Economic Crisis of 2008/2009

[Vexx]

Meh.... I'm in much better shape than say... a family with someone fighting cancer or MS who has just had the breadwinner laid off and the house value flipped below the mortgage value and the mortgage company wants all its money *now*.

I do worry a bit about the house value dropping below the mortgage value and our "buddies" wanting their loan paid off immediately because it would be impossible to refinance at the moment. I also worry about the ease of my sons getting a sufficient financial package in the next FAFSA cycle for college (something I'm sure many of our American posters are also fretting about in their own college pursuits).

[Aquillion]

Originally Posted by Shadow Minato

The Nikkei 225 plunged 9% to the 9200-level, things are clearly looking bad. It seems that the 700 billion dollar rescue package the U.S. had passed awhile ago isn't very useful at all.

Three things to remember:

1. That plan is going to take a long time to show direct effects. They're only just beginning to set up its implementation.

2. In terms of the market reacting to the news about it... the market reacts to unexpected news, to things that investors didn't expect. That's why the unexpected rejection of the package caused markets to slide sharply, but having it passed didn't cause them to recover; by that point, everyone assumed it would pass on the second go-around, so anyone who was planning to buy/sell based around that news already had.

3. It's a plan based around keeping things from getting worse, not based around magically restoring everything to the way it was before. The damage from the crisis is still going to be felt; but buying up all the currently-massively-undervalued mortgages and restoring bank balance sheets to a semblance of sanity may allow us to avoid further bank collapses.

If banks start to fall like dominos, then you'll know the plan failed.

...yeah, I know that's not a very useful metric, but if there was an easy way then economics wouldn't be hard.

[Kyuusai]

Originally Posted by Hari Michiru

Well, the Great Depression EVENTUALLY picked up right? I guess we have NOTHING to worry about. Everything's just fine .

Yes, actually, the Great Depression DID eventually pick back up. Nonetheless, many people lived quite well--and many fortunes were made by ordinary folk--during that period.

Also keep in mind that the Great Depression was not simply the result of of the Black Tuesday crash. The market had returned to normal levels in about half a year. The problem was that continued lack of confidence sustained, a lack of insurance for bank investments, and a few other things sustained the depression.

While several lenders have failed, we are not seeing the massive failures and compounding problems of years past. Which isn't to say that it won't get worse--but as bad as this is, we are NOT yet in any sort of position comparable to the Great Depression. Of course, if people continue to panic and give up on investments, they could certainly drag us down into that sort of situation.

The bottom line is that while concern can motivate and educate, panicking, worrying, and complaining solve nothing.

[Aquillion]

Also... while the great depression eventually picked up, it took until 1954 for the market to reach its old levels (accounting for inflation.) That's over 20 years.

Of course, that's not really the best way of judging it, but it gives a good sense of the scale of what happened.

[Green²]

http://www.cnbc.com/id/27112897

Seven minutes after US market opens, DOW dips to under 8000.

[Shin Muhammad]

Indonesia got the most severe impact. JSX closed at 15xx point.
And management suspend the JSX until next Monday.
And reports on BBC News Channel, not far from stock market falldown.
How long this is will continue? Gonna tired with this.

[harmonious]

In reality, our economic situation cannot really be compared to the Great Depression. It is going to be much worse.

[Irenicus]

Originally Posted by harmonious

In reality, our economic situation cannot really be compared to the Great Depression. It is going to be much worse.

You mean this is worse than the Great Depression?

Lies!

[4Tran]

Originally Posted by Tri-ring

I really do not know how much you have invested in PRC economy but stocks are index to the health of it.

My point is that a single economic indicator is not the same thing as the the overall shape of the entire economy. What we saw in the U.S. is that the stock market had grown by a fair bit over the last few years, but this growth was not reflected in the rest of the economy. The only area which saw substantial growth was housing, and we now know that it was a smoke-and-mirror bubble.

Originally Posted by Tri-ring

It also does not answer how PRC is going to beat the odds of globalization.

I'm not sure why you're saying that like some sort of magical mantra - in any economic crisis, some sectors are going to be hit harder than others; likewise, some sectors are going to recover faster than others. There's a lot of economic indicators where China (and other countries) are much healthier than countries like the U.S. These include:
1. Low debt levels.
2. Huge foreign reserves.
3. High levels of personal savings.
4. High current levels of economic growth.
5. Relatively stable banking system.
6. Relatively strong domestic demand.

