The economy theme park thread... featuring the stock market rollercoaster

[nemein]

continued from http://forum.dvdtalk.com/politics-world-events/540778-economy-bailout-blah-blah-blah-part-vi.html


BTW I just sold off Amazon this morning to lock in some profits... if history holds true though expect it to sky rocket here soon :(

[Venusian]

I don't think we'll see oil at 40 either. Maybe 60

[orangecrush]

Drawback of cheap oil - people forget about a realistic energy policy.
Don't worry. The price of gas and heating oils won't go back down to the same levels it was back when oil was cheap, so people will still want a better energy policy.

[achau9598]

anything important coming from the Bush speech?

[Pharoh]

lol the only "supply" issue is the amount foreign creditors are willing to keep borrowing to this charade.

So Wednesday's issuances had nothing to do with it? Nothing at all? Flooding the belly matters not at all? And there can't be any other possible causes, such as shorts withdrawing?

I don't rule out some exodus by foreign investors, but there are other possible and plausible reasons for this right now.

By the way, the swap spreads are doing okay right now.

[sracer]

I know that we're in financial difficulties, but could we buy a vowel please? I'd like to buy an "a" Pat. ;)

[VinVega]

nemein, you could have at least made this a poll. -ohbfrank-

:D

[Thor Simpson]

anything important coming from the Bush speech?

I'm pretty sure anything Bush says at this point is ignored by 99% of the populace any way. Clearly he doesn't have anything to contribute to the situation. Might as well head back to Texas now.

[Pharoh]

Holy shit. Initial price of the LEH CDS @ .0975

[Pharoh]

Another question for those who advocated doing nothing and letting the chips fall where they may. Are you okay with letting Lehman fail?

[Venusian]

They fell. Not much we can do now.

I've read stuff that suggested a lot of the pressure on them was people shorting financials which caused many of their ratings to go down to a point where they couldn't afford bonds. You think that has validity? If so, wouldn't the short selling ban help?

[al_bundy]

people only shorted them because they made stupid financial decisions

i think we're at the point where we need to find a middle ground between letting a bank failing and total socialism of the banking system.

[Thor Simpson]

I think the short selling restrictions were only on finance companies.

[Venusian]

Holy shit. Initial price of the LEH CDS @ .0975

the bonds were trading around .12/$ or something, right? so .10 isn't much of a surprise

[nemein]

I know that we're in financial difficulties, but could we buy a vowel please? I'd like to buy an "a" Pat. ;)

I have no idea what you're talking about ;)


nemein, you could have at least made this a poll. -ohbfrank-

:D

You're a mod... you could alway add on -ptth-

[VinVega]

people only shorted them because they made stupid financial decisions

i think we're at the point where we need to find a middle ground between letting a bank failing and total socialism of the banking system.
This is true, but I think some banks need protection. We can't function as an economy with zero banks. Something has to survive to rise from the ashes after this firestorm blows over.

[VinVega]

You're a mod... you could alway add on -ptth-
Don't try throwing facts at me in an argument buster!

[Venusian]

Bank of the U.S? ;)

[VinVega]

Bank of the U.S? ;)
Man, that's troubling. Sounds like a third world country.

[Pharoh]

They fell. Not much we can do now.

I've read stuff that suggested a lot of the pressure on them was people shorting financials which caused many of their ratings to go down to a point where they couldn't afford bonds. You think that has validity? If so, wouldn't the short selling ban help?


I wasn't concerned with why they failed, rather that many advocated doing nothing but we are having the difficulties we now are, of which the market is merely a symptom, due in large part because of Lehman's collapse and the failure of the government to do something to prevent it.


And yes, I think there is some validity to that view, but they would have been on the verge regardless. For the record, I favoured the removal of the ban, but also favour the return of the uptick rule.

[Venusian]

The problem wasn't LB failure, it was the ridiculous CDS market. If it wasn't LB, it could have been any other big corporation failure that exposed the problem.

[Pharoh]

the bonds were trading around .12/$ or something, right? so .10 isn't much of a surprise

Not too much of a surprise. Remember I thought it would be around .15, so I am off. (Though we still don't know the final price yet).

The higher the value is set at, the less money that people have to come up with, so while not a surprise it isn't good. At least they can start to come off sheets.

[Venusian]

But the higher it is priced at, the less money funds and other investors theoretically recoup. Right?

People will know waht they owe so it can come off the sheets...but what is there isn't money to come off the sheets. This debt could theoretically bankrupt even more people/companies, right?

[Pharoh]

But the higher it is priced at, the less money funds and other investors theoretically recoup. Right?

People will know waht they owe so it can come off the sheets...but what is there isn't money to come off the sheets. This debt could theoretically bankrupt even more people/companies, right?

It is a good possibility that not all holder will be able to cover the difference between the value set today and the par value of the bond. My belief though is that the largest holders of this debt have the capability to make good, and that it has been accounted for already.

[kvrdave]

I would like to see a poll that asks whether or not people think the market would be worse or better right now if the bailout didn't "save" us.

[Pharoh]

I would like to see a poll that asks whether or not people think the market would be worse or better right now if the bailout didn't "save" us.

The real problems would be worse.

[kvrdave]

I didn't ask that.

[Ranger]

If the fed cut the rate yet again at the end of the month, won't this cause another bubble? The housing bubble started when the rate was 1% - we're getting close to that again.

[kvrdave]

If the fed cut the rate yet again at the end of the month, won't this cause another bubble? The housing bubble started when the rate was 1% - we're getting close to that again.

Only if prices fall enough that people start buying at a higher level, and the rate doesn't go up to help keep that at bay.

[kvrdave]

Anyone know of a stock site that let's you rank a number of stocks based on price/book ratio?

[Pharoh]

I didn't ask that.

I know you didn't, but what you asked is almost irrelevant to me.

However, I firmly believe the market would be lower, and considerably. We would have had more failures, no lending, more margin calls and forced sales, not to mention much more mutual fund and 401k withdrawals.

[classicman2]

Don't worry. The price of gas and heating oils won't go back down to the same levels it was back when oil was cheap, so people will still want a better energy policy.

People already want it. It's the politicians (primarily Democrats) that don't want it.

[al_bundy]

If the fed cut the rate yet again at the end of the month, won't this cause another bubble? The housing bubble started when the rate was 1% - we're getting close to that again.


bubble was due to poor lending, not low rates

[classicman2]

I know you didn't, but what you asked is almost irrelevant to me.

However, I firmly believe the market would be lower, and considerably. We would have had more failures, no lending, more margin calls and forced sales, not to mention much more mutual fund and 401k withdrawals.

I believe a number of Wall Streets don't don't agree with you.

[kvrdave]

I know you didn't, but what you asked is almost irrelevant to me.


Well now you've hurt my feelings. Good day to you, sir!

[Pharoh]

Well now you've hurt my feelings. Good day to you, sir!

:lol:

Sorry aobut that Dave. Your question is valid, just the underlying issues matter much more to me.

[Pharoh]

I believe a number of Wall Streets don't don't agree with you.

I am sure there are some, (and remember I am not a market guy), but I really haven't heard of any claiming that the market would be better, that the causes of this sell-off would have been mitigated.

[Pharoh]

But the higher it is priced at, the less money funds and other investors theoretically recoup. Right?

People will know waht they owe so it can come off the sheets...but what is there isn't money to come off the sheets. This debt could theoretically bankrupt even more people/companies, right?

It is a good possibility that not all holder will be able to cover the difference between the value set today and the par value of the bond. My belief though is that the largest holders of this debt have the capability to make good, and that it has been accounted for already.

What will be the ultimate payout be? $50B? Or even much less?

[classicman2]

I am sure there are some, (and remember I am not a market guy), but I really haven't heard of any claiming that the market would be better, that the causes of this sell-off would have been mitigated.

I gather from the ones that are critical is that they believe the 'panic button' was pushed too soon.

I don't have a clue as to who is right. I guess time will tell.

[al_bundy]

everyone is comparing this to 1929 but there is a professor at william and mary who says it's more like 1873 which was way worse.

i think Japan's 1989 bubble was like 1873 as well because it was real estate and not industrial

[Birrman54]

bubble was due to poor lending, not low rates

why the poor lending if not for artificially low rates?

[classicman2]

Me thinks you exaggerateth a little too much by the use of the pronoun 'everyone.'

Would you care to amend your post?

[Thor Simpson]

It's more like the Boston Tea Party. Throwing valuable tea into the harbor... the HARBOR i tell you!

[kvrdave]

What will be the ultimate payout be? $50B? Or even much less?

Even that answer changes with the market, as it changes with the economy.

I am certainly glad I have not jumped in with new money, but I still can't believe the amount of the drop. It no longer makes any technical sense at all. The economy may not be great, but it is half of what it was. And I can't believe people think it will become half. Though it could become a self fulfilling prophecy.

Either way, I will still be buying Guitar hero World Tour in November.

[kvrdave]

why the poor lending if not for artificially low rates?

You can have good lending practices with low rates, just as you can have bad practices at high rates. The bad practices are like "lease to own" where people had nothing invested and no reason not to walk away if they decided it wasn't for them. If everyone had a conventional loan (or had to get one), we wouldn't be in this situation, no matter where the rates were.

[RayChuang]

But all of us needs to face this salient fact: our current Federal income tax system contributed mightily to the current economic chaos.

Consider these salient facts:

1) We're spending over US$500 billion per year in compliance costs and pre-compliance economic decisions in regards to the Federal tax code.

2) The haggling over the tax code has resulted in too many politicians and fat-cat lobbyists "warping" the Federal tax code to favor narrow constituencies, frequently with detrimental results (as the sub-prime mortgage meltdown is only the latest example). :down:

3) Richer American citizens and financial companies are willing to go through sometimes Byzantine processes of "offshoring" their liquid assets to avoid US income taxes. Why do you think some experts estimate at least US$14 TRILLION in liquid assets owned by Americans are sitting in accounts in the Bahamas, Bermuda, Grand Cayman Island, Panama, Switzerland, Singapore, etc?

4) The current tax code makes it more viable for American companies to shift as much of their operations outside the USA (why do you think Mexico has so many GM and Ford assembly lines?).

It is high time we stop this merry-go-round with our current income tax system and start all over again with a consumption-based tax system like FairTax. Given that FairTax has no personal income tax, no withholding with paychecks, and no corporate taxes, it would give a MASSIVE enticement to bring trillions of dollars in liquidity back to the USA, effectively ending our economic crisis in a matter of a few weeks! And because there's no more corporate income and payroll taxes, there's all the incentive to keep goods production in the USA, providing a huge economic boon to the depressed Rust Belt as blue-collar jobs return to the USA under more favorable tax circumstances. :up:

[orangecrush]

People already want it. It's the politicians (primarily Democrats) that don't want it.
I am hoping that enough people are mad about the bailout and we have a large number of non-incumbents winning. I don't know if the bailout was the worst or best thing in the world, but if we get a large number of new senators and congressmen out of the passage, that is a plus in my book.

[X]

But all of us needs to face this salient fact: our current Federal income tax system contributed mightily to the current economic chaos.

Consider these salient facts:

1) We're spending over US$500 billion per year in compliance costs and pre-compliance economic decisions in regards to the Federal tax code.

2) The haggling over the tax code has resulted in too many politicians and fat-cat lobbyists "warping" the Federal tax code to favor narrow constituencies, frequently with detrimental results (as the sub-prime mortgage meltdown is only the latest example). :down:

3) Richer American citizens and financial companies are willing to go through sometimes Byzantine processes of "offshoring" their liquid assets to avoid US income taxes. Why do you think some experts estimate at least US$14 TRILLION in liquid assets owned by Americans are sitting in accounts in the Bahamas, Bermuda, Grand Cayman Island, Panama, Switzerland, Singapore, etc?

4) The current tax code makes it more viable for American companies to shift as much of their operations outside the USA (why do you think Mexico has so many GM and Ford assembly lines?).

It is high time we stop this merry-go-round with our current income tax system and start all over again with a consumption-based tax system like FairTax. Given that FairTax has no personal income tax, no withholding with paychecks, and no corporate taxes, it would give a MASSIVE enticement to bring trillions of dollars in liquidity back to the USA, effectively ending our economic crisis in a matter of a few weeks! And because there's no more corporate income and payroll taxes, there's all the incentive to keep goods production in the USA, providing a huge economic boon to the depressed Rust Belt as blue-collar jobs return to the USA under more favorable economic conditions. :up:I agree with the factors that weigh on our economy that you listed above. Especially the part about money staying offshore. And people even complain when tax rates are reduced as an enticement to bring it back here. But I'm not sure a consumption tax would do the job.

With modern transportation it seems to me that a consumption tax would not get revenue from people who could afford to purchase goods outside of the U.S. Say a rich person buys a yacht and registers it in a foreign country. Or buys expensive art. Or even people purchasing goods from foreign sources through the internet.

It seems the model of people going to different states to buy cigarettes would apply here. We would have to have every single item brought into this country inspected, even those that come into private docks. So the heavy burden of the taxes would fall on those who spend most of their money on food, clothes, services, etc.

[Birrman54]

You can have good lending practices with low rates, just as you can have bad practices at high rates. The bad practices are like "lease to own" where people had nothing invested and no reason not to walk away if they decided it wasn't for them. If everyone had a conventional loan (or had to get one), we wouldn't be in this situation, no matter where the rates were.

well sure, but wouldn't the Fed keeping rates at 'below' market levels make it more likely for poor lending practices to occur due to the inflated money supply? The money has got to go somewhere.

[kvrdave]

well sure, but wouldn't the Fed keeping rates at 'below' market levels make it more likely for poor lending practices to occur due to the inflated money supply? The money has got to go somewhere.

