Economist puts dent in optimism: bigger crash is coming(abc.net.au)
abc.net.au
Economist puts dent in optimism: bigger crash is coming
http://www.abc.net.au/news/stories/2009/06/22/2604466.htm?section=australia
7 comments
So... cute [ "the economist"'s name is Harry Dent.
http://en.wikipedia.org/wiki/Harry_Dent suggests he has some substantial credentials.
And (but) he seems to make his publishing income from doom books (see titles in wikipedia).
However, regarding his omniscience (apparently valued by abc.net.au (= australian broadcasting, not abc.com), check out his 1998 title:
The Great Depression Ahead (2009)
The Next Great Bubble Boom (2004)
The Roaring 2000s Investor (1999)
The Roaring 2000s (1998)
The Great Jobs Ahead (1995)
The Great Boom Ahead (1993)
Our Power to Predict (1989)
Not exactly prescient-looking any more to refer to "The Roaring 2000s"
Which economist will stand up and quote Shakespeare: "Believe none of us. We are errant rogues and knaves all." ?
[/cynicism]
http://en.wikipedia.org/wiki/Harry_Dent suggests he has some substantial credentials.
And (but) he seems to make his publishing income from doom books (see titles in wikipedia).
However, regarding his omniscience (apparently valued by abc.net.au (= australian broadcasting, not abc.com), check out his 1998 title:
The Great Depression Ahead (2009)
The Next Great Bubble Boom (2004)
The Roaring 2000s Investor (1999)
The Roaring 2000s (1998)
The Great Jobs Ahead (1995)
The Great Boom Ahead (1993)
Our Power to Predict (1989)
Not exactly prescient-looking any more to refer to "The Roaring 2000s"
Which economist will stand up and quote Shakespeare: "Believe none of us. We are errant rogues and knaves all." ?
[/cynicism]
I don't think that "The Roaring 2000s" is really inapt. I suspect that when people look back on the decade from 50 years hence, they will see it as a boom time that ran out of steam pretty spectacularly towards the end.
The events of the first few years in any decade seem to be weighted more heavily when that decade is summed up later than events that occur in the latter years.
I don't have an opinion either way on Dent, but the titles and publication dates of his books don't make him look that bad.
The events of the first few years in any decade seem to be weighted more heavily when that decade is summed up later than events that occur in the latter years.
I don't have an opinion either way on Dent, but the titles and publication dates of his books don't make him look that bad.
You know what I gave up on all these predictors a long time ago. People are losing their minds over the smallest bump in the market and most of it appears to be just speculators running from one extreme to the next.
At this point I figure the guys on wallstreet have way more to lose than I do. I may lose my job but I know electronics, I know basic electricity, plumbing and car repair. I'll be okay because I can fend for myself. The guys on wall street only have the luxury of working on Wall Street. If the market dives they'll be out of a job and won't be able to pay for shit. So the state of the economy is a minor inconvenience for me, it's a huge problem for them. I assume they'll eventually fix this mess not out of any altruism but because their life depends on it.
At this point I figure the guys on wallstreet have way more to lose than I do. I may lose my job but I know electronics, I know basic electricity, plumbing and car repair. I'll be okay because I can fend for myself. The guys on wall street only have the luxury of working on Wall Street. If the market dives they'll be out of a job and won't be able to pay for shit. So the state of the economy is a minor inconvenience for me, it's a huge problem for them. I assume they'll eventually fix this mess not out of any altruism but because their life depends on it.
"People are losing their minds over the smallest bump in the market and most of it appears to be just speculators running from one extreme to the next."
Did you read the article?
OP's primary argument is well established: demographics.
This is nothing new. For 30 years, people have been saying, "Here's a good business to be in: whereever the bulk of baby boomers are buying. (See fast food, autos, etc.) For the past 10 years we've been warned about the period 2008 to 2016, when 70 million baby boomers are scheduled for retirement. We've never seen numbers like that before, so it won't be painless.
The only thing OP has added is that we haven't hit bottom yet. Anyone really that surprised?
Did you read the article?
OP's primary argument is well established: demographics.
This is nothing new. For 30 years, people have been saying, "Here's a good business to be in: whereever the bulk of baby boomers are buying. (See fast food, autos, etc.) For the past 10 years we've been warned about the period 2008 to 2016, when 70 million baby boomers are scheduled for retirement. We've never seen numbers like that before, so it won't be painless.
The only thing OP has added is that we haven't hit bottom yet. Anyone really that surprised?
OP's primary argument is well established: demographics.