Again, I'm not saying that China is somehow going to avoid all the rest of the world's problems or that it's necessarily a good place to invest right now, but it's obvious that it's in an enviable position compared to countries where nobody even trusts the banks any more.

Originally Posted by Tri-ring

The yaun was pegged for more than two decades and under "rehab" for the last
three years, do you think it was able to gain reliabilty by the global community within such short time?

If the U.S. dollar tanks? In that case, the Euro probably won't be far behind, and the yuan really would be an island of stability in comparison. If the dollar doesn't tank, then this wouldn't even be an issue.

Originally Posted by Vexx

GM (General Motors, Inc) stock hit a 58 year low....... in other words, the stock is now the price it was in 1950, but in year 2008 dollars.

yes, GM might deserve to be there with its lumbering executive stupidity in long range planning .... but that really is a bit staggering given the size of the corporation.

Car sales of every major make (japanese, european, etc) are dropping like flies on fire across the board.

GM's market cap is at $2.4 billion right now. That's just absolutely incredible. Given that the latest car sales figures were for the period before the credit markets freezed up, Q4 figures are going to be beyond ugly.

Originally Posted by Vexx

This isn't rational behavior based on analysis, this is screaming and squealing by the big movers at the top who don't want to tough it out.

I'd be seriously considering shutting the markets down for a long cool off and hyperventilation treatment with a lots of paper bags.

Most of the action in the last couple of weeks have been fueled by panic, and it's probably the worst time to be an investor. That's doubly true for small investors since one's portfolio could drop by 30-40% in the time span of a single hour. The daily drops still aren't as bad as that awful day in 1987, but the total drop is much more serious, and the economic conditions are much worse now. Warren Buffett said that he expects the Dow Jones bottom to be at 6200.

Originally Posted by Aquillion

Three things to remember:

1. That plan is going to take a long time to show direct effects. They're only just beginning to set up its implementation.

Not only that but they're changing the provisions of the bailout as we speak. The new idea floating out is that some of that money is going to be used to inject captial directly into banks by buying equity. That's probably a very good idea, but it's also a radical change from what the original idea was. It's also sort of strange that laissez-faire capitalism advocates are resorting such decidedly collectivist means.

Originally Posted by Aquillion

2. In terms of the market reacting to the news about it... the market reacts to unexpected news, to things that investors didn't expect. That's why the unexpected rejection of the package caused markets to slide sharply, but having it passed didn't cause them to recover; by that point, everyone assumed it would pass on the second go-around, so anyone who was planning to buy/sell based around that news already had.

It's worth considering that the markets had been sliding even when everyone thought that the bailout was going to get passed. That would suggest that few investors really thought that it'd do much to help things.

Originally Posted by Aquillion

3. It's a plan based around keeping things from getting worse, not based around magically restoring everything to the way it was before. The damage from the crisis is still going to be felt; but buying up all the currently-massively-undervalued mortgages and restoring bank balance sheets to a semblance of sanity may allow us to avoid further bank collapses.

If banks start to fall like dominos, then you'll know the plan failed.

It's pretty much inevitable that a bunch more banks are going to go down. That's probably why the idea of buying equity in them came up.

Originally Posted by Kyuusai

While several lenders have failed, we are not seeing the massive failures and compounding problems of years past. Which isn't to say that it won't get worse--but as bad as this is, we are NOT yet in any sort of position comparable to the Great Depression. Of course, if people continue to panic and give up on investments, they could certainly drag us down into that sort of situation.

Panicking isn't a good idea, but the idea that this problem is less serious than those in the past is ridiculous. While it's very unlikely to be as bad as the Great Depression, it easily dwarfs any other crisis since then. Right now, the banks' reputations are dirt, and the credit problems are starting to hit the rest of the economy. The U.S. is likely to see the recession last until early 2010.

Originally Posted by Aquillion

Also... while the great depression eventually picked up, it took until 1954 for the market to reach its old levels (accounting for inflation.) That's over 20 years.

A lot of that delay in recovery was caused by the hardship of World War II as well - if it hadn't been for the war, the markets might have caught up a lot faster. Still the sense of scale is important to put into perspective.

[TigerII]

Originally Posted by harmonious

In reality, our economic situation cannot really be compared to the Great Depression. It is going to be much worse.

I want to let everyone know that this is not me.

I just don't care anymore. My government is incompetent, the corporations are corrupt, the middle class will suffer for their decisions. I am just going to live as best I can. I will continue to watch anime and such until my internet is cut or the subbing stops due to funds shortage. I am just going to go day by day at this point.

