Economy will get a lot worse -- The Economist

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93 Responses to “Economy will get a lot worse -- The Economist”

  1. Ranessin says:

    Why the “(hyper)-inflation will surely come”-think? The crash removed 4-5 trillion of worth from the markets, the governments have pumped 3-4 trillions into the market, overall there is less money and assets in the market now than there was two years ago – how exactly should this lead to hyper-inflation if there is actually less money (and value – assets lost a lot too after all) in the system than before?

  2. Takuan says:

    credit due to a woman of Polish humour extraction.

  3. Takuan says:

    no really, she’s shameless:

    The Swede’s wife steps up to the tee and, as she bends
    over to place her ball, a gust of wind blows her skirt
    up and reveals her lack of underwear. “Good God, woman! Why aren’t you wearing any skivvies?” Ole demands.

    “Well, you don’t give me enough housekeeping money to afford any.” The Swede immediately reaches into his pocket and says, “For the sake of decency, here’s a 50. Go and buy yourself some underwear.”

    Next, the Irishman’s wife bends over to set her ball on the tee. Her skirt also blows up to show that she, too, is wearing no undies. “Blessed Virgin Mary, woman! You’ve no knickers. Why not?”

    She replies, “I can’t afford any on the money you give me.” Patrick reaches into his pocket and says, “For the sake of decency, here’s a 20. Go and buy yourself some
    underwear!”

    Lastly, the Scotsman’s wife bends over. The wind also takes her skirt over her head to reveal that she, too, is naked underneath. “Sweet mudder of Jaysus, Aggie! Where ta friggin hell are yer drawers?”

    She, too, explains, “You dinna give me enough money ta be able ta affarrd any.”

    The Scotsman reaches into his pocket and says, “Well, fer the love ‘o decency, here’s a comb … tidy yerself up a bit!”

  4. Takuan says:

    Adam Smith was a Scot.

  5. zuzu says:

    @82 Urshrew

    Exactly.

    Normal?

    Why do people keep referring to the last several years as normal? Over and over again I hear supposed experts on CNBC and other news channels saying things like “normally,” “how things usually are,” or “under normal circumstances” when referring to the economic conditions present over the past several years. I hear the talking heads asking when banks will return to “normal lending practices.”

    There is nothing normal about a recession; likewise, a boom phase is equally abnormal. During the boom phase no one asked when the banks would return to normal lending practices.

    This is an example of what psychologists refer to as “regression fallacy.” Regression fallacy theory states that individuals are more likely to interpret exceptional events/performance/scores as being average and expect the results to continue. Statisticians refer to this a Regression Toward the Mean.

    To illustrate this point consider the following scenario. If XYZ company’s stock shows 80% earnings growth for two years in a row while its closest competitors only show 15% earnings growth over the same period of time then investors are likely to expect XYZ’s earnings growth for next year to be around 80%.

    It is important that we are aware of our tendency to make this mistake. If the goal for the economy is to return to “normal” then we must recognize that the last several years have been an exceptional boom, not normal or average.

  6. Anonymous says:

    Believing in this hype will only worsen our economy. How about instead of predicting what will happen, we do something constructive. Like offer beneficial solutions to the crisis we’re in. These economists are a serious problem. Believing their BS during the bubbling market got us here in the first place.

  7. Anonymous says:

    Thanks Republicans for you Obama insight. Do you remember voting in Bush?

  8. Telephoneface says:

    The Economist knows that bad news sells.

  9. Matt says:

    “The aim of capitalism is to create money, which inevitably leads to inflation, which inevitably leads to forced expansion; as soon as expansion is not possible (as it happened, this time, in the credit sector), the system goes down and you have to start from scratch. This happened since the dawn of time and will happen as long as money exists.”

    The “aim” of capitalism, insofar as you can talk about an aim actually existing, is to maximize economic freedom by enforcing (physical) property rights. In a free market, your personal goal can be whatever you want it to be, but only those who create massive value for others get rich.

    If the total amount of (even fiat) currency in circulation was fixed, meaning no FDIC insured fractional reserve banking or Federal Reserve shenanigans, and if productivity overall rose, then the purchasing power of the currency would go up over time. Also, historically, there’s a very strong correlation between societies that produce a lot and those which are freest.

    My own aim is to live in one of those societies :)

  10. Takuan says:

    well, after all, it is called the “dismal science”.

  11. Takuan says:

    economists need to spend more time studying primate anthropology.

  12. Anonymous says:

    this stock market rally is just that a Fools Rally,everyone knows it, yet noone dare speak of it as such for fear of blowing down the house of cards. Soft metal backed monies is also an attempt at fail, what we must do is have a concurrent separate mony & goods transaction system based on comodities just like in the middle ages. You bring in your harvested bushel of wheet, tsty corms, xbox, sofa, flat panel tv, or promise note to work X amount of hours doing X specialty in exchange you recieve your certificate reciept stating your number of credits that you may reedeem at this wheat house/Item/goods bank which you may use to trade for other goods or work promise notes at said bank or with other workers, neighbors friends ECT. This way promise notes have ACTUAL backing by real world goods and services. Unfortunately your boom bust cycles also disapear along with your potential to earn inerest on stored goods wich forces you to not save at all in the interest of spending your credit notes much like local currencies, goods and services must be used and spent preferably within a year as fast as possible lest the value of your harvested tsty corms diminishes as it starts to go bad or becomes obsolete much liek the xbox and games you just deposits in exchange for your credit certificate note. The reason golf/silvar backed mony was invented was to help nobles store tgeir wealth and power over generations vs being at the mercy of yearly random yeild tsty corm harvest wich can change or lower your station as a noble. Hence gold/ currency was born qickly followed by ??? And resulting in… PROFIT!!!

