Do you think we're in the next Great Depression? Y/N

[Ski_Banker]

Just a quick poll on where you think we are (or will be in the next, say, 3-6 months).

[jond]

I think the odds of this recession turning into a depression are greater than 50%. And that's not lip service, I'm storing food, water, etc. Seriously.

[Ski_Banker]

I think the odds of this recession turning into a depression are greater than 50%. And that's not lip service, I'm storing food, water, etc. Seriously.

Agreed. I think it's an inevitability, actually.

FWIW, I'm loading up on Smith & Wesson stock (and some smallcap security products firms).

It's not whether/not Obama is making good economic decisions (he is), has the right team in place (he does), recognizes the urgency of the matter (he does), is willing to throw "everything" at the problem (we are).

The problem is that just because we "want" to "solve" this economic problem with minimal pain, doesn't mean we -- the gov't -- even can.

[SWIFTVISION]

Normally I agree with you....but how you can think Obama is good for this country is a pretty stupid and sheepish statement.

[Ski_Banker]

Normally I agree with you....but how you can think Obama is good for this country is a pretty stupid and sheepish statement.

You may disagree with his politics, and like I, didn't vote for him. But so far, he has the right economic team in place and I've been impressed.

I'd rather this not be a political thread though.

[NSXrunner]

I voted no, but will say we are working on it. So if things don't improve in the next 12 months, then my answer will change to yes.

[CL65 Captain]

What I find interesting is companies that are laying off people when they are still profitable, reasoning that they are preparing for the the bad times to come. A self fulfilling prophecy - lay people off, people either have no income or are in fear of no income and do not spend - the economy gets worse. The companies realize the bad times they help foster and then lay off more because now they are having revenue problems - the economy gets worse.

Screw the small tax cuts - suspend FICA/Medicare contributions for a year. My biggest fear is deflation, followed by hyper inflation. Then you will have to buy a big ass SUV just to haul your cash to the store to buy stuff. I can see the White Castle drive through now - 4 cheeseburgers and fries, that will be $68.12.

[jond]

The problem is that just because we "want" to "solve" this economic problem with minimal pain, doesn't mean we -- the gov't -- even can.

I agree. I think it's a lot worse than people realize. All these bank failures started during GOOD times. We're going to have at least 4 more things feeding a spiral of more bank failures in my opinion.
1. People who lose their jobs who then can't afford their homes(this will be big).
2. People who have ARM mortgages that are going to come due in the next 1-2 years.
3. Business realestate failures
4. Credit card defaults

These 4 things will lead to more 2008 type bank failures, which will then result in more of 2008 type economics.


My main questions are:
- If we enter a full blown depression, will we have continous food and water?
- Should I buy back into the Dow around 6,000 or is that too high?
- Should I keep my other money in gold or cash(will the dollar collapse)?


.

[CL65 Captain]

I agree. I think it's a lot worse than people realize. All these bank failures started during GOOD times. We're going to have at least 4 more things feeding a spiral of more bank failures in my opinion.
1. People who lose their jobs who then can't afford their homes(this will be big).
2. People who have ARM mortgages that are going to come due in the next 1-2 years.
3. Business realestate failures
4. Credit card defaults

These 4 things will lead to more 2008 type bank failures, which will then result in more of 2008 type economics.


My main questions are:
- If we enter a full blown depression, will we have continous food and water?
- Should I buy back into the Dow around 6,000 or is that too high?
- Should I keep my other money in gold or cash(will the dollar collapse)?
.

Gold? You can't eat it, drink it or smoke it...

I'm putting all my money into physical tangible assets. Ammunition, beer, food, weed and a shit load of Peanut M&Ms - they should last me for at least 8-12 months.

[NSXAMG996TT]

I'm depressed just reading this thread. I must be in denial because I worked hard for my money, saved up to buy my home/cars/etc, and didn't buy extra homes when even the janitors could qualify for a $$million pad. People buying on margins, housewifes becoming overnight real estate agents, parents buying teens new bimmers, I could go on & on..... Whatever it is, I hope this nation learns from this over-indulgence and take responsibility for their own credit issues.

[Dtrigg]

Well, for what it's worth, I'll again be the odd man out. I do have concerns because this recession is not limited to the United States but is worldwide. But another Great Depression? I don't think so. There were too many lessons learned about economic theory and too many governmental measures available today that were not imagined during the Great Depression.

