How bad is the economic situation going to get?

[CRSP]

Are we on the verge of a depression? Opinion seems mixed, though it appears that Eastern Europe is on the verge of implosion, which could take the whole of the EU down with it, and the UK's also in a bad way (BBC news reports were saying that the British government was guaranteeing £1.2 trillion of debt the other day---how can this be true, that's our annual GDP!).

Just how bad is it?

[Rube E. Tewesday]

Damned if I know. What scares me is that the news only seems to get worse, with no apparent bright spots.

On the other hand, the whole mess is no complicated that I don't know that anybody can give a meaningful prediction, optimistic or pessimistic. What seems quite likely is that there is going to be a huge debt burden that is going to be really difficult to shake out in the long term, regardless of what happens in the short term.

[mozg]

I have been strangely unaffected to this point by the current economic situation. My work hasn't slowed down any (in fact I've gotten busier) due to the fact that I work in areas that require US Citizenship, specifically aerospace, defense, military, etc. software, and my department is really helping to ensure the company I work for continues to be profitable.

I think it is going to get worse for some, particularly those whose incomes depend heavily on consumer spending, but am hoping that people like myself who are actually doing pretty well use the downturn in demand and the lower prices and tax breaks as an incentive to go out and make some purchases which will help to slow the recession.

I don't know that another Great Depression is going to happen, or that I'm too worried about it. It's really only my opinion, but it doesn't seem that we are as without safeguards as we were in 1929.


formerly catsix
now mozg

[Kalhoun]

I was just commenting in another thread that there is soooo much work to be done. It's overwhelming to even think about it to the point where you can formulate an informed opinion! I'm ok, but I have no feel for where we'll be in four years.

[Othersider]

Are we on the verge of a depression?

God, I hope not. I'd think we're in a significantly better place as a country and as a world than we were 80 years ago. Still, I suppose it's possible that despite our best efforts, things could end up worse than they were then. At the risk of being overly optimistic, I'm much more hopeful about how the powers that be are addressing the situation now than I was 2 months ago (thank you, George, for 8 wonderful years) and most of what I heard in the presidential address the other night seems inspiring, even if it significantly aggravates our outstanding national debt (I'm not a politician or an economist, but for all I know this may be the best way out of this situation). Personally, I haven't really been affected thus far (knock on wood) either, but I suppose we'll never know when it can all just hit the fan.

Speaking on a personal level, I can say that I am very conservative right now in the way that I'm managing our money. My husband was laid off for over a month last December/January, and both of my brothers were as well. They all went back to work, but now my sister has lost her job and my brother is laid off again. They told him that he should call at the end of this month, but we're all concerned that it will become permanent.

Mom and dad have lost an enormous amount of money in the stock market and are both feeling pretty grim right now. Even the money market accounts that our son has have both been on a rapidly downward spiral. One of them is intended for his first car and the other is for when he's ready to move out. He is 14 and has some time to bounce back, but our intention to show him the benefits of investing isn't working out too well at this point. I think we need to regroup and make some decisions about what to invest in at this point for him.

I don't think we've hit bottom yet with this recession. I am very hopeful that Obama's plan for mortgage assistance actually works. We got our yearly assesment for our home last week and the state equalized value went down by $25,000, meaning that the value of our home dropped by $50,000. I had to look at it three times to make sure I wasn't suffering from shock myopia or some sort of weird thing like that. We have no intention of moving anytime soon, but holy shit! If that figure is reliable, we are actually underwater on our house. That is something that I thought only happened to other people. Guess what? I am one of those other people. I have never seen such a drastic drop in all the years we've been homeowners - it usually goes up by a few thou each year.

It's very discouraging to know that from the summer of 2005 to now, our house has gone from being worth $260,000 to $196,000. I really wish I was making that up, but that's what we're being told. We have a good mortgage with a fair interest rate, but now I really can understand why so many people with adjustable rate loans who have lost their jobs are walking away from their homes.

