PeakOiler

Economy in Crisis: Three Bears and a Missing Goldilocks

"The bad news here is that you can have inflation during a depression. Care for a recent example? Just go back to the 70’s stagflation. What we’ve got now is just a more extreme version of an already established event."

Naw, I was there in the early 1970's. Inflation had exploded during the late 1960's because of the Vietnam war, and increasing oil prices. I took my first job in 1972 at $7200 a year. Two years later my salary was $12,600, and not because of merit. Everyone was getting wage increases of 10% or more a year to catch up with the inflation rate.

Today, we have no inflation on the wage front at all, in fact we have deflation of wages. Yes, the Fed is monetizing debt at present, a necessary attempt to fix to an economy in a deflationary spiral. When the time comes that the economy is expanding again I expect the Fed to try to sop up money supply by raising interest rates.

Increasing wage settlements will be the indicator I use to determine if inflation could become a problem. Right now we have the opposite problem, and it could be years until inflation shows up. Inflation would be a good sign that we are well on the road to recovery, but I doubt if it will ever become the problem it was in the 1970's.

John Hussman: Renewed Concern About Credit Default Spreads

"It's Credit Default Swaps"

No it's not. It's credit default spreads, lower case. He is referring to the spreads on the CDSwaps, which are widening because risk appears to be increasing. He takes that as a warning of defaults to come.

Obama, Pragmatism and the Keynesian Fallacy

"There is another problem with the utopian aura now surrounding Team Obama, and it’s simply that government doesn't produce anything tangible. "

Whoa! What about city planning and construction, what about highways and bridges, etc.

And what about the FDA? Imagine an America without a watchdog on drug creation. Imagine a world of thalidomide babies, lead paint in children's toys, asbestos in drywall, and on and on again.

What we've had under Bush was capitalism run amok. And now the capitalists are whining about the poor guy whose been elected to clean up the mess.

He's got two options. Do nothing and let America heal itself over a decade via depression, or monetize the debt (since no other country can afford to buy all our bonds) and give the country a catalyst to get it going again soon. The catalyst will need to be paid back, but it will be far easier and faster to do that with an economy that is moving again.

Why a Psychological Bottom Will Lag Any Real Recovery

PrudentMan, you say the SS Admin is a 'Ponzi' scheme, and it is, but it has nothing to do with the body of your comment. It's a Ponzi scheme because the money coming out to recipients is being funded by the money coming in from contributors. The biggest Ponzi scheme in the history of the world, indeed.

You seem to be complaining about how you could be receiving $8000 per month if you had invested your contributions, rather than what, about $1500 per month now under SS. I am sure your $8000 is a good estimate since you are a CFA. But Social Security was set up so that those who don't contribute as much as you (and other higher income folks) can receive enough in retirement to eek out a marginal existence. That's not the Ponzi part, that's the socialist part, and I see nothing wrong with it. I prefer not to have my ancient parents living with me as I go thru middle age. Not only that, but hindsight is always perfect, and if the next twenty years is anything like the last two, we'll all be happy to have a modest, but steady Social Security income in old age.

The January Effect Explained

What I'd really like to see is another dimension: prior year where market gained, prior year where market dropped <=5%, prior year where market dropped > 5%. I would expect the January effect to be larger in the latter category, and weakest in the first category. Michael, would this be possible for you to compute? Thanks for the article.

Expect the Real Rally by Mid-2009

Markets will start a massive bull run in mid December 2008. Bears don't last more than about 18 months and we've had one since July 2007. And December is a month during which major up thrusts in the market begin. Never underestimate the ability of the Fed to stimulate credit, witness the bail outs of FRE, FNM, BS, and soon LEH. This stuff is very, very inflationary and the result will be a huge decline in the US dollar and a huge rise in the general US stock markets. It will look like a bull to US investors, but like a sideways move to the rest of the world (in their currencies). Gold stocks will also boom, as will energy and other commoditiy based equities. December of 2008, buy or lose your purchasing power. But not until then.