Nouriel Roubini's Global EconoMonitor

The Economic Mess and Financial Disaster that Obama Will Inherit

The good news is that America has just elected a president with leadership, vision and great intelligence. President Obama will also choose a first rate economic team: individuals such as Larry Summers and Tim Geithner would be excellent choices for the position of Treasury Secretary. Obama and his team are fully aware of the very difficult economic and financial challenges that the country is facing and will work hard to resolve them.

However, Obama will inherit and economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollar in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed Funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise given price deflation while the value of financial assets is still plunging. This is the bitter gift that the Bush administration has bequeathed to Obama and the Democrats.

Given this dismal background, let us consider next in more detail the macro outlook for the U.S. and global economy and its implications for financial markets…

The latest U.S. macro news have been worse than awful: collapsing retail sales and consumption, free fall in capex spending by the corporate sector, sharply falling industrial production, sharply falling employment, housing still in free fall and home prices bound to fall 40% from the peak, collapsing auto sales, forward looking indicators of business (ISM) and consumer confidence dropping to multi-decade lows, sharp surge in corporate defaults, a wrecked banking system and financial system that will have to be partially nationalized. This is the most daunting set of economic and financial challenges that any president has had to face since FDR during the Great Depression. And in the meanwhile in the rest of the world things are as bad: a severe recession in Europe, Japan and other advanced economies; the risk of a hard landing in many emerging markets including China; an almost certain global recession; a severe global financial crisis.

So let us not delude each other: the U.S. and global recession train has left the station; the financial and banking crisis train has left the station. This will be a long and severe and protracted two year recession regardless of the best intentions and good policies of the new U.S. administration. It will take a lot of hard work and sound policies to clean up this mess and reduce the length and severity of this economic contraction.

And in the meanwhile the brief bear market sucker’s rally in the equity market has lost its steam and U.S. and global equities are starting to plunge again. As I argued for the last few weeks this was a bear market rally and markets could not defy the laws of gravity: a slew of ugly and worse than expected macro news, earnings news and financial news was bound to take a toll on equities and other risky assets. And now, after a brief rally markets are starting to plunge again. For 2009 the consensus estimates for earnings are delusional: current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009 up 15% from 2008. Such estimates are outright silly and delusional. If EPS fall – as most likely – to a level of $60 then with a multiple (P/E ratio) of 12 the S&P500 index could fall to 720, i.e. 20% below current levels; if the P/E falls to 10 – as possible in a severe recession, the S&P could be down to 600 or 35% below current levels. And in a very severe recession one cannot exclude that the EPS could fall as low as $50 in 2009 dragging the S&P500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities.

So the brief sucker’s rally is over and a reality check is now dawning on markets and investors. Expect this financial crisis and economic recession to get much worse in the next 12 months before it gets any better. We are nowhere near a bottom for housing, the U.S, economy, the global economy and financial markets. The worst is ahead of us rather than behind us.

Indeed, as I put in in a note in mid-October:

So risks and vulnerabilities remain and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will dominate over the next few months the positive news (G7 policies to avoid a systemic meltdown, and other policies that – in due time – may reduce interbank spreads and credit spreads). So beware of those who tell you that we reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March, after the announcement of the possible bailout of Fannie and Freddie in July, after the actual bailout of Fannie and Freddie in September, after the bailout of AIG in mid September, after the TARP legislation was presented, after the latest G7 and EU action. In each case the optimists argued that the latest crisis and rescue policy response was “THE CATHARTIC” event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis- as I consistently predicted here over the last year – became worse and worse.

So enough of the excessive optimism that has been proven wrong at least six times in the last eight months alone. A reality check is needed to assess the proper risks and take the appropriate actions. And reality tells us that we barely literally avoided only a week ago a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic and more appropriate; that it will take a long while for interbank markets and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks instead of being the lenders of last resort will be for now the lenders of first and only resort; that even if we avoid a meltdown we will experience a severe US, advanced economy and most likely global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as this past week) on the downside with significant further risks to financial markets.

844 Responses to “The Economic Mess and Financial Disaster that Obama Will Inherit”

devils advocateNovember 6th, 2008 at 1:24 pm

nourielif the hedge funds leveraged trillions to go sloshing around the world from equities to commodities to currenciesand are selling and selling and sellingthen, not only are stock/commodity prices dropping under their sell pressurebut, the trillions no longer exist to bankroll business and tradetherefore, all the central banks/governments are beginning to print $$$$ to replacethe diasppearing hedge-fund $$$$$$$$$$$question: can they do it?of course, they must, or else!!!nouriel:1. why do you omit this from your analysis?2. what do you think?

JGUNovember 6th, 2008 at 2:38 pm

Roubini for President!You were predicting the market before, now you are influencing the market, my good professor. Every time you spoke, wall street boys and girls are scared to death now. Thumb up for you!

GuestNovember 7th, 2008 at 8:07 am

I suspect all the money replacement will once again be put back into commodities and equities to a lesser extent once risk subsides which would be highly inflationary or if treasuries do really well they’ll put their money in treasuries but that will be equally inflationary. Either way we’re stuck between a rock and a hard place. By giving money to the wealthy I suppose the FED believes it can contain inflation but rich people like to earn interest on their money and eventually that capital will find it’s way into the markets.

The Independent from ChileNovember 11th, 2008 at 8:52 am

I do not agree at all. I would prefer a natural american for president and not a jewish derivative. Israely people always have and agenda for their own interest instead of USA’s. Their motto is to control USA and the middle east towards a coallision that will hold a war against the Arab world. USA has been sold out to Israel.Israelis have already controlled the american, europe, and australian media; hollywood, the senate and congress of USA, CIA and FBI high positions, and therefore there is no more United States of America…but an “Israeli State of America”.SOURCES- John Mearsheimer and Stephen Walt, “The Israely Lobby” on London Review of Books: Jonathan Cook: Ron Paul: (Israely-Palestinian) (On Irak) (On USA financing Sunis)- Jimmy Carter: (on AIPAC and Zionist influence on USA)- Paul Findley: now is going directly to bankrupcy and economic turmoil through a prolonged recession. This is a tactic to bring down an empire, specially if you complicate the middle east fragile equilibrium into a war (first step, Iran?). If I were Napoleon I would acertain USA is going down in the coming 5-10 years. After that, some people will buy this country. Guess who !The funny thing is that israel and the myth of a Jewish nation – whose need for a safe haven was originally used to justify the founding of the state of Israel – is a myth invented little more than a century ago !!! (Source Dr Shlomo Sand, Tel Aviv University: be there is hope with Obama, but we never know who do politicians are working for, aint?- Obama on AIPAC: Rahm Emmanuelle controversy: regards

AnonymousNovember 6th, 2008 at 12:14 pm

I have much respect for your opinions, but to blame Bush is childish. You even said this problem has been brewing for quite some time.

JohnNovember 6th, 2008 at 12:35 pm

“Childish”? These Bushies wrecked this economy and the financial markets with their voodoo supply side dementia and market fundamentalism. So they should take responsability for the meltdown they have caused.

BDBNovember 7th, 2008 at 7:42 pm

It was Greenspan thatcaused this collapse, Both bushes and butthead are to blame. but yah, GW gets the lions share.

AnonymousNovember 10th, 2008 at 12:36 am

In 2003 Bush and the GOP attempted to regulate FNMA and FHLMC. This was shot down along party lines. In 2005 McCain, of all people, co-sponsored S.190, to do the same. Shot down along party lines. The ONLY thing the GOP ever tried to regulate concerned mortgages, and the Dems shot it down. And mortgages are the biggest cause of this disaster.

AnonymousNovember 21st, 2008 at 4:22 pm

This is pure baloney. Bush made a lame proposal to clean up Freddie Mac after an accounting scaandal broke. At the same time, the Republican officials then working at Freddie secretly funneled $2 million to a Republican lobbying firm that successfully lined up the majority of Republican Senators to join the Democrats in killing the Bush proposal. McCain endorsed the Bush proposal, only after it was clear it was going nowhere. These facts are easily documented.

GuestNovember 6th, 2008 at 12:54 pm

Blame Bush is childish? Here comes the revisionists. Oh, and I guess that Holocaust thingy never happened either!

GuestNovember 6th, 2008 at 12:55 pm

If you break it you own it! And this administration has been in charge of the economy and financial markets for eight years now! So blame Bush, Paulson and Bernanke for this crisis.

GuestNovember 6th, 2008 at 1:02 pm

and hold accountable the congressional and senate leaders – unfortunately the voters in America did not.

GuestNovember 6th, 2008 at 9:15 pm

The Congressional and Senate leaders ran which failed regulatory agencies? We have been raped by Republicans, both in the White House and among its fellow travelers in the legislature. We’ve replaced the first, and not a few of the second, with good Democrats.We need a second party. Feel free to form one. The Republicans, as a national party, are over. It’s now the Confederate Flat Earth Society, and its ganster associates in business are about to meet their reward.

Anonymous ibid.November 7th, 2008 at 12:08 pm

The Congressional and Senatorial leaders in charge when the problem was building up were Tom DeLay, John Boehner, Mitch McConnell, and Trent Lott.Trying to blame the Democrats for the financial crisis is what cost the Republicans the election. The voters can tolerate mistakes, but not people who blatantly lie about them.

GuestNovember 6th, 2008 at 1:52 pm

Blame most people collectively. The attitude has been to make a fast buck, irrespective of consequences. Politicians have responded to this mentality by getting on the bandwagon and flogging the horses to make ’em go faster!

GuestNovember 6th, 2008 at 2:14 pm

Cheney-Bush accumulated more debt than all other Presidents before them put together. How many ways can you spell irresponsible ignoramus. I am a Republican and I did not consider voting Republican in this election after 8 years of the worst administration in history. I am sure some people never stopped voting for Mussolini, who also never admitted he got in the wrong war, but I would never have been one of them. You would have apparently .

JohnRyskampNovember 6th, 2008 at 4:11 pm

Blame the Republocrats and the Demopublicans. In Illinois, we call it the Combine. The only people afraid to blame Bush are the people afraid to look in the mirror. Bush is us.

Anonymous ibid.November 7th, 2008 at 12:10 pm

I’m glad to hear from you, Guest. The bad Republicans are so noisy that it gets hard, sometimes, to remember that there are also good people who have been Republicans.Thanks.

dhomeNovember 6th, 2008 at 4:52 pm

The causes of these problems have certainly been around for a long time – pre-dating W. Bush. Before 2000 people (Buffet, Soros, NR, the European regulators and many others) were warning, even pleading for better regulation of the derivatives market and the necessity to repair the conflict of interest that the security raters (Moodys, S&P) were operating under. The laissez faire dogma of the Republican Party ensured that those warnings were ignored by both Bush governments and so now we are here.Proof? Senator Gramm (R Tex of the Gramm-Leach-Bliley Act fame) and the Republican dominated Senate Banking committee buried the pitiful “reforms” in an 11,000 page bill and when W. Bush appointed Reagan’s Senior Associate Counsel – Christopher Cox, as SEC chairman; he was allowed to go to sleep on the it. Helped by a 3 to 2 Republican majority on the SEC board. Before that, the investment bank preferred and Hank Paulson (still at Goldmans) endorsed William H Donaldson was appointed as SEC chairman by W. Bush. He will go down history as the man who facilated the “voluntary” self-regulation of the investment banks. That’s three pivotal W. Bush people right there.By the way, in 2003 the first W. Bush administration promised European regulators that they would fix the raters issue – just so the Europeans (International Organization of Securities Commissions) would go away and not draw up their own ratings regulation. That sort of snow job won’t work a second time. Expect IOSCO to draw up many forms of regulation covering raters, non-opaque accountancy rules and hedge fund and derivatives standards. Also expect the Europeans, Asian and BRICs regulators to insist on the US’s acceptance of this new world order.The SEC’s Office of Compliance, Inspections and Examinations has been spectacularly useless; in that it allowed the US Government charted raters, whose investment ratings were trusted around the world; to regulate themselves and in so doing, undermined that most fundamental requirement for doing business – trust. That is what makes this recession/depression so dangerous.As an example of what I am talking about; Chief Economist Koo of Nomura Research recently published a presentation which carried this proposed warning for investors: “Warning: Subprime crisis has proven that ratings produced by this agency are sometimes useless. Investors are therefore advised not to rely entirely on ratings produced by this agency in making investment decisions.” He suggests that all the agencies who gave ridiculous (fraudulent?) ratings leading up to the subprime bubble collapse should be required to issue that warning in all their public announcements for the next 50 years.If President Obama really seeks to re-install the US in “its leadership role”; this would a good place to start – by rebuilding international respect for and trust in US lawmakers (Congress and Senate) and regulators (whichever ones Obama keeps). That will only happen when the world sees them doing their jobs properly.If you want leadership, first earn the respect. You earn respect by acting responsibly. The US did not and continues to act with financial irresponsibility. It will be an interesting G20 meeting next week.

GuestNovember 6th, 2008 at 7:32 pm

Guest had it right. Greed is to blame…in the market and in the neighborhood, and in D.C. Blaming one specific group means you really don’t have a handle on what has happened. It all worked together and everyone was loving it…yes, you were too. Housing bubble started in the mid 90’s and no I don’t blame Clinton for that.

GuestNovember 6th, 2008 at 9:23 pm

It was not “greed” that did it. There’s nothing wrong with greed. Appetite is natural, and vital to the engine of the economy. What was wrong wasn’t how the engine was fueled – greed – but in how it was tuned. Rather, how it wasn’t tuned. The mechanics – the regulators – slept on the job.And they did that because of an explicit Bushite belief that engines, left alone, would miraculously become self-tuning, would evolve self-regulatory capacities better than the hand of the finest mechanic.Regulated greed is good; unregulated greed is deadly. It’s like any other fundamental motive power.

g AntonNovember 6th, 2008 at 7:45 pm

Bush’s “good economy” with its “strong foundation” have over-cooked by far McCain’s and Palin’s geese. In the economic sphere, George Bush has been the personification of HUBRIS.

GuestNovember 7th, 2008 at 8:12 am

Wait guys supply side economics works can’t you tell. Just allow me to dominate/merge and pillage all the money in existence and the economy will take care of itself. Ya know I spent a lot of money on an MBA to be able to say that with authority.

GuestNovember 8th, 2008 at 5:08 pm

History will show that Bush did all he could to stop this out of control train. You people need to do your homework. And as for appetite- this is natural and good. Greed on the other hand is exactly what has placed us in this situation that we are in.I vote we elect Bush for 2 more terms!!!!

AnonymousNovember 9th, 2008 at 9:02 pm

Why is it childish? Ever since Bush came to power he has prescribed to “Walk Away Laissez Faire Capitalism”. Like all ultra right wing Republicans he subscribed to a dogma of supply side economics that states that “the market will take care of everything” and not only is government intervention and controls in the marketplace bad they are positively evil. Perhaps Republicans were simply naive, or maybe they just didn’t give a dam. But they literally walked away from their responsibility to manage the economy properly. Roubini is simply stating an obvious fact that Republicans in their mass delusions just don’t seem to get.

ArmchairNovember 10th, 2008 at 7:27 am

A mature approach would be to refrain would be to refrain from drawing lines every eight years and declaring everything good on one side and everything bad on the other side. Nevertheless, let’s not forget that Bush inherited a governement that was generating surpluses. Bush immediately took steps to push the government back into deficit.Clinton years were not 100 percent good, but Bush was pretty close to 100 percent bad.

Business ManNovember 6th, 2008 at 12:18 pm

The good Professor has recently been talking about the S&P going down to 720-600 based off fundamental analysis. Now he is putting an S&P drop to 500 into the mix. This is NEWS! Invest accordingly, best of luck to all.

JohnRyskampNovember 6th, 2008 at 4:13 pm

Try 120 on the S & P. And if you think I’m wrong, you’re like the guy who wrote (I believe, on this site), when I said copper would go to $2, that it would go to $20 before it would go to $2.Copper will go to 2 cents, where it belongs.

WiseGuyNovember 6th, 2008 at 7:00 pm

John -Where do you get 120? In my mind, 500 is a low (but not negligible) probability event. There might even be enough tail in that probability distribution to allow for an S&P in 400’s. But 120?

AnonymousNovember 7th, 2008 at 9:54 am

John, copper t0 $0.02 an ounce? Absurd: production costs average $1.00 an ounce. At $0.02 all copper produers would shut down.

AnonymousNovember 9th, 2008 at 3:47 am

Anyone believing “tails in a distribution” and trading needs to read, “Black Swans” by mathematician and money manager Nassim Nicholas Taleb.Steve

WiseGuyNovember 10th, 2008 at 7:03 am

I guess I didn’t claim to profess a “belief” in probability.Although I work with probabilistic models as part of my job, I am quite aware of their limitations — especially when it comes to extreme events.All I was trying to express was that I thought the likelihood of S&P going to 500 was small and the likelihood of it going into the 400’s was smaller.This isn’t to say that everything goes “to hell in a handbasket” and we end up further south of those numbers. However, if the S&P goes below a certain point, it will mean that the U.S. economy (and possibly the world economy) is basically dead and that we’re all wandering the streets in some post-apocalyptic world. I wouldn’t assign a significant probability to that event but, of course, that does not mean it couldn’t happen.That’s why we always must be careful to distinguish the MODEL of reality from reality itself.

WiseGuyNovember 10th, 2008 at 7:25 am

@Steve -By the way, I actually do appreciate your critique. I find that if I start sounding like I know a lot, it usually indicates that I’m overlooking something significant.Also, thanks for the reference to “Black Swans” – I’ll have to take a closer look at it when I have a bit more free time.

Lloyd GillespieNovember 6th, 2008 at 12:22 pm

I agree completely, Nouriel… We now need serious global structual system economists best ideas put forward. It’s all contracts, the world over, so what’s the best re-alignment of “The collisional mess of total global contracts?”

JubileeNovember 6th, 2008 at 12:47 pm

“it’s all contracts, the world over…”So true, Mr. Gillespie. And contracts that were made by men can be modified by men. But men are such fickle creatures, and once they believe they are owed something, it is oh, so difficult, to convince them that it’s just “all in their heads”.I’ve said it before, and I’ll say it again, but the problem we’re facing here is MORAL in nature. The vast majority of those contracts floating around out there, the “collisional mess of total global contracts”, as you call them, were written and entered into with the implicit aim of unfairly taking advantage of one or more parties. So how do you solve a MORAL problem? Only one way: you REPENT.Now, before everyone goes all crazy on me here, let me define the term repentance for you, in terms of this discussion. The Greek word for repentance was “metaneoeo”, which roughly translated means “a change of mind”. the “meta-” prefix indicates the magnitude of the change, and the “neoe” suffix can be translated in many ways, all of which have in common the idea of an unseen, yet real, force (thus, the mind). It is also implicit in the word that the change of mind (or spirit, or life force) is of such a magnitude that it leads to behavioral change. So, I’m not here to preach, but the word fits the bill, and I’m going to use it.In this specific case, we have contracts, written by and entered into by men. At the time, the contracts seemed like a great idea – now, the flaws in them, and their terrible consequences, are becoming more and more clear by the day. So we have a choice. Do we hold all parties responsible according to the original terms of the contract, or do we REPENT and modify or annul the original contracts, and set new terms? One option, of course, is to simply cancel all the contracts and start all over again – a Jubilee, which would be appropriate, since we are living in the midst of a Jubilee year at this very moment. Economically and politically, however, I think we all know that this isn’t a very probable outcome. So what do we do? Well, that’s up to the folks who have the right and authority to rewrite those contracts. One thing is quickly becoming clear, though. If no one chooses to REPENT, the consequences appear to be horrific…

WiseGuyNovember 6th, 2008 at 7:04 pm

I don’t agree with your assumption that contracts are basically bad. Some are — and some aren’t.Our job is to sort the wheat from the chaff.

J ParmerNovember 6th, 2008 at 10:56 pm

I believe the term you are searching for is “metanoia.”However, I believe you are basically correct, that debt forgiveness, which is the intent of jubilee, must be part of the overall equation. Whether this is forced forgiveness or not may not matter in the aggregate, but both will hurt those who lent so freely.Everyone knows the home loans under water now & in the near future will not, in any significant percentage, be repaid. I think this is in part why Dr. Roubini’s forecasts are so dire-sounding. He can hear the immense sucking sound of these loans vanishing, alongside the desperate efforts to rescue “real” assets from total collapse.It is possible that the economic result will be even worse than he predicts. We have waited far too long in fixing this. Lending and repayment can be very unforgiving.I myself have borrowed (not very heavily) just to pay my 2007 taxes, which I badly miscalculated. It’s November. Now I have to make my business produce enough income to pay my taxes for 2008. If I can do that, my business survives for another year, I think. Out here in the real economy, business is not bad, but money flows, promptness of payment, and resolution of bids into contracts have slowed noticeably. I would not like someone else to rewrite my business’s contracts.Therefore, liquidity on a micro scale still exists; whether that continues deeply concerns me. My partner and I have young adult children who depend on us to varying degrees, and we want them to overcome the poverty of youth. We are helping all we can.Then, also, we have friends and neighbors who have lost their jobs, and we try to help them by hiring them to finish projects that our business prevents us from completing. At times, our inability to respond to these needs is painful. And slow. Recession….Repentance, or metanoia, is an ideal. If I can encourage a more fluid approach to these economic problems, I will. But the big players with the big problems, with their rigid repayment schemes that are not working will have to find succor elsewhere. I have no time for them.

