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Thread: How bad can a recession get in our current day?

  1. #21
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    [QUOTE=piney;2792385]funny, makes me think of a couple of friends of mine...they call me cheap because my fiance and I won't meet them out for dinner four times a week, and how I turn down going away with them to save money..but I am on track to pay off my 30yr mortgage in 15 and they just moved into her mother's house...

    [B]crazy priorities man...just crazy[/B][/QUOTE]

    That's just it. That's what always amazed me. I was "cheap", but I owned a 500k house before I was 30. He was the big spender who moved his family 40 miles south to purchase a 90k condo. But I was cheap :huh:

  2. #22
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    I Drive A Dodge Stratus!!!

  3. #23
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    The Govt has screwed this country over and over again and the people just dont learn. It is not just the Democrats it is also the Republicans who sit on their thumbs and rotate. We have a bunch of lawyers that cant balance a check book!

  4. #24
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    [QUOTE=MnJetFan;2792614]The Govt has screwed this country over and over again and the people just dont learn. It is not just the Democrats it is also the Republicans who sit on their thumbs and rotate. We have a bunch of lawyers that cant balance a check book![/QUOTE]

    Didn't Clinton leave office with a $200 billion budget surplus?

  5. #25
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    [QUOTE=VincenzoTestaverde;2792667]Didn't Clinton leave office with a $200 billion budget surplus?[/QUOTE]

    Yup, the beneficiary of a technology boom and dot com bubble that was imploding in his final months in office.

  6. #26
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    There will be a depression greater, longer and more severe than the one in the late 1930's. No doubt about it. Except the next one will be global in nature.

    But, a lot has to happen before we get there.

    I'm 40 and it may or may not happen in my lifetime. Probably in my kids' lifetime, though.

    What we're experienceing now is just a crisis of confidence, coupled with a normal economic recession. Not a big deal.

  7. #27
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    [QUOTE=Roger Vick;2792876]There will be a depression greater, longer and more severe than the one in the late 1930's. No doubt about it. Except the next one will be global in nature.

    But, a lot has to happen before we get there.

    I'm 40 and it may or may not happen in my lifetime. Probably in my kids' lifetime, though.

    [B]What we're experienceing now is just a crisis of confidence, coupled with a normal economic recession. Not a big deal.[/B][/QUOTE]

    Disagree. The fundamentals of the economy have changed and the banking system is undergoing signficant change. People, businesses and the government are fundamentally changing how they evaluate and price risk. This won't be your garden variety recession IMO.

  8. #28
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    [QUOTE=jetstream23;2792879]Disagree. The fundamentals of the economy have changed and the banking system is undergoing signficant change. People, businesses and the government are fundamentally changing how they evaluate and price risk. This won't be your garden variety recession IMO.[/QUOTE]

    I haven't seen may changes on "Main Street" yet.

    IMO, the only way this could balloon into a very serious economic problem (more severe than a typical recession) is if the governement continues to bail out lenders and other financial institutions. If we get ourselves into a situation where we have to keep issuing treasuries to bail out private companies, interest rates will have to go up to attract more buyers for those treasuries, the dollar will plummett, inflation will skyrocket, tax rates will go up, and we'll be left in a position of serious stagflation.

    If that happens, people will **** their pants. There would probably be some civil unrest, both here and abroad.

  9. #29
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    [QUOTE=jetstream23;2792879]Disagree. The fundamentals of the economy have changed and the banking system is undergoing signficant change. People, businesses and the government are fundamentally changing how they evaluate and price risk. This won't be your garden variety recession IMO.[/QUOTE]

    I agree with your sentiment. Not to mention the fact that the Great Depression in the 1930s was very much global in nature... It's not like we were an isolated case.

    That's why i'm saying this isn't just some downturn in the business cycle or some bubble bursting because we expanded too fast. (i.e. the "recession in 2001" after the tech boom) The banking and financial sector is unstable, and that usually leads to big problems. I can state this enough, people spending and investing in the financial system drives businesses to grow. It's kind of retarded how it's linked, but people won't spend until times are good and times won't be good until people feel like they can spend.

  10. #30
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    [QUOTE=Roger Vick;2792896]I haven't seen may changes on "Main Street" yet.

