Posted on 12/27/2008 4:50:54 AM PST by TigerLikesRooster
An ugly, unrecognizable recession
Most of us haven't seen an economic decline like this one before, and as the slowdown gets slower, few will be unaffected. Are you ready for the 'frugal future'?
[Related content: stocks, investments, recession, consumer goods, Jon Markman]
By Jon Markman
MSN Money
Feeling frugal? You're not alone -- not by a long shot -- as butchers, bakers and billionaires alike are feeling the credit crisis this month in a way not experienced since at least 1946 or even 1938.
It's not just a temporary wave of Scrooginess that's to blame for a retail-sales drop of 7.4% in November and much worse expected for December. It's the combination of two tidal waves of demographics and the global business cycle combining to swamp the middle class, the wealthy and corporations as the recession enters its second year.
/snip
This is largely because all of our economic texts and commentary were created from data that followed the 1944 Bretton Woods conference, which established the U.S. dollar as the world's reserve currency. The post-World War II era harbored the profound societal changes that accompanied the birth of 78 million baby boomers between 1946 and 1964. Recessions tended to be relatively short during the postwar years thanks to the insatiable thirst of the boomers to buy stuff.
/snip
Things are much different this time. The median boomer came into the current downturn in his or her 50s, edging closer to retirement in a state of precarious financial health. After a 20-year buying spree, nonhousing durable-goods assets nearly tripled to $40,000 per household. Fueled by the twin forces of a declining birth cycle and the increased availability and acceptability of credit, this accumulative phase is coming to an end.
(Excerpt) Read more at articles.moneycentral.msn.com ...
Ping!
in other words, it's just that the recession is the reality of inverted demographics striking? Bush's cryptic remark upon the failure of immigration reform that "now you're going to pay," certainly explains his point of view, knowing as he did that the last gasps of credit-driven prosperity were built on illegals building houses for illegals. What a mess.
“Unrecognizable?”
Not to those who have studied the history of the 1933 to 1940 and 1873 to 1879 depressions it isn’t.
This is a classic debt deflation, per Irving Fisher’s description of same in 1935.
The only people who might not recognize this for what it is are people who are still gulping down the either the Kool-Aid of idiots like the National Ass’n of Realtors (for whom there is NEVER a bad time to buy a house), or their used bong water. These people are, sadly, everywhere, but saddest of all, they’ve been most especially abundant in the “George Bush’s economy is A-OK!” and “Dude, where’s my recession?!” camps of erstwhile conservatives, who should know better.
The patterns of what are happening are unfolding in the order as laid out by Fisher in his paper, in the same order he describes. Once I read Hyman Minsky’s paper on debt collapses and Fisher’s paper on debt-deflation, it became pretty clear to me that history repeats itself.
The only ‘unrecognizable’ component of this time ‘round is that we now are beholden to foreign investors, sovereign wealth funds and foreign central banks, praying that they continue to buy our US-backed paper even as we’re issuing yet more debt as fast as we can. At some point, our creditors will cease believing that they will get paid whole, and they’ll quit buying.
After the hyperinflation that collapsed the Weimar Republic, in Germany, the nation of Germany then turned to its real estate as a reservoir of value to back their currency, as their national treasury has been sacked by the French and British as “war reparations”, and the country was penniless. These new “Reichmarks” were backed by something called the “Rent”, the collection of a property tax that was laid on every piece of real estate in the country. Using this newfound prosperity, the Germans began to build their “Wehrmacht” military, first in secret, as a sort of national guard, then openly, after they occupied the Rhineland, contrary to terms of the treaties ending the original World War. When no effective response to this action on the part of Germany was made, Hitler was encouraged to proceed, secure in the belief that Great Britain and France would simply roll over and accept the situation.
We all know where this scheme ended up. What the heck, there were people pulling for Hitler to WIN.
And what if he HAD won?
Yeah, subprime banzai crowd.
If this crisis is not handled right, we may end up going back further than 1873. To 1860.
This is what makes the whole current situation so bizarre.
If what you've posted here were really the case, then interest rates would be rising -- and fast. For some reason these foreign investors, sovereign wealth funds and foreign central banks continue (at least for now) to buy U.S. Treasury debt even as interest rates are at historic LOWS.
for later
It’s a good time to be poor. The masters of the universe are agonizing over how to keep up payments on their Maseratis, given that they’ve never actually worked for a living.