JubileeNovember 7th, 2008 at 1:16 pm

@J Parmer…Metanoia is another form of the word, yes. I chose metaneoeo because it is also used in the original Greek documents (the Gospels), and fit my need a bit better for the point I was trying to make.Your post is very thoughtful and well written. I wish you the best as you try to navigate these rough waters. I admire anyone who has the courage to own their own business – I tried, but failed, so my hat is off to you.I also appreciate your attention to the “micro” picture. It seems to me that we as a society spend a lot of time worrying about things beyond our immediate control. You show wisdom in you willingness to look around you and meet the needs of those within your immediate circle of influence. I wish you the very best…

JubileeNovember 7th, 2008 at 1:10 pm

@WiseGuy…Fair enough. I should have been more specific, because it is certainly true that not all contracts are bad. The concept of a contract is sound, and important for any society that emphasizes the due process of law…I should have been more specific in pointing out that right now, at this point in history, we have a large number of “bad” contracts…Thank you for pointing out my bad assumption

WiseGuyNovember 7th, 2008 at 8:20 pm

@Jubilee…No problem! Thanks for clarifying.I find myself agreeing with you on this (as long as we’re focusing on the “bad” contracts). Obviously, the definition of a “bad contract” will change as economic conditions change.

GuestNovember 6th, 2008 at 12:25 pm

Rahm Emanuel in for White House Chief of Staff… Check!NR off the board for Treasury Secretary… Check!DOW down 390 and “change”… Check!Spin doctors lowering expectations at a furious pace… Check!And wheel’s just keep on turnin’,oh, those wheel’s just keep on turnin’

Mss ItalyNovember 6th, 2008 at 12:27 pm

Alessandro, and whoever can help,I’m looking for a good historical data of house prices and rentals in Italy, Milano and surroundigs in particular and of Germay, Berlin. Anything similar to the S&P/Case-Shiller available? Thanks

Alessandro - 6th, 2008 at 2:17 pm

Didn’t find any decent data source. Sorry.It’s sad and ironic, but I know much more what’s happening in the States than at home.

JedNovember 6th, 2008 at 3:31 pm

Hmm… I have a few friends from college, in the USA and Australia (plus one from Canada), who are soon going to be emigrating to Germany. (Probably best place in the world these days, for the tech-oriented, with the culture there and the cities.)However, AFAIK they’re all going to eastern German cities (not Berlin) since the rent/mortgage is MUCH cheaper in e.g., Mecklenburg-Vorpommern than in the Hamburg/Frankfurt/Berlin triumvirate. Yet the services and quality of the cities still first-rate– IOW, it’s one of those cost-of-living hangover things from the reunification.Is this for research, actually moving there? Any particular focus on Berlin, or are some of the more medium size-ish eastern German cities also an option? Examples: Erfurt, Rostock, Jena. Great opportunities and affordable in each one!

GuestNovember 6th, 2008 at 12:29 pm

Professor I just commented on the last post regarding Obama and this seems more like a depression rather than a recession. The stock market drag is nothing like the steep declines and fast recoveries of the 70s and 80s. With deravatives market 100s of times more than what they were a few years ago, this might just become a greater depression. I think you should re-evaluate your work since things might actually be worse than you were predicting. Also, you wrote about a deflation-recession but what happens after that? How does the economy recover after that (and the consequences of deflation-recession). This resonates a lot with depression, and with these funky loans and instruments, what would be the effects of deflation on debt?

Lloyd GillespieNovember 6th, 2008 at 12:40 pm

Check out Irving Fisher’s DDT, (debt deflation theory)and then check out Karol Gellert’s revised summation of DDT… <Link>

GuestNovember 8th, 2008 at 7:58 am

But that doesn’t account for monetary policy. Indeed, a lot of economics is dealth with numerical analysis, but logical deduction can account for many things as well:My point was that, the tight monetary policy during the great depresion was a natural counter to the effects of deflation. Paulson and fed chairman’s view is the exact opposite. A lower interest rate would be inflationary and counter deflation (this in my understanding is also Roubini’s view). However, imo, if we reach the point of a deflationary-recession, then this loosened monetary policy would take us into a depression. Part of the reason why I feel is that the focus is too much on the borrowers’s side and not towards the lender’s side. The worth of raw cash would be increasing in a deflationary-recession, not decreasing unlike in inflation. Hence, with no interest even with goverment assurity and less counterparty risk, there would be no rationale or reason to lend. The “real” cost of debt would increase, leading to corporate defaults. That will be the “real” credit-squeeze. Not that lending would stop because of counterparty-risk primarily (as now), but it would stop because, risk or no risk, it would not simply be worth lending. Unless the interest rates are high. And the fed’s target rate will be at 0 soon!

GuestNovember 6th, 2008 at 2:08 pm

read Conquer the Crash by Robert Prechter. Written in 2002. It’s almost a blueprint of what is happening now

GuestNovember 6th, 2008 at 2:49 pm

How about “The Great Reckoning” written by that wonderful lunatic Lord W. Reese-Mogg. Published in 1994, and taken with a very large grain of salt it’s still right on target.

jugglingcdosNovember 6th, 2008 at 6:57 pm

i like that book,i thought weve reached the end of the tunnel in 2000then they slashed rates, and pig “housing” flysi think we’re heresome are touting the Green Revolution for the next bubble, i personally think it wont work

AfANovember 6th, 2008 at 12:37 pm

And I am looking for historical prices (preferably daily) of US Bonds of key maturities since the beginning of the last century (I have data since the 70’s).

AnonymousNovember 6th, 2008 at 12:37 pm

when the rate is 1%, how can you justify at 10 P/E — it’s a counter to your argument mr. roubini… please answer.

GuestNovember 6th, 2008 at 12:57 pm

Dude: during severe recessions P/E ratios can fall well below 10 regardless of what interest rates are. This will be a recession bordering on the depression side.

WiseGuyNovember 6th, 2008 at 7:23 pm

The problem with comparisons of historical S&P P/E ratios to current P/E ratios is that the U.S. has enjoyed a unique place in the world since the mid-1940’s as a world super-power (economically and militarily).Going forward, our place in the global economy will not be as high relative to other economies. Our economic growth will slow which means that future earnings will not grow as fast. Once investors catch on to this, stock prices will fall accordingly.As a result, an S&P P/E ratio below 10 seems very likely.

GuestNovember 6th, 2008 at 12:49 pm

@Guest: “You are totally spot on. And furthermore, when the supposed middle class wants to move up in income, they will have a VERY difficult time crossing the $250,000 threshold. That is what all these lower income people don’t realize. Their ability to move up will become more impossible.” 2008-11-06 10:37:18It’s called the Obama ceiling.

TheresnoonebehindthecurtainNovember 6th, 2008 at 1:10 pm

right now people need a floor to stand on and are not really worried about the height of their cieling… ceiling provide a purpose too: to protect us from the elements. I don’t know what kind of house/apartment you live in but most people like to have ceilings on them. I don’t know if you’ve notices, but the floor is falling out of under us, it’s hailing, and the tornadoes about to hit the house Dorthy. Sweet dreams.

GuestNovember 6th, 2008 at 4:17 pm

Hey grampa, didn’t most families live on one earner income back then and now it takes two and then some. Maybe they need to push polygamy?

GuestNovember 9th, 2008 at 6:39 am

Back then there wasn’t a BMW in every other driveway and a normal house didn’t equate to a McMansion with a two-story entry foyer with a circular drive.

GuestNovember 6th, 2008 at 12:59 pm

“The good news is that America has just elected a president with leadership, vision and great intelligence…However, Obama will inherit and economic and financial mess”

I think it would be safe to say that Obama has also inherited and some would suggest is beholden to, a powerful congress dominated by a cast of characters (Reid, Frank, Dodd, Pelosi et al) that presided over and facilitated the creation of this crisis. In addition this new President, with full knowledge of the crisis, ran a campaign based on higher taxes and higher spending.

Peter TurnquistNovember 6th, 2008 at 1:45 pm

Though I’m not scholar enough to recite the history, my impression is that exigent circumstances usually trump campaign promises. I rate Mr. Obama as more pragmatic than ideological.

MedicNovember 6th, 2008 at 2:30 pm

Actually, he has inherited a rather inept congress. The leaders you mention have not presided over this mess – that honor would belong to the other party who were in charge from 1992 until 2006. Remember Newt G and the boys? Oh that’s right, they were too busy impeaching a president for marital infidelity to pay attention to the regulation of finance.The congress currently in power has been too weak, inept and scared to impeach a president who actually broke the law. Overlords they are not – more like F-Troop wannabes.

GuestNovember 6th, 2008 at 3:20 pm

@Turnquist -you suggest that in addition to intelligent visionary and leader that Obama is first a politician – how long then before the teary eyed awe struck masses realize the promises were empty rhetoric? I guess time will tell if indeed his pragmatism trumps his ideology. Either way it suggests that the elevated status that NR has given Obama may be misplaced.@Medic-you compare the democratic led congress to F-Troop / Key Stone Cops wannabes, which does not bode well even for an intelligent and visionary leader. I agree the republicans must also bear responsibility but where were the Dems for the past two years and what are we to make of the records of Barney and friends during the past 10 years? More importantly, what of Obama’s responsibility during his tenure in the Senate? It would seem to me that a great leader and visionary would have risen to the occasion given the majority his party has held since 2006.

WiseGuyNovember 6th, 2008 at 7:37 pm

A crisis brings out the best and worst responses in people.One of the worst responses to take right now would be to sit back, do nothing, and wait for things to deteriorate further — just so we can sit back smugly in a couple years and say “See, I told you they couldn’t fix this!”The problems that we’re facing are not insurmountable — at least for now. Wait long enough, however, and they just might be.

Anonymous ibid.November 7th, 2008 at 12:17 pm

Oh, good grief.The Republicans had absolute control from 2001-2007.Even after the whipping they took in 2006, Republicans had substantial control in the Senate and, of course, control of the White House.The Democrats did not time travel to create the crisis.Up is not down, no matter how much the FOX propaganda machine tries to tilt the world.

color me jadedNovember 8th, 2008 at 10:23 am

Partisan politics, gotta love it. This problem has been brewing for decades. All parties involved have dirty hands. We, the American public, are to blame, the elected officials from both parties, George Bush, Alan Greenspan(biggest blame), The Fed, investment bankers, regulatory oversight committees, brokers, realtors and the list goes on.We will soon find out if an Obama presidency with support from a dem majority in both legislative houses will bear fruit. If they are pragmatic in their policy decisions, instead of partisan hacks we may have a chance. For some odd reason I have little faith they will take the sensible pragmatic approach, considering their history.I am so sick and tired of our government, it is all about corporate greed, lobbyists, scratch my back back room deals and special interest groups. To think one party or another will change the crony political process ingrained in our “leaders and parties” is beyond naive and borders on ignorance and stupidity. Just look at the current fiasco of the $700 billion bail out, votes bought from both parties by offering the legislators pork barrel perks……We need a viable 3rd party alternative to break the monopoly of power the republocrats hold. A true independent common sense party of ideas. Until we get an alternative be prepared to be disappointed, nothing will change.Meet the new boss, same as the old boss

GuestNovember 6th, 2008 at 1:00 pm

This is a good articlewith concise historical data regarding events leading up to great depression, and events over the last 30 years. Include useful charts.Worse than the Great Depression″Based on indicators like (1) global real estate overvaluation, (2) indebtedness, (3) leverage, (4) outstanding derivatives, (5) global bubbles, and (6) the precariousness of the global monetary system, I would argue that the accumulated imbalances in the current period surpass significantly those preceding the Great Depression. I therefore conclude that the coming U.S. (and possibly) global depression will be of greater magnitude than the Great Depression of the 1930s. It likely suggests that we are entering a historic period that will likely be known as The Greater Depression.”LB, I always appreciate any information you provide about Bretton Woods II and how it is in the process of disintegration.hlowe

GuestNovember 6th, 2008 at 1:50 pm

Please do not spam these fairly intelligent forums with this ‘gold bug’ drivel.The guy works for Agora financial, a gold-pusher site.While gold may have it’s uses (in jewelry, it’s not money), these guys are selling it as investment snake oil.And that is clearly hampering their critical judgment on these matters.

GuestNovember 6th, 2008 at 4:18 pm

1) Did you buy gold when it was under $300oz or did you miss that opportunity?2) Do you have the ability to see the value in the charts? Perhaps not if you cannot get beyond your prejudices.3) My take away after looking at the charts was recognizing many topics of value not just gold.hlowe

MarkNovember 6th, 2008 at 1:04 pm

Are people getting the feeling like it’s all out of control? These folks are sloshing us around, back and forth shaking out all loose change. Riches continue to be concentrated in the hands of those that brought us this mess!Goldman Reverses U.S. Stock Advice, Says Shun Overseas SalesBy Michael PattersonNov. 6 (Bloomberg) — Goldman Sachs Group Inc. strategists advised U.S. stock investors to buy companies that generate most of their sales in America and avoid those with high overseas revenue, reversing a strategy they had advocated through July.

GSMNovember 6th, 2008 at 5:41 pm

Ecellent point Mark. Taking any form of investment “advice” these days is like Russian roulette. They are all corrupt commission feeding hacks in my book. Stay individual, learned and stay alert. Then invest accordingly. These guys are only herding money about into areas where they know they can profit. Eg “Buy Overseas” = Pump up O/seas markets so we can get out at a better price.All of ’em, rogues and spivs.

Michael KhorNovember 6th, 2008 at 1:08 pm

I am a great admirer of Prof’s macroeconomic analysis. However, I feel that the Bush administration is not only responsible party to the current economic mess. I am no admirer of Bush since his unilateral catch-phrase, ” Either you are with us or against us.” The House, the Congress and politicians in general, should also take the blame for supporting alot of Bush & Cheney failed policies, particularly, the war in Iraq. Most of all, the Americans must also take responsibility for voting Bush twice to the White House though he had a mediocre 1st term. Surely, the past EIGHT years reflect the importance of voting an excellent President to office for our economic wellbeing. I hope, we have found one and time will tell. On the other hand, I believe Americans in general must learn to be more frugal and live within their means and not leverage our future earnings for current consumption just because politicians ask us to keep spending for sustainable economic growth. With savings, good financial management and the support of our social systems, Americans could endure the impending recession with minimum hardships and still can send our childrens to NYU and other excellent institutions of learning.

DanNovember 6th, 2008 at 2:56 pm

Here we go again. Bush is the cause of cancer, and everything before and after Bush will always be noted as his fault. Well, he was far from perfect, as every person and president is. However, Obama is going to be a disaster if he is going to follow what he has campaigned on. I’m shocked Roubini can say with a straight face Obama will be good for this country. Things are going to be horrible. But as always, it will be W.’s fault. If this didn’t pertain to me, it would be laughable.

GuestNovember 6th, 2008 at 3:11 pm

Well, now that you mention it, Bush could be the cause of cancer through his backwards environmental policies.

Mr. MartyNovember 6th, 2008 at 5:14 pm

You are simply a idiot. If Bush cured cancer, you would call him a homophobe for curing aids first. Never did get over that first Gore loss huh.

GuestNovember 6th, 2008 at 6:35 pm

Hi. I think you meant simply “an” idiot. But I’m an idiot so I would not know. Oh, and if Bush cured cancer, then he would have an actual use. One more thing, don’t you mean for NOT curing AIDS first, or maybe I don’t understand your definition of the word “homophobe”?

Leo70November 6th, 2008 at 9:27 pm

Not only your beloved president did not find the cure for cancer, but he presided over the largest reduction in cancer research spending in the history of the US. He has kept the funding for cancer research flat for several years. FYI inflation in the biomedical field runs at about 8%. Just in the last four years he has effectively reduced cancer funding by 30%. But of course that is fine. We all know that the average American citizen is much more likely to be killed by a terrorist than by cancer.I suggest that you go hang out on one of the many boards where the average IQ is in the 70s… you’re way out of your depth around here.

Anonymous ibid.November 7th, 2008 at 12:19 pm

Interestingly, Republicans said almost the same thing about Bush I and Clinton. Grass would grow in the industrial parks of America, as a friend derisively put it.Clinton worked out pretty good.

MichelleNovember 6th, 2008 at 1:12 pm

Who made money off the Icelandic Banks CDS auctions the past couple of days because of hedge fund selling? Hopefully all of you took advantage of my free advice and made a boatload, I know I did!

PeteCANovember 6th, 2008 at 1:19 pm

Told you guys last weekend.If Obama wins … expect a significant downwards shift in the market. Take a look at what’s happening over the last 2 days.And unfortunately, we have not seen the latest unemployment data – probably to be released on Friday (I think).PeteCA

GuestNovember 6th, 2008 at 1:33 pm

AND IN BIZARRO WORLD, THIS JUST IN:Told you guys last weekend.If McCain wins … expect a significant downwards shift in the market. Take a look at what’s happening over the last 2 days.And unfortunately, we have not seen the latest unemployment data – probably to be released on Friday (I think).PeteNY

GuestNovember 6th, 2008 at 2:33 pm

From – October unemployment report is due for release tomorrow morning (November 7th). Consensus expectations are running at roughly a 200,000 payroll loss and a 0.2% increase in the unemployment rate to 6.3%.

GuestNovember 6th, 2008 at 2:42 pm

We would have seen a downward shift in the market regardless of who won. Your post is ridiculous. I can’t recall the correct terminology for it, but you are exhibiting the logical error of ascribing a cause/effect relationship between events because they occur contemporaneously, even though an actual cause/effect does not exist.

GuestNovember 6th, 2008 at 3:35 pm

exactly, it is (was) a sucker’s rally, plain and simple. The election itself was the trigger, not the outcome.

bcdogsNovember 6th, 2008 at 2:57 pm

Don’t markets traditionally go down when a Dem is elected President and up when a Repub? Thought the reasoning being Repubs are perceived to favor deregulation and business. Thought that was standard market/political wisdom…

Anonymous ibid.November 7th, 2008 at 12:21 pm

Bcdogs asks, “Don’t markets traditionally go down when a Dem is elected President and up when a Repub?”No, but thanks for playing.The situation is the exact reverse. For all the faults of the Democrats, and they are many, the economy does far better under them, and the stock market follows.

MichelleNovember 6th, 2008 at 1:24 pm

Told you guys two weeks ago about the Icelandic Banks CDS auctions Nov. 4, 5, 6th. Euro stength, dollar weakness, hedge fund selling everything. Oh, and WaMu cash settlement tomorrow!

PeteCANovember 6th, 2008 at 1:54 pm

Michelle: Good advice. I missed that tip – but it does explain the jump in the euro/dollar pair over the last day or two. Thanks for the info.PeteCA

Guest-o-RamaNovember 6th, 2008 at 7:50 pm

Hi Michelle,For the financially illiterate among us, could you explain what you mean? In the previous post you alluded to making money because you knew these dates. Do you mean you bought euros earlier in the week knowing the euro would strengthen because of these auction and now they’re stronger and worth more? Or do you mean something else entirely. Thanks in advance for the info. Sorry in advance for being an economics dork. Turns out you can get a liberal arts degree and even a Ph.D without ever taking a shred of econ or business…

MichelleNovember 6th, 2008 at 9:20 pm

If you take a look at the dates of these prior CDS auctions on Oct. 10, Oct. 23, and again this week, that every asset class sold off due to forced selling by CDS’ counterparties. As you may recall, Oct. 23 didn’t sell off heavily, but the day after, Oct. 24, U.S. equities markets opened limit down. Asset classes such as oil, gold, commodities, global equities markets, etc. sold off heavily. This wasn’t due to fundamentals, but rather a need to raise cash. The October CDS auctions were for dollar-denominated CDS instruments, which indicates a huge need for dollars. This week’s auction was for euro-denominated instruments, which indicates a huge need for euros. Cash settlement dates are usually two weeks later, so the counterparties CAN wait until the deadline to meet their obligation but generally haven’t. Tomorrow is WaMu’s cash settlement deadline, and if is anything like the Lehman deadline, tomorrow probably won’t be a big down day. You may have noticed, though, that the dollar is stronger today, which may suggest a need for dollars for tomorrow’s deadline.Not that I want to see more failures and future CDS auctions, but these events have been a huge money maker for me.

GuestNovember 7th, 2008 at 12:51 pm

Thanks for your explanation but I’m still not 100% following you (truly I am a financial idiot but working hard to get better so thanks in advance for bearing with my obtuseness).So are you saying you figure out when there is likely to be selling because of these auctions and then you scoop up whatever’s being sold on the cheap because the fundamentals are still good and its bargain basement priced? Or are you actually trading currency at times you know there will be big demand? Just trying to figure out if the origin of your profit is currency trade or another asset trade. I am limited in the numbers of moves I can make with a TSP account per month (all in treasuries right now). Also I have to place the order to move by noon EST but the move doesn’t get made until that night. It would be good to have an idea when to jump into and out of the market based on these auctions. Obviously I want to be poised to go at the end of a very bad day and leave at what promises to be a better than average day. Its almost impossible at noon to have a good idea when all the action seems to take place between 2-4 pm.Also, do you think the dollar was up a bit because the BOE and friends dropped rates yesterday? If they drop rates don’t they push their currencies down relative to the dollar?

MichelleNovember 7th, 2008 at 1:22 pm

You aren’t a financial idiot, you are following exactly what I’m saying. I didn’t mention market timing or asset classes since those decisions are best left to the individual. You are spot on in regard to market timing by knowing the dates of the CDS auctions, and I typically sell into equities rallies before the end of the day and go short the day before the auction. My preference has been to buy ultrashort ETF’s. I also place limit orders on stocks I want to buy at lowball prices, and set these limit orders before the market opens on CDS auction days. Commodities and currencies work in a similar fashion, so if you’re sitting on a long position you can either load up on the downturn or sell prior to the auction.The beauty of these auctions is that the Fed doesn’t try to support the markets on these days since the selling pressure is too great and it doesn’t make sense for them to risk losses, otherwise they might as well just hand over money to the hedge funds. Really how I see it is that the Fed props up the market on bad news days, sucking investors into buying. Once the market is overbought which is ideal for forced selling, the hedge funds have can drain out funds out of these asset markets to meet their CDS obligations. Quite a scam really, but it keeps the Fed from having to fork over the dough and instead, other investors do. I hope this answers your questions about how I am making money. Unfortunately, there aren’t any more CDS auctions planned at this point in time, but will post if I know of any coming up in the future. Remember, these are my own assumptions and free advice is what it is, so study up on these things I have explained so you’ll be better prepared to take advantage of these opportunities. Good Luck!

