Why It's Actually Different This Time

Co-written by Patrick Kirts

Thomas Lee, US Equity Strategy at JPMorgan, generated some buzz in the past few days when he noticed that the twelve-year-low reached by the Dow last week had only happened two other times in history. The others occurred on April 3, 1932, in the depths of the Great Depression, and on December 6, 1974, after the first oil crisis. We now know that recovery in the market was soon to follow, and that the respective recessions ended four to nine months after, although unemployment had yet to peak. In both cases, the market popped and drew in the crowds. Is it really different this time, or is recovery right around the corner?

Barron's cover story this weekend, 'Ouch! That Hurt,' notes that while the market will probably go lower, and maybe quite a bit lower, stocks may now be a buying opportunity for longer-term investors. They note three ways stocks may be thought of as cheap. Stocks are cheap relative to their book values, to GDP, and to the price of gold. They also note that there is a lot of money waiting to re-enter the market; money-market funds are now worth $4T, double what they were two years ago. A return of confidence would bring a lot of this back into the market.

We at Portfolio Asset Management are very wary of the sentence, 'This time it's different.' When people say this, they are usually justifying irrational exuberance and the madness of crowds, exactly the same factors that led us into this global mess by inflating the largest asset bubble in human history. It's just this fact that leads us to say now, though, that maybe this time it is different. So, how is the current crisis different from others?

A few things lead us to think we are in worse position in 2009 than in 1974 or 1932. For one, we've fallen deeper and faster than we did in even the Great Depression, let alone the mid-70s. It took years to reach the lows in the last two events, but only a year and a half ago, we were at 14000 on the DJIA.

We are also now in a very different geopolitical position; Western nations are net debtors, and Asian countries are now net creditors. After World War I, the US and Britain were the world's creditors. Now, savings have dried up, both for countries and a great number of individuals in the West--and the US is in the most debt of all. We cannot fund our own recovery. On a related note, it is clear that the Obama administration has a shrinking window of time to address our economic woes, but each new action seems to add to the pessimism and uncertainty.

Finally, the US faces a demographic problem it did not face during the Great Depression, or in the same way in the 70s, because of our ballooning costs of health care and other entitlements and benefits. In the 1930’s there was no retirement or thundering herd of people living off portfolios and not working. We had no cost containment questions relating to healthcare or the pervasive need for all young people to go to college and indebt themselves or their family members for years.

During the past decade, first in the dot-com boom and bust, and then with the real estate bubble, the largest destruction of resources in history occurred. Numerous federal initiatives to expand housing were coupled with easy money policies that led to the explosion of increasingly riskier lending to maximize profits on cheaper and cheaper debt. A bubble formed, and now that bubble is correcting. The fall in the prices of the 'assets' whose 'value' rose so much during this period is the necessary precursor to the redirection of capital to more productive--that is, wealth-creating rather than wealth-destroying--efforts.

Wall Street and Washington, however, seem to see the situation quite differently. The actual functioning of the market economy seems lost on them, even on most of the 'free-marketers' in their ranks. The establishment sees the problem not with the false value attributed to real estate and many other investments during the bubble, but their current fall in their value. Thus, what must be stopped is the fall in asset prices. This type of thinking cannot produce recovery, because it dictates a response based on easy money and debt, the same things that created the problem.

The Great Depression was also preceded by an asset bubble fueled by easy money policies, and, at least in the early stages, was very much a market correction as we are seeing now. The Dow fell precipitously, about 85% from its September 3, 1929 high to its 1932 low. Unemployment, over the course of 4 years, went from almost 3% to almost 25%. By the end of 1930, fifteen months after the stock market peak, unemployment had reached 8.7%. We are now seventeen months after the October 2007 Dow peak, and we are told that unemployment has only reached 8.1%, but that it could climb as high as 10% by the end of the year. So the economic turmoil actually seems to be developing more slowly now, right? Not so fast. We don't report unemployment the same way as we did then. Using Depression era metrics, experts estimate actual unemployment at almost 15%. But it took until the end of 1931 to reach this point, about twenty-seven months after the market peak. Government projections are entirely too rosy--each month we are losing at least 100,000 more jobs than we lost in the prior month. The private sector is contracting in the wake of the biggest debt boom in history, and it is contracting more quickly than ever before. We are not sure a profit from Citigroup (C) for the first two months this year is a cause for relief just yet.