  13. davidasposted says:

    I hope that all of you who have thus far positively contributed to this thread continue to read and respond to it, in part because I also hope you get this message: I very much appreciate all your thoughtful comments, they’re helpful in understanding the problems, but also the possibilities, of this economic situation.

    BoingBoing readers > The Economist

  14. mannakiosk says:

    “Also, historically, there’s a very strong correlation between societies that produce a lot and those which are freest.”

    Sounds logical. If there’s plenty to go around and everyone is happy, there’s not much need to deny the people freedom.

    Begs serious question: Why, then, is the US imprisoning so many of its people?

    An other thing… Historically may not mean much if we keep polluting the top soil.

  15. Anonymous says:

    I’m always amazed at how The Economist can get economics so right, and so wrong. There may be some short term deflation as things collapse, but it’s absolutely certain that massive government spending will lead to massive *inflation*. How could it otherwise? Government, especially the US government, is trying to buy its way out of the recession by printing money as fast as it can. We’re not spending our savings (we have none), we’re spending borrowed and printed money. Deflation is just the boogie monster used to justify giving bigger budgets to salivating politicos, when falling prices are, as many have pointed out, one of the few good things average-earning citizens get out of recessions.

  16. numike says:

    calculated risk discusses the article here:
    http://www.calculatedriskblog.com/2009/04/economist-glimmer-of-hope.html

    and galbraith comments here: It will surely be very slow to restore employment. At present writing jobs are being lost at the rate of over 600,000 per month. To reverse this in six months would require a swing to job creation of the same amount, or a net swing of 1.2 million jobs a month for half a year. This is not going to happen – not even close. Among many reasons, homebuilding is likely to be depressed for a long time, while elsewhere production gains will be backed by productivity increases. As a result, we can expect the human wreckage of this slump to persist and to deepen as the period of unemployment lengthens. Without direct employment measures, many of the people most hurt will not again find decent jobs.

    - As a result of the administration’s determination to save the big banks, we will emerge from this slump with an unreformed financial sector in the hands of the same people who produced the disaster in the first place. While some bad assets will recover value, many will not, and losses will either go unrecognized or they will be transferred, via the public-private partnerships, first off the balance sheets of the banks and then to the taxpayer, when the mortgages default, via the non-recourse feature of the FDIC’s loans. We could assess the likelihood of this happening, if we chose, by the simple step of auditing the loan tapes underlying a fair sample of sub-prime securities, to determine the prevalence of missing documentation, misrepresentation and prima facie fraud. Such a study would constitute minimum due diligence and that fact that one is not underway is a very bad sign.

    - In the expansion the early easy buck, especially for speculators, may well be in commodities, especially oil. A rapid increase in imported energy costs would reverse the effective stimulus now being given by low oil prices. It will also generate CPI inflation, perhaps inducing the Federal Reserve to slam on the brakes. There is little reason to hope that the recovery will be allowed to march us all the way back to full employment unless we overcome our vulnerability to volatile oil prices, and nothing in the plans so far suggests we have faced up to that elementary necessity.

    - A turnaround could bring the deficit hawks back out of the woodwork, arguing vociferously that “now is the time” for tax increases and entitlement cuts. Should they prevail, the process could be thrown into reverse, in a recapitulation of Roosevelt’s balance-the-budget recession of 1937-38.

  17. buddy66 says:

    #50…

    Takuan, is this a paraphrased allusion to a classic Bruce Jay Friedman story? Either way, genuine LOL. Got me.

    ;…

    Absolutely. Too many economists confuse finance with economics. They study the parasite, not the host.

  18. Roy Trumbull says:

    I started a podcast feature some years ago known as “The Short Attention Span Philosopher”. I’m always researching quotations. So I though Karl Marx probably had something to say about financial panics and it turns out he did:

    It is enough to mention the commercial crises that by their periodical return put on its trial, each time more threateningly, the existence of the
    entire bourgeois society. In these crises a great part not only of the existing products, but also of the previously created productive forces, are periodically destroyed. In these crises
    there breaks out an epidemic that, in all earlier epochs, would have seemed an absurdity–the epidemic of over-production. Society suddenly finds itself put back into a state of momentary
    barbarism; it appears as if a famine, a universal war of devastation had cut off the supply of every means of subsistence; industry and commerce seem to be destroyed; and why? Because there is too much civilisation, too much means of subsistence, too much industry, too much commerce. The productive forces at the disposal of society no longer tend to further the development of the conditions of bourgeois property; on the contrary, they have become too powerful for these conditions, by which they are
    fettered, and so soon as they overcome these fetters, they bring disorder into the whole of bourgeois society, endanger the existence of bourgeois property. The conditions of bourgeois
    society are too narrow to comprise the wealth created by them. And how does the bourgeoisie get over these crises? On the one hand inforced destruction of a mass of productive forces; on the
    other, by the conquest of new markets, and by the more thorough exploitation of the old ones. That is to say, by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented.
    From: MANIFESTO OF THE COMMUNIST PARTY 1888
    The one danger which no one has talked about is what will happen if a political movement starts up with this issue in it’s teeth?