    IMO, the only way this could balloon into a very serious economic problem (more severe than a typical recession) is if the governement continues to bail out lenders and other financial institutions. If we get ourselves into a situation where we have to keep issuing treasuries to bail out private companies, interest rates will have to go up to attract more buyers for those treasuries, the dollar will plummett, inflation will skyrocket, tax rates will go up, and we'll be left in a position of serious stagflation.

    If that happens, people will **** their pants. There would probably be some civil unrest, both here and abroad.[/QUOTE]

    Well yes, if they have to continue bailing out the lenders and financial institution that means that people are not buying the security of the system. So it's rather pointless to continue just bailing them out, when that's the whole point. Not to mention the moral hazard problem that would rise up.

    At the same time though, if private companies continue to fail without bailout, it's just as bad. We're just hoping that the bailout convinces some people to have faith.

  11. #31
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    [QUOTE=Roger Vick;2792896]I haven't seen may changes on "Main Street" yet.[/QUOTE]

    [url]http://www.moneyandmarkets.com/Issues.aspx?Sinking-Rapidly-Into-Depression-2381[/url]

    [QUOTE]This is the crisis that will change the course of history.

    Even before ivory-tower theorists have gotten around to officially calling it a "recession," the U.S. economy is already sinking rapidly into depression.

    And even as the government has vowed to embark on a $700 billion spending spree to avert financial panic, over $1 trillion in wealth has been wiped out in just five days of stock and bond market declines.

    Cheap credit, the lifeblood of the U.S. economy, has nearly vanished from the scene.

    Borrowing from Peter to pay Paul — the norm for decades in the consumer and corporate world — is becoming next to impossible.

    Greed has been replaced by fear; euphoria, by panic; trust, by suspicion.

    Everywhere, we see vicious cycles of mutual financial destruction:

    Falling prices driving homeowners to abandon their homes ... and fire sales on foreclosed homes driving prices into a steeper tailspin.

    Strangled consumers falling behind on their credit cards ... and credit card losses compelling banks to choke the available credit for consumers.

    Wall Street panic smashing Main Street business ... and Main Street business sowing the seeds for more Wall Street panic.
    The probable consequences: Astronomical unemployment rates and intense hardship for millions of Americans; devastating losses for investors in almost every asset class; and, ultimately, deep depression and deflation (falling prices).

    I wish that, somehow, this crisis could have been averted. But now that the bombs have been dropped, there's not much chance we can avoid the explosions that typically follow.

    The U.S. government's giant bailout may buy some time and buffer some pain. But no matter how hard it may try, it cannot force banks to make risky loans or compel investors to buy sinking bonds. No government can repeal the law of gravity. No force can turn back the clock.

    But you and I will get through this — together.

    My team and I have everything we need to continue our operations in any foreseeable disaster. We will be here to guide you through thick and thin. And when it's all over, we will be ready to start anew, hopefully on a steadier, more wholesome path.

    This Is Not the End of the World;
    It's Just the End of a Crazy Era.

    Our country has a cornucopia of resources and a wealth of knowledge. Even after a great fall, we will still have the elements for a great recovery.

    Inevitably, this decline will deliver severe financial losses to most of those who endure it. But it can also deliver long-lasting benefits to all those who survive it.

    If I'm right about the ultimate outcome, burdensome debts will be liquidated. Wild spending will be replaced with prudent saving. Unaffordable luxuries could give way to affordable bargains. And after the worst is over, thousands of new, innovative companies will burst onto the scene with clean balance sheets and a new vision.

    Therefore, throughout our journey together — regardless of how dark the tunnel may appear — always remember the benefits. Relax your reactive impulses. Breathe what we trust will be a new atmosphere of collective sacrifice. Let time work its wonders.

    But Don't Expect a Recovery To Come Easily or Quickly.
    The Deepest Declines of All Are Still Dead Ahead.

    A recovery certainly won't come from Washington's $700 billion bailout boondoggle. It's too little, too late to avert a debt collapse. At the same time, it's too much, too soon for all those who will be asked to pay for it.

    For the evidence, see our white paper submitted to Congress on September 25. The highlights:

    The FDIC's list of problem banks includes only 117 U.S. institutions with assets of $78 billion. But the list has a fatal deficiency:

    It did not include any of the large banks that have failed or been forced to merge this year.