Only when the economy starts producing profits will a turnaround be possible, and this cannot happen until the losses that have piled up are fully realized, and much of the excess debt that is floating around can be refinanced so that consumers are not completely wiped out. Capitalism depends upon both private reward and private loss. Right now, that is not happening. Government bailout money is simply keeping unmarketable assets inflated to protect the balance sheets of the most politically connected in the finance industry. Now the Fed wants to use ‘mark-to-market light’. During the 90s, Japan wasted billions propping up insolvent companies, hiding losses, and partially nationalizing banks. Japan passed eight stimulus packages, to little or no effect. Sound familiar? Obama's stimulus is being sold as a 'bridge over troubled water,' to keep money flowing while recovery takes its course. In the meantime, the collective debt of our society continues to bloom, even as consumers rationally begin to save more and deleverage. Granted, we have moved faster than Japan in passing stimulus but we are dropping faster and have deeper global problems. Will stimulus speed really mitigate the size of the problem?

The Federal deficit is projected to be 12.26% of GDP in 2009, up almost four times from the 2008 proportion of 3.21%. This new debt could cause extensive problems for the dollar and dollar-denominated assets. We will have to pay for this using tax revenue--and not just for the Federal government, as most states and municipalities are underwater as well--which means that at some point in the not-too-distant future we will need to return to the same kind of growth as the bubble years, or even better. It is as if Washington and Wall Street have decided to double down on one last hand at the poker table. It worked in the 1990s thanks to Al Gore’s invention of the Internet.

Not only do we have a continually rising rate of unemployment, especially detrimental in a consumer economy, which depends upon an individual's ability to spend, and keep spending, we have the largest generation in American history now approaching retirement, with much of their savings wiped out by the crash. These people will not be able to leave their jobs, which would open positions for younger workers, simply because they can't afford to. If fewer college graduates can earn a decent income in the coming years, another debt bubble will burst--student loans. People also live a lot longer today than they did in the Great Depression, so those boomers who do manage to retire will pose an enormous burden on our already strained resources, as health care costs mount and more and more Social Security checks are issued.

There are other market disturbances that threaten in the perhaps very near future. Warren Buffett has been warning for years about the unregulated derivatives industry, calling derivatives 'financial weapons of mass destruction.' Keep in mind, he is a part of this market and lost a ton of cash in the derivatives market last year. The world derivatives market is now many times, perhaps as much as ten times, greater than world GDP. A serious disturbance here, where not only financial institutions but also many corporations mathematically manage their risks, could be catastrophic.

We are not trying to paint a doomsday scenario, and we believe that such apocalyptic portrayals as are frequently bandied about are at least irresponsible, but an objective appraisal of the larger economic facts almost requires a pessimistic outlook. Jim Rogers may be overstating things when he describes current US policy as 'ridiculous' and 'insane,' but we can't be sure he is wrong. We are not about to move to Singapore because the Asians now have more money--there is still plenty of money to be made investing in the US--but prognostications about an impending turnaround cannot at all be rationally justified. Retracing a twelve-year-low after the largest asset bubble in history should not be surprising, but the speed in getting to that low was unprecedented.

Nevertheless, the Barron's article was right about one thing. Stocks are cheap, and there are already some great deals to be found, and probably even greater ones. The market as a whole, unfortunately, is still overpriced, and finding value is the hard part.

Comments

[ArtfulDodger:]

Mr. Lee Eugene Munson:


While a lot of what you write is true, H.J. Huneycutt rightly pointed out a couple of errors in your article.

And I would say that the entire extent of your pessimism is overwrought rather than actual, especially when you try to compare the early 21st Century with the Great Depression and even the 1970s Burn Out Years from `74 through `81.

The DOW, for example, in 1929 hit a high of around 380.

