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Posted by:Robert Reed '82 (Robert Reed '82 )

Company/Organization:Open Space Movement
Date posted: Mon Jun 25 15:34:45 2001
Subject: Recession??
Message:
New data has caused people to rethink where our economy is going. Many people are starting to think again that we are in recession. Just think: in 1997 to 1999, I don't think most people could've pictured our current economic troubles. Nasdaq is still falling, while the Dow is continuing its fall again. If we continued the trends at the end of the 1990s, one would think that the Dow would be up to 19,000, with Nasdaq approaching 10,000.
http://news.ft.com/ft/gx.cgi/ftc?pag...AAOC&live=true

http://news.ft.com/ft/gx.cgi/ftc?pag...&subheading=US

http://www.newaus.com.au/econ255usrecess.html

Posted by: Robert
Date posted: Mon Jun 25 21:16:21 2001
Subject: Recession or Depression?
Message:
One of the most sinister aspects of what is going on is it's slow motion sort of quality. Green$pan cuts interest rates, everyone feels better for a few weeks and then the economy continues its downward creep. Everyone expected a recovery in the second quarter but that didn't materialize. Now everyone is hoping for recovery in the second half.

I wouldn't doubt that another rate cut is in the works for this FOMC meeting but will it do any good? Japan has cut rates to zero and they are still in a recession if not depression. The only thing holding them up is us. If our economy goes down the tubes we will drag Asia and Europe with us. We could be in for a 30's style depression. As the unemployment numbers continue to go up watch for some political turmoil.

Posted by:Robert Reed '82 (Robert Reed '82 )

Company/Organization:Open Space Movement
Date posted: Tue Jun 26 10:26:54 2001
Subject: Great Depression II
Message:
http://www.larouchepub.com/lar/2001/2825_greenspin.html
To me, one of the major questions is, "Is this the big one?" Or is this just an ordinary recession that means nothing? Is this a 3T recession, or a 4T depression? From the new info, this is starting to look more like a depression than a recession. Maybe not as deep as the 1930s depression, but with hard economic times nonetheless.

Another important aspect is the $1.3 trillion tax cut. How will this affect the economy? Will it make a difference? Probably not. For the economy to run, people have to buy services. If only the rich get tax cuts, it won't make a difference because the consumers will not have more capital to buy from the rich.

The gas prices have lowered significantly, so we seem safe in that area for now.

Posted by: Robert
Date posted: Tue Jun 26 12:33:38 2001
Subject: Tax Cut
Message:
The tax cut will make absolutely no difference. As financial newsletter writer Steve Puetz says the tax cut is "value neutral". It makes no difference if the Government spends the money or if the Taxpayer spends the money. It gets spent either way. The same is true of the paydown in government debt in recent years. The government got a windfall in larger than normal tax reciepts from people buying and selling in the stock market bubble. The stock market bubble was created with money that was borrowed in the private sector. Basically all it was was an elaborate way to transfer debt from the Public Sector to the Private Sector. In the end however it doesn't make any difference who borrowed all that money (Total Aggregate Debt is now 28 Trillion dollars)we are all on the hook for that debt and we will all suffer when it is defaulted on.

Posted by:Robert Reed '82 (Robert Reed '82 )

Company/Organization:Open Space Movement
Date posted: Wed Jun 27 12:44:55 2001
Subject: Interest Rates
Message:
Yeah, I noticed today that even though Greenspan lower interest rates by 1/4th of a point, the stock markets are still down.

Posted by: Virgil K. Saari
Date posted: Thu Jun 28 7:40:13 2001
Subject: Japanese Disease
Message:
Mr. James Fallows and Mr. Alex Kerr are having a dialogue about Japan's economy and its environment (slathering all with concrete) in Fellows@Large in Atlantic Unbound.

Mr. Kerr's 2nd reply shows doubts about a way out for the Japanese who have seen "reform" come and go. They were taught to save and "invest" and still persist in doing both when consumption is called for; I post "invest" in that the purpose was to increase employment and stabilize society rather than return interest on money lent.
That they are different then us in these global days is hard to believe but it semms that it is so. HTH

Posted by: Robert
Date posted: Thu Jun 28 14:04:10 2001
Subject: Al's Ambivalence
Message:
Yes, Al (The Pal) Green$pan dropped rates a conservative (ha!, ha!, ha!, ha!, ha!) 1/4 point yesterday and the gamblers and touts on Wall Street didn't like it. Half a point or nothing pal! When will people realize that lower interest rates will make things worse not better? (More Debt!) You mention Japan. Japan has dropped rates to zero with absolutely zero effect. The United State's present inflation rate is 3.6%. Al dropped interest rates to 3.75%. At this rate there is no point in making a loan. Including accounting costs on the loan you won't make any money (3.75% - 3.6% = .15% not hardly worth the effort). If what is desired is to continue the Bubble what both Japan and Al need to do is RAISE interest rates to give people a reason to lend.