Certainly that would have helped, but I don't know that it makes it more likely for poor lending practices to occur. It would have lessened people getting loans because the payment would have been higher, or it might have kept real estate prices down, but I don't see how poor lending practices would change based on the rate. you probably only change the amount of people getting sucked in, which is also a good thing, but doesn't really affect the practices employed by lenders.

[Venusian]

if rates are artificially low, there is more supply of money to lend. there is more competition. the banks need to increase demand by increasing their potential pool of customers

[kvrdave]

if rates are artificially low, there is more supply of money to lend. there is more competition. the banks need to increase demand by increasing their potential pool of customers

If rates are high then banks need to find a way to capture all the business they can to stay afloat. I've seen bad lending practices in every market.

[Venusian]

True. I think the other arguement against low rates was that it inflates housing prices

[al_bundy]

we had a housing bubble in 1987 - 1990 and mortgage rates were like 10% back then

[Pharoh]

What will be the ultimate payout be? $50B? Or even much less?

Estimates putting initial total payout amount at $1T.

Remember though, most all of that was hedged with other swaps.

[Pharoh]

Looks like I will be wrong on oil today. It is making a comeback, down to only 78.35 at the moment.

[Venusian]

http://news.yahoo.com/s/ap/20081010/ap_on_el_pr/mccain_stocks


A proposal from McCain that actually makes sense. Don't force retirees to sell stock at a certain age

[Birrman54]

i'm confused, why is there a law telling people when they MUST sell a stock?

[RayChuang]

With modern transportation it seems to me that a consumption tax would not get revenue from people who could afford to purchase goods outside of the U.S. Say a rich person buys a yacht and registers it in a foreign country. Or buys expensive art. Or even people purchasing goods from foreign sources through the internet.

It seems the model of people going to different states to buy cigarettes would apply here. We would have to have every single item brought into this country inspected, even those that come into private docks. So the heavy burden of the taxes would fall on those who spend most of their money on food, clothes, services, etc.

I highly recommend you read the two books about the FairTax that was published in the past three years (including one published just this year!) that addresses a lot of the concerns you mentioned above. In fact, under FairTax, companies would actually find it more attractive to build their products in the USA thanks to no corporate taxes and taxes on capital gains! It might mean even a C-class Mercedes-Benz or 3-Series BMW ends up being assembled in the USA because it is financially advantageous to do so.

In the end, I support FairTax because it's the only proposed replacement for the current Federal income tax that has been carefully thought out and designed for the maximum benefit of everyone. :)

[Venusian]

i'm confused, why is there a law telling people when they MUST sell a stock?

I think it has to do with the required distributions after a certain age. i guess so the govt can tax it when it comes out

[Pharoh]

So Wednesday's issuances had nothing to do with it? Nothing at all? Flooding the belly matters not at all? And there can't be any other possible causes, such as shorts withdrawing?

I don't rule out some exodus by foreign investors, but there are other possible and plausible reasons for this right now.

By the way, the swap spreads are doing okay right now.


The performance of gold today would seem to back up the above.

[Venusian]

LB auctions get resolved? The market is rallying

[Thor Simpson]

The dems are indeed planning another stimuls package, estimated at $150 billion. (CNN)

Have they completely lost all sanity? When does China run out of money to lend us?

[Pharoh]

A few things to look out for before Monday:

-Specifics being given on the Fed's plan to directly capitalise the banks, (yeah!), and announcement of implementation. (Sooner rather than later, hopefully).

-Guarantee of interbank loans. (A must, in my opinion). Look for this out of the G7 meeting.

-Automatic circuit breakers for individual stocks, rather than the return of the uptick rule.

-Possible backstop of all deposits?

-Goldman or Morgan first to be partially capitalised and/or partially nationalised?

[kvrdave]

http://news.yahoo.com/s/ap/20081010/ap_on_el_pr/mccain_stocks


A proposal from McCain that actually makes sense. Don't force retirees to sell stock at a certain age

I think they can move stocks (without selling them) from their IRA to a regular investment account at the same brokerage already, though.

I know that when I rolled over my SEP into my ROTH, I didn't have to sell them, I just moved my positions into another account.

[Venusian]

are GS or MS really in that much trouble? Didn't they both report good earning last quarter?


Backstop of all deposits? really??? can we afford this?

[Pharoh]

are GS or MS really in that much trouble? Didn't they both report good earning last quarter?

Yes.



of all deposits? really??? can we afford this?

I don't know. However, I meant globally. It is being discussed. How seriously, I can not say.

[Venusian]

Germany, Iceland (domesitcally) and Ireland already have, right?

Japan is going to suggest some kind of international bailout or something at the G7

[Pharoh]

LB auctions get resolved? The market is rallying

I think it has more to do with the hoped for announcements out of the G7 meeting. But the price setting sure doesn't hurt.

[orangecrush]

The dems are indeed planning another stimuls package, estimated at $150 billion. (CNN)

Have they completely lost all sanity? When does China run out of money to lend us?
It is all just numbers on a computer screen ;)

[Pharoh]

And the rally kills my oil call. Back over 80 now.

[kvrdave]

Wait. We had a false rally late yesterday as well.

[Venusian]

rally ended...or did it?

[VinVega]

The roller coaster continues. The emotions must be running hot on that trading floor.

[nemein]

BTW I just sold off Amazon this morning to lock in some profits... if history holds true though expect it to sky rocket here soon :(


Not exactly sky rocketted but up 4% :( Knew I shouldn't have sold off :mad2: This is why I stopped trying to "game" the market...

[Dr Mabuse]

As of yesterday we had an actual "crash".

Today the Dow was down over 700 to closing down at 60.

That's sheer panic.

The volume today was crazy.

[VinVega]

Not exactly sky rocketted but up 4% :( Knew I shouldn't have sold off :mad2: This is why I stopped trying to "game" the market...
Should have invested in Pork bellies nemein. :lol:

[VinVega]

As of yesterday we had an actual "crash".

Today the Dow was down over 700 to closing down at 60.

That's sheer panic.

The volume today was crazy.
That was one hell of a rally. Must have been like a football game on the floor. Root those stocks back up boys! ;)

[nemein]

I'm just going to let it all sit for a week or so and hopefully do some bargain hunting ;)

[Dr Mabuse]

That was one hell of a rally. Must have been like a football game on the floor. Root those stocks back up boys! ;)

The Dow was up 250 just before closing.

I actually thought it closed in positive territory 'til I checked.

Two minutes before closing bell it was still up ~120.

Wild stuff.

[kvrdave]

7,882.51 - 8,897.62
That's the trading range. :lol:

The fact that there was a late rally, etc. makes me think we have not capitulated.

[Pharoh]

Paulson press conference @ 6:45 tonight. Recap in the offing. How will it work.

The best plans will encourage a 50-50 public/private investment. Some banks must be allowed to fail though. Will the government move this way though?

Hopefully monetising won't be the method.




See ya'll later.

[Icculus]

i'm confused, why is there a law telling people when they MUST sell a stock?


It's not really a law saying you have to sell a stock. The rule is that once you hit 70.5 you need to take your minimum required distribution from your retirement accounts (it's the balance of the account divided by a divisor from the IRS uniform lifetime table). Basically, the reasoning is that you are allowed to keep the money in a preta retirement account tax deferred but eventually the IRS wants their cut. If you're 100% invested in stock at the age of 70 1/2 then yeah, you have to sell stock... however, most likely you have some sort of money market/gic/cash position in there to draw from and can avoid selling the stock.

[DVD Polizei]

That was one hell of a rally. Must have been like a football game on the floor. Root those stocks back up boys! ;)

I can already hear the formula music and Dennis Quaid coming to a theater near me.

[wabio]

In fact, under FairTax, companies would actually find it more attractive to build their products in the USA thanks to no corporate taxes and taxes on capital gains! It might mean even a C-class Mercedes-Benz or 3-Series BMW ends up being assembled in the USA because it is financially advantageous to do so.




I think the primary motive for companies offshoring production is due more to cheaper labor than to taxes. Any corporate tax specialists here? Does having a factory overseas and importing the product really save a company that much in taxes? Their profit might actually increase because of lower overhead though. Again what does FairTax say the consumption tax level should be? 10% is too low. 40% might kill spending.

[Doctor Gonzo]

R1X6RQLZtoA

[shifrbv]

Anybody watch the George Soros interview on Bill Moyers last night? He didn't have one positive thing to say about this situation. He believes the government is doing everything wrong and acting too slowly. He said it's the end of an era and the world is looking for alternatives because basically the US is over. He is "extremely concerned about the next few months".

Jim Rogers (Soros former partner and a man who has been right about this debacle down the line) is now predicting "holocaust inflation" (something I said on here as well and urged people to try and prepare for).

I can't believe this stuff doesn't scare the s*** out of people on here. Do people just not realize how bad this is going to get? What this all means?

[rw2516]

So when are the stock market threads moving to Poker, Gambling and Vegas forum?-smile-

[classicman2]

What do y'all think of former President Jimmy Carter being critical of George Bush on the economy?

[wabio]

What do y'all think of former President Jimmy Carter being critical of George Bush on the economy?

Transcript? Also, hasn't everybody been critical of Bush? His words seem to carry about as much weight as Pauly Shore's. I think Bush ignoring the approval ratings and public sentiment may ultimately cost McCain the White House.

[wabio]

Anybody watch the George Soros interview on Bill Moyers last night? He didn't have one positive thing to say about this situation. He believes the government is doing everything wrong and acting too slowly. He said it's the end of an era and the world is looking for alternatives because basically the US is over. He is "extremely concerned about the next few months".

Jim Rogers (Soros former partner and a man who has been right about this debacle down the line) is now predicting "holocaust inflation" (something I said on here as well and urged people to try and prepare for).

I can't believe this stuff doesn't scare the s*** out of people on here. Do people just not realize how bad this is going to get? What this all means?


It does scare the shit out of me, but what can I do? All I can do is pulled my money out (which I did a long time ago), stop spending needlessly, and go to work. Some members (IIRC Pharoh?) said deflation is much more likely. I really hope this is true. It would be a godsend for most Americans if prices actually went down. Unfortunately, I don't see this happening. Even if commodoty, wholesale, and production costs drop.....I think retailers will stick to their guns on prices hoping to bank some profit.

[classicman2]

Transcript? Also, hasn't everybody been critical of Bush? His words seem to carry about as much weight as Pauly Shore's. I think Bush ignoring the approval ratings and public sentiment may ultimately cost McCain the White House.


I only heard excerpts of his remarks on television.

Weight doesn't matter - it's the nerve of someone who presided over the economy as Carter did that I find rather amusing and wondering if he's not crossed over the senility line.

[wabio]

Anybody watch the George Soros interview on Bill Moyers last night?

Here's the link to the article (video link embedded):

http://www.pbs.org/moyers/journal/10102008/profile.html

I'm watching it now. Warning. It's long (~25 minutes)

[wabio]

That video was tedious.

Soros is proposing that people going thru foreclosures should be allowed to "reassess" the value of their mortgages and also interest rates. A true bailout. I'm not sure I necessarily agree with this idea, although I do agree some assistance is necessary to prevent overshooting housing value declines.

At 18:20 Soros pretty much shoots down the theory of trickle-down.

[sracer]

That video was tedious.

Soros is proposing that people going thru foreclosures should be allowed to "reassess" the value of their mortgages and also interest rates. A true bailout. I'm not sure I necessarily agree with this idea, although I do agree some assistance is necessary to prevent overshooting housing value declines.
Why? When were we guaranteed that real estate prices would continue an uninterrupted march upwards? So because people decided to view their houses primarily as an investment vehicle rather than a dwelling they should be bailed out?

Unbelievable.

Any bailout of homeowners is going to keep house prices higher than they should be.

[VinVega]

New and improved poll version. :banana:

[Birrman54]

Why? When were we guaranteed that real estate prices would continue an uninterrupted march upwards? So because people decided to view their houses primarily as an investment vehicle rather than a dwelling they should be bailed out?

Unbelievable.

Any bailout of homeowners is going to keep house prices higher than they should be.

:thumbsup: it's completely absurd to think that because people overreached on home purchases they ought to be given special treatment. Meanwhile plenty of people who chose wisely just get to have their tax dollars thrown away.

[mbs]

Some members (IIRC Pharoh?) said deflation is much more likely. I really hope this is true. It would be a godsend for most Americans if prices actually went down.

Deflation would NOT be a good thing, by any stretch of the imagination. Remember, the Great Depression is considered a deflationary spiral.

Deflation as I see it: prices lower due to lack of demand = cut back on production = massive job losses = less demand = (continue cycle).

Wouldn't be good at all. Lower prices sound good, but that wouldn't be the only effect. That's equivalent to saying that hyper-inflation would be great for Americans since the average American is so riddled with debt. But there are other issues at work.

[Ranger]

I don't think we're going to have any extreme deflation, just the kind that brings everything back to what they were a few years ago, before the housing bubble, before oil prices shot up, etc.

[Duran]

Anybody watch the George Soros interview on Bill Moyers last night? He didn't have one positive thing to say about this situation. He believes the government is doing everything wrong and acting too slowly. He said it's the end of an era and the world is looking for alternatives because basically the US is over. He is "extremely concerned about the next few months".


Frankly, I'd take the opinions of Soros with a grain of salt one month before a Presidential election.

[DVD Polizei]

I don't think we're going to have any extreme deflation, just the kind that brings everything back to what they were a few years ago, before the housing bubble, before oil prices shot up, etc.