Anybody who says that an upturn is just around the corner has got some worthless assets he needs to unload and is looking for some patsy to take them off his hands.
This means lots of debt was rung up to create these bubbles that are now deflating. Plus it was misallocated borrowing such as in housing. Enough money was borrowed to build 30 years worth of new houses in only 3 years. This was objectively unnecessary but could not be stopped, too many people were making money off this mania
Care to make a guess how long deflation will be with us?
“Unrecognizable” is the perfect term. Based on the sentiment by most of my friends and co-workers, I’ll go out on a limb and say that most people think this is just a normal downturn and normal economic cycle. People do feel it will be worse than the last few recessions, but they are mainly clueless about the scale and scope of the coming contraction or its underlying cause.
So, how would you describe the coming scale and scope?
In a normal situation, you’re right - that’s what would happen.
However, we now have the Fed acting with absolutely no restraints, and they’re buying both US Treasuries and agency paper to reduce interest rates.
So: let’s review. We have a Fed that has reduced interest rates to zero percent, who is paying interest on bank reserves (which induces banks to keep their money in piles, because they’re getting a risk-free return from the Fed), who is now buying up US treasury, agency, commercial, student, unsecured consumer debt with wild abandon.
Interest rates won’t act normally - now.
At some point, the piper will have to be paid. When that happens.... I can not predict. But at some point, someone might finally say “Heeyyyyy.... we figure out... you no gonna pay us baaaack...” (insert South Park City Wok accent here) and the jig might we up with a speed and fury that makes the speed of the events of the last three months look positively leisurely.
I just don’t know any more. The Fed is acting in ways that defy comprehension to me, and they’re in a position to change the timeline on deflation.
If we want to talk specifically about housing price deflation, well that is easier to predict in terms of housing inventory and median pricing than in terms of time. The long-term trendline of housing prices in the US is that housing median prices are 2.6 to 3.0 times median household income. Right now, the national median is something like 3.4 times median national income, so we’re still high. In some areas of the country (eg, CA) we’re still higher than that.
Given that median household income is taking a hit as unemployment goes up, housing prices are now having to chase a moving target on the downhill run... which means that they’ll likely over-correct on the downside.
I’d say that in any market in the US, when the housing inventory gets back down to only four to six months of supply (seasonally adjusted), you’re likely back in an area where the deflation will slow down or stop.
But national, economy-wide deflation? When does that stop?
Heh. No clue. The Fed is doing things so fast, so erratically, with seemingly no coherent meta-strategy, that I just don’t know any more. Every day the market is open, I wake up and say in a happy tone to my wife: “Let see what lunatic stuff that crack-smoking PhD Bernanke has announced today!” It isn’t profitable, but it is entertaining.
I’ll give one example of an unintended consequence with ominous implications: one of the problems that extended the Great Depression was that when the economy juuuuust started getting out of the open grave in 1935, the Fed says “Hey, all you banks.... we’re increasing your reserve requirements.”
This has the same effect as suddenly and dramatically raising interest rates - bank lending power in a fractional reserve system like ours is dramatically reduced when you (eg) take reserve requirements from 8% to 12%. That’s like pulling 33% of the available credit out of the banking system with a snap of your fingers. Interest rates are unchanged - banks simply don’t have money to lend. They’re having to keep more money sitting around, doing nothing.
BTW — the Fed could have done EXACTLY this in order to stop the housing bubble. They could have simply raised reserve requirements and that would have been a tool they could use to both improve the strength of the banks to weather bad loans they’d already written, as well as keep them from writing so much new paper. If the Fed had both increased lending standards and raised reserve requirements, the problem could have been largely solved - and the Congress/Freddie/Fannie would have been able to do nothing about it.
Back to 1935/36: This led to a withdrawal of credit just as the economy was getting going, and this, coupled with unions getting most everything they wanted from FDR after his re-election in ‘37, meant we went right back down into a depression in ‘37 and ‘38.
OK, so why do I bring up all this history of bank reserve requirements and the Fed?
Well, the Fed is paying interest on the reserves banks are required (by the Fed) to keep on hand. This amounts to a risk-free return. So banks are piling up reserves and asking the Fed “pay me on my reserves” - in net effect, pulling credit out of the US banking system. The Fed can lower lending target rates on the one hand, but there’s still unquantifiable risk in lending right now. Piling up cash and getting paid by the Fed (albeit a lower interest rate than they would if they lent the money out to a borrower) is the easy, risk-free play for a banker.