On Black Monday of `29, the DOW crashed 22% in one day, and on the next, Black Tuesday, fell another 12%.

Certainly, we've not seen anything like this since.

The DOW hit its final low on 7-9,31, closing at around 40, down almost 90% from its `29 high.

In this current crash, the DOW reached its high of 14,000 in the Fall of `07 and is down about 50% as of March `09.

That's only a few months difference in time. Do you really think the DOW will collapse to the point of getting down to the minus 90% point, which would put it at about 1400?

While we are whining our way through some rough times, to compare this time to the Great Depression is ludicrous.

There is money everywhere today; people are out shopping and dining. During the Great Depression millions of familes lived off of beans and potatoes without meat for months at the time and never saw the inside of a restaurant or a shopping mall.

People today can sit home and entertain themselves with millions of TV & cable channels and the Internet; very few people even had radios in those days.

Last year (2008), a total of 25 banks shut down, and most of them were rather serene shut downs at that (compared to those of the `20s & `30s), and this year so far 16 more have closed.

Thousands closed after the `73/74 Stock Crash, and 2500 busted out between 1987 and 1994, due to tax changes, huge tax increases, and the S&L blowout.

To put the whole thing in perspective, in 1929, 659 banks went bust; in 1930, 1,352 shut their doors; and in 1931 2,294 closed down.

Today, when a bank shuts down deposits go to a solvent bank and depositors move with them; in the Great Depression days your money went with the shuttered doors—to the trash heap.

I did not live through the Great Depression and so have only read about it; but I did live through the 1970s, and I can tell you for sure that those were much worse times than these are today—at least so far.

Mr. Munson, I'm not even attempting to predict the movements of the markets, and I like you am not very optimistic about business conditions in the US.

But I can tell you that things look much, much better today than they did in the 1970s; and if you can look through the eyes of those who lived from the late 1920s through the 1930s, you would have to say that the light is clearly at the end of the tunnel for us today, while those poor souls had to walk for years through the darkness.

Your generation is a very pessimistic one at this point, and it's because you've never had the red torn off your candy cane, as every generation before you has—to one degree or the other.

Cheer up! Take this as a time to reassess your own life and investing model. You'll learn from both and will be the better for it.

And be thankful that you didn't have to live through the 1970s or the Great Depression.

Mar 13 01:14 PM

[Jimbo:]

If ChrisB will consult public records on campaign contributions, he will find that Wall Street money went to Democrats over Republicans by approximately a seven to one ratio. The myth about a Republican Wall Street dies hard. Just look at all the Wall Street denizens in Clinton's and Obama's administrations. Yes, I know there were Wall Streeters in the Bush administration as well, The MSM expected that.

Mar 13 01:46 PM

[prudentinve...:]

Very well said and right on the mark.

".....The establishment sees the problem not with the false value attributed to real estate and many other investments during the bubble, but their current fall in their value. Thus, what must be stopped is the fall in asset prices. This type of thinking cannot produce recovery, because it dictates a response based on easy money and debt, the same things that created the problem......"

Mar 13 02:28 PM

[clevelander:]

If your statement that Al Gore invented the Internet is any indication of the rigor of your thought processes and the accuracy of your research, I would be inclined to set a match to this whole essay.

Mar 13 02:48 PM

[Hexan:]

On Mar 13 01:14 PM ArtfulDodger wrote:

> Mr. Lee Eugene Munson:

> While we are whining our way through some rough times, to compare
> this time to the Great Depression is ludicrous.

Both eras do share some common elements worth studying in more detail.

> There is money everywhere today; people are out shopping and dining.

Retail sales are down more than 10% in the last three months. This month the number appears to have bottomed, but might be consumers spending on necessities they held off purchasing.

Durable goods orders are down 25% or so. There are very real declines in many sectors. Many retailers are having a hard time financing inventory purchases.

> To put the whole thing in perspective, in 1929, 659 banks went bust;
> in 1930, 1,352 shut their doors; and in 1931 2,294 closed down.<br/>

The concentration of portfolios and deposits are different. Today, something like 80% of all home loans are serviced by the top 6 banks. The top 25 banks have ~70% of all deposits.

