# So how bad do you think the economy is going to get? **URL:** \ **Category:** Great Debates\ **Created:** [October 11, 2008, 1:08am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401 "2008-10-11T01:08:43Z")\ **Posts on this page:** 20\ **Page:** 2
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [October 11, 2008, 4:15am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/21 "2008-10-11T04:15:22Z")
> [@erislover](#): > > Bring back the electric car when you do. With oil under $80 a barrel and headed lower, the electric car is dead again. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [October 11, 2008, 4:18am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/22 "2008-10-11T04:18:35Z")
[QUOTE=Sam Stone] 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? [/QUOTE] I think I’m starting to come around to this conclusion as well but…I’m thinking it wouldn’t be politically viable as an option. It would be essentially like what Hoover tried to do (basically to say it’s a market correction and that it will fix itself…which it will do, assuming it doesn’t all melt down…eventually). I think the short term pain coupled with the need by the people for the politicians to Do Something™ is going to be too great…and a bailout is going to be the hammer most pols are going to look for in their tool box of Something to Do. It’s going to be VERY bad…and I think you are right, by doing what the government is currently doing it’s merely going to draw out the pain for years to come. -XT ---
**Author:** ![Frank](https://avatars.discourse-cdn.com/v4/letter/f/3d9bf3/32.png) [@Frank](https://boards.straightdope.com/u/Frank)\ **Post date:** [October 11, 2008, 4:20am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/23 "2008-10-11T04:20:44Z")
> [@Fear\_Itself](#): > > With oil under $80 a barrel and headed lower, the electric car is dead again. Yes! You’re right! Since my earlier post, I’ve had an epiphany. The price of oil will only continue to drop, cheaper and cheaper until - this time next year - it’ll be free! Hurrah! :rolleyes: ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [October 11, 2008, 4:24am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/24 "2008-10-11T04:24:08Z")
> [@gravitycrash](#): > > 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. Oil costs are down because demand is down because no one can afford shit. I just don’t buy the standard SDMB gloom and doom. Still, I don’t see anything happening until at least after the election and maybe Q1 2009. Until then everyone is in wait and see mode. ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [October 11, 2008, 4:25am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/25 "2008-10-11T04:25:10Z")
Anyone else having major issues posting tonight? I’ve timed out over and over. (might be the crappy ISP this hotel has) [QUOTE=Fear Itself] With oil under $80 a barrel and headed lower, the electric car is dead again. [/QUOTE] This is a short term trend which, contrary to the beliefs of some, has to do with simple supply and demand. The price will stabilize and then continue it’s erratic but upward trend. The electric car won’t die due to the price of oil or gas at the pump. -XT ---
**Author:** ![petew83](https://avatars.discourse-cdn.com/v4/letter/p/7bcc69/32.png) [@petew83](https://boards.straightdope.com/u/petew83)\ **Post date:** [October 11, 2008, 4:45am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/26 "2008-10-11T04:45:31Z")
This [previous thread](http://boards.straightdope.com/sdmb/showthread.php?t=451166)I started in January might be an interesting read. Back then I had just talked to an old guy at a park about life in the Great Depression, and he told me another one was coming soon. Judging by the current situation, he might have been right. (btw the thread was called “could we have another depression?”) ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 11, 2008, 5:15am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/27 "2008-10-11T05:15:51Z")
I’m all for government rescue. **Sam Stone** is giving the same recommendation as Mellon gave to Herbert Hoover: “Liquidate, liquidate, liquidate”. Almost all serious economists now agree on the need to recapitalize the financial sector. [1] Leverage ratios got way out of hand and the rest of us are paying the price. Let’s be clear about something. Paulson has not yet done anything with his $700 billion. But the credit markets have nonetheless been tightening and tightening. In other words, we’re testing Laissez Faire at this very moment – and it’s not pretty. Well not quite: Bernanke has been quite the interventionist. But I haven’t seen any criticisms of his behavior here. A recession did not follow the 1987 crash - there was no recession in 1988. I predict: We are in a recession now. The $700 billion rescue will need followup. If the international crew doesn’t come up with something solid this weekend, we are screwed. But we are not heading for a Great Depression. Nor will we replay Japan’s lost decade. A major recession might happen: heck, a mild depression could even occur. But unemployment in the US will not top 20% and a solid recovery will be underway within 3 years. [1] …though each one has there own preferred method of recapitalizing. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 11, 2008, 5:29am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/28 "2008-10-11T05:29:58Z")