So Bernanke, this genius historian of the Great Depression, is starting to re-create some of the mistakes of the Great Depression Fed, only with different mechanisms.
As a result, all prognostication is for naught.
Like it or not, this economy is in the hands of some yahoos who think they’re “the best and brightest.”
Sigh.
Duh — brain fart. I meant to say “raising reserve requirements by 8 to 12% removes a big chunk of credit from the lending system with a snap of the fingers.”
I was thinking of another example and just slapped in the numbers without changing the rest of the example.
A good example of the opposite, where the excess liquidity came from is in the increased leverage allowed to the i-banks, by allowing them to go from leverage of 12 or 15:1 to 40:1 — there’s a huge increase in the amount of money seeking a borrower as a result. Same sort of idea, only in reverse. Think of reserve requirements as the inverse of leverage.
Well, even going back to the level of the 1930’s concerns me. You’re right — with enough Harvard MBA’s and Ivy League PhD’s — any amount of damage is completely within the realm of unintended consequences.
I fear that the country would effectively partition in two - the self-sufficient, un-leveraged people who know how to manage money and those who become completely dependent upon the “next bailout” - because they have no skills, no motivation, no worth ethic, an over-developed sense of entitlement and self-esteem that they’re in the right.
It is the formula for some really bitter, scorched-earth policy battles.
I believe that we will see this happen first when some states (CA and NY in particular) approach the Congress for a bailout.
As I understand the official definition, we're still not IN a recession. A recession is two quarters of negative growth in a row.
Since we officially had 2% growth in the third quarter, we can't really enter a recession till April of 2009.
This may, of course, say more about the inadequacy of the definition of recession than its reality.
There will be no ‘split’ if you think
‘red’ states will be immune from this depression/recession, think again. We are all in this together. I don’t care how frugal you are if you lose your job and can’t get another, you are toast. Especially when desperate states will raise taxes to get money...even if you own your home outright, you won’t be able to pay the taxes.
Hi
I have no really good answer to your post but I read it three times. Thanks for your take on whether we will be stuck in a deflation mode for a few years
Most people will brashly say we will soon get roaring inflation and others say years of deflation because no matter how much money/bailouts Henry Paulson puts into the system, the destruction of wealth in housing, stock market etc far outweigh it
During deflation cash becomes very dear. Bartering increases
During the Great Depression lots of property was lost because they couldn't pay the taxes. I heard a good story last week about this
Quite true...however many people lost money in this market. No one is ever prepared for something like this.
It isn’t a a “red state vs. blue state” thing.
No, it is MUCH more fundamental than politics. It comes down to this:
Is what you do essential?
If you’re in a place like NY, where a huge chunk of their tax revenue is derived from people trading little slips of paper that have now become worthless or undesired (at the very least), then you’re basically screwed. You’ve got a large sector of your economy which has produced nothing of intrinsic value, which is of no fundamental necessity to civilization (ie, we were doing just A-OK before the CDO or other debt instruments were invented, so despite the protests of Wall Street, we could ban then without permanent consequence), and quite frankly, the financial sector had been inflated to three times the historical component of the US economy.
Just like the dot-bomb bubble, the housing bubble and the finance bubble created jobs that are going away... for a long, long time. The jobs from the dot-bomb bubble went away because they were non-essential. No one needed another web site to sell kitty litter to people. No one needed another startup who was going to spend money on their “brand” first and their product/service second. They just went away when the money got tight.
When money gets really tight, as it is getting now, people start asking “Do I need this?” If the answer is “yes” and money keeps getting tighter, people ask “Really?”
If that answer comes back “yes” — then and only then will people spend money.
So if your state’s economy has a large sector of non-discretionary economic activity (eg, farming, mining, oil, natural gas, coal and other fuel production), then this downturn will be merely a recession. It might be a hard recession, but the farming/mining/oil/coal sectors have gone through recessions before - and they’re still here. Those dot-bomb startups doing frivolous nonsense? Gone forever.
Same deal here with the finance sector, the mortgage brokers, the absurd number of real estate agents, the over-built retail sector, the absurd number of lawyers we have — you name it. They’re simply not essential. Those jobs are going away - probably forever.
