The Great Depression: The sequel

[Prof.]

Is the United States entering another Great Depression? Find out here (http://www.salon.com/opinion/feature/2008/04/02/depression/index.html?source=yahoo).

[fridgeymonster3]

We are definitely in a recession, but I think it is a stretch to say we are entering another Great Depression. At least we are not now, maybe if the economic situation gets considerably worse. I'm not surprised that people believe so. Hell, you'll find people denying that we are in a recession - look at Bush's past comments when almost all economists were saying we were already in one, or just entering one. So, I'm not surprised people are going the other way either now.

[Rodimus Prime]

recession yes. Could it be a pretty rough one, yes.

Some of the things in the artical are rather worthless. Unemployment hit it highest point in 2 years" for example is a useless argument because it not a long enough time span. Now 20-30 years a bit more useful.

it targeting unemployment is again stupid because it aways been figure that way.

Lastly the US is not entering one because the entire world is not entering one. Look back at history when the Great depression happened most of the world was in bad shape before hand and the US finally fell down with it.

The world would be entering a very bad depression if the US had that happen. To much of the world economy is tied to the US. Yes even the EU would be heavily effected. They relay on a lot of imports from other countries that heavily depend on the US.

[stevento]

*opens a can of worms* remember the economy of the 90's?

[Iscariot]

I hope the special effects are better this time around. Those monsters just weren't believable. The chase scene was boss though.

[Desertrat]

The 1930s saw unemployment of 20% or 25%, depending on who you read about those times.

What we are seeing at the moment is a deflation of incomes and asset values. Cities' tax takes are dropping; Vallejo, California, for instance has been discussing bankruptcy, and some Florida cities are in trouble. The decline in home values is commonly known.

For now, we're more in "stagflation", with declining real incomes and rising prices for consumer goods.

I guess the main difference between now and the 1930s is that today's causes are far more complex. Factors include Congress' energy bill with its ethanol component which is driving up the cost of food. Other aspects for food are that there are the drouth problems in some countries--affecting supply, and the increased demand in those developing countries which now have more money to spend on better diets. Oil costs are a mix of speculation, demand, and the falling dollar. We've often discussed the industrial jobs losses; those people aren't now employed at the prior higher wages--which means less disposable income.

Add to all that the credit crunch and lack of liquidity for the operating capital or investment capital loans needed to keep businesses going or for startup. I read yesterday of a several-billion-dollar communications deal which fell through because of an 18.5% interest rate for a $550-million loan. Those with money are avoiding risk in these uncertain times.

How much worse? I've no clue.

'Rat

[TheQuestion]

The chase scene was boss though.

Boss??? Good lord! What decade are you from?

Like the term "recession" is not the term "depression" a matter of definition? have we reached the defined conditions for recession yet?

[skunk]

Have we reached the defined conditions for recession yet?Depressingly, yes.

[MacHipster]

Depressingly, yes.

Have we? Show me where the US has had two consecutive quarters of negative growth.

[mactastic]

Have we? Show me where the US has had two consecutive quarters of negative growth.
By definition, you can't actually be in a recession until 6 months after it's actually started. Quite the connundrum, eh?

Most economists I've run across recently think it's highly likely we are in a recession, even if the technical definition prevents us from actually calling it a recession yet.

[Queso]

The world would be entering a very bad depression if the US had that happen. To much of the world economy is tied to the US. Yes even the EU would be heavily effected. They relay on a lot of imports from other countries that heavily depend on the US.
Both the Eurozone and USA are consumer economies. As long as the commodities and imports continue to be priced in dollars or currencies that shadow it the Eurozone should actually benefit from the USA's troubles, enough to shield it from the worst effects of what's coming.

As things stand though I don't think we're heading for a depression at all. The newspapers are overblowing the story to sell a few more copies and the markets are doing their usual over-reacting to the slightest bit of news. However, most of the world is actually in quite good economic shape and ready to absorb the reduction of asset values going on. The USA is definitely going to tip into recession, the UK and a few others are possibly going to follow, and global growth will slow.