> [@Measure\_for\_Measure](#): > > Almost all serious economists now agree on the need to recapitalize the financial sector. Barry Eichengreen, champion economic historian and expert on the Great Depression was worried. Will the G7 act this weekend? If not, won’t the markets lock up? Will unemployment top 10%? A flurry of emails ensued and within 24 hours, [a book was published](http://voxeu.org/index.php?q=node/2340). > [@Rescuing our jobs and savings](#): > > We are in the throes of what is almost certainly the most serious economic and financial crisis of our lifetimes. The crisis is no longer a US crisis, or even a US and European crisis; it is a global crisis. It has spread from the financial sector to the real economy. It is not just investment portfolios and retirement accounts at risk, continued turmoil will soon start to destroy jobs. > > There is a need for urgent action. The policy response needs to be decisive. It needs to be global. > > With this sense of urgency in mind, we have assembled a group of leading economists to offer priorities for crisis response. This is not a homogenous collection of experts. The contributors are from different continents and different schools of thought. Ok, but what to do? We all know that 3 economists will give you 4 different opinions. Well think again: > [@Rescuing our jobs and savings](#): > > Policy makers must move boldly to stabilise the financial system. The basic elements are: > > ``` > * A quick bank recapitalisation with global coordination > * A guarantee of deposits and/or loans with global coordination > * Further, coordinated macroeconomic stimulus. > > ``` > > All the authors agreed on the first, many on the second and a good number on the third. [Paul Krugman approves](http://krugman.blogs.nytimes.com/2008/10/09/must-reading-now/). Former Bush CEA chief Gregory Mankiw says, “There is broad agreement among economists that what the financial system needs right now is not only an injection of liquidity but also a recapitalization. The essence of the current financial crisis is that many firms bet that housing prices would not fall; the prices fell nonetheless; and now these firms have too little capital to perform the crucial function of financial intermediation.” So he agrees as well: somehow, someway, we have to recapitalize. Barry Eichengreen and Richard Baldwin stress that time is of the essence. So we had best not make better the enemy of the good. A half-assed recapitalization plan now would be vastly superior to a terrific one in January 2009. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 11, 2008, 5:46am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/29 "2008-10-11T05:46:52Z")
> [@Sam\_Stone](#): > > 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? If ten cents on the dollar pushes the institution into insolvency, no bank will sell at that price, regardless. In fact, no bank president will sell a penny of such assets, if he then has to mark down the value of the rest of that sub-portfolio. No, it’s much better for the shareholder’s hired help to postpone the day of reckoning until later. That’s what the Japanese experience revealed. And that’s the lesson: writedowns must be forced in one way or another, to protect the worker, the shareholder, the taxpayer and the citizenry. Well, maybe not the bank’s shareholder, but there’s no helping that poor SOB. But for now, we have to loosen up the interbank loan market. This week’s TED spread topped 4% for the first time ever, AFAIK. Not good. ---
**Author:** ![Koxinga](https://avatars.discourse-cdn.com/v4/letter/k/4af34b/32.png) [@Koxinga](https://boards.straightdope.com/u/Koxinga)\ **Post date:** [October 11, 2008, 6:19am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/30 "2008-10-11T06:19:04Z")
Though I’m at the point of “meltdown fatigue”, one thing today roused me out of my torpor and made me one again say, “holy crap!” A newsletter I subscribe to said that it was getting “anectodal evidence” that the market for **letters of credit** is freezing up, just as commercial paper did before it. If _that_ happens, watch out. A Smoot Hawley tariff won’t even be necessary for global trade to seize up this time around. ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [October 11, 2008, 7:38am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/31 "2008-10-11T07:38:53Z")
