The Fed Rescue Has Failed

[J]

Assuming things get as bad as they did during the Great Depression (unlikely, since we're not experiencing another Dust Bowl in the Midwest), 3 out of four people will still have jobs. As terrible as this scenario could be, it doesn't really justify some of the "sky is falling" type posts.

Yet. There have been worsening water shortages in various parts of the US including some areas in the Midwest, there hasn't been a Dust Bowl yet but it can't be ruled out either. Of course we also have to deal with various energy related problems which will only worsen in the future as the flow of fossil fuels starts running short. Given our modern economy's dependence on cheap fossil fuels, this is not a good thing.

[Big Phil]

Assuming things get as bad as they did during the Great Depression (unlikely, since we're not experiencing another Dust Bowl in the Midwest),

The hell does that have to do with the price of tea in China?

Incidentally, the dust bowl will be coming back pretty soon, once we reach a global average temperature increase of 2-3 degrees. You're already in a major drought.

3 out of four people will still have jobs. As terrible as this scenario could be, it doesn't really justify some of the "sky is falling" type posts.

I'm very curious to see whether a more globalized economy actually dampens the effects of the mortgage problems coming out of the US economy, by diffusing their effects onto a larger economy, or if the effects get magnified. I'm betting on diffusion, but it's always possible everyone in the world panics at the same time and the global economy goes down the toilet.

Yeah, I guess 25% of the nation being without a job is perfectly acceptable and won't have any repercussions on society at all.

Meanwhile, back at reality.

Given the current scenario unfolding, no one is really doing much to mitigate jack. With $500 trillion of derivatives in potential risk of exploding, you really think that's going to be something we just ride out happily without feeling the pinch? As people have repeatedly stated, being employed doesn't mean much if you can't pay for your living expenses because you earn a pittance, just as no one is going hungry today from lack of food. If even a fraction of this thing goes tits up, it will be a storm for the history books with the sub-heading "How not to manage a globalised economy".

You're predicting a worst case scenario based on what, the editorial comments from the business editors in Ontario and the Daily Telegraph, right? I have no idea who Bert Hielema is or why I should listen to him or some of the people he cites. Meanwhile, I can post my own article from Warren Buffet saying that while the US is in a recession and in short-term crisis, he sees a healthy economy in the long run. Alan Greenspan also predicts a recession, but believes the global economy to be more resilient than it was eight years ago.

So please, explain why I should accept the sky is falling catastrophic scenario of business editors looking to sell newspapers instead of the more reasoned arguments of Warren Buffet and Alan Greenspan?


http://my.earthlink.net/channel/news/pr ... -613974314

Buffett: US Essentially in Recession
March 03, 2008 5:32 PM EST

OMAHA, Neb. - Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet.

Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.

The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.

"I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC.

But Buffett said it's not clear how far the recession will go because that is difficult to predict.

The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.

On Thursday, the Commerce Department reported that the gross domestic product increased at a low 0.6 percent pace in the quarter that ended Dec. 31.

In the July-September quarter, the economy grew at a brisk 4.9 percent.

Gross domestic product measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

A survey released last week by the National Association for Business Economics showed that 45 percent of economists are predicting a recession in 2008.

But Buffett said the U.S. economy will be fine in the long run.

"Over time, my children are going to live better than I do, although they don't believe it," Buffett said.

Buffett's appearance on television came on the heels of his annual letter to shareholders, which he released Friday along with Berkshire's 2007 financial report.

In the letter, Buffett predicted that the insurance industry will see lower underwriting profit margins in 2008 because premium prices are down, and the industry's luck will certainly change.

"It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008," he said. "Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by 4 percentage points or so.

"If the winds roar or the earth trembles, results could be far worse."

Buffett said Berkshire's insurance group, which includes GEICO, reinsurance giant General Re and several other firms, generated $2.2 billion net income from insurance underwriting in 2007. That's down from the previous year when it posted a $2.5 billion underwriting profit.

When Berkshire's shareholders aren't worrying about insurance profits, they're likely fretting about who will run Berkshire after Buffett is gone. The 77-year-old Buffett offered a few new clues in his annual letter and during the CNBC interview.

To replace Buffett, Berkshire plans to split his job into three parts - chief investment officer, chief executive officer and chairman.

Buffett wrote in his letter that over the past year he identified four investment managers outside Berkshire who could take over managing the company's $75 billion stock portfolio and investing its $44.3 billion cash.

Buffett said on CNBC that none of the four CIO candidates is a woman and that very few women applied for the job.