I would agree. Consumers still have credit. They just can't buy a new car and a new home with virtually nothing down. Boo hoo. Welcome back to reality. Everybody driving around in Dodge vehicles with 95.7" chrome rims, being in their mid-30's and 40's, looking like wannabe drug dealers, was getting rather haggard, thanks.

Same goes for these spoiled egg-rotten lending institutions. They're gonna have to invest and expect returns on their investments over time, versus OVERNIGHT.

So quicketh your profits be, so quicketh it shall be taken away.

[The Bus]

<img src="http://5.media.collegehumor.com/collegehumor/ch6/8/e/collegehumor.6933d1c8b2ccfe6c4e81612ec62489d4.jpg">

[Shazam]

I don't think we're going to have any extreme deflation, just the kind that brings everything back to what they were a few years ago, before the housing bubble, before oil prices shot up, etc.It almost never works like this. The problem with deflation is that customers eventually figure it out. So you wait... and wait... and wait... for prices to keep dropping. After all, why pay $200 for something when it's going to be $150 six months from now? Or $100 a year from now?

[kvrdave]

<img src="http://5.media.collegehumor.com/collegehumor/ch6/8/e/collegehumor.6933d1c8b2ccfe6c4e81612ec62489d4.jpg">


I'm amazed at how many people think Europe isn't affected. From what I have seen, they may be worse off than we are.

[Brent L]

This been posted yet?

http://humanevents.com/images/letter_050506c.gif

[Lateralus]

I'm amazed at how many people think Europe isn't affected. From what I have seen, they may be worse off than we are.

Well look at the American Dollar going up against the Euro. Going to Europe is 16% cheaper than it was just a month ago, Canada is 18% cheaper. Europe is going to get *hit* hard by this, heck even China's market is down 60% from it's highs.

[stevevt]

Europe is going to get hard by this

-other-

[BigDaddy]

GM, Chrysler in merger talks: source


http://www.reuters.com/article/newsOne/idUSTRE49A0X420081011?sp=true


I don't see this working. Seems like way to much overlap.

[Lateralus]

-other-


Ugh!

:lol:

[parrotheads4]

This been posted yet?

Was that drafted in response to the concern presented by Ron Paul?

U.S. Treasury Borrowing. During consideration of a bill to overhaul the regulation of government-sponsored enterprises, Rep. Ron Paul (R-Texas) offered this amendment to “eliminate the ability of Fannie Mae, Freddie Mac and the Federal Home Loan Bank Board to borrow from the Treasury.” During floor debate on his amendment, Paul stated, “I hope my colleagues join me in protecting taxpayers from having to bail out Fannie Mae and Freddie Mac when the housing bubble bursts.” The House rejected Paul’s amendment on October 26, 2005 by a vote of 47-371 (Roll Call 544). Paul’s amendment would (in Paul’s words) seek to end a “massive unconstitutional and immoral” transfer of income from working Americans to government-sponsored enterprises.

[wabio]

Flashback: So I withdrew all my cash from WaMu, then drove to Jack in the Box and bought lunch. WaMu went under, but Jack in the Box's stock is actually going up! I may just develop a god complex after this. :eek:

http://finance.yahoo.com/q?s=jbx

[DVD Polizei]

GM, Chrysler in merger talks: source


http://www.reuters.com/article/newsOne/idUSTRE49A0X420081011?sp=true


I don't see this working. Seems like way to much overlap.

Jesus H. Chrysler, the fuckheads need to stop making so goddamn models.

[DVD Polizei]

Well look at the American Dollar going up against the Euro. Going to Europe is 16% cheaper than it was just a month ago, Canada is 18% cheaper. Europe is going to get *hit* hard by this, heck even China's market is down 60% from it's highs.

This is certainly a wacky situation. I have to wonder how long this lasts. I also have to wonder if Europe will, in some way, penalize US interests so the dollar won't be so strong against the Euro. Eventually, the US is going to be blamed for Europe's financial crisis as well.

Takes two to tango, motherfuckers.

[Shazam]

This is certainly a wacky situation. I have to wonder how long this lasts. I also have to wonder if Europe will, in some way, penalize US interests so the dollar won't be so strong against the Euro. Eventually, the US is going to be blamed for Europe's financial crisis as well.

Takes two to tango, motherfuckers.I'd like to see them try. Britain, for instance, had a HUGE real estate bubble that makes the US one seem positively mild by comparision.

[Superboy]

Once you strip away all the jargon, all the ideology, all the chatter from the opinion makers who can't find their own asshole, is this what it comes down to?

Loss of liquidity causes banks to teeter on edge of failure

People make runs on banks to absolutely ensure failure

Lack of liquidity causes dearth of credit

Lack of credit causes businesses to suspend/limit operations, individuals to cut back consumer spending due to lack of credit

Reduction/termination of operations creates cuts in jobs

Cuts in jobs leads to loss in personal income

Loss in personal income limits 1) spending and 2) investment

Lack of investment prohibits banks from extending credit, lack of spending reduces demand so operations fall further still...

...which leads to further unemployment and lack of liquidity in banks.

[DVD Polizei]

We have such an intertwined affiliation with credit, that if we're going to make it through this phase, it's going to be like a drug addict going to a rehab center and into withdrawal for several weeks, if not months.

The US government should have started with the people first, and the lending institutions last. If consumers don't spend in the next 6 months, all the bailouts to help business won't work at all. Consumers make the economy. Not the banks. Not the large businesses. The consumers. The people.

The guy who feels like ordering a pizza because he has a few bucks to spare. The couple who feel like going out to eat on the other side of town because they have the cash and want the good food. The family who decide to go on a vacation for a week because gas is cheap and their cost of living is affordable to allow such a vacation.

You start taking away a consumer's creative spending habits, start taking away the affordability of living, and you will indeed crash the entire US economy, if not the world economy within a very short period of time.

The Bush Administration or whoever is in charge over there, better quickly come to the realization that lending firms and banks are not what is keeping the economy going. You and I are keeping the US on its feet. Not a corporation. Not a bank. Not a lending institution. Every single week which goes by we see this more clearly as all markets are declining.

As a collective, the US consumer can do great things. But we can't do it without the United States government's help. We need fixed rate cheap mortgages. We need lower food prices. We need a near-future temporary ban on Ethanol production (January 2009) which will be implemented again at a later date, but only when the economy has adjusted. We need gas prices under $2.75/gallon with a target of $2/gallon.

If there is widespread collusion to keep money within the corporate structure to preserve their own corruption and over-bloated existence, create a federal bank who will grant credit to the same companies who would have been approved by the other lending firms. In other words, compete with private lending firms. If these lending firms don't lend, they will die. If consumers don't borrow, the economy stops.

Which is it. I say help the small businesses and the consumer. Fuck the large lending firms who have proven they are merely hanging around for the parasitic pleasure of inflated net worth.

Instead of spending trillions on corporate financial infrastructures, spend it on consumer confidence. Once consumers start spending, the wheels of what we call Capitalism, will turn once again.

[Superboy]

We have such an intertwined affiliation with credit, that if we're going to make it through this phase, it's going to be like a drug addict going to a rehab center and into withdrawal for several weeks, if not months.

The US government should have started with the people first, and the lending institutions last. If consumers don't spend in the next 6 months, all the bailouts to help business won't work at all. Consumers make the economy. Not the banks. Not the large businesses. The consumers. The people.

The guy who feels like ordering a pizza because he has a few bucks to spare. The couple who feel like going out to eat on the other side of town because they have the cash and want the good food. The family who decide to go on a vacation for a week because gas is cheap and their cost of living is affordable to allow such a vacation.

You start taking away a consumer's creative spending habits, start taking away the affordability of living, and you will indeed crash the entire US economy, if not the world economy within a very short period of time.

The Bush Administration or whoever is in charge over there, better quickly come to the realization that lending firms and banks are not what is keeping the economy going. You and I are keeping the US on its feet. Not a corporation. Not a bank. Not a lending institution. Every single week which goes by we see this more clearly as all markets are declining.

As a collective, the US consumer can do great things. But we can't do it without the United States government's help. We need fixed rate cheap mortgages. We need lower food prices. We need a near-future temporary ban on Ethanol production (January 2009) which will be implemented again at a later date, but only when the economy has adjusted. We need gas prices under $2.75/gallon with a target of $2/gallon.

If there is widespread collusion to keep money within the corporate structure to preserve their own corruption and over-bloated existence, create a federal bank who will grant credit to the same companies who would have been approved by the other lending firms. In other words, compete with private lending firms. If these lending firms don't lend, they will die. If consumers don't borrow, the economy stops.

Which is it. I say help the small businesses and the consumer. Fuck the large lending firms who have proven they are merely hanging around for the parasitic pleasure of inflated net worth.

Instead of spending trillions on corporate financial infrastructures, spend it on consumer confidence. Once consumers start spending, the wheels of what we call Capitalism, will turn once again.

You sound like Karl Marx... only instead of socialism, you are advocating consumerism.

[DVD Polizei]

Yeah, I guess advocating consumerism a bad thing? Interesting. Never knew somebody would actually be against that.

And by mentioning Karl Marx, you've proven what, I have to ask.

I take it your idea of a free market system is where only a small group of corporations hold all they keys to your money, arbitrarily set prices irrespective of how legitimate they really are, and only the largest corporations get favors from the government.

That's Cronie Capitalism. And that's worse than Karl Marx.

[Dr Mabuse]

You sound like Karl Marx... only instead of socialism, you are advocating consumerism.

Consumerism is the primary reason the US economy in whole has grown for around 2 decades. We are a ~75% consumer economy.

People know the terms about the 'tech bubble' and the 'housing bubble', but a Dow at 13,000 and 14,000 and 11,000 was a 'spending bubble' and it has 'popped'. The fact that Wall Street itself became a part of the consumerism, shopping for stock became like shopping and spending for other things, helped blow the bubble up.

Just as there was no possible realistic and sound explanation for the up to 40% gain in real estate prices, there is no reasonable explanation for the market to have grown the way it did in recent years. I see people expecting the market to climb right back up to the bubble levels and professing a 'buy and hold' strategy, apparently unaware of the bubble effect.

Stock prices skyrocketing up when most 'investors' and 'financial experts' can't even answer just about the most important question of investing correctly:

If you buy a share of stock X at $10, and stock X grows to be worth $100 in a span of time, how much money have you gained?

[parrotheads4]

You start taking away a consumer's creative spending habits, start taking away the affordability of living, and you will indeed crash the entire US economy, if not the world economy within a very short period of time.

The Bush Administration or whoever is in charge over there, better quickly come to the realization that lending firms and banks are not what is keeping the economy going. You and I are keeping the US on its feet. Not a corporation. Not a bank. Not a lending institution. Every single week which goes by we see this more clearly as all markets are declining.

Do you view the impact on the world economy as good, or bad for the USA?

Was this a plan? Surely everyone saw it coming.

[DVD Polizei]

I think the US was a leader in economic stablity, and if the US can get itself together, the world can as well. The converse is also very possible.

[parrotheads4]

We've spent a lot of time talking about all the "bad" impact. It might be beneficial to start talking about the "good" impact.

A slower economy means China will make fewer goods, burn less fuel, cool the planet. The unemployed Chinese will do more for less decreasing the cost of goods.

Russia will sell less oil. Venesuala will sell less oil.

"In chaos there is oportunity."

[wabio]

Once you strip away all the jargon, all the ideology, all the chatter from the opinion makers who can't find their own asshole, is this what it comes down to?

Loss of liquidity causes banks to teeter on edge of failure

People make runs on banks to absolutely ensure failure

Lack of liquidity causes dearth of credit

Lack of credit causes businesses to suspend/limit operations, individuals to cut back consumer spending due to lack of credit

Reduction/termination of operations creates cuts in jobs

Cuts in jobs leads to loss in personal income

Loss in personal income limits 1) spending and 2) investment

Lack of investment prohibits banks from extending credit, lack of spending reduces demand so operations fall further still...

...which leads to further unemployment and lack of liquidity in banks.

There's a lot more than just "credit" that's affecting consumer spending. The culmination of the credit crisis was a relative late-comer to game. Consumers started pulling back on spending late last year. Unemployment has been increasing throughout 2008. Prices on just about everything have been increasing for quite a while now. People started mentioning recession as early as 4th quarter 2007. Wages have been stagnating for a couple years now.

I'm pretty sure even if banks extended more credit to consumers (which they won't), many probably wouldn't use it. Consumers have realized they cannot freely spend off their Visas forever. Besides, is that what we really want? Wild debt spending is fundamentally what got us into this mess in the first place. Living within your means is becoming a new catch phrase. Granted I wouldn't put it past the average American to maintain this outlook for long if conditions returned to what we were accustomed to.

But the question is.......is the free-spending model fundamentally viable? As of right now, average consumers have two options. Cut back spending and embrace a frugal lifestyle, or continue wild spending and go broke. Until the conditions affecting these people (inflation, wages, unemployment, etc.) change, their options really are limited.

[wabio]

You sound like Karl Marx... only instead of socialism, you are advocating consumerism.


Interesting you bring up Marx. I'm no expert on his ideology, but what most of what I have read (his predictions on runaway capitalism and abuse of power) pretty much describes our current economic state IMO.

[DVD Polizei]

We've spent a lot of time talking about all the "bad" impact. It might be beneficial to start talking about the "good" impact.

A slower economy means China will make fewer goods, burn less fuel, cool the planet. The unemployed Chinese will do more for less decreasing the cost of goods.

Russia will sell less oil. Venesuala will sell less oil.

"In chaos there is oportunity."

I'm not sure all of those possibilities will be realistic. If the US dollar continues strong, our imports will rise from China, keeping employment levels stable and manufacturing at normal levels. I think the US is the major importer from China, so even if Europe has issues, it may not affect China so much.