  19. zuzu says:

    There Will Be (Hyper)Inflation (MP3)

    The government controlled fiat-money regime is highly inflationary, as it allows for an increase in the stock of money mostly through bank credit in excess of real savings (circulation credit). The rising money stock pushes up prices — be it consumer or asset prices (such as stocks, housing, etc.).

    Expanding the money stock through circulation credit sets into motion an illusionary boom, leading to malinvestment. However, the latter does not come to the surface as long as the credit and money supply keeps growing.

    If money supply growth slows down all of a sudden, however, investor expectations are disappointed, and investment projects, which were — in a world of ever more money and rising prices — considered economically viable, become unprofitable.

    The slowing down of money growth reveals that the production structure does not comply with actual demand, thereby unmasking the squandering of scarce resources. And so the artificial boom, induced by new money injections, turns into bust.

    A policy of holding up the artificial boom would require ever-greater increases in money. Ludwig von Mises saw that this would lead to disaster:

    There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

  20. Chas44 says:

    A… Directory… Of… Wonderful… Things…?

  21. Anonymous says:

    “Deflation–a devastating disease in debt-laden economies–could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs.”

    So, is this saying that Deflation could set in, especially considering sinking fuel costs?

    Because sinking fuel costs will continue to be sinking? Or stay at their present sunken levels. How bad would things be on the off chance that fuel costs will in fact rise again?

  22. Anonymous says:

    barter… Enuff said

  23. Anonymous says:

    Though it is not a *great* strategy, the only way to beat bankers at their own game is to live life, as much as possible, off the “financial grid.”

    Instead of getting a bank loan to fix your car or roof, trade your services/goods/food with an unemployed friend who needs the work.

    The bankers run everything, and have it rigged so that they win no matter what. War and homelessness and mass starvation notwithstanding, they WILL have their luxuries. And everyone else will pay for it. Democracy at work!

  24. Takuan says:

    so Zuzu, how much do you have to adjust the labor supply down to have an effect?

  25. DreadLetterDay says:

    Jubilee!

    From teh wikis: Jubilee (Christian), the year of Jubilee is a special year for the remission of sins and universal pardon where debts are forgiven, slaves and prisoners freed, and the mercies of God would be particularly manifest. In the Old Testament book of Leviticus, a Jubilee year is to occur every fifty years.

    Considering we’ve gone about… oooooh… a millennium without one I’d say it’s about time, eh?

    Leviticus hates bond holders as much as gays! Who knew?

  26. Inkstain says:

    “A… Directory… Of… Wonderful… Things…?”

    I’ve been wondering that myself lately. It’s one thing to mix in the occasional issue the bloggers care about, it’s another thing to have an endless stream of “you should be outraged by this!”

  27. noen says:

    @ 64 Roy Trumbull

    I don’t think we’re even close to a communist revolution in the US. If anything we are much closer to a populist uprising that could easily turn authoritarian or fascist.

  28. zuzu says:

    Takuan,

    The solution is to allow the necessary deflation correction to bring prices back down to levels that yield market clearing.

    The easiest way to do this would be to raise, not lower, interest rates. Banks will be compelled to refinance existing loans accordingly, or risk default and bankruptcy. (Furthermore, banks must not be allowed to be shielded from bankruptcy through government intervention.)

    This would also induce the “save more and spend less” agenda that Obama et. al. claim to desire in the long-term. Instead of an economy centered on credit, it will return to one centered on savings.

    Deflation favors those who independently save money. Inflation favors the cartel of creditors. But deflation is what we would naturally expect as an outcome due to division of labor and advancement in the technology of production (i.e. producing more with less). The fact that we observe steady inflation in the real world goes a long way towards explaining the partnership between bankers and politicians for their fleecing of everyone else.

  29. kirkjerk says:

    FWIW, I thought the summary was in a lot of ways more alarmist than the article. Or rather, the article was making an alarm in a more useful kind of way.

  30. Anonymous says:

    -1 Fear-Mongering

    Tighten your belt, pick through your neighbors trash, cut up the credit cards, and eat some onions. We’re all going to do it and we’re all going to do it together.

    What we have here is not an economic disaster, but an economic opportunity for gray markets and innovation to flourish as people find creative ways to rebuild a more realistic economy through new ideas and alternate currencies.

    Jubilee year was a great concept by the way, thanks for bringing that up^.

    I’ve got another biblical one for ya: gleaning.

    …short version: I don’t actually give a shit HOW screwed we are, all I care about is how we’re going to rise to that challenge and overcome it.

  31. Anonymous says:

    Yay, ZUZU’s back!

    The economy posts are boring otherwise. I actually thought something horrible might have happened.

    May I ask where you went on your six-week vacation? Did you know you missed the irresistible Marx-was-right post?

    I say this as someone who *agrees* with that statement, too.

  32. Stephen says:

    It’s amusing, in a horrifying way, that one of the things they claim is BAD for the average American is a decline in the price of gasoline.

  33. andyhavens says:

    So there’s going to be massive deflation. Or inflation. And propping up the banks is bad… but not doing it might have been worse.