But this is no 1930s.

[Gelfin]

I believe the official standard for depression is predicated on the number of stockbrokers that need to be shoveled off the Wall Street sidewalk. As that number stands at approximately zero, we still seem to be in fair shape.

[FleurDuMal]

I'm no economist, so forgive this rather naive view, but surely a recession isn't necessarily a bad thing? It looks like the economy of the past few years has been far too heated, with the prices just rising and rising and credit debt mounting, the economy needs to enter some sort of correction.

Forcing people to tighten their belts and banks to actually think about who their lending too can only be a good thing. Also, if it forces the price of houses down then good. Property owners have been enjoying the benefits of an overlong boom and now I hope its time for a previously excluded generation to have a chance of entering the market.

Unfortunately I've already suffered from this predicted (or happening) instability. I was accepted for a loan to pay my Masters fees last summer. Now that its actually come round to paying them, my banks informed me that they won't lend me the money (despite my unblemished credit rating). So obviously I'm ********.

[Dont Hurt Me]

A free market economist no doubt.

[Desertrat]

Looks to me like the CPI oughta be applied to the GDP. We'd probably have the necessary quarters of no-growth or contraction. It would be even worse if we used real inflation numbers...

With estimates as high as another $300 billion or even more of write-downs of bad paper, I don't think the media is exaggerating all that much. And with the Fed accepting junk paper for the loans, our currency will drop even more. Grade Z junk is junk, no matter who owns it.

FleurDuMal's problem is becoming commonplace. Lenders are avoiding risk. They're scared, and the fear is trickling down from the big financials to the smaller banks...

[ham_man]

http://icanhascheezburger.files.wordpress.com/2007/06/sky-is-falling.jpg

[Thomas Veil]

So are home values, employment figures, buying power, stock values, consumer confidence, and other factors.

[solvs]

sky is falling
Well, for some people it is. But I don't think it's quite as bad as it was in the 30's. It is bad though.

[stevegmu]

If we are in a 'Great Depression' with 5.2% unemployment, where does the Eurozone stand, with 'record inflation', and 7.1% unemployment?

http://www.guardian.co.uk/feedarticle?id=7427708

[skunk]

Exactly where it stood before, since neither of these measures has anything to do with recession or depression.

[Desertrat]

We're nowhere near in any "Great Depression". IMO, the deal is, we're in a period of downward trends in employment and asset values, with rising consumer prices. "Stagflation". Now, how long the trend will continue, and how far to the bottom? Nobody really knows.

Seems to me about all anybody can do is shrug and figure that it's gonna get worse before it gets better...

Given the numbers about personal debt and lack of savings, a lot of folks are gonna hurt...

'Rat

[TheQuestion]

Exactly where it stood before, since neither of these measures has anything to do with recession or depression.

Since it is very difficult to have economic growth with high levels of unemployment, is there not some relevance to those measures?

[Queso]

If we are in a 'Great Depression' with 5.2% unemployment, where does the Eurozone stand, with 'record inflation', and 7.1% unemployment?

http://www.guardian.co.uk/feedarticle?id=7427708
The trend of unemployment in the Eurozone is still downwards. It has only stopped decreasing for one month.

As for inflation creeping up, with rising grain, rice and oil prices that's hardly a surprise.

Here's a nice quote from that article BTW:-

The tightening labour market, a result of two years of healthy economic expansion, supports economic growth as more people with jobs fuel domestic demand at a time when euro zone exports face slower global growth and a strong euro.
I've said this repeatedly here and elsewhere. Out of all the major economies the Eurozone is best placed to ride this storm.

[stevegmu]

The trend of unemployment in the Eurozone is still downwards. It has only stopped decreasing for one month.

As for inflation creeping up, with rising grain, rice and oil prices that's hardly a surprise.