Today the markets are up on the Microsoft news. As if that was what caused the bubble to deflate to begin with. The IT business was part of the bubble, NOT the solution to our problems. Letting Bill Gates off the hook will make no difference.
There isn't much doubt we are in a recession despite what the government statistics say. The only real question in my mind is this The Big One. Is this a 30's syle depression? After the market crashed back in '29 it was really 1933 before we knew we we were in trouble. Howe and Strauss's date of 2005 for the beginning of the Fourth Turning looks more and more probable.

Posted by: Robert
Date posted: Fri Jun 29 21:30:03 2001
Subject: Al's Dilemma
Message:
I like to bad-mouth Al Green$pan on this site all the time but actually I feel sorry for him. This horrendous mess we're in isn't really his fault. It's actually everyone's fault. If he didn't play ball in creating and supporting this Bubble the powers that be would simply have kicked him out and put someone else in as Fed Chairman who would have cooperated. This is not to say Al is just a dumb shill. He knows very well what a mess we're in, after all he used to be a Gold Bug before he went Big Time.(Anyone who used to hang out with Ayn Rand and discuss Big Thinks with her couldn't be too unbright.)

Al's problem is he doesn't want the Stock Market to go up but neither does he want it to go down. What he really wants is for all these +)&! people to be happy with all the money they've made in the last twenty years and just let it go at that. He wants the markets to go sideways. Unfortunately overpriced markets don't go sideways. The internal dynamics of an overpriced market pretty much demand that they continue to inflate or else they deflate (bad). If I were him I don't know what I'd do. I have a feeling before too long the names Al Greenspan and John Law are going to be synonymous.

July 4th should be declared a day of mourning. The country was started in 1776 with the highest ideals and look at what has happened. We began as a Libertarian Republic and in the intervening years we have devolved into a Socialist Democracy.

Actually things were all right up until 1913. That's when the Federal Reserve was formed. The original idea behind the Federal Reserve was that it would (ha!, ha!, ha!, ha!, ha!) preserve the value of the Dollar. Since a Dollar is now worth about what a penny was worth then they haven't been too successful. The worst thing the Fed did (then as now) was create a huge Stock Market Bubble in the 20's which burst precipitating the Great Depression. The average person was so dumb they thought Capitalism had somehow failed. Of course it wasn't Capitalism which had failed. What had failed was our first fumbling attempts at Socialism. What was the solution? Of course! More Socialism! Roosevelt was elected and the New Deal "reforms" were instituted which were nothing more than Socialism very thinly disguised.

When THIS Stock Market Bubble collapses and the Greater Depression begins the same dumb average citizens will scream at their elected officials to "do something!" and of course they will respond with MORE Socialism.

We live in a Socialist country now, more socialism will result in Communism and I fully expect the USA of the 2050's to resemble the USSR of the 1950's complete with gulags and secret police. Read the newspapers, we are pretty much there already.

When THIS Stock Market Bubble collapses and the Greater Depression begins the same dumb average citizens will scream at their elected officials to "do something!" and of course they will respond with MORE Socialism.

Do you think that democracy is responsible for allowing "dumb average citizens" to wield such power via elected officials? Do you think we should start restricting voting only to those who are smart and not-average?

No, I don't think we should restrict who can vote. On the other hand we need to recognize an inherent fault in democracy which is the majority can always vote themselves more "bread and circuses". There is no solution to the problem other than hard experience and believe me the hard experiences are just beginning. When the Stock Bubble collapses and the "Greater Depression" (Doug Casey's term) begins we will all find out the reality of our folly the hard way.

How exactly would a depression convince the masses of what you believe to be is true? It is perhaps not wholly obvious to most of the voting population that the government is the problem. One would need a charismatic and convincing leader to swing the people. I think that the people, taken as a whole, do not think on large-USA-levels. That is, all politics is local. I think what would be important is a leader to convince the people, not for the people to figure out things for themselves.

