Before I start I have to say that I'm an economic dummie. This is just simply my (average American) perspective on the financial mess we find ourselves in. Don't look for answers here, I'll simply be raising more questions and exploring alternative views in this post
I remember a few years ago warning my friends and family that in my opinion, real estate prices were artificially too high. There was a bubble growing larger and faster than the population could support. I thought, "Well, I'm not very smart about this kind of thing and I'm probably wrong." I didn't really understand the reasons why I felt so strongly that the housing bubble was going to burst, or the extreme effects it would have on our economy, I just really felt in my gut that something was wrong and the piper was coming for his pay.
Lo and behold, eventually this did come to pass, though almost a year later than I predicted. I had, however, no idea what was to follow. I know now that I merely sensed a symptom of a larger problem, not the White Elephant that's been standing in the room for years.
My thought on realty was that home prices were doomed to go through a painfull re-adjustment. I had a sense that other parts of the market were similarly going to face the same fate, but had no idea how massive this thing was. I'm convinced that like me, we all knew something was terribly wrong but couldn't quite put our finger on it.
Flash back: The Dow Jones reaches 10,000 points. Economists claimed this is just a fluke and that the market wont support this for long. The Dow will drop soon. Well, they were right and wrong. Even today the Dow is above 10,000 points and the market did everything it could over the last 8 years to make that happen.
Here are my questions: Was the Dow another example of part of our market that was artificially inflated? If so, how deep does this go? Is it likely that our own leadership and market proffiteers engineered it?(I believe yes.) Do we really think throwing money at this is going to do us any good in the long run?
I feel like our government, Republicans and Democrats alike, are lying to us. They keep telling us the sky is falling! Yes, something very big and painful is undoubtedly happening right now. But I have serious concerns about what our leaders really want to accomplish. My thought is that they simply want to put a band-aid on the economic hemmorage so they can make a little more money before the shit hits the fan. They keep crowing about new regulations. Well, why haven't the regulations already in place been enforced? Why is it that the few regulations that were enforced cause, in part, this turmoil?(Sub-prime lending)
Our leaders tell us that banks won't give out new loans, the economy will freeze, and that we'll experience The Great Depression part II on steroids. 92% of banks are still approving loans, though they are a little more picky about who they'll aprove. Car dealerships are still finding institutions to give people with less than savory credit car loans. Is our reaction to what these assholes in D.C. telling us making the situation worse than what it is? Yes! But then again, I'm an economic dummie.
I don't know that I can trust the government to make smart "investment" decisions with our $700B when they've bankrupted everything else they've touched. I once wrote on one of my blogs that I was upset that Congress suddenly adjurned for a summer vacation when I felt we really needed them there to do their jobs. Come to find out, they weren't doing their jobs when they weren't there. I'm glad that the bill didn't pass. I think something this big deserves more time and planning. Hell, we planned the Iraq war for six months before we went in, and it ended up being a severely flawed strategy.
I wish I had the money to invest in the stock market. There are some really good deals out there right now, because the people that most people hire to manage their money are freaking out and losing your money by throwing the baby out with the bath water. I predict that stocks will be driven to an artificial low. Soon, those who had the foresight to invest during this low, will be filfthy stinkning rich. We wont learn our lesson, and home and stock prices will be driven artificially high again within 2-3 years.
Yhea, you are an economic dummie.
The LIBOR Rate has inflated to extremely high rates. The usual difference between the usually risk-free rate and LIBOR is extremely close (0,2%) but it had jumped into the realm of 200 basic points! (2%). In July, people were trading treasury bills at -1%. MINUS ONE PERCENT! That means that investors were ready to pay 100$ to receive 99$ in a month. The people just completely lost confidence into the financial market, and weren't confident in letting money into a bank account - because the bank might bankrupt.
The banks are currently hoping that the situation will resolve, but if nothing is done, and the financial system continue to go down (with more and more bankruptcy), it won't take more than a month to see these lending will stop. When the lending will have effectively stopped, it will be too late. It must never come to that.
Wait a second, isn't this a capitalist society?
Don't we let people succeed or fail on thier own merit? Why did we EVER let anyone get "too big to fall" and if this service is vital, why aren't other institutions cropping up to provide it anyways?
Because if we really let these people fail right now, they will plundge the rest of the economy (the people who have done nothing, and don't deserve that kind of trouble) into a big crisis. All the bailouts taken together might cost up to 5% of the U.S.'s gdp, while if the bailouts aren't agreed, the economical damage of no more central financial institution might cost up to 15% of the gdp.
The bailout is there to protect the average citizen against the stupidity of the fat cows, not to save the fat cows themselves. Once the crisis is finished, then let's punish the fat cows. But first priority: protect the citizens.