Guest-o-RamaNovember 7th, 2008 at 3:09 pm

OK thanks very much. I will try to do my homework and start small and not be reckless. I very much appreciate the explanation 🙂

Guest-o-RamaNovember 7th, 2008 at 3:55 pm

And duly noted that with no CDS auctions out there there’s not much to do to test your theory until/unless another rolls around. But I can be alert to when another large bank fails if one does (Heaven Forbid) but it doesn’t sound real good right now for the banks…And I’m guessing today would be one of those bad news days since pretty much nothing was good-GM is desperate, unemployment tres grim (although not unexpectedly grim). And yet up went the market. Unless that was just short covering for the weekend. Just looking back on those dates (Oct 10, Nov 5& 6)

GuestNovember 6th, 2008 at 1:41 pm

Obama with his leadership abilities, intelligence, and great foresite as well as the rest of the Democrats can fix all the problems, especially since they had nothing at all to do with them nor did they benefit from them in anyway.

PeteCANovember 6th, 2008 at 1:59 pm

I think you’re a little too optimistic. Obama is very bright – but Roubini is right that the Bush admin is leaving a giant mess to clean up. And further, not all the Dems have good ideas. Personally, I don’t think that Pelosi’s proposal to spend huge $ on another taxpayer handout has much merit. Very little of these handouts makes it into the real economy. It’s just another budget killer for FY 2009. Obama really has his work out for him. After the initial period od elation wears off – he’s will need to survive a pretty big dose of frustration and disillusionment in the electorate.

PeteCANovember 6th, 2008 at 2:42 pm

Personally … I think a LOT. It would be very helpful to have a change of some faces in Congress too. But that’s just my opinion.PeteCA

PeterJBNovember 6th, 2008 at 2:43 pm

SOL”Insanity laughs the loudest”….and there is the problem:”Obama with his leadership abilities, intelligence, and great foresite as well as the rest of the Democrats can fix all the problems, especially since they had nothing at all to do with them nor did they benefit from them in anyway.”If you believe that, then you will believe anything… and deserve exactly that which you are going to get!!”A sucker born every minute” – you bring hope to the hustler (banker) classes;-0>Ho hum

bcdogsNovember 6th, 2008 at 3:16 pm

I personally thought that the post was snark, but maybe not? Perhaps someone is just full of youthful optimism…I don’t think I was ever young enough to have optimism to that degree.At times I don a tinfoil hat and am convinced that the Republicans plan on cleaning up in 2010 and 2012, they have run the car in the ditch (more like off a ravine) and it will take a long time before the car even moves out of the ditch. Things are going to get worse and the reality TV watching, Joe the Plumber lovers of this world will blame it all on the present administration/congress, not the ones truly responsible for driving the car in the ditch. If they pay attention to the news at all, it is only the controversial sound bytes or the latest on Brittany Spears, etc..It will be kind of like the wrecker service that is hired to pull the car out of the ditch gets blamed for driving the car into the ditch. The democrats are going to get blamed for all of this…this will be the last Dem adminstration for a very long time to come. Unless this administration performs nothing short of a miracle, which of course some believe Obama quite capable of. I wish I held their optimism

GuestNovember 6th, 2008 at 3:25 pm

PeterJB, I think Guest’s comment was made with tongue in cheek, a sarcastic summary of half the comments on yesterday’s and today’s blog. But, true, anyone who would Believe it, would believe Anything. By the way, have missed you these past few days.

AnonymousNovember 6th, 2008 at 1:58 pm

Do we ever run out of money to fight wars? NODo we ever run of of money to bail out corporations which are too big to let fail? NODo we always run out of money for everything else? YESSo is the problem money or the people controlling it?!!!

GuestNovember 6th, 2008 at 2:05 pm

AARGH! You have to guess which comment my response is tied to…(Can somebody PLEASE fix this insane way of posting?!?)

GuestNovember 6th, 2008 at 2:05 pm

Dr. Roubini,Please, please, please keep this site free through this severe recession. Those of us in the middle class cannot afford to pay for it but we desperately need your wisdom and TRUTH. Thank you so much.

GuestNovember 6th, 2008 at 2:47 pm

I was thinking about this today. I hope he does keep it free through much of this crisis. I’ve learned an unbelievable amount in a short period of time by reading the articles here and feel much better equipped to navigate through this crises with my savings intact.

bcdogsNovember 6th, 2008 at 9:12 pm

Even if he doesn’t keep it free, it would be well worth the price to me, what I have learned here in a short time is priceless…

GuestNovember 6th, 2008 at 2:12 pm

To All Posters,I do not have an education in economics.Where should I invest money outside of stocks during this downturn? The choices in my 401K are:1. Stable Value (cash, non-insured because not a true money market fund) and/or,2. Bill Gross’s PIMCO Total Return Bond Fund?Please specify percentage you would put in each. If you wish, state why.I realize these are the opinions of the posters and not advice! Thanks in advance for contributing.

GuestNovember 6th, 2008 at 2:29 pm

Everyone will offer different advice, but if your in it for the long run…This most recent explosion of U.S. monetary growth issignaling that the return on Gold should begin risingdramatically. That would be as expected as the FederalReserve is doing all possible to inflate, and reduce thevalue of the dollar. At the same time a massive short, realand psychological, position has been built such that aclassic short squeeze in $Gold is extremely likely.Investors not mired in the thoughts of 1930 should be buyingGold at these prices, while they exist., the flight out of the US dollar into commodities andgold will probably resume soon. After all, nothingfundamental has changed for the dollar. Its outlook worsensby the day as the federal government creates ever-moreschemes and gimmicks to bail out insolvent banks and jumpstart a moribund economy. As a result, investors and fundmanagers will soon understand that they are at risk bysitting in US dollar cash and owning US government debt.In summary, gold is still the place to be, regardless whichcurrency you compare it to. Gold is climbing against all ofthe national currencies presented in the above charts.

GuestNovember 6th, 2008 at 2:56 pm

I cannot invest in gold in my company’s 401K. The only choices besides stocks are1. Stable Value2. PIMCOPlease, people, what would you do with these choices????????

iNnOsInZNovember 6th, 2008 at 4:08 pm

What kind of stable value is this (pooled, general account, separate account etc.). If pooled, i’d look under the hood to see how the investments are doing. If general account i would see the health of the general account backing it. If Separate account, i would see the wraps/insurance or the backing it has and the underlying investments in it.As for Total Return Bond fund, i believe that would be mostly corporates being traded?Between the two, if you feel gov’t to be safer, i would go with the one with highest exposure to govt/agencies. Otherwise, look for diversification and health of the funds.Hope this helps.

GuestNovember 6th, 2008 at 4:35 pm

I think the Professor would tell you to put it in Stable Value (so far the Fed is insuring failed uninsured money markets), that is if you’ve already pulled your money out of stocks, and when the S&P 500 reaches what you or he believes to be a bottom, invest in the index if you are not a professional investor with a good record (that is if your company plan will let you invest in an index: amateur investors picking and choosing individual stocks invariably come out with lower profits than those invested in mutual funds or the index).As Capone said here about a month ago, these are investment times when your most important concern is to protect your principal: making profit is secondary.If you are going to sell your stocks, be very careful.Your investment dilemma is a common one with company 401(k) plans: a tragedy really. Your “choices” can all be bad. I think some company 401(k) investment choices were designed to fleece hardworking Americans by Wall Street. As the old saying goes, “There oughta be a law.”Anyway, one lesson from the 1929 Crash, is that those who bought stock with money they actually possessed did not have to sell, and many did quite well in the long run.Speculators were ruined but what they lost was money acquired without effort: other unfortunate souls lost their life savings because they gambled those savings on call loans.During the Crash, falling stock prices didn’t necessarily mean there was something wrong with the stock: in the panic, solid companies tumbled far below their natural levels. Those with the cash picked them up for a small fraction of their worth. Giant holding companies were formed for that task—Marine Midland Corporation, the Lehman Corporation, the Equity Corporation, JP Morgan’s Standard Brands… I think we can see this scenario beginning to form again, in the guise of hostile mergers and acquisitions — and with the use of cash from the Fed and the treasury.As G. Edward Griffin put it regarding the Great Depression: “Like the shark swallowing the mackerel, the big speculators devoured the small.”In short, we mackerel are in dangerous waters, again. Be patient, be knowledgable, and be careful.By the way, I don’t believe Nouriel Roubini is a big investor, per se—I believe he has some foreign holdings. Rather, he keeps an open mind and concentrates on global macroeconomics, emerging markets, finance and banking and geostrategic issues, rather than individual stocks and market investment choices.

bcdogsNovember 6th, 2008 at 9:51 pm

While I like the employer matched part of the 401K, my company (which is a very large employer in the area) has terrible options.When a friend of mine changed jobs and rolled what he had over to a bank IRA, he spoke to a “financial adviser” who gave him terrible advice, hawking that banks own brand of investment vehicles, all crap.Educate yourself, go to yahoo and whatever funds you are thinking about, click the tab for holdings and see what the specific funds are invested in, you can stretch this out and look up each individual holding on yahoo.Mom recently was in MS USGBX, well she kept saying goverment bonds!!! I looked at the holdings – Freddie, Fannie, CMOs, lovely JUNK!!! that pull down the other things that were okay…What I have learned (I really don’t know much), but what is most important in those 401K choices that you have is what is in holdings.These times aren’t exactly normal right now though..good luck. I think that there ought to be a law that there is some kind of “safe harbor” option for every 401K fund, it sure would have saved me some money, still could, but there is absolutely place to simply preserve principal.Not to long ago there was an article in our local newspaper that said don’t worry, that 401K money your are losing isn’t really real money!! It’s just a paper loss, it’s matched, you haven’t lost principal blah, blah.

GuestNovember 7th, 2008 at 1:25 am

Thank you all.The choice in my 401K is T. Rowe Price’s Stable Value Fund.The bond fund is PIMCO (pttrx).Any more advice based on these specifics?

GuestNovember 7th, 2008 at 8:35 am

I believe he said he owns some index funds or etfs but no individual stocks despite his predictions and does not talk his book.

GuestNovember 8th, 2008 at 5:50 am

might be better to invest in a small lot of land (or maybe not so small) not far from your home. And tools to cultivate food on that lot of land. If the lot is next to a creek or river, the better. Then you also have easier access to water. Otherwise try to dig a well on it.In the future food and water may well be more valuable than gold.Of course I cannot foretell the future so I do not know for sure. So caveat emptor.

GuestNovember 6th, 2008 at 4:21 pm

I’m in your boat. No economist, I. But I read here to try and learn.I sold some mutual stock funds last January because I was getting uneasy.I now am at 75% total bond fund and 25% in: total stock index fund, total international stock index fund and growth stock index fund. Outside of this I have cash equal to three year’s (modest) living expenses in CDs and a mutual fund money market and a last resort account with enough for a holiday or condo udate. No mortgage, thank heavens. On the income side, I have a defined pension benefit (likely to see cola disappear in 2010) and social security.

MichelleNovember 6th, 2008 at 7:13 pm

Fitch’s latest report (yesterday) is projecting high yield bonds default rates to exceed 2001 and 2002 levels of 13.9% and 16.1%, respectively. Currently, the default rate is less than 4%, so this should give you an idea of where we are in the downturn. Given that data, bond funds are risky at best. The stable fund your 401(k) offers is probably the least risky right now, although it won’t generate much of a return. Right now, think asset preservation vs return. You’d rather have a return OF your capital than a return ON your capital given your limited investment choices. Don’t worry, somehow everything always works out for the patient investor.

MichelleNovember 6th, 2008 at 7:20 pm

Oh, and one more tidbit: Watch for my posts. I try to stay abreast of investment opportunities, although most of them are just short term trades.

GuestNovember 6th, 2008 at 7:53 pm

Good Lord, would you like to marry my mother (please) so I don’t have to support her after O’Bama takes away her job at Aetna! You sound so set compared to the majority of Americans!!!

non-AmericanNovember 8th, 2008 at 5:53 am

why would Obama take away her job? If she loses her job because of changes in law or economical situation, would it not then also be fair to blame Bush for the last 8 years of American misery?

Octavio RichettaNovember 6th, 2008 at 2:28 pm

So let us not delude each other: the U.S. and global recession train has left the station; the financial and banking crisis train has left the station. This will be a long and severe and protracted two year recession regardless of the best intentions and good policies of the new U.S. administration. It will take a lot of hard work and sound policies to clean up this mess and reduce the length and severity of this economic contraction.And in the meanwhile the brief bear market sucker’s rally in the equity market has lost its steam and U.S. and global equities are starting to plunge again. As I argued for the last few weeks this was a bear market rally and markets could not defy the laws of gravity: a slew of ugly and worse than expected macro news, earnings news and financial news was bound to take a toll on equities and other risky assets. And now, after a brief rally markets are starting to plunge again. For 2009 the consensus estimates for earnings are delusional: current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009 up 15% from 2008. Such estimates are outright silly and delusional. If EPS fall – as most likely – to a level of $60 then with a multiple (P/E ratio) of 12 the S&P500 index could fall to 720, i.e. 20% below current levels; if the P/E falls to 10 – as possible in a severe recession, the S&P could be down to 600 or 35% below current levels. And in a very severe recession one cannot exclude that the EPS could fall as low as $50 in 2009 dragging the S&P500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities.So the brief sucker’s rally is over and a reality check is now dawning on markets and investors. Expect this financial crisis and economic recession to get much worse in the next 12 months before it gets any better. We are nowhere near a bottom for housing, the U.S, economy, the global economy and financial markets. The worst is ahead of us rather than behind us.”Professor, you da man!

PeterJBNovember 6th, 2008 at 2:35 pm

“The worst is ahead of us rather than behind us.”And still no “leadership” anywhere in sight…expect more of the worst and then some ‘worser and worser’ – as Mr. Benanke and his mentality, remains still, at the controls.Ho diddly hum

PeterJBNovember 6th, 2008 at 3:10 pm

No India – “water, water, everywhere and not a drop to drink” – Gungadin (sp?)Originally from the Ancient Mariner by Samuel Taylor Coleridge – later by ….??and more recently by Homer SimpsonHo hum

PeterJBNovember 6th, 2008 at 3:26 pm

Kipling er, India”Ho diddly hum” – meSimpsons? – it’s ‘Merican “neo-literature” – I wouldn’t knowHo hum

CahillNovember 6th, 2008 at 2:46 pm

For the love of God, would every one quit spewing that line. I’ll believe the “change” when I see it. Till then let’s concentrate on the economics and bring something useful to the forum.

PhilWNovember 6th, 2008 at 2:53 pm

You’ve had the change – Obama himself said “Change has arrived”. It was him, you got him. You want more? Different policies? A whole ‘era of change’? Don’t be greedy!

CahillNovember 6th, 2008 at 3:06 pm

Oh now I get, it’s all better now, change is here….praise Jesus or is it Obama I’m supposed to worship now….I get confused.please please please note sarcasm.

GuestNovember 6th, 2008 at 2:46 pm

Cisco gives weak forecastCisco Systems late Wednesday reported the slowest quarterly growth in three years and gave a weak outlook for the current quarter.The networking giant earned $2.2 billion, or 37 cents per share, in its fiscal first quarter. On an adjusted basis, Cisco earned 42 cents, topping Wall Street’s estimate by 3 cents.The company earned 35 cents per share in the same period a year ago.Revenue rose 8.1% in the most recent quarter to $10.3 billion, but the company expects fiscal-second-quarter sales to fall as much as 10% from last year.”It is the second-most difficult time in my career in terms of the forecast,” Chief Executive Officer John Chambers said on a conference call with analysts. Chambers said sales also fell after the dot-com bubble burst in 2000.Cisco also said it has instituted a hiring freeze for the current quarter.

MANovember 6th, 2008 at 2:47 pm

Nouriel,20% – 720-S&P?35% – 600-S&P???500S&P?!?!?!?!?Based on “today” being the point in time which we balance the prospect of 2009 against??? Based on the bottoms from 2 weeks ago?So on January 1st, 2010, we will look back on the year of 2009 and say:The S&P fell XX%, to XXX, vs November 6, 2008.Why aren’t we looking at “average price for 2008” to be the base for an additional 20%-35% drop. Why would it be: “a drop from here of that much from this point we are at”???I ask this because markets overreact! That’s a “fact”. Don’t you think that the markets may have already overreacted, which is what has put us at the low points we reached? In other words, did the initial overreaction already price in the 20-35%.I’m not disputing you Nouriel. (though I disagree) What I need to understand is why are the drops beyond “this current point, or the “overreacted lows”???Miss America

GuestNovember 6th, 2008 at 2:59 pm

He did the math from the ground up ($50 earnings, 10 multiplier, etc.) to make his assessment of where the S&P could reasonably be. Why try to pinpoint a level of the S&P for his percentage drop? Then you get into making the assessment of overbought/oversold, which makes no sense.

MANovember 6th, 2008 at 3:20 pm

Sorry, but strict math fails to figure into irrational markets. So macro views allow for the broad range of error. Which is why I am curious if from a macro perspective, he is using some sort of bottoms to derive droppoff points from. (ie failing to then account for initial overreaction.) “He said EPS drops from current levels”.I acknowledge all of NR macro views as amazing!His timing… ??? …has sometimes been a little flawed. (not neccesarily his fault as lagging data, birth death models, and revisionists delays often do that. If he was to give market advice… Timing is EVERYTHING!!! …and those market flaws need to be backed in.)Miss America

GuestNovember 6th, 2008 at 3:58 pm

I think you are missing the point. The market will go up and down, irrationally or not. I don’t see that he was trying to predict overbought or oversold levels (those terms are nonsensical anyway: overbought, oversold as compared to what). His calculation provides a basis for a rational value. Eventually it will come to this. Timing is ridiculous. You are trying to do the impossible. May as well just use a crystal ball.

GuestNovember 6th, 2008 at 4:02 pm

Oh, and I don’t see that he is using “strict math.” It’s clear his numbers are all rough approximations based upon averages.It seems to me as if you are trying to use him as some kind of timing mechanism for your trades. Won’t work.

Octavio RichettaNovember 6th, 2008 at 3:08 pm

Your frame of reference seems to be price changes vis-a-vis index levels from the past. The professor calculations are more focused on fundamental analysis. S&P earnings of 50 bucks in 2009 is very plausible, as is a PE of 10 at the bottom of an ugly bear market.Whether stocks will be cheap or rightly price at those levels is a different question. The proper question is whether getting down to those levels (even though not the most likely event) is a nonzero probability event.The biggest problem we ALL have is that the speed of communications makes us believe that stuff drives by faster than it actually does. So here we are with an economy that has barely started to feel the hard punches of the WS-induced WW credit crisis and people are already looking for a turn around/bottom!

Fred VoetschNovember 9th, 2008 at 12:50 am

Actually you should expect a PE ratio as low as 6 in a truly bad bear market. Book Value is also over 3, if I’m not mistaken and that is twice what it should be on a historical average. Last but not least, a fair value of the DJIA is around 5,000 based on a mean reversion using all historical data available. Just as we have been well over the mean for two decades now we should expect to be well below it for a similar amount of time.In summary you should not be surprised to see the DJIA drop as low as 2,000 over the coming years and not rise back above 10,000 for well over a decade.

GuestNovember 6th, 2008 at 2:51 pm

OTTAWA — There were 8,836 bankruptcies in Canada in September, almost 1,400 more than in August and almost 2,000 more than in September 2007.The superintendent of bankruptcy reports that’s an 18.7 per cent rise from August and 28.4 per cent increase from a year ago. The number of bankruptcies over 12 months through September was 91,434, up 6.4 per cent from 85,969 in the 12-month period through September 2007.There were 8,347 consumer bankruptcies in September, up from 6,977, or 19.6 per cent from August, and nearly 2,000 more than in September 2007.There were 85,243 consumer bankruptcies over 12 months through September, up 7.2 per cent from 79,546 in the 12-month period through September 2007.There were 489 business bankruptcies in September, up 4.3 per cent from 469 in August and 40 more than in September 2007. There were 6,191 business bankruptcies over 12 months through September, down 3.6 per cent from 6,423 in the 12-month period through September 2007.

PeterJBNovember 6th, 2008 at 3:02 pm

For John Ryskamp:Econophysics from Wikitrivia:”The correct name from an etymological viewpoint should be economophysics since economics is a Greek word formed from oikos, meaning home and transformed into eco, and nomos, meaning law and transformed into nomy. Thus, economophysics would mean “home-law-physics”, while econophysics is not meaningful from a strictly etymological viewpoint. Nevertheless, the term econophysics has gained currency, as opposed to economophysics, probably because it is shorter.”I am sure that you will see the connection and No, the Fatt Lady is not ready to Sing just yet…Ho hum

RichardNovember 6th, 2008 at 3:05 pm

Check out Shiller’s work on real estate bubbles, I think we are seeing essentially the same psychology play out in the US stock market, and in the global economy at large. While optimism is a critical ingredient in staying alive, too much of anything, even a good thing, can really hurt. Call it “hope” if you are feeling charitable. Professor Roubini has certainly suffered the “slings and arrows” of his own outrageous peers. But seismic shifts in expectations like the one we are witnessing now tend to bring out some off-the-wall ideas, silver bullets, etc. Gold is a great example. Please keep up the fine work Professor; anything resembling truth is likely to become the scarcest of commodities. There’s your real gold. Motashakkeram.