Precisely! You understand what I'm talking about! We agree completely. The average Joe Blow is out for himself and doesn't care about the long run. Hundreds of millions of average Joes in this country have abused our financial system to its limits with the approval and collusion of the government. It's organized crime on a grand scale (Tony Soprano could only dream about a score this big). They've borrowed 28 Trillion dollars with absolutely NO intention of paying it back. When the bubble bursts and the depression begins a very small number will realize what has happened but most WON'T. They'll be looking for someone (anyone but themselves) to blame. The time will be right for your strong leader (someone like Roosevelt or Hitler or Stalin) to come along and "do something".

You might like what Mr. Kunslter says about our credit situation.

Quotes from him:

I see several major trends / events / stories that are apt to severely affect "normal" American life in the years ahead. One is the financial mess that lies under the immense and rickety credit structure that two decades of relative world stability has allowed us to erect. I saw the whole gruesome picture in microcosm illustrated in four commercials that played during a half-hour segment of CNN when I was visiting Atlanta to write a chapter for my next book. First commercial was for the DiTech "125 percent Dream Loan." People could finance a new house plus get a premium amounting to 25 percent of the mortgage, and use the extra money to buy furniture, or a bass boat, or go to Vegas and play the slots, if that's what they liked. The second commercial was for a debt consolidation service. The third was for bankruptcy lawyers. And the fourth was for a local bail bondsman "because bad things even happen to good people."

...

My sense is that this will lead shortly to a fiesta of default and repossession such as the world has never seen before. The most ominous sign lately is the huge increase in home equity loans in a real estate market that had been inflating wildly and is now leveling off and even deflating in some places such as the San Francisco Bay Area. (DiTech, by the way, has moved aggressively into this home equity loan market, too.) The bottom line is that enormous numbers of people have been induced to trade in the equity value of their houses for lump sums of cash, while the market Value of their houses is poised to plummet. We can assume that some of them are already in trouble with credit card debt. Connect the dots.

Read the whole thing here:

http://www.kunstler.com/mags_ure.htm

_________________
All thigns are fleeting in this transitory world; let me escape its illusions and vanities. (I know it sounds Boomerish, so there.)

<font size=-1>[ This Message was edited by: Chris Loyd '82 on 2001-07-05 21:04 ]</font>

<font size=-1>[ This Message was edited by: Chris Loyd '82 on 2001-07-05 21:05 ]</font>

Subject: Deflation
There are four (4) main balloons (or bubbles) in the American economy. The three asset ballons are the Consumer Price Index/Gross Domestic Product ballon which is inflated to 10 Trillion dollars. The second asset balloon is the Real Estate balloon which is inflated to 11 Trillion dollars. The third asset balloon is the Stock Market balloon which at its peak was inflated to 20.3 Trillion dollars but has recently deflated to about 15 Trillion dollars. The three asset balloons on the right hand of the "T" account are counter balanced on the left hand side by 28 Trillion dollars in the Debt ballon. (I know 28 Trillion on the left hand side does not equal 41.3 or rather 36 Trillion on the right hand side of the T account but that is due to the laws of supply and demand. Too much debt has been issued and this has depressed the value of the Debt balloon and the borrowed money has been used to pump up the value of the three asset balloons.)

So we have had considerable deflation. After the Stock Market balloon deflates the next balloon to go will be the Real Estate Balloon.

[Robert] They've borrowed 28 Trillion dollars with absolutely NO intention of paying it back.

[Mike] The government has paid down debt during this boom so why do you fault it? Heck the Fed chairman warned against irrational exuberance back before the bubble got inflated. He was ignored. Had he tried to limit speculation (say by raising margin rquirements) he would have been roundly condemned for interfering in the market, which, after all, knows best.

It's been businesses, especially finanical businesses, that have rung up the largest debt totals. Nobody put a gun to investors heads when they gave/lent billions to dotcoms and telecoms companies (so the Tony Soprano analogy is not a good one). There was no government coercion, investors quite willingly threw their money away. Indeed, they did so with reckless abandon, they were GLAD to be rid of the stuff, as they exclaimed "cash is trash".

People behaved in this way because they were responding to market signals. Thousands of their friends and neighbors had gotten rich riding the market up. The rising tech stock prices indicated that investments made in tech companies would be profitable. It turns out they were not--the market gave a false signal. The bubble was not a failure of government, but a failure of the stock market to properly allocate capital.

What people will learn is that markets do not *always* perform better than any other allocation mechanism, nor are markets always efficient.

Perhaps it is just my gluteus maximus speaking, but i was under the impression that much of the reason for the excessive debt is because it is partly subsidized by the movements of the Fed, which "sells it" and creates money out of thin air. For example, why did all the dotcoms become dotbombs? The Fed, in fear of a massive y2k run on the banks, vastly expanded the money supply. Then it began to tighten the money supply early in 2000, when said run on the banks never transpired. Then the boom went bust. The spending spree and accompanying inventory accumulation went away.


