. Lehman learned it in the mid/late 90s.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
No they aren't but I'm not pointing out they are the same, just that this is not some small "cyclical" event. I want to hear you say one way or another.

No? Gold/Silver/Oil tripling in value because of the weak dollar doesn't show inflation? Come on LK, you can do better than that.

This isn't just individual wealth LK, this is home values across the board, Americas wealth in general.

As if you don't know and need to be told. Government.

Well we wouldn't have to worry if they didn't have liquidity because the FED would just bail them out. Thats the lesson these banks learned this year.
They are all cyclical events, things go up, then they go down, it's emotional and irrational reactions of the market. If human behavior could be moderated, then things wouldn't be of this nature, but it can't.
I'll put you down as this being a "normal recession" type situation since directly saying one way or the other is out of the question.

Gold/Silver/Oil tripling in value also has to do with the explosion of "investors" in this area, along with speculators. There's no fundamental that can support these prices.
Not due to inflation but because of investors? I'm not buying it. I guess we should also believe the price of crude oil has tripled because of decreased production too right?

I consider overspending to be consumer and sovereign.
Are you saying Government and individually? If so then I agree.

It wasn't something banks learned this year. Lehman learned it in the mid/late 90s.
Gee, isn't it nice to be a rich investment banker :)
 

palehorse

Lifer
Dec 21, 2005
11,521
0
76
I can't decide which is worse... our predatory lending and entitlement culture, or the idiots who run around screaming "Depression... DEPRESSION... ITS THE END OF THE FISCAL WORLD AS WE KNOW IT!!!"

I'm really not sure which one has a worse effect on our financial well-being...

bah...
 

m1ldslide1

Platinum Member
Feb 20, 2006
2,321
0
0
I had this one forwarded to me this morning. According to this person (Elaine Supkis?) a long and dramatic depression is imminent, and is a direct result of the way politicians have been doing business for the last few decades. When I hear somebody telling me to invest in gold, it makes me want to go long in tin-foil, but what do I really know?

Not specifically this article, but discussion in general reminds me of the hardware reviews on newegg where every dumbass with an opinion rates their understanding as "Very High". To make it worse, economics are more complicated than motherboards.


http://www.lifeaftertheoilcras.../SupkisDepression.html

Are we heading for another Great Depression?



Interview with Elaine Supkis by Mike Whitney


Question: I've been getting more and more e mail from people who are worried that the policies of the Bush administration will bring about a severe economic downturn or, perhaps, even another Great Depression. Do you believe that the problems in the real estate market, the falling dollar, the massive current account deficit, or the shaky hedge fund industry are likely to cause major meltdown?


Elaine Meinel Supkis: Great Depressions like the one that hit in 1929 are very rare. They usually happen only after two great empires exhaust their finances. WWI involved two of the biggest industrial powers in a massive death-struggle that didn't destroy their industries but wrecked their currencies and beggared their workers. Russia was a major empire but a minor industrial power so when the workers there revolted, the loss of this sector's industrial base had much less impact than the collapse of Germany's currency and its huge war debts.

This chart is from one of my most dog-eared books, one of the greatest works explaining relative power and why empires collapse, 'The Rise And Fall Of The Great Powers' by Paul Kennedy. The chart shows how England, the leading nation in the world, supposedly the richest, spent the most money during that grinding, depressing stalemate of a war.

Germany spent $3.9 billion less than England. Inflation since 1913 has been ferocious. This probably would represent well over several trillion dollars in today's currency. Even today, no nation can take a financial hit that big and stay solvent. Europe's industrial production fell 30% and the US, fattened off of billions of dollars of loans to all parties in Europe, lived high and mighty during the 1920's. But with industrial production lagging, Europe spiralled downwards. The US cheerfully gave everyone more and more loans and the promise of being repaid was fantastic! Why, these were basically AAA subprime loans.

Then Germany couldn't pay and kept asking for better terms. This was OK with the US but not with bankrupt England or France. So they demanded full payments and Germany defaulted. This triggered the Great Depression. Even though the US was now the world's largest manufacturing power, our currency was mostly for home use so the British had to keep the pound strong. Trying to do this made things worse.

And so it is today: our empire won't retreat from its distant borders but these same borders are bankrupting us for we never recovered from the Vietnam War, we literally papered over the mess which remained and continues to poison our nation. The military/industrial complex is not making us rich, it is making us poorer. And the paper being laid over all this is the same paper the Germans used in 1924 to paper over their own bankruptcy: printed money.

