It all boils down to trust.
This guy teaches at Stern and is very well educated, but the damn website is all about the tin foil.
Very likely scenario.
Any site which compares Bush and Cheney to Hitler and Stalin is NO SOURCE to be taken seriously. Sott.net is an extreme leftist, extreme anti-American British web site that rants and raves about how horrible things are here in US and of course honky dory in the socialist eu.
Doom and gloom chicken little BS. At any given time there are hundreds of people all over Earth predicting the end of the world will come tomorrow.
Mike Whitney’s stuff on this is invaluable right now. From an article he wrote yesterday:
“On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to determine the total insured amount for each depositor .as of the day of the failure and return their money as quickly as possible. The agency is modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions. (http://www.fdic.gov/news/news/financial/2008/fil08002.html#body)
The implication is clear, the FDIC has begun the death watch on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDICs job nearly impossible.
Capital is now being destroyed at a faster pace than it is being created. Thats why the Fed is looking for solutions beyond mere rate cuts. Bernanke wants direct government action that will provide immediate stimulus. But that takes political consensus and theres still debate about the gravity of the upcoming recession. The pace of the economic contraction is breathtaking. This weeks release of the Institute for Supply Managements Non-Manufacturing Index (ISM) was a shocker. It showed steep declines in all areas of the nations service sectorincluding banks, travel companies, contractors, retail stores etcThe Business Activity Index, the New Orders Index, the Employment Index, and the Supplier Delivery Index have all contracted at a historic pace. Everyone took a hit.
The numbers are so terrible, its beyond belief, said Scott Anderson, senior economist at Wells Fargo & Co.”
Meanwhile, Forbes is doubting the recession.
Me too.... turndown, perhaps
Business is too good around here to be in recession
Strangely enough, the dollar has strengthened against major currencies like the Pound and the Euro (1.49 down to 1.4450) as the big boys think the dollar will be a safer bet than the other currencies when the global economy blows.
third, US households - whose consumption is over 70% of GDP - have spent well beyond their means for years now piling up a massive amount of debt, both mortgage and otherwise;But this misunderstands the point. A society cannot live beyond its means. A society cannot produce what it does not consume and cannot consume what it does not produce. I will grant the nasty problem of imports paid for with credit dollars, but that is a side issue.
The fundamental issue is that the economy has been driven not by earned dollars in peoples pockets purchasing the produced goods. Unfortunately, through the federal reserve's policy of massive expansion of credit, credit dollars have driven out earned cash dollars in the economy. This the innevitable result of massive expansions of credit. That consumers end up with lots of debt is the direct and deliberate result of a federal reserve policy of credit expansion. They go together. One cannot happen without the other.
Cui bono?The banks (investment and merchant, though there is now no large distinction) who earn the interest on the loans that were created and created for the benefit of the banking system, who make money by borrowing short at low interest rates and lending long at high interest rates.
The problem is far worse than alleged because the federal reserve has been finincing an enormous structural problem that makes easy resolution impossible. In a closed economy, without foreign production in exchange for federal reserve computer bits, an economy where lawyers, regulators, organizers and middlemen (bankers and anyone else taking a fee for passing along newly minted FR moola) receivse the lion share of newly minted money, i.e. what passes for wealth in our society.
An IRS taxcode PhD's and tax attorneys cannot understand, a federal bureacracy that thinks it can meet out educational tax benefits to the church of scientology, states that mandate harmful gasoline additives at great expense and then change their mind and mandate other additives at great expense, a legal system where the smallest issue can take 5-10 years to resolve and where they attorneys fees outweigh by many times the actual value of the issues in question, a health care system where the doctors are just cogs in the wheel, that consumes 1 in 7 dollars in the economy, and it still is way short of "what is needed," the list is endless.
The Federal reserve enabled a system of perverse incentives that makes voluntary transactions prohibitively expensive or illegal. This has happened over the course of many decades. Returning ourselves to a productive economy where what you earn is related to what a consumer will pay for your labor will take massive structural adjustements.
Fiddling the interest rate and helping out the banks won't begin to fix this problem. In fact, part of the problem is that the banks have gotten fat on their own uneconomic behavior, as system of very high fees and transaction costs for services a lot of people didn't want in the first place. People living at the margin did not intentionally run up credit card debts. What they did was bought food, paid taxes, bought a car to get to work, etc. etc. and the federal reserve created a system where to pay for "life's necessities" you had to augment your salary with credit card debt.
I didn't ask for the value of my real estate to go up by a factor of 3 (on paper). The federal reserve did that through its printing of cheap credit loans. I benefit little except from the point of view that I could sell at a profit an move someplace I don't have a job and buy a cheaper house. The city of DC benefitted enormously because they peg my property taxes to the federal reserves largesse.
But that's fine because there is plenty of serious economic discussion going on elsewhere.
Before we can speculate on the dynamics of an economic system we need to know that we have a dynamic economic system and know something about the actual characteristics of that system beyond what some scare articles in the blogosphere tell us.