So how bad do you think the economy is going to get?

Broad categories: [ul][]1987: big market drop, lotsa’ people lose their shirt. Government shells out billions to correct things. Economy recovers.[]Japan 1990-2005: collapse of real estate bubble leaves banks prostrate, economy moribund. 10-year recession[]Great Depression II: economy contracts to 1/2 or 1/3 it’s former size. Massive poverty. Disruption great enough to cause fundamental restructuring of economy/ government/ society. []Imperial Spain circa 1700: former world’s greatest power a hollow shell politically and economically. Other players rise to center stage as world powers.[/ul]

  1. I’m completely confident that we will manage this as a country and as a world economy.

Great depression . The financial geniuses that looted us have done a bang up job. The swaps are about 60 trillion bucks. We have 10.000 foreclosures a day. If the banks start to get going again the new foreclosures will take them back down. Banks will not loan to each other. People can not get credit to buy cars or any other larger purchases. Unemployment is growing rapidly. In technical legal terms we are fucked.
We have tools to help fight economic collapse. We are using them to no avail so far. I see little to fix it.

Early 1990s. Not as bad as 1987. Notice that oil prices have been falling. The drop in oil will be followed by a drop in gas prices. Besides reducing transportation costs, that will provide the bonus of seeing gas prices below $3.00

The real estate market didn’t just evaporate into nothing. These aren’t stock certificates. Just because you can’t sell a house right this second doesn’t mean it is valueless. The real estate market can make a comeback.

I’ve got a few thousand bucks handy. I was thinking about buying GM.

Bring back the electric car when you do.

You’re not the first person I’ve read this from, and I hope none of you are under the slightest illusion that this will last anymore than the Republican permanent majority did.

I vote Japan. We and the most of the rest of the world are going to be in for a bit of a hard time.

Not quite Japan because a lot of governments are stepping up to the plate to fix things. But we’re looking at least two years, minimum, to shake out the rest of the foreclosures and the attendant underwater mortgages and I’d say barring some fantastic new paradigm that frees capital in the middle to upper middle class, another two to four years just to restore confidence.

None of the above.

I won’t assert a direct parallel, but I’ve been intrigued lately by comparisons with the Panic of 1873 and the subsequent 20-year Long Depression.

Holy crap, breaking news that GM and Chrysler are in merger talks.

Normally it would be time to start a war to get the economy going. Not sure what you do when you already have a war.

We’ve got two wars going. Hell, why not just go for the trifecta?

We’ll be lucky if it is only as bad as Japan.

What you have to realize is that the bad mortgages themselves are not the real problem. In terms of money, they are small change compared to what we are already throwing at the problem and will continue to lose.

The problem is systemic and not easily solved. The unregulated and non-transparent derivatives market ballooned in size to well above the GDP of the entire world combined.

It is a black hole, and it is unclear how any bailout money we might spend isn’t going to be sucked in.


Well, those of us who don’t have a position in derivatives, how does that affect us? I’m asking seriously, as I’ve never paid much attention to the things.

The U.S. stock market is about $22 trillion, the mortgage market is about $7.1 trillion and the treasuries market is about $4.4 trillion.

The Credit default swap market is about $46 trillion.

No one is willing to trade the CDSs anymore, and many many companies that thought they were a nice cash stream are stuck with CDS obligations that could totally wipe them out.

Be very scared. I am.

Maybe I’m living in la-la land. I am happy that the oil producers are taking it in the ass. 2.99 for the the first time in three years. Energy is everything and they overreached and got greedy. Now that the US economy is in the shitter and Europe is not far behind.

China? if nobody has any money how can you sell anything? Same with Russia, yeah you have the resources but you can only squeeze the nads so hard… you squeezed too hard.

Big damned trouble, it looks like to me. Not just from the asset meltdown which is occurring now, but governments are so busy feverishly and recklessly intervening in all markets that they are A) ratcheting up insecurity and making it hard for people to figure out what to actually do, and B) setting the stage for a very long, drawn out period coming up in which governments will continue to exert control over financial markets, making them work very poorly. I’m worried that when a recovery starts, it’ll kick off a serious inflation problem because of all the money governments are injecting, and that we’re entering a long period in which prices will have a lot of noise in them because of various market manipulations by governments, making the economy less efficient.

The parallels are closer to the Great Depression than 1987 or Japan.

However, we’re really in uncharted water here. In the Great Depression, we didn’t have anything like the tools that are now at our disposal in terms of communications and computer power. There’s a great re-alignment underway, and we really don’t understand how it’s all going to come out. Perhaps the economy will short-circuit its way around the damage using the internet to connect lenders together or something. Hard to imagine how, but it’s always hard to imagine such solutions - until they happen.

In any event, things have already gotten pretty bad, and the fundamentals behind the credit problem are worse today than they were before the government voted for a ‘bailout’.

There are a few bad things about to happen which we should watch for:

  • A lot of commercial paper is about to expire. If it can’t get rolled over, a lot of companies will find themselves without the capital they need to keep their doors open. The next three weeks will be very interesting in this regard.

  • The 3rd quarter earnings reports are coming out - they’ve already started. They’re either going to calm people down a bit, or more likely, inflame the panic.

  • People in the U.S. are going to start receiving their 401(k) statements, whcih aren’t going to be pretty. Could those trigger a run on the banks?

  • The G7 is meeting to plan some new world order or multi-country bailout or something.

These government bailout plans are starting to look like a counter-productive thing to me. Aren’t they just preventing people from making hard decisions right now? If you’re choked with bad debts, and you know you have to just take your lumps and write it down or sell it off to continue business, what impact does a promise to ‘do something’ for you at some unspecified time in the future do to that decison-making? No one wants to sell off their debt at 10 cents on the dollar, only to find that the government would have paid 50 cents on the dollar had you waited for them. I wonder if all these grand announced bailout plans aren’t having the effect of just freezing the market even more?

I predict we will give up on civilization as a bad deal and go back to living in caves and being hunters and gatherers.

Oh, and dogs and cats will be living together as well…


I tend to agree with this. I’m about 75% convinced that we should just take our medicine now and get it over with. I don’t feel confident than any of the bailout plans will do more than delay the day of reckoning.

But don’t worry, we can still argue about the WPA.

I believe that’s the same zip code Marie Antoinette inhabited when she said the peasants should eat cake if there was no bread left. Things worked out just about as well for her as I believe they will for you. Sweet dreams, cupcake.