A few firms, like Fannie Mae and Freddie Mac guarantee half of all US mortgages. They both failed.

Some experts believe most large banks are insolvent based on the TCE ratio.

A simple counting of bank failures is not a relevant measure due to the concentration of assets today.

> But I can tell you that things look much, much better today than
> they did in the 1970s; and if you can look through the eyes of those
> who lived from the late 1920s through the 1930s, you would have to

It's not there yet, but many of the solutions are simply wrongheaded. Nothing I hear from this administration makes me want to spend or invest. Nothing I hear makes me want to take on new debt.

Businesses are girding themselves against future losses, not preparing for future demand growth.

70% of GDP is based on US consumer consumption. It's not sane to be optimistic the consumer will spend with aplomb given the measures of consumer confidence, income growth, MEW, etc...

>Your generation is a very pessimistic one at this >point, and it's because you've never had the red torn >off your candy cane, as every generation before you >has—to one degree or the other.

Fix Social Security before you give me a finance lesson, Grandpa.

Mar 13 03:00 PM

[CLH:]

You have made a huge mistake in comparing 1929 to 9008. this crash started in 2000 with a crash of 80% in the NASQ which is the only meaningful market at this time. (Our market is basically a tech market). Bush did the same thing as Roosevelt --he used stimulus (lower interest rates and taxes) which was the wrong thing to do. Both Bush and Roosevelt made it worse. Obama is also using stimulus which is also wrong. Capitalism cures its own mistakes if left alone. However it causes pain which is necessary.

Mar 13 03:40 PM

[Yohei:]

I love an article that starts with a personal attack, then says "you should be punished" and ends with "you should all be shot". Oh, excuse me, "put to justice."

Take your crude and violent impulses somewhere else.


On Mar 12 09:06 AM Oquichtli wrote:

> Pathetic fear mongering. You should be punished to the for spouting
> such fear. I know, fear sells papers and gets fools to read pathetic
> blogs like yours. Why don't you inform the dumb masses how to profit
> in this environment(i.e. highly volatile markets make fortunes for
> options trading) instead of scaring the hell out of their weak minds?
> Oh I know why, you are protecting the business agenda of the masters
> who own you. Just like that fool Ron Paul. Trying to scare the zombie
> sheep. You all should be put to justice.

Mar 13 03:47 PM

[Al-USA:]

Good article. And yes, it is very much different this time, prepare for a 16 year depression, more or less.

"Recent Policy Decisions and a Greater Depression"
seekingalpha.com/artic...
littlurl.com/2it28

Actually, in my opinion, capitalism has had its "run", and is increasingly failing to make use of the productive forces.

All you need to do is get out more often and see the increasing number of previously middle-class families who are now homeless or in danger of becoming homeless.

Hidden homeless: U.S. families living in motel rooms
www.iht.com/articles/2...

"Forced From Executive Pay to Hourly Wage"
www.nytimes.com/2009/0...

Frankly, it is shameful that the capitalists have $trillions for the failed banksters, but middle-class Americans are reduced to being homeless in motel rooms. The only good part is that it is garnering widespread awareness among the masses to what a mess capitalism brings to civilized society.


Capitalism Future Of: Seeds Of Its Own Destruction
www.ft.com/cms/s/0/c6c...

More information below:
"Destruction of Demand"
seekingalpha.com/artic...
littlurl.com/b8z3e

"The Fed's War on the Middle Class"
mises.org/story/2983

"What's Behind the Financial Market Crisis?"
mises.org/story/3111

"Economic Fascism and the Bailout Economy"
mises.org/story/3333

"How to Avoid Another Depression"
mises.org/story/3103

Mar 14 10:08 AM

[Lee Eugene ...:]

Thanks for your comment, Steve. I agree that government meddling will probably prolong this, and my sense is that it isn't the bailouts we should be most worried about, but something more to come. There's been a lot of noise about protectionism, but so far we don't have a Smoot-Hawley, or huge public works programs directing scarce resources to bureaucratic boondoggles. How much longer before Obama really unveils his new New Deal?


