Economy - How bad will it get? - Jets Insider.com Forums

CTM · 10-31-2008, 02:05 PM

I've been reading all the predictions, Dow 7500, 8% unemployment, severe recession but not depression, recovery starting 2nd half of 09; and they feel overly pollyanna to me. They seem to be basing a lot of these predictions off of historic economic incidents which normally would make sense.

The thing I'm wondering though is the impact of debt this time out. I don't think we ever had a shrinking economy with these kinds of levels of public and private debt before? Have we?

I mean, 8% unemployment is bad, but has it ever happened in an environment where the average household carries 8k in credit card debt alone (as of 2003) and 20k in non mortgage debt (2003)? This doesn't even get into underwater mortgages and all those folks who took out equity loans when times were good. Seems like the weight of debt will cause more foreclosures and defaults, which wall perpetuate this giant snow ball of: decreased corporate earnings -> layoffs -> decreased consumer spending -> decreased corporate earnings..

This past quarter saw the sharpest decrease in consumer spending since the early 80's. Consumer spending is basically our entire economy as 70% of GDP derives from it. The thing is, I think the current quarter is going to see an even steeper decline. I think the lightbulb finally went on late third quarter for a ton of americans and they have just begun to restrict spending. Now we have confidence low and the layoffs starting to come and people are going to scramble to save money and pay down debt. This could be recipe for disaster.

I tend to be overly pessimistic in my thoughts, and have been worried about this since the beginning of the decade, but is this the beginning of the end of the good times? Has America bankrupted itself to the point of no return?

I fear we have and don't know how we escape it this time out particularly with the other major economic problem that is looming, the retirement of massive amounts of baby boomers..

Anyone with a more optimistic viewpoint out there?

BrooklynBound · 10-31-2008, 02:09 PM

I can't make any predictions but I do realize that the less our government gets involved, the better.

Our economy relies too much on consumer spending. It'd be healthier in the long run to have a balanced economy that had more real savings to promote capital investment. But of course the Fed cuts interest rates again, which discourages saving.

bitonti · 10-31-2008, 02:50 PM

we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble

there will be something that comes along to get everything going again. Maybe it's Alt energy, maybe it's mining on the moon. maybe it's neither, maybe it's Both.

but there will be a rise, just like there was a fall, my guess is we haven't seem the worst yet and things don't really get turned around until 2010 or 2011.

BushyTheBeaver · 10-31-2008, 02:59 PM

[QUOTE=bitonti;2834083]we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble[/QUOTE]

We didn't? I thought both of those things were very clear years before the bubbles burst. :huh:

BrooklynBound · 10-31-2008, 03:00 PM

[QUOTE=bitonti;2834083]we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble

there will be something that comes along to get everything going again. Maybe it's Alt energy, maybe it's mining on the moon. maybe it's neither, maybe it's Both.

but there will be a rise, just like there was a fall, my guess is we haven't seem the worst yet and things don't really get turned around until 2010 or 2011.[/QUOTE]
People who understand economics could foresee that when our monetary policy manipulates interest rates, manipulates credit and manipulates liquidity -- too much cash is chasing too few assets. This makes prices higher than they should be. That's how bubbles start.

We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.

CTM · 10-31-2008, 03:02 PM

[QUOTE=BrooklynBound;2834107]People who understand economics could foresee that when our monetary policy manipulates interest rates, manipulates credit and manipulates liquidity -- too much cash is chasing too few assets. This makes prices higher than they should be. That's how bubbles start.

We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.[/QUOTE]

Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..

BushyTheBeaver · 10-31-2008, 03:04 PM

[QUOTE=BrooklynBound;2834023]I can't make any predictions but I do realize that the less our government gets involved, the better.

Our economy relies too much on consumer spending. It'd be healthier in the long run to have a balanced economy that had more real savings to promote capital investment. But of course the Fed cuts interest rates again, which discourages saving.[/QUOTE]

Yup, yup, yup.

Something I can't figure out: in 2004 (I think) when the gov't passed laws to make it harder to declare bankruptcy for individuals (but not companies) did it indicate some understanding on the govt's part that there was too much deficit spending? Or was it just sop to the credit industry who wanted their bad loans guaranteed? Certainly the cc companies did not slow down any in encouraging debt in the years that followed.

CTM · 10-31-2008, 03:04 PM

[QUOTE=bitonti;2834083]we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble

there will be something that comes along to get everything going again. Maybe it's Alt energy, maybe it's mining on the moon. maybe it's neither, maybe it's Both.

but there will be a rise, just like there was a fall, my guess is we haven't seem the worst yet and things don't really get turned around until 2010 or 2011.[/QUOTE]
So we're reliant on a major innovation?