The thing that the people in cities forget is this: their very existence is completely dependent upon other people in far-away places doing their jobs. The inverse is simply not true. Out here in the rural west, I don’t give a rat’s rear end whether the n-th investment banker shows up to work in the morning. Could not care less how many people Oprah employs, or whether Oprah is even on the air. I don’t give a rat’s rear end what shows are on Broadway, or whether the entire garment industry in NYC shuts down. Doesn’t make an iota of difference to my existence at all. I literally could not care less.
So your area of the country could try the “atlas shrugged” thing to your hearts’ content and you’d find out that only the people in the immediate area (and maybe some breathless op-ed columnists at the NY Times) notice, much less complain.
Ah..... but let’s turn this around, shall we?
The only thing necessary for rural people to do in order to crush the economy of the urban populations is... nothing. Even more tellingly, there is a very small proportion of the US population that, if they wanted to, could bring the rest of the population to their knees.
All they need to do is sit on their hands and do nothing at all. Urban planners know this. The military knows this. Economists know this.
Here in Wyoming, it would take no more than about 15,000 people sitting on their hands for about four to eight weeks... and a huge chunk of the US electrical grid goes dark for a long time, perhaps for two months more after the coal starts flowing again if the people got back to work.
It works like this: No coal, no fire. No fire, no steam. No steam, no whirring noises in the steam turbine. No fast-whizzy whirring noises in the steam turbine means no juice for you guys in cities in huge swathes of the US.
No juice for you... and we’ve already seen what happens when New Yorkers have a black out.
Given those kinds of consequences, you can bet your sweet bippy that the government is going to rob people in cities to make sure that the coal-blackened rednecks in Wyoming keep digging coal out of the ground - and in Kentucky, West Virginia, Montana, Utah... and a host of other places where they don’t turn up their nose at producing products that are absolutely essential.
Understandably, people in cities are going to be pissed off that they’re being taxed to make sure that dirty, grimy rednecks in nasty low-tech jobs without Ivy League educations are kept rolling in dough while award-winning op-ed journalists are laid off, with no hope of finding another job.
That’s the sort of split you’re going to see. People who render a truly essential product or service will be relatively prosperous. It doesn’t mean that they’re going to be driving an Italian V-12 sports car to work - it means that their job won’t be going anywhere. If they’re a good employee, they’ve got a solid job.
Those who have become absurdly specialized in non-essential industries are going to be forced into a very harsh period of change. Most (but not all) of these people are in urban areas. I have not looked at the numbers, but I’d reckon that a majority, but not overwhelming majority, of these people are in blue states. There are plenty of urban people in red states who are about to get a wake-up call too.
In a depression, there is no such thing as an essential industry. As for ‘sitting down’, you would merely be hauled off to jail and replacement workers sent in. Few states in this nation have ‘essential jobs’ by your definition. In the depression during the 1930’s, farmers were hit hard and the crops rotted in the fields. Pray really hard, we won’t be hit by a depression...no one is immune from its effects. It’s no surprise that most of the 50’s communist types called before McCarthy’s committee joined the Marxist movement in the thirties...economic woes cause societal instability.
Yours is the most lucid post I’ve yet read about this whole mess. Thanks.
In the 1930’s, farmers were suffering from a trade policy enacted in 1922 that crushed farm commodity prices for a DECADE prior to the Depression. The Smoot-Hawley legislation was merely the last straw. The 1922 tariff legislation (Fordney-McCumber Act) was what started gutting the 30%+ of the US economy that was ag.
On top of this, a drought started in 1933/1934 that created the Dust Bowl, which covered several midwest states and set about 1.5 million people moving out of the midwest towards other states in search of jobs. There won’t be a repeat of that issue, because we’ve improved (radically) farming practices. There is no longer tillage based on such nostrums as “rain follows the plow” as there was in those days.
The crops didn’t so much as rot in the fields as they never grew. There wasn’t enough rain. Our Glorious Leader, FDR, rammed through the AAA, which then resulted in millions of head of cattle/sheep/pigs being shot and tossed into trenches as people went hungry - because this was his idea on how to raise ag commodity prices, which he thought would result in farmers re-paying their loans, which would then result in banks ceasing to fail.
Funny... it didn’t quite work out that way.
There are essential industries. Let’s review again: No coal, no lights. The POTUS could haul striking workers off to jail and move the military or replacements into do the jobs as you suggest, but then that simply proves you haven’t got your argument thought all the way through. The need to take such action is prima facie evidence that the industry involved is indeed essential - otherwise there would be no need to do such things, QED.