At the same time, will the US export as much as it did when the US dollar was low. Because now, other countries won't be buying as much of our product.

Russia's oil situation won't be affected too much. Venezuala will simply reduce output and increase prices (Russia might do this as well). Which is why I wonder how long the gaining dollar will be viable.

[wabio]

We've spent a lot of time talking about all the "bad" impact. It might be beneficial to start talking about the "good" impact.

A slower economy means China will make fewer goods, burn less fuel, cool the planet. The unemployed Chinese will do more for less decreasing the cost of goods.

Russia will sell less oil. Venesuala will sell less oil.

"In chaos there is oportunity."


Cheap gas. Hopefully.

[Sean O'Hara]

This is certainly a wacky situation. I have to wonder how long this lasts. I also have to wonder if Europe will, in some way, penalize US interests so the dollar won't be so strong against the Euro. Eventually, the US is going to be blamed for Europe's financial crisis as well.


Nah, they've chosen Iceland as the scape-goat (http://www.time.com/time/world/article/0,8599,1849090,00.html).

There's nothing like an external enemy to make a country pull together, and Britain, fractious and dissatisfied with its Labour government until recently, has found a fresh foe: Iceland. The tiny country's benign image as a land of geysers and the midnight sun has been swiftly eclipsed by its new incarnation as the mustache-twirling villain of the credit crunch. Britons — from private individuals to local government, charities and public bodies — have deposited some $34 billion in Iceland's financial institutions, among them Landsbanki, which went into receivership this week, and Kaupthing, the country's biggest bank, which was nationalized on Thursday. After the British government used antiterror legislation to freeze Landsbanki assets (these laws were simply "the most efficient mechanism available," a Downing Street spokesman explains), Iceland's Prime Minister Geir Haarde protested. "Not many governments would have taken that very kindly," he said. His counterpart in London appears unabashed. "We will take further action against the Icelandic authorities wherever that is necessary to recover the money," said Prime Minister Gordon Brown.

[parrotheads4]

I'm not sure all of those possibilities will be realistic. If the US dollar continues strong, our imports will rise from China, keeping employment levels stable and manufacturing at normal levels. I think the US is the major importer from China, so even if Europe has issues, it may not affect China so much.

At the same time, will the US export as much as it did when the US dollar was low. Because now, other countries won't be buying as much of our product.

Russia's oil situation won't be affected too much. Venezuala will simply reduce output and increase prices (Russia might do this as well). Which is why I wonder how long the gaining dollar will be viable.


Imports will rise from China if American's are consuming at current rates.

What's the USA's #1 single export? Isn't it nuclear power? It used to be. Higher energy costs in foreign nations make nuclear more viable to them.

Maybe we should all invest in nuclear power.

[wabio]

You start taking away a consumer's creative spending habits, start taking away the affordability of living, and you will indeed crash the entire US economy, if not the world economy within a very short period of time.

The Bush Administration or whoever is in charge over there, better quickly come to the realization that lending firms and banks are not what is keeping the economy going. You and I are keeping the US on its feet. Not a corporation. Not a bank. Not a lending institution. Every single week which goes by we see this more clearly as all markets are declining.

As a collective, the US consumer can do great things. But we can't do it without the United States government's help. We need fixed rate cheap mortgages. We need lower food prices. We need a near-future temporary ban on Ethanol production (January 2009) which will be implemented again at a later date, but only when the economy has adjusted. We need gas prices under $2.75/gallon with a target of $2/gallon.


We need to start focusing more on grassroots capitalism and less on supply-side economics. There are a lot of people hurting financially right now, even those who didn't speculate wildly on real estate. I'd bet most are in the shrinking middle class. Giving dividend, capital gains, and corporate tax cuts isn't driving the economy like it was purported to do. Theoretically, we could double the number of corporations and double investment spending, but if people can't afford to buy....it will all go for not.

[wabio]

What's the USA's #1 single export?

I thought it was food, or heavy machinery (tractors, boeing jets, military equipment)? I'm not sure.

[Dr Mabuse]

What's the USA's #1 single export?

http://i260.photobucket.com/albums/ii18/drmabuse06/Forum%20comments/link.gif (http://www.time.com/time/magazine/article/0,9171,1844547,00.html)

[parrotheads4]

:lol:

- And don't forget paper trash!

http://www.reuters.com/article/marketsNews/idINN0748657020081007?rpc=44&pageNumber=1&virtualBrandChannel=0

I bet many of you would trade your past years investments for this company:
http://finance.yahoo.com/echarts?s=WAB#chart1:symbol=wab;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;l ogscale=on;source=undefined

And remember; nuclear power makes friends. Look what it's done for our relationship with North Korea ! ;)

[Pharoh]

What will be the ultimate payout be? $50B? Or even much less?



Sorry for the hit and run posting, but wanted to comment quickly on this.

The estimated net payout will be $6B. So, far lower than the $50B. Great news, for now.

[Pharoh]

Europe likely to join UK recap plan. British banks in major major trouble. The people there in the sector are going nuts.

New medium term debt in Eurozone guaranteed. It was expected and predicted, but whew, what a relief.

[Pharoh]

Lastly, can not people here, and elsewhere, distinguish between the problems of the economy and the systematic difficulties we are facing.
They aren't the same thing, nor can the solutions be the same.

[Pharoh]

Oh, and Venezuela and Russia really can't do anything about the price of oil. Venezuela in particular can lobby for a production cut at the upcoming OPEC meeting, which they will get, but the price of a barrel is going down regardless. Russia can't do much, at least not about oil.

[Superboy]

Yeah, I guess advocating consumerism a bad thing? Interesting. Never knew somebody would actually be against that.

And by mentioning Karl Marx, you've proven what, I have to ask.

I take it your idea of a free market system is where only a small group of corporations hold all they keys to your money, arbitrarily set prices irrespective of how legitimate they really are, and only the largest corporations get favors from the government.

That's Cronie Capitalism. And that's worse than Karl Marx.

Somehow I knew that statement would be taken the wrong way. I should have known better than to make an observation like that.

I agree with you, but i'm just saying... your language was very similar to Marxism. Although I'm not equating the two at all.

[Lateralus]

Oh, and Venezuela and Russia really can't do anything about the price of oil. Venezuela in particular can lobby for a production cut at the upcoming OPEC meeting, which they will get, but the price of a barrel is going down regardless. Russia can't do much, at least not about oil.

The price of oil will go down to a point but once the economy picks up again it will go back up. If we have a bounce tomorrow (+300 at the time of this post) oil could go up $10.00+.

[Venusian]

I've been out of touch this weekend. Anyone want to fill me in on what happened? The articles i read said the Fed did stuff to help unfreeze credit with no details of course. Whatever it is, the market seems to like it

[VinVega]

I've been out of touch this weekend. Anyone want to fill me in on what happened? The articles i read said the Fed did stuff to help unfreeze credit with no details of course. Whatever it is, the market seems to like it
From what I can tell the excitement is over the group of 7 big countries who got together to agree to pump money into their banking systems and to buy some failing banks. They will also make sure that the government bought banks will lend to international institutions, so you wouldn't have a situation where the US were not lending to English or French banks and vice versa. If that happened and banks only looked inward and lent nationally instead of internationally, it would kill the global economy.

[al_bundy]

it wasn't in the news, but there was a big scare about Letters of Credit. supposedly if you ship something you sell to someone in another country you use these things for payment. buyer gives you LOC from their bank. you take it to your bank to get the money transfered.

since banks didn't trust each other the didn't take LOC's from other banks and it almost stopped world trade. kind of like Smoot something back in 1930

http://www.safehaven.com/article-11537.htm

October 11, 2008

Where Do We Go From Here?
by John Mauldin


I have been writing for almost a year that the next shoe to drop on US banks would be commercial construction lending. Today we look at some hard numbers. We look across the pond to sort out the problems in Europe. We look at the consequences of the losses stemming from Lehman. Then we look at one of the more serious consequences of the banking crisis, one that will bring the crisis home to you. Finally, we look at what the various governments of the world must do in response. It may not be fun, but it should be interesting. And it is important. Feel free to forward this letter to anyone who asks why we not only need the bailout but will need even more coordinated government action.

But first, let me offer a note of optimism before I serve up the not so good news. This is not the end of the world. There are a lot of very positive things happening in the US and the world. Companies are creating new inventions. Much of the economy, including health care, is moving along fine. I have lived through two serious recessions (1973-74 and 1980-82), and the point is that a free-market economy will find a way to eventually get back to solid growth. Recessions are simply part of the business cycle. Congress cannot repeal the business cycle. This will not be the last recession of my life. I hope to live long enough to go through 4 or 5 more.

Depressions are caused by governments making major policy mistakes. And we have made some in the areas of not regulating mortgage lending, allowing the five large investment banks to increase their leverage to 30 or 40 to one in 2004 (what was the SEC thinking?), and failing to oversee the rating agencies. That is behind us. It will make a normal recession deeper and the recovery longer, as I have been forecasting for some time.

But as I argue below, immediate actions must be taken by the government to avoid a much deeper problem. To not take actions to stem the credit crisis would be that major policy mistake which would compound all the other mistakes. I think everyone knows the seriousness of the problem and will act. Let's pray they do.

But whatever happens, there will be plenty of opportunity for investors and entrepreneurs to exploit. The world is on the cusp of a remarkable explosion of new technology of all sorts that will transform our lives. This march of progress went on unchecked last century, through two world wars, major depressions, numerous smaller wars, recessions, financial crises all over the world, famines and natural disasters, not to mention a lot of man-made ones.

The current crisis will pass. None of us will want to go back to the "good old days" in 20 years, for we will be living in the best of times. Just make sure you keep your powder dry so that you can enjoy it. And now, let's look at some less than uplifting news.

Construction Lending: The Next Shoe to Drop

The Bank Credit Analyst is one of the more reliable sources I know for information. They estimate that total losses from the current debt crisis could be anywhere from $1.1 trillion to $1.7 trillion. They estimate roughly half to be in the banking sector, or around $750 billion, and almost $590 billion of that has already been written off. That means that the $700 billion from the TARP (government bailout) program may actually be enough to handle the losses and inject some actual capital into the banks. Maybe.

The losses from subprime and other mortgage-related loans are well known. Most of those losses are in the larger banks, as smaller banks simply could not participate to any great extent. What is less well understood are the potential losses which smaller banks are in fact exposed to in the area of construction lending. Lisa Marquis Jackson, now writing for John Burns Real Estate Consulting (one of the best sources for hard real estate data), gives us some answers to the question of "how much?"

Outside of the large home builders and developers, most of the lending for construction of homes and commercial property comes from regional and local banks. A local home builder may finance 5-10 homes, or a developer a small strip mall or apartment complex, from their local bank. Look at the graph below. Since 2001, delinquencies had been rather small and well-contained. Then starting 18 months ago, the delinquency rates started rising.

Again, note that these are delinquency rates for business loans from banks and not for individual mortgages.



Over 16% of loans made for condominium construction are now delinquent. Loans made for single-family home construction are only slightly more than 12% overdue. But that masks a much bigger problem. Single-family loans account for 86% of all for-sale residential construction loans outstanding.

The good news is that for the top 100 banks by size, single-family loans make up only 2% of the total. But that small portion totals $245 billion. And condos add another $41 billion. That puts almost $40 billion at risk of default at today's delinquency levels.



It will be worse for many smaller banks, as they have larger commercial construction loan portfolios. As noted below, this may require some proactive action on the part of regulators.

Lehman at the Center

Now we know the consequences of allowing Lehman to fail. The severity of the credit crisis was deeply, severely worsened by the failure of Lehman. Based on the results of the credit auction today, sellers of protection will need to make cash payments of more than $270 billion, BNP Paribas SA strategist Andrea Cicione said in London. Some funds may be forced to dump assets to meet the payment demands if they haven't hedged.

How much of that debt will eventually have to be absorbed by various government programs or direct capital infusions? It is too soon to say, but you can bet it will be a lot.

If there is any good news to this, it is that much of the write-downs have already been made. It now looks like the Lehman CDS market sorted itself out with no failures, according to the International Swaps and Derivatives Association.

We have dodged a huge bullet. But the anguish this has put the credit markets through the past month was avoidable. The CDS markets MUST be made to migrate to a regulated clearing entity like the Chicago Mercantile Exchange. Next week would be a good time. While there have been serious losses by various players in other exchange-traded markets, there was no systemic risk, as everyone knew the value of their various securities, whether futures or options or other derivatives, and knew they would get their full value when sold.

With Lehman, no one really knew until late today. Thus banks and hedge funds had to sell anything they could in order to meet possible payments or losses, which caused wildly swinging prices in every market.

It is my bet that future memoirs of the various main actors and books on the credit crisis will look back at the failure of Lehman as the proverbial "last straw" for the unregulated CDS markets.

Iceland Guarantees What?

Let's get this straight. Iceland is a country of 300,000 people. I've never met an Icelander I didn't like. They are an extraordinary people. A few decades ago, they made their money on fishing, farming, and trading. Then they discovered banking and started to take deposits from anywhere and everywhere and make loans outside the country. Soon, the various banks' assets were over $140 billion, about 10 times the total GDP of the country, and they had far more foreign depositors than citizens. With foreign reserves of just 2 billion euros, what could the government do if there was a crisis?

Now Iceland has had to take over the banks and guarantee deposits. They also had to turn to Russia for a loan. Does anyone think Putin would hand out a no-strings-attached loan? Russia needs a refueling station for its Navy and will likely get it.

Note that Iceland gave its citizens the ability to withdraw money but did not extend that same privilege to the citizens of other countries. England and the Netherlands have already gone to court.