    Our list did. And that list shows there are 1,479 U.S. banks and 258 thrifts at risk of failure with total assets of $3.2 trillion, 41 times more than estimated by the FDIC. This number alone illustrates the shock and awe ahead for anyone expecting the new bailout law to bring about a real recovery.

    The government seems to assume that our debt problems can be resolved by focusing on banks with financial assets gone bad. But the reality is that bad debts are everywhere:

    At Fannie Mae, Freddie Mac, Ginnie Mae and other government agencies, $5.4 trillion in residential mortgages continue to rot.

    Beyond residential mortgages, there are $2.6 trillion in commercial mortgages.

    And beyond all mortgages, there are another $20.4 trillion in consumer and corporate debts — all subject to the same kind of surging delinquency rates we saw in subprime mortgages.

    The government's bailout plan is designed to help clean up debts that have gone bad so far. But what about debts that turn sour from this point forward? Do our leaders assume the economic decline is going to stop on a dime? Don't they see that the decline is actually gaining momentum?

    The bailout plan does nothing to address the $182 trillion maze of bets called derivatives. Nor does it take into consideration the fact that our nation's three largest banks — Citibank, JPMorgan Chase and Bank of America — are exposed to far more credit risk on their derivatives than they have in capital.

    In sum, even after committing $200 billion for Fannie-Freddie, $85 billion for AIG, $25 billion for the auto industry, $700 billion for the Wall Street bailout, another $150 billion tacked on to the plan for pork and tax cuts, plus hundreds of billions in emergency loans from the Fed ... the government's rescue is still too small to cope with the tens of trillions of souring debts and bets in a sinking economy.

    At the same time, the government's bailout commitments made so far — now exceeding $1.5 trillion — are already too much for those who will be asked to foot the bill or lend the money:

    Even before these bailouts, the Office of Management and Budget (OMB) projected the 2009 federal deficit would rise to $482 billion.

    Now, in just three weeks, the government has effectively chartered a course to triple that deficit.

    In practice, the only way the government can try to raise that much money is by borrowing it. And to the degree that it does so, the only possible outcome is huge upward pressure on the interest rates that consumers, corporations and local governments have to pay for mortgages and loans. That can't make the debt crisis go away. It can only make it many times worse.[/QUOTE]

    Other stories...

    [B]Student Loans Are Not a Given[/B]

    [url]http://seattletimes.nwsource.com/html/localnews/2008231486_loanproblems06m.html[/url]

    [B]Even McDonald's Can't Expand[/B]

    [url]http://www.bloomberg.com/apps/news?pid=20601103&sid=aDy9UdLRu6Xw&refer=us[/url]

    [B]Credit Cards Can't Cover People Anymore[/B]

    [url]http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_07bus.ART.State.Edition1.3962101.html[/url]

  12. #32
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    [QUOTE=jetstream23;2792941][url]http://www.moneyandmarkets.com/Issues.aspx?Sinking-Rapidly-Into-Depression-2381[/url]



    Other stories...

    [B]Student Loans[/B]

    [url]http://seattletimes.nwsource.com/html/localnews/2008231486_loanproblems06m.html[/url]

    [B]McDonald's Can't Even Expand[/B]

    [url]http://www.bloomberg.com/apps/news?pid=20601103&sid=aDy9UdLRu6Xw&refer=us[/url]

    [B]Credit Cards Can't Cover People Anymore[/B]

    [url]http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_07bus.ART.State.Edition1.3962101.html[/url][/QUOTE]

    Thanks for all that.

    I still haven't seen people change their economic behavior much, if at all.

  13. #33
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    [QUOTE=Roger Vick;2792949]Thanks for all that.

    I still haven't seen people change their economic behavior much, if at all.[/QUOTE]

    It's coming. Whether they want to or not, they'll have to. The faucet is being turned off.

    When swiping the card at Banana Republic brings back a "Declined" response...

  14. #34
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    [QUOTE=jetstream23;2792960]It's coming. Whether they want to or not, they'll have to. The faucet is being turned off.

    When swiping the card at Banana Republic brings back a "Declined" response...[/QUOTE]

    Probably not a bad thing.

    A lot of people have been living on borrowed time...and money.

  15. #35
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    [QUOTE=Roger Vick;2792949]Thanks for all that.