Here’s proof by negation: The people writing Broadway musicals could sit on their plump posteriors for a hundred years, holding their breath until they turn blue and moldy, and there is NO president of the US who is going to take the drastic action of saying “Get back to work or you’ll be arrested and we’ll send in the military to write musicals!”
See how this works yet? Coal miners: essential. Presidents can and have ordered these men back to work. It stands to reason that even with The One (cue the Seraphim) yammering about global warming, when the turds hit the turbine blades, he ain’t gonna allow coal miners to sit on their duffs. That’s an essential industry.
Even Obama, however, is going to go no further than expressing sympathy for writers of musicals, or Hollywood actors. Non-essential, they.
The number of states with essential industry is indeed a minority, but it comes down to this: most of the coastal states have forfeited any claim to being essential in this economy by their own choice, and this is quickly being proven by how quickly the coastal states are the ones with faltering economies and tax bases. The list of states from which it is not a suave idea to buy a muni bond issue right now is a good indicator of which states are in the mess the deepest. States like California, New York, New Jersey, Florida, Connecticut are just basket cases. States like Nevada and Arizona are very poor bets for muni bond safety largely because their ad valorem tax base is crashing, more than just the economic activity. eg, in Nevada, the state’s tax base is in the large majority based on a non-essential industry - gaming. Gold mine gross receipts, however, are going great gangbusters... so you have this bifurcation in the counties of Nevada: in Clark, Washoe and Carson City, their tax revenues, which are in majority generated from gaming, are crashing even as they’re suffering from increased service costs to deal with the rampant over-development.
The rural counties that have experienced little growth, and are still based on mining and ag, are in fine shape. Gold mining receipts are through the roof and have been for five years now.
Likewise, counties and states with ag, mining, oil/gas/coal forming a significant part of their economic base will get by.
New York, New Jersey and California, however, are just screwed. And they did it to themselves.
I don’t know the details or I would be poised to be a millionaire. I meant that the downturn will be severe and protracted. Home prices may not recover to bubble values for over 10 years. The stock market may not begin to show solid growth for another 8-10 years. Unemployment will not only be higher than the masses expect, but the unemployment rate will REMAIN high for much longer than most people expect. Five years from now, we may still have 9-10% unemployment.
The scale of this contraction and downturn are simply larger, with more unemployment, more business bankruptcies and more bank closures than the mass of people foresee. The scope is that it will affect all industries, including the public sector, which will also experience layoffs and pay reductions.
I’m not saying we go back to the great depression, but the scope and scale of this recession will make 74 and 80 look like fun and games. It is not as if we won’t weather it or bounce back from it. But the recovery will be late and slow. We already have people here claming a recover in second half of 2009. I don’t think we see a recovery until 2012. Between now and then, lots of fired employees are going to be living at home or with relatives, or depleting savings, or doing odd-jobs and gray market, or maybe the government will just pay their unemployment year after year. I don’t know.
When I say the scale and scope will be worse than the masses think, they think this will be a recession like the 1990 recession, with modest unemployment and a relatively quick, strong recovery. The recession will be longer, deeper and more painful than they can imagine because they’ve never experienced it before in their lives. The coming deleveraging will just keep unwinding for years to come.
Their are ALWAYS essential industries. ALWAYS. In any depression, people need food and water, they need a means of travel, they need heat and light in whatever dwelling they live in. Furthermore, in any depression, most of the people are still working and are still buying.
The depression is among those people who can’t find any sustainable work and thereby lose the ability to feed, house and clothe themselves because they are out of work for months or for years at a time.
Those who continue working throughout a depression, even at half-wages, will continue to need food, water, home heating, gas to get to and from their jobs. They may carpool. They may cut out all luxuries from their food budget. They may cut out all lattes and sodas.
The point is, that which sustains your survival are ALL essential industries in a depression. NVDave is distinguishing that from those which are not necessary for survival.
Try this...
Essential jobs:
Farmers
Grocery store clerks
Gas station operators
Water delivery engineers
Auto mechanics
Coal miners
Natural gas companies
Alcohol & cigarrettes (not essentials, but people keep consuming even during depressions)
Non-essential jobs:
Starbucks clerks
Automated car wash staff
Auto detailers
Dog groomers and walkers
Hair stylists
Video rental companies
Cable TV providers
Sports teams
Gyms and racketball courts
Restaurants
Get the picture? See the difference here? Essential (that you need to live day to day) vs non-essential (luxuries and conveniences you want but don’t need).
