The analysis I heard of this one (NPR) was yesterday (9/23) was the last day for brokers (who had shorted oil) to buy, in order to cover October shorts. So everyone who had bet on the price of oil dropping and were still waiting for it to happen, had to buy. Knowing that there are a set of people out there who HAD to buy yesterday, led to a cost increase in the market.
Oh no that can not be. It has been explained on this board many times it is only supply and demand.
For some reason I’m having difficulty parsing this question.
You know that you might die in a nuclear conflagration, right? It’s not likely, but it could happen.
When I say that the national/world economy will not completely collapse, I’m setting the odds at less than 5%. Are they less than 0.001% (1/100,000)? Not by my reckoning. Note that I’ve left myself a wide and comfortable bound.
At this point, I might start sketching scenarios. But that would involve some verbiage, so I’ll stop here pending clarification.
I’ll be sharpening my boomerang in anticipation.
Ah, okay, let me clarify. You said:
I was asking if this statement meant that you didn’t think that anything could happen that would cause US unemployment to average over 20%. Bank runs, inflation/deflation, or whatever - I ask because if there exists in your mind a possibility that, say, a massive banking crash could happen, then there IS a possibility that unemployment could average over 20%.
Potted history of Great Depression:
[ul]
[li]Series of bank failures and aggregate demand collapse: 1930-1933. [/li]
[li]Simultaneous aggregate demand stimulus and aggregate supply restraint. Financial regulatory reforms. Slow and sporatic recovery. 1933-1940[/li]
[li]WWII: Massive aggregate demand stimulus and economic recovery: 1940-1945[/li][/ul]
The causes of the great depression were a ~3 year disintegration of financial intermediation, awful macroeconomic management by Hoover and insufficiently effective (and occasionally counterproductive) responses by Roosevelt.
It wasn’t their fault. Microeconomics -the study of individual markets such as steel , wheat or even labor- had been studied for a while. But the first model for an whole economy was only proposed in 1935. So the 2 Presidents were flying blind, so to speak, as they didn’t have access to what we would consider coherent macroeconomic advice.
I could see the US experiencing a 10 or 20 year era of dismal growth, like Japan did after 1989, though I seriously doubt this will happen. But if unemployment topped 8%, several gears would shift in Washington and Steps Would Be Taken.
Are there actions that could trigger and permit a Great Depression? Sure. I’m just saying that they won’t happen.
Given the events of the past few hours/days, I have some additional thoughts/questions:
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How many of you genuinely believe that, either very soon or at some point in the near future, that the US economy will be a smoking ruin? I’m curious to separate panic reactions from actual reasoned thought, given the atmosphere.
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What exactly are “real” economists saying about the situation? What do the majority believe can and will happen? I ask because it seems to me that most of the “we’re really screwed” reactions in the media (including blogs and - frankly - politicians, not including this board, since I don’t know most of you well enough to judge credentials), whether about the economy alone or the bailout, seem to come from those relatively uninformed about economics. Is this true? Or is it a case of “those in the know” being privately scared, but publicly needing to put on a good face?
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How do people think about the economy when they don’t know much about it? I’ve seen many who simply do not believe that a meltdown is possible or inevitable, unless the bailout comes. How do they come to such radically different conclusions as others?
Leaper: Force the doomsayers to make predictions or at least lay odds. If they can’t do that, then they’re just blowing smoke.
Academic economists are having a grand 'ol time, much like seismologists do when earthquakes strike. The top economics and finance blogs are listed here: 26econ.com - This website is for sale! - 26econ Resources and Information.
“How do people think about the economy when they don’t know much about it?”
How do people think about seismology, astrophysics or climate science or epidemiology and cigarette smoking when they don’t know much about it? Smart people pay less attention to anonymous message board posters (like myself) and more attention to professionals. Smart people try to distinguish between serious scholars and hacks. Smart people try to master their ignorance and the ignorance of the experts. That is, they probe to self-assured to find out what is thought to be known, what is confirmed, what is conjecture, what is puzzling and what is unknown.