AnonymousNovember 6th, 2008 at 8:00 pm

I follow 2 people, NR and Shiller. And both are saying there is a lot of crapola to come.DOW at 7000 points?Nasday at 1200?any thoughts?

dhomeNovember 6th, 2008 at 3:14 pm

Well, the FED threw in the towel last night and started down the Japanese-style quantitative easing method; so whatever happens now, it will take years for the US to come out of this recession/depression.Consider this: while using quantitative easing, Japan’s central bank’s balance sheet grew to 30 per cent of GDP. The Fed’s balance sheet is already at 12 per cent of GDP. The main difference is Japan could and did use Mrs.Watanabe’s saved 15,000 trillion Yen; the FED has almost zero savings of any type to use. That is why all sorts of Treasury officials are doing the big “Buy US” sell in Dubai, Mumbai and Shanghai. Dollar default possible now?

Octavio RichettaNovember 6th, 2008 at 3:26 pm

Professor, when are you gonna get rid of the stupid “reply to this comment” format?You must certainly be familiar with the concept of a sunk cost. It looks like an IT guy at RGE spent lots of time behind what appeared to be a “cute change” to the blog. The reality is that you ended up with a hybrid that is neither a blog (which works along the time line with comments mainly addressed to the blogger) nor a threaded discussion website such as silicon investor.After all the time invested in making the change, now you are hesitant to go back a format that is more proper for a blog. Let me make an analogy, you are behaving like the person who buys a really nice, expensive piece of furniture that just does not fit in his apartment. Walking around the huge clunker makes his life miserable, but he refuses to get rid of it because of all the money he paid for it!I am a zero-one type of a guy. A guy with am obsessive compulsive personality who aims for perfection. Since I lost the capacity of reading ALL comments in the blog, it has not been the same for me. I can tell I am not devoting as much effort in my postings as I used to. Since I don’t like half jobs, I will not post again in this blog unless the format changes.I am not trying to threaten anyone I am just a little guy in Argentina of no consequence to anyone so my not posting here won’t hurt anyone.So here is my post to Miss America from above once again (possibly my last post here):Your frame of reference seems to be price changes vis-a-vis index levels from the past. The professor calculations are more focused on fundamental analysis. S&P earnings of 50 bucks in 2009 is very plausible, as is a PE of 10 at the bottom of an ugly bear market.Whether stocks will be cheap or rightly price at those levels is a different question. The proper question is whether getting down to those levels (even though not the most likely event) is a nonzero probability event.The biggest problem we ALL have is that the speed of communications makes us believe that stuff drives by faster than it actually does. So here we are with an economy that has barely started to feel the hard punches of the WS-induced WW credit crisis and people are already looking for a turn around/bottom!

tutterfrutNovember 6th, 2008 at 3:41 pm

Miss America said thanks, Octavio! But he did it in REPLY somewhere UP there.I think he’s teasing you…

MANovember 6th, 2008 at 4:14 pm

I wasn’t teasing.I seek out OR’s comments and usually make a point to reply.I also hope he doesn’t disappear just because of a dislike of format.Personally speaking, I blog here to share and offer. I hope OR reconsiders, as his views are great offerings. Losing that would be a shame.(I literally gain nothing here. I’m not an investor! …and if I was, I’d follow my own analysis over ANYONE’S.) I just try to help.I think I have?Miss America

Lord SidcupNovember 6th, 2008 at 3:55 pm

Okay that’s the third time at least the same bit of sarcasm/joke or whatever has been posted on this thread is tired now. Please move on.

GuestNovember 6th, 2008 at 4:21 pm

yet you are replying to a previous comment by starting a new one – and also, not responding to the original blog post.btw, most people on this board reply to a comment not the blog post – so the new format keeps the debate focused in an “area”. though i do admit that the “life-spans” of individual roubini blog posts are too long and requires the checking and rechecking of “higher” or “earlier” posts to view the discussions that they have spawned over time.i just hope that you at least consider reading and posting once a day and then just let it go into cyber-oblivion. you need to be a little more zen or whatever.

GuestNovember 6th, 2008 at 4:38 pm

ORWould you agree that it is beneficial for you to monitor feedback from your comment by going directly to it instead of reading unrelated comments with reply’s to your topic scattered throughout? Thanks for not mentioning my msipelling.

Octavio RichettaNovember 6th, 2008 at 6:25 pm

ORWould you agree that it is beneficial for you to monitor feedback from your comment by going directly to it instead of reading unrelated comments with replies to your topic scattered throughout? Thanks for not mentioning my misspelling.Reply to this comment By Guest on 2008-11-06 16:38:49 OK. I guess you are right. I am reconsidering… I am not very happy with my posting as of late so I blame the blog format instead of myself:-) I guess that as it happens with everything else in life, we human beings have the tendency to blame others for our shortcomings.Perhaps I am still adjusting to the Pampa after being in the Caribbean for several months…Perhaps it is just that I came down with a bad case of the flu…Perhaps it is Shilling’s latest letter (which I am reading now) and paints a picture which unfortunately I believe to be 100% right on the money but is extremely depressing. Lots of economic pain is coming to the world and it will hit the places where we linger (Argentina, Venezuela, Europe) the hardest.Perhaps it is is my realization, from the point above, that the limited commodity hedging I did recently was totally stupid and that I will have to reverse that trade as IMO commodities will continue plunging to around year 2000 levels; that the place to be during this global crisis is mainly US treasuries which will beat by a wide margin all of Mr. Gross’ wizardry in trying to beat his fixed income benchmark. Treasuries is where I was when I knew this was coming and where I should have stayed.The experience that comes with aging is a wonderful thing. This mood, like everything else shall pass, and things will get back to normal. I guess the zen guy above is right.Don’t get me wrong. I am overall quite happy with my modest performance this year and above all having avoided the train-wreck that has hit and will continue to hit so many people. I just don’t enjoy watching people in pain and knowing that even greater pain is coming.

AnonymousNovember 6th, 2008 at 6:54 pm

@ O.R -Don’t be so hard on yourself – there are many of us who read your posts religiously and learn from them, and we appreciate your insights.

GuestNovember 6th, 2008 at 7:39 pm

O.R.–I don’t care for this new format either but it will not keep me away from the site.It would be a loss to me for one if you left.

GuestNovember 6th, 2008 at 9:19 pm

That’s settled then; look forward to more from you. Know can you share some of what Gary Shilling had to say?By Guest on 2008-11-06 16:38:49hlowe

Steven RamirezNovember 6th, 2008 at 3:39 pm

The top priorities must be to rescue households, revive credit flows, stabilize real estate markets, and forestall unemployment. These are highly intertwined issues and will require co-ordinated and aggressive government action right now. The government must immediately redeploy capital to its highest and best use and cut uses that are not productive. More specifically:Allow households unlimited access to retirement funds to invest in their own homes or to buy a home as an additional investment option;Allow all college students to borrow 10k per year (12k for grad. school) at government guaranteed rates with deferred interest payments, in addition to all other aid packages available;Expand the GI Bill educational benefits to cover the entire cost of higher education retroactive to all who served since 9/11 and expand guaranteed mortgages for all vets up to median home value in their state;Recognize that the entire financial sector is laden with excessive claims and that CEOs know they face huge insolvency risks–meaning some must fail so that shareholder claims are extinguished, debt claims are discharged and inept manangers are ousted (as a good first step). Assets can then be sold to solvent banks, who should recieve government support on terms similar to Buffet. Putting precious capital into zombie banks is senseless.Build, baby, build. High speed rail. National University system. Mass transit. Electric transmission. Etc., etc., etc.Then, we can optimize legal infrastructure, starting with corporate governance, financial regulation, and the global financial system.My plan essentially seeks to redirect capital away from the incompetent and into its highest and best use. The Paulson plan does the opposite.

MarkNovember 6th, 2008 at 7:16 pm

Who pays? Or, do we, as we have in the past, finance on the backs of the less fortunate around the world (keep in mind that while we’re advocating high speed rail 2/3rds of the world’s population is living on $3/day or less)?

GuestNovember 6th, 2008 at 3:56 pm

This is how bad things are: CNBC and its viewers are currently awaiting results from a meeting between Pelosi and GM/Cerberus on what is essentially a fed bailout of that private equity firm. It will be intersting to see how Obama reigns in Nancy and her “team” if in fact he even wants to or can.It is indeed surreal, that as this crisis deepens we are dependent in part on someone of her calibre to lead us through it.

JohnRyskakmpNovember 6th, 2008 at 4:09 pm

Now now. This Baltimore mafia princess should get along well with Rezko pimp Obama. Don’t say hurtful things–I don’t. Because it’s, well, you know, hurtful.

Neil GillespieNovember 6th, 2008 at 4:01 pm

Banking deregulation plus irresponsibility in managing Fannie and Freddie and a general cultural lust for “get it now with debt vs wait” pumped up the economy and financial assets artificially and now it’s deflating. I hate to think of it, but if the terrorists like Bin Laden knew anything about economics and were dead set on ruining the influence of the USA in the world from the inside out, they would: 1. Lure us into spending a bundle on something like IRAQ, by hitting us in the belly and chasing them all the way into what amounted to a substitute target: Hussein and his regime. 2. Watch… because at the same time… the housing bubble was building already, bound to topple… and topple other dominos on it’s way down like financial institutions that held risk mortgage backed securities triggering a delation of financial and real assets. Voila: a huge recession, huge deficit and simultaneous United States asset implosion. The USA is so powerful that the only force that could topple it is….. it’s own exploitable pride, enjoyment of power, and tendency to want things too fast. Those three things are coming back to haunt us. The most potent enemy is one that has a lot of patience, and one that knows we can only defeat ourselves by relaxing the core values on which the country was built. That brings me to an old adage I use to wake people up when they sit around and complain about business conditions. It’s not the economy stupid. It’s us. Everyone of us that wants things too fast, takes on too much debt, takes on too much risk, wants too much power, and doesn’t care who gets hurt if we screw up is guilty. I hope this administration instills the same sense of INVESTMENT with hard work and saving versus free wheeling consumption that many of us have lapsed into. Kennedy had the right direction. I hope Obama knows how to instill this spirit again. It’s not just the economy, stupid. It’s the leadership and the people in it. Almost everyone is guilty to some degree: Leadership and people both. Let’s get back to creating real value for someone else instead of selfishness, having real persistence, and getting back to saving and investing in our future rather than demanding the future now. My Dad, who passed away last October, used to tell me: “When things go wrong, look to yourself first to fix it.” Every one of us needs to do this. Everyone of us is a mini-economy that needs to heal itself. All the bailout plans in the treasury’s power won’t touch that.

MIchaelNovember 6th, 2008 at 5:16 pm

“Kennedy had the right direction.”Yeah, like a campaign platform claiming the U.S. didn’t have enough nuclear missles to keep us safe from the Soviets, appointing his brother to the cabinet, chasing every skirt in sight while in office, invading Cuba, and going to war in Vietnam. He was a real winner.

JohnRyskampNovember 6th, 2008 at 4:10 pm

Nouriel is so crazy saying that we just barely avoided a systemic banking crisis. Jim Rogers is much more accurate here. Even Pete Stark (a banker) said it: there was no systemic crisis. This was simply pure theft. And so these zombie banks continue. What percentage did they pay Nouriel?

SoftwarengineerNovember 6th, 2008 at 4:25 pm

FIXING AMERICA’S ECONOMIC MESS WITHOUT DEPOPULATION IS LIKE TRYING TO GET A CAR TO START WITH WATER [OVERPOPULATION] IN THE GAS TANKIt’s impossible.You’re right John, we gave the banks the bailout loot and the Whitehouse and Paulson begged them to loosen credit [not hoard it in their cash cans]; the result: mortgage interest rates are going up as fast as the stock market plummets. The bailout made it much worse and you watch, all the tax rates from $40K on up are going to up through the roof to pay interest on the debts. Even Forbes is predicting this, the presidential candidates lied to us.The only bailout I support is an extention of unemployment benefits. At the rate we’re going, we’ll need to bailout the soup lines for all of us.The good news, college money will be tight and our kids’ tuition won’t be going up as fast because of overcrowded universities funded with debt. If we pay cash for our kids’ college this dilemma is good.The bad news, they graduate to a grim insourced job market that the middle left and far left ignore.

Wild BillNovember 6th, 2008 at 4:48 pm

Obama is going to have to initiate tough love policies that will cause him to piss off most Americans at one time or another. The question that is crucial is, will he have the guts and integrity necessary to stand up to the criticism he will endure or will he fold when polls show negative ratings in response to some of the painful solutions he initiates. It’s going to take great leadership and charismatic demeanor to negotiate the minefield of ill will he must generate to get us out of this mess. I hope he has the courage it will take.

GuestNovember 6th, 2008 at 5:34 pm

Why would he really give a * what people think now, aside from not just wasteing good will, he’s got the power, it’s a different game now, things have changed.

GSMNovember 6th, 2008 at 6:03 pm

That’s it exactly Wild Bill.WhenObama sits down for his first look at the REAL books, I’m betting there will be brown stuff running down his legs. Further, he will see his first term flash before his eyes along with all the multitudes of promises he was so eloquent in handing out. It will take enormous good will and courage to engineer a recovery because to succeed he will need to CHAINSAW spending- anathema to modern US Administrations.This would create enormous hardship in the US.Is the US up to this medicine?His Cabinet choices will point the way as to whether “Real Change” can be delivered or more of the same, dressed up with lipstick.The world awaits.

Guest-o-RamaNovember 6th, 2008 at 8:04 pm

There was a guy on NPR today talking about how he would spend his way out of it. This seems like it would come naturally to him. How much debt can we sustain? He thought as long as it wasn’t much more than 50% of GDP it would be fine. He said it was 125% of GDP after WWII and it was fine…

Genie in a bottleNovember 6th, 2008 at 8:31 pm

BOYS AND GIRLS, DON’T KID YOURSELVES.47% are already VERY pissed off that Obama is president.It only gets worse from here. No income,No job, No Assets translates to No love Obama (NINJA = NLO)

ThetaNovember 7th, 2008 at 6:20 pm

And if McCain had been elected then it would have been fourty-something percent pissed that McCain was president. Big freakin’ deal.Of course it’s going to get worse from here. It can always get worse, the real question is, what can we do to make it better?

GuestNovember 6th, 2008 at 9:02 pm

All the King’s horses and all the King’s men…We are so screwed… It’s a whole other world coming folks – so bend over and kiss your … goodbye.

Tom SNovember 6th, 2008 at 5:20 pm

We needed a good crisis to get the necessary changes in the country. Obama and his economic team (Volcker, Buffett, etc.) will steer us in the right direction. What a fitting end to the Bush administration!

GuestNovember 6th, 2008 at 5:26 pm

As there is some confusion on comments was this one intended as sarcasm? Assuming not why do we think that Buffett brings the economic know how and depth to resolve this.Buffett, I am sure is a great patriot and philanthropist and his reputation as one of the greatest investors/arbitragers ever is beyond reproach. But I wonder is it is his public image that Obama is exploiting otherwise a Roubini and Krugman would be present as well or instead.

GuestNovember 6th, 2008 at 8:52 pm

Buffett is in way over his head. On the Charlie Rose show he demonstrated a total lack of understanding of basic macro economic issues. His recent investments in the financial industry have evaporated and his allegiance to GM is unfounded in any business model. Given his deep pockets, he will be one of few left standing, but that in no way confers authority to lead us out of this mess.

GuestNovember 6th, 2008 at 5:22 pm

Christian Menegatti or RGEmonitor currently on CNBC Australia – (if you miss it they usually put up the videos within an hour or two

GuestNovember 6th, 2008 at 5:48 pm

Do not let anything fail; bring it all back to robust levels. We will bail out the car makers in their present form without any changes to their structure. We do not need to downsize the car companies in any form; they are the future of our economy. This is the view our government takes no matter what industry it is, save them all; it has to change but change has to be market driven if they fail then they fail. Propping up any company will only slow the recovery, the real recovery not the orchestrated one that we see now. If we have to bail the big three out and it appears we will then at least have a top to bottom review and combine the companies in a way that good cars are made at a reasonable cost. Labor at the big three is unsustainable and no bail out will ever correct that problem. At the rate union assembly workers are paid including benefits, cars will continue to be priced out of reach for many Americans and more so in the future. Come up with a pay package both union workers, car makers and car buyers can afford. I always thought a depression as rare as they are was a great way for an economy to start over. Once it is restarted we could grow for another 80 years before we had the chance to start over again. It’s like we are trying to save a sand castle in the midst of the rising tide. We have all tried that at some point in our childhood.

MarkNovember 6th, 2008 at 7:36 pm

There’s that word again – GROW[th]!There is NO growth without an increase in essential materials and energy, which are both in decline.It’s not just about the cars. Cars require an extensive energy and resource intensive infrastructure.We’re heading into a permanent depression. People need to wake up to this realization!

GuestNovember 6th, 2008 at 8:08 pm

If we don’t save the auto industry how many people will be out of jobs. Not just autoworkers but sales people, parts manufacturers etc…And where will we get the parts for existing cars that break?Also, anyone giving any thought to buying a Cadillac Escalade to garage for posterity? Will it be a collectible someday soon?

GuestNovember 6th, 2008 at 8:17 pm

Also if the US doesn’t have the car manufacturers will the Germans and Japanese just be able to jack up prices out the ying yang for cars because of limited competition? Not that people will be able to afford new cars but aren’t we really their consumers?

MarkNovember 6th, 2008 at 8:44 pm

FOOD, SHELTER, WATER!Transportation isn’t in this equation! We HAVE feet to get us around! “Jobs” is also not part of this equation!We’ve been brainwashed into thinking that we have to have “jobs” (which really are primarily working for the wealthy to make them wealthier), and that we have to have automobiles! Think about the history of mankind. Out of how many tens of thousands of years have we been hurling ourselves around for dozens of miles on a daily basis? 60? 70? And sure, we’ve been slaving away for the wealthy for much longer (this is going to take quite a bit of deprogramming/evolving to resolve this one!).We’re so messed up that we rationalize diverting food production for transportation (biofuels)! It’s like a heroin addict; will spend money on heroin rather than food. If we keep this up it’s pretty clear where we’ll find ourselves.If everything feels as though it’s messed up it’s because it IS messed up! Our priorities are totally askew!

GuestNovember 6th, 2008 at 9:10 pm

@Mark,I totally agree. We have lost perspective. All we need is a teepee and maybe a horse. But first population decline of about 5 billion needs to happen.

GuestNovember 8th, 2008 at 4:08 am

I will tell you what happens when govt takes over any private business.govt of india have started many fertilizer companies in 1960 and result:they are grossly inefficient,they dont produce enough fertilizer and they dont give employment to 0.0001% of our population.Our govt owns most of the banks,biggest insurance companies,healthcare,road transport,railways,nuclear power,all research institutions everything.Still nothing have come out of it.Our country is still dirt poor.Maybe this is what going to happen in USA

GuestNovember 8th, 2008 at 8:13 am

I’m no expert but I have heard there is a lot of red tape when starting a business in India plus wasn’t there some sort of class system that discouraged entrepreneurship for many years, and lastly there are too many people with a lack of fresh water and natural resources. And oh yea they were another British oppressed colony for a long time so there’s no wonder it’s a poor country still.

John RyskampNovember 6th, 2008 at 5:49 pm

Here is more evidence–if any more were needed–of what a clown Nouriel and how he has helped destroy the country by fabricating the “system risk” nonsense. I said a long time ago,ECONOMIC ACTIVITY IS DECLINING.Remember? That’s the story of what is going on. Which is why I focus on maintaining the FACTS ON THE GROUND, such as housing. Small business knows this quite well. It is having no problem borrowing because there is no need to borrow becauseECONOMIC ACTIVITY IS DECLINING.And economic activity will CONTINUE TO DECLINE until there is a ban on housing evictions. Regardless of how you enforce this, no one is going to spend money when they feel their housing is at risk. Forget it. The only way to restore confidence in housing is to give people an individually enforceable right to make SURE they still have housing under all circumstances. Wake up and small the the eviction ban:The last National Federation of Independent Business report did not indicate credit concerns were high; from the October report (pertaining to September):Regular small business borrowers report that credit is increasingly more difficult to obtain. This has risen to 11 percent in September (12 percent said “harderâ€, 1 percent “easier”) as the creditworthiness of potential borrowers does decline as the economy weakens and customers disappear. Because a slowdown in the economy changes the credit worthiness of potential borrowers as sales and profits decline, more “rejections” will occur even with no change in credit standards by lenders. And, many credit worthy borrowers don’t need credit in a period when business expansion makes no sense and inventories are being reduced, not increased. Thus, the aggregate amount of business loans will fall with no change in credit standards. Regular borrowing activity was reported by 32 percent of the owners (down 2 points), reflecting a reduced need for funds to support inventory accumulation or discretionary capital spending. Both inventory and capital investment plans have been declining as the economy has weakened. So, credit demand is down and fewer loans are being made, but not directly due to a lack of credit availability. Loan demand is lower for many firms. Thirty-three (33) percent reported all their borrowing needs met compared to 6 percent who reported problems obtaining desired financing. The net percent responding favorable was 2 points lower than August and 2 points better than July. Interestingly, 36 percent reported all credit needs met in the tumultuous second half of September, compared to 31 percent in the first few weeks of the month.