[harmonious]

Originally Posted by Irenicus

You mean this is worse than the Great Depression?

Lies!

The economic woes that happened during the Great Depression will be nothing compared to what we will see. We are $11 trillion in debt and have a fiat currency. The conditions exist for hyperinflation and when it happens, everyone will suffer.

[Shin Muhammad]

And with our lifestyle today, I think it would be painful if the depression really happens.

[4Tran]

Originally Posted by TigerII

I just don't care anymore. My government is incompetent, the corporations are corrupt, the middle class will suffer for their decisions. I am just going to live as best I can. I will continue to watch anime and such until my internet is cut or the subbing stops due to funds shortage. I am just going to go day by day at this point.

What you should be doing if you think that such horrid times are coming, is to save up as best you can, and get yourself in a position where you can recover the best. Having said that, the U.S. can still probably stave off a depression so I don't think that you have to worry quite so much.

Originally Posted by harmonious

The economic woes that happened during the Great Depression will be nothing compared to what we will see. We are $11 trillion in debt and have a fiat currency. The conditions exist for hyperinflation and when it happens, everyone will suffer.

Right now, most of the economic factors indicate deflationary pressure, so hyperinflation shouldn't be a problem. There is a chance that the U.S. dollar will fall by a large degree, but it's not going to be that bad. The only worrying thing in this regard is that the Treasury has been adding a lot to the money supply - it's up 8% over the last two weeks, and some 13% over the last month. The upside is that, outside of the credit markets and those industries currently impacted by them, the rest of the U.S. economy is still limping along. It's not in great shape mind you, but the stock markets aren't reflecting their proper values right now.

I'm not sure if there's any real harm in having a fiat currency rather than one based on precious metals
There's also evidence that suggests that the American gold standard artificially propped up the U.S. dollar during the Great Depression, and that this may have contributed to making it longer.

[Irenicus]

Originally Posted by harmonious

The economic woes that happened during the Great Depression will be nothing compared to what we will see. We are $11 trillion in debt and have a fiat currency. The conditions exist for hyperinflation and when it happens, everyone will suffer.

11$ trillion should be put in perspective with inflation rates since the days of the Great Depression -- in which the dollar suffered from deflation, not hyperinflation.

Moreover, if inflation really goes even higher -- and it will, the Feds are pumping money into the economy like crazy -- it'll actually help reduce the real worth of that crazy debt as, if I'm not wrong, the foreign debts are counted in dollars, meaning the same level of productivity in the US should produce more in dollar values to pay off that, and a cheaper dollar also discourages imports and encourage exports: one of the reasons why China, who considers the USA its biggest customer, has been propping up the dollar for so long by buying up the dollar reserves.

Mind you, inflation isn't rosy. It's mostly bad, in fact. Suddenly that already ridiculously expensive R2 import 2-episode anime DVD is going to be even more of a ripoff value-wise, and that's just the tip of the iceberg.

Originally Posted by 4Tran

The upside is that, outside of the credit markets and those industries currently impacted by them, the rest of the U.S. economy is still limping along.

Wasn't one of the biggest fears among "Main Street" is that businesses who rely on short-term loans to operate will now be unable to do so because the banks have gone nuts? I could see that causing big issues in the normal economy.

[TigerII]

Inflation is going to hurt luxuries. Internet, videogames, anime, etc. And 4tran, I don't have anything to save. The town I am in has been in a recession for years. There is a negative growth of jobs here. I have no money anyways and I am at university on a scholarship.

I will be one of the ones hurt when it gets worse.

[Garet Jax]

Originally Posted by Green²

http://www.hemscott.com/news/static/...67476086194355

"US STOCKS-Dow falls below 9,000 on credit fears"

Edit:

Watching it on television now, and it's currently down below almost 8600.

Not to bring back an old meme but...

I'm now glad I didn't start investing earlier this year. I had been thinking about it, but I never understand enough to feel confident in making any decisions. It all just feels like a big artificial game sometimes. (That comes from me being ignorant of the inner workings, I'm sure.) I tend to be more pessimistic than not, so all of this meltdown was expected in a way. I'm sure there are plenty of good buys out there for people who know what they're doing, though.

