Rolling US Economy Into The Shitbin Thread

yeah, tipsy, from what little of niall fergusson I've read he is rather a tool. But the point about facing up to insolvent banks and forcing shareholders to accept their equity has gone to zero is a good one.

As for the validity of the Keynesian formula, it still makes perfect sense that in an environment where 1) asset values are collapsing and debt default is pandemic, and 2) even solvent people and institutions are loath to borrow or spend because it seems insane not to hoard cash against future uncertainty, that this situation requires governments to borrow and spend, if the object is to get money and credit flowing again.

The sad hitch in this formula is that too many western governments are already hip deep in debt, so that this solution will bring further problems not too far down the road. However, it still seems worth trying, provided we restore some soundness and sanity to banking and finance at the same time.

The sad hitch in this formula is that too many western governments are already hip deep in debt, so that this solution will bring further problems not too far down the road.

Which is exactly what Fergusson says in the article.

It's an unavoidable fact that I noted upthread--the level of debt we are committed to is unprecedented and the global political/economic system is far more complext than it was even two decades ago. The Keynesian formula has never been applied on this kind of global scale before. Indeed, if JMK even imagined his theories on a pandemic scale, I'm not aware of it.

What we're doing might still be the only feasible solution we have, but very very few economists saw this disaster coming and it's likely that very very few will accurately predict its outcome.

Why Is Obama Fiddling While Our Economy Is On Fire?

I thought people wanted government to stay out of the markets, Don.

nice comment on the article

Please...Charles Krauthammer?

Let's see if I've got the story right so far.

Popular presidential candidate gets elected.

Losing party is in disarray.

New president inherits a clusterfuck of an economy, goes to the left as he said he would from the stump.

Stock market reacts poorly, as it should with any kind of market intervention by the biggest swinging dick there is...the US govt. What will the elephant sit on next?

Making it worse is that unlike the previous interventions of late 08, this one isn't done by their "team" and to their benefit in the short-term.

Much whining ensues about how the president doesn't know what he's doing.

Yet president's approval ratings outside of lower Manhattan continue to climb.

Opposition is stymied...opts to go to its basest of bases and appoint a radio host as its defacto head. Sets up a summer of unrest by attacking president and his supporters as lazy, bad decision makers etc. Elected members of opposition party hide beneath their desks.

President signals that he doesn't care about the 5% of America making up Opposition base, he cares about "all of America" (Whether this is true or not is immaterial). Approval ratings rise again.

Opposition sees power slipping away at highest echelons, and goes into firebreak mode, pre-attacking president on his next promised steps, in this case, healthcare.

They're scrambling to get a step or two ahead.

This is crisis management PR 101.

Over the next couple of weeks, keep an eye out for Krauthammer et al to start talking about how overregulation of the financial sector really caused this problem. Because that's the next rightwing sacred cow bound for the slaughterhouse.

http://farm4.static.flickr.com/3305/3330977799_10554eda9a.jpg

a friend who works in finance sends this:

i just finished a report by the old and deservedly highly respected quebec global and us economic analysis firm, bca research (the old bank credit analyst). i'm not sure what scared them so badly, but i've never read anything that pesimistic about the us. basically, they said americans are fubared, although it's likely to be a few more years before things really begin to deteriorate in earnest.

the us still has quite a bit of room to increase borrowing and raise taxes before investors begin to flee the dollar and treasuries. certainly more room than eastern and southern european countries do.

they say it's unlikely the us will ever be able to bring ballooning deficits and debt under control or avoid hyperinflation. on top of that we will see a huge increase in those dependent on public medical and retirement systems in the us by 2020 or so because of the boomer geezers, addding even further to us debt burdens.

this means anyone but the very rich is unlikely to be able to afford anything but the most basic medical care in another 10 - 20 years, unless we are willing to relocate to another country with sufficient assets not denominated in dollars.

in their opinion it's only a matter of a few more years before the dollar and treasuries begin an irreversable collapse, and taxes & interest rates soar. they address the fact that this scenario has been predicted for years, and give reasons to believe that this time it really will happen.

these reports are encrypted and not linkable, unfortunately, but most larger financial firms have access to them. they're also the ones reading them and deciding what to do about it and when to get out. you can bet the farm that they are reading this particular report at the white house right now. bca research has been mandatory reading there and at the fed and treasury for many years.

iceland is a canary. the next set of shoes to fall on this centipede horror looks like it will be eastern & southern european countries. after that, the fun begins in earnest.

i really hope i'm totally wrong about all of this and just in need of counseling for alarmist tendencies, but the odds this is how things will unfold are certainly increasing. this isn't a fringe outfit, bca research is mainstream, informed economic thinking on a practical level.

he adds that he is telling everyone to buy gold bullion these days, because he thinks massive inflation is unavoidable...