Sure, the decline in demographics is well established, but why does that lead to a crash? A decline sure, neutral or negative growth maybe, but a crash? Crashes usually happen due to catastrophic events (wars, bubbles popping, oh look our finance sector is built on a house of cards). I don't quite see from that article why this is a crash and burn situation, especially in places like Australia who have ready immigration to boost demographic trends.
Sure, the decline in demographics is well established, but why does that lead to a crash? A decline sure, neutral or negative growth maybe, but a crash? Crashes usually happen due to catastrophic events (wars, bubbles popping, oh look our finance sector is built on a house of cards). I don't quite see from that article why this is a crash and burn situation, especially in places like Australia who have ready immigration to boost demographic trends.
Wall Street is "fixing the mess" by robbing you blind. They are manipulating the political system to shift their losses into massive tax obligations on you and your children. Meanwhile Goldman Sachs-- a recipient of billions in TARP funds and numerous Fed guarantees, is preparing to issue record staff bonuses this year.
If you ask me, the complexity of something as large as the global economy is such that nobody could possibly make any predictions about it. It's a chaotic system, where today's butterfly can be tomorrow's hurricane. There are thousands of people making predictions and a few of them are bound to be right... but most of those economists that are supposed to be able to say anything sensible about this are just wrong.
It's hard to get money for food when no one has money to fix anything. You're plan seems nice on the surface but a recession affects everyone. Not equally but everyone sees is affected.
As for that guy, he seems to assume that because Japan didn't want to loose face in the 90s and made mistakes, were going to do the same.
As for that guy, he seems to assume that because Japan didn't want to loose face in the 90s and made mistakes, were going to do the same.
The money doesn't disappear. It just didn't exist in the first place. People will still have money, wealth will still exist and people will still have something to give for tangible and useful services.
It's like when people say that file-sharing is losing £x million for the economy. It's not like that money doesn't exist anymore it just goes somewhere else. Relative wealth of individuals is more important to an operational society than the actual figures involved.
It's like when people say that file-sharing is losing £x million for the economy. It's not like that money doesn't exist anymore it just goes somewhere else. Relative wealth of individuals is more important to an operational society than the actual figures involved.
I don't think it's like how a company's revenue drops. Money does really exist; it's backed by future promises of labour and/or resources and/or things you build.
The money actually does disappear. That's how our debt-based currency system works. Money is created through loans (from the central bank), which are granted because you agree to pay it back through your own industry--that is future labour you do and/or resources you extract and/or things you build. If a loan goes bad, that money is destroyed.
Because loans require interest, this pushes the economy to continue to expand through increased industry. Eventually it cannot expand any further, and the only way to move forward is to have a wave of bankruptcies. The survivors buy assets on the cheap which then inflate in value after the economy recovers. That helps them pay back their own interest.
This cycle creates a bit of punctuated equilibrium where the strong (at the point of economic collapse) survive, and the weak die off. This creates room for a new phase of growth and innovation.
The trick for you is to be in a strong position at the front of a recession rather than a weak position so you can make it through to the new phase of growth. This is also why people say it's good to start / build a business in a recession.
However, the more important trick is the banks must keep the creation of debt to within the bounds the economy can withstand. After the Great Depression a series of regulations were put in place to keep things under control, but since Reagan, the banks have been increasingly deregulated. This led to such things as the real estate bubble in the 80's, the Savings and Loan crisis, the Dot-Com bubble, and the Subprime Mortgage Crisis we're in right now.
If this is abstract, think of it this way. The worst thing a government can do is create so much debt that they have sold off their entire population's labour for decades to foreign creditors. That sounds a bit menacing! ;)
The money actually does disappear. That's how our debt-based currency system works. Money is created through loans (from the central bank), which are granted because you agree to pay it back through your own industry--that is future labour you do and/or resources you extract and/or things you build. If a loan goes bad, that money is destroyed.
Because loans require interest, this pushes the economy to continue to expand through increased industry. Eventually it cannot expand any further, and the only way to move forward is to have a wave of bankruptcies. The survivors buy assets on the cheap which then inflate in value after the economy recovers. That helps them pay back their own interest.
This cycle creates a bit of punctuated equilibrium where the strong (at the point of economic collapse) survive, and the weak die off. This creates room for a new phase of growth and innovation.
The trick for you is to be in a strong position at the front of a recession rather than a weak position so you can make it through to the new phase of growth. This is also why people say it's good to start / build a business in a recession.
However, the more important trick is the banks must keep the creation of debt to within the bounds the economy can withstand. After the Great Depression a series of regulations were put in place to keep things under control, but since Reagan, the banks have been increasingly deregulated. This led to such things as the real estate bubble in the 80's, the Savings and Loan crisis, the Dot-Com bubble, and the Subprime Mortgage Crisis we're in right now.