Most people are oblivious to everything that isn't directly affecting their personal lives at this moment, or that isn't blasted 24/7 across their favorite entertainment channels.
The bridge to the 21st century got dismantled and sold off in pieces. The train already went over the cliff and is on the way to the bottom. Most people think the ride is going just fine, so far. Their car hasn't reached the bottom yet.
My Grandmother lived through the depression. She told me many true stories about those times...I think you are wrong. Also, clerks in stores get fired in order to make way for the ‘highly educated’ employee. It is not as simple as you make it.
While I see how many computer applications are frivilous, you still gotta count stuff, do payrolls, do accounting, and do medical stuff.
So, while theoretically, I won't say I'm essential, I'm not far from it, I suspect.
The boomers will at least have pensions to fall back on. Their children will not. They also will be able to vote themselves ever greater government benefits, further impoverishing their offspring.
The question is will be people continue their ordering cycle or will they continue to use the products they already have? I'm in computer hardware and I'm afraid people will just put off purchases longer and longer.
Products break.
Exactly. And property ownership is what the leftist elites mostly agree on. They're against private ownership of property by citizens. Unless, of course, "they" are the ones doing all the owning.
I just can't help thinking this whole thing has been planned and orchestrated by the very same anti-capitalist leftists/DemocRats and commies that have been working methodically to destroy America for over half a century.
Looks like they'll finally get their way.
Last week this old timer told the story of how the family house was seized for taxes in 1936
His father was Italian and a skilled carpenter and built that house with his brother for $5,000.
How would you like to lose the house you built to the government!
Such a sad story
Took place in New Jersey
Such a sad story
Thanks for your thoughts. I’m hearing both points of views (quick/slow recovery) and can’t yet tell which side I agree with.
My brother thinks a 2-3 year slowdown; your prediction is one of the more dire I’ve heard, but you could be right.
Seems like the days just keep passing, and no one really knows what will happen. I’m glad the Lord is in ultimate control of the earth though.
People who can maintain COBOL, RPG, CICS/MVS applications are just short of being able to name their price these days.
The old farts are retiring, and the kids today are too proud and too arrogant to learn COBOL - all they want to do is lecture people as to why C++ or Java is the wave of the future.
There is no knowing what will happen. We are all guessing, educated guesses, wild guesses and otherwise. That you are still making up your mind is understandable, since this crisis is so hard to fathom and takes so much reading to appreciate the amount of fake value that is now being destroyed, from home values that were falsely inflated or based on faulty expectations, to bank earnings that were falsely supported by earnings models that have been long since disproved. Things are collapsing, not because our economy is unsound, but because we indulged in an unsupportably huge volume of credit, on every level from personal, to corporate, to financial, to governmental. All of that is collapsing now.
Personally, I have no clue what is going to happen. I have been convinced by those people who simply have accurately predicted what is happening today. I have hitched my wagon to them. I’m listening to those who have been proved right, rather than proved wrong. When Ben Stein or Bob Brinker or Jim Cramer talk, I don’t listen as they have been wrong.
So I listen and read works from Nouriel Roubini, Meredith Whitney, Eric Janzsen, Lee Adler, Peter Schiff, Doug Noland, Mike Shedlock, and others who have been proved right.
I can’t say if this downturn will be as bad as I believe it will be, based on reading the works or those I listed above. But reading what they have said, and reading how far reaching, how massive the credit bubble was, it leads me to believe that the deleveraging that must occur will take years, not months. And those years will involve a constant, irrepressible march of business closures and layoffs. So I can’t see any recovery on the horizon. Not until house values stop falling. Not until all of the faulty, bloated credit is wrung from the system.
Frankly, it is happening very fast. I predicted the stock market crash (too early, as I usually do) but it has come far faster than I expected. I didn’t know we would see a 40% drop in value so soon. But the government is trying to prop everything up, and this is just going to draw the deleveraging out much longer.
As you can see, I believe the recession will be longer and deeper than most people, which I suppose includes your brother. That was the point of my post. Most folks are not going to take the time to study how large and widespread the credit bubble was and so they are not going to understand how long and deep the economic contraction will be for the economy to destroy that massive credit bubble.