When an empire does what we are doing today, society falls apart. And if this happens, there is no easy way out. Individuals can avoid the worst by avoiding debts but outside of that simple thing, there is no other answer. Of course, the true answer is a strong working class that believes in unity and not underselling each other. Alas, the USA has a long and tragic history of slavery. And the legacy of this culture divides the nation and half loves slavery and enables wretched working conditions and thinks the road to wealth is via cheap labor.

Germany has an advantage here: their recent attempt at slavery, the Nazi empire, was a total disaster and they don't want a repeat. I only wish the USA felt the same way. For no nation gets very rich for very long if the working class is poor and can't work their way into the middle class.

Question: Would you explain what is meant by ?reserve currency? and how it serves the greater political interests of the United States? Do you think that preserving ?dollar hegemony? was an important part of the decision to go to war with Iraq?

Elaine Meinel Supkis: It may sound trite but thinking about great banking matters as if it is one's own bank account no matter how small, works. Namely, it is dangerous for anyone to live life where everything is juggled and there isn't a penny to spare. Then something bad happens and boom. You go bankrupt. This is why savings accounts matter and why inflation is so deadly. No one in their right mind keeps a savings account because it can't grow, it shrinks!


The Federal Reserve was set up to maintain a reserve funds that supposedly wouldn't be touched by politicians. But alas, this is a fiction. Just like your own bank account, if one is married and sharing an account and one party keeps raiding it and spending it on guns and cars or fur coats or whatever, it runs out of funds and then something bad happens like a hurricane hits, and the cupboard is bare.

In the case of empires, a way to gage solvency is, how big is their own reserves compared to the size of these same currency reserves held by potentially hostile rivals? In the case of the USA, we send dollars out as fast as we can print them. If too many people getting this flood of money, around $800 billion a year now!!!!!! If they don't keep a big chunk in bank vaults, the value of the dollar drops. So they keep it in reserve, in case of a 'rainy day'. Like 9/11.

And if we think of these funds as boats, then China has Noah's Ark, Japan has an aircraft carrier, Europe has a holiday cruise liner, Russia has a very fancy yacht and the USA has a rowboat made out of an old bathtub. That is leaking.

China has $1.3 trillion in its reserves and is therefore, King of the Mountain. Japan has $900 billion and is no longer holding new currency so all the red ink in trade is no longer staying away, it is floating back home to here, as inflation. Europe has about $600 billion and Russia, $330 billion. The USA has only $66 billion and the numbers released today by the Federal Reserve shows that number is DROPPING. Yikes.

Question: President Bush has said that he intends to make his tax cuts ?permanent? even though they have produced enormous deficits. At the same time the Federal Reserve has kept interest rates below the real rate of inflation and increased the money supply to approximately 10% per annum. Are these policies designed to maintain a healthy economy with a potential for strong growth or are they the means for transferring wealth from working people to the ?very rich??

Elaine Meinel Supkis: How do they 'transfer' wealth? Through unfair taxes. Under Reagan, American workers, worried about the eventual baby boomer retirement event horizon, decided to double taxes on Social Security. This pile of money was instantly, less than a year later, leaped upon and devoured by our corrupt government. They insantly gave unfair tax cuts to the upper incomes and basically used SS excess funds to pay for the government.

This worked OK until Bush took over. He and the GOP have run up debts so high, they added half a trillion a year in red ink and over the last six years, this is nearly $3 trillion and our national debt stands at nearly $9 trillion. During the last major money crisis, the 1972 collapse of the Bretton Woods concord, we had a national debt of not even $1 trillion. We have not had 900% inflation so I would say, this debt that the GOP rang up consisted of taking taxes out of the hides of the working class and handing it on a golden platter to the rich who, incidentally, buy bonds.

But no more! Today, the chief buyer of bonds is the Treasury itself. Next is China!

Question: Will you explain how the inflationary policies of the Federal Reserve are causing the stock market to soar and what the potential dangers are for the global economic system?

Elaine Meinel Supkis: Oh, that is so simple! In 2003, interest rates were dropped to 1% despite inflation of +5%. Instantly, the value of all assets shot upwards as bankers moved money along as fast as possible since the Fed undercut their own interest rates! So mortgages were below the rate of inflation. But this didn't make enough money so banks and other entities offered loans to bad risks who had to pay a higher rate. As inflation rages, they need to give loans to worse and worse customers who pay over 11% interest!

Alas, the fly in this ointment is exactly that: risky customers can't pay back loans! They go bankrupt and everyone acts like a good little domino and over they fall, one after another. Right now,the crashing sound of dominoes falling is like the hissing of waves on a distant shore but it is rapidly approaching. We can certainly hear it coming.