Buffett has previously said that Berkshire's board had three outstanding internal candidates for chief executive. And Buffett's son, Howard, who already serves on Berkshire's board, will become chairman after Warren Buffett's death.

Buffett also said on CNBC:

- That he doesn't agree on everything with his favorite presidential candidates, Democrats Hillary Clinton and Barack Obama, and he wouldn't want either one to succeed him as Berkshire's chief capital allocater. "I would certainly appoint either one of them to run a business, but running a business is a little different than my job."

- On why the U.S. trade deficit is a long-term problem. "Over time, it's like eating an extra 100 calories at every meal. You don't sit down at the table and get up and everybody says 'My God, you're fat.' But if you keep doing it over time, pretty soon they'll say, 'My God, he's gotten fat.'"

- On stock bargains now: "Certainly, I find more things to look at now than I did six months or a year ago. But I would say it's changed more dramatically in the fixed-income market than it has in the equity market."

- On the cause of the credit crisis: "The mistake was in lending unwisely. There were a lot of dumb lending practices."

Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, natural gas, corporate jet and candy companies. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

[Keevan_Colton]

The fact is, most of the folk saying it's going to work out are the same dipshits that kept saying it would never really be a problem in the first place until they couldnt fucking pretend anymore. It's taken till a couple of weeks ago for Greenspan to even really admit things are shit right now.

The fact is though, they're doing the only thing they know how to do. Reassure everyone and ignore it until they stop worrying about it. There isnt enough shit in the world to back up all the magic numbers economists use to try and make something out of nothing...and to paraphrase Pratchett (who had wonderful timing on his book) they're fine so long as no one stops to think about it and ask them for the real goods.

Why the hell should anyone listen to the same dipshits that have been building this mess for years anyway?

[Admiral Valdemar]

Oh please. Buffett, aside from taking the total opposite stance to Greenspan (let's ignore how Greenspan helped cause this mess) on this issue as well, has been known to downplay the risks for the media. He won't even go in depth into peak oil on CNBC, because he knows that stuff scares the shit out of people and makes him look a loon. He wouldn't be the first person to understate the size of the risk from all these debts mounting up, and he takes a US centric view here too. There are plenty of pieces out there with Buffett talking about ticking time bombs of colossal proportions ready to butcher the markets, especially as Buffett intends to make a fortune off these people imploding just as he expects to make a killing off oil while the markets finally figure it's running out.

And no, my views are NOT based on two editorials and you know it. These two editorials just happen to sum up the general situation conveniently, without me posting links to articles I've been following for the last 12 months related to energy and the economy. Given you're one of the people who leapt at the "We'll innovate our way out of peak oil!" view, I don't find it surprising you're now expecting this issue to be a minor hiccup, when many totally unprecedented events are or will occur if things carry on this way.

But if you want to play that ballgame, you're going to trust Alan fucking Greenspan now and a single, albeit successful, investor over actual data?

[Illuminatus Primus]

Citigroup alone has assets in excess of 1.5 trillion. This is an outright lie.

That part bugged me too. The write-downs in the US are in the tens of billions of dollars already, so it's more like $10 trillion for all of them, not one.

British Trillion vs. American one.

10^18 for the British version.
10^12 for the American one.

Oh, so the write-offs are a million billion USD in volume? Do you know how to do math? Even your publications rarely use long billions now.

[Surlethe]

Citigroup alone has assets in excess of 1.5 trillion. This is an outright lie.

That part bugged me too. The write-downs in the US are in the tens of billions of dollars already, so it's more like $10 trillion for all of them, not one.

British Trillion vs. American one.

10^18 for the British version.
10^12 for the American one.

10^6*10^6 is 10^12, not 10^18. The article is wrong.

[Keevan_Colton]

10^6*10^6 is 10^12, not 10^18. The article is wrong.

Flu medicine and maths dont mix.

[Sturmfalke]

The euro fetches $1.52 (from $0.82 in 2000), beyond the pain threshold for aircraft, cars, luxury goods and textiles. The manufacturing base of southern Europe is largely below water. As Le Figaro wrote last week, the survival of monetary union is in doubt. Yet still, the ECB waits; still the German-bloc governors breathe fire about inflation.

The Fed is now singing from a different hymn book, warning of the "possibility of some very unfavourable outcomes". Inflation is not one of them.

"There probably will be some bank failures," said Ben Bernanke. He knows perfectly well that the US price spike is a bogus scare, the tail-end of a food and fuel shock.

"I expect inflation to come down. I don't think we're anywhere near the situation in the 1970s," he told Congress.