Okay, they keep telling us that credit is freezing. More specifically, they are talking about revolving lines of credit that craploads of businesses use to conduct everyday business. These lines of credits cost money. The banks are scared right now because they all do business with eachother in a similar way that companies and citizens do business with them. No bank trusts other banks because too many of them have been caught lying about their proffits, or lack there of. So, many banks are slowing down, or freezing credit to their customers, because they are worried that their projected profits won't become liquid because another bank that they changed money with may go under. It won't take long for the banks to miss the money they are making from the revolving lines of credit, so they'll be forced to decide between opening them back up, or going under themselves. There are a couple of things that really need to be done now to help this process along.
1. Pass a temporary moritorium on part of the CRT so that banks will no longer be obligated to make a certain percentage of their loans to risky borrowers so that people and companies in good standing can continue to do business as usuall.
2. Put a much more serious effort into investigating, and bringing down, the CEO's of companies who have been lying about profits to get bonuses.
I really feel that doing these things, mixed with the fact that the FDI level is now higher will do a lot to boost confidence, and that's really all we need. Remember, the Great Depression was caused more by people's negative reaction to it than the severe economic downfall itself.
In the present day case, however, it's the banks hoarding the money, not citizens, that is amplifying this bad situation. Keep a sunny attitude. Hell, at least the gass prices are dropping!
Fortunately (or unfortunately) most economists do not agree with you. The natural cycle has not been abrogated or rendered moot. The bail out is going to cause as much pain as it attempts to alleviate, but not always the same people. I am not going to argue this is a "democrat" or a "republican" thing, but it is a "liberal" versus "conservative" thing. Quite simply, sectors are in trouble, and the "crises" is just a way to weed out the bad (read: stupid) blood. The fact that 98% of the major commercial banks are still on solid footing and financially sound, and the worst we have is a couple of banks that are hurting from bad decisions indicates the economy is working. While "let the good times roll" may be a nice dream, the reality is that they do not last forever. The strength of the economy is the fact that they bad times weed out the weak, and then allow the strong to grow even larger and bigger.
Preserving the weak will not help the long term of the economy as the rot will still be there, and hinder future growth. This is not "DepressionII", not even close. It is a shakeout, and unfortunately we are not allowing the chaff to be shaken out.
I think your view of reality is strongly biaised by your personnal opinions, because most economist I know of actually agree with me. So either you listen only to those who those who say things that confort you into your beliefs (an attitude more widespread than should be, sadly) or you got very unfortunate in your picking of economists.
I've never claimed to be an economist, nor am I in a position to pick an economic advisor for the nation or an enterprise for that matter. My opinion is based on my beliefs, not from listening to people I like. If that were the case I would be all gung-ho for it despite my lack of understanding as to why I'm for it. Look, when this thing was first pushed down our throats, it didn't seem apparent that the people doing the pushing had a complete understanding of what the outcome will exactly be. The plan was not described in a way that I could envision how it would work, so supporting this plan takes a huge leap of faith for the majority of us. I don't know about you, but I don't take leap of faiths lightly, and certainly not by the instruction of those idiots in Washington.
Look, this thing could work. The thing is passed now, so the arguement is moot. The big focus now is, are we going to follow up with this in a way that it will work, or are we going to screw this up too and have 2008 become a feature in the book of ultimate failures.
No, actually you just have to read the literature to find out that Keynes has been discredited for the most part. Most is a very subjective term I know, but I stand by it. NOt all are monetarists, as many have moved to a third grouping that is borrowing the best from Keynes (I did say he was a very smart man), and sticking with most of the monetarist school.
I was not speaking anecdotal.
I am of the school of thought that thinks any school of though who believes have the monopoly on the truth is inherently wrong by sin of ego. The monetarists, the Keynes-ists, and all the other school of thought you can think of are all both right and wrong. It simply a matter of which is the most relevant to the present economical situation, and sticking with only one of those "control" of the economy is looking for trouble.
The more lever you have, the more options you got, the better it is. Sometimes, take a monetarist action, something, use the governement spending.
Anyway, I still think we are heading for a recession.
Agreed - that is why I did not say totally discredited. He has some good ideas - but his basic premise is flawed.
technically - I think we are already in one. Logically, we have been in one for almost a year (but since we are still growing, it is not technically a recession - until now). I think we are going to see a retraction in the 3rd and 4th quarters.
Point. but I meant "recession will be declared". A retraction.. you mean, of the growth, or the GDP itself? if it's a 2-quarter retraction of the GDP, it's a recession
Well, it might be a retraction of the GDP (they are always revising the numbers), but I meant we will see negative growth (slight) in the 3rd and 4th quarters. And then a slow growth for about 18-24 months. This is not going to be a fast recovery because of the credit mess - and the bailout is not really going to help.
Yup, it's gonna be a slow recovery indeed..
So... two quarters of negative growth means a negative expension period?
Purposeful typo?
Typo? Me? Never!!!!!
FYI - You heard it here (JU) first: http://www.foxnews.com/story/0,2933,438142,00.html
Federal Reserve Official: U.S. Economy in Recession
Well, actually, no, I heard it on foxnews...
I meant I said it before the "experts" did.
(Just a little self promotion there. )
Oh! Oh! Can I be quote as "Advisor"?
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