> [@Koxinga](#): > > Though I’m at the point of “meltdown fatigue”, one thing today roused me out of my torpor and made me one again say, “holy crap!” A newsletter I subscribe to said that it was getting “anectodal evidence” that the market for **letters of credit** is freezing up, just as commercial paper did before it. If _that_ happens, watch out. A Smoot Hawley tariff won’t even be necessary for global trade to seize up this time around. [This](http://www.nakedcapitalism.com/2008/10/international-trade-seizing-up-due-to.html) what you’re referring to? Maybe now we’ll finally stop worrying about stupid crap like Sarah Palin and start worrying about things that actually matter to our survival as a civilization. ---
**Author:** ![Koxinga](https://avatars.discourse-cdn.com/v4/letter/k/4af34b/32.png) [@Koxinga](https://boards.straightdope.com/u/Koxinga)\ **Post date:** [October 11, 2008, 7:46am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/32 "2008-10-11T07:46:45Z")
> [@Leaper](#): > > [This](http://www.nakedcapitalism.com/2008/10/international-trade-seizing-up-due-to.html) what you’re referring to? > > Maybe now we’ll finally stop worrying about stupid crap like Sarah Palin and start worrying about things that actually matter to our survival as a civilization. I think that’s the reference the newsletter was drawing on, but I hadn’t yet read the original article. Hoe. Lee. Crap. ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [October 11, 2008, 10:21am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/33 "2008-10-11T10:21:44Z")
It’s going to look like Japan. We have at least 2-3 more years for the foreclosures in the housing market to actually be sold on the market, get rid of the unsold overhang, and reach a true clearing level on the housing market. The most optomistic view of the US stock market will be 2010 to recover. Asian markets will be the first to recover as many of them have raised capital (Chinese), cleaned up their balance sheets after the 1997 crash (Korea), or are generally pretty healthy like HK, Sing, Malaysia, Australia, etc. No matter, its going to suck inthe US for years if not a decade. We have a huge hangover from the credit binge to deal with. ---
**Author:** ![NineToTheSky](https://avatars.discourse-cdn.com/v4/letter/n/b5a626/32.png) [@NineToTheSky](https://boards.straightdope.com/u/NineToTheSky)\ **Post date:** [October 11, 2008, 10:40am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/34 "2008-10-11T10:40:52Z")
I can’t grasp the consequences of these predictions. In simple, layman’s terms what will happen to people’s lives? [ol] [li]Will we loose our jobs?[/li][li]Will we loose our houses?[/li][li]Will we loose our savings?[/li][li]Will we loose our investments?[/li][li]Will our life styles change?[/li][li]Will governments be able to pay benefits?[/li][li]Will the structure of society change or collapse?[/li][/ol] ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [October 11, 2008, 11:01am UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/35 "2008-10-11T11:01:37Z")
> [@Koxinga](#): > > Hoe. Lee. Crap. Yep. Waiting this one out is not an option. It would lead to the complete breakdown of the global financial system. For people who haven’t read [the link](http://www.nakedcapitalism.com/2008/10/international-trade-seizing-up-due-to.html), you absolutely should: **International transport companies are already having problems. International trade is already slowing down.** The problem is banking, and how they simply don’t trust each other any longer, which means that stuff like food is no longer being shipped in some places. And when food is not getting to where it’s intended to go, you know the engine of commerce is close to seizing. To advocate inaction at this time is to let empty economic dilettantism based on poorly thought-out principles be more important than an actual functioning economy. That would be madness. > [@NineToTheSky](#): > > I can’t grasp the consequences of these predictions. In simple, layman’s terms what will happen to people’s lives? > > [ol] > [li]Will we loose our jobs?[/li][li]Will we loose our houses?[/li][li]Will we loose our savings?[/li][li]Will we loose our investments?[/li][li]Will our life styles change?[/li][li]Will governments be able to pay benefits?[/li][li]Will the structure of society change or collapse?[/li][/ol] 1. Many people will lose jobs. A recession is coming, and that’s what happens in recessions. 2. Many people will lose their houses, especially those who have lost their job and can no longer afford their mortgage payments. There will be more foreclosures. 3. Bank deposits are insured by the FDIC. You will not lose your savings to a bank failure. That’s the whole purpose of the FDIC, and it’s worked fairly well for over 50 years. 4. A lot of people have lost their investments already, and more loses are coming. 5. If you lose your job, your life style will obviously change. If you fear losing your job, your life style will likely change. 6. Yes, government will pay. We’re headed into a recession, and government spending can only increase. 7. Society won’t collapse. But every major country seems well on its way to nationalizing their banking industries until the problem is fixed, after which we can then re-privatize. We’re all socialists now, at least for the time being. ---