Will we have tough going in the next 12 to 18 months? You bet ya. Another Great Depression. Don't think so.

[ChopsJazz]

Intel just reported that they may lay off up to 5,000 people in the Bay Area. Depression? For the jobless it is.

[CL65 Captain]

OK, then how about this time around it's going to be a World Wide Great Depression.

Whatever it is, I hope this nation learns from this over-indulgence and take responsibility for their own credit issues.

Yea, right. How about the way out of this is going to be consumer spending. That means more over-indulgence, no responsibility, run up those credit cards spending. The key is going to be to trick those dumb people into thinking things are getting better and you will be making more money next year, so go ahead and buy that new car, that flat screen tv and that 32' boat that you don't need.

I'm telling you... suspend FICA/Medicare tax for a year and watch those people go ape with the extra money instead of paying down their debt. Social Security is a hopeless cause anyway. If you gave the average worker an extra $600 a month every month takehome, there would be alot more people with new $600 car payments. I would venture to guess that 90% of Americans live on cash flow. More cash in means more cash out. Ever notice how many Check Cashing Stores there are? My brother use to own a chain of them. There is a good 10%+ of the population that doesn't even have a checking account. How much can you save, when you don't have any accounts?

[sahtt]

If deflation continues, yes. If we manage to steady it, 50/50. Either way the unintended consequences will be sloppy.

[CL65 Captain]

If deflation continues, yes. If we manage to steady it, 50/50. Either way the unintended consequences will be sloppy.

Well, if deflation continues maybe I will be able to get a $5000 LoveFab.

I know that 58 people got $150k new Lambos from Lambo of OC.

[Daedalus]

Very few people are old enough to know what it was like during the depression. I think the rest of us have a real handicap in trying to draw comparisons because we can't comprehend how bad things really were then. It wasn't just about the headline #s. We could go to 25% unemployment and Dow 5000 today and things wouldn't be as bad as they were then. As a society we still have a lot and outright starvation isn't likely to happen without other catastrophes happening. Modern communication and transportation removes a lot of roadblocks and I think governments are a little smarter about things today. You won't see any Smoot-Hawley acts being passed, regardless of who's president. Let me know when people start shooting family pets out of compassion.

[Ski_Banker]

Well, for what it's worth, I'll again be the odd man out. I do have concerns because this recession is not limited to the United States but is worldwide. But another Great Depression? I don't think so. There were too many lessons learned about economic theory and too many governmental measures available today that were not imagined during the Great Depression.

Will we have tough going in the next 12 to 18 months? You bet ya. Another Great Depression. Don't think so.

Doug I don't think you're the odd man out. A good number of people think we'll get through this all soon enough it seems.

We have certainly learned quite a bit about economics since the 1930s. Now we have enlightened economists like Alan Greenspan () and sophisticated financial markets capable of valuing assets and pricing risk effectively (wanna buy a AAA+ rated CDO? ). We have politicians that "get it" and will act in the best interest of the country instead of their own re-election (). We have international counterparts that will not act solely in *their* own best interest, to the detriment of everyone else, during a crisis (). We, along with every other nation, have currencies that mean more than *a promise* written on a piece of paper () although every government has the power to expropriate assets if necessary (). We have a level of U.S. demand & output that hasn't expanded in the last 25 years substantially due to increasing levels of credit availability (... look at the steady decline in LT interest rates since 1981, and now we're at zero).

[NSX GT]

Intel just reported that they may lay off up to 5,000 people in the Bay Area. Depression? For the jobless it is.

Microsoft also laying off 4-5,000 people. I guess technology is not excluded.

Like GM, Sears is also struggling with sales. They might me next on the list. Bank of America is also struggling and will need another injection from the gov't.

I'll have start saving my pennies and start shopping at the discount store. Just in case.
http://stupidprices.com/locations.html

[BD]

Microsoft is laying off people because they failed to produce desirable product the last five or so years. Citing the lack of sales in PC market.

Look at Apple, they're still selling big time.

This recession will be THE market place correction. The companies were hanging by the threads will die (probably don't deserve to be in the market place ), and those who endured will be stronger.

On the bright side, not very bright, but still have some lights, there are actually companies that is flourishing - Energy sector.