Here's a nice quote from that article BTW:-


I've said this repeatedly here and elsewhere. Out of all the major economies the Eurozone is best placed to ride this storm.

The trend may be downward, but wait and see what happens when fewer Americans choose to buy expensive EZ luxury items, and take their vacations in the US or Eastern Europe, rather than EZ countries. If you think a US slowdown doesn't affect other countries, ask a Canadien about the current state of their lumber industry.
Soon, outsourcing to China will hit the EZ countries, as well. Even Dr. Martens are made in China now.

[Queso]

The trend may be downward, but wait and see what happens when fewer Americans choose to buy expensive EZ luxury items, and take their vacations in the US or Eastern Europe, rather than EZ countries. If you think a US slowdown doesn't affect other countries, ask a Canadien about the current state of their lumber industry.
Soon, outsourcing to China will hit the EZ countries, as well. Even Dr. Martens are made in China now.
Extremely bad comparison. Canada is virtually totally dependent on the USA for its trade, whereas the Eurozone countries overwhelmingly trade with each other. Outsourcing in the Eurozone has also already occurred, some to China and India but mostly to former Communist states to the east. The same states that are now thinking about joining the Eurozone themselves.

Has it occurred to you there's a reason why the Euro is the currency the smart money is running to? Their exposure to the credit crunch is much lower than any other major economy, and due to the ECB's stringent requirements for Euro membership the economies of the member states are run with minimal debt and on sound financial footings. I wish the UK had joined the Euro. We'd be much better off for it.

BTW, Dr. Martens is a UK brand. They haven't been German since 1960.

[solvs]

If we are in a 'Great Depression'
Well, we are in a recession (http://news.yahoo.com/s/nm/20080408/bs_nm/usa_economy_greenspan_dc;_ylt=AiA1Zo87bDx6QQhM1lVmW6iyBhIF?), or at least an economic downturn heading in to one (I don't know anyone saying we aren't), but how does any other place having bad statistics change that? Or are you just obfuscating again. Clinton did it and they have it bad too doesn't defend how bad things are for us, try as you might.

Weren't you banned?

[Desertrat]

I agree with dynamicv about the EZ intra-trade being less affected by our downturn. However, quite a few EZ banks are writing down billions of dollars from this sub-prime meltdown. If it's correct that as much as $600 billion remains to be written off, these next two years, things definitely will get worse.

The EZ has other problems. Spain, Greece and Italy are not happy with the way things are going. Spain is having a real estate meltdown. Italy is having problems with the 3% limit on budget deficits, as, apparently, is Greece.

Germany, the world's largest exporter in $$$ terms, has many small- and medium-sized corporations which are the best in the world at what they produce. They raise prices as necessary, and the customers don't quibble. Germany remains the powerhouse of the EZ...

As far as the trend here in the U.S., we still have a couple more years of rollovers on ARMs and I-O mortgages. That means continuing foreclosures and bankruptcies, which means further drops in home values.

One difficulty in assessing all this is that in the past, the information flow was so much slower. It took more time, but gave more time, to really study the reality as opposed to perception. Now, every little impact gets brought into view and discussed.

But, neither the Congress nor the Fed can keep tomorrow from coming...

[solvs]

But, neither the Congress nor the Fed can keep tomorrow from coming...
At this point, it's too little too late.

[Desertrat]

"At this point, it's too little too late."

Well, yeah, if you figure that the marketplace can actually be controlled by regulation. The problem is that the Keynesians have been wrong from the git-go. There can be SOME control of the marketplace for the short run, but sooner or later the efforts lead to a larger problem than would occur if the regulators had just stayed out of it. Easy enough to figure; we have the hindsight available now for these last seventy years. Short-term benefits during boom times, and ever-harsher falls when bubbles collapse.

Basically, a few dozen regulators cannot out-think millions of equally-smart folks who try to figure out new and different ways to make money. It's the "new and different" that's the insoluble problem for the control freaks. Like I said, generals and plans for the last war...