BushyTheBeaver · 10-31-2008, 03:06 PM

[QUOTE=CTM;2834110]Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..[/QUOTE]

The tech bubble (IMHO) was forseeable to (though maybe not to the degree it existed). I remeber attending sw exhibitions in the late 90s--aisle after aisle of companies selling vaporware.

bitonti · 10-31-2008, 03:10 PM

[QUOTE=BrooklynBound;2834107]We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.[/QUOTE]

that's basically what Im saying. we don't know what the next bubble will be, we don't know when it will start, and we don't even know what it's gonna be about

but there will be another bubble and another burst - and on and on- don't stop believin ;)

BrooklynBound · 10-31-2008, 03:11 PM

[QUOTE=CTM;2834110]Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..[/QUOTE]

Due to the Asian crash/LTCM/Y2K, the Fed pumped in lots of liquidity from 1996-1998

BrooklynBound · 10-31-2008, 03:11 PM

[QUOTE=bitonti;2834129]that's basically what Im saying. we don't know what the next bubble will be, we don't know when it will start, and we don't even know what it's gonna be about

but there will be another bubble and another burst - and on and on- don't stop believin ;)[/QUOTE]

Not if get the Fed out of the picture. It's simply not smart enough to judge the economy. That's not a knock, either. 12 people just can't do it by themselves.

CTM · 10-31-2008, 03:13 PM

[QUOTE=BushyTheBeaver;2834121]The tech bubble (IMHO) was forseeable to (though maybe not to the degree it existed). I remeber attending sw exhibitions in the late 90s--aisle after aisle of companies selling vaporware.[/QUOTE]

Well yes, at the beginning/middle it was obvious what was coming, but 3 years before it started nobody knew..

That was kind of my point, with housing there was a catalyst in the way of Gov/Fed action. (lowering interest rates) The internet may have started in the military, but once the commercial potential became obvious, the investors flocked to it..

CTM · 10-31-2008, 03:15 PM

[QUOTE=BrooklynBound;2834131]Due to the Asian crash/LTCM/Y2K, the Fed pumped in lots of liquidity from 1996-1998[/QUOTE]

I kind of look like the internet revolution as being as significant as the industrial resolution in our economic history. The money was going to find it's way there anyway imo..

BrooklynBound · 10-31-2008, 03:16 PM

[QUOTE=CTM;2834141]I kind of look like the internet revolution as being as significant as the industrial resolution in our economic history. The money was going to find it's way there anyway imo..[/QUOTE]To some extent sure, but when you have too much money in the system, it takes on too much risk. And after a certain point, it becomes psychological and a self fulfilling prophecy. "Well, prices keep going up exponentially, so I should buy more before it keeps going higher." Wait, I forgot, are we talking about internet stocks, real estate or tulips? It's hard to keep track.

BrooklynBound · 10-31-2008, 03:18 PM

[QUOTE=CTM;2834139]Well yes, at the beginning/middle it was obvious what was coming, but 3 years before it started nobody knew..

That was kind of my point, with housing there was a catalyst in the way of Gov/Fed action. (lowering interest rates) The internet may have started in the military, but once the commercial potential became obvious, the investors flocked to it..[/QUOTE]

When banks can get money too cheaply from the Fed, they don't invest it wisely. They have an incentive to gamble. Also, when rates are low, fixed income isn't attractive. Who wants to buy bonds that pay 2.5% when you can invest in a hot stock market?

WestCoastOffensive · 10-31-2008, 03:21 PM

[QUOTE=BrooklynBound;2834132]Not if get the Fed out of the picture. It's simply not smart enough to judge the economy. That's not a knock, either. 12 people just can't do it by themselves.[/QUOTE]

The 12th District Fed is 4 blocks from me...it has more than one Fed Governor working there...I see all kinds of people going to work in there. :P

Great thread.

CTM · 10-31-2008, 03:26 PM

[QUOTE=BrooklynBound;2834142]To some extent sure, but when you have too much money in the system, it takes on too much risk. And after a certain point, it becomes psychological and a self fulfilling prophecy. "Well, prices keep going up exponentially, so I should buy more before it keeps going higher." Wait, I forgot, are we talking about internet stocks, real estate or tulips? It's hard to keep track.[/QUOTE]

Yes, agree with that. The fed are the main culprits in what's occuring today as far as I'm concerned.

I think we see things similarly here.

It's funny, I was just talking to my brother-in-law the mortgage broker. Apparently FHA's are at 7%. He says people look at him like he's a loan shark when he quotes those rates. We do get spoiled quickly, don't we?