Indeed not. Real wages are being squeezed. Oil and "Ags" are acting as a tax. December unemployment jumped at the fastest rate in a quarter century.

The greater risk is slump, says Princetown Professor Paul Krugman. "The Fed is studying the Japanese experience with zero rates very closely. The problem is that if they want to cut rates as aggressively as they did in the early 1990s and 2001, they have to go below zero."

This means "quantitative easing" as it was called in Japan. As Ben Bernanke spelled out in November 2002, the Fed can inject money by purchasing great chunks of the bond market.

Section 13 of the Federal Reserve Act allows the bank - in "exigent circumstances" - to lend money to anybody, and take upon itself the credit risk. It has not done so since the 1930s.

Ultimately the big guns have the means to stop descent into an economic Ice Age. But will they act in time?

So this article says that the economic outlook is very bad, but the central banks could prevent the worst if they continued to lower the interest rates. Basically it says that Bernanke isn't doing enough and that the ECB is making a big mistake by not taking steps to reduce the interest rate at all.

Considering that in the other thread ("Hello Stagflation!") Bernanke aka Helicopter Ben was heavily criticized for continuing to lower the federal funds rate, this seems strange to me. Both views can't be correct at the same time.

[The Duchess of Zeon]

Get your brownshirts out, folks, we're headed for Weimar.

[Big Phil]

Oh please. Buffett, aside from taking the total opposite stance to Greenspan (let's ignore how Greenspan helped cause this mess) on this issue as well, has been known to downplay the risks for the media. He won't even go in depth into peak oil on CNBC, because he knows that stuff scares the shit out of people and makes him look a loon. He wouldn't be the first person to understate the size of the risk from all these debts mounting up, and he takes a US centric view here too. There are plenty of pieces out there with Buffett talking about ticking time bombs of colossal proportions ready to butcher the markets, especially as Buffett intends to make a fortune off these people imploding just as he expects to make a killing off oil while the markets finally figure it's running out.

And no, my views are NOT based on two editorials and you know it. These two editorials just happen to sum up the general situation conveniently, without me posting links to articles I've been following for the last 12 months related to energy and the economy. Given you're one of the people who leapt at the "We'll innovate our way out of peak oil!" view, I don't find it surprising you're now expecting this issue to be a minor hiccup, when many totally unprecedented events are or will occur if things carry on this way.

But if you want to play that ballgame, you're going to trust Alan fucking Greenspan now and a single, albeit successful, investor over actual data?

Let's see - your argument is that we're in for a global economic collapse. If you're not arguing this, please say so, but so far you've posted and supported articles that claim that the global economy is going to collapse faster and farther than it did during the Great Depression.

The problem with this argument is that the majority of financial analysts and economists don't agree with you. You're cherry-picking articles that support your point of view, while ignoring the vast majority of financial reports that say we're due for a recession, likely a very unpleasant and extended recession, followed by more measured economic growth, in favor of articles claiming complete and total economic collapse.

The economic data out there - declining home values, large numbers of foreclosures, high debt, increasing cost of energy and commodities - is bad, but is not evidence of an imminent economic collapse. For fuck's sake - declining home prices mean the cost of housing may actually decline for people over the next few years. Considering how ridiculously high home prices got in the last decade, this is a good thing for the economy as a whole. So now we have the cost of living (rent/mortgage) actually going down, easing that burden on the consumer.

While the financial sector is getting hammered with foreclosures and writeoffs, other sectors (technology, for example) are doing quite well financially. Their stock value may be taking a hit, but companies like Microsoft and Google are making plenty of money and aren't predicting any catastrophic declines in their revenues in the next few years - there are no rumblings of massive layoffs or concerns about employment in that sector.

[Big Orange]

SancheztheWhaler, do you think a economy largely made up of paper and electronic data, and run by careless spivs, is inherently more fragile (and thus more liable to catch alight) than a real economy that actually makes and runs concrete things?

[Big Phil]

SancheztheWhaler, do you think a economy largely made up of paper and electronic data, and run by careless spivs, is inherently more fragile (and thus more liable to catch alight) than a real economy that actually makes and runs concrete things?

Yes/no/so what? There were plenty of economic collapses when the economy was purely industrial and agricultural. The current global economy is significantly more diversified, and therefore significantly more resilient than the economy of 1929. If everybody panics at the same time, then yes, we're all going down the toilet, but not everybody is panicking.

[Admiral Valdemar]

Let's see - your argument is that we're in for a global economic collapse. If you're not arguing this, please say so, but so far you've posted and supported articles that claim that the global economy is going to collapse faster and farther than it did during the Great Depression.

