It's worse than the Great Depression

[Uraniun235]

Oh, and it pisses me off to no end that I can get fucked over by something entirely virtual. Good grief. What is the world coming to, when organizations representing the will of hundreds of millions of people are hamstrung by a few blots of ink on a sheet of paper somewhere...

the real proof that we are (or aren't) in a civilized world is that no one is circulating lists of addresses of the very people who basically gambled away the world economy

No. The proof is that I'm probably going to get fucked over by numbers on a page that I have no control over. And nobody's going to say "fuck that" and fix them so they work.

I don't think you got my meaning - I'm sarcastically saying that we must be in a civilized world because there hasn't been (and, I'd bet, probably won't be) a rash of vigilante action against the business executives and past/present government officials responsible for this mess. I don't think that mindless yet murderous bureaucracy is a defining aspect of what we often refer to as "civilization", but people not murdering each other usually is considered as such.

So there we have it from the big man. Any questions?

The big one is whether or not the executive branch of the government understands what is happening. Based on their actions to date you might be initially inclined to say no, but before we assume that I would want to know what their actions would indicate if they actually knew perfectly well what was going on.

If they don't understand and are proceeding from the assumption of "we just have to ride this out for another year or something", is it a lack of good advice or is it a refusal to listen to their trusted advisers in favor of their political prejudices? (Also, key word there - who do they trust?)

Is there possibly some bit of data (whether true or false isn't terribly relevant, what matters is whether they believe it) that's factoring into their decision making? For example - could they believe that, faced with the hardship of a short and sharp depression, American society would revolt? Or could they believe that there would be no bottom to such a crash, that any such nosedive could only end in total collapse?


The other bit of curiosity is probably the most unknowable - where would we likely be if we had never gone down the path of debt-fueled false economic expansion? Would the economy have developed in different ways and we would be seeing prosperity by now? Is it possible that we were doomed to basically arrive at where we're headed one way or the other, whether by slow stagnation or by a big boom followed by a bigger bust? If so, why, given the enormously cheap energy market of the 90s?


Finally, if it comes down to it and things really bomb out, is it at all possible to shift to a largely command economy where the most vitally needed workers are conscripted into federal service? Or is a society as large and complex as ours unworkable without some sort of market system?

[Ryan Thunder]

No. The proof is that I'm probably going to get fucked over by numbers on a page that I have no control over. And nobody's going to say "fuck that" and fix them so they work.

I don't think you got my meaning - I'm sarcastically saying that we must be in a civilized world because there hasn't been (and, I'd bet, probably won't be) a rash of vigilante action against the business executives and past/present government officials responsible for this mess. I don't think that mindless yet murderous bureaucracy is a defining aspect of what we often refer to as "civilization", but people not murdering each other usually is considered as such.

I wouldn't say its defining, just a common issue that needlessly prolongs our suffering over sentimental things like "rules".

And yeah, otherwise I agree. I was just using your comment as a springboard.

[J]

The big one is whether or not the executive branch of the government understands what is happening. Based on their actions to date you might be initially inclined to say no, but before we assume that I would want to know what their actions would indicate if they actually knew perfectly well what was going on.

I'm not a mind reader so I can only judge their grasp of the situation through their words & actions. I believe they understand that it's very serious but I don't think the full implications have sunk in quite yet.

Addressing the final part of your question, if they knew full well what's going on and where we're headed, and despite all that they're taking the actions which they are, then they're either grossly, grossly incompetant or we're looking at a level of evil scheming straight from Karl Rove's wildest dreams.

If they don't understand and are proceeding from the assumption of "we just have to ride this out for another year or something", is it a lack of good advice or is it a refusal to listen to their trusted advisers in favor of their political prejudices? (Also, key word there - who do they trust?)

I think it's a matter of not having the right advisors in the first place, out of all the members in the special economics advisory panel, Paul Volcker seems to be the only one with a grasp of the situation and he's been marginalized for the most part despite being the head of the special economic recovery advisory panel. In addition I think the remaining advisors are either the idiots from the previous administration who got us into this mess in the first place or they're people who are in way over their heads, or both. For instance, Tim Geithner, the current Tres. Sec, was the person in charge of overseeing the TARP funds at his previous job with the New York Fed, he did such a great job that $70 billion disappeared into executive & employee bonuses. Now, he flips back & forth on plans, claiming to have plans for dealing with the crisis, then when the day comes to announce the plan he more or less says "um..we don't exactly have a plan, let me get back to you". He seems like he's completely out of his depth at best.