Fuor Corp for example, is getting a huge job in Dubai. Just the piping design department requires 1 million man hours, and that's not including material, mechanical, electrical engineering department as well as the constructing crew. (Buy their stock!!)

Try not to think negative, market will find its way out, regardless what people say about the current government policies.

http://useconomy.about.com/od/grossd...Depression.htm

Question: What is a Depression?

Answer: A depression is a severe economic downturn that lasts several years. Fortunately, the U.S. economy has not experienced a depression since The Great Depression of 1929, which lasted ten years. The GDP growth rates were of a magnitude not seen since:

1930 -8.6%
1931 -6.4%
1932 -13%
1933 -1.3%.

During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.
The Depression was aggravated by poor monetary policy. Instead of pumping money into the economy, and increasing the money supply, the Fed allowed the money supply to fall 30%. The "New Deal" created many government programs to end the Depression, but government programs alone could not end it. Unemployment remained in the double-digits until 1941, when the U.S. entry into World War II created defense-related jobs.

We probably won't see a depression like that again, simply because the government has learned how to avoid it. Many laws and government agencies were put in place because of The Great Depression with the express purpose of preventing that type of cataclysmic economic pain.

I don't think we're any where near the definition from this article.

One indication so far, people are loosing their jobs in certain sectors, but the entire economy as a whole, are still holding up fairly well. Most of the job loss is within the auto industry and banking industry. For those who are currently secured with their work, I'm not aware of any body was told to take a pay cut (perhaps loose their OT), you can assumed that some area are still steady.

As for MS's decision to let go up to 5000 employees, how many of them are going to be foregoing workers that will be sent back to India? (Maybe John will know). They also indicated that other parts of the company will increase employment by up to 2-3000.

[BD]

Another good article from FORBE


Oxford Analytica
Is Another Depression On The Horizon?

Oxford Analytica 04.08.08, 6:00 AM ET

The boom/bust cycle in asset prices typifies the present downturn, as it did the Great Depression. This has led to suggestions that the world economy could operate far below capacity (i.e., with high unemployment) for an extended period--as it did in the 1930s.

Key characteristics of the current business cycle are reminiscent of the Great Depression (1929-1933):

Credit flows and asset prices. Today, the centrality of credit flows and asset prices is fueling interest in the "Austrian school" approach to the business cycle, which emphasizes difficulties inherent in unwinding credit-driven asset price bubbles:

--Asset locus. Both the current credit crisis and Great Depression saw U.S. debt to income levels deviate significantly from long-term averages, driving up asset prices and leading to a "mean reversion" entailing significant asset-price reversals.

--Boom/bust. The bust followed a long period of favorable conditions for asset-price bubbles. Low inflation allowed the Fed to keep interest rates low in the 1920s. Indeed, it relaxed policy during the 1928-1929 stock market boom, drawing criticism that it was fueling stock market exuberance. (It also reduced the discount rate in an effort to ease pressure on the U.K. external account to help the Bank of England adhere to the gold standard.)

Financial shock. During both periods, the key disturbance was to the financial system, originating from disturbances elsewhere, that is:

--the stock market crash in the inter-war episode; and

--the subprime crisis in the current episode.

This contrasts with most post-war recessions, where inflation played the key role:

--Monetary tightening dented the real economy as higher interest rates depressed aggregate demand.

--Casualties in the banking system were secondary, and easily contained--even the 1980s savings-and-loan crisis came in the aftermath of recession, rather than preceding it.

Emergency response. A further parallel entails crisis management:

--Inter-war. The emergence of the Fed in 1912 confused the response to financial crisis. The private sector's own crisis-management mechanisms ("banking holidays" organized through clearinghouses) were not triggered after the 1929 stock market collapse and subsequent bank runs, in deference to the new central bank. Yet the Fed viewed crisis management--i.e., liquidity provision--as incompatible with its mandate to keep the currency convertible into gold, and failed to fulfill its role as lender of last resort to the banking system. The modern consensus is that this failure turned a downturn into the Great Depression.