On Mar 12 10:08 AM Steve in Greensboro wrote:

> Great article, Mr. Munson. One thing that is the same (this time
> as in Great Depression I) is that government meddling will greatly
> prolong and deepen the downturn.

Mar 19 08:34 AM

[Lee Eugene ...:]

Thanks, RAJS. The whole world could be heading for a 'Lost Decade,' particularly if politicians continue to refuse to get out of the way and let entrepreneurs--productive individuals--rationally shift capital to where it will make an impact. In the end, it all boils down to economic freedom.


On Mar 12 09:07 AM RAJS wrote:

> Very well said. We should remember that in case of Japan, it was
> more or less 'one country problem' and they could export (sell goods)
> to other countries (US and Europe). In the present case all the countries
> have the same problem and can not export to other countries. Thus
> in present case the problem may take forever, since Japan is still
> not out of it.

Mar 19 08:38 AM

[Lee Eugene ...:]

We really aren't trying to scare people at all, Oquichtli, simply present the facts as we see them. If we aren't right about everything, someone else catches it, and we have a productive discourse. My tone is always a bit tongue-in-cheek; the article is really a plea to let markets work. Sorry you feel this way.


On Mar 12 09:06 AM Oquichtli wrote:

> Pathetic fear mongering. You should be punished to the for spouting
> such fear. I know, fear sells papers and gets fools to read pathetic
> blogs like yours. Why don't you inform the dumb masses how to profit
> in this environment(i.e. highly volatile markets make fortunes for
> options trading) instead of scaring the hell out of their weak minds?
> Oh I know why, you are protecting the business agenda of the masters
> who own you. Just like that fool Ron Paul. Trying to scare the zombie
> sheep. You all should be put to justice.

Mar 19 08:41 AM

[Lee Eugene ...:]

Thanks for your comment, Nik. We may be really boxing ourselves into a corner with all of this new debt to boost prices. If we just let them fall the way they should, pretty soon people would start buying houses again. It just shows how deeply captured our political establishment is by Wall Street. I'm not so sure that China's recent comments represent a 'gun to our head,' though. I cannot imagine an outright refusal on their part to buy more of our debt, at least for now, because if they do, not only will they send the dollar falling, they would provoke an international currency crisis, since we're well away from any kind of replacement currency, or even a real diversification of world reserves. I think a more likely scenario would be a panic started by some smaller holder selling too many dollars at once, and then gravity takes over. China wouldn't dare.


On Mar 13 12:58 PM Nik Kondratieff wrote:

> This is a very solid piece of analysis providing excellent historical
> context to compare and contrast where we are at today vs. the first
> Great Depression.
>
> I agree with you, I think this time it is different. We haven't
> seen the bottom of the market yet, the entanglements are much more
> complicated, we can't pay our debt, and with the latest message from
> China--that we must not let the dollar devalue--we essentially have
> a gun to our heads. Yes, it's going to be very different than 1929-1941.
>
>
> Nik

Mar 19 08:49 AM

[Lee Eugene ...:]

Thanks, Chris, for your interesting comments. Let me try to quickly address each one. First, by falling deeper and faster, I did not mean that the Dow or the S&P in particular have fallen faster--what date would we use as a benchmark?--but that a number of factors, such as housing prices and unemployment, are deteriorating more quickly than they did at the outset of the Great Depression. This could indicate something good--a faster correction, for instance--but seeing how we're trying as hard as we can to stop these trends, and they just keep getting worse, I'm not betting on it. Second, it's quite a leap to suggest that a rising dollar and falling treasury yields means we have no funding problems. Gravity can only be defied for so long. Negative real interest rates are inherently unsustainable. This is the import of the time-frame comment for Obama--and it has nothing to do with the politics of Wall Street traders, which aren't mine anyway. The longer his actions are perceived as ineffective, the lower we go. I agree with you that the demographic picture is much more complex than I indicated in the article, but I think my point still stands. Currently unfunded federal obligations are MASSIVE, and growing. Yes, this has been a problem for awhile, but it becomes a much bigger problem in a shrinking economy in which the social safety net will be required to kick in to help all of the new jobless. On a final note, letting big firms fail was the order of the day after stock market panics for much of our history; it wasn't until the Great Depression that liquidations didn't work. Why? Because Herbert Hoover wouldn't try; he thought he knew better than millions of rational actors in the economy. Government policy did not solve the Great Depression; it deepened it. It will not solve today's problem either.