MM CANovember 6th, 2008 at 6:39 pm

Stop your whining – start your own web site Ryskamp.. dont come here if you dont like What Dr. Roubini says…

MarkNovember 6th, 2008 at 7:52 pm

If no one owed a penny on their home, yet was still massively in debt, then what? It’s a consumer-based society; without credit where is the consumption to come from?I’ll always stress FOOD, SHELTER and WATER as our priorities, which, in regards to the SHELTER priority lines up with your views of importance. But, it seems that you’re asking something from the very system that it is incapable of providing because the system operates on predation. Remove predation and the system no longer exists; at this point any prediction, IMHO, is pretty risky to make.

AfANovember 6th, 2008 at 8:56 pm

Oh, dear John, I love your introductions and conclusions. Usually they have nothing to do with the body of the text and with the so-said facts you want to lay down on the ground – not romantically nor consentingly I presume.Did it ever cross your mind that house evictions would not change much of the outcome. And then on what principle does the “right” to housing is based? I can perfectly understand that, in a country of welfare, the nation, through public institution may want to guarantee descent access to shelter to the ones who cannot afford it, but that “right” cannot be associated with the shelter I choose. I too, like anybody else, want to live in a Chalet and not pay a dime for it. If I cannot afford a place where to live, cannot afford renting, then I should be happy accepting a shelter, any kind of shelter.Banning housing eviction against homeowners isn’t that equivalent to supporting housing eviction against the real homeowners. Remember, when you say homeowners, most do own little or nothing of their homes, the real owners are final investors who bought the mortgages. Banning eviction, as a law, is giving incentive to everybody to not pay their mortgages, is evicting investors their payoffs, is destroying private property, is destroying the right to own and protect one’s property.I am not saying homeowners … whatever, homeoccupiers … should not get help and let their mortgages worked out, in a way or another, but their is a difference between working something out and extorting someone to give to someone else.And remember, that final investors, who actually bear losses, are also individuals. Banks and corporations did realize their bonuses, in terms of fees, long time ago, and are fictitious entities when it comes to bearing losses.

GuestNovember 7th, 2008 at 8:30 am

Technology doesn’t create jobs for every job it creates it eliminates 2 or 3, follow that curve and private ownership is dead, add supply side economics and you just added rocket fuel to that engine.

GuestNovember 7th, 2008 at 8:31 am

Technology doesn’t create jobs for every job it creates it eliminates 2 or 3, follow that curve and private ownership is dead, add supply side economics and you just added rocket fuel to that engine.

GuestNovember 7th, 2008 at 8:31 am

Technology doesn’t create jobs for every job it creates it eliminates 2 or 3, follow that curve and private ownership is dead, add supply side economics and you just added rocket fuel to that engine.

GuestNovember 7th, 2008 at 8:56 pm

The owners of CDOs and other Mortgage Backed Securities will still have food and shelter if their investments are not enhanced by having political policy in their pocket.Let’s have some “political risk” on behalf of the little people who need it!

JohnRyskampNovember 6th, 2008 at 5:53 pm

And here’s how prices can INCREASE, not DECREASE. Not because credit availability to them is such an issue, but rather, that overall credit tightening makes them reluctant to invest. In short, fear of economic decline leads to bankruptcy, that interrupts distribution, and prices rise, rather than fall. Also, seek out and pay attention to anecdotal evidence. The spin doctors in Washington and Wall Street tend to rinse all reality out of their analyses, because they work for the political system, which does not want to appear that it has lost control of the situation. It has:this statement is from the Chair of the Small Enterprise Committee of the Association of Equipment Manufacturers:While Wall Street is on a financial roller coaster, I am here to tell you that many small businesses in America are in an economic freefall. AEM members, like the rest of the country, are experiencing challenges due to the credit and liquidity crisis…..I have heard from several colleagues on how they are experiencing problems with obtaining lines of credit. One of them, a small manufacturer in rural South Carolina, had an operating line of credit with Wachovia that was secured by a stock portfolio, but with the unraveling of the market their line was frozen. Attempts to restructure their line with Wachovia stopped before they started and inquiries into other banks were met with a “we are only engaging in lending with existing bank customers” type responses. Now my colleague is spending most of his time trying to resolve the issue when he should be working to secure orders in this down market. Still other colleagues of mine have capital to operate but find their orders disappearing, in part because their consumers cannot get credit to make the purchase.I found this testimony of interest, even taking into account the fact that the representative has an interest in conveying the situation in the starkest terms, because it lays out the web of interconnections to areas which I would not have expected an impact. The testimony continues:We are now seeing farmers delay the purchase of these inputs [fertilizer, seed, chemicals and fuel] from their “normal” pre-season purchasing patterns as they are having trouble accessing credit and are hesitant to pay such steep prices…

GuestNovember 6th, 2008 at 9:16 pm

@John,I have a friend who ran a profitable manufacturing business for many years – sold it for a handsome profit and retired. He then made a bad investment in currency – almost wiped him out. All those years of hard work gone in a moment.The moral of the story – nobody knows how to be with this dysfunctional market – BEWARE!

GuestNovember 7th, 2008 at 8:59 pm

It’s time they had some competition from healthier US competitors that aren’t handicapped by huge pension and healthcare costs. Maybe that’s the reason, here’s hoping …

JohnRyskampNovember 6th, 2008 at 5:59 pm

Can you believe that Nouriel is advocatingLARRY SUMMERS!as Treasury Secretary. What a pair of dogs! Just complete, scummy dogs.

MarkNovember 6th, 2008 at 7:55 pm

John at least uses a name with which to be criticized under. Neither his or your name calling should be condoned!

GuestNovember 6th, 2008 at 6:06 pm

“The Obama campaign was supposedly born as a grassroots movement, an online phenomenon that went viral and created a new majority. This myth is belied, of course, by the huge amount of corporate dollars that went into the campaign. McCain was outspent by an incredible margin. The Money Power is heavily invested in Obama, and they fully expect their generosity to be repaid – with interest.”In the international arena, this means the protection of corporate interests abroad, with the U.S. military being used as a private police force to protect American business interests – you know, the sort of enterprises that are “too big to fail” and have to be succored by the U.S. Treasury. Obama, like McCain, signed onto the Wall Street bailout, and he’ll be just as willing to send in the Marines to secure their interests abroad.”The more years I accumulate observing American policymakers in action, the more I’m struck by the essential continuity of U.S. foreign policy. Since the end of World War II, our course has been set: straight for the same mausoleum that houses the remains of the British, the Soviet, the Roman, and all other would-be global empires of the past.”It will take more than mere “change” to turn this around. It will take a Herculean effort, one that is now possible – but only if we remain vigilant, and relentless in our exertions.” ~ Justin Raimondo

GuestNovember 6th, 2008 at 8:25 pm

or what if the 47% need re-programming – faith is the correct way to describe the repsonse to the Obama phenom

GuestNovember 6th, 2008 at 9:11 pm

agreed – the problem is the folks who supported him thought he was about change as opposed to back to the future – that will define his eventual fall from grace

CahillNovember 7th, 2008 at 12:03 am

Please tell me you are not being serious? Reprogramming? I think you’ll find the 47% of us are far more steadfast in our beliefs than the ones who would “REPROGRAM” us. What a load of crap, you people are amazingly stupid.

GuestNovember 7th, 2008 at 9:02 pm

I didn’t expect much from Obama but so far I am pleasantly surprised. In Chicago on election night he said “we can’t have a rich Wall Street and a poor Main Street”. Now he talks of helping the middle class, not of preventing risk to the system.Maybe he’s going to be a man for the people and bite the hands that fed him with so much money seeking to buy influence. It’s in his power to be a great President!

Octavio RichettaNovember 6th, 2008 at 6:27 pm

I guess one can always use manual overdrive to break a post when there are too many replies to it, or a new topic develops:ORWould you agree that it is beneficial for you to monitor feedback from your comment by going directly to it instead of reading unrelated comments with replies to your topic scattered throughout? Thanks for not mentioning my misspelling.Reply to this comment By Guest on 2008-11-06 16:38:49 OK. I guess you are right. I am reconsidering… I am not very happy with my posting as of late so I blame the blog format instead of myself:-) I guess that as it happens with everything else in life, we human beings have the tendency to blame others for our shortcomings.Perhaps I am still adjusting to the Pampa after being in the Caribbean for several months…Perhaps it is just that I came down with a bad case of the flu…Perhaps it is Shilling’s latest letter (which I am reading now) and paints a picture which unfortunately I believe to be 100% right on the money but is extremely depressing. Lots of economic pain is coming to the world and it will hit the places where we linger (Argentina, Venezuela, Europe) the hardest.Perhaps it is is my realization, from the point above, that the limited commodity hedging I did recently was totally stupid and that I will have to reverse that trade as IMO commodities will continue plunging to around year 2000 levels; that the place to be during this global crisis is mainly US treasuries which will beat by a wide margin all of Mr. Gross’ wizardry in trying to beat his fixed income benchmark. Treasuries is where I was when I knew this was coming and where I should have stayed.The experience that comes with aging is a wonderful thing. This mood, like everything else shall pass, and things will get back to normal. I guess the zen guy above is right.Don’t get me wrong. I am overall quite happy with my modest performance this year and above all having avoided the train-wreck that has hit and will continue to hit so many people. I just don’t enjoy watching people in pain and knowing that even greater pain is coming.

GuestNovember 6th, 2008 at 10:26 pm

OR,You can’t leave us until Joe Kernen is driving a truck and Maria Bartiromo is stripping at a club!!! You promised….;^)PKB

Detlef GuertlerNovember 7th, 2008 at 1:03 am

If you are “watching people in pain and knowing that even greater pain is coming”:Will you look for a place to hide?Or will you look for a place to help?You’ve been a tremendous help for a lot of people here. And you can be even more helpful in the future.

GuestNovember 6th, 2008 at 6:29 pm

Does anyone want to forecast with a time line and details what they think these economic situations will bring?

Fred VoetschNovember 9th, 2008 at 1:26 am

A low of 2,000 on the DJIA over the next 2-3 years with the Dow not getting above 10,000 again for at least ten years and possibly 15-20.I feel that unemployment will not be as bad as the Great Despression because of the aging population and overall shift in demographics but in general I think our decline will likely be more of a permanent decline. Still, who will replace us? China? I doubt it; China will never have the internal dynamics that the USA has. As long as the government doesn’t go the “Atlas Shrugged” route we can get our act together again as we did after WW II.History tells us we are due for this decline and history suggests a 15-20 year period in which to recover. Of course, history never repeats itself, it just follows patterns.Best of luck to us all. Work hard, save your money and don’t ever forget that the best things in life are free.

AfANovember 6th, 2008 at 9:05 pm

Ah bon? et pourquoi 1945, ce monde là est fini il y a déjà des décennies, regarde autour de toi.Enfin bref, je n’était pas encore né à cette époque, alors je ne peux pas juger.

GuestNovember 8th, 2008 at 6:01 am

thanks for that tip…I used to use but does provide translations between more languages…

CaponeNovember 6th, 2008 at 7:00 pm

here goes 60 in oil! i know there is hyperinflation in the future and a massive dollar devaluation, but don’t know when? oops. in front of the hyperinflationary phase perhaps they will take oil, silver, gold and others MUCH lower? these markets are in full casino mode. how on God’s green Earth people feel like they have their “savings” and “retirement funds” in a “safe” place is truly beyond me….

PoorsaverNovember 6th, 2008 at 7:56 pm

Capone, after all these months, I think you have finally been vindicated on your shorts. Are you going to ride it all the way down to Dow 5000?

CaponeNovember 6th, 2008 at 10:36 pm

I will attempt to be patient and disciplined and sell rallies in equities and buy sell offs in commodities. Lomg way to go as I was early and reckless. At the moment, oil is REALLY pressing my strategy. I have a technical argument now for JNJ to be at 47 in days or weeks. What does that mean for DOW? Against that at the moment is a VIX that only hit 65 today when the last 3 times before this when the S&P 500 hit 900 it was 65, 70, 70-72.5 and now 65 after down 10% in 2 days… Is this a marginally muted response by the VIX to the 2 day decline? If so, a one or two day reprieve at least to the selling and maybe we find a range between 8,000 and 10,000 until the end of the year as Miss America has suggested.On the other hand, many folks myself included expected DOW 7,000 ish prior to the upside crash. Why not now? Who can really be positioned for it with the wild crash to the upside except for the few select people who know all.A Doctor who works with my sister called me recently as I gave him gold at 475ish a while ago. I have not talked to him for a while and he said he put money in the stock market 2 days ago. I do not know him that well and obviously have not talked with him in a while, but my goodness how clueless can people be? The sheeple are still afraid of “missing out” and people I work with are still saying I am in it for the long haul… Well, enjoy the ride down folks! The sell side establishment has done a fine job of brain washing the sheeple to buy and hold even in the face of near chaos over the past weeks, months and year… Unbelievable.

Fred VoetschNovember 9th, 2008 at 1:41 am

“The sell side establishment has done a fine job of brain washing the sheeple to buy and hold even in the face of near chaos over the past weeks, months and year… Unbelievable”EXACTLY! This is not just another correction in a bull market, this is a bear market and one that has likely just begun. Historical mean reversion suggests the market is still overvalued by as much as 2x based on book value and PE ratios are still over 20, which is 4x where they could well be in a bear market. We won’t just revert to the mean, history tells us we will revert well below the mean and for years to come.I know people who truly thought they were brilliant for making money in the 80’s, 90’s and in this decade and they got burnt because they were NOT brilliant and were unable to adjust. They finally sold and are now all ready to jump back in and ride the market to new highs. They will of course get burned again because the whole point of the market now is to revert to the mean. BTW, if your mean average is based on anything but 80 years or more you are setting yourself up to get burned.

GuestNovember 6th, 2008 at 10:57 pm

My, perhaps it’s bedtime. I just read “-cated” and “your shorts”, and totally got the wrong message. Good evening, all. 😉

MarkNovember 6th, 2008 at 8:05 pm

You know, this has really been plaguing me. I wonder whether hyperinflation is on the back burner because the rest of the world is trashed? If one were to have been able to plan this out it would have been to take down the rest of the world as the US economy tanked. When you go down and no one else does THEN you’d have to inflate.I’m beginning to see that (as I have fundamentally known all along) we’ve all run out of time in bolstering our investments. Yes, _some_ will manage to beat out the averages, but the averages are/will be so depressed that compared to days gone by it’ll still be pretty sad.I see no growth ahead. As such, and in conjunction with the fact that the rest of the world is also tanking (all are affected by resource shortages), I see no hyperinflation: inflation is an increase!

GuestNovember 7th, 2008 at 9:10 pm

Obama talks of helping Main Street and the middle class. What those constituencies need is actually inflation. So far (3 days after his election) he’s making all the right sounds, more than I hoped for before the election.A Manchurian Candidate on behalf of Americans? Is it too much to hope for?

the economic fractalistNovember 6th, 2008 at 7:21 pm

Equity valuations, as do other asset valuations, follow the process of optimal rotational growth and decay quantum valuation saturation curves that, in the largest sense, are dependent on a growing or contracting investment money supply which in turn is dependent on a growing or contracting real economy. Only very mild perturbations in the optimal growth and decay valuation saturation process occur, an example July 7, 2005. This is a deterministic, non random, and revealing elegant quantum walk with available investment money flowing between competing investment areas. The world is at the end of its greatest credit cycle. While their will be violent small time scale quantum countertrend growth periods, a quantum nonlinear devolution of equities and commodities is now occurring; the exact sequence of which is …..precisely predictable. Only an extreme optimist could believe that traditional remedies will reboot this broken system.

Octavio RichettaNovember 6th, 2008 at 7:33 pm

Cool post.I agree 100% with it. The talking heads will keep on telling you to buy right down to DOW 5000. Former bear Old F*rt Barton Biggs today in Bloomberg comes to mind…

YvesNovember 6th, 2008 at 7:25 pm

I just think that $1 trillion deficits for 2009 and 2010 is still too optimistic: US tax revenue will fall sharply while all the bail-outs (including states and municipalities), the fiscal stimulus, the unemploymed, all this will make the federal expense to swell, inflating the already high deficit to levels not yet forecast.I think also that the basic imbalance of parts of the world consuming too much while others saving in excess is very difficult to correct: the US are stopping suddenly to consume and this gap CAN NOT be filled in the short term: China and India combined consume about $2 trillion; they have a long way to go before they can compensate a 10% fall in US consumption ($10 trillion currently). So it’s a really hard landing, on an unprecedented scale.In God We Trust…

Octavio RichettaNovember 6th, 2008 at 7:41 pm

The latest from Berner is a must read. He took the bear baton from Rocah rather well:-) BIG storm is brewing…

AnonymousNovember 6th, 2008 at 7:55 pm

Prof – You have called this crisis with uncanny accuracy. I remember first seening you on Larry Kudlow who would laugh at your suggestions of a recession. He isn’t laughing anymore. I took your advice. Thank you.Now, I would be very interested in what you and Robert Shiller would predict, from a behavioral science point of view, IF the baby boomers decide to have one last rebellion – against their kids. That is, throw them out of the house for voting the wrong way. What do you think prof? Would it kill the market?

jugglingcdosNovember 6th, 2008 at 7:56 pm

OR i(we) love your postdont go awayp/si think the mentality that we shoud have going forward isCold Calculated Purely Logical Thinking With No Emotions Attached

WiseGuyNovember 7th, 2008 at 1:15 pm

Logic based on false premises results in false conclusions.Unfortunately, no system of logic can help you determine the truth of the initial premise(s).

GuestNovember 8th, 2008 at 6:05 am

Logic based on false premises results in false conclusions.Unfortunately, no system of logic can help you determine the truth of the initial premise(s).

Hi WiseGuy, I have been thinking along these lines for a long time. Do you know any books or websites that discuss the issue pertaining to thinking processes based with false premises? Or the second issue you are bringing out, that no system of logic can help one to determine the truth of the initial premise(s). I wanted to read more about these if you have any good material to point me to.Thanks

GuestNovember 8th, 2008 at 1:23 pm

I don’t know if this is precisely what you are looking for, but I think I read about this book here first, and it does deal with decision-making and how people go about making judgment calls:Predictably Irrational by Dan ArielyI’m only into the second or third chapter, but it’s very interesting so far.

GuestNovember 9th, 2008 at 4:34 am

Hi Guest, “Predictably Irrational” looks like it discusses the concepts from the point of view that I was looking for. Thanks for the tip!

WiseGuyNovember 9th, 2008 at 7:33 pm

Unfortunately, I think the world is filled with too many examples of logical arguments built on false premises.Determining whether or not a premise is correct or true is really an exercise in awareness. Open your eyes, try to see through the BS, and you’ll go far without even delving too deeply into any complex logical system. 90% of getting where you need to go is knowing where you are right now.To do that, you really have to work at removing the filters that you’ve “learned” over time. All of the paradigms that you thought would help you will only get in the way of seeing the world as it is. There are many good books on meditation that will help you with this exercise. It’s not easy and it’s not quick but it’s the only way.

Lord SidcupNovember 7th, 2008 at 2:40 pm

Hi jugglingcdosUnfortunately you’re wrong re logical thinking. Human action starts with emotion, thought/logic without emotion is fairly near impossible, thought we have inherited it as an ideal from the enlightenment. “The crucial aspect of psychopathy is emotional impairment” Dr. J. Reid MeloyThe logical thing to do to solve the economic crisis might be to, say, to exterminate 9/10ths of the worlds population and take their money. Most humans would react emotionally to that plan.Even your initial statement (“i think the mentality that we shoud have going forward is Cold Calculated Purely Logical Thinking With No Emotions Attached”) seems to have begun with an emotional response to the economic crisis and a desire/hope to find way out of it. Fairly non-rational but admirable all the same.

GuestNovember 8th, 2008 at 6:09 am

The logical thing to do to solve the economic crisis might be to, say, to exterminate 9/10ths of the worlds population and take their money. Most humans would react emotionally to that plan.Even your initial statement (“i think the mentality that we shoud have going forward is Cold Calculated Purely Logical Thinking With No Emotions Attached”) seems to have begun with an emotional response to the economic crisis and a desire/hope to find way out of it.

That is what I think Adolf Hitler was going to try. Not that he ever really died. He continues to live in the minds of some.

Octavio RichettaNovember 6th, 2008 at 8:03 pm

These two pieces unequivocally point to AG as the single individual most responsible for the mess we are in.CR says: “Yes, the Fed was not properly fearful when markets appeared steady.” Greenspan – Ted Williams or Willie Mays

MarkNovember 6th, 2008 at 11:24 pm

Yup, FOOD, SHELTER, WATER… We have, as Ryskamp(repeatedly) informs us, plenty of SHELTER. We have WATER, though we’re really pressing it. But our FOOD systems are going to start collapsing.We’ve always focused on our thin layer of atmosphere for keeping us alive (maybe because we’ve had our heads in the clouds, maybe because TPTB have given us gods from above in which to distract us as they steal our land), yet we fail to note that a mere (average of) 2 – 3 inches of topsoil is essential for keeping us alive. Time to stop treating our land as though it’s only dirt… (soil is really really cool, and it’s NOT dirt!)

GuestNovember 7th, 2008 at 9:39 am

don’t forget to mention the effects of estrogen mimics on male population are there more babies in the world female or male?

GuestNovember 7th, 2008 at 10:55 am

-y slope Disappearing Male is about one of the most important, and least publicized, issues facing the human species: the toxic threat to the male reproductive system.

Jason BNovember 6th, 2008 at 8:09 pm

Easy credit has several effects. Well known is the creation of asset bubbles. One I have not heard discussed too much is the movement of future purchases into the present. Might as well buy that new car now with 0% financing. And that washing maching. And that TV. Now all that consumption was moved into the present in an orgy of borrowing and consumption. The problem is, corporations thought that level of consumption would go on forever. They built plants, hired workers, borrowed to make improvements to their facilities. Now consumptions snaps back, and they have to lay off workers, mothball plants, default on loans.

