Extraordinary claims require extraordinary evidence. Is there solid evidence that if the unemployment rate had been slightly higher that the economy would have collapsed or is all the talk just political hyperbole?
How can you give solid evidence of a hypothetical alternative future?
Well, even during the Great Depression, the American economy didn’t “collapse” to the extent that cities turned into free-fire zones absent of any semblance of law and order beyond the dictates of local warlords, i.e. something like modern Somalia.
So, basically, what are the parameters of the question? Could the U.S. in 2009 have come to resemble the U.S. of 1933, in terms of unemployment, dropping GDP, poverty, even starvation?
That’s what I’d like to know. And how close we were to it.
If there is no solid evidence, how do we know that we’re not still there?
The unemployment rate was not the cause of the problem, it was a symptom of the problem - a symptom that accelerated the problem. The big problem was the credit freeze, which came in no small part from the inability of banks to price their assets, which made them unwilling to lend to each other (for fear that the borrower would collapse) or to anyone else. You might want to remind yourself what the market did when they let one bank fail - now consider what would have happened if they had started toppling like dominoes.
Throw in the loss of purchasing power from the housing collapse, and the unwillingness of businesses to expand and hire when consumption and credit have both taken a hit, and you have something pretty close to collapse. Now imagine if the
Republicans in Congress had gotten their way and the reaction of the government was to retrench.
I don’t know if there would be rioting in the streets, but there might have been much worse unemployment and Hoovervilles - or the kind of stuff we’re seeing in Spain today.
Umm - the economy is growing. (Too slowly, but growing). Credit has opened up, the unemployment rate, while bad, is not at catastrophic levels. Consumer confidence is high. The auto industry had a record month.
What kind of data are you looking at or want to see anyhow?
When I hear “on the verge of collapse”, I think in terms of “the straw that broke the camel’s back”. Perhaps that’s oversimplifying. A tipping point if you will. Would the credit crunch having lasted a month longer have caused a collapse? A year? If consumer confidence had stayed low a month/year longer, would it have collapsed.
I’m just curious how close we actually were. I’m not sure that it’s answerable.
Do you think the economy collapsed in 1929-30? Is the Spanish economy collapsing now?
It is clearly unknowable what would have actually happened, but do you doubt that the Dow wouldn’t have gone down a lot more if additional banks had failed? Large amounts of wealth disappeared - more would have if things had gotten worse.
In broad terms, Voyager DID answer the question. It really depends on what you mean by ‘collapse’, and also what assumptions you make as to how back the ‘collapse’ would be.
Almost certainly, again depending on how you are defining ‘collapse’. Without credit, and with banks being unwilling to loan money even to each other the whole system would have ground to a halt. You are talking about a systemic problem here and it could have been really, really bad…depending on what assumptions you start off with and how you game out the permutations. Some of the ones my financially savvy friends give could raise the hairs on the back of your neck. We are talking dogs and cats living together levels of badness here.
Probably not, if that’s the only thing that happened…after all, consumer confidence DID drop quite a bit, and has only relatively recently started to go back up. It was the credit crunch that was the potential ‘tipping point’…and, associated with that, the fact that a lot of institutions simply didn’t know what their ‘assets’ were worth, or what their actual exposure was…which would have (and did) make things worse.
I’d think it’s fair to say it collapsed in the 30’s. I don’t know enough about the Spanish economy to speak to that.
Wikipedia’s article on the crash reads
Consider the impact of the removal of ~$130 billion from corporate operations and payroll in the US extending 6 weeks instead of 1. Or even consider the impact of 6 weeks @ $70 billion - 420 billion out of the economy. What would companies do? Fire people, raise prices to pay the markedly higher interest rates on short term loans. That would destroy purchasing leading to further retrenchment in company investment and employment.
I’m concerned that as more time passes from the 2008 crisis - even though its effects are still very much with us - people will increasingly ask what the big deal was. Even at the time some people felt a bunch of huge banks should be allowed to fail and that everything turn out fine if the global financial system collapsed. Next time maybe those people will win the argument and we’ll get to find out firsthand.
I admit that I didn’t get it initially at the time myself. I initially came out with the ‘let them fail, it’s all about the market’ type stance until several threads on this board plus one of my knowledgeable friends patiently explained the facts to me, and pointed out how truly bad things could get. At that point I was thinking that ignorance might be bliss, and wondering if the bottom was going to fall out of the world, with the survivors going back to discovering the joys of hunting and gathering. :eek:
The global financial markets were disfunctional. Banks were not honoring each other’s letters of credit and international trade came to a halt. Grain was rotting in the holds of ships because funds were not being transferred. Our fractional banking system relies on the confidence of the depositor and we were looking at a system wide run on the banks which would have destroyed most of the wealth in the world. Home prices were in freefall and unemployment was shooting through the roof. Unemployment was rising so fast taht between the time that Obama prsomised to halt unemployment before it reached 8% and the time he signed the bill to stop unemeployment’s rise, unemployment had ALREADY risen past 8%. Iceland’s economy had imploded and several EU countries were about to follow suit. most our major banks were on the verge of insolvency and almost all our investment banks were actually insolvent.
Yeah, it was bad.
If we didn’t intervene, we were on the verge of mad max world (of course we would have intervened eventually). The market would not have self corrected, it was headed towards a death spiral.
I don’t think that’s fair. But of course, it’s your thread.
The Great Depression sucked for sure, but there were still businesses, there were still banks, there was still infrastructure and there was still a government. Commerce kept chugging along, even if it was quite gun shy. The economy contracted, but maybe not all that much in the scheme of things. It did not collapse.
When I think “collapse”, I think “The Fall of Rome” or “Easter Island”. Or even Damuri Ajashi’s “Mad Max”. I don’t think the US has ever come even remotely close to that.
When FDR declared a bank holiday there were fewer banks every day. I wouldn’t call the fall of consumption with 25% unemployment chugging exactly. Certainly your view of whether there was a collapse was far different if you were one of those with money or if you were an Okie or a hobo.
In your view, how many buildings left standing mean it is not a collapse?
Before we can go any further with this, could the OP please define “collapse”?
If governments did not intervene, I don’t see how we could have avoided it. The markets were not going to self correct.
If you are saying that OF COURSE governments were going to act, then I agree but there were people at the time that said “just let it play out”
If you are saying that the market would have reached some bottom that wouldn’t leave commerce and the global economy crippled even without government intervention then I’d like to know where you think that bottom would be. What market mechanism would create that bottom?
What metric do you want?
From 2007 to 2008,retail sales fell by 6.63%, then fell another 7.35% in 2009. Other sales and service revenues fell by 1.69% and 8.37% over the same period.
From 12/2007 to 6/2209 private sector employment fell by 6.6%
There were 822,590 federal bankruptcycases in 2007, 1.1 million in 2008 and 1.4 million in 2009.
You can quibble about whther that represents “the brink” but nobody liked the way the trend lines were going.