Another concern of mine in all of this is how far oil prices can fall, if they continue to do so. I had previously feared them going too high. Now they've fallen by almost %50. This initially seems like one good ray of hope for average consumers, but it also means a lot of projects aren't going to be as profitable now and may be shelved or cut back. I'm thinking mainly of the oil/tarsands projects, such as in Alberta(Canada) and Venezuela, which cost a lot more to produce per barrel than conventional wells. It also negatively influences any shale possibilities, like the US deposits some people propose harnessing. The last thing we need right now is to fall short in meeting demand.

This demand growth is, of course, slowing or in outright decline because of everything happening, so it may balance out.

[LynnieS]

Originally Posted by TigerII

Inflation is going to hurt luxuries. Internet, videogames, anime, etc. And 4tran, I don't have anything to save. The town I am in has been in a recession for years. There is a negative growth of jobs here. I have no money anyways and I am at university on a scholarship.

I will be one of the ones hurt when it gets worse.

Videogames should still do somewhat okay for the immediate future. People want to be entertained - no matter how bad the conditions get. If this keeps dragging on and on, though, people will still change to something cheaper.

Not entirely sure if the web-surfing itself will be hurt. People are going to have more time on their hands, so I would expect to see an increase in traffic. Web-based shopping might also stay somewhat flat or drop a bit since people are going to worry more about costs.

Luxury ticket items? IMHO, forget these. People are going to cut way down on these if they haven't done that already.

[Xellos-_^]

Originally Posted by LynnieS

Videogames should still do somewhat okay for the immediate future. People want to be entertained - no matter how bad the conditions get. If this keeps dragging on and on, though, people will still change to something cheaper.

Not entirely sure if the web-surfing itself will be hurt. People are going to have more time on their hands, so I would expect to see an increase in traffic. Web-based shopping might also stay somewhat flat or drop a bit since people are going to worry more about costs.

Luxury ticket items? IMHO, forget these. People are going to cut way down on these if they haven't done that already.

i can see internet shopping having a increase in sales, Free shipping+No Sales taxes. That is a money saver for people who needs buy something and still want to save money.

Plus most internet base stores have nothing more then a office staff and warehouse. They are in much better position then the traditional brick and mortar stores to ride this out.

[LynnieS]

Originally Posted by Xellos-_^

i can see internet shopping having a increase in sales, Free shipping+No Sales taxes. That is a money saver for people who needs buy something and still want to save money.

Plus most internet base stores have nothing more then a office staff and warehouse. They are in much better position then the traditional brick and mortar stores to ride this out.

Yes, costs will be a big worry in the near- to medium-term future, IMHO, which should have an effect on web-based shopping. One concern here, though, is if one or both of "free shipping" and "no sales tax" will hold true. I see "free shipping" depends on things like fuel costs, total volume and profit of goods sold, and so on. Cost of oil dropped already, but the drop isn't seen much yet in terms of prices, I think? And it's very hard to guess how profitable these companies will remain yet.

Taxes... Hard to guess. Higher unemployment usually means less payroll tax and more welfare costs. The costs of keeping roads, rail and city infrastructure aren't going to go away, and the markets aren't the easiest place to get money these days, IMHO, esp. if the state, city, and so on are already in [a lot of] debt. They're going to have to get money from somewhere to keep things running.

It's not yet possible to get everything you want to buy on-line - I'm not sure how many places now have on-line grocery shopping available these days in different countries - and I can also see more people want to visit actual stores to make sure of what they buy now.

There will be consolidation in both areas, but the bigger on-line sites will likely do okay (and better than the department stores, say) - and might even buy out some of their smaller competitors.

[4Tran]

From CNN: http://money.cnn.com/2008/10/10/news...ion=2008101020

NEW YORK (CNNMoney.com) -- Treasury Secretary Henry Paulson said on Friday that the U.S. government was working on a plan to buy stock in financial institutions by using part of the $700 billion authorized by Congress to stabilize the financial system.

"We are working to develop a standardized program that is open to a broad array of financial institutions," Paulson said.

"Such a program would be designed to encourage the raising of new private capital to complement public capital," he said following a meeting of G-7 finance ministers and central bankers.

Well, well, well. It looks like Paulson is taking some of Roubini's advice to heart. There's no mention of the the $700 billion bailout money is still going to be used to buy up toxic papers, but this has changed what was a bad plan to a not-quite-so-bad plan. What buying the stocks will do is to directly inject capital into the banks without burdening taxpapers with all sorts of useless assets. Moreover, if the government has equity in a bank, then it also has direct leverage on it's operations; and if the conditions are right, get the bank into lending out money again. One big drawback is that if this kind of buy up is only going to be applied to troubled banks, then the government buying up stock is a sign to all investors that the bank in question is in big trouble, and they will drop it like a rock. It's probably a better remedy to simply let the worst-off banks die, and to shore up the survivors - in which case a government buy is sure a sign that they're not going to let the bank in question die.

For those unfamiliar with what Roubini was proposing, here's his prescription:

At this point severe damage is done and one cannot rule out a systemic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:

- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

- massive and unlimited provision of liquidity to solvent financial institutions;

- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;

- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;

- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.

Note that he's very unfun to read because he paints such an ugly picture of what's to come.

Originally Posted by Irenicus

Wasn't one of the biggest fears among "Main Street" is that businesses who rely on short-term loans to operate will now be unable to do so because the banks have gone nuts? I could see that causing big issues in the normal economy.

Yep. The first industry that was smacked down by this are the automobile manufacturers. With no easy access to car loans, lots of people have trouble buying, and so Ford and Toyota saw 30+% drops in revenues compared to last September, and GM stocks got slaughtered. Other industries aren't hit as bad, but there's plenty of other problems showing up. Still, I get the feeling that most companies can make do for the time being - we'll know how bad it is when the Q3 reports come in. I do expect Q4 earnings to get slaughtered though.

Originally Posted by TigerII

Inflation is going to hurt luxuries. Internet, videogames, anime, etc. And 4tran, I don't have anything to save. The town I am in has been in a recession for years. There is a negative growth of jobs here. I have no money anyways and I am at university on a scholarship.

I will be one of the ones hurt when it gets worse.

There's a possibility that this mess can carry on for several years. Even if you have no way to save money now, you can still try to make the best of your education, and try to position yourself so that you have the skills to get a job that'll be in demand even in a poor economic climate. There's a lot of different ways you can improve your situation even if you can't do anything immediately.

Originally Posted by Garet Jax

I'm now glad I didn't start investing earlier this year. I had been thinking about it, but I never understand enough to feel confident in making any decisions. It all just feels like a big artificial game sometimes. (That comes from me being ignorant of the inner workings, I'm sure.) I tend to be more pessimistic than not, so all of this meltdown was expected in a way. I'm sure there are plenty of good buys out there for people who know what they're doing, though.

Hah! The joke is that the stock market really is a game. Moreover, it's a game with different rules depending on how much money you've got to invest.

Originally Posted by Garet Jax

Another concern of mine in all of this is how far oil prices can fall, if they continue to do so. I had previously feared them going too high. Now they've fallen by almost %50. This initially seems like one good ray of hope for average consumers, but it also means a lot of projects aren't going to be as profitable now and may be shelved or cut back. I'm thinking mainly of the oil/tarsands projects, such as in Alberta(Canada) and Venezuela, which cost a lot more to produce per barrel than conventional wells. It also negatively influences any shale possibilities, like the US deposits some people propose harnessing. The last thing we need right now is to fall short in meeting demand.

This demand growth is, of course, slowing or in outright decline because of everything happening, so it may balance out.

All of the things you listed are inter-related. The price of oil is down because the projected demand is down and because of the flight to the greenback. This has both positive and negative implications. One big positive is that one major reason why countries get out of recessions is because the price of commodities like oil drop enough that it finally becomes economically viable to increase the pace of industries.

With the price of oil still above $70/bbl, oil sands are still very viable, so even if new development is held back, there'll still be lots of activity. Oil shale is still not (and might never be) a very practical proposition, so not all that much has changed on that score. Hopefully everyone will remember that oil is a finite resource and plan for an eventuality when we've run out.

Originally Posted by LynnieS

Videogames should still do somewhat okay for the immediate future. People want to be entertained - no matter how bad the conditions get. If this keeps dragging on and on, though, people will still change to something cheaper.

Yup. If I recall correctly, movie theatres were quite popular during the Great Depression.

Originally Posted by LynnieS

Luxury ticket items? IMHO, forget these. People are going to cut way down on these if they haven't done that already.

The is what's going to hurt American exports. Most of the lower-ticket manufacturing has been moved overseas - what remains in the U.S. is the highly technical high-ticket items that the rest of the world isn't going to buy much of in a recession. On the other hand, if the recession is long enough, we may see a revitalization in American manufacturing (out of necessity if nothing else) - and that will be good news for just about everyone.