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Is this it?

Recs

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November 15, 2012 – Comments (6)

Every recession in my lifetime has been quickly followed by an improved economy with the Dow climbing to new record heights. I got to the point were I said “why does everyone sell their stocks when they know next year it will bounce back?”

I wondered what it was that made Wall Street so nervous in the first place. I suppose it was the fear that we may have another melt down like in 1929 and the 10 years that followed.

The Great Depression is worse than what we are going through but what is the difference? They had the roaring 20’s and a tremendous building boom. What followed were a building boom bust, and a stock Market crash.

During that time, there was no FDIC, unemployment or welfare. The banks were not bailed out before collapse. To make things even worse they had natural disasters like the dust bowl. And keep in mind this was all on only a 10% drop in the GDP.

The government was slow to try to stimulate the economy. They did mortgage relief and aid, even 0% interest rates, but they cut government jobs and spending to do it. It wasn’t until WWII that they freely spent money and that was what ended the depression.

So although we may not be eating crickets and sage brush for dinner, the finical cycle is similar; Boom and Bust, Government cutting jobs to pay to make jobs, people and business not borrowing, low interest rates, business downsizing instead of growing and even a few natural and man made disasters.

Right now there are a good percentage of small business that are down 50% to 75% over the last  4 years. You don’t here about them but were do you think all the unemployment is coming from? You only hear about the publicly traded companies with so much money they can sell at a loss and show it as a profit.

Things are going to stabilize and either improves or we may just get use to it.

This recession is the one that we feared during all other recessions.

We may have already recovered and are just trying to compare it to the boom time.

6 Comments – Post Your Own

#1) On November 15, 2012 at 7:09 PM, awallejr (83.82) wrote:

Well if we all knew the future what fun would life be?  Panic happens.  And with HFTs being run by algorithmics swings happen fast which can further feed panic.

Personally I suspect the recent pullback has more to do with a needed correction as well as people taking profits now since who knows what the tax rates will be.  In 30 days things should start to trade up, assuming  Washington works for the people.

Personally I have been adding.  I am happy to add to a position that yielded 8% when it is now yielding 10%.

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#2) On November 15, 2012 at 7:15 PM, chk999 (99.97) wrote:

Two different kinds of recessions. The normal kind is caused by high interest rates and thing recover pretty quickly when interest rates drop. 

We're in the other kind of recession, a balance sheet driven recession. They happen when everyone has borrowed too much money and must pay off debt after the economy crashes. You get one big one of these a life time and this one is ours. It will resolve as people repair their balance sheets, but it is going to take years more. 

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#3) On November 15, 2012 at 11:48 PM, amassafortune (29.51) wrote:

Government spending is masking the depth and breadth of this recession. Government and Fed intervention worked pretty good in more typical recessions like those of 1991-92 and the dotcom bubble burst of 2001. This time, we are in the real test of a theory perpetuated due to the lack of a full-blown, live test since about 1936.

One problem may be that this Keynesian solution was picked piecemeal from the a la carte J.M.K. economic menu. So, instead of saving for a rainy day and using those funds to replace lost private sector demand during a recession as Keynes intended, the U.S. racked up debt during prosperous years, then borrowed even more when the need to tap the non-existent rainy day fund appeared. 

The resulting debt, still growing by about $277 per man, woman, and child each month ($86 billion/310,000,000), would require about $360 before taxes of monthly earnings per man, woman, and child to pay off during a very extended recovery period. 

We've all heard the platitudes used to dismiss this simple math.

"Deficits don't matter"

"It's money we owe ourselves"

"It isn't debt, it's liquidity injected until the recovery takes hold, at which time it will simply be drained back out. It's all balanced because Treasury issues match the printed (digitally created) money issued by the Fed." 

In another ten years, we'll know where the truth lies, but if the theoretical solution to the 10-yr Great Depression is a serious malaise that lasts almost as long, why not just let the full dose of corrective pain hit and be done with it?

The recent top was in 2007. With 2013 almost surely looking like 2012, we are entering year six of the "Keynesian" solution. 

Bernanke is now saying it's up to the private sector to start spending - the Fed has done all it's proper preparation, injections, stimulations, and bailouts to make the recovery possible. Even if this does last a full ten years, he'll never admit he was wrong.

Meantime, just today, the postal service revealed it needs $16 billion more, and Freddie Mac is going to blame some of its continuing struggles on Sandy.

Can we just cut Saturday mail delivery already and start moving toward neighborhood cluster boxes? Can toxic, underwater real estate start showing up in public auctions to clear out inventory?

For anyone who has not caught the approx one hour Ron Paul congressional farewell speech, please do. He outlines our situation in a way that it would not otherwise be presented by relying solely on the top commercial financial outlets.

His personal prediction for a 'grand bargain' to solve the fiscal cliff is "zero". Even if a deal is struck, it will be a deal, but not a solution.

China has been boosting gold reserves significantly lately. A partially-gold-backed Yuan could make serious inroads into the international trading arena. That is not good for the U.S. dollar and another reason not to let it get any weaker.

Remember when we had to bail out the largest banks rather than let them sort things out in the established process that still applies to the 8,000 solvent banks in the U.S.? At one point, it was even argued that we had to keep the big banks big so the U.S. would not be shut out of large, international deals like Dubai.

How many Americans understand that re-instituting mark-to-market rules would make several of the largest banks immediately insolvent again? If we all used the price of our homes in 2007 as collateral for loans today, do you think we'd be closer to a solid, lasting recovery?  Of course not. That would just be reintroducing the fraud that helped get us into this mess five years ago. 

This time is not different, but let's hope, in our attempt to avoid another Great Depression, we don't end up resembling modern Greece, and especially not Ancient Rome.     

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#4) On November 16, 2012 at 1:02 AM, awallejr (83.82) wrote:

I don't think the US is anywhere near that of Greece or Ancient Rome.  If we were why is the world still rushing to buy our bonds any time there is a hint of chaos?  So far no one has cared about S&P's downgrade.  And they shouldn't.  Afterall that same agency gave great ratings to crap MBSs.

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#5) On November 16, 2012 at 2:44 PM, miteycasey (31.24) wrote:

I think Rome and Japan are great case studies for the future of the USA.

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#6) On November 16, 2012 at 4:38 PM, JakilaTheHun (99.93) wrote:

I'd disagree that the Federal government was slow to respond to the Great Depression.  Hoover responded with a lot of government programs, tariffs, and tax increases that exacerbated the crisis dramatically. 

Think about that response:  he essentially downsized the private sector (tax increases and starving it of capital), increased the size of government (which is typically much more inefficient than the private sector), and destroyed exports (via tariffs that provoked responses from Europe). Naturally, it didn't work.

The same thing is happening here.  Instead of stabilizing things and then letting them play out, Obama dramatically increased the size of the Federal government with a poorly thought out healthcare overhaul (Obamacare), a knee-jerk financial reform bill (Dodd-Frank, and a pork-loaded stimulus bill. 

Obamacare is killing jobs and create more inefficiency.  Dodd-Frank is doing the same and constricting lending.  The stimulus bill essentially took money out of the private sector and redistributed towards extremely wasteful projects.   The net affect of all of these policies is significant job destruction. 

The only difference is that we're no longer on the gold standard.  The gold standard created artificially tight monetary policy during the Great Depression.  This has prevented the sort of deflationary spiral in the Great Depression, but it also creates an environment more ripe for stagflation.  So maybe we never see 25% unemployment, but we 10% (real) unemployment with 4% inflation is not an impossibility. 

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