As noted by good friend Dennis Gartman this morning, "Since then, things have only gotten worse, with the UK government moving to freeze the assets of Icelandic companies in the UK, and Her Majesty's government has said that it will take whatever further actions it deems necessary to protect the assets of British companies and citizens currently held in Iceland, doing 'whatever is necessary to recover [our] money.'

"Thus, not only are banks fearful of lending money to banks; and not only are banks fearful of lending money to individuals and/or companies; and not only are individuals and/or companies fearful of lending money to the banks, but now nations are fearful of lending to other nations. This is Smoot-Hawley writ large, and of all of the circumstances that have prevailed in the course of the past several days, this is the worst; this is the most difficult to deal with. This is madness."

As noted last week, Ireland set off a feeding frenzy when it guaranteed all deposits in its banking institutions. Five billion euros poured in over the last week. One by one, European governments are having to guarantee their loans to keep money from leaving their institutions.

Let's look at the Irish guarantee on the face of it. There are six Irish banks, holding assets of $576 billion. That works out to three times Ireland's gross domestic product, or about $200,000 for every working person in the country. (Bedlam Asset Management) Yet depositors flooded them with money in just a few days.

This is a sign of panic. One goes where one can, trying to protect what one has. On the face of it, how could Ireland really guarantee all the deposits? Yes, there are real assets against the loans, but at what price? Could Ireland borrow enough to make good on even a portion of those assets, should they decide to walk? This is sheer panic.

Letters of Credit: Going, Going Gone?

Just as the business world is dependent upon commercial paper as its life blood, the world of global trade depends on letters of credit (LOC). Without LOCs, the world of trade quickly freezes up.

If you are a manufacturer of a product and want to sell to someone outside your borders, you typically require a letter of credit from the buyer before you load any cargo at a port. A letter of credit from a prime bank is considered to be proof of your ability to pay. It not only can be a source of ultimate payment, it can be a source of inventory financing while goods are in transit.

And if you are a business which is buying a product, you do not want to release money until you know the product is on the way. There are buyer's and seller's agents who make sure these things happen seamlessly, and world commerce had grown because of it.

Now we are starting to get anecdotal evidence that this extremely vital market is also freezing up. If you think the problems stemming from a meltdown with the commercial paper markets are threatening to the world economy, they are small potatoes when compared to a seizure in the letter of credit markets.

I had been thinking about this for a few weeks. Then an article posted on Naked Capitalist caught my eye. Quoting:

"At the end of the day, if every counterparty is bad then you don't have a market and you don't have an economy. I spoke to another friend of mine this afternoon, whose father has been in the shipping business forever. Pristine credit rating, rock solid balance sheet. He says if he takes his BNP Paribas letter of credit to Citi today for short term funding for his vessels, they won't give it to him. That means he can't ship goods, which means that within the next 2 weeks, physical shortages of commodities begin to show up. THE CENTRAL BANKS CAN'T LET THAT HAPPEN OR WE HAVE NO ECONOMY, LET ALONE A CREDIT SYSTEM."

And they quote the following story from The Financial Post of Canada:

"The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

"Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.

"'There are all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit,' said Bill Gary, president of Commodity Information Systems in Oklahoma City. 'The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy.'

"So far the problem is mostly being felt in U.S. and South American ports, but observers say it is only a matter of time before it hits Canada. 'We've got a nightmare in front of us and a lot of people are concerned it's going to get a lot worse,' said Anthony Temple, a grain marketing expert based in Vancouver.

"Access to credit is key to the survival of maritime trade and insiders now say the supply is being severely restricted. More than 90% of the world's trade by volume goes by ship. 'The credit crisis has made banks nervous and the last thing on their minds is making fresh loans,' Omar Nokta, an analyst at investment bank Dahlman Rose, said in an interview with Reuters.

"While shipping has always been a cyclical industry whose fortunes rise and fall with the global economy, analysts said the current crisis over the drying up of credit is something they have never seen before."

If banks are refusing to go into the LIBOR market and lend to each other, then why would they want to take a letter of credit either? At first, it will be a small trickle, which is how the commercial paper meltdown started. Then it will be a flood.

The one good sector in the US is its export sector. Start slowing that down due to a lack of ability to ship or receive payments and see what happens to an already shrinking economy. If anyone wants to see how the credit crisis can affect Main Street, look no further.

It is hard to overstate the problem and the potential for it to create a true economic meltdown. It must be dealt with, and soon. See more below.

What to Do and Where Do We Go from Here?

The credit markets are frozen. Period. The chart below shows one week LIBOR going back for four years. Notice the gradual rise into 2005? It was a lock-step move with the Fed funds rate. And the less smooth drop was also in concert with the Fed funds rate. The recent spike is not responding to this week's Fed funds cut. The spreads are wider than ever. The problem is not just the price of LIBOR. There is no trading at any price. The LIBOR market is a fiction today. And left unchecked, this lack of dealing with other banks will spread to letters of credit and the international trade markets.



The G-7 group of nations is holding an emergency meeting this weekend. As I write this, reports are coming in that there are serious disagreements as to what to do. They cannot even agree on a press release.

Former Federal Reserve Chairman Paul Volcker urged that "all of them [the G-7 nations] now admit or all of them own up to the fact their own banks are going to need support," in an interview on PBS Television's Charlie Rose Show yesterday.

The real leadership and innovation in the banking crisis seems to be coming from London. UK Chancellor of the Exchequer Alistair Darling told Bloomberg Television that "It is absolutely essential that the world's largest economies act together, and act together now." Darling wants countries to guarantee lending between banks, either by turning central banks into clearing houses for the loans or having governments back them. (Bloomberg)

Sadly, he is right. It has come to that. We are close to the point of no return. Now, we are not talking about bailing out financial institutions. We are literally talking about saving the world economic system. Failed bank lending and a large decrease in letters of credit would guarantee a deep world recession. The last depression produced severe political backlash and a world war.

Frankly, it is simply not worth the risk to say that we should sit back and let the markets work. They are not working, and there are no signs they will. As with a patient whose heart has stopped, it is time to apply the shock treatment.

What should we do? We must simply guarantee LIBOR (interbank) lending worldwide for some period of time (say 3-6 months) or until banks can trust each other's balance sheets. With the Lehman crisis going on, with more mortgage credit problems being revealed, no one knows what their own exposure is, let alone what the exposures of other banks are. Until that dust settles, the LIBOR market will remain frozen. The longer this is allowed to continue, the worse the problems will be. And it needs to be handled on a coordinated basis.

Banking is truly global. The system cannot just be guaranteed by England or the US. It must be done in concert with all major nations contributing their share. Businesses must be able to trade across borders through banks that will accept one another's letters of credit.

Second, we must consider direct investment in some banks. This should be done as preferred shares, with the view to eventually selling the paper back into the market. To make sure that money is not invested poorly or on bad terms, the various governments should invest alongside private investors, on the same terms. If a bank cannot find private investors willing to invest alongside the government, then they should be quietly assisted into the arms of stronger banks. Banks that are too big to fail must be taken over.

Businesses must have access to credit as well. They cannot get it from banks with impaired balance sheets. This is critical to world trade as well as local commerce.

Third, for a short period of time, all bank deposits in the US must be guaranteed. Weak banks must be absorbed into stronger banks as soon as possible. There are banks with large construction loan books in the hardest-hit parts of the US housing crisis, and they need to be put down as quickly as possible. We are already seeing deposits leave banks, many of them small, due to depositor concerns that small banks will not be seen as too big to fail. This must stop. A blanket guarantee will help.

Fourth, mark-to-market rules must be reconsidered. A blanket one-size-fits-all rule clearly does not work and is part of the problem. As I have documented for the last month, there are numerous assets that have a market price far below their intrinsic value. That is because there are simply no buyers. If everyone is selling in order to raise capital, then that will drive down prices to bargain levels below intrinsic value. That does not mean the asset in question would not have a higher value in a market not in crisis.

These are extraordinary times. I know there will be those who believe the markets should be allowed to work or simply want those who created the crisis to pay. I do understand the anger. I too am angry, and have been for a long time. Those of us who saw this crisis coming are frustrated that no one bothered to pay attention.

But now that we are in it the midst of the crisis, there is no going back. We must look forward and do what we can to avoid an even worse crisis and potential depression. I believe we can do so if governments act promptly.

We are already in what will prove to be one of the longer recessions on record. If we look at the Leading Economic Indicators, which have about a 9-month forward-looking view, it will be late next year before we start to grow once again. Given that everything peaked last October through January (sales, employment, etc.), it is likely that the recession will be dated from the beginning of this year.

Long-time readers know I have been wary of the stock market for several years, suggesting that investors either avoid stocks or have close stop losses. No one taking my advice is long-only this market. Not that I have been perfect, but as it turns out, I was right on this one.

I have been fielding calls all week asking me if I think we are close to a bottom in the stock market. And my answer is, we are close to a short-term bottom, but I think we will trade lower over time due to what I think are going to be poor earnings for the next few quarters. If you are a trader (and that means you have been doing it for some time - not the time to get on the job training!), then maybe you can catch a rebound, which is overdue. But (and here is the big caveat) if there is no global coordination on some or all of the recommendations I made above, this is not going to be pretty. It will end in tears. Let's hope the authorities can get their collective act together.

The next two weeks I'll send a two-part letter on the longer-term investment view and how you should position your portfolios. Stay tuned.

London, Stockholm, and California

Next Thursday and Friday I am in Southern California, speaking at two financial planning conferences. Saturday I leave for London to meet with my London partners, Absolute Return Partners, and clients. Then on to Stockholm, where I will speak for the now-Swedish-government-backed bank Kaupthing. The government took the bank over last Monday (it was affiliated with the Icelandic bank of the same name). That conference will be on investing in an age of scarcity. I will be speaking and chairing the panels, and good friend Marc Faber will be there as well. It will be an interesting time to be in London and Europe. A quick trip to Malta, and then I will make my way back to Dallas.

Tomorrow night all seven of my kids and family will gather to celebrate my son Chad's birthday and mine as well (it was last week). It will be nice to have them all under the roof, if only for a day or two. And a pleasant reminder of what is really important.

It is time to hit the send button. My friend Jack Harrod has front-row seats on the glass for the Dallas Stars. I don't understand hockey, but it is exciting sitting that close. All the best, and have a great week - and here's hoping for a bounce in the markets.

Your hoping we see some positive news this weekend analyst,

[wabio]

International trade economist and liberal Paul Krugman wins Nobel Prize.

http://news.yahoo.com/s/ap/20081013/ap_on_bi_ge/eu_sweden_nobel_economics;_ylt=ApocoxhKeHteoIzP94MqNRmyBhIF

Here's a video of him in 2007 discussing the middle class.

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Good to see the market rebound today. :thumbsup: I'm just wondering if it's a temporary blip. :hscratch:

[kvrdave]

I think it is. I predicted we would be down for the week. And when I predict something in the market....go the other way. But I still think it is. Incredible bounce, though.

[sracer]

I think it is. I predicted we would be down for the week. And when I predict something in the market....go the other way. But I still think it is. Incredible bounce, though.
That's what I think as well. A 1-2 week uptick before it resumes its march downward again.

[wabio]

I've already resolved myself to hold out until 2009. I think I'll stick to it......even though it's enticing to jump in.

[Superboy]

The stock market quickly rebounded after the crash of '29. And measuring stock values week-to-week has really shown how unstable the market has become.

[hahn]

I'm just wondering if it's a temporary blip. :hscratch:It was up on a holiday on light trading. It's just a blip. I think today's increase was only because of all of last week's drop. Everyone was thinking the market was oversold. Tough to say that's true until the upcoming earnings report season.

[wabio]

Tough to say that's true until the upcoming earnings report season.


Which is why I'm probably going to wait until 2009. I think retailers are going to get pummeled this holiday season, and the Big 3 might be in Big Big trouble.

[Shazam]

it wasn't in the news, but there was a big scare about Letters of Credit. supposedly if you ship something you sell to someone in another country you use these things for payment. buyer gives you LOC from their bank. you take it to your bank to get the money transfered.

since banks didn't trust each other the didn't take LOC's from other banks and it almost stopped world trade. kind of like Smoot something back in 1930

http://www.safehaven.com/article-11537.htmExcellent article. My FIL works for a book company, and the LOC problem is actually affecting them.

[Superboy]

it wasn't in the news, but there was a big scare about Letters of Credit. supposedly if you ship something you sell to someone in another country you use these things for payment. buyer gives you LOC from their bank. you take it to your bank to get the money transfered.

since banks didn't trust each other the didn't take LOC's from other banks and it almost stopped world trade. kind of like Smoot something back in 1930

http://www.safehaven.com/article-11537.htm

Definitely agree here. Short-term debt has taken a nosedive as people are racing to prevent disastrous losses in liquidity and secure their investments in a turbulent market.

Hawlet-Smoot's worst effect was that it contributed to the destruction of the credit market, not that it was necessarily an application of the Laffer Curve.

[RayChuang]

The very fact the whole world learned the hard lessons of the Smoot-Hawley Tariff is the reason why we're not going to have an instant collapse from here on out.

I do think there's a chance we could see some sort of tax relief that will get some of that US$14 trillion held by Americans sitting in offshore financial centers back into the USA, which will help in rebuilding the liquidity base for loans and lines of credit in the USA.

[Pharoh]

A few things to look out for before Monday:

-Specifics being given on the Fed's plan to directly capitalise the banks, (yeah!), and announcement of implementation. (Sooner rather than later, hopefully).

Tuesday instead of Monday, but many of the details are out. $250B in direct Recap. All but BoA must match capital to qualify. (That whole one for one thing).


-Guarantee of interbank loans. (A must, in my opinion). Look for this out of the G7 meeting.