GSMNovember 6th, 2008 at 9:14 pm

…….as Americans actually live within their (meagre) means and the economy makes its inevitable downward adjustment.The US economy is set for a massive contraction- absent the bulk of the huge debt that fuelled it in recent decades.Future US economic growth in the US will begin at some point but from much lower levels of economic activity. That level has not been reached and not likely to for at least a year or more- maybe 2 or 3 even.But there is a far greater risk in this environmet and that is a currency crisis. As panic responses beget even more and bigger panic responses, the fiscal credentials of the US are being blown away.Summoning up (from thin air) huge swathes of new debt to displace the void of vaporized old debt is hardly encouraging to all those US bond and currency holders.

GuestNovember 6th, 2008 at 8:42 pm

@John Ryskamp: “Can you believe that Nouriel is advocating LARRY SUMMERS! as Treasury Secretary.”The point is, John, that Obama is going to pick whomever he wants. If he picks a Wall Street insider such as Summers or Geithner, then it means that the Democrats are going to continue their operations of supporting the Fed and bailing out Wall Street investment bankers. The New York Times says that Obama’s announcement of Rahm Emanuel as his Chief of Staff already has upset a lot of people because of Emanuel’s possible connections to Wall Street. The Progressives I listen to on talk radio want change. They already are upset about Obama’s selection of Clinton people for his interim staff.If Obama continues in the present vain, it won’t be but a month before he’ll have lost all the young people who voted for him—69% of first time voters. You can’t ask people to trust you if you turn on them like this. New voters, young people, switch voters, and Independents really believed Obama was completely different; that he was magic. And when you promise but don’t say what you mean, as Obama did, then people read into it what they think you meant, according to their likes. These people didn’t vote for Wall Street. They voted for Main Street.If and when the news gets started that Obama’s appointments are Wall Street people, then Democrats won’t be able to stop the onslaught. It could set off the biggest precedent in history of a backlash against a president-elect. Bill O’Reilly is saying that Obama got $600 million for his campaign and that $888,572 of that came from Move On, which also supplied a campaign force of 933,808 volunteers for Obama nationwideMove On has put out a message to Obama: “Hello. Congratulations. We are here.” They want a lot of what I consider to be terrible things, but one thing they don’t want is business as usual on the Hill. If Obama tries it, he’s going to have big problems.The backlash will be unbelievable: college students and blacks will turn on him. The blacks will say I knew he was too white: the college students will say he’s just like the rest of them. They expect him to do something marvelous, right away, like magic — the Messiah in the White House. If he backs up, on feet of clay, that’s it!In short, they are waiting for a revolution; they want things done now; they don’t want a tired replay of Wall Street/corporate government—a government by corporation. That’s what they voted against. He led them on to believe that’s what they wouldn’t get. I don’t know that he will double cross them. I do know what will happen if he does.

GuestNovember 6th, 2008 at 9:03 pm

Possibly, or they could just go back to their ipods with the beleif all is good and well and O is going to take care of them.Maybe after a year of ignoring obvious contradictionsthey may start to get defensive, then another year or two before they scrape off their bumper stickers of Change.

GuestNovember 6th, 2008 at 9:04 pm

@Guest- you have articulated the essence of the Obama mystique and brilliance of Axelrod, his campaign manager. They tapped into the emerging postmodern orientation of Americans (and for that matter Europeans). That however is a two edged sword that will require follow through – once / if his followers determine that he has been insincere or dishonest he will rapidly lose support. Worse, should his followers determine that he is actually a narcissist with passive aggressive tendencies who has used them (my humble perspective), his supporters will go against him with more passion then their initial support for him.

GuestNovember 6th, 2008 at 9:11 pm

Morale Implication..i talked about this in my last postwhats the important of Moralethe young trops defending Bastogne during WW2 was less-equiped, less in numbers, repeatedly attacked by the larger force of Germans, but they kept defending it again and again and again, at one time they almost ran out of supplies,fortunately US was able to re-supply them by air, morale came back up again..morale/faith is like a battery,if used constantly it will run out..what keeps a country together??when the leader’s thoughts/belief is the same with his/her military and citizens (i think Sun Tzu said this..)lose this trust, you get a lot of disillusioned peopleand the people’s battery is running out

GuestNovember 6th, 2008 at 9:43 pm

This on Summers from “The Battle for Obama’s Economic Soul” by Robert Scheer, Truthdig. Posted October 23, 2008.”Let’s hope Obama continues to rely on economic advisers whose vision for the country extends beyond their own bank accounts” EXCERPT:It would be encouraging if the Democratic presidential candidate did indeed attempt to learn something from Europe’s democratic, and barely socialist, governing left concerning the welfare of those who are not super-rich, i.e., how to provide quality health care and education for all — but that is not what is happening. Instead, Obama has turned to the same American “free market” elite that views government as merely a corporate subsidiary. Even within that crowd, however, there are serious splits, and the more enlightened side seems to be winning.Key among the good guys is former Federal Reserve Chairman Paul Volcker, who consistently challenged the radical anti-regulatory crusade of Alan Greenspan, his immediate successor at the Fed. Greenspan’s all-too-successful effort to give the banking lobby everything it had ever dreamed of was abetted by two Clinton-era secretaries of the treasury, Robert Rubin and Lawrence Summers. Unfortunately, the two, who should have mustered the grace to depart public life in deep contrition over their failed policies, are prominent in the Obama campaign.Rubin, who pocketed tens of millions running Goldman Sachs before becoming treasury secretary, is the man who got President Clinton to back legislation by then-Sen. Phil Gramm, R-Texas, to unleash banking greed on an unprecedented scale… Under the guidance of Rubin and Summers, Clinton signed off on the Gramm-Leach-Bliley Act and the Commodity Futures Modernization Act, Gramm’s two key pieces of legislation, during his final two years in the White House.The first beneficiary of that legislation was Citigroup, which was allowed to merge with Travelers Insurance, where Rubin became a director after leaving the government…’s_economic_soul

genie in a bottle.November 7th, 2008 at 2:17 pm

The backlash will be unbelievable: college students and blacks will turn on him. The blacks will say I knew he was too white: the college students will say he’s just like the rest of them. They expect him to do something marvelous, right away, like magic — the Messiah in the White House.You are so correct! The 70% of young voters are: The ENTITLEMENT GENERATION. They will slay him. Black or white, it doesn’t matter. Their baby boomer parents have started to throw them out the house, because they voted for Obama.

AnonymousNovember 7th, 2008 at 2:44 pm

The fat people will say he’s too skinny. The short people will say he’s too tall. The naked people will say he wears too many clothes, the old people will say he’s too young.

DBNovember 10th, 2008 at 2:22 am

I don’t know about that. His supporters have so far shown an amazing willingness to adapt their own ideas to match his. Why would they stop doing this?

AfANovember 6th, 2008 at 8:59 pm

If OR do not like it, then I doesn’t. RepostOh, dear John, I love your introductions and conclusions. Usually they have nothing to do with the body of the text and with the so-said facts you want to lay down on the ground – not romantically nor consentingly I presume.Did it ever cross your mind that house evictions would not change much of the outcome. And then on what principle does the “right” to housing is based? I can perfectly understand that, in a country of welfare, the nation, through public institution may want to guarantee descent access to shelter to the ones who cannot afford it, but that “right” cannot be associated with the shelter I choose. I too, like anybody else, want to live in a Chalet and not pay a dime for it. If I cannot afford a place where to live, cannot afford renting, then I should be happy accepting a shelter, any kind of shelter.Banning housing eviction against homeowners isn’t that equivalent to supporting housing eviction against the real homeowners. Remember, when you say homeowners, most do own little or nothing of their homes, the real owners are final investors who bought the mortgages. Banning eviction, as a law, is giving incentive to everybody to not pay their mortgages, is evicting investors their payoffs, is destroying private property, is destroying the right to own and protect one’s property.I am not saying homeowners … whatever, homeoccupiers … should not get help and let their mortgages worked out, in a way or another, but their is a difference between working something out and extorting someone to give to someone else.And remember, that final investors, who actually bear losses, are also individuals. Banks and corporations did realize their bonuses, in terms of fees, long time ago, and are fictitious entities when it comes to bearing losses.

The Total Rail SolutionNovember 6th, 2008 at 9:29 pm

Dr. Roubini:I’d be grateful for any comments in re this proposal to put America on the right track.America is not oil addicted; it is car addicted. This core reality has escaped apprehension by politicians, pundits and economists alike. Car addiction is the root cause of the real estate mania (home and commercial), which mania became the triplever of the global financial meltdown.HOW TO CREATE millions of jobs, achieve energy independence, reverse the trade imbalance, restore the economy, save the lives of tens of thousands of working people and youth, eliminate three million injuries, drastically reduce greenhouse gases, banish daily traffic jams, severely reduce urban sprawl and noise, and improve the quality of life of 300 million Americans in one fell swoop:Shift spending priorities away from dangerous, polluting cannabalizing and socially ruinous automobile culture to energy-efficient, clean and comfortable RAIL. Take several hundred billions of dollars from the “bail-out” earmark and reprise the WPA. Use the labor and capital to build out a state-of-the-art passenger rail system from sea to shining sea. This to include city-to-city intercontinental high speed “Maglev” trains connected to extensive networks of local light rail and trolley cars in the cities and town.In the 1940’s America had a passenger rail, interurban and and streetcar network that was the envy of the world. Fact: a train can haul one ton of freight or people over 420 miles on ONE GALLON of Diesel petrol. Good bye energy and trade imbalance crises. Plus millions can be gainfully employed. Seventy percent of all oil consumed in U.S.A. is imported. Seventy percent of all oil consumed in U.S.A. goes to transport needs, mostly cars and trucks.The Total Rail Solution (TRS) guarantees America’s future as a productive economy and viable nation. The automobile culture is destroying us in more ways than one. Not to mention that TRS drastically reduces automobile crash deaths and injuries, delimits traffic congestion and quiets noise, dramatically cuts greenhouse gas pollution, curbs urban-highway sprawl and improves quality of life. The best return for the buck is rail. There’s no contest.PS. Since 1908, motor-vehicle road crashes have killed over 60 million human beings and injured or disabled another 900 million. By comparison, World War II killed 45 million (military and civilian). EVERY YEAR, 43,000 Americans die in road crashes; 3.5 million injured/disabled. More US teenagers die in car crashes than from all other causes of death combined. W.H.O. estimates two million killed and 35-40 injured/disabled worldwide in road accidents, which are now ninth leading cause of death and, by 2020, third leading cause. If our ancestors in 1908 had foreseen the bloody carnage, social ruination, and incalculable environmental and human cost of the automobile, they would probably have clamped Henry Ford in irons and cast him into a dungeon.

MarkNovember 6th, 2008 at 10:03 pm

But why the need to transport people all over the place? To what, jobs building rail cars?You are correct in that “our” problem (really only an issue) is that it’s about our transportation system. But, it’s not that we don’t have the right kind, it’s because we’re based on transportation! And, transportation requires energy! (and all the energy and resources to make it materialize where desired)I went from a high paying job in which I had to commute (by bus, which is much more flexible than a train) to a lower paying one in which I can ride a bicycle. And now, thanks to a more forward-thinking program than investing in unneeded transportation (Commute Trip Reduction) I actually get PAID to commute by bike!Distances people will travel on a daily basis WILL diminish. Energy and population density will guarantee this. Better to take the $$ and invest it in getting local communities to be more self-sustainable. This is why I’ve advocated redirecting $$ from new road construction/expansion back to businesses hiring local people: this will start to re-mold local communities.

MarkNovember 6th, 2008 at 10:46 pm

The best return for the buck is rail.Yeah, just ask the native American Indians how well it worked for them :-(OK, I will concede that rail, since we already have it, is important for serving freight needs.

Frank the Rail BuffNovember 6th, 2008 at 11:17 pm

Why must Americans have to drive a car for long or short trips or take an airplane for long trips when we want to travel anywhere? It’s ridiculous and deplorable this country doesn’t have a decent passenger rail network as a transportation option. This is country of 320 Mil people (counting illegals) and about 270 million cars. In a couple of decades, there will be 400 million or more people and Lord knows how many cars. Imagine what a transportation mess that will be! And all that gasoline guzzled by cars and trucks. Holy cow, USA uses 45% of all gasoline used IN THE WORLD. Yikes! What a waste. ALL our imported oil goes out tailpipes. We wouldn’t have to import ANY oil if we have good rail options. Trains are incredibly efficient and much safer.Even many third world countries have a better passenger railroads. Not to mention Japan, or Europe or Britain. I went everywhere in Europe and Japan on high speed trains. Who needs planes?But the highway and motor and airline lobbies buy off the pols and that’s why US has this huge monkey on its back. The more highways, the more traffic you get. It’s total urban sprawl craziness. America’s wealth was built on back of the railroads. We need to get back to what makes economic and social sense, like the man says.

AnonymousNovember 7th, 2008 at 11:29 am

Hail car addicts, who believe that an automobile-based national economy has been a real good thing for America. The “drive-through” ever expanding suburban car culture has gotten us into this mess! Endless oil wars, destruction of the environment, social fragmentation, national bankruptcy, and the greatest misallocation of resources in the history of the world are all products of our slavish car culture. Addicts never can see the source of the problem. It’s too unsettling. Alcoholics and drug addicts are the last to blame their problems on booze and drugs! People here need to get out of the ivory towers bone up on the writings of James Howard Kunstler. Wake up, people!

breaststrokeNovember 7th, 2008 at 11:44 am

We’re also obese and lazy because of the car culture. Part of it is geography, though – the U.S. is ginormous. Not everybody lives in a densely packed city with good trans options. Lots of far-flungishness here. 🙂

GuestNovember 7th, 2008 at 11:57 am

That’s just more stock phrase excuses. In the 1930’s to early 1950’s, US had a LOT FEWER people, a whole lot more rail. Rail was king. Anyhow, US population is greatly concentrated in giant metropolitan areas easily served by rail. China and Russia are big too. China is going gangbusters to build stare of the art highspeed rail. They got passenger rail. We don’t because the Big Boys and the politicians gutted it. They’re afraid of it because it’s much cheaper, uses less resources, and does jibe with the 60-year Interstate Highway urban/suburban plan of sprawl that the banks financed. Rail is revloutionary. The automobile is a dinosaur.

NoviceNovember 7th, 2008 at 9:10 am

I think a far less expensive alternative would be local mass transit, for smaller communities. Bus service between towns and suburban areas, not just cities. Sure you still use gas, but far less. I think this would be a great business opportunity and something that could be implemented rather quickly and inexpensively compared to rail, and you also have the advantage of flexibility as to where you can travel.

GuestNovember 7th, 2008 at 9:51 am

The middle class was a freak result of industrialization where human capital became extremely important and strong unions worked for equality of the worker but that has about run its course as technology has eliminated those jobs, so it’s either back to the dark ages where very few are property owners and the rest are peasants or we go socialistic. This will be the new choice we face going forward. Either way capitalism will never be the same again as all of those labor efficiencies if allowed to continually be funneled into the hands of the very few will destroy the middle class.

breaststrokeNovember 7th, 2008 at 1:52 pm

I agree. Capitalism has pretty much run its course. I wasn’t disagreeing about mass transit being an option, but just saying it’s a huge country. Obviously that needs to be taken into consideration with transit options. I’m all for high-speed rail, whatever it takes. We’re also fat and lazy for other reasons, though, too. 🙂 I’m all for single payer health care, but we also need single payer gyms. :p

GuestNovember 7th, 2008 at 11:47 am

To “Total Rail Solution”:Even the great Roubini, for all his insight, misses your point. I go beyond your W.P.A. approach. I’d like to see a youth national service empowered to build light rail transit options in every city and large town in USA as well as Maglev rail connectung the cities. It’s their own better future the youth would be building. Americans are only 4.5% of world population and gobble up 45% of world’s petrol and 26% of its oil. That’s nuts. Rail can move about 14 people 400 miles on a gallon of petrol. It’s the ultimate green technology.

MarkNovember 7th, 2008 at 12:40 pm

Will SOMEONE please answer why it is that we have to move people all over the place?It’s not the automobile paradigm that folks are all brainwashed with, it’s the TRANSPORTATION paradigm!Those “youth” will be much better served by dealing with FOOD, SHELTER and WATER issues!This rail crap is all propaganda to enrich the wealthy. It’s how they maintain centralized control: control the food systems- do so by controlling where and how its delivered.

David in SeattleNovember 6th, 2008 at 9:34 pm

Excellent insight from Bill Buckler. Must ReadBEST OF BILL BUCKLERNovember 5, 2008The global sell-off in the stock, real estate and commodities markets is well documented. The huge deflationary effects this has had are enormous – forcing the global credit money system to contract its volume of credit money in circulation. This is a literal monetary deflation.Failures Expand From Lenders – To Systems – To Nations:This credit money contraction is now rolling into its second stage. Today, it is the lenders right around the world who are going broke. That is accelerating the monetary contraction and deflation to an even greater extent than before. Early in this second stage of the credit contraction, it was individual lenders being rescued. More recently, it has been entire national financial systems which have been rescued. Ahead lies the rescue of entire nations on the edge of bankruptcy. The Ukraine, Hungary, Pakistan and Iceland are now talking to the IMF for bailout loans.And in the face of all this, the US Dollar is soaring?!! It is climbing because the act of deleveraging means that earlier loans have to be paid back. Most of these loans were made in US Dollars. That means that the US Dollar has to be bought before the loan can be repaid. When the global leverage was being piled on, it was the US Dollar which fell as it was being sold to acquire other assets. Now, in a global reverse, it is the US Dollar which is being bought – so it is going up in value while the leverage is brought down as all these earlier loans are being paid off.The Very Temporary US Dollar Upside:The present upswing in the international value of the US Dollar will last as long as the deleveraging that is taking place around the globe. Once that ebbs away, the loans that have now been repaid will have the effect upon the US credit money system of contracting it even further, aggravating all the second stage effects of a literal credit money deflation. That’s the stage where huge numbers of lenders go broke.When events get to this next stage, the world will see a fast falling US Dollar while at the same time, many of the US medium and smaller-sized commercial banks will go to the wall. At present, many holders of US Dollar financial assets are using this US Dollar rally to sell out of their US investments. They stand ready to sell the US Dollar when the rally peaks. Foreign banks hold $US 12 TRILLION in US Dollar assets and liabilities. Their records now show that they are in the process of deleveraging.The Literal Word From On High:The blunt truth was stated in purely conversational tones, but the words were deadly and they could not have come from a more important person. The Bank of England’s Governor, Mervyn King, said that the UK banking sector had been “close to collapse” . Earlier this month, the UK banking system was closer to collapse than at any time since the start of World War I, Mervyn King had warned. That is systemic.Global Monetary Double Jeopardy:Two interlocking financial events are currently taking place on a worldwide basis. One is deleveraging, which has massively increased the global demand for US Dollars. The other is a second stage credit contraction which the monetary authorities in the US, Europe, Japan, the UK and Australia are fighting tooth and claw in increasingly desperate attempts to rescue their entire financial systems.Unlimited US Dollars From The US Fed:Bank of England Governor King’s remarks nail the issue. But the real situation is in fact very similar in most of the West’s banking and financial systems. As part of all the efforts to flood the financial system with cash, the US Federal Reserve made unlimited funds available to other major central banks early on Monday, October 13. The Fed did this so that the other central banks could inject money into banks in their countries and ease the shortage of US Dollars they face. But that set up the next problem. No sooner are unlimited US Dollars in the hands of these other central banks than they re-lend them to their commercial banks. Then, these new unlimited US Dollars are used to de-leverage the credit money systems as the huge overhang of earlier loans are paid off. THIS CONTRACTS CREDIT! The Fed is now in the strange position where the more unlimited US Dollars it pumps out, the more it assists the deleveraging which is sending the global credit money system into credit contraction. These are now transforming themselves into genuine second stage credit DEFLATIONS. If the Fed had NOT done this, many of these earlier loans would have defaulted, tearing the lenders’ balance sheets apart. That would have brought about an instant second stage credit deflation and sent all the lenders broke.The Same Credit Money Problem On A Smaller Scale:Today, even in the popular press, terms like “Billions” and TRILLIONS are thrown about with abandon. But what is today an interlocking sequence of global financial problems can also intellectually be seen in the small, so to speak. In principle, it is the same problem which any credit money system always has.Keep in mind that when any borrower walks into a bank and pays his loan off, not only does he cancel the amount that was earlier credited to his account but he also cancels a liability of the bank – the sum it had earlier credited to his account. Repaying the loan contracts the total sum of credit money which the bank has issued as a loan. It also deprives the bank of the income it earned on the interest paid on the loan. Cancelling his liability lowers the size of the bank’s totalliabilities. That makes the bank financially safer than before if it keeps the same amount of capital behind its loans. But if many people start repaying their loans to this bank, they would contract the credit MONEY it had earlier issued as loans. When that goes far enough – it amounts to a credit money DEFLATION.For example, if over a period of a few months, a bank’s sum total of credit money issued contracts from a fictional 1000 to 700, that would have a genuine economic effect. It would leave some local prices too high to clear in the area where the bank’s customers live. Some of these prices would break on the downside in an attempt to find the new lower clearing price. That would take valuations of all other like economic goods down with them. If some of these other economic goods have been put up as collateral for other loans from this bank and if their value falls below the size of the loans issued against them, the lending bank faces write-offs on its balance sheet and losses of its capital. If a lending bank loses all its capital – it goes broke. If it goes broke, it makes all its other deposits VOID!Pumping Madly Against The US Deflationary Tide:We live in unprecedented monetary and economic times. Consider, for example, the tally of what the US has already tried to pump into its monetary and financial system since the global credit crunch began back in August-September 2007. US funds have already been committed for everything from the bailouts of Fannie Mae and Freddie Mac to Bear Stearns and the US insurer American International Group (AIG) to the $US 700 Billion financial rescue package approved by Congress to providing guarantees to backstop other selected US financial markets. So far, the total comes in at an estimated $US 5.1 TRILLION! Add another Congressional “Stimulus Mark-II” package estimated to reach $US 300 Billion and the Fed’s package of support of $US 540 Billion for the money market mutual funds.Where is all the spending money to come from? Simple – new BORROWING.The US money market funds broke down after a US fund named the Reserve Fund had to tell its customers that they would get less than a full US Dollar back on their investments. The US money funds hold about $US 3.45 TRILLION in assets. For decades Americans have seen them as THE place to park their ready cash, to be called upon as needed. But the failure of one fund led to a flood of redemptions which eventually reached about $US 500 Billion, according to the Fed. The huge outflow forced the Fed’s hand, it had to interpose itself in the financial gap with the new package of $US 540 Billion.If anybody is wondering about where the Fed’s money is coming from, it is being PRINTED.A Closer Look At The US Federal Reserve:If the Federal Reserve was a bank like any other, it would be shut down. But it is not. The Fed is a reserve bank and for them, the rules are different. The latest data published by the Fed itself is hair raising. It shows that “new” Federal Reserve credit surged by $US 245 Billion in a week to reach a new record of $US 1.740 TRILLION. This is fantastic enough, but the Fed has increased its credit issuance in the last five WEEKS by $US 851.8 Billion. In the process, it has doubled its balance sheet!Fed “new” credit has expanded $US 866.6 Billion so far this year, that’s a 123 percent annualised rate!What the Fed is desperately trying to do here, using all the means at its disposal and new ones it invents by the week, is to stave off the “second stage” deflation where literally tens then hundreds then thousands of small and medium banks and other lenders start to go broke. In doing so, they undercut, in the sense of making extinct, all the other depositors they have on their books.In effect, the Fed knows that the US financial system has already had a version a bank run, though in this case it was a $US 500 Billion run out of the money market funds. As best as it can be measured at this time, most of the $US 500 Billion hauled out of the US money market funds flowed straight into US Treasury short-term paper for “safety”. With this illustration of the mood which the American public are now in, it wouldn’t take much more before some fragile US commercial banks face bank runs. This is what the Fed fears the most. This would signal the fatal “stage three” deflation. In a fractional reserve banking system, only a fraction (in the US case at most 10 percent) of the depositors’ money in the banks is there in cash to redeem a customer closing an account in cash. The other 90 percent would get nothing.In terms of plain and simple logic, any fractional reserve banking system is inherently unsafe. It is financially unsafe because for every cash Dollar the public has deposited in the bank, the bank thinks itself free to issue loans – credited to borrowers’ accounts – to the tune of another nine Dollars. These other nine Dollars only exist on the books of the bank! Obviously, it would only take two of the bank’s customers to demand a cash Dollar each to break the bank – proving its financial insolvency. That is bad enough. But to superimpose on top of the fractional reserve system a credit money system in which the money lent by crediting it to customers’ accounts IS THE MONEY is the height of insanity.

