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alstry (35.36)

A very important blog

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December 14, 2008 – Comments (4)

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=119326&t=01005426383371718720

nuf2 did a blog this evening that expressly or impliedly touches on the key issues we face.  To extrapolate the consequences is to understand how severe the crisis ahead we face.

The factors we are dealing with  in no way resembles the issues leading up to The Great Depression.  As a matter of fact, in many ways, they are the polar opposite so the remedies being applied are actually making the problems much worse.

In the Twenties, most of our citizens had relatively little debt.  Down payments on houses were 30% or more.  Mortgage amortizations were often under ten years.  Consumer Credit was relatively non existent compared to today.  Extended families lived together allowing for a much lower cost lifestyle.  Our industries were growing with the invention of the automobile and other important products.  Without too much analysis, one could reasonably compare America pre Depression to India and China today.

But something happened between then and now......and not just in America.  The consumer started to borrow.  Cities and States borrowed more and more.  The economy became dependant on borrowing to create money, create jobs, and create sales.   Few realize just how dependant.  Once more realize, more will understand Alstry.

4 Comments – Post Your Own

#1) On December 14, 2008 at 3:42 AM, Mary953 (71.56) wrote:

A very lucid response to the problem outlined.

I saw the people.  You saw the deeper socioeconomic trends.

Our entire way of life is floating on a soap bubble of debt and we are drifting toward a large pin.  Not Armageddon, but a very bumpy ride. 

And no seat belts

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#2) On December 14, 2008 at 8:21 AM, alstry (35.36) wrote:

In the end, it is only about people.

We forget at some level we all depend on each other.  In today's measure, we are rich because there are others to hand us their money.  If too few have everything, we all have little as the state also needs nourishment to exist.

At the current rate, it will not be too much longer  before we shrink to the point where the effects will be felt by all.

(MarketWatch) - Banco Santander of Spain plans to cut 1,900 jobs in 2009 as it absorbs two acquisitions made this year, the bank said.The cuts total 8% of the 23,000 jobs at its British business, which includes Abbey National plus the acquired Alliance & Leicester and the savings business of Bradford & Bingley. Report this comment
#3) On December 14, 2008 at 9:08 AM, alstry (35.36) wrote:

(MarketWatch) -- Kongsberg Automotive Holding ASA, the Kongsberg, Norway, provider of parts and systems for automotive and other applications, said that this summer it would close two U.S. plants, move the production to Mexico, and cut 205 jobs.

(MarketWatch) -- International Paper Co. said late Friday that it will cut 1,000 to 1,500 jobs worldwide by the end of 2009, according to a filing with the Securities and Exchange Commission.

If we keep cutting jobs, pretty soon few will have an income to support the economy.  You can only cut so far with a cancer patient before the treatment begins to supercede the disease in harm no matter how extensive the cancer has metasticized.

When credit replaces productivity for the creation of currency, you better pay close attention when credit starts to evaporate.

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#4) On December 14, 2008 at 10:09 PM, gman444 (28.79) wrote:

Alstry:  It does seem certain that if things continue on this pace it will lead us to the next Great Depression.  However, at some point, with the unprecendented liquidity pumped into the system worldwide, inflation seems inevitable.  And I think this must be the hope of many---inflate the debt lower, inflate the markets up, etc.  But this is just a delaying tactic.  If their is hyperinflation, then there will inevitably be deflation again, more ruinous than the current state of affairs.   The question in my mind is when does the inflation start, and how badly do we deflate before it does?

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