Question: Last week, reports showed that US manufacturing unexpectedly rose in March. However, the Financial Times said that, ?The rise in the ISM index is impossible to square with either the regional surveys released over the past few weeks or our medium-term yield-driven model. We think it is quite likely that in their next iterations the ISM will drop sharply.? Do you think the government is deliberately falsifying data on manufacturing to make the economy look stronger than it really is? Could they be doing this in areas as well, such as money supply, inflation, employment, and GDP?

Elaine Meinel Supkis: Do alligators bite? Of course, they lie all the time. Some things were sacred and they didn't lie about them. The M3 data that shows how much money the Fed prints as well as how much is in circulation, etc, just last year, they announced, 'No one is really interested in these numbers and they are too hard to compile.' Like a drunken, gambling spouse declaring there is no need to balance the check books or look into the bank accounts, so it is here. Many people yelled about the M3 numbers being suppressed but to no avail, of course.

Onwards! Since they are lying about basic bank accounting, they have to lie about everything else or people will figure out, something smells rotten in Denmark, DC.

They redrew the rules for figuring out inflation so it no longer tracks inflation. This is so they can cheat retirees and have fake interest rates and thus, steal from granny and gramps and starve school children while lining their own pockets.

Question: Do you believe that the extraordinary ?police-state? measures enacted by the Bush administration (Patriot Act, Military Commissions Act, repeal of habeas corpus, NSA ?surveillance? of American citizens without court order) are intended to address the threat of terrorism or the social disorder that may arise in response to an economic collapse?

E.M.S.: They planned this for a long, long time. Do note that the 'war on drugs' was launched as we lost the Vietnam War. Thanks to inflation and a collapsing currency as well as a sudden hike in oil prices due to the US hitting the Hubbert Oil Peak here in 1972, there was great unrest. I saw some of this right up close. Once, when the lights went out in NYC during a thunderstorm of all things, riots and looting spread like wildfire. My community was nearly burned to the ground and all the businesses destroyed.

This, the rulers fear a lot. But no number of police can stop it if it happens. I have seen up close when a whole city revolts. More than once, including in Europe in 1968. The new, right wing French President will learn this the hard way next year. There will be riots and insurrections there.

Question: Can you explain ? in simple ?layman?s? terms ? the effect of Japan?s low interest ?carry trade? on the U.S. stock market? Is this practice inflating the value of securities in foreign markets? What are the risks? How is it affecting the euro?

E.M.S.: Europe lends money for more than 5% interest. So does the USA now although the financiers are getting worried about this and are egging on the Fed to lower rates back down to 1%. This is pure insanity. Japan has near zero inflation because they have decided to utterly destroy the purchasing power of the people in Japan who are living worse and worse off if they are below the top 20%. Many are now homeless. It is pathetic.

The world's #2 economic power that holds the world's #2 FOREX reserves can't give pay raises to anyone earning below $10 an hour because this will 'cause inflation' and so they get to live on the street and starve. Great. Anyone can eliminate inflation by enslaving the workers. Then they get cut out of the profits entirely and can't buy things and thus, can't cause inflation!

This is the plan being readied for us! We get to live in shanties while the rich live in palaces. And we won't buy anything while they have a zillion servants earning practically nothing. Sort of like England, circa 1914.

Bush and his gangsters hosted the Queen of England who loves him because he is making her very rich via Carlyle. And the royals of England didn't care if they starved their subjects who lived like savages under the rule of the royals. We are sliding backwards, not moving forwards here.

Question: Consumer spending is 70% of US- GDP, and yet, workers wages have not kept pace with the real rate of inflation. This has led to increased borrowing on the part of the American consumer. Now that housing prices have flattened out; consumers can no longer draw on their home equity for their spending. This has resulted in a huge spike in credit card spending. For example, ?first-quarter profits at MasterCard surged 70% to a record $214.9 million following a 19% jump in transactions.? (Peter Schiff) As the weary American consumer is forced to curtail his spending, GDP will shrink and foreign investment will dry up. Are we likely to see ?capital flight? from American markets or are foreign investors still confident in America?s resilience?

E.M.S.: In most places, housing prices are falling by 30%! All the people who responded to ads about getting cheap loans are now discovering they can't use their homes as ATM machines and simply re-finance over and over again. The house is supposed to be an asset: if you have to sell it to pay bills or move because of a job situation, if the debt is greater than the selling price, you go bankrupt. And this is happening all over the place now. And it will impact on buying.

Last year, Americans took out half a trillion in extra loans on the house! The surge in MasterCard (gads, Snidely Whiplash!) charges is because banks are no longer giving loans to people who are too deep in debt. The money that flowed there is flowing into the stock market just like it always does during the first half of an inflationary binge.

The second half is when the stocks collapse like they did in 1974. Then we see a 5 year bear market. Housing markets ALWAYS take 5+ years to recover from a bubble. But this last bubble launched by 1% Fed interest rates will take 20 years to recovery in most places.


Question: You have stated in your blog that the Federal Reserve is ?buying back its own debt?. Would you explain how this works and whether it is intended to confuse the public about the real value of their currency?

(In your blog you say: ?The US is the fulcrum for world trade. As the yen goes down (the yuan is so low, even as it gains, it is very minimal), the euro goes up. This is crushing the dollar because the US is printing money like mad to keep commerce flowing at home since it is bleeding red ink in trade and in government spending. Most of the bonds issued by our own government are bought by our own government. The only entity to buy much of that on the open market today is China. Japan is selling its hoard of US bonds.)

E.M.S.: Yes, aside from forcing Social Security to buy government bonds, the Treasury sells them to the Feds. This is Peter selling to Paul who then gives it back to Peter only it shrinks in value during this time. The Fed and Treasury can play this game to infinity. The only country to nearly reach that upper limit was Germany in 1924. They added more and more zeros to the money they printed every hour, day and night until they ran out of room on the bills. Literally! Then they simply cancelled the money! Bang. It was gone. Forever.

If no one stops us, we will do this just the same way.

Question: Wall Street reacts with wild enthusiasm every time two mega-corporations merge. These mergers always seems to generate boatloads of new credit from maximizing leverage and ?creative financing?.. You say in your blog that this is ?also a sign of impending collapse. For every pfennig of this is debt-loaded and is seeking a stable currency and high interest rates.? What do you think are the hidden dangers of these mergers?

E.M.S.: That happened in Germany, too. Everyone merged as money moved faster and faster and inflated more and more. Bubbles inflate because currency inflates. They are one and the same. And mergers are caused by money bubbles.

Question: What do you think the real rate of inflation is?

E.M.S.: Inflation is around 10% now. How do we know? The Federal Reserve just demanded banks hold 10% of their currency rather than rush it out the door. This reserve ratio is always a good indicator of inflation. In China, it was raised to 11% last week. Japan sets theirs at 0%, of course. They are insane.

Question: Is there a chance that the dollar could collapse?


E.M.S.: I hate to say this but I have a whole book of dead currencies my family has collected this last 180 years. From 1848 to today, in the USA, Germany, China, Japan, etc. Many 'pay the holder in gold' bonds. All worth something as historic documents but all ended up being worthless. Hope springs ever eternal and bad money is like winter: it always is around the corner.

Question: In 1966, Alan Greenspan wrote an article called ?Gold and Economic Freedom? in which he described the events leading up to the stock market crash of 1929 and the Great Depression. In his essay he says:



?When business in the United States underwent a mild contraction

in 1927, the Federal Reserve created more paper reserves in the

hope of forestalling any possible bank reserve shortage. More

disastrous, however, was the Federal Reserve's attempt to assist

Great Britain who had been losing gold to us because the Bank of

England refused to allow interest rates to rise when market forces

dictated (it was politically unpalatable). The reasoning of the

authorities involved was as follows: if the Federal Reserve pumped

excessive paper reserves into American banks, interest rates in

the United States would fall to a level comparable with those in

Great Britain; this would act to stop Britain's gold loss and avoid

the political embarrassment of having to raise interest rates.



The "Fed" succeeded; it stopped the gold loss, but it nearly

destroyed the economies of the world, in the process. The excess

credit which the Fed pumped into the economy spilled over into

the stock market-triggering a fantastic speculative boom.

Belatedly, Federal Reserve officials attempted to sop up the

excess reserves and finally succeeded in braking the boom. But it

was too late: by 1929 the speculative imbalances had become so

overwhelming that the attempt precipitated a sharp retrenching

and a consequent demoralizing of business confidence. As a result,

the American economy collapsed. Great Britain fared even worse,

and rather than absorb the full consequences of her previous folly,

she abandoned the gold standard completely in 1931, tearing

asunder what remained of the fabric of confidence and inducing a

world-wide series of bank failures. The world economies plunged

into the Great Depression of the 1930's.?

Hasn?t the Federal Reserve created similar ?speculative imbalances? today through its increases in the money supply, its low interest rates, and the massive liquidity it pumped into the housing bubble? And, haven?t the deregulatory policies of the Fed exacerbated our current account deficit ? forcing US exports to compete with countries that artificially lower the prices of their manufactured goods by manipulating their currencies?

If the economic policies of the Federal Reserve and the Bush administration are deliberate, than how can we say that the destruction of the dollar and the subsequent crushing of the American middle class are accidental?

Greenspan?s essay proves that he fully understood the implications of ?excess credit? and ?excessive paper reserves? and yet he persisted with the same destructive policies for 6 years. So ? Is the housing bubble merely the ?unintended consequence? of the Fed's policies or is it the clearly calculated goal?

E.M.S.: Hahaha. The preacher telling us how to avoid the evils of drug abuse and hanging out with prostitutes comes to mind, doesn't it? The very moralists warning us about our sins are usually the worst sinners.

I'll never forget Congress praising Greenspan and telling him they should stuff him and use him as a scarecrow for this would mean no one would ever question him about finances! Well, I say, hang him high. He is a criminal. He destroyed our economic might. Treason, it is! And all those people who betrayed us in order to make a mighty empire on our backs and bank accounts should be held accountable! There is no excuse for this mess! It was fixable. But alas, too many people are making too much money off of it the way it is now and they won't stop no matter what. Just like their latest imperial wars: endless.

I wish I could say something happy here but history is a bitch who laughs at us all. We should listen to her.
 

piasabird

Lifer
Feb 6, 2002
17,168
60
91
So lets bail out the rich bankers and continue to kick people out of their homes. How will this encourage a correction to the current banking policies? If the average home owner has to suffer, then the banks should not be bailed out. People continue to buy houses that are too big for them to afford. Lowering the prime lending rate only encourages more of the same activity. More availability of cheap credit, is not going to encourage people to tighten their belts and spend less. My suggestion is refinance now at around 5%. The problem is that if you already have bad credit, then a lot of places will not let you refinance your ARM, because your credit is already ruined. This kind of policy is just going to cause more bank failures.

Another topic is that I do not think only people with ARM's should get to refinance. A lot of people on fixed rate loans are suffering also. There are probably people with loans at %12 fixed or 9% fixed that if they could refinance, it would releive some pressure also. What also should be happening is a tightening up of Credit Card Debt. Tell people they can refinance, but only if they tare up their credit cards.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: m1ldslide1
Article.
It's an interesting article and does have some valid points. However, it tries to draw a direct correlation to the current situation, which in some cases might be valid, but not all.

Mitigant factors to a depression.

1. The US has a much stronger capital base than prior eras, where Americans have 401ks and the wealth of the nation is much higher on a non-speculative basis. Just take a look at the deposit base, whereby strong institutions have hundreds of billions in deposits that are guaranteed and insured. Equity reserves are much higher. Foreign debt holders are more numerous and stronger, as well as equity holders. all-in, the financial markets are much stronger and respond better to changes in the market.

2. The gold currency in other countries that was refloated after WW1 (UK, Italy, France, Japan) weren't sustainable. Gold has never been that great of a currency back, mainly because it is deflationary, difficult to manage, and is prone to redemption through proxy battles (one country can create runs on another country's asset base). The GD was indeed caused by easy credit, used to prop up the Pound. However, the move by the Fed to constrict credit suddenly, rather than ween the country off of it (as they are attempting to do now), was reactionary and a poor move. In addition, the government attempted to balance out reduced tax income by raising tax rates, putting a double squeeze on business and consumers, further constricting credit and the economy.

This deflationary spiral was only exacerbated by the US' inability to equalize our own currency and credit through different levers other than just interest rates, because the gold standard. During those times it was thought that the Fed and private banks had conspired to keep us on the Gold Standard to shackle the common man to their deeds. Which is quite ironic considering the current outlook on bankers.

3. The GD was also exacerbated by the fact that the speculative bubble of the 20's wasn't built on any hard assets. Houses *are* worth something, they have utility. HOwever, the 100% margin borrowing of stocks in the 20s equated to a bubble whereby the companies speculated upon had *no* fundamental or corporeal value and could go to $0, unlike a house.

This is a fundamental difference, VALUE has been built off of the credit bubble of the last 5 years and that value, while declining, WILL keep at least some value. Eventually stability will be found in that value and fundamentals will provide more stability.

If you wanted to draw a correlation between the GD and any near disaster, you'd have to put it in perspective of LTCM + .bombs, had the .bombs situation been exacerbated by 100% margin accounts you'd have easily seen a problem much larger than the housing bubble.



I think the idea that we are heading into a major prolonged depression is laughable. The fundamentals heading up to the GD do not show up here, nor are there any fundamentals here that could show up into a GD.
 

GrGr

Diamond Member
Sep 25, 2003
3,204
0
76
Some observations:

Paul Craig Roberts:

ICH

The fact of the matter is that the US is bankrupt. David M. Walker, Comptroller General of the US and head of the Government Accountability Office, in his December 17, 2007, report to the US Congress on the financial statements of the US government noted that ?the federal government did not maintain effective internal control over financial reporting (including safeguarding assets) and compliance with significant laws and regulations as of September 30, 2007.? In everyday language, the US government cannot pass an audit.

Moreover, the GAO report pointed out that the accrued liabilities of the federal government ?totaled approximately $53 trillion as of September 30, 2007.? No funds have been set aside against this mind boggling liability.

Just so the reader understands, $53 trillion is $53,000 billion.

Frustrated by speaking to deaf ears, Walker recently resigned as head of the Government Accountability Office.

As of March 17, 2008, one Swiss franc is worth more than $1 dollar. In 1970, the exchange rate was 4.2 Swiss francs to the dollar. In 1970, $1 purchased 360 Japanese yen. Today $1 dollar purchases less than 100 yen.

If you were a creditor, would you want to hold debt in a currency that has such a poor record against the currency of a small island country that was nuked and defeated in WW II, or against a small landlocked European country that clings to its independence and is not a member of the EU?

Would you want to hold the debt of a country whose imports exceed its industrial production? According to the latest US statistics as reported in the February 28 issue of Manufacturing and Technology News, in 2007 imports were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A country whose imports exceed its industrial production cannot close its trade deficit by exporting more.

The dollar has even collapsed in value against the euro, the currency of a make-believe country that does not exist: the European Union. France, Germany, Italy, England and the other members of the EU still exist as sovereign nations. England even retains its own currency. Yet the euro hits new highs daily against the dollar.

Noam Chomsky recently wrote that America thinks that it owns the world. That is definitely the view of the neoconized Bush administration. But the fact of the matter is that the US owes the world. The US ?superpower? cannot even finance its own domestic operations, much less its gratuitous wars except via the kindness of foreigners to lend it money that cannot be repaid.

The US will never repay the loans. The American economy has been devastated by offshoring, by foreign competition, and by the importation of foreigners on work visas, while it holds to a free trade ideology that benefits corporate fat cats and shareholders at the expense of American labor. The dollar is failing in its role as reserve currency and will soon be abandoned.

When the dollar ceases to be the reserve currency, the US will no longer be able to pay its bills by borrowing more from foreigners.

I sometimes wonder if the bankrupt ?superpower? will be able to scrape together the resources to bring home the troops stationed in its hundreds of bases overseas, or whether they will just be abandoned.



About Helicopter Ben:

The Guardian


'Helicopter Ben' and his 0% remedy for Depression

This article appeared in the Guardian on Wednesday March 19 2008 on p5 of the Top stories section. It was last updated at 00:10 on March 19 2008.

Ben Bernanke is in the spotlight as never before, two years after taking over at the US Federal Reserve from Alan Greenspan . The Fed's chief is facing potentially the worst financial crisis the world has seen since the Great Depression of the 1930s and now, as then, this one is Made in America.

So it is fortunate that in his academic life Bernanke was a student of the Depression and so should have as good an idea as anyone of how to get out of one or, preferably, avoid one.

Six years ago he famously said the Fed could resort to cutting interest rates to zero and, quoting from Milton Friedman, suggested dropping money from helicopters if the US economy slid into deflation or falling prices. That earned him the label Helicopter Ben from critics who disliked the idea of expanding the money supply in that way.

The 54-year old was chief of George Bush's council of economic advisers for four years before taking the top job at the Fed.
During his academic career at MIT, Stanford and Princeton he wrote extensively about the Great Depression and acknowledged in a speech at Friedman's 90th birthday party in 2002 that the Fed was at fault during the Depression for not expanding demand.

"I would like to say to Milton and Anna [Friedman] regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." Now with house prices in freefall Bernanke is widely expected by economists to cut interest rates ultimately to 1% or even zero as he does whatever he can to prevent a slump.

He is also likely to sanction further injections of funds into frozen money markets to try to thaw them. Bernanke has until recently drawn attention to rising inflationary pressures. But most observers think he will put those concerns to one side while he battles against a recession which will push inflation lower as demand contracts. He knows he cannot be the Fed chief who let the economy fall into recession or worse.
The biggest rises in Wall Street history are from the years 1930 and 1931; then in 1933 the banks collapsed... The current weird back and forth swings in the market are not exactly a sign of health.


 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: LegendKiller
Originally posted by: m1ldslide1
Article.
It's an interesting article and does have some valid points. However, it tries to draw a direct correlation to the current situation, which in some cases might be valid, but not all.

Mitigant factors to a depression.

1. The US has a much stronger capital base than prior eras, where Americans have 401ks and the wealth of the nation is much higher on a non-speculative basis. Just take a look at the deposit base, whereby strong institutions have hundreds of billions in deposits that are guaranteed and insured. Equity reserves are much higher. Foreign debt holders are more numerous and stronger, as well as equity holders. all-in, the financial markets are much stronger and respond better to changes in the market.

2. The gold currency in other countries that was refloated after WW1 (UK, Italy, France, Japan) weren't sustainable. Gold has never been that great of a currency back, mainly because it is deflationary, difficult to manage, and is prone to redemption through proxy battles (one country can create runs on another country's asset base). The GD was indeed caused by easy credit, used to prop up the Pound. However, the move by the Fed to constrict credit suddenly, rather than ween the country off of it (as they are attempting to do now), was reactionary and a poor move. In addition, the government attempted to balance out reduced tax income by raising tax rates, putting a double squeeze on business and consumers, further constricting credit and the economy.

This deflationary spiral was only exacerbated by the US' inability to equalize our own currency and credit through different levers other than just interest rates, because the gold standard. During those times it was thought that the Fed and private banks had conspired to keep us on the Gold Standard to shackle the common man to their deeds. Which is quite ironic considering the current outlook on bankers.

3. The GD was also exacerbated by the fact that the speculative bubble of the 20's wasn't built on any hard assets. Houses *are* worth something, they have utility. HOwever, the 100% margin borrowing of stocks in the 20s equated to a bubble whereby the companies speculated upon had *no* fundamental or corporeal value and could go to $0, unlike a house.

This is a fundamental difference, VALUE has been built off of the credit bubble of the last 5 years and that value, while declining, WILL keep at least some value. Eventually stability will be found in that value and fundamentals will provide more stability.

If you wanted to draw a correlation between the GD and any near disaster, you'd have to put it in perspective of LTCM + .bombs, had the .bombs situation been exacerbated by 100% margin accounts you'd have easily seen a problem much larger than the housing bubble.
Informative post :thumbsup:



I think the idea that we are heading into a major prolonged depression is laughable. The fundamentals heading up to the GD do not show up here, nor are there any fundamentals here that could show up into a GD.
Are you saying that we may have a depression but not a prolonged one? Or no depression at all?
 

Vic

Elite Member
Jun 12, 2001
48,390
9,220
126
The good news is that the Fed is probably done cutting rates, so inflationary pressures can begin to stabilize. The economy has some belt-tightening times ahead of it, no doubt, but IMO we're already well into that. From my perspective, things are already beginning to improve, but I understand that most other industries in the US are just now entering the hard times that I (and my industry) already went through last year.
 

Vic

Elite Member
Jun 12, 2001
48,390
9,220
126
Originally posted by: LegendKiller
3. The GD was also exacerbated by the fact that the speculative bubble of the 20's wasn't built on any hard assets. Houses *are* worth something, they have utility. HOwever, the 100% margin borrowing of stocks in the 20s equated to a bubble whereby the companies speculated upon had *no* fundamental or corporeal value and could go to $0, unlike a house.

This is a fundamental difference, VALUE has been built off of the credit bubble of the last 5 years and that value, while declining, WILL keep at least some value. Eventually stability will be found in that value and fundamentals will provide more stability.
Hey! didn't I make this exact same argument to you over and over again last year?



edit:
Originally posted by: PC Surgeon
Are you saying that we may have a depression but not a prolonged one? Or no depression at all?
In the annuals of economic history, I think this is going to go down as a "Panic."
 

JS80

Lifer
Oct 24, 2005
26,260
4
81
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
 

JS80

Lifer
Oct 24, 2005
26,260
4
81
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
 

palehorse

Lifer
Dec 21, 2005
11,521
0
76
Originally posted by: piasabird
Another topic is that I do not think only people with ARM's should get to refinance. A lot of people on fixed rate loans are suffering also. There are probably people with loans at %12 fixed or 9% fixed that if they could refinance, it would releive some pressure also.
:confused: what's stopping them?! AFAIK, anyone with decent credit can refinance at rates much lower than either of those you mentioned... so ?!
 

palehorse

Lifer
Dec 21, 2005
11,521
0
76
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: palehorse74
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
Hyper inflation, to them, is anything over 0%
 

senseamp

Lifer
Feb 5, 2006
34,993
5,039
126
Originally posted by: LegendKiller
Originally posted by: palehorse74
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
Hyper inflation, to them, is anything over 0%
Aren't you in lending, and wasn't your ilk responsible for this current mess?

 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: LegendKiller
Originally posted by: palehorse74
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
Hyper inflation, to them, is anything over 0%
Don't take it so far. I said "possibility". You know as well as I do LK that the more the MS is increased the more the U.S. Dollar is debased. That doesn't take any advanced mind to know.

If you were the FED chairman LK, when would you stop the MS from increasing? I'm going to guess you will say "never" and that would tell me alot about modern economists. When business is bad, debase the currency until markets stabilize. NVM the massive hit the U.S. Dollar has taken to achieve economic stability because only the poor who can only buy food and energy will really feel it.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: senseamp
Originally posted by: LegendKiller
Originally posted by: palehorse74
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
Hyper inflation, to them, is anything over 0%
Aren't you in lending, and wasn't your ilk responsible for this current mess?

Yes, I am lending, but only in a conservative way. Yes, some of them are resonsible for this current mess. You see, I have never denied it.
 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: palehorse74
Originally posted by: PC Surgeon


Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?

No. And if you think so, I challenge you to prove it.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
68
86
Originally posted by: PC Surgeon
Don't take it so far. I said "possibility". You know as well as I do LK that the more the MS is increased the more the U.S. Dollar is debased. That doesn't take any advanced mind to know.

If you were the FED chairman LK, when would you stop the MS from increasing? I'm going to guess you will say "never" and that would tell me alot about modern economists. When business is bad, debase the currency until markets stabilize. NVM the massive hit the U.S. Dollar has taken to achieve economic stability because only the poor who can only buy food and energy will really feel it.
When would I stop MS from increasing? When fundamentals of liquidity have returned. However, that's a lagging indicator.

Nevermind the economic hit the "poor" would take if the capital markets stopped functioning. We saw what happened in 1929 in that same thing.




 

NoStateofMind

Diamond Member
Oct 14, 2005
9,711
6
76
Originally posted by: LegendKiller
Originally posted by: PC Surgeon
Don't take it so far. I said "possibility". You know as well as I do LK that the more the MS is increased the more the U.S. Dollar is debased. That doesn't take any advanced mind to know.

If you were the FED chairman LK, when would you stop the MS from increasing? I'm going to guess you will say "never" and that would tell me alot about modern economists. When business is bad, debase the currency until markets stabilize. NVM the massive hit the U.S. Dollar has taken to achieve economic stability because only the poor who can only buy food and energy will really feel it.
When would I stop MS from increasing? When fundamentals of liquidity have returned. However, that's a lagging indicator.

Nevermind the economic hit the "poor" would take if the capital markets stopped functioning. We saw what happened in 1929 in that same thing.
Follow the thought out then. If cutting off the MS causes crashes because of no liquidity and increasing the MS perpetually causes inflation to the point of oblivion *then* hyperinflation is a possibility. What "fundamentals of liquidity" are you talking about? Then you state that thats a "lagging indicator" so in effect causing more inflation than is needed before actually seeing hard numbers.

 

senseamp

Lifer
Feb 5, 2006
34,993
5,039
126
Originally posted by: LegendKiller
Originally posted by: senseamp
Originally posted by: LegendKiller
Originally posted by: palehorse74
Originally posted by: PC Surgeon
Originally posted by: JS80
Originally posted by: PC Surgeon
Originally posted by: JS80
GD was totally avoidable if the Fed didn't kill liquidity. They learned their lesson from that and are doing a fairly good job keeping it liquid.
The problem is that liquidity needs to stop at some point. You cannot just keep throwing money at the problem. The question is when is the time to turn off the faucet?
You stop liquidity and the system fails. Plus it's not exactly free money we're printing. It's all in the balance sheet.
Then you have the possibility of hyperinflation.
doesnt that statement right there make you the boy who cried wolf? After all, havent you been wrongly calling the current inflation "hyper" for some time now?
Hyper inflation, to them, is anything over 0%
Aren't you in lending, and wasn't your ilk responsible for this current mess?

Yes, I am lending, but only in a conservative way. Yes, some of them are resonsible for this current mess. You see, I have never denied it.
So you have never been involved in issuing a subprime mortgage?
 

ASK THE COMMUNITY