Better switch that username.

so I'm a total pessimist but I don't think willing to start buying gold bullion and preparing for the end of the world because one firm in quebec says so

also cause I don't have any money

insert "I'm" between "think" and "willing"

AARGH! Is it wrong of me to ignore anyone who concludes their analysis with "buy gold bullion?" I feel like I'm a bad conspiracy theorist.

or williams jennings bryan

gah minus 's'
I am typo prone today

Is it wrong of me to ignore anyone who concludes their analysis with "buy gold bullion?"

in general i agree, but it's not hard to understand why non-crazy people think there's a chance of massive inflation. and if you're looking to hedge against inflation gold's pretty much your best bet. i mean, people do buy gold every day, it's not just ron paul supporters.

i'm not buying any gold, fwiw. but i'm not totally thrilled to have my putative retirement savings tied up in stocks and bonds either, and the glib assumptions of the last 60 years that the market will always rebound aren't any guarantee. imagine you were 20 years from retirement when the nikkei peaked in 1989. first few years of the decline, no big deal, it'll come back. but now we're 20 years out and it's running at less than 20 percent of the peak. that would be the equivalent of the dow being around 2,800 in 2028. not that there's an exact parallel or anything, just saying that things can get pretty slow and stay slow.

this american life has a new show up on the banking system (haven't listened to it yet, but but the first 2 they did on the economy were great): http://www.thisamericanlife.org/Radio_Episode.aspx?episode=375

There will be a massive dislocation in the value of the dollar. It is too soon to tell if it will be hyperinflationary, inflationary with high unemployment, or deflationary with massively high unemployment.

If the US government (or any other government) decides that it will try to prop asset values by becoming the buyer of last resort for bad debts of all kinds - CDOs, fucked up mortgages, credit cards, every last bit of stinking shit on the balance sheets of the banks, then woo-hoo! Hyperinflation here we come!

Because the US government is in the business of insuring personal bank accounts up to $250,000, I can see why Geithner and Obama are hesitant to let the insolvent banks go into receivership. There are too many of them already and bound to be many, many more, but it is still it seems better than letting hyperinflation out of the bag. In that case, massive asset deflation will follow, and a cash famine.

It will come down to politics. Which is why hyperinflation is a pretty good wager, starting in a few years. But still, it is a wager, not a sure thing.

updated chart:

http://blog.prospect.org/blog/ezraklein/3333412448_6f0e53b363.jpg

holy crap:

Across the nation, 19 million houses and apartments — nearly one out of every seven — are vacant, the highest percentage since the 1960s. But only about six million of those homes are for sale or for rent. That means millions more could still flood onto the market, depressing prices further.

But tipsy, to paraphrase George W. Bush, no one could have foreseen that building so many new houses and condos on spec could have glutted the housing market.

few extra clips from frontline

The 60 Minutes piece tonight was on what happens when the FDIC takes over a bank, and it was very, very interesting: http://tinyurl.com/c29xo3

Krugman upset w/ Bam today. Ditto.

Phoned my ex-roommate yesterday; he got fired (for the first time ever) last week, position eliminated (medical advertising). Has a mortgage, lives alone in Jersey, in his late 40s. Scared, near tears.

indeed

http://www.businessinsider.com/henry-blodget-krugman-obama-already-out-of-touch-with-economy-2009-3

btw did anyone hear On the Media on NPR this weekend? there were a couple of financial columnists throwing around terms they learned last week. So nobody knows anything.

lol interview with co-author of 1999 bestseller dow 36,000

glassman: "was that dow 36,000? i meant, dow 3,600 -- damn typesetters!"

loving the credibility of any organization called "business insider" these days

if our financial system has become so economically complex that President Obama is right, then is it also too complex to be politically sustainable?

best lines from the 36,000 interview:

"Al-Qaeda is not eating our lunch anymore. Al-Qaeda is stuck in Web 1.0."..."Web 2.0 is anathema to al-Qaeda"

i dunno, there's an al-qaeda recipe site that's pretty dope

terr-r

lol

Do you ever regret having written the book, or regret the title? Do people come up to you at cocktail parties and say "Oh, yeah, Dow 36,000 -- how's that working out for you?"