10-31-2008, 02:05 PM	#1
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	Economy - How bad will it get? I've been reading all the predictions, Dow 7500, 8% unemployment, severe recession but not depression, recovery starting 2nd half of 09; and they feel overly pollyanna to me. They seem to be basing a lot of these predictions off of historic economic incidents which normally would make sense. The thing I'm wondering though is the impact of debt this time out. I don't think we ever had a shrinking economy with these kinds of levels of public and private debt before? Have we? I mean, 8% unemployment is bad, but has it ever happened in an environment where the average household carries 8k in credit card debt alone (as of 2003) and 20k in non mortgage debt (2003)? This doesn't even get into underwater mortgages and all those folks who took out equity loans when times were good. Seems like the weight of debt will cause more foreclosures and defaults, which wall perpetuate this giant snow ball of: decreased corporate earnings -> layoffs -> decreased consumer spending -> decreased corporate earnings.. This past quarter saw the sharpest decrease in consumer spending since the early 80's. Consumer spending is basically our entire economy as 70% of GDP derives from it. The thing is, I think the current quarter is going to see an even steeper decline. I think the lightbulb finally went on late third quarter for a ton of americans and they have just begun to restrict spending. Now we have confidence low and the layoffs starting to come and people are going to scramble to save money and pay down debt. This could be recipe for disaster. I tend to be overly pessimistic in my thoughts, and have been worried about this since the beginning of the decade, but is this the beginning of the end of the good times? Has America bankrupted itself to the point of no return? I fear we have and don't know how we escape it this time out particularly with the other major economic problem that is looming, the retirement of massive amounts of baby boomers.. Anyone with a more optimistic viewpoint out there?

10-31-2008, 02:09 PM	#2
BrooklynBound Hall Of Fame Join Date: Jan 2005 Posts: 15,550	I can't make any predictions but I do realize that the less our government gets involved, the better. Our economy relies too much on consumer spending. It'd be healthier in the long run to have a balanced economy that had more real savings to promote capital investment. But of course the Fed cuts interest rates again, which discourages saving.

10-31-2008, 02:50 PM	#3
bitonti searching Hall Of Fame Join Date: Apr 2003 Location: Philly Posts: 38,786	we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble there will be something that comes along to get everything going again. Maybe it's Alt energy, maybe it's mining on the moon. maybe it's neither, maybe it's Both. but there will be a rise, just like there was a fall, my guess is we haven't seem the worst yet and things don't really get turned around until 2010 or 2011.

10-31-2008, 02:59 PM	#4
BushyTheBeaver All League Join Date: Sep 2007 Posts: 3,970	[QUOTE=bitonti;2834083]we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble[/QUOTE] We didn't? I thought both of those things were very clear years before the bubbles burst. :huh:

10-31-2008, 03:00 PM	#5
BrooklynBound Hall Of Fame Join Date: Jan 2005 Posts: 15,550	[QUOTE=bitonti;2834083]we didn't know there was gonna be a tech bubble, we didn't know there was gonna be a real estate bubble there will be something that comes along to get everything going again. Maybe it's Alt energy, maybe it's mining on the moon. maybe it's neither, maybe it's Both. but there will be a rise, just like there was a fall, my guess is we haven't seem the worst yet and things don't really get turned around until 2010 or 2011.[/QUOTE] People who understand economics could foresee that when our monetary policy manipulates interest rates, manipulates credit and manipulates liquidity -- too much cash is chasing too few assets. This makes prices higher than they should be. That's how bubbles start. We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.

10-31-2008, 03:02 PM	#6
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=BrooklynBound;2834107]People who understand economics could foresee that when our monetary policy manipulates interest rates, manipulates credit and manipulates liquidity -- too much cash is chasing too few assets. This makes prices higher than they should be. That's how bubbles start. We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.[/QUOTE] Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..

10-31-2008, 03:04 PM	#7
BushyTheBeaver All League Join Date: Sep 2007 Posts: 3,970	[QUOTE=BrooklynBound;2834023]I can't make any predictions but I do realize that the less our government gets involved, the better. Our economy relies too much on consumer spending. It'd be healthier in the long run to have a balanced economy that had more real savings to promote capital investment. But of course the Fed cuts interest rates again, which discourages saving.[/QUOTE] Yup, yup, yup. Something I can't figure out: in 2004 (I think) when the gov't passed laws to make it harder to declare bankruptcy for individuals (but not companies) did it indicate some understanding on the govt's part that there was too much deficit spending? Or was it just sop to the credit industry who wanted their bad loans guaranteed? Certainly the cc companies did not slow down any in encouraging debt in the years that followed.

10-31-2008, 03:06 PM	#9
BushyTheBeaver All League Join Date: Sep 2007 Posts: 3,970	[QUOTE=CTM;2834110]Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..[/QUOTE] The tech bubble (IMHO) was forseeable to (though maybe not to the degree it existed). I remeber attending sw exhibitions in the late 90s--aisle after aisle of companies selling vaporware.