    I still haven't seen people change their economic behavior much, if at all.[/QUOTE]

    Well, what would have to happen for you to say, "OK, now I see a change in behavior." There will always be people in restaurants. When it comes to purchases, who actually knows how much their neighbors are spending and on what? I can't say I've "seen" much of a change in behavior either, although I've certainly heard it reported. Until you see a fore sale sign on your neighbor's house, how do you know how they're doing?

  16. #36
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    [QUOTE=Roger Vick;2792961]Probably not a bad thing.

    A lot of people have been living on borrowed time...and money.[/QUOTE]

    Yup, but this is going to be a slow death spiral for the market in my opinion. I'm using some small PUT options on the broad market like the SPY (S&P 500) to kinda hedge myself. Everything is going down now...even the most solid stocks I own....JNJ, GE, Microsoft, Coca-Cola...It's just the realization that the entire economy is slowing down being reflected in the stock market. Ugly!
    Last edited by jetstream23; 10-07-2008 at 01:42 PM.

  17. #37
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    [QUOTE=jetstream23;2792941]
    [B]Credit Cards Can't Cover People Anymore[/B]

    [url]http://www.dallasnews.com/sharedcontent/dws/bus/columnists/jlanders/stories/DN-landers_07bus.ART.State.Edition1.3962101.html[/url][/QUOTE]

    Boy does that sound familiar..

    Our growth in recent years has been debt fueled and hence a mirage. Been saying it for awhile, but unfortunately I had no idea how to profit off of any of this :confused:

  18. #38
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    [QUOTE=jetstream23;2792879]Disagree. The fundamentals of the economy have changed and the banking system is undergoing signficant change. People, businesses and the government are fundamentally changing how they evaluate and price risk. This won't be your garden variety recession IMO.[/QUOTE]

    The turn towards risk aversion is the big thing here. Given the percentage of US production divorced from manufacturing/production, the loss of a luxury market could cause losses to spiral exponentially.
    From a historians POV, what seems likely (At least in terms of the national debt) is that a Bretton-Woods or New Deal type sea change in how money is imagined is the end result of all this. Instabilities in US markets have caused massive oil price fluctuations (since oil is like octupally indexed to the dollar), which has caused global price increases. The US banking crisis has caused/been spurred by/happened concommitantly with collapses in almost every other major market. The ultimate message here is likely one of interdependence, since pure state capitalist competition (think China undercutting US jobs or ridiculous corn subsidies for US farmers) is undercutting production worldwide. Refracted in terms of the national debt, it seems extraordinarily unlikely that foreign holders of US debt would ever call in that debt for the risk of disrupting a favorable stasis. As a result I imagine, at least to a degree, that the US government is going to stabilize things through New Deal type 'just work so we have an excuse to pay you' style projects in the Military-Industrial Complex (to assure our place on world centerstage), clean technology sector, and probably elsewhere.
    This current spiral might reposition the US as an EU type welfare capitalism with a totally new view of money, but its unlikely to cause a complete and utter financial collapse.

  19. #39
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    [QUOTE=CTM;2792986]Boy does that sound familiar..

    Our growth in recent years has been debt fueled and hence a mirage. Been saying it for awhile, but unfortunately I had no idea how to profit off of any of this :confused:[/QUOTE]

    On the world system level being debt-fueled doesnt matter much. Debt fueled growth on the micro level is more of the issue.

  20. #40
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    [QUOTE=CTM;2792986]Boy does that sound familiar..

    Our growth in recent years has been debt fueled and hence a mirage. Been saying it for awhile, but unfortunately I had no idea how to profit off of any of this :confused:[/QUOTE]

    I'm always weary as well when I hear, "yeah, but this time it's different" or "the consumer is REALLY strapped now" because time and again the consumer has continued to spend. The difference though, is that previously consumers had the [B]ability[/B] to spend, even against his better judgement. This was because the credit limits were there and credit cards were easy to come by from banks. That is ending. Banks are becoming extremely risk averse. If they've been afraid to lend to each other in recent months then how comfortable do you think they are in increasing credit limits in an environment of higher unemployment and to people who can't afford mortgage payments in a declining housing market? The faucet is being turned off for the consumer. We're seeing it everywhere from student loans to HELOCs to credit cards.

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