[Weirddave]

It's going to get worse, much worse. You heard it here first, and, from my lips to God's ear pray that I'm wrong, but I don't believe it. I hope that one year from now every single person who responds to one of my post can begin their response with "Don't know why I'm bothering, you were spectacularly wrong a year ago", but it ain't gonna happen. There's a couple of reasons why I say that:


#1: The Swindle-us package. Let's lay aside the question of whether Keynesian economics is a valid theory. I don't think it is, I'm more of an Austrian, but my objections to Keynesian stimulus packages are much the same as my objections to Communism: They sound great on paper, but in the real world they are impossible to enact, and the current boondoggle just proves my point. The theory states that injecting large amounts of capitol into the system can reverse jump start the economy by getting money moving again. Actually, that much is true. Where it falls short is in believing that government is an efficient method of injecting this capitol. Government, by it's very nature, is utterly incapable of doing this, and the abortion of a bill that just passed is exhibit #1. Instead of calmly and rationally, with great forethought and deliberation, spending money on selected and targeted programs designed specifically to get more money flowing where it would actually do some good, the American Recovery and Reinvestment Act was Disneyland for special interests, pork and an ideological causes. It was rammed through Congress before anyone even got to read it. Even it's proponents admit that very little of the money pledged will get into the economy this year. In this I blame President Obama. He has a great deal of clout right now, if he decided that a "stimulus package" was the right thing to do, he should have ridden herd hard on what was actually being done instead of giving Nancy "Botox" Pelosi and Harry "Taxes-Are-Voluntary" Reid leave to go hog wild. The House and The Senate took the opportunity to engage in an orgy of spending (very little of it targeted to anything but their own special interests)the likes of witch this country has never seen. If we had the money to spend, fine (I wouldn't like it, but fine), but we don't. Targeted deficit spending is something reasonable people can debate. Indiscriminate deficit spending just because you can is a crime that is going to cripple this country for generations.

What I would advocate instead: As I said, the basic idea of getting more money flowing has merit. The flaw is in using government to do that spending. A much better idea is to put that money in the hands of 300 million people and allowing them to spend that money as they see fit. If I wanted to give the economy a Keynesian jolt, I would temporarily repeal payroll taxes. Everyone pays roughly 7 1/2 percent of their paycheck in FICA taxes. Their employers pay the same. Self employed people pay the entire 15%. Repealing FICA taxes for one year would "cost*" the government about the same as the American Recovery and Reinvestment Act. Putting that money back in the hands of the people who actually earn it would cause it to be spent by the individuals, and that spending would stimulate the entire economy far more effectively than any bunch of government make work programs. Individuals would have a little more money to spend each week (as opposed to one time windfalls that people tend to hoard), easing their financial burden, and give companies (the majority of them small businesses, no corporate hating here) capitol to use as they see fit. Much of it would go back into the business, spent on goods and services, further stimulating the economy.


#2: Socializing the private sector. I know that "socializing" is a loaded term, and I freely admit that what we have going is not full socializing of the private sector (yet), but we've taken several long steps down that road. The government now controls 36% of Citigroup, and a lesser percentage of other big financial institutions (and under the terms of the takeover, they get paid dividends before private investors, even at the expense of private investors). There is a "Car Czar" or a "Car Committee" or some damn thing that is going to dictate how Chrysler and GM do business and what products they make. The card check law not only takes away the sacred right of workers to vote privately about whether to unionize or not, it sets up a commission of government arbitrator to dictate the resolution to any dispute between labor and management. What incentive do unions have to negotiate when they can just sit back and wait for a ruling favorable to them? That's only the tip of the iceberg. You may object to the term "socialization", but what else would you call it? Even if you want to classify it as something benign like "government stabilization", it's exactly the opposite. This willy-nilly government meddling in the market has completely paralyzed the market, and is the root cause of the 7000 point drop we've seen in the Dow. As massive as the government is monetarily, it is dwarfed by the funds available from the private sector, and right now those investors are afraid to invest in anything lest the government swoop in and change the rules of the game, witness the rush of capitol into financial vehicles that pay effectively nothing in interest just to protect what they have. Why should a company make the hard choices it needs to make to remain viable when Uncle Sugar is likely to swoop in and rescue them? Why should investors invest when the very real possibility exists that government will change the rules of the game rendering their investment worthless? No, until the government gets out, we are going to have chaos.