Heh. I see that macroeconomics textbook author Brad DeLong has changed his mind regarding the role of the central banker.
“Or is it a case of “those in the know” being privately scared, but publicly needing to put on a good face?”
There’s a bit of this: nobody likes to yell fire in a crowded theater, unless they really smell smoke. But if the insider money thought that the world was really going to end, I would think that the stock market would be a lot lower.
Ok. I’ve dismissed the possibility of a Great Depression. I sure haven’t questioned whether we may enter recession: heck we could be in the midst of one now. And I don’t doubt that a recession will be described as a national catastrophe by some (though it would be a private calamity for many).
That said, intrade places the odds of a 2008 recession at 15-25%. A 2009 recession is thought to be more likely (though note that the volumes are quite low for the 2nd prediction). http://www.intrade.com/jsp/intrade/trading/t_index.jsp?selConID=508654
Oh yeah. Smart people search for media outlets that act as a trusted intermediary. Smart people don’t get perturbed by bias, provided their correspondent is at least honest and they can in the end extract the goddamn facts.
Weak people seek reassurance and stroke.
Hacks can be identified by
a) their behavior when factual error is pointed out to them, and
b) their tendency to lapse into inanity, whether because they have an axe to grind or because they prefer false equivalencies to accusations of bias.
What happens if tomorrow morning America wakes up, and after learning that the largest bank failure in history has just occurred 5-10% of us attempt to withdraw our savings?
How is it looking for companies that outsourced products and services to other countries, or are planning too. Does this crisis , even if its not related to their line of work, mandate a relook at moving overseas.
Declan
Why would they want to do that? All depositors are fully protected and there will be no cost to the [FDIC’s] Deposit Insurance Fund. Nicely played, Mr. FDIC. Raise a glass to the army of federal bureaucrats and analysts who hold the ship together.
Regarding contagion:
a. Where are they planning on putting those savings? The mattress? Or in another bank?
b. A nationwide bank run would be …interesting, in the Chinese sense.
a. yes, mattress or safe
It seems to me that we could not only have a run on individual banks but that it wouldn’t take much to have a run on the FDIC fund itself.
And doesn’t it take several days to get your money from the FDIC even in the best case?
“the full faith and credit of the United States government” has lost it’s ability to inspire confidence, IMO.
What would happen if a large portion of Americans tried to withdraw their savings today? If I understand correctly some of us would be turned away, at least temporarily. It seems knowledge of that fact alone could cause the contagion to get started.
Don’t we run the risk of hyperinflation?
Depends, I think. If the government does nothing, rapid deflation is going to be the problem. If the government injects a lot of money into the economy, then, yes, we could be looking at some serious inflation. Choosing between those evils, I’ll take inflation.
Bill Kristol sez we’re about to hit 1933, and his solution.
Well, even if bank runs get going full speed I will keep my meager funds in our local credit union in protest against the universe for containing the prisoners dilemma. We are screwed as a species anyway if we can’t rise above it.
Okay, a Politico post quoted in another thread says that some House Republicans seem willing to let the markets crash (apparently under the impression it wouldn’t be as bad as some say) than sign off on a huge bailout deal.
For those of you who’ve replied to this thread already, does this change your mind about the government’s willingness to do what’s necessary to avoid a total collapse before it’s too late? Or for their ability to come up with something that’ll actually work?
Oh, and dire warnings from the Telegraph. Then again, all that is predicated on nothing being done, which I don’t think the optimistic in this thread (or indeed, most people) expect.
ETA: On the other hand, this poll is VERY interesting. Given that much of the market, and the banks in question, depend a lot on customer confidence, could the attitude given in this poll keep said banks, and the economy, afloat to some degree even without the bailout? Or does the poll underestimate the potential for panic? Or do the respondents of the poll even MATTER as far as that goes?