No, I said the economy can potentially go that way, unless we change our lifestyles drastically and tighten our belts as central bank help goes into fifth gear. I don't really see that as coming to be, though. As with the energy crisis, none of it is guaranteed, just very likely without minds changing.

The problem with this argument is that the majority of financial analysts and economists don't agree with you. You're cherry-picking articles that support your point of view, while ignoring the vast majority of financial reports that say we're due for a recession, likely a very unpleasant and extended recession, followed by more measured economic growth, in favor of articles claiming complete and total economic collapse.

No shit. These are the same people who got us here and who happen to deny peak oil too. But by all means, post non-cheery picked articles instead. That many still debate we're going to be going into a recession when we're already bloody in one is hilarious.

The economic data out there - declining home values, large numbers of foreclosures, high debt, increasing cost of energy and commodities - is bad, but is not evidence of an imminent economic collapse. For fuck's sake - declining home prices mean the cost of housing may actually decline for people over the next few years. Considering how ridiculously high home prices got in the last decade, this is a good thing for the economy as a whole. So now we have the cost of living (rent/mortgage) actually going down, easing that burden on the consumer.

You obviously don't grasp why declining house values is bad if you think the only result from that event will be people can afford houses again. I suggest looking at the packaged debt that has spread throughout the world regarding these mortages. The trillions of it that is less than safe.

While the financial sector is getting hammered with foreclosures and writeoffs, other sectors (technology, for example) are doing quite well financially. Their stock value may be taking a hit, but companies like Microsoft and Google are making plenty of money and aren't predicting any catastrophic declines in their revenues in the next few years - there are no rumblings of massive layoffs or concerns about employment in that sector.

Great. Let me know when you can live and eat Google. Then I may just give a shit for the service sector.

Too bad you won't have any consumers to buy your products, y'know, what with 70% of the economy driven by consumers and those same people finding it hard to pay their heating bills let alone delve into more gadgetry. I also hear Google's ad revenue is starting to get interrupted quite a bit now.

[TheMuffinKing]

Get your brownshirts out, folks, we're headed for Weimar.

I've got dibs on firebombing the Reichstag!

[Big Orange]

Yes/no/so what? There were plenty of economic collapses when the economy was purely industrial and agricultural. The current global economy is significantly more diversified, and therefore significantly more resilient than the economy of 1929. If everybody panics at the same time, then yes, we're all going down the toilet, but not everybody is panicking.

Yes, the Great Depression occurred in a much more manufacturing heavy economy, but it was due to grossly distributed wealth (gee, have they learnt from that?), big blocks on consumer exports, excessive speculation in funny money (gee, history has repeated itself), and many WWI loans still not paid off.

I've got dibs on firebombing the Reichstag!

What she meant is that millions (or even tens of millions) of desperate, pissed off people that have lost their jobs and houses are more likely to roam around breaking in the faces of culprits (both real or imagined).

[Big Phil]

Let's see - your argument is that we're in for a global economic collapse. If you're not arguing this, please say so, but so far you've posted and supported articles that claim that the global economy is going to collapse faster and farther than it did during the Great Depression.

No, I said the economy can potentially go that way, unless we change our lifestyles drastically and tighten our belts as central bank help goes into fifth gear. I don't really see that as coming to be, though. As with the energy crisis, none of it is guaranteed, just very likely without minds changing.

Are you remotely capable of being honest with yourself, never mind the rest of us? At no point in this thread have you said we're "potentially" in a world of hurt "unless we change our lifestyles drastically" - you've said, repeatedly, that the economy is going to completely collapse in less than a year. If you'd said that we're potentially in a world of hurt assuming A, B and C happen, there'd be no argument, but you've been predicting a near certain global economy catastrophe and dismissing all other economic reports as propaganda.

We have maybe seven months...

Whether you believe in the credit crunch, peak oil or America's economy falling to pieces, we're not out of the woods by a long shot. Even with the rosiest pictures today, things will get much worse before they get better, assuming they do any time soon.

[Admiral Valdemar]

Are you remotely capable of being honest with yourself, never mind the rest of us? At no point in this thread have you said we're "potentially" in a world of hurt "unless we change our lifestyles drastically" - you've said, repeatedly, that the economy is going to completely collapse in less than a year. If you'd said that we're potentially in a world of hurt assuming A, B and C happen, there'd be no argument, but you've been predicting a near certain global economy catastrophe and dismissing all other economic reports as propaganda.

One more time for the really slow.

The economy, one way or another, is in bad shape. Given what has been done so far, it will more than likely be catastrophic.