What I would advocate instead: There has to be an accounting. We've heard again and again that some companies are "too big to fail". I don't buy that. If a company is too big to fail, then it's too big to exist. That's the "creative destruction" that is the linchpin of the free market. There is a role for government here, and an important one, but is is not what the government has been trying to do. Government should not be trying to prop up failed business models, it should be working to transition those failed models as they disintegrate into workable ones. Citigroup fails? Fine. Manage the breakup and the allocating of it's assets to various other financial institutions to manage. There are thousands of smaller banks that are healthy that could take them over. Canadian banks are, by Canadian law, the strongest in the world. they are not over leveraged and overexposed. Let them assume control of the pieces of large American banks that failed, along with smaller, strong American banks. GM and Chrysler can't continue as they have been doing? Manage their restructuring through bankruptcy, guaranteeing some of their commitments and restructuring others. There's an important role for government to play in the process, but it's absolutely NOT propping up systems that have proven themselves to be unworkable.

#3: The housing mess. This was the shot heard 'round the world that started this whole enchilada. It started with a good idea: people should be able to own their own homes, but from that worthy goal an entire br'er rabbit of sorrow resulted. The CRA, started under Carter was expanded under Clinton until we had a situation where the government was actively forcing banks to underwrite mortgages for people who were unable to pay for the houses they bought. Couple that with a boom that caused many people to assume that their homes would always increase in value, and thus they could safely treat said houses as a license to print money, and when the bubble burst everything came crashing down. It's a serious situation, and I am not blind to the tragedy of good, hardworking people hamstrung financially because they foolishly leveraged themselves into a situation that was unsustainable when the bill came due. The problem here is that the government now thinks that it is it's job to rescue people from a catastrophe of their own making. It's not. Housing prices have fallen, and will continue to fall, until finally housing values bring people back into the market. This is the natural process of boom and bust, but right now the government is focused on trying to prevent the bust because some people will be hurt by the bust. As I said above, that just prolongs the crisis. Housing figures HAVE to have the chance to stabilize and rebound naturally, and right now the government is fighting that natural process. I am sorry that there are a lot of people who will lose their homes. That's a tragedy, but it's a tragedy of their own making. They will go on, finding a place to rent, sadder and hopefully wiser. 90% of the mortgages out there are held by people who did not overextend themselves into houses they couldn't afford. The 10% that are not will fail, those properties will be bought by people who waited for the right time to buy, and things will start to go up again. In attempting to ameliorate the natural consequences of overextend themselves for individuals, the government is only prolonging the crisis.

What I would advocate instead: Let things crash. Reach the point where new people are going to come into the market and buy houses. Stop trying to save people from the consequences of their own bad choices, and instead focus on helping people who want to move into the market. The $8K first time buyer credit is a great step in that direction, but it doesn't go far enough. How about an $8K tax credit for all new home buyers? That outta move people into the market, and not indirectly, help people move from a house they couldn't afford into a house they can afford. Seems like common sense to me.

There was more I was going to talk about, the folly of tripling the deficit and then claiming you're going to "halve" it the following year while ignoring the fact that the "halved" deficit is still 30% larger than the previous deficit comes to mind, but I've stayed up waaaaay too late typing this already, I'll let that go. Suffice it to say that I think we're all going to be served a huge shit sandwich over the next few years and we're all gonna have to take a big bite. This administration just isn't willing or able to do what needs to be done to improve the economic situation in the US. The scary thing is that they seem hell bent on making it worse. Hold on to your balls my friends, in the next few years we're gonna lose them.






* I really object to the idea that tax cuts "cost" the government anything. That mindset presupposes that the government has some kind of a right to the money that we make. I reject that idea totally and completely.

[XJETGIRLX]

I have been strangely unaffected to this point by the current economic situation. My work hasn't slowed down any (in fact I've gotten busier) due to the fact that I work in areas that require US Citizenship, specifically aerospace, defense, military, etc. software, and my department is really helping to ensure the company I work for continues to be profitable.

I think it is going to get worse for some, particularly those whose incomes depend heavily on consumer spending, but am hoping that people like myself who are actually doing pretty well use the downturn in demand and the lower prices and tax breaks as an incentive to go out and make some purchases which will help to slow the recession.