On Mar 12 11:39 AM Chris B wrote:

> "For one, we've fallen deeper and faster than we did in even the
> Great Depression, let alone the mid-70s. "
> ----------------------...
> And why would this predict a deeper malise? After all, this could
> be explained by the availability of electronic trading OR an increase
> in irrational herd behavior.
>
>
> "We are also now in a very different geopolitical position; Western
> nations are net debtors, and Asian countries are now net creditors."
>
> ----------------------...
> But a rising dollar and falling treasury yields indicate that there
> will be no government funding crisis as a result of "stimulus" activity.
> If anything, it indicates a deep pool of resources (loans at only
> 0-3% interest, which is negative in real terms) that weren't available
> in earlier crises.
>
>
> "On a related note, it is clear that the Obama administration has
> a shrinking window of time to address our economic woes, but each
> new action seems to add to the pessimism and uncertainty."
> ----------------------...
> Most Wall Street traders and fund managers are Republicans. Of course
> Obama makes them uncertain and pessimistic. He contradicts their
> world-view. They hate him. Is that an economic fact or trader bias?
>
>
>
> "Finally, the US faces a demographic problem it did not face during
> the Great Depression, or in the same way in the 70s..."
> ----------------------...
> We also have demographic assets we didn't have back then. More women
> and minorities are in the workforce, which means there are more workers
> per dependent than in the past, not fewer. Also, technological assets
> allow older workers to keep working. A 65 year old can dig ditches
> all day - with a backhoe. Improved - and more expensive - healthcare
> extends the amount of time people can work much like increased maintenance
> can keep an old car on the road longer, and produce more value in
> the long run. Inefficiencies in the US's middleman-filled healthcare
> system make healthcare expensive, yes. But will an inability to
> deal with these inefficiencies crush the whole economy? Or just
> reduce demand and inspire innovation?
>
>
> "This type of thinking cannot produce recovery, because it dictates
> a response based on easy money and debt, the same things that created
> the problem."
> ----------------------...
> Are you suggesting monetary contraction, raising interest rates,
> cutting government spending, reducing the availability of loans,
> and waiting for companies to "liquidate" as Andrew Mellon called
> it? That approach was tried once.
>
>
> "Only when the economy starts producing profits will a turnaround
> be possible..."
> ----------------------...
> How exactly does an "economy" produce profits? By having GDP above
> zero? By having quarterly GDP growth? By having X% of publicly
> traded companies declare they are profitable? This statement is
> like saying it will be a nice day once the weather is nice EVERYWHERE.
> Any economic activity is evidence of profit.
>
> Regarding the long-term problems mentioned such as the national debt,
> Medicare, Social Security, etc. these problems have existed for decades.
> Yes, we need the courage to resolve them. However, is there reason
> to predict that eventual disaster is more likely than eventual resolution?
> Probably a 2-5% tax hike OR a decade with no wars would resolve this.
> Is that the end of the world? Would that collapse the dollar? Take
> a deep breath and count to ten....

Mar 19 09:11 AM

[Lee Eugene ...:]

Thanks for your comments, H.J. I think you're right about the DJIA figures; it fell faster in 1929, but I think our general point about the economy slumping more quickly today is still on the mark, vis-a-vis employment and housing.

As to the geopolitical differences, you're right that fascism and the war in Asia did add to the uncertainty, but it took three years for the Nazis to come to power after the crash, and two years for Japan to invade. Today, we start the crisis with an overextended military fighting a war on multiple fronts. This is not to suggest an exact analogy, but it should add to uncertainty in the same way, and I think it definitely suggests increased risks for the US.