Done. US follows Eurozone.

-Automatic circuit breakers for individual stocks, rather than the return of the uptick rule.

Not yet.

-Possible backstop of all deposits?

Pretty much. Europe will, (which was an unnecessary move). And the US will guarantee unlimited deposits in non-interest bearing accounts.

-Goldman or Morgan first to be partially capitalised and/or partially nationalised?

Yep. US backstopped Mitsubishi's stake in MS.

Also, the US will be the buyer of last resort of CP.



Not a bad weekend/few days of work. There are problems with this, (dilution and lack of profit motive to start), but at least the system can move forward.

[Pharoh]

International trade economist and liberal Paul Krugman wins Nobel Prize.

http://news.yahoo.com/s/ap/20081013/ap_on_bi_ge/eu_sweden_nobel_economics;_ylt=ApocoxhKeHteoIzP94MqNRmyBhIF

Here's a video of him in 2007 discussing the middle class.

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Good to see the market rebound today. :thumbsup: I'm just wondering if it's a temporary blip. :hscratch:



I know you didn't specifically make this point, but since you did illustrate his ideological leaning, and posted a video which I suppose reinforces that, I would merely like to point out that Mr. Krugman deservedly won the 'Nobel' for work and thoughts that many present day liberals, including those in power or seeking power, speak out against.

[Pharoh]

Not as quite as much movement in the 3 month spreads as I would have liked to see, but it makes sense. All trading is happening on shorter than one month terms.

[Pharoh]

The price of oil will go down to a point but once the economy picks up again it will go back up. ...

Perhaps maybe in a year or two. Oil is going down. The market won't affect that. I still have it trading in the low to mid seventies, but won't be surprised at all to see the range in the mid 60s to mid 70s. Some, including Goldman, have it down below $60. Russia and Venezuela are going to be hurt.

[eXcentris]

Canadian markets were closed yesterday because of a holiday but they are catching up today. The TSX is up 1,000 points so far.

I'm not that surprised with that big upswing considering that most analysts had put the bottom on the DOW at between 8000 and 8500 and most indicators show that the markets are undervalued. We'll see if this upswing is sustainable and I believe it's much too early to view this as an indication that it's now time to jump into the markers but it sure feels good. :)

Also the Canadian government faces a bit of a conundrum. The Canadian banking system is widely regarded as the healthiest in the world and none of the major Canadian banks are in trouble. But when other countries inject massive amounts of money into their banking systems and start offering guarantees on deposits and bank debts, that might make Canadian banks less atractive to investors. So although the federal government might have a hard time explaining why taxpayer dollars should be used to help a healthy banking system, measures taken by other countries put the competitiveness of Canadian banks at risk.

“In Canada, we will continue to work in a co-ordinated fashion with our G7 partners and take appropriate actions to support our financial system, including whatever steps are necessary to ensure that Canada's financial system is not put at a competitive disadvantage,” Mr. Flaherty (Finance minister) said in a statement following weekend meetings with other G7 finance ministers.

[Ranger]

I'm sure Canada's CB is healthy but I doubt it's big enough to attract many investors. ;)

[orangecrush]

I'm sure Canada's CB is healthy but I doubt it's big enough to attract many investors. ;)
I think they are more fearful of losing investors.

[hahn]

...I would merely like to point out that Mr. Krugman deservedly won the 'Nobel' for work and thoughts that many present day liberals, including those in power or seeking power, speak out against.Such as...?

[wendersfan]

Such as...?That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.

[VinVega]

That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.
That's odd, I really would have pegged you as a Hawley-Smoot Tariff Act* supporter. :sarcasm:

*Doh, RayChuang beat me to it!

First time I heard that term was in Ferris Bueller's Day off. You go Ben Stein. Who says you can't learn anything from the movies? :D

[VinVega]

The 1000 point increase is exciting, but these wild swings are not good for the market, correct? There was similar volatility before the Great Depression. I'm not saying that's what we're in for, just that even large gains are not necessarily a sign of good market health.

[kvrdave]

The 1000 point increase is exciting, but these wild swings are not good for the market, correct? There was similar volatility before the Great Depression. I'm not saying that's what we're in for, just that even large gains are not necessarily a sign of good market health.

It creates a lot of uncertainty, which makes it hard on business.

I think it is understandable to have a huge run up after 7 straight days of triple digit losses. But (forgetting the wild card of the bailout), you then have people selling off because they made some money and generally slide back down to where you were. I don't know if I think we will end up down for the week now, but I think we will be closer to being up less than 500 with the run up.

[The Bus]

That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.

I'm still hoping that the whole tariff thing was a ploy to get better results in Ohio when he was going against Clinton.

I really, really hope so.

[dick_grayson]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate. 12+ years with a company and I don't even get so much severance. Couldn't be a worse time to be out of a job. Life fucking sucks.

[VinVega]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate. 12+ years with a company and I don't even get so much severance. Couldn't be a worse time to be out of a job. Life fucking sucks.
Sorry to hear that dick, what kind of work are you doing/looking for?

[dick_grayson]

Sorry to hear that dick, what kind of work are you doing/looking for?

gov't contractor doing litigation support.

I do already have an interview with another company for later this week. it sucks even more for the other people in my dept. who only have 5 or 10 days before they're "let go." I should also point out that the decision was perhaps based on managerial asshole-ness and not entirely the market, but without money coming in it wasn't that tough a decision. Still, I thought the redskins loss was the low point of my week. I think I might have to a bar somewhere and "drown my sorrows" before I end up losing it and throwing a computer monitor into the parking lot.

[Ranger]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate. 12+ years with a company and I don't even get so much severance. Couldn't be a worse time to be out of a job. Life fucking sucks.
Sorry about that. About five years ago, my father got laid off from his job of 30 years and only got severance pay for two weeks. It was a small ofice though and closed down a couple years later anyway.

When the weather's good, go for a nice, long walk.

[dick_grayson]

Sorry about that. About five years ago, my father got laid off from his job of 30 years and only got severance pay for two weeks. It was a small ofice though and closed down a couple years later anyway.

When the weather's good, go for a nice, long walk.

That's rough. My company has 12k people are the net worth is 2 billion. We earn record profits every quarter but my one dept. didn't get a lot of intake work, so that was that. The worst part is is that they brought in a new manager to do all the firing. those who made the decisions didn't have to deal with it ( I guess that's business).

[wishbone]

First time I heard that term was in Ferris Bueller's Day off. You go Ben Stein. Who says you can't learn anything from the movies? :DThat and the Laffer curve (http://en.wikipedia.org/wiki/Laffer_curve).

Sorry to hear about your job dick_grayson*

*it felt wrong typing dick

[Tommy Ceez]

That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.

http://www.nytimes.com/2008/08/24/magazine/24Obamanomics-t.html?pagewanted=1&ei=5124&en=0a676fbd7849a186&ex=1378267200&partner=permalink&exprod=permalink

[VinVega]

That and the Laffer curve (http://en.wikipedia.org/wiki/Laffer_curve).
Ah yes, good times.

We tend to get into the arguments over where the sweet spot in the Laffer Curve is. Some folks believe it's near 100% taxation while others believe it lies right around 0% taxation.

[Pharoh]

I think they are more fearful of losing investors.

Blame Ireland for creating an unnecessary environment for purely selfish political reasons which other nations necessarily had to follow. We shall see how long we pay for that decision.

[Sean O'Hara]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate.

Isn't that what Circuit City did a few years ago? And look how well that's worked for them.

[al_bundy]

The 1000 point increase is exciting, but these wild swings are not good for the market, correct? There was similar volatility before the Great Depression. I'm not saying that's what we're in for, just that even large gains are not necessarily a sign of good market health.


most of these big up days are in bear markets and the market is lower in a month or two. but most rallies start with explosive days like this.

my personal prediction is close or a bit lower than friday's low in the next week or so, then a rally to around 1200 on the SP500 and the last leg down. no idea where it will end but i'm guessing somewhere between 400 and 800 on the SP500.

[Dr Mabuse]

That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.

You seriously think there is 'free trade' between the US and other countries?

It still amazes me how well propaganda works in our society.

[Hank Ringworm]

You seriously think there is 'free trade' between the US and other countries?

It still amazes me how well propaganda works in our society.

Of course trade is an extension and tool of the state. But there is free-er trade between the US and other countries. "Free trade" is a relative term.

It still amazes me how you, with your grand historical background, almost always fail to back up your arguments.

[DVD Polizei]

You seriously think there is 'free trade' between the US and other countries?

It still amazes me how well propaganda works in our society.

If you didn't have propaganda, you'd have chaos and anarchy.

And gay gangs.

[wabio]

You seriously think there is 'free trade' between the US and other countries?

It still amazes me how well propaganda works in our society.

Well, one things for sure. We can pretty much count on the WTO to vote against us in any trade dispute.

[wendersfan]

You seriously think there is 'free trade' between the US and other countries?You seriously think I don't know what I'm talking about?It still amazes me how well propaganda works in our society.It amazes me how the basis of nearly every post of yours is the attitude that you know more about everything than anyone else here, but don't have the time to explain <i>anything</i>. If you have nothing to contribute besides derision you might try lurking a bit more.

[classicman2]

I wonder if the CEO and other high oficials of AIG are enjoying their partridge hunting in England?

[Pharoh]

Bond Market not an encouraging sign.

Libor down a bit, including the three month, but there still exists a very steep overnight/3-month curve. I doubt that will change for the next few weeks.

And oil continues to be battered. OPEC lower demand estimates. $2.00/gallon gas that far off?

[Pharoh]

That free trade is good and protectionism, bad, to state it bluntly. Since Senator Obama has caved to the lesser angels of his party and become an economic populist, my worst fears that the next administration will set up greater trade barriers and make the current global recession even worse. It's a frightening thought, especially since his election is all but a given at this point.

This is one of my two biggest worries and fears regarding his coming presidency. The other being his views on capital gains, which as I have stated to you before is a far bigger deal than what percentage of American citizens will be directly affected. I will say it one more time, we need as much capital in this country right now and should do everything possible to encourage it.


Oh, and this scares me too, but it is probably better placed in one of the election threads, so I will simply post a link here. http://www.politico.com/news/stories/1008/14569.html

[Pharoh]

I wonder if the CEO and other high oficials of AIG are enjoying their partridge hunting in England?

I wonder why it matters.

[Pharoh]

Regulation generally bad. Bad regulation ruinous.


(Talking about banks around the globe.)

[classicman2]

I wonder why it matters.

I agree. It would be better if they were in jail.

[wabio]

I agree. It would be better if they were in jail.


Screw that. I'm not wasting anymore taxpayer money on these f**kheads. Plus their jail would probably be nicer than my apartment! I say deport them and revoke their citizenship. See how they like paying taxes in some other country.

[Pharoh]

Auto paper next? Lobby efforts beginning.

[classicman2]

Screw that. I'm not wasting anymore taxpayer money on these f**kheads. Plus their jail would probably be nicer than my apartment! I say deport them and revoke their citizenship. See how they like paying taxes in some other country.

That is a better idea. But first - they must be tarred & feathered. ;)

[wabio]

That is a better idea. But first - they must be tarred & feathered. ;)

Don't they have Cable TV in some jails? :mad: I don't even have Cable TV!!! :(

[Pharoh]

Oil below $75.

[wabio]

It's still early, but the markets are starting to pull back on weak retail sales. I seriously hope the markets aren't counting on good news from employment figures, retailer reports, or housing to post a gain. :eek:

[orangecrush]

Oil below $75.
Come on $40.

[taa455]

Well, wife and I had to buy a new washer/dryer yesterday. So you can all thank me for stimulating the economy!

[wabio]

Well, wife and I had to buy a new washer/dryer yesterday. So you can all thank me for stimulating the economy!

Was it made in America? ;)

[taa455]

Was it made in America? ;)

I wish I could tell you, but I don't know. It's a Whirlpool so at least it is an American company.

[achau9598]

Bond Market not an encouraging sign.

Libor down a bit, including the three month, but there still exists a very steep overnight/3-month curve. I doubt that will change for the next few weeks.

And oil continues to be battered. OPEC lower demand estimates. $2.00/gallon gas that far off?

Hopefully gas drops to that level. One of the biggest problems in retail is that, after filling the tank, there is little to nothing left for spending at the mall. Wouldn't lower gas prices boost consumer spending in other areas?

[wabio]

Market pullback picking up steam. I wonder how it will close?

[wabio]

Wouldn't lower gas prices boost consumer spending in other areas?

I think that's a safe assumption. Cheaper food too. The problem is, the drop in gas prices now might be offset by loss of jobs and decreasing consumer sentiment.

[Pharoh]

Beige book not good, but not as bad as I expected.

[Superboy]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate. 12+ years with a company and I don't even get so much severance. Couldn't be a worse time to be out of a job. Life fucking sucks.

It's interesting to still hear that this practice goes on, because it's a serious sign that the company is about to go under. Mostly it's a practice to ensure that the company is basically bailing water.

[Superboy]

If you didn't have propaganda, you'd have chaos and anarchy.

And gay gangs.

Maybe it's because people on this board overgeneralize issues that are extraordinarily complex - yet you can still come to a general conclusion, although not without foundation. Just not theirs.

I'm confused... gay gangs?

[Mordred]

Beige book not good, but not as bad as I expected.Could you elaborate on what the hell the Beige book is?

[mbs]

Could you elaborate on what the hell the Beige book is?

It's the not-quite monthly "outlook" report from the Fed.

[mbs]

I'm confused... gay gangs?

See Other for details of gay HIV-positive gangs involving in gang rape. Somewheres in Europe.