This could be averted. But the chances of that happening, as with the curbing of GHGs feeding climate change, is so unlikely, I don't consider it worth delving into.

Do you want me to draw a picture nextime, or is inferring not your strong point?

[Dave]

Would this be a bad time to go Info Sci&Tech for a major?

Crap, I'm just starting college, too.

[The Duchess of Zeon]

Would this be a bad time to go Info Sci&Tech for a major?

Crap, I'm just starting college, too.

Do something harder than that, so to speak.


Big Orange: Yes. That's what I refer to. Also consider the fact that the VA is falling apart and we'll have hundreds of thousands of angry, embittered veterans returning from the war who believe they were stabbed in the back by the new left-wing administration.

The idea that American political discourse could degenerate into Freikorps and leftist groups (as more people turn to marxism as the middle class for the first time plunges in value) clashing in the streets is not an improbable one.

[ArmorPierce]

Oh well, we're fucked any which way we look at it. Democrats will probably get the blaim with the conservatives spinning it into making it the new president's fault. I see a Replubican president being elected in four years with them promising to get us out of this mess that the democrats got us into.

Anyway, I should be finishing up my Accounting and Finance majors in a year and a half (3 semesters). How does employment prospects look for me?

[ArmorPierce]

Now that I think about it. Although accountants will always be needed, if the economy is going to shrink, they will need that much less of them. They might keep the ones they have (if that) and barely hire fresh grads. Damn... don't look good.

[Darth Wong]

Frankly, I think this wrangling over the difference between an economic "catastrophe", "collapse", and a "prolonged severe downturn" is nothing more than semantic quibbling.

Take a look at the investment reports, for fuck's sake. Standard and Poor's analysts are estimating that the worldwide fallout from the US subprime crisis could cost $400 billion to $600 billion, of which banks have only written down $120 billion so far. Think this is the worst of it? As housing prices continue to fall, the subprime crisis may extend into the near-prime and even prime market, because even decent-quality borrowers may find themselves hopelessly underwater with their mortgages.

Numerous banks are projected to collapse completely as a result of this situation. Bernanke realizes the situation is dire, and has warnedthat the banks should take drastic action to prevent it, such as voluntarily reducing the principal on mortgages across the board in order to keep the wave of foreclosures from swamping other market sectors.

And what do we hear from the apologists? Stupid tripe like "it won't be that bad" or "you sound like an alarmist" or "there have been crises before and we always survive". Of course we always survive; that misses the whole point. Nobody said civilization is actually going to end. It's a question of how many people are going to suffer. For fuck's sake, there is even a non-trivial possibility that giant Citibank could go bankrupt, and big institutional investors in Dubai are publicly trying to encourage other oil-rich investors to pour money into the company to forestall this possibility.

[Admiral Valdemar]

As stated before, there's up to $500 trillion with a "T" in derivatives out there that could be vulnerable. If even a fraction of that goes, then you can see something that makes '29 look like a minor market adjustment.

The potential is there for this to be a depression that lasts for decades if things pan that badly or worse than expected even. The West had manufacturing and a good ol' World War to pull us out of the last such financial blunder, what will we do this time?

What irks me more, is this coming at a time when we have to deal with climate change and energy issues in a world where nationalism/real-politik seems to be back in vogue. Furture historians are going to see how we handled our finances in this age and be boggled by how fucking stupid we were.

And if all of this is totally untrue and never appears? I'll be incredibly thankful and at least have prepared for the worst. The precautionary principle applies, and I frankly don't want to bank my future on a bunch of economists who can't even decide whether we're in recession or not or grasp finite resources when the faecal matter approaches the oscillator. Whoever heard of hoping for the best and expecting the best?

Given the company I work for has just posted last year's profit figures and expectations for growth this year, I wonder if anyone in the finance department has considered that the mere possibility of a prolonged recession might just skew those figures somewhat. I don't mind losing my Xmas bonus. I do mind losing my job because the company overreached and miscalculated spectacularly.

[J]

Anyway, I should be finishing up my Accounting and Finance majors in a year and a half (3 semesters). How does employment prospects look for me?

The FDIC will likely need more accountants soon to sort out the mess created by banks going insolvent, in fact they're already hiring extra staff for their Resolutions & Receiverships division.

[NoXion]

Well, if the world is going to hell in a handbasket, I hope there will be a need for scientists - I really want a career in science, preferably physics, or astronomy if I can get it.

Maybe I should go for engineering instead. I'm just beginning to go back into education, so there won't be much of a problem if I have to switch over.

Whatever I do, I won't just let this bullshit just wash over me without a ripple.