On Mar 12 01:46 PM H.J. Huneycutt wrote:

> While I enjoyed reading this article, I do disagree with many points
> and note a few inaccuracies:
>
>
> "A few things lead us to think we are in worse position in 2009 than
> in 1974 or 1932. For one, we've fallen deeper and faster than we
> did in even the Great Depression, let alone the mid-70s. It took
> years to reach the lows in the last two events, but only a year and
> a half ago, we were at 14000 on the DJIA."
>
> This simply is not true. Or at the very least, it's a distortion
> of the facts. Take a look at the chart for the stock market crash
> of '29 and the market fell 50% within a month or two!
>
>
> "We are also now in a very different geopolitical position; Western
> nations are net debtors, and Asian countries are now net creditors.
> After World War I, the US and Britain were the world's creditors"
>
>
> While we are in a different geopolitical situation, consider that
> one of the factors that lead to the exacerbation of the Great Depression
> was a tariff war coupled with increasing nationalism across the world
> and the rise of Fascist regimes in parts of Europe, plus the Japanese
> invasion in Asia. All these factors led to huge uncertainty, which
> is what the market fears the most.
>
>
>
> For the most part, I agree with the rest of your analysis. I just
> don't necessarily believe that's a reason to be down on the markets.
> Certainly, America looks to be economically weakening due to many
> factors you describe, but if the markets have already considered
> that and if other factors lead to an increase in prices (such as
> inflation), stocks still might be one of the safer investment vehicles
> out there.

Mar 19 09:18 AM

[Lee Eugene ...:]

You highlight one really important difference between now and then, User, and that is how much more information is available today. I'm not really sure this is a crisis of capitalism, but it is definitely a crisis in the state's relationship with capitalism. Most of the problems we're facing don't have market origins, but government ones. Thanks for reading!


On Mar 14 10:08 AM User 270430 wrote:

> Good article. And yes, it is very much different this time, prepare
> for a 16 year depression, more or less.
>
> "Recent Policy Decisions and a Greater Depression"
> seekingalpha.com/artic...
>
> littlurl.com/2it28
>
> Actually, in my opinion, capitalism has had its "run", and is increasingly
> failing to make use of the productive forces.
>
> All you need to do is get out more often and see the increasing number
> of previously middle-class families who are now homeless or in danger
> of becoming homeless.
>
> Hidden homeless: U.S. families living in motel rooms
> www.iht.com/articles/2...
>
>
> "Forced From Executive Pay to Hourly Wage"
> www.nytimes.com/2009/0...;em
>
>
> Frankly, it is shameful that the capitalists have $trillions for
> the failed banksters, but middle-class Americans are reduced to being
> homeless in motel rooms. The only good part is that it is garnering
> widespread awareness among the masses to what a mess capitalism brings
> to civilized society.
>
>
> Capitalism Future Of: Seeds Of Its Own Destruction
> www.ft.com/cms/s/0/c6c...
>
>
> More information below:
> "Destruction of Demand"
> seekingalpha.com/artic...
>
> littlurl.com/b8z3e
>
> "The Fed's War on the Middle Class"
> mises.org/story/2983
>
> "What's Behind the Financial Market Crisis?"
> mises.org/story/3111
>
> "Economic Fascism and the Bailout Economy"
> mises.org/story/3333
>
> "How to Avoid Another Depression"
> mises.org/story/3103

Mar 19 09:21 AM

[Lee Eugene ...:]

Interesting idea, CLH, and at least partially correct. Actually, it is correct, as long as we aren't trying to draw perfect analogies. The years 2000-2007 were certainly not depression years, but the pain we're feeling now is definitely the result of a Bush-Greenspan 'stimulus.'


On Mar 13 03:40 PM CLH wrote:

> You have made a huge mistake in comparing 1929 to 9008. this crash
> started in 2000 with a crash of 80% in the NASQ which is the only
> meaningful market at this time. (Our market is basically a tech market).
> Bush did the same thing as Roosevelt --he used stimulus (lower interest
> rates and taxes) which was the wrong thing to do. Both Bush and Roosevelt
> made it worse. Obama is also using stimulus which is also wrong.
> Capitalism cures its own mistakes if left alone. However it causes
> pain which is necessary.