    Pardon me if I take (ahem) EVERY ECONOMIC PREDICTION WITH A GIANT GRAIN OF SALT SINCE NONE OF THE PROFESSIONAL PREDICTORS GOT AHEAD OF THE CURRENT SITUATION.

    Sorry about that. I’m just amazed that we still take anything any of these guys say very seriously. They didn’t know it was going to get this bad. They didn’t know it wasn’t going to get worse. They didn’t see the current situation coming even when the whole credit default swap and toxic mortgage thing started bubbling more than two years ago.

    I don’t think anybody knows what’s really happening now, much less what will happen next.

  34. larsrc says:

    Omigod omigod omigod it’s the econopocalypse help help help!

    Yes, things are going to get worse, But we’re not in the free-fall we were in until just three months ago. The Dow has gone up by over 20% since the low point. As much as some here love to bash the capitalist scum, it’s an indicator of things getting rebuilt. Hopefully without a lot of the less stable bits and pieces.

  35. Takuan says:

    inkstain: your post history is nothing but a litany of two-liner bitches with nothing really offered up with them. If you don’t try harder, people will start ignoring you.

  36. noen says:

    Also at Calculated Risk – Charlie Rose: Stiglitz and Ackman

    “Last night, economist Joseph Stiglitz, investor Bill Ackman (Pershing Square), and NY Times journalist Andrew Ross Sorkin discussed toxic assets with Charlie Rose.”

    At Naked Capitalism – Musings on Structural Challenges to the Financial System

    “One thing that has me troubled about the financial mess is the degree to which the powers that be are wedded to a system that it clearly broken. In part, that results from financial capture of the government apparatus by the banking industry. But an equally sticky problem is the attachment to a rather recent vision of how the financial system works. And that in turn is oddly reminiscent of destructive patterns in the Great Depression.”

    Things will probably get worse, but probably not as bad as the economic creationists hope they will.

  37. zuzu says:

    Pardon me if I take (ahem) EVERY ECONOMIC PREDICTION WITH A GIANT GRAIN OF SALT SINCE NONE OF THE PROFESSIONAL PREDICTORS GOT AHEAD OF THE CURRENT SITUATION.

    Actually, the Austrian Business Cycle Theory predicted it exactly.

    So there’s going to be massive deflation. Or inflation.

    Massive deflation is the natural correction for a history of artificially induced massive inflation.

    And propping up the banks is bad… but not doing it might have been worse.

    Propping up banks / asset prices is exactly what creates these problems — i.e. the Business Cycle (aka boom-bust cycle / credit-cycle).

    ‘m just amazed that we still take anything any of these guys say very seriously. They didn’t know it was going to get this bad. They didn’t know it wasn’t going to get worse. They didn’t see the current situation coming even when the whole credit default swap and toxic mortgage thing started bubbling more than two years ago.

    Peter Schiff has been warning about this for at least that long. (“Why the meltdown should have surprised no one.”)

  38. IamInnocent says:

    “A… Directory… Of… Wonderful… Things…?”

    BB has cycles too.

  39. DreadLetterDay says:

    Higher interest rates at the moment?

    You must want to live in the most interesting of interesting times.

    My 0.02 = This system of fiat money is over. done. finito. it is an ex-system of fiat money.

    We need a jubilee (of sorts). We need a new system of currencies. We need to restructure our enterprises and credit systems such that they cannot go beyond certain limits in size and reach.

  40. zuzu says:

    economic creationists

    I continue to find this attempt at a pejorative amusing since it’s the Keynesians who argue that economies require a “watchmaker”. It’s akin to disparaging Charles Darwin by calling him a “fundamentalist”.

    c.f. spontaneous order

  41. Takuan says:

    most interesting times. They may be the first in a century where war as a way out (for the wealthy at least) won’t work.

  42. zuzu says:

    We need a new system of currencies. We need to restructure our enterprises and credit systems such that they cannot go beyond certain limits in size and reach.

    In other words, sound moneynot fiat currency.

    We also need a banking system that provides the natural interest rate — one where the supply of credit is equivalent to the supply of savings.

  43. dainel says:

    #8 DreadLetterDay, Jubilee. 50 years? That’s too far apart. Most people would only see one or two in their entire lifetime.

    I didn’t read Leviticus carefully (who does? :), and misread it as every 7 years. I think every 7 years is much better.

  44. DreadLetterDay says:

    Sound money, yes. Fascination with soft metals, no.

  45. zuzu says:

    Representative money, yes. Fiat money, no.

  46. urshrew says:

    Maybe one of the other commenters has pointed the fundamental problem with the article out already: It’s based on the belief that things will be better the quicker we return to the status quo of the very economic model that got us into this mess in the first place.

  47. Big Ed Dunkel says:

    Didn’t Charlie Rose say the economic downturn is the result of a glitch in the Matrix?

  48. Anonymous says:

    Let me be the ray of optimism here.

    The Economist lost all credibility for me when they endorsed the Bush Administration’s tax cuts as a way to boost the US economy. As we all know now, those giveaways to the wealthy are largely responsible for the hole we’re in now. Along with the Bush Administration’s refusal to be interested in financial market regulation and the two wars, at least one of which wasn’t needed…

    But now, the Economist reveals their non-Keynesian ideologies with this line:

    “Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess.”