--Today. The Fed today is under no such restraint. Yet crisis management in the financial sector is in similarly uncharted territory--in the "shadow banking" sector in particular (i.e., the non-bank financial institutions with short-term liabilities and long-term assets, such as hedge funds or structured investment vehicles). Best responses to the current credit market seizure might become clear only after the fact, when more moderate responses have been proved inadequate. One example is public purchase of private assets such as subprime mortgage-backed securities. Even if this proves necessary to restore financial intermediation, it will probably not be exercised until lesser remedies fail--at considerable pain to the economy.

Silver lining? Overshadowed in historical recollection by the Great Depression and Second World War, the late 1930s saw a dramatic U.S. recession that had the makings of another global depression. Yet the sharp U.S. downturn, which itself was quickly reversed, did not badly affect the world economy. Parallels with today are striking:

--"Decoupling." The 1937 episode provides the only antecedent for the "decoupling" hypothesis of today's emerging markets. The emerging markets of that era were net international creditors--as they are today, and have not been at any time in between. Their huge stores of foreign reserves allowed them to sustain domestic demand even as export receipts temporarily tailed off.

--Currency pegs. That era's emerging markets were known as the sterling bloc, a group of net exporters whose currencies were faithfully pegged to sterling. In fact, today's East Asian exchange-rate arrangements are far more similar to the sterling bloc's than Bretton Woods, to which they are frequently likened. In both cases, pegs were de facto, consensual and unilateral, rather than internationally obliged, as under Bretton Woods.

To read an extended version of this article, log on to Oxford Analytica's Web site.

Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar experts at Oxford and other leading universities and research institutions around the world. For more information, please visit oxan.com. To find out how to subscribe to the firm's Daily Brief Service, click here.

You may also sign up to The World Next Week, Oxford Analytica's free weekly service providing depth and context to next week's important international issues.

[jond]

1. People who lose their jobs who then can't afford their homes(this will be big).
2. People who have ARM mortgages that are going to come due in the next 1-2 years.
3. Business realestate failures
4. Credit card defaults

These 4 things will lead to more 2008 type bank failures, which will then result in more of 2008 type economics.

Thought of a 5th one.
5. Normal people who CAN pay their mortgage without a problem are going to decide not to. This will happen when house prices fall back to historic norms. People will see they owe $1-200,000 more than the house is worth and even though they have a good job and COULD pay it off, they'll walk. And this will cause house prices to fall more making the problem in and of itself spiral.

Gold? You can't eat it, drink it or smoke it...

I'm putting all my money into physical tangible assets. Ammunition, beer, food, weed and a shit load of Peanut M&Ms - they should last me for at least 8-12 months.

Yeah but you can trade it for any of those things, and it doesn't go bad.
I agree with you though, it's smart to have a few months of food and water on hand. Should the USD collapse under all this printing, it could be hard to buy food for a while.
The question with gold is more related to the USD that gold. We're printing/borrowing TRILLIONS and we're probably not even 1/2 way through. What's going to happen to inflation in 1-2 years? If the USD drops by 50%, your gold just doubled in value relative to it.

[NSXFRIEND]

Just a quick poll on where you think we are (or will be in the next, say, 3-6 months).

Just above a depression maybe or as some would call it Socialism

[queenlives]

Well, for what it's worth, I'll again be the odd man out. I do have concerns because this recession is not limited to the United States but is worldwide. But another Great Depression? I don't think so. There were too many lessons learned about economic theory and too many governmental measures available today that were not imagined during the Great Depression.

Will we have tough going in the next 12 to 18 months? You bet ya. Another Great Depression. Don't think so.

+1

i'm pretty much with doug on this one. i think the overall situation will get much worse and i think there will be specific industries / markets (geographic) that will get hammered harder, but i don't think we'll hit 20%+ unemployment, etc.

as i've said a number of times on prime, i believe the american (and apparently others) people have become complacent and irresponsible and we're in for a well-earned period of adjustment.

[tosugrad]

But so far, he has the right economic team in place and I've been impressed.

So far? Wow! Three whole days and the country is still standing! Count me impressed

EDIT: I WAS impressed with his Treasury Secretary pick. You know the one? The one that didn't pay his taxes!

[tosugrad]

Whatever it is, I hope this nation learns from this over-indulgence and take responsibility for their own credit issues.

Don't count on it. We Americans have VERY short memories. Remember (way back) when gas was $4 gallon and people stopped buying SUVs? With gas below $2 again guess which sales of vehicles have LED the way the past few months?