Anyway, from this story:

http://www.thebigmoney.com/sites/default/files/auctioneer.jpg

other dow 36,000 co-author accuses obama of sabotaging economy, uses phrase 'manchurian candidate'

Top 10 headlines that could signal a market bottom

Dow up 379 today... is that part of #8? what'd I miss?

no, it was good news unfortunately

i think it's because pandit sez citi's having a "good quarter" so far. whatever counts as a "good quarter" these days.

meanwhile ... dude-in-the-know: stocks still too high.

Yeah let's not go sucking each others' dicks just yet...

that guy in the pic that ned posted above looks like and is behaving in the manner that i imagine Henry Paulson was behaving right after lehman bros. collapsed.

http://online.wsj.com/article/SB123672965066989281.html

"All things considered, I personally prefer Milton Friedman's performance appraisal of the Federal Reserve. In evaluating the period of 1987 to 2005, he wrote on this page in early 2006: "There is no other period of comparable length in which the Federal Reserve System has performed so well. It is more than a difference of degree; it approaches a difference of kind."

this is i guess not news, but pretty interesting.

The moral hazard theory is tempting but I don't buy it. It's too neat, and it ultimately serves to rationalize the laissez faire mentality that got us here in the first place (after all, people are perfectly rational wealth-maximizers and risk-minimizers, so if only we could guarantee that there would be no bailouts, people wouldn't take these risks!)

The reality is that it's the hands-off, deregulated approach that leads to the kinds of "rational" short-term profit maximizing behaviors that in the long run endangered the financial system. People are NOT always so good at minimizing their long-term risk, especially when short-term gain gives them incentive not to think about it. Think of a drunk driver trying to get home with his hot pick-up from the bar -- risk-perception is totally distorted in the moment.

I also don't really buy the moral hazard thing, at least not when it comes to the big picture issues. Don't think it was "Well if we fail, the government will take over" but rather "Fail? lolz did u see our how much money we made this year?" It's not like the financial system acts as some collective brain...or rather...the fact that it appears to act like a collective brain when it comes to pricing etc. makes it too easy to assume that it actually is a collective brain that can make complex historical/moral decisions.

The hazard-ness doesn't come from government bailouts, it comes from the fact that:

a. banker X's 2005, 2006, 2007, 2008 paychecks aren't in jeopardy no matter what happens in 2009
and
b. as long as he's not explicitly breaking the law, banker X isn't going to go to jail, no matter how he performs his job

otmfm, by which I mean you basically just explained my thoughts better than I could

The hazard-ness doesn't come from government bailouts, it comes from the fact that:

a. banker X's 2005, 2006, 2007, 2008 paychecks aren't in jeopardy no matter what happens in 2009
and
b. as long as he's not explicitly breaking the law, banker X isn't going to go to jail, no matter how he performs his job

yeah but i'd say the existence of those conditions pretty much constitutes its own moral hazard. i think that's kind of the point. you have to regulate against that.

yeah, that's what I meant.

from what I've seen in the past year, the phrase 'moral hazard' has very often been used to refer to the gov't bailout moral hazard (which I'm not buying to begin with) and not the others.

it's not like people don't talk about a. and b. - but that particular phrase has been esp. linked to the gov't bailout - the nyt article being a good example.

well the bailout is essentially the flipside of the lack of regulation. either you police it on the front end or you have to make up for it on the back end. so it's kind of the same thing. i agree that's it's not a conscious thing -- like, "oh, the government will bail us out" -- but you get systemically learned behavior based on expectations of personal consequences or lack thereof.

'expectations of personal consequences' seems to = my a. and b. no?