If this is abstract, think of it this way. The worst thing a government can do is create so much debt that they have sold off their entire population's labour for decades to foreign creditors. That sounds a bit menacing! ;)
You are right, but it is more complicated than that. About $13 trillion has disappeared/ been destroyed through mal-investment and the collapse of the credit bubble. Those dollars are GONE. The problem is that large parts of our economy were geared around those resources/cash flows/projected revenue streams, so the rebalancing to the "new normal" is painful. (Think autos, finance, consumer electronics, malls, housing, retirement savings).
"About $13 trillion has disappeared/ been destroyed through mal-investment and the collapse of the credit bubble."
But how much of that money actually existed in the first place, and how much was just someone's imagination running away with them?
But how much of that money actually existed in the first place, and how much was just someone's imagination running away with them?
I agree that people should not talk about "money" disappearing. But liquidity definitely has disappeared; a lot of people who thought they had liquidity turned out to not have it, and have curtailed purchases as a result.
That has real economic effects; it's not just some paper game.
That has real economic effects; it's not just some paper game.
Can anyone say that another additional shock and after-shocks could be sustained easily?
.
[ Insert List of possible shocks here[1] ]
.
* Inflation spike as people incorrectly believe recession over
* Action against North Korea
* Action against Iran
----
[1] There is a risk of becoming too much like HousePriceCrash.co.uk and other doom websites (tho I added to the doom)
.
[ Insert List of possible shocks here[1] ]
.
* Inflation spike as people incorrectly believe recession over
* Action against North Korea
* Action against Iran
----
[1] There is a risk of becoming too much like HousePriceCrash.co.uk and other doom websites (tho I added to the doom)
There is nothing wrong with doom and gloom, in and of itself. It is only a problem if you turn out to be wrong. In fact, Nouriel Roubini, termed by some as Dr. Doom, turned out to be too optimistic about this downturn, wrongly predicting the Dow to dip only to 7500 when in fact it ended in the 6000s.
I don't know how you feel about counter histories; but, based on the keyword density of your post, I'll go ahead and recommend "The Shock Doctrine, the rise of disaster capitalism" (by Naomi Klien).
I had lots of fun reading this analysis of the fact handling in the Shock Doctrine:
http://www.cato.org/pubs/bp/bp102.pdf
My thesis about life, if I have one, is that idealists lie.
http://www.cato.org/pubs/bp/bp102.pdf
My thesis about life, if I have one, is that idealists lie.
Something that worries me is the value of the dollar, long-term. Right now the government is essentially printing dollar bills and handing them out to citizens and companies.
Economic history teaches us that this is the correct response in the short and medium run (given our limited economic data set currently available - 100 years isn't terribly long of a time). It stimulates the economy, and keeps things from contracting "too much" like they did in the 1930's. There is a long-term cost to printing dollars, however, which could be high inflation (prices for everything increase, meaning your dollars have less buying power than before).
I'm not sure how this will all play out, but I'm sure we can all agree that it's not sustainable for a terribly long time. Maybe a year or two and that's it.
Has anyone come across anything written by an economist who has thought things out beyond the next year or two?
Economic history teaches us that this is the correct response in the short and medium run (given our limited economic data set currently available - 100 years isn't terribly long of a time). It stimulates the economy, and keeps things from contracting "too much" like they did in the 1930's. There is a long-term cost to printing dollars, however, which could be high inflation (prices for everything increase, meaning your dollars have less buying power than before).
I'm not sure how this will all play out, but I'm sure we can all agree that it's not sustainable for a terribly long time. Maybe a year or two and that's it.
Has anyone come across anything written by an economist who has thought things out beyond the next year or two?
This the same Harry Dent who said the DOW would be at 30,000+ by 2012. Dent is a fascinating speaker but he has a tendency to go overboard in his predictions. I'm a fan of his and (at one time) subscribed to his newsletter, but don't give this prediction the same weight as one made by somebody like Krugman or Roubini.
The argument, the so-called "Ageing population" factor, smacks of the manufactured stuff that 24/7 cable news producers come up with on slow news days.
Except to his credit, Dent's been pushing this generational theory for around two decades, and while his predictions have been somewhat extreme, they've also fit broad patterns well.
So I wouldn't take it as gospel but it's a perspective that has shown some value.
So I wouldn't take it as gospel but it's a perspective that has shown some value.
His 2012 prediction may still come true-- in inflated dollars though!
Summer time is always good for the economy. The risk is still but hope is important.