I don't know that another Great Depression is going to happen, or that I'm too worried about it. It's really only my opinion, but it doesn't seem that we are as without safeguards as we were in 1929.


formerly catsix
now mozg

I'm kind of in the same situation as you. I work for an IT firm, and most of our clients are government agencies. We have seen a decline in business, but it hasn't really affected me personally. In fact, business might pick up soon, since to cut back a lot of agencies are looking at automation and consolidation of systems and processes.

My husband and I are taking advantage of the market to make a lot of big purchases. We just got a house, a lot of stuff for the house including new mattresses, tv, electronics, furniture, etc. all at decent competitive prices. I'll probably be getting a car sometime in the next year, as well.

I read somewhere (sorry, can't remember where) that 3 out of 4 people polled said they were very fearful about the economy, but 3 out of 4 also said that it had not affected them personally.

[featherlou]

I read this book by Peter Schiff Crash Proof: How To Profit From The Coming Economic Collapse a couple of years ago, and he has been right about an alarming amount of predictions.

I'm on the fence about how bad things are going to get; we have more education about economics and ecomic policy thatn ever before, but we have politicians in charge of setting policy, and politicians always have as their first and foremost concern looking good to the electorate and getting elected or re-elected, rather than governing responsibly. I think the systems are so flawed that there may be no room for good policy setting within them.

I am also not comfortable with the idea of the governments propping up companies like Ford and Chrysler because they're "too big to fail." Anyone in the last 10 years could have told them that they had to stop pushing big vehicles and work on producing smaller, economical vehicles, but they refused to do so, and are continuing to do so. The answer to ignoring markets and ignoring what consumers actually want should not be government bailouts; it should be abject failure, but on the other hand, laying off all those people who work in the industry has massive repercussions, too.

Bleah, I don't know any of the answers. I do know that I graduated high school into the recession of the 80's, and I don't want to do that again. It was very difficult.

[Cervaise]

There has to be an accounting. We've heard again and again that some companies are "too big to fail". I don't buy that. If a company is too big to fail, then it's too big to exist. That's the "creative destruction" that is the linchpin of the free market. There is a role for government here, and an important one, but is is not what the government has been trying to do. Government should not be trying to prop up failed business models, it should be working to transition those failed models as they disintegrate into workable ones. Citigroup fails? Fine. Manage the breakup and the allocating of it's assets to various other financial institutions to manage. There are thousands of smaller banks that are healthy that could take them over. Canadian banks are, by Canadian law, the strongest in the world. they are not over leveraged and overexposed. Let them assume control of the pieces of large American banks that failed, along with smaller, strong American banks. GM and Chrysler can't continue as they have been doing? Manage their restructuring through bankruptcy, guaranteeing some of their commitments and restructuring others. There's an important role for government to play in the process, but it's absolutely NOT propping up systems that have proven themselves to be unworkable.

You and I don't really agree on a lot, but if you ever need somebody to hoist you onto his shoulders and carry you around so you can more effectively shout the above, please let me know.

[vison]

I'm with Weirddave on this. I think it is going to get worse before it gets better and I think the "D" word is appropriate for what's coming.

An nation in which "citizen" has become "consumer", an economy (and culture) reliant on perpetual growth, consuming replacing production . . . I'm no economist, but I'm not as stupid as some of the Powers That Were.

I pity Mr. Obama from the bottom of my flinty heart.

[Desert Nomad]

I expect it to get much worse. My income is based on consumer spending, but we have customers in more than 140 countries so hopefully we can maintain some decent level of income. In any case we have built a nice cushion as we did not buy a home in the US during the bubble. I fully expect the DJIA to fall under 5000 this year.... and am glad I do not have any stocks.

[Hellestal]

It we look at nonpartisan evaluations of the stimulus, like the one from the CBO, the Keynesian stimulus seems to be an excellent move. It wasn't as big as recommended from some notable liberal economists, but it'll support millions of jobs in the next few years right as people are needing help the most, and because of the drop-off from private investment during this downturn, the crowding out effects from this increase in government deficits will only have a slight cost in the long-term. Now, the CBO doesn't have any crystal balls (and I don't either), but this is mainstream macroeconomics. It's a textbook technique, and this downturn will be severe enough that it will be effective.