My father lived through the depression. His father was a baker through the entire length of it. He made ample money during the entire depression. His family was poor only because my grandfather pissed away the money he made as a baker, while he was trying to impress his friends. Other than that, my father’s would have done just fine as a child of the depression.
My mother lived through the depression as well. Her father was a Vice President of Bank of Italy (now Bank of America) in San Francisco. They did very well indeed, living quite nicely through the depression. My grandfather drove a 12-cylinder Buick, if that is any example.
That your grandmother makes it sound like everyone suffered in the depression is simply not true. Those who suffered, REALLY suffered, as it was endless. That is why you had able-bodied men walking around begging work and saying, “hey buddy, can you spare a dime for a meal? I haven’t eaten in a couple of days.”
But those who had jobs all during the depression, which was most people, didn’t suffer much at all. What NVDave is saying, is that the people with essential jobs — things you need to survive or that you need on a daily basis to live, to work, for school, for life — those jobs would still be filled in a depression. Those non-essential jobs will evaporate, and the people who don’t have the higher skills to get an essential job would end up suffering and for a good long time as there would be few jobs available, and they would be filled immediately by family and friends.
I’ve been saying for three months that “Frugal” is the new “Chic”.
It’s gonna kill retail.
Seriously.
>>in other words, it’s just that the recession is the reality of inverted demographics striking?<<
Sort of. But another facet is that a LOT of the spending the teens and early 20-somethings were spending was money given to them by mom and dad because mom and dad felt rich since their house kept appraising for more and more. It could be a double whammy. The good news is that the kids will learn some character from the economic reality. They may end up being the next “great generation” after things like the economic collapse and obama’s true colors see the light of day over the next couple of years.
I can do Cobol, but why? I can recreate the most intricate cobol app in about 5% of the time it took to originally code it, in C#, and it will be 1000 times more maintainable.
The old farts are retiring, and the kids today are too proud and too arrogant to learn COBOL - all they want to do is lecture people as to why C++ or Java is the wave of the future.
It is the wave of the future, not because it's cool, but because it leverages your productivity amazingly. Still, I'm not so proud I wouldn't do it if needed.
Once.
He's always predicted doom.
He is known as Doctor Doom. He had to be right eventually.
Not true. Many people have not been right “eventually”. You mistake his being early for his being constant.
Back in 1998, I pleaded with my co-workers to get out of the NASDAQ because it was a bubble. I was completely wrong for 2 years and people continued to make money hand over fist. In 2000, the NASDAQ collapsed. Vince lost over $30,000 and Jonathan lost over $40,000. These were young engineers in their 20s who invested in things like Webvan and Pets.com in 1999 and they lost the bulk of the money they had saved to date.
I had a friend who had been investing in NASDAQ stocks like Microsoft, Intel and Cisco since the mid 1990s. By the time the smoke cleared, he had lost all of his profit over 6 years and was down to only the money he put in the NASDAQ.
Now, was I right “once” because I had “always predicted doom” on the NASDAQ, or was I just two years early in my astute prediction?
By 2000, my friends said the exact same thing of me that you accuse Roubini of. They said, “you always said the NASDAQ would go down, of course you would be right eventually.” No, I was dead right, just early on my prediciton, because I didn’t realize how stupid people are. How stupid corporate financial managers are. I thought the party had to end in 1998 because I thought everybody was as smart as I was and could see that the NASDAQ was nothing but an empty bubble. I was early on my call, because I underestimated the stupidity of people.
Roubini seems to have made the same mistake and now you accuse him of the same thing my friends and co-workers accused me of. I was early, not a perma-bear. Roubini was merely early in his call, not a perma-bear.
Am I early, or a permabear?
By the by, it is not I who have given Roubini the appelation of Doctor Doom.
It is everyone who has seen his predictions since, ooooo I dunno, about 1994.
And up against the government, you have no recourse. That type of government abuse and tyranny is exactly what our forefathers tried to protect us from via the constitution.
I’m afraid that we’ve let the leftists get away with editing and trashing our constitution for too long now. It’s probably too late to save it at this point, short of an all-out civil war. And I really don’t think most Americans have the stones for that kind of fighting any more. We have become soft, lazy, apathetic and complacent...sitting in our recliners with the remote in one hand and the cell phone in the other.
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