Is there possibly some bit of data (whether true or false isn't terribly relevant, what matters is whether they believe it) that's factoring into their decision making? For example - could they believe that, faced with the hardship of a short and sharp depression, American society would revolt? Or could they believe that there would be no bottom to such a crash, that any such nosedive could only end in total collapse?

Well, various reputable sources such as the Federal Reserve Bank are still predicting a 2nd half recovery or a recovery starting in early 2010, and they all claim unemployment will top out at under 10% (frankly I have no idea how they're massaging the data to reach those conclusions). If they were to believe this then they could justify throwing out stimulus packages & bailouts to tide us over until the recovery begins.

The other bit of curiosity is probably the most unknowable - where would we likely be if we had never gone down the path of debt-fueled false economic expansion? Would the economy have developed in different ways and we would be seeing prosperity by now? Is it possible that we were doomed to basically arrive at where we're headed one way or the other, whether by slow stagnation or by a big boom followed by a bigger bust? If so, why, given the enormously cheap energy market of the 90s?

In broad general strokes, we'd all be less "wealthy" and we wouldn't have as much disposable consumer goods floating around. We would not be facing a crisis since all the bad debts, credits, and structured finance instruments which are at the root of the problems would never have been created in the first place. The credit & housing bubbles would never have started in the first place, banks would still be doing old boring banking stuff and turning out modest steady profits every year instead of acting like high risk hedge funds. It's still possible to start a boom but it becomes harder and will generally be contained to one sector, such as the tech boom or a resources boom or something of that sort, and the bust will also for the most part be contained to the originating sector. In short, we'd have a much more stable economy that's not prone to wild swings in either direction.

Finally, if it comes down to it and things really bomb out, is it at all possible to shift to a largely command economy where the most vitally needed workers are conscripted into federal service? Or is a society as large and complex as ours unworkable without some sort of market system?

I honestly don't know, and I really don't want to find out.

[J]

Another datapoint.

Telegraph link

Moody's predicts default rate will exceed peaks hit in Great Depression
A bigger proportion of non-investment grade companies will go bust in the US and overseas in the coming years than during the Great Depression, according to Moody's, one of the world's foremost experts on credit.

By Edmund Conway, Economic Editor
Last Updated: 7:42PM GMT 26 Feb 2009

In what will be seen by many as die-cast confirmation that the world economy is plummeting towards an economic and corporate implosion of unprecedented proportions, Moody's said it anticipated a tidal wave of defaults was approaching.

It said that in the coming months more than 15pc of speculative-grade bonds and loans - all but the most highly-rated - would default on their debts.

This peak is even higher than the peak reached in 1933, when bank after bank throughout America was collapsing, taking hoards of other companies with them. Back then, the default rate peaked at 15.4pc; moreover these companies were former investment grade issuers regarded as more reliable credit prospects than their contemporary counterparts.

Kenneth Emery, senior vice president at Moody's said: "The three main drivers of the forecasting model are forecasts for the high-yield bond spread and the unemployment rate, along with the current level of issuer ratings. In the fourth quarter, the high yield bond spread reached unprecedented levels; and we've got an unemployment forecast approaching 9pc this year and issuer ratings at record low levels.

"We certainly think that this credit cycle will be worse than the last two in the early 1990s and 2000s. In fact, in 2009 we expect to see the largest number of defaults since the advent of high yield bond market in the early 1980s. And the default rate for non-investment grade bonds may reach levels even higher than those registered during the Great Depression.

"There are risks here because we are in unchartered territory, but the model forecast is that roughly 15pc of our speculative-grade issuers globally will default in 2009. In Europe the forecast default rate is even higher at close to 19pc."

The report traced the health of the bond market all the way back to the 1920s, and finds that the threat of companies defaulting is more stark now than at any point in that stretch of time. It predicted that company defaults will triple this year to about 300, after 101 defaulted last year on more than $280bn of debt.

If the economy deteriorates by even more than expected, the default rate could conceivably mount to around 20pc, Moody's added - meaning around one in five of all non-investment grade issuers default, something which has never happened before. The companies most at risk of default are consumer transport groups, which largely constitute airlines, media companies and car manufacturers.