The Obama Administration's response to the financial crisis, in contrast, has been less than stellar. Our system is set up to deal with bank failures on a small scale. The FDIC is "nationalizing" one or two every week, clearing out their shareholders, getting their books in order, then releasing those beasts back out into the wild. That is precisely what we need for the big monster banks, the ones that fucked us all over, and yet there is no mechanism to do this. Obama is simply propping up a diseased system. We'd be back on solid ground much more quickly if we started taking these banks into receivership.

Eventually, things will improve, but the administration's response so far has only been to limit the depth of the suffering, not to actively work toward recovery.

[bookbuster]

I think the real question is, will the world financial system completely collapse this time? No doubt it has to buckle eventually. America and most of the wealthy nations were built on debt and very cheap crude oil. As the oil age ends, we are all going to have to realize that we have to work hard for what used to come easy.

So I think this bump will smooth itself out temporarily, and technology companies will be the first ones out of they gate (they already had their bubble, their accounting looks magnificent when compared to a bank, and the good companies like google have retained a sense of stewardship and goodwill which will serve them well when the stock market gets revalued).

[Badtz Maru]

I think it will get worse, but I don't think it will get as bad as the Great Depression because we have more programs in place to deal with the consequences of an economic collapse. I do believe we will see unemployment rates getting close to 20% before it's done, but we won't have the homelessness and starvation that happened last time around, and it won't last as long.

I'm lucky as this crisis is not effecting me negatively in the least, and actually has some benefits for me. The industry I work in already went through it's layoffs due to the housing bubble bursting as it's closely tied to new housing development, and is already hiring more people because one of the things the stimulus package is pumping money into is going to create a lot of business for us as my company is the leading edge in it's field. We pay very low rent and are on good terms with our racist landlord, and they have told us that we can live there as long as we like because we are white and our neighborhood is becoming increasingly Hispanic. We were worried for a while when our $700 a month house was showing up as being worth over $150K in Zillow during the boom, but now it's down to a much more reasonable $85K and will go even lower. We don't have any credit cards or rely on any loans, and have no intention of buying a house until the market bottoms out. I make enough money to be comfortable due to our low rent and lack of a car payment (bought a nice used car with our $4500 tax refund in 2007) yet my income is low enough that we qualify for food stamps, WIC, and SCHIP for the kids, and those benefits will be going up. I don't have any money in a 401K or other investments, and stuff keeps getting cheaper! I'm really enjoying the current economic climate.

[duckster]

Are we on the verge of a depression?

Assuming a viable capitalist economic system with periods or growth, retrenchment (recession) and severe retrenchment (depression), no, I don't think we are on the verge of a depression.

I think the current economic system is no longer viable. It is fundamentally fracturing and collapsing. If we fail to widen our view and address this in a much, much larger context, I expect political and social upheaval will follow.

[silenus]

Every day I look at the Stock market means one more year I have to teach before retiring. My retirement funds have taken a beating.

How bad is it going to get? Safeguards don't work if the whole system seizes up. I kinda agree with duckster. We are looking at a potential complete restructuring of the world economy. With revolution and civil war as side notes.

[Cervaise]

I don't think it will get as bad as the Great Depression because we have more programs in place to deal with the consequences of an economic collapse.

That's true to some extent, but keep this in mind: Those programs cost money. They do not droppeth as a gentle rain from heaven. In a sufficiently major crisis, the liquidity necessary to sustain those programs may freeze. At that point, governments begin to fail.

Consider, for example, the AIG mess. AIG's insurance operations back hundreds of banks worldwide. Some of those banks are, effectively or actually, nationalized. They function, in whole or in part, as a finance wing of their respective states. AIG is, therefore, in a very real sense, insuring at least a few governments. If there is any lapse in the support of AIG, and it collapses to any degree, there is a nonzero possibility that several governments around the world will essentially cease to function.

That would be a bad thing. And that's why reliance on government support programs only goes so far.

[InLucemEdita]

I think we're closer to the bottom than the top.
We've had a 50% haircut in the Dow.
The government is investing massive amounts of money across the board.
I don't necessarily disagree that the way it is investing isn't the smartest...but those investments will have an impact nonetheless.