    Stimulus spending by the government in a time of financial market and housing industry collapse, is what not only sustained us through but got us out of the Great Depression.

    In fact, the only part of FDR’s administration in which growth halted was when he listened to conservative voices and reduced government spending in order to reduce the deficit.

    We have a lot to worry about – but deficit spending is the only way to get ourselves out of this mess. That, and raising taxes on the wealthiest back to the level of the Clinton administration. And the day the Economist recommends that? A cold day in Hell.

  49. twiggy_trippit says:

    I’m not an economic buff, so I have a few questions… There seems to be a consensus about the crisis that there is a really high supply of goods and services while demand is crashing. Basically, a huge inventory of stuff that people can’t afford to buy, that’s just lying around warehouses.

    Does that mean that we could potentially get lots of inexpensive stuff while all working less at the same time?

    Why does that create a crisis? What do we need to do to all benefit from these huge inventories?

    What part is it that I don’t understand? Please phrase it in a way that’d be appropriate for a Simple Wikipedia page. ;)

  50. zuzu says:

    Why does that create a crisis? What do we need to do to all benefit from these huge inventories?

    For the market to clear those goods from inventory, the prices would have to be reduced to levels that people could afford them. That’s called deflation.

    Economic planners have a misguided belief that deflation is to be prevented at all costs.

    (That’s what the “toxic asset” debacle is all about. They’re virtually worthless assets, but if those assets are worthless then the banks who own them and leveraged against them will have to declare bankruptcy. So government economists are attempting a whole bag of tricks to swindle people into thinking that the assets are worth more than they are. Those tricks include the “public-private investment” scheme and changing GAAP accounting rules to suspend mark-to-market midstream — allowing banks to “cook the books” to appear solvent, just like Enron and Worldcom did.)

  51. Anonymous says:

    Buffett explained it best. He’s been buying all the stocks he can while everyone else has been dumping them. The rich got rich because they bought low, and sell high. The poor got poor because they bought high and sell low. Money flows to the rich because they know when it’s a good price with ample time to buy. In 5 years Buffett will be all the richer and the economy will be booming. Meanwhile the poor sell everything thinking it’s going down the drain.

  52. Anonymous says:

    inflation is not the real boogey man…unemployment and lost jobs will be….and that will mean DEFLATION…

    How could we have inflation (from poor exchange rates, that is) when our DEBT/GDP is at 100% right now…so is Europes (and more for some)…who will have the economy that doesnt? China?…they lie.

    Inflation will only hit when those burglars that have hoarded money start trying to spend it in competition with other burglars (from other countries…you know, “the banksters!”)

    DEFLATION IS THE CONCERN NOW…joblessness.

    No inflation from competing economies…they are mostly are in the toilet.

    Inflation later…due to spending competitions…AFTER THE DEFLATIONARY BOTTOM HAS BEEN FULLY FELT AND REALIZED…not before.

    Look at 1929-38…5 years deflation (and coverups)….then wars as countries now jockey for position…and spending inflation…not enough puuches to absorb all the govt money doled out to the rich. (not currency exchange type inflation)

  53. Anonymous says:

    This from the geniuses who predicted our current situation would never happen.

  54. Anonymous says:

    About inflation and govt spending. It does not matter how much paper money they pump into a deflated tire.

    As long as consumers dont spend…no one, no bank, will invest their taxpayer cash bonanza…

    UNTIL…the consumer starts spending…

    which will occur after a strong bout of deflation to lure them back into the game (after fear has abated…about 2-3 more years.)

    At that time…WHAMMO! All the Obama-Bush-Paulson-Geittner-Bernanke funny money will now compete for a growing “shrunken head economy” and inflation will then kick in.

    Just read about the period of the “Recession?!?!” from 1929-1938…it is exactly the same.

  55. DreadLetterDay says:

    Ha… they’d rather burn it all and create scarcity than sell it off cheap.

  56. agger says:

    his may, strange as it sounds, well end up not being such a Bad Thing after
    all.

    First of all, consumption and living standards in First World countries are
    already high enough, actually they are so high that they’re rapidly depleting
    the planet’s ressources and destababilizing its climate.

    Maybe seven poor years could force people to rediscover *solidarity*; as in,
    yes, people lose their jobs, but they don’t have to starve, we’ll see to it that
    everybody has enough; as in, yes, people lose their jobs, but they don’t have to
    lose their homes, we’ll see to it that all is taken care of, and if some houses
    are too expensive, we’ll build affordable housing everywhere; and as in yes,
    people are poor, but they all have health care – universal free health care for
    all.

    If all these things are done, a poorer society might still end up being a better
    sociey. And maybe THAT, all in all, could be the real “glimmer of hope”?
    ~

  57. ArghMonkey says:

    Dont forget to thank your local american for this! wait thats not fair, your local, conservative american …

    Thats better …

  58. Anonymous says:

    Economics is (are?) a wonderful thing, an as such, fits in perfectly here at BB.