[Pharoh]

It's the not-quite monthly "outlook" report from the Fed.

Thanks for answering for me. Sometimes I am quite slow.

I will only add that it is more of a review of the previous month/months economic activity from all twelve districts. It is essentially a survey of outside, (meaning outside of the Fed), businesses and contractors.

[Pharoh]

Hopefully gas drops to that level. One of the biggest problems in retail is that, after filling the tank, there is little to nothing left for spending at the mall. Wouldn't lower gas prices boost consumer spending in other areas?

Normally, but as wabio alluded to, one can not discount the psychology of the consumer. It is possible that we will get a cocooning effect, similar to what happened after 9/11, in which case some sectors, (DVDs?), will do better than the whole.

[Mr.Briggs]

I want to see McCain go negative on Ayers tonight and "turn the page on the economy" with the Dow dropping over 700 again today. People want to hear how you'll save the economy so seal your November 4th defeat tonight, please.

[Mordred]

Thanks for answering for me. Sometimes I am quite slow.

I will only add that it is more of a review of the previous month/months economic activity from all twelve districts. It is essentially a survey of outside, (meaning outside of the Fed), businesses and contractors.Thanks (to both of you)!

[Sean O'Hara]

So that cancels out Monday's rally.

[Lateralus]

It's still early, but the markets are starting to pull back on weak retail sales. I seriously hope the markets aren't counting on good news from employment figures, retailer reports, or housing to post a gain. :eek:

I was thinking the same thing that the Market as we are going in to a recession already priced in... apparently not!

If they don't have it priced in we have a long way to go!

Anybody notice that Gold is almost even with the S&P? I don't think that happened since 1983. And we all know what happened in 1983, the biggest bull market ever. The one big difference I can see is that in 1983 we had 15 years of a stagnant economy, this time it has only been a year... that worries me.

[Dr Mabuse]

You seriously think I don't know what I'm talking about?

From the way you often post on topic of trade I have to wonder in this case. Anyone who describes what we are currently engaged in as 'free trade' is obviously mixed up, either on our actual trade situation with other countries or the definition of the words "free trade".

What is called 'free trade' played a substantial role in getting us to where we are now as an economy.

[Pharoh]

Come on $40.

Settled just below $75.


And you don't want to see $40 oil.

[classicman2]

Settled just below $75.


And you don't want to see $40 oil.


Why don't we want to see $40 oil?

[Lateralus]

Why don't we want to see $40 oil?

$40.00 oil would mean the world sank in to a major-major recession or even depression.

[Dr Mabuse]

I say bring on the $40 oil!

Lay on MacDuff! And damned be him that first cries hold! enough!

[Lateralus]

my company, who makes millions, just decided to let me and several other from my dept. go so they can cut costs and re-hire people at a lower rate. 12+ years with a company and I don't even get so much severance. Couldn't be a worse time to be out of a job. Life fucking sucks.


That sucks man, I survived the 2000-2003 recession by working as a gov contractor and they are usually a pretty safe bet in hard times. Just like you I got laid off after I did a huge networking project, they didn't need my networking expertise anymore and they replaced me with a guy that made $7.50 per hour.

[classicman2]

$40.00 oil would mean the world sank in to a major-major recession or even depression.

How long do you believe it's been since we had $40 oil?

I think you exaggerate a little too much.

[Lateralus]

How long do you believe it's been since we had $40 oil?

I think you exaggerate a little too much.

I would think 2003ish but places like China, India, Russia, Brazil (And just about everybody else) have had their economies grow exponentially since then.

However I did find this chart, and according to this is could very well go to $20.00!:


http://www.wtrg.com/oil_graphs/oilprice1947.gif

Recent trend suggest the lower oil goes the worse the economy is getting. Which could be complete BS if the spike was artificial.

[mbs]

How long do you believe it's been since we had $40 oil?

The last time we say $40 oil, the DJIA hit about 7500 (2002). We're on track for both in the next couple months.

[Lateralus]

According to my calculations Oil has come down from $147.81 to today's close at 74.54 for a total lost of $73.20 per barrel.

The DOW at the same time went from around 12,000 to today's close at 8577 which is a lost of 3423.

So to follow recent trends, every point the DOW loses oil goes down .021384cents. ($73.20 / 3423)

So to reach $40.00 oil, the DOW would have to come down another 1615 points which would put the DOW around 6962.

math = (74.54-40.00) = 34.54 / .021384 = 1615

But all this is an estimate and Oil would have to follow the same downward trend it has been following since July.

Finally I HOPE my math is correct.

[Sean O'Hara]

Anyone who describes what we are currently engaged in as 'free trade' is obviously mixed up, either on our actual trade situation with other countries or the definition of the words "free trade".


Can you point to anyone who's saying that what we have is free trade?

Free trade is the goal. We've been moving in that direction, but we aren't there yet. An Obama presidency would likely reverse that.

Anyone disagree?

[classicman2]

You do understand that the $140.00 - or $75.00 is not the real price of a barrel of oil.

I don't know what the major oil companies are paying for barrel of Saudia Arabian crude.

I do know they've never paid anything close to $140 per bbl.

btw: I hope and pray free trade is not the goal - maybe fair trade

[Dr Mabuse]

Can you point to anyone who's saying that what we have is free trade?

Free trade is the goal. We've been moving in that direction, but we aren't there yet.

Well that implication has been clear in MANY posts. That 'protectionism' will hurt the economy, as opposed to the 'free trade' we have now.

The obvious flaw there is ALL the nations we engage in major trade with, unabashedly and openly engage in very nationalistic protectionism in their dealings with the US. And we have no 'free trade' with anyone. The nations who do utilize protectionism have trade surpluses.

I can't think of anything that's happened in the last 20 years that has moved us "closer" to actual free and fair trade, the kind of trade envisioned by Thomas Jefferson. In fact some of the largest pieces of legislation on trade have made our trade situation infinitely worse.

An Obama presidency would likely reverse that.

Anyone disagree?

I can't see how the Clinton presidency could be topped as to damaging our trade with other nations, but the Bush administration has been hell bent for leather to try and match it at every opportunity.

I don't think the next President will make any difference either way.

The trade deals are sewn up. No one is going to renegotiate trade deals aggressively for the US.

We hear many politicians say we can 'educate' and innovate' our way into the 'new global economy' with American high tech inventions, that ONLY America can do, and the ensuing trade that will happen because of it will be our saving grace. This sort of pandering works like gangbusters for the conservative base, and it is sold to the Democratic base well.

Like most political pandering it's not in any way based in fact though.

In the last 17 years the 'advanced technology' trade situation has gone from a surplus of 38.4 billion in 1991 to a more than 53 billion dollar deficit by 2007.

http://i260.photobucket.com/albums/ii18/drmabuse06/hightechtrade.jpg


I honestly can't comprehend how someone could be reasonably well informed on the facts of our nation's economy and expect good things in the future. There is some form of denial, or "it can't happen to me" mixed in there or something.

[DVD Polizei]

My forecast for the stock market which surprisingly is not so far off when I first posted this:

http://img406.imageshack.us/img406/8568/dowhj5.jpg

[DVD Polizei]

I honestly can't comprehend how someone could be reasonably well informed on the facts of our nation's economy and expect good things in the future. There is some form of denial, or "it can't happen to me" mixed in there or something.

Bingo. Denial is exactly what's been going on for the last 10+ years, and as I have asked in other threads in the past, are "investment numbers" really associated with physical property. Nope, they aren't. And this is why the economy is so volatile and why it's so fucked. I and others have been asking basic questions like "How do we know such numbers really represent reality" for several years.

A long time ago in a country far far away, we dealt with physical property and what you could demonstrate to pay back your loans for your credit request. You got a loan on it, and the bank held the deed/title. The bank didn't sell it to another firm. It was held locally. You were allowed credit because you demonstrated your ability to pay.

But then some Don Lupre or Kevin Trudeau dumbass got the wise idea we could make more money really really quickly if we sold these deeds and titles, thereby putting the financial responsibility on the firm who bought the paper. So, as long as you sold the paper, you could technically approve anything for anyone at any amount.

And what's even sicker? The financial community accepted this new form of sale.

It's been a game of financial Hot Potatoe. Financial musical chairs.

The banks and institutions know damn well some paper is bad (just how much we don't know but I guarantee you if all the banks and lending/investment firm put their heads together, we'd get a good estimate), but they sell it to another firm, hoping they won't find out.

And we thought junk stocks were bad back in the 80's. At least junk stocks were more confined to a sector. But now, since banks are affected, and since we've added a global perspective to it, it's reaching everywhere. It's basically a badass medusa motherfucker.

[kvrdave]

Bingo. Denial is exactly what's been going on for the last 10+ years,

I don't think much of the position that a gloom and doom person takes where they preach gloom and doom for 10 years and finally are able to say "AHA! See? This is exactly what I said would happen."

There have been people saying that since 1776 and seem willing to pounce when there is a problem, and tend to do nothing but go back to their preaching during good times.

[Cory02]

Tough start to the day in Asia. The Nikkei is down almost 10%.

Dow 7700 anyone?

[wabio]

We hear many politicians say we can 'educate' and innovate' our way into the 'new global economy' with American high tech inventions, that ONLY America can do, and the ensuing trade that will happen because of it will be our saving grace.

This rhetoric is a dead horse. Anyone who thinks Americans are the only people who can innovate is in serious denial. I wouldn't doubt if we were out-innovated in the next 20 years by foreigners. Then what? Charge each other for back rubs?

[wabio]

Holy nosedive Batman. :eek: The markets were only down ~5% when I left for work, and I expected them to bounce up before close. Guess not.

[Birrman54]

This rhetoric is a dead horse. Anyone who thinks Americans are the only people who can innovate is in serious denial. I wouldn't doubt if we were out-innovated in the next 20 years by foreigners. Then what? Charge each other for back rubs?

we certainly won't with that attitude... fortunately myself and the rest of today's engineers aim to do better.

[DVD Polizei]

I don't think much of the position that a gloom and doom person takes where they preach gloom and doom for 10 years and finally are able to say "AHA! See? This is exactly what I said would happen."

There have been people saying that since 1776 and seem willing to pounce when there is a problem, and tend to do nothing but go back to their preaching during good times.

Well, maybe I'm not being more specific. Economies always have problems. But can you honestly say this is something typical in a US economy. You mention "good times", but I and others have been commenting that these good times were fake, which have resulted in current events. Let's go back several years when we were discussing the housing market. We have several threads on this very subject before the massive foreclosures happened. Years before, even. It's not like this problem happened overnight, but our government didn't notice it until midnight. We were preaching about it in the early afternoon.

I agree we have those who chime in when things are bad and don't comment when things are good--reflecting customer service in the retail sector where customers complain when they get bad service but rarely comment when good service happens, but I believe many of us are more than just chiming in at the current state of our economy and have a valid argument to be made.

Here in Portland, I've been commenting for years the housing market is over-inflated in home values. And now the local media have finally touched on the subject because of the national foreclosure crisis. I'm not touting my own horn, I'm just saying the problem was well-known to not only myself, but many others.

The tragedy...is nobody with real power to change things listened.

[Cory02]

I think this crisis is going to turn CNBC into a 24 hour network. Squawk Box Europe is on now.

[al_bundy]

and jobless claims are down

[Sean O'Hara]

It's been a game of financial Hot Potatoe.


Like an episode of Murphy Brown.

[Sean O'Hara]

Well that implication has been clear in MANY posts. That 'protectionism' will hurt the economy, as opposed to the 'free trade' we have now.

People have certainly said that protectionism will hurt the economy, but that what we have now is free trade is an inference you're drawing, not an implication inherent in the message. It's not a binary choice where we have either total protectionism or absolutely unrestricted trade -- we're in the middle, and anyone with sense wants us to move towards the extreme of free trade.

I can't think of anything that's happened in the last 20 years that has moved us "closer" to actual free and fair trade, the kind of trade envisioned by Thomas Jefferson. In fact some of the largest pieces of legislation on trade have made our trade situation infinitely worse.

Economic theory's advanced a lot in the last 200 years, so relying on what Jefferson envisioned in this case is not a good thing.

In what ways do you think NAFTA hasn't liberalized trade in North America?

[Mordred]

Like an episode of Murphy Brown.http://www.teamdrunkottawa.com/funnay/images/fry-see-what-you-did-there.jpg

[Pharoh]

People have certainly said that protectionism will hurt the economy, but that what we have now is free trade is an inference you're drawing, not an implication inherent in the message. It's not a binary choice where we have either total protectionism or absolutely unrestricted trade -- we're in the middle, and anyone with sense wants us to move towards the extreme of free trade.



Economic theory's advanced a lot in the last 200 years, so relying on what Jefferson envisioned in this case is not a good thing.

In what ways do you think NAFTA hasn't liberalized trade in North America?

Nothing needs to be added to your thoughts.

I will simply point out that the whole topic of free trade came up as it related to Paul Krugman's winning of the "Nobel" prize. In that context, this exchange is quite funny.

[classicman2]

Al Gore won the Nobel Prize.

Do you take what he says as gospel? ;)

[Cory02]

The Wall Street Journal is reporting that GMAC is now restricting new car loans to buyers with credit scores over 700. This might only be a minor setback as it looks like GM has been able to line up a series of smaller banks to finance car purchases.

However, the same article quotes the CEO of GMAC as saying in a memo that GMAC has "limited if any access to funding." If GMAC has to pull back on the financing it offers to dealers for their floor plans, this could either drag down GM or force the government to step up their intervention in the auto industry.

[Pharoh]

Al Gore won the Nobel Prize.