Thus, i don't know if you can blame corporations for all our problems. Some of them might just (gasp) have to be due to the problems inherhent in a centrally planned economy, a system set up by government.

Subject: Delusional Thinking

Delusional thinking seems to proliferate during an Unraveling. One thing that some people are deluded about are "markets". There has been so much ballyhoo about "free markets" in the last 20 years most people actually believe we operate in a free market.

Of course, nothing could be further from the truth. We don't have free markets especially when it comes to setting interest rates. The Federal Reserve exists to hold down interest rates in order to stimulate the economy and imbue the electorate with a false sense of prosperity at election time. Of course Business and the private investor cannot be blamed for borrowing vast amounts of money and dumping it into non-performing assets. The people who are supposed to be regulating the market for money are not on the job.

Back in the 19th Century when we were using gold and silver as money a simple mechanism existed to prevent over borrowing. As people borrowed the gold and silver money from the banks and as the gold and silver became more scarce the cost of borrowing, the "interest rate" would go up. Thus there was a self regulating mechanism and we did indeed have "free markets".

Now the Federal Reserve gins up any fantastic amount of money it wants and dumps it on the financial system to ensure "liquidity". Thus there is never any penalty for malinvestment. There is never any reality check. At the last extremity, if there is a financial crisis, the US Treasury has promised (some of us would say "threatened") to print greenbacks to ensure liquidity. The whole system is perverse and almost guarantees that when the crisis comes it will be so overwhelming even the government will not be able to stop it.

Having said all that I still wonder if this is IT, is this The Big One? Or is this just our regular once a decade Recession? Will this Recession segue into a Depression or will we have a few years of stagflation and the economy will roar back in a few years?

Subject: International Monetary Fund

Despite the rally in the stock market today there was some negative news. The International Monetary Fund said today the largest threat to the world economy was continued deterioration in the US Stock Market and a possible future dollar crisis.

Also Argentina is on the verge of debt default. Argentina's debt is about twice what Russia's was a few years ago when it defaulted. Remember all heck broke loose when Russia defaulted.

Bear in mind that the 30's depression was kicked off by the failure of Anstalt Bank in Germany.

[Robert] Of course Business and the private investor cannot be blamed for borrowing vast amounts of money and dumping it into non-performing assets.

[Mike] Of course they can be blamed. Where was the fiduciary responsibility? Surely you were aware that the stock market was in a bubble in late 1999 and early 2000. It's not like it was a secret. In fact, it was pretty obvious and widely acknowledged. Most traders figured they would cash out at the top. But *everybody* can't cash out at the top, who will buy it from them?

Malinvestment is a hallmark of Kondratiev fall. It's what brings about the transition from fall to winter. It happened under the gold standard too. It's a form of market failure that is caused by lack of perfect knowledge about the future.

Subject: The Crowd

I'll let the redoubtable Dr. Richebacher answer this one for me:

"All of a sudden, Mr. Greenspan bristles with intellectual modesty, finding it apparently inconcievable that he might know better than the crowd in the markets. If you think it over, this really is an unbelievable statement from a central banker, in this case from the head of the world's leading central bank.

It hardly needs pointing out that market participants and central banks do, essentially, have entirely different perspectives and objectives. Investors and speculators legitimately look at the markets with one single target in their mind: to make as much money as possible. Most of them neither care, nor are they obliged to care, whether or not the booming market is driven by sound fundamentals or by a "credit bubble." For that, the responsibility lies exclusively with the central bank. Actually, investors and speculators are heavily guided by the actions and signals on the part of the central bank."

The Washington Post had this article that should be of interest to anyone here. I am reprinting it for educational purposes only.

Ignoring the Perfect Storm Warnings

By David Ignatius
Sunday, July 15, 2001; Page B07

The global economy these days bears an eerie resemblance to that scene in "The Perfect Storm" where the meteorologists are looking at the swirling images at disparate points on the map. Yikes, they tell themselves, if all this bad weather comes together, it's going to be one hell of a blow.

Perhaps we will be lucky, we mariners of the global economy. Perhaps the tempests brewing over Argentina, Japan, Europe and the United States will lose their force and gradually dissipate -- and the sun will break through the clouds and calm will return to the financial seas.

But perhaps not, and that's what is worrying some of the wisest heads on Wall Street. They see the possibility that the different bits of bad news might converge in an economic version of the Perfect Storm. What perturbs them, too, is that the captains of the fleet -- the people responsible for economic policy in the United States, Europe and Japan -- seem to be ignoring the danger signs and actually taking steps that could make the crisis worse, if it comes.

