Depression's All Talk, So Far 11 comments
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The media consistently over exaggerate the news. It's no different when it comes to the financial news. One can hardly blame the media though: the more attention they can draw from the public, the more they get paid. Last year, we were headed for "runaway inflation." A few months ago, it was "stagflation." Currently, we are on the verge of a "massive depression not seen since the 1930s," but if a depression is on the way, we're not quite in the same ballpark, yet. To give an idea of where we currently stand in relation to the 30s, here's a chart showing the U.S. unemployment rate from 1929 to today:
click to enlarge
Throughout history, we see periods of economic contraction and expansion. Unemployment actually touched 25% at its worst during The Great Depression, whereas right now we sit at 6.1%.
How bad will it get this time? Anyone who claims to know is either lying or delusional. However, we can gather some clues from previous recessions in order to make a guesstimate. Economists consider the 2001 recession to be a relatively mild one (and we can see from the chart that the unemployment peak was fairly low by historical standards), and so most economists expect this to be a worse recession than that of 2001. During the early 80s, however, inflation had gotten out of control, forcing the Fed to fight it despite stagnant growth. This time around, inflation is at reasonable levels, allowing the Fed to do what it can to increase liquidity and promote growth, suggesting this recession won't be as bad as it was in the early 80s.
Professor George Athanassakos of the Richard Ivey School of Business has written an article titled Panic of 2008, which offers his opinion on how bad things will get. While nobody can predict the future, we are not even close to the dire circumstances of a depression. Don't let the media sway you in your investment decisions. Buy when others are fearful, and sell when they are greedy.
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This article has 11 comments:
You may not have any sense of what is occurring, but others certainly do, and your 'buy now' advice is ludicrous.
The liquidity being dished out may result in hyper-inflation in the long run, but at the moment it is somewhat staving off the inevitable collapse, but it will not succeed because it cannot, as it is trying to cure a problem caused by too much debt by taking on still more.
A depression is when you lose your job.
Denial is more than a river in Egypt.
The stock market is a forward looking indicator. Based on the past few months' stock market performance, current earnings and other economic data, fasten your seat belt and make sure your airbags are working. And buy seeds for next years vegetables before they're sold out.
No one has any purchasing power left, debt level is extraordinary, employment is down but headed much lower, all asset classes are in free-fall.
No one can afford to take on more debt, so who cares how low interest rates are, or how much credit the gov's are trying to make available- to no avail by the way.
You're best argument is , "We,we are not in a depression yet"??
Like the guy who jumps off a skyscraper, asked how things are going half way down. " So far, so good"
I do believe we will reach depression levels at or around 2011, but these levels will last a year or perhaps a bit more. I like others can only take an educated guess based on overcapacity in almost every sector fueled by massive prior liquidity. It seems 1/2 of the overcapacity starting in August of 2007 to current (40% from 2002) has come off. Another 20% will come off in the next two years. It's a massive shift of Efficient Market back to Save and Invest.
A lot of how quickly our country continues a downward spiral or reaches bottom then recovers is based on Washington policy in the areas of cutting budget, tax policy, job creation from infrastructure subsidy and higher education funding. Even if excellent research is conducted Q1 & Q2 of 2009 but government and implement efficiently, such policy would take a couple of years to gather steam. I stand by my guess that it will be 2013 before we see the formation of the next Bull market, although it would be likely to see a big dead cat bounce early next year in equities. There is a lot of money sitting on the sidelines. I believe a good chunk of this money will go into start ups and early stage companies.
Why change the mission of Battle Hardened Troops to riot control and deploy them in the United States unless there was grave danger of insurrection.
Things are less stable than many would like to believe.
To Assume Benevolence Is Foolish.
This is a once-in-200-years retracement of the American bull market since1789that will take many years to play out.
Before this is done, the old debt-money system will be replaced and the 'job model' of resource distribution will be dead.
As for the unemployment stats - you're right. Back then they didn't include women or those who lived on a farm as 'unemployed'. Imagine the rate of unemployment if they included those groups.