  59. Anonymous says:

    just to add spice: Chris Hedges’ take on how economic disaster could bring political nightmare.

    http://www.truthdig.com/report/print/20090202_its_not_going_to_be_ok/

  60. Telephoneface says:

    Deflation is bad cos deflation means the models they use to project profits are overprojecting, and thus they can say they are losing money, when they are really just not taking the market into consideration. The way things are set up, companies have a right to expect a certain amount of profit and deflation is akin to lost sales. Since the mean old consumer public doesn’t want to buy what they think we should buy, they have it rigged so we’ll pay for it in tax money anyways.

  61. Inkstain says:

    “inkstain: your post history is nothing but a litany of two-liner bitches with nothing really offered up with them. If you don’t try harder, people will start ignoring you.”

    Translation: You didn’t like what I had to say for the last few days.

  62. twiggy_trippit says:

    So, they’d rather hoard inventories in hopes of an increase in demand rather than sell them at a much lower price?

  63. Inkstain says:

    “So, they’d rather hoard inventories in hopes of an increase in demand rather than sell them at a much lower price?”

    Yes. With the idea that eventually prices will pick up, as long as the cost of storage is less than the difference between the current price and what you believe the future price may be.

    Combine that with people’s natural tendency to be overly optimistic in their estimates of what might happen in their own interest, and you’ll have people holding on forever in the assumption that a return to the old prices is just around the corner.

  64. Anonymous says:

    Just recall the Economist’s breathless article about the miracle of Enron. I take anything that they publish, in the way of predictions, with about as much trust as I do the picks for the lottery numbers by psychics.

  65. zuzu says:

    So, they’d rather hoard inventories in hopes of an increase in demand rather than sell them at a much lower price?

    Especially so considering all of the suggestive nods, winks, glances, and gestures the Federal government has made in taking an already loose credit system and making it even looser — flooding the market with additional credit: Known to Keynesians as “stimulating aggregate demand” and to Austrian economists as increasing “malinvestment”. The latter take into consideration that money is merely the medium of exchange for goods and services, and that increasing the money supply takes advantage of the non-neutrality of money to mislead people into squandering scarce resources rather than saving them for more important uses (such as creating actual return on investment, i.e. reducing scarcity).

  66. urshrew says:

    It could also be a version of the Gambler’s Fallacy.

  67. Wovixo says:

    @#10:
    Pot, kettle, black.

  68. Takuan says:

    oh hello there wovixo, still smarting?

  69. sylvanfae says:

    #24 and #25 hit the nail on the head!

    I’m glad the diseased system is going down. We can do better. Move over, Money-Worship, it’s time for Community and Real Value.

  70. Takuan says:

    I’m interested in what you, Zuzu, think is the final driving force in the global economy of the developed world, in terms of who is actually going to decide something and set things in motion.

  71. toyg says:

    It’s funny to see true believers falling over themselves trying to find out how to “return to a stable system” or suchlike. The truth is that no stable economic system ever existed and never will exist.

    The aim of capitalism is to create money, which inevitably leads to inflation, which inevitably leads to forced expansion; as soon as expansion is not possible (as it happened, this time, in the credit sector), the system goes down and you have to start from scratch. This happened since the dawn of time and will happen as long as money exists.

    Governments are now desperately trying to hold on until the cycle can (somehow magically) start again, without going back to scratch. This may or may not succeed, but the truth is that, even if it works, we’ll be back to this place in less than a generation. The system cannot be “stabilised” or “balanced”, the only variable you can really try to tweak is the relative suffering of the population during the periods of slump… you can make the rich suffer more, or the poor, or both.

    (Unless, of course, we ditch capitalism in the current form, and we try something else (note: I’m not suggesting socialism). That would make a lot of people unhappy, though.)

  72. cplot says:

    #26 the basic question asked is correct. However capitalism creates the problem of capitalist crisis that wouldnt’ otherwise exist. Roy Trumbull’s post #64 with the quote from Karl Marx encapsulates nicesly the problem. Keep in mind that the crisis doesn’t really represent any actual wealth destruction (at least at first). But of course capitalists will often destroy their inventories or allow the inenvtory to rot (for parishables) rather than sell or give away the product (because doing so undermines the absolute system of private property necessary to bolster capitalist class processes).

    #48 you’re right about Austrian Economics, which has selflessly dedicated itself to misunderstanding economics for the sole benefit of their capitalist benefactors. A few bits of confusion litsted by the Austrian disciples in this thread.

    1) inflation is money creation. This is plain false. Money is an element contributing to inflation, but money can be created without causing inflation and inflation could occur without any money being created.

    2) capitalism is about creating money. This confuses money (a medium of exchange) with value (which is also measured in money). Capitlalism is about creating value: surplus value in particulary. However, no additional money needs to be created to facilitate the creation of more value.

    3) Government expenditure or government borrowing entials the creation of money. Governments can borrow without creating money (or at least with no net creation). There is a difference between borrowing money thorugh the issuance of US Treasuries and the creation of money the Federal Reserve Cartel performs by simply creating money out of thin air. Government borrowing does not necessarily lead to inflation (in fact very unlikely especially compared to Federal Reserve money creation through open market operations). Deficits and money creation are two separate economic processes.

    I feel it is safe to say that Austrian Economics has contribued nothing to our understanding of economics. It does plagarize some valuable insights from others, but most oftne repositions it in pure propaganda to justify the most ridiculous capitalist notions imaginable.