In Europe, the sectors most at risk of defaulting include those providing durable and non-durable consumer goods and business services

Forget the equity markets, it's the bond markets which bear watching as this is what's going to do the killing. When a company bond defaults it means the company can no longer pay its loans, and from there it's a fairly short road to bankruptcy. If they're defaulting on the interest portion of the bond it's survivable, they can renegotiate terms with their bondholders and stave off bankruptcy. If they're defaulting on the interest and part of the principal, that's generally when the bondholders become upset and force a liquidation or drastic reorganization.

[J]

One more datapoint, we've had the largest drop in corporate profits since 1871. Yes, 1871.

CNBC video interview

That depression was so bad the army had to be deployed to stop citizens from dragging bankers from their homes & offices and stringing them from lampposts.

[Dominus Atheos]

That depression was so bad the army had to be deployed to stop citizens from dragging bankers from their homes & offices and stringing them from lampposts.

I don't know about that depression, but given how many trillions they've caused to be lost due to their short-sighted greed, how many hundreds of billions (or aren't we into the trillions now counting the reserve bank?) has been given to them to stop the losses, and how much of those hundreds of billions have found there way into the pockets of said bankers, I for one hope this time the army won't be able to get there in time.

[Surlethe]

Speaking of how bad it is and data points, you can compare all postwar recessions, including this one, at the Minneapolis Fed website. It's pretty neat; right now, apparently things are not as bad as the ones just after World War II, at least when it comes to output and unemployment. (When it comes to how totally fucked the financial system is, the measure's a bit different.)

[ray245]

That depression was so bad the army had to be deployed to stop citizens from dragging bankers from their homes & offices and stringing them from lampposts.

I don't know about that depression, but given how many trillions they've caused to be lost due to their short-sighted greed, how many hundreds of billions (or aren't we into the trillions now counting the reserve bank?) has been given to them to stop the losses, and how much of those hundreds of billions have found there way into the pockets of said bankers, I for one hope this time the army won't be able to get there in time.

No one deserve to by lynched by the mob. Are they guilty? Yes, but the mob is incapable of making the right judgment when it comes to deciding what sort of punishment the Bankers deserve.

[bobalot]

That depression was so bad the army had to be deployed to stop citizens from dragging bankers from their homes & offices and stringing them from lampposts.

I don't know about that depression, but given how many trillions they've caused to be lost due to their short-sighted greed, how many hundreds of billions (or aren't we into the trillions now counting the reserve bank?) has been given to them to stop the losses, and how much of those hundreds of billions have found there way into the pockets of said bankers, I for one hope this time the army won't be able to get there in time.

It would be a great thing to put real fear into these souls of these arseholes. They have paid off lawmakers. They still shit all over the rest of us. How many of them gave themselves bonuses with tax payer money? They know they fucked over the entire world economy and they have no fucking shame. They are still gleefully screwing the rest of us.

[Broomstick]

I was sort of wondering when tempers would run high enough we'd start seeing "let's hang 'em from the lampposts" type statements....

Really, J, it would be helpful if you might occasionally suggest strategies for survival in these times. Not "how to invest your remaining nestegg" because many of us no longer have one. More like "how do I ensure sufficient income to have a place to live and food to eat". Otherwise, your posts tend to be enormously depressing.

[aerius]

Really, J, it would be helpful if you might occasionally suggest strategies for survival in these times. Not "how to invest your remaining nestegg" because many of us no longer have one. More like "how do I ensure sufficient income to have a place to live and food to eat". Otherwise, your posts tend to be enormously depressing.

That would be Chapter 20 of The Crash Course, which I'm pretty sure has been posted somewhere already. One thing which has helped us a lot is spreading the truth and educating our family, friends, and other people we care about on where we really are as opposed to where the media and our leaders claim we are. We talk about this stuff when we get together, get them aware and interested in the situation and encourage them to do their own research, and then spread the word to their friends & family. Most people know that something is wrong, but they don't know what or why, or how bad, we try to get them in on the real picture.

And once that's done and we have enough people clued in, we can start taking action, for instance, mass phone calls & faxes to our government reps telling them to get them to do the right thing, getting some media airtime on local TV & radio to voice our views, and if possible, a nice protest march which hopefully ends up on national TV. That's what we're working towards. It's easy to feel depressed when it seems like there's nothing you can do about it, but when you can start taking action, organizing people to the cause and so forth, it feels a lot better. Yeah you'll still get pissed & frustrated, but now you can actually do something about it.