'Rat

[elcid]

Wow. Ya, nowhere near a great depression right now. We are debating a recession (cause we cant call it that technically) and now its a question of depression.

I agree with whoever said that its just a problem of a heated market. You grow to fast you are going to have to come down.

Also, the U.S. will not go into a depression while the rest of the world is in an upswing. We are way to important that it would not go unnoticed by eurozone and japan.

Reform the practices to try and avoid this next time, wait a year or two and we will be goin back up.

And I say this as a student employee making 8.50 an hour and paying for all my bills.

[Queso]

Also, the U.S. will not go into a depression while the rest of the world is in an upswing. We are way to important that it would not go unnoticed by eurozone and japan.
Not what I'm saying at all. Japan is already in a right economic mess and has been for a while. However, many economists think the Eurozone is still going to grow whilst the US is in recession, albeit at a slower rate than if the USA was also in a growth period. Put it this way, I know where I've got my money.

You're right about debt and how people need to think differently about money though. Not just individuals, but companies, institutions and governments. Every single one of them has been living on the equivalent of their credit card for years. Time to pay the bill.

[solvs]

"At this point, it's too little too late."
You know, you could use the Quote button. ;)

Well, yeah, if you figure that the marketplace can actually be controlled by regulation.
The marketplace itself? No, of course not. But we didn't get here by regulation. Pretty much the opposite. You can't honestly be saying we should deregulate even more and that would fix everything. Maybe you have a link proving what you're saying?

While I'm not saying regulation is the end all be all, the right kind of regulation might have helped against something like what's still going on with creditors jacking up their interest rates for whatever reason the feel like. I had a credit card do that. Literally, no reason. I talked to people all over the company and no one could tell me why. I always paid my bill, most of the time early and over and above the minimum. No other problems with anything else credit-wise, checked those too. They just did because they could. Needless to say, I canceled the card and paid it off. Not everyone is able to do that, like with a mortgage. There are supposed to be laws to protect consumers against such things. You can't tell me we should not have laws against that, and not enforce the ones we have, and everything will be peachy keen for consumers. Again, it's not all about regulation, but we could use more and better in some places, and you want to take away regulation or gov interaction, maybe the current admin's people can stop threatening to take away funding for states who try to enforce current legislation or dare to not let a higher ups buddies have gov land to develop on at cheap prices, just taking 2 of the recent stories I've posted about. Or bailing out those responsible for the crisis in the first place. Maybe instead they can regulate them before they do such things.

[KingYaba]

We are definitely in a recession, but I think it is a stretch to say we are entering another Great Depression.

Hell, you'll find people denying that we are in a recession - look at Bush's past comments when almost all economists were saying we were already in one, or just entering one. So, I'm not surprised people are going the other way either now.

Can't call it a recession until the numbers come out. ;) President Bush knows this and it's political suicide for the Republicans to come out and say, "Yep! We are in a recession." The term "economic slowdown" is easier on the ears. It's the election season so no one will give you a strait answer. Wait for the numbers...

Gone from 4.9 in Q3 to .6 in Q4 of 2007 and now it's estimated to be .3?

http://www.bea.gov/newsreleases/glance.htm

April 30th mark your calendar.

[pseudobrit]

Well, yeah, if you figure that the marketplace can actually be controlled by regulation. The problem is that the Keynesians have been wrong from the git-go. There can be SOME control of the marketplace for the short run, but sooner or later the efforts lead to a larger problem than would occur if the regulators had just stayed out of it.

Regulation does not exist to "control" the market. The function of regulation is to ensure that the market is not controlled. That is that the market remains free, fair and transparent.

If someone is gaming the system (as tends to happen when regulation is lax) then our whole capitalist marketplace becomes nothing more than an insider's tool and a sucker's bet.