What I actually think is the government needs to be more involved in regulating. A complete house cleaning should occur at AIG...hire new grads out of business school and make their pay dependent on the extent to which they can figure out a way to minimize the damage to the taxpayer. Same with GM and any other company that is getting a bailout. There should be a panel of experts...paid by the government...figuring out which derivatives should be legal and which shouldn't and why. Then those laws need to get passed. Don't get me started on regulating the real estate agents, and the inspectors, and for christ's sake the mortgage brokers. Make liar's loans illegal...period.

The government is supposed to protect us when we can't protect ourselves individually.

All of that said...the damage is done and we've already absorbed a crapload of it. I'm looking to buy when I can...in retirement and in...real estate if it goes much lower. There are people on the sidelines looking to buy.

[Jaglavak]

There are a lot of very complex things happening in the picture. But the foundation of it all is actually pretty straightforward. The roots of the problem are:

1) The huge real estate bubble.
2) Banks with both trotters in the trough.
3) Pervasive fraud enabling the above.
4) Hangover from a huge debt-fuelled party during the Roaring Noughties.
5) Never underestimate the power of stupidity.

Outside of that most of the economy is OK. People still need cars, food, clothes, etc. But when banks took a swiftie to the nads they stopped lending. So all the industries that live by revolving credit took a big dive. That's the collateral damage.

The logical thing for the government to do would have been to make commercial loans directly. Let the individuals and companies who made bad decisions play their hand. However we all know it's a rich man's game, and the banking bailout was designed to do one thing and one thing only: keep all those rich guys from getting poor at any cost. Never has the class system in this country been more clearly illuminated. We know the banking bailout won't work. We can already see that when banks are using public bailout funds to go on junkets and buy each other out, and the loans are *still* not happening.

Of course none of this showed in advance on any balance sheets. So now we know that we can't trust the published financial information. But investors live and die by the quality of that information. Having found that the stock market is partially a scam, people are bailing out far more than a dispassionate analysis would indicate. In the future I expect investors to be far more wary and conservative.

But going forward there will be a recovery as soon as the short term commercial loans start flowing again. Unfortunately the recovery will be slow and painful for a couple reasons. First, deleveraging is only slightly more fun that getting boiled in oil. And there's an awful lot of it to do. The banks are still looking at unravelling all those CDO's they sold each other, which on paper total up to more money than there is in the world. Second, we will collectively be paying on a truely gigantic, monumental, legendary debt pretty much forever.

So I'm looking for business to recover by the end of this year or so. Then several years of so-so progress. Then a decade or more or rip roaring inflation, which is the natural and unavoidable consequence of doubling the money supply. There isn't shit that congress can do about any of that except print more money. I expect the dollar will no longer be the world's reserve currency. We will be OK but we'll never get back to the standard of affluence we enjoyed five years ago.

Further out, we will have to start seriously dealing with our unsustainable lifestyle. I really think future generations will look back at this as a golden age of ease and luxury.

[Hellestal]

The logical thing for the government to do would have been to make commercial loans directly.

Sort of. But the government doesn't have the infrastructure to lend to the private sector directly. The Federal Reserve's simply not equipped to do it, and the FDIC is designed to deal with the relatively smaller banks on a quick time-table: swoop in, wipe out the owners, and reprivatize as quickly as possible. They don't have the manpower to deal with a sprawling multi-national conglomerate like Citigroup.

Indirectly, though, this would be a good plan. We need to temporarily nationalize any of the big investment firms that aren't solvent. Those corporations would still exist, and they would be the ones to do the lending, but they would be under public ownership for as long as it takes to clean up their books.

Second, we will collectively be paying on a truely gigantic, monumental, legendary debt pretty much forever.

That's not true.

As a percent of GDP, our current debt load is about half what it was after WWII. And economic growth was relatively strong after the war and in the 50s. This isn't going to be a picnic by any means, but on an adjusted scale, this debt isn't anything that we haven't dealt with before.

So I'm looking for business to recover by the end of this year or so. Then several years of so-so progress. Then a decade or more or rip roaring inflation, which is the natural and unavoidable consequence of doubling the money supply. There isn't shit that congress can do about any of that except print more money. I expect the dollar will no longer be the world's reserve currency. We will be OK but we'll never get back to the standard of affluence we enjoyed five years ago.