GSMNovember 6th, 2008 at 10:34 pm

As I have posted earlier, this will become all about the USDollar in due coarse. With the dollar in freefall (again), deflation will be pretty hard to spot.

CaponeNovember 6th, 2008 at 10:43 pm

timing though… the only thing i can think of to catch the time is long term technical charts. those are hard to come buy for average schmucks like myself when it comes to commodities and the us dollar index… basically, the lowest levels for any commodity justified by long term trend “could” be scaling in entry points…i thought that 90 for the us dollar index may have been a level of resistance but now see a symmetrical triangle which may indicate a rise above this level soon after one more decline in the dollar index over the coming days. from the desk of an amateur chart junkee..

GSMNovember 6th, 2008 at 10:57 pm

Capone,As reluctant as I am to voice any predictions, I’m expecting a major low in the Currencies (Dollar high) between now and year end. Traditionally , many significant trend changes have occurred in this time frame.Or, confirmation during that period that such a turning point has occurred.FWIW and your risk.

AfANovember 6th, 2008 at 11:03 pm

Here is a link to a SIFMA economic outlook paper dated June 2008. Given the status of SIFMA, it is unbelievable how their “Advisory Roundtable” was off (so far – more to come I think).Key remarks:- No one single negative growth quarter into 2009- Forecasting a rate hike to 2.25% FFR by year end.- Employment and income growth drivers of consumer spending in H2 2008 and 2009.- No single negative growth quarter of consumer spending, capital investments …- Unemployment to reach 3.5% by 2009 (wow, I am feeling dizzy)…These are the people supposed to represent the cream of the cream, the elite of the global financial industry, but then, what did I expect?

MarkNovember 6th, 2008 at 11:37 pm

The average person’s money has been disappearing, yet crack sales have stayed high. I think that there’s a direct correlation…

AnonymousNovember 10th, 2008 at 4:55 pm

The first article made it all clear for me.We are Iraq. We have been robbed. The analysis is correct, and now it all fits.We should do something. Something appropriate.

MASHIACH BEN CHANANovember 7th, 2008 at 1:47 am


GuestNovember 7th, 2008 at 8:14 am

@CHANAI guess you are reading tea leaves. If not, could you expand on your reasons for saying such a thing?It seems to me Obama is more about creating Camelot, something the Kennedy era tried to envision.

friend of washington mutualNovember 7th, 2008 at 7:41 am

Down and Out in Beverly Hills: Rolexes, Picassos Hit PawnshopsBy Michael JanofskyNov. 7 (Bloomberg) — The worse the economy gets, the better it is for Jordan Tabach-Bank.“Business is booming,” said Tabach-Bank, the chief executive officer of Beverly Loan Co. in Beverly Hills, California.Beverly Loan is a pawnshop. Not just any pawnshop, but the kind that caters to people who hock Cartiers, Harley- Davidsons and Oscar statuettes when they need cash. They really need it now, Tabach-Bank said from a third-floor office, protected by bulletproof glass, off his showroom in the Bank of America building near Rodeo Drive.“I’ve never seen so many bankers, lawyers, doctors and actors” with valuable things to pawn, he said. He pointed to an 18-carat white gold bracelet with 69 diamonds ($2,900) and an 18-carat yellow gold Rolex Yachtmaster II (“a steal” at $18,500).With credit drying up at regular lenders, “in many cases now, we’re not just the bank of last resort,” Tabach-Bank said. “We’re the bank of only resort.”High-end pawnshops aren’t like most of the 10,000 dealers affiliated with the National Pawnbrokers Association, a Keller, Texas-based trade group. The average U.S. pawn transaction is $75, according to the association’s Web site.$2.7 Million NecklaceAt Tabach-Bank’s shop, “confidential collateral loans,” as they’re called, have been made on art works by Pablo Picasso, Andy Warhol and Jean-Michel Basquiat. Amounts loaned range from several thousand dollars to “six- and seven-figure deals,” he said, with clients using the money to cover the mortgage, make alimony payments or finance cosmetic surgery.South Beverly Jewelry and Loan, also in Beverly Hills, has seen business triple in the past six months, said owner Yossi Dina. Some of the collateral is in a parking lot: About 60 cars, including Ferraris, Porsches and a Bentley.“We’re making loans today we never used to,” Dina, 54, said. “Millions — never used to have that. We’re selling a necklace now, the client wants $2.7 million.”The thriving pawnshops show that hard times have reached even Beverly Hills, where the average per-capita income in 2006 was $50,218, almost triple that of all of Los Angeles County, according to the city of Beverly Hills Web site.The median price for Beverly Hills homes sold in the 12 months through September was $1.3 million, according to, which tracks local residential sales. That was down 16 percent from the year-earlier period.Climbing DefaultsThe pawning surge has a drawback, according to shop owners. Just as falling real estate prices have led to record foreclosures in some cities, customer defaults have climbed by “a couple of points over the last six months” said Tabach- Bank.At Collateral Lender Inc. of Beverly Hills, the redemption rate has fallen seven percentage points to 82 percent and will likely drop more during the next six months, said owner Tal Schmargal, 52.People who fail to reclaim an item generally don’t return to pawn another, brokers say. The ideal client is one who hocks a gold watch, redeems it by paying back the loan amount and interest, then hocks it again when the need arises.“We want them to get their goods back,” Tabach-Bank said.Under California law, a pawned item remains in a shop for four months and 10 days, after which the client may get it back by paying off the loan or delay redemption by paying just the interest.The state dictates interest rates for loans up to $2,500, lenders for loans higher than that. The usual rate at Beverly Loan is 4 percent a month, Tabach-Bank said.Larger DiamondsIn downtown Los Angeles, King’s Jewelry & Loan began seeing luxury business pick up about 18 months ago when variable-rate mortgages started resetting to higher payments, said owner Sam Shocket, 54, a member of the national association’s board.“We were seeing more Rolexes, Patek-Philippe watches, larger diamonds,” said Shocket, who deals almost exclusively with jewelry.“Instead of construction workers, we’d see major contractors,” Shocket said of his customers. “Instead of real estate agents, we’d see brokers. Instead of actors who played bit parts, we’d see someone you might recognize from `The Tonight Show.’ ”People who pawn in Beverly Hills confess to a wide variety of needs. Dina said he has loaned money to producers to finish movies. Tabach-Bank said clients have pawned items to pay for mortgages, emergency health-care, “tummy tucks and face lifts” and gambling debts, “especially around Super Bowl season.”Keeping SecretsSome clients trade in things they just don’t want anymore, leaving them for the shop to sell. Beverly Loan has several cases of jewelry, including a white gold bracelet that would retail for about $38,000, Tabach-Bank said. His price is $20,000.The shop is also selling signed works by Picasso, Robert Rauschenberg, Norman Rockwell and Al Hirschfeld. Prices range from $2,500 for a Keith Haring to $250,000 for a Warhol print.Brokers in Beverly Hills won’t identify clients, citing confidentiality as a cornerstone of their success.“We’re like bartenders,” Tabach-Bank said. “People spill their guts to us even if it’s embarrassing to them. They know we won’t talk.”To contact the reporter on this story: Michael Janofsky in Los Angeles, at mjanofsky@bloomberg.netLast Updated: November 7, 2008 03:01 EST

PeteCANovember 7th, 2008 at 9:09 am

I figure it will go to double digits. That’s an optimistic outcome. If we hit a depression, it would go above 20% (even 30%).PeteCA

GuestNovember 7th, 2008 at 8:05 am

Why would Obama be having his first news conference, which will by definition have an economic focus, while the markets are open? Could it be that the PPT will provide him with a welcoming late day rally?

randyNovember 7th, 2008 at 8:14 am

I just read this post and cannot believe what NR is recommending for the treasury post. Tim Geithner from the NY fed? Is he nuts? Talk about putting the fox in charge of the henhouse. Does someone else know something I don’t. We need a strong, NON-wall street type as head of the SEC and the treasury and the FED.I’m very disappointed right now. I hope someone can shed some light on why this might be a good idea.

PeteCANovember 7th, 2008 at 9:12 am

Couldn’t agree more. Don’t understand Prof. Roubini’s thinking at all. This is a critical time for Obama – if he makes the wrong appointments he could lose a lot of the progressives who have been supporting him.PeteCA

Lord SidcupNovember 7th, 2008 at 2:50 pm

I agree PCAMy Obama honeymoon lasted about 48 hours.Summers and Emanuel fill with me dread. Its the same shit again.

GuestNovember 8th, 2008 at 10:22 pm

pleas….stop putting faith in the politicians. pres-elect will appoint friends and favors into the appointed positions. drop out now lest you become like those Bush lovers who refuse to admit he screwed them over. the only change here is the party. politics as usual. stimulus package, bailouts, debt…blah

GuestNovember 7th, 2008 at 8:17 am

The current economic situation seems to have a lot more semblance with THE 6 YEAR DEPRESSION OF 1837 and the panic of 1873 than the the GREAT DEPRESSION of 1929:“Between the years 1833 and 1838 additions were made to bank capital and bank issues, in the form of notes designed for circulation, to an extent enormously great. The question seemed to be not how the best currency could be provided, but in what manner the greatest amount of bank paper could be put in circulation. Thus a vast amount of what was called money, since for the time being it answered the purposes of money, was thrown upon the country, an over-issue which was attended, as a necessary consequence, by an extravagant increase of the prices of all articles of property, the spread of a speculative mania all over the country, and has finally ended in a general indebtedness on the part of States and individuals, the prostration of public and private credit, a depreciation in the market value of real and personal estate, and has left large districts of country almost entirely without any circulating medium.””In view of the fact that in 1830 the whole bank-note circulation within the United States amounted to but $61,323,898, according to the Treasury statements, and that an addition had been made thereto of the enormous sum of $88,000,000 in seven years (the circulation on the 1st of January, 1837, being stated at $149,185,890), aided by the great facilities afforded in obtaining loans from European capitalists, who were seized with the same speculative mania which prevailed in the United States, and the large importations of funds from abroad, the result of stock sales and loans, no one can be surprised at the apparent but unsubstantial state of prosperity which everywhere prevailed over the land; and as little cause of surprise should be felt at the present prostration of everything and the ruin which has befallen so many of our fellow-citizens in the sudden withdrawal from circulation of so large an amount of bank issues since 1837,exceeding, as is believed, the amount added to the paper currency for a similar period antecedent to 1837.””When analyzing the suggested causes of the bubble preceding the Panic of 1837, empirical evidence would actually imply the opposite. Suggesting that banks were carelessly lending and creating a credit boom would imply a large drop in reserve rates. During the early 1830s the average reserve rates of banks were not decreasing, but remained relatively stable. During this time, the money supply was increasing (approx. 200%) despite the stable reserve rates of banks. This increase in the supply of money did not come from within the United States, but resulted from a positive specie inflow from foreign investors. British investors found it increasingly attractive to lend to the state governments in the United States in the 1830s. This increased level of available credit allowed the states to fund the building of canals through the use of state-issued bonds (e.g. Erie Canal).”″The causes of the ensuing panic of 1837 lay far deeper than in the complex processes of banking or in the faults of Federal administration of the finances. But, as a man suddenly ill prefers to find for his ailment some recent and obvious cause, and is not convinced by even a long and dangerous sickness that its origin lay in old and continued habits of life, so the greater part of the American people and of their leaders believed this extraordinary crisis to be the result of financial blunders of Jackson’s administration. They believed that Van Buren could with a few strokes of his pen repair, if he pleased, those blunders, and restore commercial confidence and prosperity. The panic of 1837 became, and has very largely remained, the subject of political and partisan differences, which obscure its real phenomena and causes. The farseeing and patriotic intrepidity with which Van Buren met its almost overwhelming difficulties is really the crown of his political carer. Fairly to appreciate the service he then rendered his country, the causes of this famous crisis must be attentively considered.””The American people with one consent gave themselves to an amazing extravagance of land speculation. The Eden which Martin Chuzzlewit saw in later material decay was to be found in the new country on almost every stream to the east of the Mississippi, and on many streams west of it, where flatboats could be floated. Frauds there doubtless were; but they were incidental to the honest delusion of intelligent men inspired by the most extraordinary growth the world had seen. The often quoted illustration of Mobile, the valuation of whose real estate rose from $1,294,810 in 1831, to $27,482,961, in 1837, to sink again in 1846 to $8,638,250, not unfairly tells the story. In Pensacola, lots which to-day are worth $50 each, were sold for as much as lots on Fifth Avenue, in New York, which to-day are worth $100,000 apiece. Real estate in the latter city was assessed in 1836 at more than it was in the greatly larger and richer city of fifteen years later. From 1830 to 1837 the steamboat tonnage on the Western rivers rose from 63,053 to 253,661. From 1833 to 1837 the cotton crop of the newer slave States, Tennessee, Alabama, Mississippi, Louisiana, Arkansas, and Florida, increased from 536,450 to 916,960 bales, while the price with fluctuations rose from ten to twenty cents a pound. . . .”

dhomeNovember 7th, 2008 at 2:29 pm

A very good post that illustrates that if the US education system could concentrate a little more on teaching history; maybe, just maybe some of these over-educated fools might acquire some wisdom to go with their MBAs.

Octavio RichettaNovember 7th, 2008 at 8:30 am

Whenever the original post is “too far up” I will post at the bottom of the tme line:That’s settled then; look forward to more from you. Know can you share some of what Gary Shilling had to say? By Guest on 2008-11-06 16:38:49 hloweShilling’s letter is in-line with the analysis the professor provides here but he backs his analysis with a lots of hard evidence via data charts. The letter is by subscription so I cannot post from it.You can read free articles from Shilling here. They go all the way back to 1997 so you can see how impressive his record is. (free subscription to required) few highlights from the November letter:He discusses in great detail the 4 steps of this unfolding crisis: subprime->credit crunch-> US recession->global recession. He provides a detail analysis on how the recession in the exporting countries and commodity producers will actually be harder than here; e.g., on China, like the professor, he says GDP down to 5 to 6% which is a big hit for china.He discusses in great detail the deleveraging process that consumer and financial firms are going through; how the consumer overdid it with debt and will now start saving resulting in a big drop in consumption, capex, etc.He sees future US GDP more around 2% than 3% which grave implications for corporate earnings and stock valuations. If you remember, this was one of the assumptions I made in my are stocks cheap? model a few weeks ago. He provides the analysis that makes such an assumption robust.He provides lots of detail on how business in WS will change to more traditional banking functions and how risk capital will be harder to get by and its implication for economic growth.He argues well for continued USD strength and deflation. But, IMO, there will continue to be faked inflation scares in the market.I would take advantage of the noise. Inflation scares will result in occasional increases in long term treasury rates which one can use to load up on 30 yr stripped bonds.

Octavio RichettaNovember 7th, 2008 at 8:30 am

Whenever the original post is “too far up” I will post at the bottom of the tme line:That’s settled then; look forward to more from you. Know can you share some of what Gary Shilling had to say? By Guest on 2008-11-06 16:38:49 hloweShilling’s letter is in-line with the analysis the professor provides here but he backs his analysis with a lots of hard evidence via data charts. The letter is by subscription so I cannot post from it.You can read free articles from Shilling here. They go all the way back to 1997 so you can see how impressive his record is. (free subscription to required) few highlights from the November letter:He discusses in great detail the 4 steps of this unfolding crisis: subprime->credit crunch-> US recession->global recession. He provides a detail analysis on how the recession in the exporting countries and commodity producers will actually be harder than here; e.g., on China, like the professor, he says GDP down to 5 to 6% which is a big hit for china.He discusses in great detail the deleveraging process that consumer and financial firms are going through; how the consumer overdid it with debt and will now start saving resulting in a big drop in consumption, capex, etc.He sees future US GDP more around 2% than 3% which grave implications for corporate earnings and stock valuations. If you remember, this was one of the assumptions I made in my are stocks cheap? model a few weeks ago. He provides the analysis that makes such an assumption robust.He provides lots of detail on how business in WS will change to more traditional banking functions and how risk capital will be harder to get by and its implication for economic growth.He argues well for continued USD strength and deflation. But, IMO, there will continue to be faked inflation scares in the market.I would take advantage of the noise. Inflation scares will result in occasional increases in long term treasury rates which one can use to load up on 30 yr stripped bonds.

Octavio RichettaNovember 7th, 2008 at 8:30 am

Whenever the original post is “too far up” I will post at the bottom of the tme line:That’s settled then; look forward to more from you. Know can you share some of what Gary Shilling had to say? By Guest on 2008-11-06 16:38:49 hloweShilling’s letter is in-line with the analysis the professor provides here but he backs his analysis with a lots of hard evidence via data charts. The letter is by subscription so I cannot post from it.You can read free articles from Shilling here. They go all the way back to 1997 so you can see how impressive his record is. (free subscription to required) few highlights from the November letter:He discusses in great detail the 4 steps of this unfolding crisis: subprime->credit crunch-> US recession->global recession. He provides a detail analysis on how the recession in the exporting countries and commodity producers will actually be harder than here; e.g., on China, like the professor, he says GDP down to 5 to 6% which is a big hit for china.He discusses in great detail the deleveraging process that consumer and financial firms are going through; how the consumer overdid it with debt and will now start saving resulting in a big drop in consumption, capex, etc.He sees future US GDP more around 2% than 3% which grave implications for corporate earnings and stock valuations. If you remember, this was one of the assumptions I made in my are stocks cheap? model a few weeks ago. He provides the analysis that makes such an assumption robust.He provides lots of detail on how business in WS will change to more traditional banking functions and how risk capital will be harder to get by and its implication for economic growth.He argues well for continued USD strength and deflation. But, IMO, there will continue to be faked inflation scares in the market.I would take advantage of the noise. Inflation scares will result in occasional increases in long term treasury rates which one can use to load up on 30 yr stripped bonds.

ORNovember 7th, 2008 at 10:13 am

That wasn’t me. The website was frozen so I hit submit several times. Normally when that happens elsewhere you only get the action of a single click as a result. Blame the IT people, not me. It must feel great to provide negative feedback behind an anonymous cover. Doesn’t it? Down here we call that lack of cojones.The quality of the blog, however, has improved. I used to loose posts all the time when taking more than a few minutes to type.