[solvs]

This is what happens when there's not enough oversight:

Southwest Planes Had Cracks an Inspection Might Have Found (http://www.nytimes.com/2008/04/11/business/11plane.html?_r=1&ref=us&oref=login)
Bush's OSHA: No Laws? No Crimes (http://www.truthout.org/docs_2006/040808R.shtml)
His Legacy Tarnished, Greenspan Goes on Defensive (http://online.wsj.com/public/article/SB120760341392296107-kMVJyPzOePwzrhDgo1Sx8LLZhjQ_20080509.html?mod=tff_main_tff_top)

And a good run down here:

Lori Swanson: Bush vs. the American citizen (http://www.startribune.com/opinion/commentary/17525484.html)

Over the past 50 years, deregulation at the federal level has no doubt improved efficiency in some industries. But federal regulatory indifference has ill-served the public in many others: the Food and Drug Administration's aversion to oversight of pharmaceuticals; the Justice Department's reluctance to enforce the antitrust laws; the Department of Labor's hesitance to regulate federally governed health plans; the Federal Communication Commission's unwillingness to rein in media concentration; and the Environmental Protection Agency's failure to address invasive species in the Great Lakes or carbon, mercury and ozone emissions. The list goes on and on. This week it was the FAA and airline safety.
Tax cuts don't pay for themselves either (http://www.google.com/search?hl=en&q=myth+of+tax+cuts+pay+for+themselves&btnG=Google+Search):

http://www.brillig.com/debt_clock/

[Desertrat]

"Controlling the marketplace": Maybe I'm being confusing with the phrase, but in the context of Fed policy, the idea from Keynes is that by controlling interest rates and creation of fiat money there can be a central control of the swings from boom to bust. If the marketplace seems out of balance, raise or lower the Fed rate to ensure "soft landings".

My view is that this policy does not allow for the necessary corrections in over-supply, for example. Not enough companies quit (go broke) or change in what they make. The result is a deferring of a harder landing, later on. It looks to me like that's what's happening now. We've been deferring since the 1980s, and we got away with it until now.

Again, there is no one factor. IMO, it's additive: Interest rates, government policies leading to such things as Fannie Mae & Freddie Mac on the home-mortgage thing. Add in the psychological: Some high-dollar homes in Las Vegas are slow to sell because they are "too old"--at four or five years! An induced mood that one should trade up in houses as folks have for years traded up in cars. That's just part of what's contributory to where we've gotten.

Anyhow, I believe that Fed and government policies have combined to allow or enhance or encourage bubble behavior. I don't think there was any deliberate effort--but what was done did indeed mess up that greater marketplace that is the decison-making of millions of people.

So, when ARMs, etc., started being a problem, the value of the mortgage paper dropped dramatically. That rippled on through the financial system, as has been reported at length. It has meant a vast reduction in construction payrolls and the sales of all the stuff that goes into building and furnishing homes. That ripples back through the entire economy as spending decreases. Ergo, "slowdown".

Bernanke, et al, trying to stave off disaster in the credit markets, is decreasing the value of the dollar with these cuts in the Fed rate. The undesirable side effect is the rise in consumer prices. Food, oil, you name it. Congress had made its own impact via the ethanolitis law.

Bunches of chickens headed home for the night...

'Rat

[Eraserhead]

I wish the UK had joined the Euro. We'd be much better off for it.

One of the problems is that the UK economy isn't in sync with the rest of Europe, we go down when they go up and vice versa, so although it'd be nice to join the euro, I'm not totally sure its the best thing for the country.

[Queso]

One of the problems is that the UK economy isn't in sync with the rest of Europe, we go down when they go up and vice versa, so although it'd be nice to join the euro, I'm not totally sure its the best thing for the country.
Although that has been very true in the past it does look as if the economies are gradually converging as we trade more with Europe and less with countries further afield. It's not there yet of course, but give it another 10-15 years and our Euro entry would be certain if that was the only caveat.