  73. schr0559 says:

    I found a Nov 17 2007 Economist in a stack of old magazines. Cover story: “America’s vulnerable economy”. Their predictions are more or less correct but understated; the housing collapse was already underway by that point. They seem more concerned that high oil prices will eat into consumer spending… which it did, for a little while.

    Couple of classics from the issue –

    – cover article, in reference to the 2001 recession: “Today, corporate America is in much stronger shape.”
    – the page just before the cover story is a glowing shine-job on then-new GM exec Bob Lutz.

  74. RevEng says:

    @#71: You assume that the poor sold their assets for fear of things falling apart. I would argue that the poor people didn’t have spare assets to sell, but rather lost them as a result of external pressures: job losses, lower wages, and mounting interest. The rich are rich because they invest; the poor are poor because they pay more and more interest.

    So really, Buffet will get rich because he can afford to buy up stocks, houses, and other assets from those people who are forced to sell them. Likewise, the poor are now poorer, because they lost their jobs, and therefore defaulted on loans, and lost their houses, cars, and everything else they owned. A crashing economy only benefits those who have enough to spare to buy up what’s left.

  75. zuzu says:

    I’m interested in what you, Zuzu, think is the final driving force in the global economy of the developed world, in terms of who is actually going to decide something and set things in motion.

    Cypherpunks write code.

  76. Anonymous says:

    The Economist will say or do anything to maintain it’s phlegmatic Britainic Neoliberal/Neoconservative rich-get-richer attitude, and like many economists of a certain political stripe they are predicting doom for all because they cannot think themselves out of their own political commitment to the system that got us in to the mess in the first place.

    Topic for discussion: are people just going to let themselves be stymied and brought low by the big bad economy forever (or until Mongols on Motorcycles conquer us all) or at some point are we going to pull together to build stability and economic abundance for everybody. All this economy nonsense is starting to turn more in to a psychological and potentially spiritual issue for me; what can I as a person do to build a better world and succeed in my own right in the muck that surrounds all of us?

  77. Anonymous says:

    Zuzu said that “Inflation favors the cartel of creditors.”

    It’s my understanding that inflation favors not creditors but *borrowers*–that is, people who have (in the past) taken on debt, and who thus benefit from inflation making those debts less painful to pay off.

    Deflation, in my thinking, favors people on fixed income, and people who have savings.

    Neither inflation nor deflation is very desirable. Given the choice, though, most economists would take inflation over deflation any day.

    If I’m missing something here, I’d (honestly) appreciate finding out.

  78. brian rutherford says:

    Well of course we should read and trust everyting ‘The Economist’ says. After all they spotted this enormous bubble of bad debt and dubious banking practises well before the walls came crumbling down and like unwelcome prophets cried in the wilderness but nobody would listen. Right? What..whats that? You mean they spouted the same crap every other economic think tank and journal came out with in the good ole days about ‘growth this year’ and ‘continuing trends’. Well maybe they just wanted to keep selling their stupid magazine. Maybe this time they are really telling us whats going to happen cos if anyone would know its them. Yes?

  79. Anonymous says:

    There’s a political agenda behind this article. The British Conservative party is starting to push the line that “the recession is much worse than Labour is letting on”, because it’s the easiest and most obvious way of getting press. It’s also a great way of pandering to the public’s tendency to blame the government when Bad Economic Things nobody fully understands occur.

    Things are not going to be as “good” as they were (“good” because the boom only existed due to irresponsible lending and borrowing during a period where we all thought that money was easy to come by) until we’ve once again forgotten why we’re in this mess.

  80. twiggy_trippit says:

    #28 and #29

    So, prices should eventually crash, but at the same time, the governments and federal reserve are printing money to bail out banks and industries, which could lead to high inflation. Is there any way of knowing which way things will go?

  81. Anonymous says:

    #77, Yes everyone should have some funds saved for bad times. But Buffett has been doing this for decades and he’s gotten rich in the process. It’s a repeating cycle every few years. When the news networks are screaming “fear the bear market” and sell your stocks, that’s when Buffett is buying. When they’re gloating over an economic gold mine with no end in sight, that’s when Buffett sells. He can do this and turn a profit decade after decade because he knows how to put a value on a company, compare the best values out there, and buy when they’re priced low, like they have been recently.

    The stocks are low now because investors give them away while being scared by the media. If everyone stopped selling stocks tomorrow, the prices for stocks would go through the roof and the economy would be said to be booming beyond what it’s ever been before.

    Buffett doesn’t care about any of that though, he just looks for a good value to buy in at, and sells when it’s a good value to sell at.

    Investors doing the opposite of Buffett, become poor in having lost 70% of their investment recently, selling at the wrong time. They get scared and ignored the low prices of valuable companies out there. Then they hold onto cash and wait for the stocks to go back up to be safe, and buy in again at the wrong time.

    You can look up Buffett’s rate of return, it’s been going on for decades through multiple economic collapses. I forget the quote, but it’s something about most investors ignoring value and ignoring what Buffett does, thinking there’s some special method that will work better, making it more difficult than it is, and losing money year after year. Doing it the right way, can make you rich, doing it wrong can make you poor.

  82. jacobian says:

    I continue to find this attempt at a pejorative amusing since it’s the Keynesians who argue that economies require a “watchmaker”. It’s akin to disparaging Charles Darwin by calling him a “fundamentalist”.