Recall the cocky manner of Billy Tyne, the captain of the Andrea Gail (played by George Clooney in the movie), bravely but foolishly steering his swordfishing boat straight into the eye of the hurricane -- little imagining that he would soon encounter waves 10 stories high.

Alas, that's the image I have in the back of my mind when I think of President George W. Bush, Japanese Prime Minister Junichiro Koizumi and German Chancellor Gerhard Schroeder sailing off to the Group of Eight summit that opens Friday in Genoa, Italy. With their confident talk of austerity measures and nonintervention, these global leaders don't seem to have a clue about what could lie ahead.

Each of the storm centers, viewed separately, looks manageable enough. Let's start with Argentina, the latest example of the financial contagion that swept Asia in 1997 and pounded Russia in 1998.

Because of fears that Argentina might eventually have to default on its $130 billion in government debt, the country's stock and bond markets were in near panic last week. The jitters quickly spread to neighboring Brazil -- and emerging markets around the world. The result was a rush to dump any stocks and bonds that looked risky, from Poland to the Philippines.

Then there's the storm over Japan. The good news there is that Koizumi's government is serious about fixing Japan's decade-long economic crisis. The bad news is that in the short run, his austerity measures will make things worse. Koizumi's own aides are already warning that unemployment is likely to increase to over 6 percent soon.

Europe's strategy for dealing with the gathering economic storm is to ignore it. The latest evidence was Thursday's statement by Schroeder dismissing the need for tax breaks or other stimulus to boost the slumping German economy. "We are holding firm to the austerity course," Schroeder said.

What is this man thinking? The German economy is weakening fast, with Berlin's leading forecasters slashing their growth forecast to just 1 percent this year. The slowdown in Europe's largest economy is already sapping the rest of the continent. This is a time to be cutting taxes and interest rates.

Also sleepwalking through the storm is the European Central Bank, which somehow believes that in the midst of a global asset deflation, the biggest economic threat is inflation. If they gave a "Herbert Hoover Award" for policies that could unintentionally turn a slowdown into a depression, my nominee would be the bank's president, Wim Duisenberg. At a time when Europe badly needs the stimulus of interest-rate cuts, Duisenberg's steady-as-you-go policy seems almost delusionary.

And finally, there is the storm over the United States. This is the trickiest one to chart: One day the clouds look dark as night, the next they are pierced by rays of sunshine. But this obviously isn't the same booming economy that kept the rest of the world afloat during the economic crises of 1997 and '98.

What's scary, amid all the global storm warnings, is the sense that there's nobody home in the Bush administration. International economic policy is one area where they should have been happy simply to emulate the Clinton administration. Instead they decided to throw Clinton policies overboard. Their own policies remain something of a mystery.

Is the Bush administration ready to help steer the global economy through the choppy water? Does it support the International Monetary Fund's efforts to help contain the current crisis in emerging markets? It's hard to be sure -- or even to know who's really running international economic policy. Is it the loquacious Treasury secretary, Paul O'Neill, or the conservative White House economic czar, Lawrence Lindsey?

A global Perfect Storm remains unlikely -- a hypothetical threat rather than an imminent one. But I'd feel a lot better if the captains up on deck showed they were aware of the dangers and took steps to prepare for the worst, even as they hope for the best.

Thanks for the article, Jenny.

I have another article that might be of revelance to you guys.

<iframe src="http://www.commondreams.org/views01/0715-02.htm" width="100%" height="40%">
Global Recession and G8</iframe>

Subject: Recession or Depression?

There is very little doubt the US is in a recession. But so what? The US economy enters recession every 10.4 years come what may (1990, 1981, 1974, 1960 and so on).

The real question is, is this the beginning of a 30's style depression (and thus a beginning to the Fourth Turning)?

The market fell again today. Some chip makers warned they didn't see an upturn until the second quarter of 2002. Just a few weeks ago everyone was saying the recovery would be in second quarter 2001. The Japanese Index is down 200 points tonight as I speak.

There just isn't any good news. Argentina looks like a default. Mr. G doesn't have any running room after all those rate cuts of his. Remember several years ago when Russia defaulted Al had to cut rates immediately. He (and thus we) don't have that luxury any more. Richebacher's newsletter came today and it was totally pessimistic (but then again it always is).

Back in '29 it took about 3 years until mid-1933 before everyone was sure we were in trouble. It will probably be several years before we know if this is just our usual decannual recession or something worse.