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alstry (36.18)

Silly Soros-Tricks are for kids

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May 29, 2008 – Comments (8)

 "I think this is probably more serious than anything in our lifetime," he says. In short, his feeling is that the United States and Britain are facing a recession of a scale greater than the early-1990s, greater even than the 1970s.

"I think the dislocations will be greater because you also have the implications of the house price decline, which you didn't have in the 1970s - so you had stagflation and transfer of purchasing power to the oil producing countries, but here you also have the housing crisis in addition to that."

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=A1YourView&xml=/money/2008/05/26/ccsoros126.xml

Mr. Soros failed to mention that salaries increased in the 70s and the debt burden on the average family was much much much lower.

The 19,000 domestic voluntary departures come two years after 34,410 hourly workers left. Although GM kept the door open to possibly replacing those employees with newer personnel paid at lower wage rates, those jobs were not filled.

http://www.marketwatch.com/news/story/gm-says-19000-workers-take/story.aspx?guid=%7B8C7B6953%2D477A%2D4044%2DA9DF%2DD82B1B841A45%7D

What is going on right now is nothing short of incredible.  I am talking to truckers, carpenters, airline workers, roofers, lawyers, real estate agents/mortgage brokers......few are making what they earned just a few years ago.

Never in our nations history have we had such pervasive wage declines in so many industries.........couple that with unprecedented debt increases and food and fuel inflation...................we have the components for the perfect storm.

Looks like the FDIC is starting to feel the effects:"This is a worrisome trend. It's the kind of thing that gives regulators heartburn."
FDIC Chairman Sheila C. Bair, May 29, 2008 on the eroding coverage ratio.

Banks in trouble, wages falling, prices rising, debt defaulting, vacancies increasing, sales decreasing......productivity shipped overseas.........you think Mr. Soros is trying to take it easy on us????

8 Comments – Post Your Own

#1) On May 29, 2008 at 6:19 PM, alstry (36.18) wrote:

MUCH WORSE THAN THE GREAT DEPRESSION

Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression.

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#2) On May 29, 2008 at 7:23 PM, mandrake66 (79.99) wrote:

Yes, but the house price decline in the Depression didn't follow a speculative bubble in home prices. The 10.5% drop in 1932 was probably off of already depressed prices, and so was much worse than anything we've seen yet. We'd need to drop a lot farther just to get down to the point that they were starting at.

This only shows how inflated house prices became over the last few years.

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#3) On May 29, 2008 at 7:36 PM, alstry (36.18) wrote:

There are a lot of issues which may make this whole mess much worse than The Great Depression.

1.  In 1929 we were a growing economy with growing productive industries...ie Auto.

2.  Now we are a service economy servicing each other directly or indirectly dependent on others being able to borrow money to pay us.

3.  People used to put 1/3 down on eight year mortgages in the Twenties.

4.  Relative individual debt levels were much lower leading up to The Great Depression.

It's basically this, we were borrowing about 10% of GDP for about 7 years building up a new debt level of about 70% of GDP.  Initially we were using income to service early debt.  Then we were using part of new credit to service old debt.  After building up enough debt, the banks are saying no more credit.

Now not only do many not have enough money to spend of food, clothing and shelter....they can't pay back their debt they spend years accumulating.

Now retailers are shutting down, airlines are shutting down or cutting staff, autos are shutting down or cutting production, construction shutting down or cutting back, municipalities cutting back.....all these cut backs leads to even more defaults as the snowball gets bigger and bigger.

 

 

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#4) On May 29, 2008 at 8:32 PM, FleaBagger (28.84) wrote:

alstry - I have written before (and more patient men than I have proved) that the Great Depression was originally a minor stock market correction that was repeatedly and increasingly exacerbated by horrifyingly bad government policy. It took one Hoover term and more than two FDR terms to make a 13-year depression that was so severe it was lethal. It was startlingly soon after FDR reversed many of his previous policies that the U.S. economy recovered, despite losing much human capital and wealth to World War 2.

If we are fortunate enough not to get that much "help" with our economy, we will not have anything like the Great Depression. However, if our government, in its wisdom, decides to fix the housing crisis, fix the credit crunch, and fix poverty again, we will probably again see such poverty that people die.

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#5) On May 29, 2008 at 8:33 PM, FleaBagger (28.84) wrote:

Incidentally, Soros favors a level of economic intervention that rivals (or dwarfs) that implemented by FDR at the depths of the GD.

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#6) On May 29, 2008 at 9:04 PM, alstry (36.18) wrote:

I understand how and why The Great Depression started and ended.  That is why I think the current situation will be much worse.

We are dealing with the difference between an illiquidity crisis versus a solvency crisis.  With an illiquidity crisis, value is there, just not money.  Wtih a solvency crisis, there is no value and no money.

Right now, most American municipalities are not generating enough revenues to cover expenses and debt service.

Many American individuals are in the same boat.  

Unlike during The Great Depression, we created an Economy that became dependant on the creation of credit.  Credit creation became part of the American economy.  Its importance grew year after year.  At the end, new credit was necessary to pay old debt.

As banks started tightening, without new credit, spending slowed, homes got foreclosed, business went bankrupt,... now cities are going bankrupt, more and more individuals and business are filing bankruptcy, home foreclosures keep rising.

We created a total of over $10 Trillion dollars of new debt in recent years.  How do you propose we service that debt without massive bankruptcies?.....especially in light of a slowing economy and rapidly rising commodity prices.

Remember, bankruptcies create even more bankrutpcies as creditors are dependant on debtors payments to meet their obligations. 

Get ready for massive bank failures.

 

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#7) On May 29, 2008 at 10:22 PM, MakeItSeven (32.50) wrote:

If the current debt goes down to the level in the middle of the Great Depression, then 100% of GDP, or about 13T will be wiped out.  If it goes down to a more "normal" level, then 20T will be wiped out.  The Fed has 800B to handle liquidity problem, half of that is already used to bail out the investment banks.

Not only that the percentage of debt owed to foreigners now tripled that in the 90's so Americans are no longer paying to themselves but are simply debtors who become poorer and poorer on the debt payment.

The Kondratieff wave expected the debt bubble to burst in 2000, at about the same level as in the Great Depression.  However, the Fed staved that off by blowing a much bigger bubble.

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#8) On May 30, 2008 at 12:22 AM, thisthatother47 (91.04) wrote:

So MakeitSeven notes the 800B (which is actually over half gone), and Fleabagger ponders if the powers-that-be will try anything stupid.

In response I give you exhibit A - a plan to now accept foriegn collateral...

http://www.marketwatch.com/news/story/fed-fed-might-accept-foreign/story.aspx?guid=%7BA2737127%2DB1AD%2D4E18%2D81C6%2D0ED1DF0AEC89%7D&dist=hplatest

 

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