    It’s a well known fact of control theory that variables at a scale require control on that scale. Don’t worry about physics or other sciences though, the Austrian religion has everything you need to explain away reality.

  83. zuzu says:

    the governments and federal reserve are printing money to bail out banks and industries, which could lead to high inflation.

    Which is high inflation.

    Inflation is not a rise in prices, but an increase in the money supply. The act of increasing the supply of money and credit is inflation, and prices merely adjust accordingly.

    In a free price system, prices merely reflect real-time supply and demand.

    (Greater quantity of money chasing the same amount of goods and services results in higher prices.)

    Is there any way of knowing which way things will go?

    To repeat what I posted earlier:

    “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

  84. noen says:

    Zuzu
    “That’s what the “toxic asset” debacle is all about. They’re virtually worthless assets”

    If one watches the Charlie Rose segment one learns that those supposedly worthless assets are actively trading. Which puts the lie to: “we don’t know how to price this”.

    Oh and Roubini and other Keynesians called the meltdown also. Shiff was hardly the only one.

    “The fact that we observe steady inflation in the real world goes a long way towards explaining the partnership between bankers and politicians for their fleecing of everyone else.”

    I don’t think you are entirely wrong, you make good points here and there, but this quote indicates a problem.

    Think about it. If what you say above is really true then attempting to correct that through merely economic policy will fail. That sounds to me like a political problem that has only a political solution. You know…. like revolution, the song of the guillotine or something.

    That was step one, now take step two. I believe that Obama is not wholly corrupt, not as corrupt as republicans for sure, and I suspect that if the above is true that he and others are fully aware of this fact.

    So what does one do? Powerful people are in control but rivers of blood in the streets is not a solution… what does one do? Well, you work within the confines of the existing political structure that’s what you do. You do your best.

    That is why I believe that things are going to get quite bad but probably not the apocalypse that some are predicting. There are other players and they have yet to move.

    And just to recap. Most real economists today do not consider the Austrian school to be anything more than a fringe theory put forward by extremists and internet wankers. I don’t know Economics any more than I truly know Quantum Mechanics. I have to rely on what the experts say and they say that the Austrian school has made valuable contributions but the theory as a whole is not valid.

    If one’s pet theory has failed to survive the Marketplace of Ideas doesn’t that mean the market has made it’s choice?

  85. Ernunnos says:

    #45, never underestimate the ability of the government to print money. Particularly when it’s in the interest of their cronies, who get the new money (and the benefit of it) first.

  86. Takuan says:

    Many times when I am troubled or confused, I find comfort in sitting in my back yard and having a nice glass of whisky along with a quiet conversation with Jesus. This happened to me again after a particularly difficult day.
    I said, “Jesus, why do I work so hard?”

    And he replied, “Men find many ways to demonstrate the love they have for their family. You work hard to have a peaceful, beautiful place for your friends and family to gather.”

    I said, “I thought that money was the root of all evil.”

    Jesus gazed in my direction and said, “No, the LOVE of money is the root of all evil. Money is a tool; it can be used for good or bad.”

    I was starting to feel better, but I still had that one burning question, so I asked it.

    “Jesus,” I said, “what is the meaning of life? Why am I here?”

    Jesus replied, “That is a question many men ask. The answer is in your heart and is different for everyone. I would love to talk with you some more, Señor, but right now, I must finish cutting your lawn.”

  87. Anonymous says:

    In response to Zulu,

    Look, there is a fundamental disagreement over the behavior of price decline. You are taking the stance that the only thing keeping prices from falling is government action while ignoring market power and liquidity traps. The behavior observed in the last century was that instead of prices dropping, you would just see massive unemployment, a la the great depression. Pretty much what is happening now. Yes, eventually prices will fall and we will return to full employment but in the words of Keynes “In the long run we are all dead”.

  88. desiredusername says:

    Indeed Zuzu.. who was interested in the economy until the good times went away? That in of itself speaks volumes.

    We are economic creatures and we are programmed to seek and utilize an abundance of resources without questioning the sustainability of the source. Our job is to use resources for food shelter and booty. It isn’t until we run out of root vegetables to dig up that we wonder , “What went wrong? How can I prevent this in the future? How do I fix this now? How much worse will it get?”. We are so much more powerful than we realize because we are largely oriented to think as consumers, probably since childhood, and not think as managers or producers.

    Consider that while we laudably debate the information we recieve and experience about our marketplace we are only interested in theory. At most we want to tell powerful figures what they should be doing. We can write our congressmen of course but what about recommendations that we can build into our own personal strategies.

    For instance, are we considering personal lending networks like Circle Lending to have more value than we previously anticipated. Do we want more community gardens? Should we buy rural land to retreat to before it may become too expensive? Is now a good time to become an entrepreneur? How are alternate currencies like those in Ithaca holding out? Small houses? We already know we can organize impromptu pillow fights, do we want to organize as communities to produce our own essential goods like food? Can we timeshare gasoline refinement or electricity production, or have an ambition to do these things? What are the problems? If the govt is producing too much money can we hold out and keep our prices down using community power? Is our only power to write congressmen?

  89. RationalPragmatist says:

    Takuan, your last comment in this thread is brilliant. But maybe you should be asking someone from the Austrian school of economics about the meaning of life. After all, according to some, the Austrian school has all of the answers.

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