Two things: First, barring Armageddon, we will without doubt return to the standard of living we previously enjoyed. It might take us a while, but healthy economies grow with increases in technological efficiency, and that growth compounds year after year. It is practically inevitable that we will eventually retain our previous prosperity.

Second, Congress doesn't have control over our money supply. The Federal Reserve does. And the Fed doesn't just print money and dump it. They purchase assets with that money, and when the time comes to constrict the money supply again, they sell off those assets to soak up the dollars that are bouncing around. A bit of inflation will definitely show up, but when it comes, it will almost definitely come in conjunction with our economic recovery, not afterward. In fact, the Fed right now is doing everything it can think of to introduce a bit of moderate inflation in order to get things moving again. When they finally succeed in doing this, they'll reverse course and start soaking up money again to bring inflation under control. Prices might be increasing at painful rates for a while, but that's better than this hideous deflationary pressure that we're suffering now.

And while there's also the concern of a currency shock, that's not too terribly likely, especially right now during a worldwide recession where there are simply no other reasonable places for people to park their money. Now maybe the dollar will eventually lose its status as the world's primary reserve currency, but we've got some time before that happens. In fact, there are plenty of economists who think the stimulus was too small given the troubles we're in.

Even with the present stimulus, we'll be lucky if things improve by the end of the year. That was the most common projection earlier in the year, but things are continuing to deteriorate faster than anyone anticipated. It might be early 2010 before we start to recover.

[tirial]

I think its going to get worse in the UK. There are undisclosed risks and losses coming up in the EU which is going to knock on over here. The banks are being guaranteed, but every single company I have spoken to recently has said things are bad, clients aren't available and things are falling through. The only exception being government consulting work, which doesn't appear to produce much of value to the economy as a whole.

If the government would start directly supporting out export businesses, supporting small industries and so on, then things might start to improve. Money goes into the workers' pocket to be spent or saved, and cycles round the economy before it hits the bank. Unfortunately the government are putting money directly into the banks where it seems to be vanishing into bonuses, debt write offs, reserves and so on, rather than giving out mortgages and loans as it appears Brown hoped.

[Dragon]

There has to be an accounting. We've heard again and again that some companies are "too big to fail". I don't buy that. If a company is too big to fail, then it's too big to exist. That's the "creative destruction" that is the linchpin of the free market. There is a role for government here, and an important one, but is is not what the government has been trying to do. Government should not be trying to prop up failed business models, it should be working to transition those failed models as they disintegrate into workable ones. Citigroup fails? Fine. Manage the breakup and the allocating of it's assets to various other financial institutions to manage. There are thousands of smaller banks that are healthy that could take them over. Canadian banks are, by Canadian law, the strongest in the world. they are not over leveraged and overexposed. Let them assume control of the pieces of large American banks that failed, along with smaller, strong American banks. GM and Chrysler can't continue as they have been doing? Manage their restructuring through bankruptcy, guaranteeing some of their commitments and restructuring others. There's an important role for government to play in the process, but it's absolutely NOT propping up systems that have proven themselves to be unworkable.

You and I don't really agree on a lot, but if you ever need somebody to hoist you onto his shoulders and carry you around so you can more effectively shout the above, please let me know.

This is why I cry. If someone as dim as I can see that this (above post) is the best in the long run and know that getting there will be harder in the short term than what they are doing, how come our fearless leaders are so short sighted?

[featherlou]

This is why I cry. If someone as dim as I can see that this (above post) is the best in the long run and know that getting there will be harder in the short term than what they are doing, how come our fearless leaders are so short sighted?

The US political system is good and truly broken if you are part of the majority of people who are affected by it but have no say in how it operates (votes are meaningless). Your ruling class are people with lots of money, and they run the system so that they benefit from it; if any of the little guys ever benefit from something the ruling class does, it is an accident. Obama is no different from any other politician; he is successful within your pork barrel system which means he played the same game as every other successful politician. Don't expect great things from him. Your fearless leaders are busy doing what they are used to doing; making money for themselves. You guys don't matter to them.