Wed, Feb 13 2008
WHAT CAUSED THE GREAT DEPRESSION?
Great Depression was caused by:
Stock market crash
- Buying on margin (credit)
- Overspeculation
International Economic Problems
- High tariffs and protectionist attitudes hurt trade
Banking problems
- Federal Reserve totally fucks up management of the banking system
- People lose faith in banking system (bank runs)
Maldistribution of wealth over long period of time
- consistent impoverishment of middle and working classes
- disproportionate enrichment of the very wealthy
- economic overeliance on luxury spending and wealth investment
Reduction of purchasing across the board
- people tightened their belts
- loss of jobs
Severe drought across the heartland
- climate conditions forced huge numbers of the poor to migrate
Any of this ring a bell? History tends to repeat itself...
Wed, Feb 13 2008
MEDIA STARTING TO USE THE "D" WORD
"bearish analyst" or not, the media has increasingly been reporting on the possibility/probability that things are waaaay more FUBAR'd than the goobermint would like you to believe...
Depression risk might force U.S. to buy assets
NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.
That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.
In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.
"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.
"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.
Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.
While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.
The build up of a credit bubble in recent years was similar to the late 1920s run-up to the Great Depression, he said.
Then, investors were very optimistic about new technologies, and stocks rose against a backdrop of low inflation, and a trend toward globalization. There was even an equivalent of the modern day subprime mortgage debt meltdown in the form of U.S. loans to Latin American countries which had to be written off.
"The big difference is the attitude of central banks and specifically the attitude of the Fed," Connolly said.
Some economists have blamed the U.S. economy's travails in the 1930s on the Federal Reserve's hesitation to inject reserves into the banking system.
However, today's Fed has tried to preempt the danger of a protracted economic slump and has responded swiftly to a credit crunch in the past year and gathering signs of deterioration in the economy, Connolly said.
The Fed has stepped up its temporary additions of reserves to the banking system, and swiftly slashed its benchmark fed funds target rate to 3.0 percent from 5.25 percent in September. Analysts expect at least another 0.5 percentage point cut in next month.
At the same time, "the fed funds rate can't stay significantly above the 2-year note yield," Connolly said.
On Tuesday, the 2-year Treasury note yield was at 2.00 percent, not far above the lowest level since 2004.
The Fed "almost certainly" has to cut the funds rate to 2.0 percent by the end of this monetary easing cycle, he said. If conditions in the banking sector worsen, the Fed could cut the funds rate to 1.0 percent, a low last seen in June 2004.
Global banks have already written down more than $100 billion of bad debts associated with the U.S. subprime mortgage debt meltdown and housing market decline.
However, Fed rate cuts alone are unlikely to avert a prolonged period of economic weakness because the danger still exists that a burdened banking sector will choke off credit to consumers and households.
"The Fed probably can't fix it all on its own now," Connolly said. "There is a chance the Fed gets forced into unconventional cooperation with government," which could involve buying a range of assets to reflate their value.
That would be reminiscent of some steps the U.S. government took in the 1930s when the economy was mired in deflation and high unemployment.
One turning point came when agricultural prices were restored to their pre-slump levels, Connolly said. Such measures were among the New Deal programs that President Franklin D. Roosevelt launched to bolster the economy.
Either way, investors face bleak prospects now without some kind of further government intervention, he said.
Those steps might offer clues to investors in stocks and commodities, which Connolly expects the government might be ultimately force to step in and buy to stabilize markets. He expects that a depression may be averted, but only by the state and the Fed reinflating the price of such assets.
Beleaguered housing, non-government fixed-income securities and even the now overvalued Treasury market have little hope of generating substantial returns for investors over the next few years, he said.
"If we don't avoid depression, the only thing worth holding is cash," he added.Wed, Feb 13 2008
WORTH 1000 WORDS
..and getting worse by the minute...
Wed, Feb 13 2008
MILITARY-INDUSTRIAL COMPLEX IS ALIVE AND WELL
Military Keynesianism is defined as "devotion to militarism, weapons, and warfare as fiscal stimulus."
Mogambo Guru on the subject: "To grasp the horror of military Keynesianism, consider this statistic: By 1990, production for the Department of Defense amounted to 83 percent of the value of all manufacturing plants and equipment in the US. Only 17 percent of the US manufacturing base actually made products not meant to kill." Yikes! And that was 18 years ago, during which time it has gotten worse!"
Holy shit.
Let me get this straight - as of 18 years ago, 83% of all US manufacturing was military related, and of that figure, 83% was devoted exclusively to armaments? And that was BEFORE we got bogged down in Iraq etc, before we became a full-on credit-for-consumption economy?
FOR REAL?? HOLY SHIT!!
No wonder everything in our homes is Made in China. No wonder we're circling the bowl. No wonder armed conflict around the world is escalating. Guns is all we have to sell. Well, that and toxic derivative funny money, but nobody is buying that anymore.
Wed, Feb 13 2008
THE GREAT CONTRARIAN INDICATOR
By now, even Joe Sixpack sitting in front of his teevee in Bumfuck, Nebraska has figured out that anything Dubya says or does is the exact opposite of truth. Like the crap about a sound economy, or WMDs, or McCain being a "true consevative". He meddles in EVERYTHING everywhere and lies lies, LIES.
So when he talks up Pakistan, listen closely, because those guys have live nukes, they house al-Queda, and they are spiraling out of control again, especially since they offed Bhutto last month.
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