**Author:** ![First\_Amongst\_Daves](https://avatars.discourse-cdn.com/v4/letter/f/4491bb/32.png) [@First\_Amongst\_Daves](https://boards.straightdope.com/u/First_Amongst_Daves)\ **Post date:** [October 11, 2008, 3:46pm UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/36 "2008-10-11T15:46:35Z")
I have colleagues in M&A. They say people are still making calls, sending e-mails, and talking, but everyone is waiting to see what happens. Predictions like we see on this thread are interesting, but it seems like lots of people are just hanging around and not doing big deals (apart from the massive BHP Billiton/Rio Tinto merger in this neck of the woods). Lack of global liquidty is part of that, but also the fact that no one seems to know which of the above options will play out. ---
**Author:** ![KGS](https://avatars.discourse-cdn.com/v4/letter/k/90ced4/32.png) [@KGS](https://boards.straightdope.com/u/KGS)\ **Post date:** [October 11, 2008, 4:41pm UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/37 "2008-10-11T16:41:40Z")
I think this crisis is more like the [Dutch Tulip Mania of 1637](http://en.wikipedia.org/wiki/Tulip_mania), in which a highly valued commodity suddenly became worthless once somebody finally figured out it was just a fucking flower. The primary difference is that the global economy is much more homogenous now, which is why the U.S. has been able to drag down the entire world with it. How long will it last? Too many variables – a lot will depend on whether the next U.S. President (almost certain to be Obama) will turn out to be another Clinton or a Carter. For certain, there will be a major shakeup in all areas of commerce, with several major corporations going belly-up (I predict General Motors will either merge or go bankrupt by the end of this year.) It also depends on whether or not we’ve actually reached Peak Oil – sure, gas prices are dropping now, but they’ve _always_ dropped during the final weeks before a major U.S. election. Once that’s decided, expect them to shoot for the stratosphere again. ---
**Author:** ![astro](https://avatars.discourse-cdn.com/v4/letter/a/9dc877/32.png) [@astro](https://boards.straightdope.com/u/astro)\ **Post date:** [October 11, 2008, 5:11pm UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/38 "2008-10-11T17:11:03Z")
This is going to be far less severe than anyone thinks. There’s value even in investments with crippled income streams. Once some quants figure out how to model and value these under performing assets, and people know the size of the haircut they will be expected to take, stability will quickly return. ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [October 11, 2008, 5:27pm UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/39 "2008-10-11T17:27:00Z")
The most severe single cause of the Great Depression was not the stock market crash, which over the following months recovered a lot of its losses, and credit markets opened up. The mian cause was the Smoot-Hawley Act, and corresponding retaliatory tariffs raised by other countries, which I think I’ve now cited four or five times in the last three weeks after never having cited it on the SDMB before. Prior to passage of Smoot-Hawley, unemployment in the USA was eight percent, which is bad but not disastrous. After the passage of the act - which was opposed by almost every economist in the free world - unemployment jumped to 16% in a year, a catastrophic level, and within another year was 25%. If governments start talking about dropping out of free trade agreements, THEN I strongly suggest you put your money in gold - as in, gold you actually possess - and stock up on canned goods. ---
**Author:** ![Merijeek](https://avatars.discourse-cdn.com/v4/letter/m/f05b48/32.png) [@Merijeek](https://boards.straightdope.com/u/Merijeek)\ **Post date:** [October 11, 2008, 5:30pm UTC](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401/40 "2008-10-11T17:30:05Z")
As someone generally ignorant on broader economic matters, maybe someone can explain this to me. 1. Credit isn’t moving 2. Credit isn’t moving because banks do not trust other banks 3. Banks do not trust other banks because they don’t know if any given other bank has organization-killing liabilities that would prevent a loan being paid back There was a time when credit rating agencies and the like would have helped clear up whether or not #3 was a concern, but they proved to be meaningless. Since we’re now looking at massive governmental intervention, why isn’t there some outside group rating the banks and their investments? Why aren’t they being audited to hell and back to determine exactly what they are and aren’t worth? Why not just provide some FDIC-like insurance on loans between banks until the credit markets loosen up again? -Joe [Previous page](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401.md?page=1) [Next page](https://boards.straightdope.com/t/so-how-bad-do-you-think-the-economy-is-going-to-get/467401.md?page=3)