Do you take what he says as gospel? ;)

I don't know, but for some odd strange reason, I take what economists say with a little more faith.
;)


And Mr. Krugman's work and models, not to mention his later efforts on economic geography were groundbreaking, and now proven. (Though I don't know if I have ever agreed with him on other matters.).

[parrotheads4]

Where is all of the 401k money going? I remember in the 90s the market would jump, and when I tuned in to cnbc the reason given was "all the 401k money went in today".

Does the money go in differently now?

[Dr Mabuse]

People have certainly said that protectionism will hurt the economy, but that what we have now is free trade is an inference you're drawing, not an implication inherent in the message. It's not a binary choice where we have either total protectionism or absolutely unrestricted trade -- we're in the middle, and anyone with sense wants us to move towards the extreme of free trade.
People here have actually cited "free trade" directly as what we are currently engaged in. But enough on that. Let's let that go.

Economic theory's advanced a lot in the last 200 years, so relying on what Jefferson envisioned in this case is not a good thing.
We are in the disastrous state as a nation we are in today because men who invented 'modern' BS ideas and concepts on economics ignored Thomas Jefferson's ideas on the economy, coin and currency, banking, govenrment, and trade with other nations. This last summed up in large part in the latter half of his 1793 Trade Report.

The ideas of Krugman exist in a fanciful vacuum of real world fact, but his ideas in theory are what the world wants to hear so like Al Gore, he won the Nobel. It is the height of intellectual masturbation. He eagerly engages in it, and it always arrives at a conclusion he is pleased with, but it accomplishes nothing in the real world. His beliefs in the basic notions of Ricardian ideas on 'Comparative Advantage' are short sighted, and they are one of the crux concepts of his economic theory. While all his his neatly written conclusions in his mind and in his writings are presented as so profoundly obvious to him and and many who agree with his thoughts. The proposed benefit of those ideas is not manifest in the real world, in the US economy as it is today. The 'Comparative Advantage' he pontificates so condescendingly about, decrying those who can't grasp it as basically 'dullards', is causing the US economy to fail in actual practice. So if you poke your nose in one of his books or papers and KEEP it there I guess it all makes sense in the abstract world of intellectual theory and selective acknowledgement(Firefox thinks this is a typo?) of historical trends. But if you are wise enough to glance up at the reality of this nation's trade practices? You see it's nothing more than wishful thinking, written at a very high level by an obviously intelligent man.

Pharoh puts forth the notion that Krugman's models have been proven. I agree, the result of the Krugman ideas on trade and economy are painfully clear to observe, as the MORE we engage in Competitive Advantage modeled trade, the more quickly and drastically we slide into a worse economic and trade situation. The trade deficit curve on a graph ramps up like a skateboard ramp when the Competitive Advantage stuff kicks in.

Honestly... we are a nation in free fall economically and people call the practices that accomplished this 'advanced' economic theory? I'm not able to see how people engage in that level of denial and conscious, deliberate ignorance. Our trade deficits are near a trillion dollars annually and growing. Our largest export in dollars is DEBT. Period. We buy from other nations, strengthening their economies, and we 'credit card' up debt levels with those growing economies that we can literally never pay back. Using flowery language to describe living off credit cards as a wise economic policy doesn't fool me, though a person may be convinced a person or nation living off credit is successful in the short term. Thankfully, I don't see that as a 'modern' or 'advanced' economic theory, I see it as living off credit, which is foolish. I see it as stupidity in action by those who aren't wise enough to learn from history. To call our nation's economic and trade situation some form of a burgeoning 'Comparative Advantage' situation is so mindlessly ridiculous. The Comparative Advantage model of 'free trade' as it exists has accumulated us the largest trade deficits and national debt in the history of the world as a nation. Someone from even 30-40 years ago would almost be lead to consider the numbers of our current debt and trade deficits only possible as a result of hyperinflation of our currency they are so high.

Jefferson's wisdom on international trade, his actual ideas on it were very pragmatic and fair on the issue, not situated in the context of the day, though he was dealing with more drastic issues than we do today, confiscation of goods included. If we had followed his ideas on this we would be a stronger economy today by magnitudes. Jefferson was pushing for fair and free trade before the Declaration of Independence was written. It was a cornerstone of his idea of a healthy economy. But he understood the long term effects of unfair trade better than most simply have the historical perspective to comprehend. Krugman is one of those, he lacks the ability, the context, to 'get it'. No surprise Krugman describes any and all who fail to grasp his ideas as people who are intellectually handicapped, but Krugman suffers from a near fatal lack of historical perspective. Krugman would have done himself a favour to remember Jefferson's words on theories, it would have served him well to do so.

"The moment a person forms a theory, his imagination sees in every object only the tracts which favor that theory." - Thomas Jefferson

You seem to be under some illusion that things change. The most common cause of descents into repeating the past, the most common cause of failing to learn from history, come from those who fail to recognize there is nothing new under the sun.

In what ways do you think NAFTA hasn't liberalized trade in North America?

NAFTA was basically a government level drug deal in whole, tolerated and passed by the US to further the moves towards a sort of EU for the Americas(North, Central, South). Put together by a Mexican leader who is now in exile, who was literally himself a drug lord, as well as on the payroll of the other Mexican drug lords, as were all his high cabinet members. His personal body guards and heads of the Mexican military were filmed in DEA undercover activities revolving around multi-ton cocaine deals. He looted 100 million+ from the Mexican treasury. He, and his replacements, were assisted with conscious decisions to ignore the obvious crimes and drug trafficking issues by three US presidents: Reagan, Bush, and Clinton.

That there has been some small, by comparison to narco traffic, actual trade accomplished by NAFTA is no surprise, but none of it has been good for the US and in that sense NAFTA was a conscious crime by the government in the US for no other reason than to get a foot in the door for some flavour of the FTAA.

At the end of that day MOST of the talk of 'free trade' and 'economic theory' on TV and in this forum is done by people who appear to very deliberately keep themselves in denial or ignorance on the actual state of our affairs as a nation and an economy.

You've asked me a few questions. Answer these for me.

If the trade we have is such a good situation, why are our trade deficits skyrocketing? Why do they ramp up to even higher levels and grow at much faster rates with the passage of things like NAFTA and the WTO fast tracking of China? Explain that. See that's not theory that's real world fact.

Why isn't there a single example of trade in services or goods where the US is gaining an advantage? Why isn't there even a trend towards a greater surplus in any area of trade, or even a surplus at all in most cases?

[Dr Mabuse]

I don't mean to be rude Dr Mabuse, but you remind of those people who scandalously denounce the LHC for bringing about the end of the world and physicists' arrogance for insisting it is safe. :)

This was very rude!!! :lol:

Let me ask you: just what does the theory of international trade say about housing booms and unscrupulous lending?

This is why I kept my points centered in on international trade, because the many 'modern' and 'advanced' economic theories touted as genius and the boon of the investor have also been fucking us up domestically.

But as to trade, I'll ask you the same thing. Maybe I'm missing something, maybe I am falling for my own Jeffersonian bias as to my theories. Just answer this for me:

If the trade we have is such a good situation, why are our trade deficits skyrocketing? Why do they ramp up to even higher levels and grow at much faster rates with the passage of things like NAFTA and the WTO fast tracking of China? Explain that. See that's not theory that's real world fact.

Why isn't there a single example of trade in services or goods where the US is gaining an advantage? Why isn't there even a trend towards a greater surplus in any area of trade, or even a surplus at all in most cases?

[Dr Mabuse]

No answer to my question then. I suspected as much.

See that's the problem with all the models and theories and whatnot.

I would compare your views, not to be rude of course, but it's like a situation where the LHC has already caused a black hole and it's actively devouring the earth, and in spite of the facts that are easily observable, you remain in denial and say there is no problem based on the theories of physicists who said it wasn't possible to begin with.

[Pharoh]

One final thing, Krugman's contribution to International Economics consists precisely in going beyond what you call "Comparative Advantage", or the Heckscher-Ohlin factor-endowments model, to incorporate trade arising from economies of scale, which accounts for most of the commerce within industrialized nations.

Sorry. :lol:



Because you're defining the problem incorrectly. A country doesn't engage in international trade in order to build up a surplus. A nation trades with others to increase the real standard of living of its population. Through specialization, economies of scale and the dissemination of best-practice technology, a country can reach a level of consumption lying beyond its production possibilities frontier. That is, if a nation can produce 5 DVDs and 4 books under autarky, through the mechanisms mentioned above it may be able to consume 6 DVDs and 5 books by engaging in trade.


First thanks.

Secondly, the whole point of Krugman's work is, to put it simply, that it provides another wholly separate reason for trade, and subsequently, globalisation.

And that seemingly obvious point above you just made really wasn't ever fleshed out or articulated in models before Krugman. He isn't who I would have voted for, but he is deserving.

[Dr Mabuse]

Because you're defining the problem incorrectly. A country doesn't engage in international trade in order to build up a surplus. A nation trades with others to increase the real standard of living of its population. Through specialization, economies of scale and the dissemination of best-practice technology, a country can reach a level of consumption lying beyond its production possibilities frontier. That is, if a nation can produce 5 DVDs and 4 books under autarky, through the mechanisms mentioned above it may be able to consume 6 DVDs and 5 books by engaging in trade.

Well you answered. But with an answer that dodges the question and ignores real worlds fact in deference to theories that are held in a vacuum of reality.

The concept of a trade deficit alone, held in some theoretical vacuum can be spoken of in the way you do. But that is not the question I asked. Out trade deficit is a precedent in the history of the world. And it is skyrocketing upwards. You say a trade surplus is not the goal, that's silly, it's always a goal but reasonable trade deficits happen over time and in various cycles. Lots of 'experts' do espouse that very idea on deficits, reasonable deficits are the thing they discuss, and that doesn't apply to our situation.

The theories of Friedman for example, say a deficit is a sign of a strong currency, there's another theory on it, yet while our trade deficit is skyrocketing upwards our currency is in decline.

There are so many theories by so many widely recognized and respected experts on economies that simply fall apart when confronted with the reality of the US as to trade.

See Russia, our old friend, has grown their trade surplus over time, China's trade surplus is setting records and has been since 2006, the EU has significant trade surpluses with large nations and a trade surplus in whole, and they are VERY concerned about the growing deficit they have with China and have been for more than a year, the EU was threatening WTO complaints and protectionist measures over their deficit with China due to the nakedly protectionist trade practices of China last year, the EU seems to be concerned with trade surpluses, and their currency is taking the lead on the international stage. These are some of the the real world examples of trade surpluses and deficits.

I think the US has technically a trade surplus with like 100+ nations, but the deficits we are eagerly engaging in make those surpluses minuscule in comparison.

But again it's not just the term 'deficit', which can be debated cleverly in theory, it's the overwhelmingly MASSIVE deficit, and it's trend of skyrocketing upwards in the last 10 years in ways that have never been seen before that are the issue. Our trade deficit if it continues on it current trend will be approaching 2 trillion dollars annually in only a few years. Some projections put that number arriving around 2012-2014 if the current trend continues. There is nothing on the horizon, or being proposed by either Presidential candidate that will change that projection.

So it's not rattling off some regurgitated theory on deficits in some abstract general sense I was looking for, but an addressing of the actual fact of our trade deficit as a nation. With the idea of how can we possible sustain that over time in mind.

I'm not discussing the current crisis primarily caused by housing and the ensuing issues there, I'm talking about international trade here. Pretend the current international crisis wasn't happening, how can any nation sustain a trillion dollar trade surplus annually, while going into debt for trillions of dollars to the nations who generally do have trade surpluses while doing so.

How is that sustainable? How is that a net positive for an economy?

Be specific this time. Something like "the largest trade deficit in the history of the world is a good thing because of -" maybe "going into so much debt that we can never repay it is good because -"

[Sean O'Hara]

People here have actually cited "free trade" directly as what we are currently engaged in.

Can you provide examples?


We are in the disastrous state as a nation we are in today because men who invented 'modern' BS ideas and concepts on economics ignored Thomas Jefferson's ideas on the economy, coin and currency, banking, govenrment, and trade with other nations. This last summed up in large part in the latter half of his 1793 Trade Report.

Assertion, not argument.


Jefferson's wisdom on international trade, his actual ideas on it were very pragmatic and fair on the issue, not situated in the context of the day, though he was dealing with more drastic issues than we do today, confiscation of goods included. If we had followed his ideas on this we would be a stronger economy today by magnitudes.

If we'd followed Jefferson's ideals, we'd be an agrarian nation, not an economic power-house.

You seem to be under some illusion that things change.

No, I believe that nothing changes, ever, except our understanding of the world. And at the time of Jefferson, economic theory barely existed -- "Wealth of Nations" was published the same year Jefferson wrote the Declaration of Independence. I would trust the Founding Father's views of economics no more than their views of astronomy or natural history.

NAFTA was basically a government level drug deal in whole, tolerated and passed by the US to further the moves towards a sort of EU for the Americas(North, Central, South). Put together by a Mexican leader who is now in exile, who was literally himself a drug lord, as well as on the payroll of the other Mexican drug lords, as were all his high cabinet members.

FYI, the SWAT team is caught in a traffic jam on the North American Superhighway, but the black helicopters will be at your house in five minutes.

[Dr Mabuse]

FYI, the SWAT team is caught in a traffic jam on the North American Superhighway, but the black helicopters will be at your house in five minutes.

:lol:

Salinas came into power to negotiate a drug deal disguised as a trade deal. Thems the facts

[wendersfan]

One final thing, Krugman's contribution to International Economics consists precisely in going beyond what you call "Comparative Advantage", or the Heckscher-Ohlin factor-endowments model, to incorporate trade arising from economies of scale, which accounts for most of the commerce within industrialized nations.That's a very lucid and elegant summary of his contributions. :up: