Financial Crisis

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I look at it differently. Home prices and stock prices have been going up dramatically (and unrealistically) ... if the price of these grows 10% per year, then it takes about 7 years to double. So if the prices on those assets deflates by 50%, values go back a decade, not hundreds of years.

The muck is about money, not wealth. We didn't wake up to find that our fields are unable to grow crops and our forests have disappeared - the real wealth is still there. We woke up to find that too many people have too much debt, and that the values on homes we took for granted were something of a delusion.

Although I shop at Wal-Mart (not many stores to choose from around here), I think that they have hurt the economy more than they have helped it. Their anti-competitive busniness practices, labor policies, and their quest for rock bottom prices have forced a lot of local stores, and national retail chains out of business, and caused U.S. manufacturing jobs to be lost and sent overseas.

They were allowed to get this big, because local districts wanted the increased tax revenue, and customers wanted to pay less, so they could buy more things they don't need. As you are seeing, this is hurting us now, and will continue to hurt us in the long run.

Well, no, I'm not seeing that at all. The focal point of the current downturn is the housing market, not manufacturing &c.

As an unabashed wal mart supporter, in my area before walmart the only options were simply bad. Walmart succeeded because everyone else was ripe for the pickin.

I'm sorry, I just really don't buy into the whole gloom-and-doom mentality. The economy's gone through recessions before. The complete breakdown of a strong, stable society is not something that I find very likely to occur in the immediate future. The welfare state will probably be expanded, but probably not to completely unmanageable levels. Rioting, martial law, and suspension of habeas corpus all seem highly unlikely. Again, the US does not have such an undercurrent of social unrest that it would break out into mass chaos like that. There are comparatively few historical examples of situations in which those types of problems actually arose, and I would argue that all of those were significantly different from the present US situation in many ways. Inter-racial tensions are probably exaggerated. Russia and China are nations to be watched out for on the international stage, but I think they realize the folly of trying to seriously f**k with the US or any other major power. The global economy is too interconnected today for any of the major powers to actually wage war against each other without destroying themselves. Iran and North Korea aren't going to be major threats. I mean, we really have no idea what the deal is with Kim Jong-Il, but he seems to be incapacitated. Iran? Really? What's Ahmedinejad going to do, call us a bunch of dirty Jews? Iran can't do anything to us.

So, basically, I think you are definitely wrong. Going as pessimistically as seems realistic, the US will remain in recession for the duration of Obama's current term and then recover, we'll be humiliated when we withdraw from Iraq (as we were when we withdrew from Vietnam) and we will lose our superpower status and be left with a new global balance of power that includes several major powers such as the US, UK, Germany, China, Japan, India, and Russia, but no supremely dominant force. That, overall, doesn't seem too horrible to me. Not great, since life in the meantime is going to suck for a lot of Americans who are out of work, but the world goes on.

Actually, the reason why the housing market has taken a hit, is because of over-inflated prices (think California), loss of jobs, financially irresponsible people living beyond their means, and greedy mortgage, credit, and loan companies allowing people to borrow more than they could pay back.

Last edited by SilverStar on 31 Jan 2009, 12:29 am, edited 2 times in total.

Well, the driving force here is a simple easy to predict, especially in hindsight, collapse of a housing bubble predicated on naked overvaluation coupled with idiotic investments on the parts of the banks. Loss of jobs followed later. The rest of the economy was more or less sound (particularly the Walmart part which wasn't founded on people living beyond their means). The housing collapse then metastasized into everything else over the course of the last year or so.

Part of the problem was that there was just too damn much easy money flying around, what with places like China pouring money in and interest rates being kept very low.

The cause, bad housing loans, is not the result, loss of capital.

The people who lost homes did not lose much. The banks who produced the mortgage were dumb enough to hold some, but most was packaged as Mortgage Backed Securities, and sold to people who had great piles of cash.

The houses are still there and cheaper, the banks can be closed and the good assets go to sound banks, but the world supply of big piles of cash is gone.

Bank Medici that has been banking since 1500 was closed by Austrian bank regulaters.

Selling a Billion or Trillion in bonds takes people who can write a check for it.

Some $400 Trillion of Old Money is gone forever.

In good times houses go up 2% a year, and the stock market 10%.

If everything turned around today, the stock market that touched below 8000 today, a record, could recover in ten years, housing would take fifty.

Thing do not look so good, the end of 2009 may see half current prices. 3,000,000 foreclosures, unemployment, business losing money.

It will turn around sometime, but it might take forty years for the stock market and two hundred for housing to recover.

The era of, "He who has the gold rules," has ended. Those long enslaved by the money lenders are free.

This is the best thing since the American Revolution!

Yes, there have been recessions before, but this is going to be comparable to the 30's. That's not to say exactly the same, but of the same importance. The complete breakdown of society is unlikely, but mass strike action and civil unrest are just about a certainty. Loss of services such as electricity and refuse collections were experienced here back in the 70s, and your own history back in the 30s shows that your government, when it feels threatened, thinks nothing of tackling war veterans with bayonets and tanks. You shouldn't make the mistake of assuming the relatively affluent and stable condition of the country you've grown-up in is the default position. It isn't.

I think you're a little over-confident of your country's security position, too, or at least its resistance to being dragged into conflict. Some of the states mentioned could easily increase their influence in proxy wars that precipitate actions that force your hand. Furthermore, counting on rational behaviour is never wise -- people, even heads of state that are sane, do not necessarily behave rationally under stress.

Anyway, check out what's been happening in Europe:

http://www.ft.com/cms/s/0/9710867c-ee00-11dd-b791-0000779fd2ac.html

http://www.ft.com/cms/s/0/6757da62-eec7-11dd-bbb5-0000779fd2ac.html

http://www.ft.com/cms/s/0/929253b0-c5d2-11dd-a741-000077b07658,dwp_uuid=4034778a-37aa-11dd-aabb-0000779fd2ac.html

I chose option 3. I've been naysaying about the crisis for quite a while now. Bankers are not yet required to divulge all details of their dealings, and so are not required to provide reasoning for values that they place on their imaginary products. Two neat long-term effects of the crisis : Spain has laws forbidding their financial institutions from indulging in the boneheaded practices seen in the 'States and the UK, and they are largely unaffacted. China is lending the USA the money to dig themselves out of the hole... So China will ultimately do very well also.

Also option 3 reminded me of Dr Strangelove (1960s comedy).

President Merkin Muffley : "You mean, people could actually stay down there for a hundred years?"

Dr Strangelove : "It would not be difficult mein Fuhrer! Nuclear reactors could, heh... I'm sorry. Mr. President. Nuclear reactors could provide power almost indefinitely. Greenhouses could maintain plantlife. Animals could be bred and slaughtered. A quick survey would have to be made of all the available mine sites in the country. But I would guess... that ah, dwelling space for several hundred thousands of our people could easily be provided."

President Merkin Muffley : "Well I... I would hate to have to decide who stays up and who goes down."

Dr Strangelove : "Well, that would not be necessary Mr. President. It could easily be accomplished with a computer. And a computer could be set and programmed to accept factors from youth, health, sexual fertility, intelligence, and a cross section of necessary skills. Of course it would be absolutely vital that our top government and military men be included to foster and impart the required principles of leadership and tradition. Naturally, they would breed prodigiously, eh? There would be much time, and little to do. But ah with the proper breeding techniques and a ratio of say, ten females to each male, I would guess that they could then work their way back to the present gross national product within say, twenty years."

lolwut? The same Spain whose unemployment is could hit 20% this year? No indeed, I'm pretty sure Spain has been harder hit than most countries, even if not as bad as some.

The last few summers during the good times France had riots and burned thousands of cars, they are just French. The Greek riots came before the crash. The British are protesting a French company hiring an Italian company to build something. The Communists are calling everyone else right wing.

Nothing has changed in Europe.

None of that in America.

Our Bankers, Brokers, and Government are all protected by the Fifth Amendment, Guilty, but not admitting it.

People in the street in Europe demanding that the government do something.

People in America staying home, not driving, not buying, and 85% are demanding the government do nothing, no bail out, let them fail, and no stimulus bill, to reward the democrat base.

When huge amounts of wealth are lost, do not throw good money after bad, and put the future in debt to the past. Nothing can stop this till it runs it's course, and goverment intevention will just prolong it and add to the costs.

No welfare for billionairs! More food stamps!

We generally don't have general strikes in the US, because we don't have much in the way of union infrastructure outside of the public sector. When the truckers tried a general strike over the price of diesel fuel last summer, there were very few disruptions. I saw video of trucks parked in New Jersey, but that was about it. We in the Far West got very few striking truckers. A few independents may have parked their rigs, but most truckers work for big corporations and unlike truckers in say France have no union, so they had to work.

I do expect civil unrest, especially in large cities, among people already in the underclass. I don't expect President Obama to pull a Hoover and send out the cavalry to kill the rioters however. The guy who would have done that is fortunately no longer in office. Obama would be more of an FDR type, and send reps to meet with the leaders, that is if there are any leaders. It's more likely that we'll just have LA style rioting where something boils over and people burn the city for a week until they get tired. The strategy there is just to have local law enforcement contain it until it burns out.

We had plenty of "rage riots" in the 60s, and society did not buckle. We have very little radical infrastructure in the US, and I don't expect it to emerge by summer. Europe is much worse off-the public employees can walk off the job and everything goes down, society grounds to a halt. The US is much more fractured, there's no big unions, no radical movements outside of a few isolated groups. The few communists we do have tried to call general strikes in the early 90s, but got nowhere.



If you're talking about proxy wars, well yeah, probably. Total war? Who is gonna be the first to launch nuclear missiles? Will China land millions of troops on the beaches of Los Angeles? Will Russia invade Alaska? Do you really think that the US military, even in its weakened state, could not repel a Russian assault on Anchorage? We're not talking about the Red Army of Soviet days here. China doesn't have the troop carrier capability to send the PLA over to the West Coast. Other than that, who is gonna launch the nukes? Even the most irrational of leaders are not irrational enough to destroy the world. I don't think Kim Jong Il would nuke Seoul, because if he did his country would become fused glass, and China would let it happen, because they're not as nihilistic as Mao who wanted to destroy the world to get rid of capitalism. The only people who are really, really crazy enough to use a nuke, and actually have one, is Iran. Israel would make short work of them.

from the 19th Century, they were called 'panics'

The Great Depression was the only Depression we've had. Unenployment was about 25%, the stock market lost 90%, thousands of banks just failed.

It's not that bad by a long shot.

What is likely is that the recession will continue through the rest of this year. It will get better, but very slowly. By the end of 2010, there will be another election. The Democrats can only hold on by blaming the Republicans for the huge mess. We'll see how that works out.

The thing I worry about (I have about 15 hours of econ from college, but it's considere paleolithic by now... is something called hyperinflation.

There's something called the Money Multiplier. You put a dollar in circulation, it isn't spent only once. It gets spent over and over, each time creating another 'dollar's' worth of activity.

We're going to introduce well over a trillion dollars into the economy. Once that hits, economic activity is supposed to pick up. We'll see.

From what I hear, the massive percentage of money already given out to the banks...is still sitting there. The banks won't loan with it, so that's what is causing most of the problems now.

So the government is effectively 'going around' the banks. It's just that once things take off, we may go from 30s America to 20s Germany.

One important thing to remember is the difference in the makeup of the workforce; a 25% unemployment rate back then is much much worse than a similar stat nowadays because of the much larger percentage of multi income households and the larger workforce.

I think that it's likely that we're heading towards a depression, but that things will eventually get better after a few years or so. One thing with the housing crisis is that many people are leaving California to move to other states where the cost of living is lower. It might even cause the state to lose at least one congressional seat or even an electoral vote.

I think it's next winter you've got to worry about. Things are going to be sliding downhill for some time. This is going to be protracted with ample opportunity for dissent to become organised.


I've not suggested that, although you can't rule it out. As for proxy wars, they could result in a position where the US is forced to act. And US military dominance didn't stop Saddam goading your country into an excursion that could eventually cost over $1 trillion. Also, like it or not, you can't retreat behind your own borders on the premise that nobody would dare invade. Your wealth and security is very dependent on the oil you get from other countries. As for bigger things, it's naive to think they'll start with state A suddenly deciding to nuke state B. Russia's recent spat with Georgia demonstrates an area where things could get out of hand. Then there are other potential flashpoints like Taiwan/China, N/S Korea, and Iran/Israel etc. The pressures put on the leaders of the key states in those areas by the economic conditions over the next few years, and the perception of a liberal-run US having no stomach for a fight, will increase the probability of something occuring.

Unfortunately, the common attitude that something simply just can't happen, be it economic depression, or a major war, makes it all the more likely.