Mar 19 09:25 AM

[Lee Eugene ...:]

Thanks for commenting, Moon. I agree that Madoff is a good first step, but there is a lot of systemic fraud that needs to be cleared out of our financial system, as this AIG nonsense goes to show. We could really return some confidence to the market if we saw someone like Hank Paulson in fetters!


On Mar 13 04:36 AM Moon Kil Woong wrote:

> I've been pondering this recent market rise and I have one thing
> to comment on. Despite people screaming that the finance sector is
> fine which we know it is not, if the market really actually turns
> this time I think in the future we can pinpoint it to the date Madoff
> went to jail.
>
> Why? This market rise may be a bit different in the fact people are
> breathing a great sigh of relief that at least one major fraudster,
> Madoff has finally began to pay a penalty for his criminal role.
> I think maybe the market is hopeful that finally, finally, perhaps
> someone has decided to start cleaning up the mess rather than burying
> it in a deep hole.
>
> I hope they are not proven wrong or the market can head down just
> as fast as it went up.
>
>
>
> Constructe now writing as Moon Kil Woong

Mar 19 09:30 AM

[Lee Eugene ...:]

Thanks ArtfulDodger for taking the time for such a detailed reply, and thanks Hexan for addressing some of the main points. I want to quickly focus on the problem of bank failures, as this is one place that seems to be different from the GD. We've seen a few small and medium size bank runs, but nothing on Great Depression scale. Partly this is due to the FDIC (although it is certainly feeling strained--are we just bottling the pressure up for a SYSTEMIC RUN??). But the real issue is that we would be seeing bank failures--among the very largest banks--if we weren't so determined to prop them up and turn them into 'zombie' banks, sucking more and more public resources without any hope of generating private gain anytime in the future to offset it. Banks aren't failing today because our politicians won't let them--and they're selling our children into serfdom to keep it from happening.


On Mar 13 03:00 PM Hexan wrote:

> On Mar 13 01:14 PM ArtfulDodger wrote:

Mar 19 09:36 AM

[Lee Eugene ...:]

'This time it's different' is a phrase generally used to justify irrational optimism, like the idea that housing prices will never correct to a long-term moving average. Please don't let our wit get in the way of our analysis.


On Mar 12 06:41 PM Shonkypom wrote:

> Saying that the 'this time its different' phrase really may be different
> this time is one and the the same thing.
> Whatever point you may have been wanting to make has been lost.

Mar 19 09:48 AM

[Lee Eugene ...:]

Interesting comments on Japan. I don't know how far I want to push the analogy, or any analogy, for that matter. The fact remains that we're very likely to be saddling ourselves with zombie banks, and that no amount of publicly funded stimuli fixed a problem that only a free market (or maybe a total employment command economy, to indulge in just a little fear-mongering) can fix.


On Mar 13 02:26 AM jq1234 wrote:

> Many people keep making comments about Japan without fully understanding
> the extent of Japan's problem. To say we are doing the same thing
> as Japan did completely missed the point. Japan didn't do anything
> for years at first. I lived there before. Here are what I remember
> currently. The number might not be 100% accurate, but not far off
> either.
>
> 1. Japan had trade surplus, true, but they did have quite large government
> debt, as percentage of GDP, comparable to US if not more.
>
> 2. Japan's asset bubble was much larger in size percentage wise.
> Our housing market down 20-30%, theirs down 80-100% then more. Thus
> there was a huge difference in magnitude.
>
> 3. Japanese consumers wouldn't spend. They save 30-40%. As pessimestic
> as most people here are today, our decline of consumption is so small
> percentage wise relative to Japan. US consumers will never be like
> Japanese consumers. It's culture difference.
>
> 4. 90s was global boom, true. However, it was uncertain era for Japan
> due to the rise of China. China replaced many Japanese exports, which
> had forced Japan to change their economy significantly. Japan used
> to have life time job gurantee, but no more. The rise of China was
> negative to Japan in 90s.

Mar 19 09:55 AM