10-31-2008, 03:10 PM	#10
bitonti searching Hall Of Fame Join Date: Apr 2003 Location: Philly Posts: 38,786	[QUOTE=BrooklynBound;2834107]We don't know when they will start or end, but we know that they will form. Don't act like no one saw this coming.[/QUOTE] that's basically what Im saying. we don't know what the next bubble will be, we don't know when it will start, and we don't even know what it's gonna be about but there will be another bubble and another burst - and on and on- don't stop believin ;)

10-31-2008, 03:11 PM	#11
BrooklynBound Hall Of Fame Join Date: Jan 2005 Posts: 15,550	[QUOTE=CTM;2834110]Sort of agree. I think the housing bubble was predictable. The tech bubble, not so much. Anything based on ingenuity and invention is not. The internet drove the tech bubble, not monetary policy..[/QUOTE] Due to the Asian crash/LTCM/Y2K, the Fed pumped in lots of liquidity from 1996-1998

10-31-2008, 03:13 PM	#13
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=BushyTheBeaver;2834121]The tech bubble (IMHO) was forseeable to (though maybe not to the degree it existed). I remeber attending sw exhibitions in the late 90s--aisle after aisle of companies selling vaporware.[/QUOTE] Well yes, at the beginning/middle it was obvious what was coming, but 3 years before it started nobody knew.. That was kind of my point, with housing there was a catalyst in the way of Gov/Fed action. (lowering interest rates) The internet may have started in the military, but once the commercial potential became obvious, the investors flocked to it..

10-31-2008, 03:15 PM	#14
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=BrooklynBound;2834131]Due to the Asian crash/LTCM/Y2K, the Fed pumped in lots of liquidity from 1996-1998[/QUOTE] I kind of look like the internet revolution as being as significant as the industrial resolution in our economic history. The money was going to find it's way there anyway imo..

10-31-2008, 03:16 PM	#15
BrooklynBound Hall Of Fame Join Date: Jan 2005 Posts: 15,550	[QUOTE=CTM;2834141]I kind of look like the internet revolution as being as significant as the industrial resolution in our economic history. The money was going to find it's way there anyway imo..[/QUOTE]To some extent sure, but when you have too much money in the system, it takes on too much risk. And after a certain point, it becomes psychological and a self fulfilling prophecy. "Well, prices keep going up exponentially, so I should buy more before it keeps going higher." Wait, I forgot, are we talking about internet stocks, real estate or tulips? It's hard to keep track.

10-31-2008, 03:18 PM	#16
BrooklynBound Hall Of Fame Join Date: Jan 2005 Posts: 15,550	[QUOTE=CTM;2834139]Well yes, at the beginning/middle it was obvious what was coming, but 3 years before it started nobody knew.. That was kind of my point, with housing there was a catalyst in the way of Gov/Fed action. (lowering interest rates) The internet may have started in the military, but once the commercial potential became obvious, the investors flocked to it..[/QUOTE] When banks can get money too cheaply from the Fed, they don't invest it wisely. They have an incentive to gamble. Also, when rates are low, fixed income isn't attractive. Who wants to buy bonds that pay 2.5% when you can invest in a hot stock market?

10-31-2008, 03:21 PM	#17
WestCoastOffensive Didn't pull the pin - got blasted anyway Board Moderator Jets Insider VIP Join Date: Oct 2005 Location: SF via Strong Island Posts: 26,972	[QUOTE=BrooklynBound;2834132]Not if get the Fed out of the picture. It's simply not smart enough to judge the economy. That's not a knock, either. 12 people just can't do it by themselves.[/QUOTE] The 12th District Fed is 4 blocks from me...it has more than one Fed Governor working there...I see all kinds of people going to work in there. :P Great thread.

10-31-2008, 03:26 PM	#18
CTM Hall Of Fame Join Date: Jan 2006 Location: Not bababooey and I resent the implication Posts: 21,029	[QUOTE=BrooklynBound;2834142]To some extent sure, but when you have too much money in the system, it takes on too much risk. And after a certain point, it becomes psychological and a self fulfilling prophecy. "Well, prices keep going up exponentially, so I should buy more before it keeps going higher." Wait, I forgot, are we talking about internet stocks, real estate or tulips? It's hard to keep track.[/QUOTE] Yes, agree with that. The fed are the main culprits in what's occuring today as far as I'm concerned. I think we see things similarly here. It's funny, I was just talking to my brother-in-law the mortgage broker. Apparently FHA's are at 7%. He says people look at him like he's a loan shark when he quotes those rates. We do get spoiled quickly, don't we?