GuestNovember 7th, 2008 at 10:28 am

“It must feel great to provide negative feedback behind an anonymous cover. Doesn’t it? Down here we call that lack of cojones.”Why so testy? I don’t think that the comment was meant to be critical – leastwise I didn’t read it that way.It’s funny.Every time I see a double or triple post, I just assume that there was a technical glitch, and that its author is likely as surprised as I usually am when I see multiple copies of something that I’ve posted to a blog.Welcome back OR

London BankerNovember 7th, 2008 at 8:49 am

@ Professor RoubiniWe fully agree about the scale of the challenge and the depth of the mess. But it is because of these that I must disagree about the suitability of either Geithner or Summers for any post in the new administration.The same good old boys who wrought the deregulation and forbearance are not the guys to clean house.Volker I would enthusiastically endorse.Otherwise, like FDR, I would search the country for someone like Marriner Eccles – a banker who resisted the allure of over-leverage, excess compensation, high risk gambling and other recent sins of the Wall Street brass.

OuterBeltwayNovember 7th, 2008 at 10:07 am

LB: agreed.It is folly to expect a different outcome by repeating past behaviors.If we’re going to do “Change”, we need to “Change”.Obama has about 30 days to demonstrate he understands what he’s into. Remember what happened to Colin Powell after he let himself be co-opted.Obama needs to use what’s left of his campaign money to buy another 30 minutes of prime-time TV, and set out the fundamentally different course we the people need to take.He needs to level with the people about what we’re facing.Reagan was successful in great measure because he was so good at end-running Washington (existing power and info-control systems) and going directly to the people.Obama has the money, and it’s his to use.Use it. Tell the people what they must do.

Lord SidcupNovember 7th, 2008 at 3:04 pm

OB”set out the fundamentally different course we the people need to take”Its unclear to me if you have an idea of such a different course yourself, or are asking Obama to broadcast one as yet unknown. If you have such a course in mind, I would like to get an idea of it, as I have not yet heard a plausible soultion for this mess (I dont need the whole 30 min broadcast, a brief summary would great!)

GuestNovember 8th, 2008 at 10:19 am

Obama ran for office on the premise that he had a “plausible solution for this mess,” OB didn’t. If Obama doesn’t, he shouldn’t have implied that he did. Obama was elected on that basis — let’s hope the job isn’t too big for him. If it is, the American people will begin throwing the Democrat politicians out in two years.

datadaveNovember 8th, 2008 at 2:32 pm

Marriner Eccles! A hero of the Thirties. I lived in Utah as a non-Mormon and know that some Mormons like Eccles aren’t just ditto head Red State fanatics. btw, Harry Reid is a convert to the LDS church (Morman). I will never be but I like to find friends of all faiths and what little I’ve read of Eccles makes him into a friend for all.

MM CANovember 7th, 2008 at 9:13 am

Simple observation: Where would the markets be without all the Fed injections…?I say 4000 Dow450 S&Pwith furthur downside….So what has the Fed done? Bailed out Wall street… not main street… too much injection money that has no transparency still

GuestNovember 7th, 2008 at 9:37 am

In my opinion the fed has created a monster. Same with the sub-prime readjusting mortgages plan. The equity market would have founded a bottom and would be on a rebound were it not for Fed putting money in “anywhere and everywhere”. This has led to a lot of uncertainty and created a “drag”. Also, the sub-prime readjustments are another “drag” and will not let housing find bottom soon. As inevitably people who can’t pay their loans will not be able to in 3, 6 months especially with a worsening economy. This might lead to a second wave of serious foreclosures. By then, fed will have already exhausted all its room for maneouver in the looseing of the monetary policy (it happened to fast in my opinion and the fed will soon only be able to watch things unfold).So, if Roubini’s prediction of deblation-recession comes out true, and if the above “drag” in housing and the sustenance of weak-bussiness (almost near collapse but not), then the chances are that it will prolong. If that really does happen (it becomes a 2-year deflation-recession), then it will almost certainly become a depression. With zero or low interest rates, from what I can think: there is only one reason to issue debt by firms, corporations, and individuals:If there is inflation– that is if my money would be worth less next year, then I might want to counter that by even giving a 1 percent loan. However, with deflation, the worth of cash can only increase, thus leading to hoarding of cash rather than issuance of debt. With no incentive to lend (very low-interest rates with counterparty risk), and deflation–increase in real worth of cash–lending will come to a halt. With the “real” cost of debt increasing, this would lead to another wave of corporate defaults. On the supply side, without debt, and consumers without debt, there will be further contraction.The FED has virtually exhausted all their resources now. They have put all their egss in one basket (like the banks) hoping that the above situation never culminates (deflation-recession), but if it does, and if there are drags in real estate and other aspects of the economy, I see a very good chance of a depression. Of course this is just my personal opinion, but I felt the professor didn’t explain what would happen next should a deflationary-recession come.Also, this depression will be a mix of: the great depression (on deflation side, default of debt, and the like), started for the reasons and shows symptoms of the 6-year depression of 1837 (speculation, debt, asset-bubbles), and the real-estate bubble in europe, and America, which caused the bank-run in America in 1873.

GuestNovember 10th, 2008 at 5:16 pm

I think you have things a bit backward.If I expect inflation, I will not lend unless I get at least that high a rate of interest. Otherwise I will spend the money now and not lend it. This forces money out into the open though, generating lots of economic activity as people feel they are forced to risk their savings.If I expect deflation I am happy to keep my money under a mattress. That leads to sudden contraction of the money supply as risky investment dries up. This is why deflation expectations are so dreaded by economists.Notice that the bad thing is not really deflation, but the expectation of deflation. So they must happy talk to make people think their money will decline in value and should be spent quickly. (Or say other things intended to get people to spend and take risks, like “the only thing we have to fear is fear itself.”)

PeteCANovember 7th, 2008 at 9:20 am

From AboveMy Comment: “Told you guys last weekend.If Obama wins … expect a significant downwards shift in the market. Take a look at what’s happening over the last 2 days. And unfortunately, we have not seen the latest unemployment data – probably to be released on Friday (I think).”Reader Response: “We would have seen a downward shift in the market regardless of who won. Your post is ridiculous. I can’t recall the correct terminology for it, but you are exhibiting the logical error of ascribing a cause/effect relationship between events because they occur contemporaneously, even though an actual cause/effect does not exist. “No, what I’m saying isn’t ridiculous. I just need to explain it a bot more.No doubt the market would tend to trend lower over the general term. That’s true. But what I’m commenting on are the high losses in the market immediately after Obama’s win. The Dow and the S&P both lost around 9-10%. Thise a really big drops over a 2-day period.Let’s not kid ourselves here. IMHO, the PPT has been highly active in the US markets. Paulson has been an orchestrator for a lot of intervention. So do you think that the Republicans might just want to send a message once Obama gets elected? You better believe they do. This situation is very similar to the time when the US congress failied to pass the rescue billon the first try. What did Paulson allow the market to do? It dropped by hundreds of points the next day – with no intervention. The powers-that-be were sending a clear signal. And they’re sending the same message right now.So it’s not that fact that the market showed some drop. It’s the huge drop, coupled with no intervention, that sends a message.PeteCA

GuestNovember 7th, 2008 at 9:42 am

Are you suggesting they are blackmailing Obama into appointing Geithner? Sure makes sense. It does fit the pattern.

PeteCANovember 7th, 2008 at 9:55 am

I don’t think they’re trying to blackmail Obama. That wouldn’t work. I think the message is more spiteful. “Hey folks … if you didn’t like what we did to keep America strong, then see how things are going to look when we’re gone. You elected this man. This is what you’re going to get”. Something more along those lines.PeteCA

GuestNovember 8th, 2008 at 10:23 am

Pete, in all fairness, I think the same people, essentially, control both political parties. When Obama names his Secretary of the Treasury we will know much, much more.

GuestNovember 7th, 2008 at 10:20 am

So, what would you suggest for those who are already barely making ends meet, and don’t have any extra cash for gold, silver, or whatever?I like the idea of debt forgiveness (Jubilee) but don’t see it ever happening.Any suggestions?

ThetaNovember 7th, 2008 at 2:07 pm

I’ve been struggling with this for a bit. I can’t possibly buy gold at the price it’s at. So I’ve taken Mark’s suggestions: Shelter, Water, Food. I’m making sure we can still afford our house, making sure we have water and food for the short term, and finding ways to obtain/grow them for the longer term. I also figure having a bike and improving my fitness level can’t hurt.

JimmyTheBankerNovember 7th, 2008 at 9:40 am

Did you all see the revision to the jobs lost over the last two months!!??? Man, they didn’t miss by much last month did they?? Guess this if food for a huge rally today huh? LOLOLOL

Ken AllenNovember 7th, 2008 at 1:27 pm

The reported number for the recent month is almost always revised – it is usually useless to trade upon. However, if you assume that the October number reported today is revised next month to the downside and that things have been accelerating, October’s real numbers are probably much worse than reported today.

JimmyTheBankerNovember 7th, 2008 at 9:45 am

ECRI weekly index plunges furhter into record low territory!!!!WLI Growth at Fresh All-Time LowReutersNovember 07, 2008(Reuters) – NEW YORK, Nov 7 (Reuters) – A measure of future economic growth in the United States fell to a 12 and a half-year low and its annualized growth rate set a fresh record low, indicating a severe recession is underway, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 110.9 in the week to Oct. 31, down from 112.9 in the previous period. The index is now at its lowest level since April 12, 1996, when it stood at 110.7.The index’s annualized growth rate slid from minus 21.9 percent to negative 24.6 percent, its lowest ever, according to ECRI data.”With WLI growth diving to a new record low over its six decade history, prospects for U.S. economic growth are worsening swiftly,” said Lakshman Achuthan, managing director of ECRI.The weekly leading index (WLI) fell due to higher interest rates, slower money supply growth and weaker housing activity, which was offset in part by lower jobless claims, he said.

Octavio RichettaNovember 7th, 2008 at 10:07 am

Thanks! I was just going to check it. The second derivative i.e., the rate of change in the annualized growth rate indicates the fall is accelerating. This is terrible!

Brother, can you spare some change.November 7th, 2008 at 9:51 am

1990sWith the mechanisms in place, the community organizing groups began developing directed strategies to exert more and more pressure on the lending industry in the cloak of complicity with CRA.Community organizer Barack Obama worked closely with ACORN activists. Employing the intimidation tactics of radical activist Saul Alinsky that Obama had learned and was teaching, activists crowded bank lobbies, blocked drive-up teller lanes and demonstrated at the homes of bankers to browbeat risky lending in poor and minority communities. Those who resisted were accused of racism.The agitators could now stall or hijack bank mergers by filing complaints of noncompliance against the institutions. Lawsuits alleging redlining and racism began flooding the court system.With the prospect of expansions and mergers threatened, banks settled cases and, significantly, increasingly made loans they would not have normally made. The net effect, as ACORN litigation increased, was that credit standards lowered.At first, the GSEs resisted purchasing these risky mortgages. But eventually the Clinton administration instructed them to substantially increase the percentage of these mortgages in their portfolios. Government-backed Fannie Mae and Freddie Mac of the Clinton reforms became “a feeding trough,” in the phrase of Peter Ferrara, director of budget and entitlement policy at the Institute for Policy Innovation and general counsel for the American Civil Rights Union.The poor communities and their exploitive leaders benefited from the capitalization with a surge of homeownership, at least on the surface.Wall Street benefited from increased sales of Fannie Mae and Freddie Mac mortgage-backed securities, as the housing market benefited from new capital channeled from Fannie and Freddie.And the GSE heads profited, with political support in Washington in the form of campaign contributions. Topping the list of recipients of contributions from Fannie Mae and Freddie Mac since 1989 is the chairman of the Senate Banking Committee, Christopher Dodd of Connecticut. He has received $165,400. Second is Obama, receiving $126,349 despite having spent only three years in the Senate. Rep. Barney Frank, D-Mass., received $42,350.

GuestNovember 10th, 2008 at 5:22 pm

It’s too bad that the bank officers were stealing the surplus from bank mergers and wanted to continue doing so. Hence they could be blackmailed, and were. ACORN found a weak spot, and we got the worst of both worlds.What we need is strong enforcement and maybe some jail time so that these guys learn some morality and incorruptibility. If they can’t do it the right way, we’ll find another way.

OuterBeltwayNovember 7th, 2008 at 10:25 am

I am delighted to see the clarity and consistency of the objections to President-elect Obama’s choices and short-lists for chief of staff and Treasury.Obama sold himself on the Change theme. We bought change. I paid with my vote, and I’m going to go after Mr. Obama’s administration with a jack hammer if he lets us down.I want:a. Federal deficit-spending targeted at long-term wealth-generating enterprises here in America. I want progress-payments against deliverables, not up-front-no-strings checks.b. Massive investment in education and renewable, sustainable energy generation and energy conservationc. Reduction in spending – immediate and large in defense, war, international policing, mid-east brokeraged. Cooperation. International energy, financial, security, environment issues need strong international cooperation. We must strengthen international bodies, and include India, Russia, and China front and center.I want Mr. Obama to lead the people, to operate from the power of the people, and not function through the power-brokers.I want CHANGE, and I mean business.

GuestNovember 7th, 2008 at 10:34 am

And if you don’t get it? What are you going to do about it besides whine? I think the answer is, how does it go, ‘You Ain’t Gonna Do Nuthin, Suka!’

OuterBeltwayNovember 7th, 2008 at 10:58 am

Good work.Thanks for helping to rile up the crowd. You don’t need to rile me up much, though, because I’m already there.What me and people like me are doing is to build the tools that enable the “bottom-up” crowd to build their own economy, without having to depend upon the “leadership” to do the job, as they clearly cannot.But while we little people are busy doing what the “leadership” should be doing, we’re going to make it obvious that the “leadership” is clueless.If necessary, people like me are going to do for this Administration the same thing we did for George Bush. He left office as a demonstrated sham, and he’s disgraced his entire family in the process. It’ll be awhile before a Bush is in public office again.Obama is a good man. I have no doubt of that. He has, however, made a Faustian bargain with those that “brung him” to the dance. He must break that bargain, or he’s toast. Not because I say so, but because reality will roll him over, and hard.If you think Americans are going to sit quietly and watch their entire economy and middle-class lifestyle be destroyed by the fools that masquerade as leaders in this country, you are mistaken.The dummies among us were bought off by free money and new TVs. Many went for it. That trick is over.What is the next lollipop to mollify the masses going to be? Where’s the money going to come from?Answer: it isn’t. Party’s over, and Mr. Obama better get up the macro-econ learning curve in a great big hurry.

GuestNovember 7th, 2008 at 11:24 am

How are you and others like you building your own economy? Blackmarket, Liberty dollars? If there was a new way, I’d be first in line, but it better work this time.

OuterBeltwayNovember 7th, 2008 at 12:02 pm

It’ll work if we work at it. The era of instant solutions implemented by others that involve only the TV channel-changer are over.

Genie in a bottleNovember 7th, 2008 at 10:39 am

You will get change, FINE change is what we call it.Hope you can handle it when you start loosing your job.IRebellion is coming! (Baby boomers rebel against their kids for voting the wrong way)

GuestNovember 7th, 2008 at 12:11 pm

“He has, however, made a Faustian bargain with those that “brung him” to the dance. He must break that bargain, or he’s toast.”WHY? his votes essentially came from those he serves.”(Baby boomers rebel against their kids for voting the wrong way)”will the rebellion be a televised event with dylan playing at the nursing home? the retired and out of the economy will inherit the earth! right.Dylan will spit in your face.

K in TXNovember 8th, 2008 at 10:19 pm

FWIW, my spouse and I have 5 Boomer parents betwixt us (one divorce/new marriage), we haven’t lived at home for some time, and 4 out of 5 of our parents voted for Obama.

2centsNovember 7th, 2008 at 12:13 pm

@OBHe voted for the bailout/TARP package, what makes you think he has seen the light? What were the progress payments in that … looked like an up-front no-strings check to me!

OuterBeltwayNovember 7th, 2008 at 1:40 pm

2c: correct. That’s why I’m cranky. I voted for Obama because he advertised change, to punish the Repubs for their mendacity, and because Obama is black. In that order.I don’t think he’s seen the light, not one bit. But I do think he’s smart, and emotionally wants to do right by the American people.If we the people create havoc amongst the control units, it’ll give him some daylight to actually get something useful done – sort of like the linemen blocking for the halfback.However, right now our halfback needs a good whack to the side of the helmet to remind him of what’ll happen if he pulls the bait-and-switch move like Bush did.

breaststrokeNovember 7th, 2008 at 2:00 pm

@OuterBeltway: What will happen if he pulls a bait-and-switch? You don’t actually see that kind of organization in the groups who voted for Ob, do you? Because I just don’t see it. They wanted a messiah, a figurehead, they wanted Ob at the masthead without even looking at his track record. They essentially ignored his track record. He votes like a Republican. Nobody seems to care. If you didn’t realize he “wasn’t for change” by the time of his FISA vote (although there was plenty of evidence preceding it), you were pretty much in denial and engaged in magical thinking. He’s pure corporate capital. And when it begins to sink in with his groupies, we won’t have “mass uprisings,” we’ll have mass depression and demoralization. That opens the door for an even more reactionary right-wing candidate in 2012. The Ob lovers got played. No question about it.

GuestNovember 7th, 2008 at 12:28 pm

A great post — While I personally have no confidence in 0, your post is reassuring that at least some of his followers voted with their brains as well as their hearts.

GuestNovember 7th, 2008 at 1:02 pm

the whole world wants change can’t ya hear!!!!!!!!!!!A West African court has convicted Niger’s government of failing to prevent a 12-year-old girl from being sold into slavery. The precedent-setting case could help thousands of Africans who are still enslaved in Niger and neighbouring states by bringing more attention to their plight, and forcing governments to do more to eradicate the problem.The state of Niger argued that it had done everything possible to end slavery, which it outlawed just five years ago. But the Court of Justice for the Economic Community of West African States ruled otherwise on Monday. Niger was ordered to pay Hadijatou Mani 10 million CFA francs (about $25,000) in damages for allowing her to be sold into forced domestic and farm labour in 1996 for about $600.“We are law-abiding and will respect this decision,” Mossi Boubacar, an official for Niger’s government, told Reuters. Critics of the government, however, say the ruling is proof that the government needs to do more to implement laws against forced labour.

GuestNovember 7th, 2008 at 2:36 pm

@OuterIf you really wanted change, if the USA really wanted change – they would have backed Ron Paul! Since that didn’t happen it means the average value of the American is still in HOPE, fantasy land, etc.We are in for a horrible ride folks. Men put on your protective cups.

GuestNovember 7th, 2008 at 2:44 pm

Obama,Is consulting with Karl Marx – don’t ask me how – but this is where we are headed. A pure socialist world. They will bail out Detroit to appease the unions – which ought to be eliminated. They will bail out Detroit to save jobs – it is welfare.The VOLT electric car is a joke @ an estimated price of $47,000 apiece!!! That is $78.34/hour blue collar unionized BS for you.

breaststrokeNovember 7th, 2008 at 4:36 pm

Channeling Marx would be a good thing, not a bad thing. Not going to happen, though. Ob left all that behind him.

Little SaverNovember 7th, 2008 at 10:40 am

During the third quarter the turmoil in the global credit markets resulted in the worst financial crisis in more than 70 years.Coming from the 3q release from General Motors, a cry for help?

ptmNovember 7th, 2008 at 10:48 am

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS – FLASH UPDATE – November 7, 2008 – October 240K Payroll Loss and a Whopping 419K Payroll Loss with September Revisions – 308K Loss Adjusting for Seasonal Bias – Monetary Base Surge Continues: Up 48.2% Year/YearWell, well, what a surprise, the Bush Administration has been holding back on the unemployment numbers!

GuestNovember 7th, 2008 at 12:06 pm

Depends on the type of “capital.” Most of the wealth losses are defaulted debt which is lost future “capital” as opposed to physical capital. I think the same applies to the stock market. Real money purchased stocks and real money was lost; however, these losses do not count as capital since this was money put aside for future physical capital. Stock market losses have little to no effect on a company’s day-to-day operations; but the stock price will affect its ability to expand in the future.But the same is not true for an increased money supply. Now you have more money chasing the same, or fewer, physical goods and services.Given that the government is hell-bent on “helping” the economy (which appears to be code for the financial sector) and the fact that they have just begun, I would say that it is plausible and probable that the money supply will out-pace real capital losses and lead to an inflationary environment.

OuterBeltwayNovember 7th, 2008 at 11:18 am

Mitt Romney says:* Obama must do what’s necessary, even if it doesn’t appease the people that financed his campaign* Obama must bring in the very best statesmen, economists, and business leaders to execute a fundamentally different policy. Not party hacks, but the best people* Obama must be Educator in Chief. Tell the people what they face. Don’t talk down, don’t lie, don’t mollify or placate. Tell them.Don’t assume that because I post this link I’m endorsing / supporting Romney. I try to evaluate ideas on their merits .vs. from whom they have come.In that spirit, I offer you this piece by Mr. Romney.I hope you’ll read it, consider it, and weigh in on the subject.

GuestNovember 7th, 2008 at 11:28 am

This is the same thing that happened when the last 2 presidents got elected. All sorts of people were saying what they needed to do, even demanding it.The administrations ignored everything, did what they wanted to do anyways, and ta-da look what we got.The Administrations do not answer to the people, they should, but they don’t.

OuterBeltwayNovember 7th, 2008 at 11:59 am

Absolutely correct. What are we going to do about it?First, make it clear we’re paying attention. If Obama does smart things, he gets props. If he does same-as-before things, the crowds swiftly transition from adulation to rage.That’ll do as a starter. He gets until next March to get the message.If his administration continues down the stupid path, start the grass-roots resistance stuff. It’ll be bigger and much faster this time – a magnitude different.But for now, we just serve notice. We are paying attention, and we are not currently impressed.Your move, Mr. Obama.

GuestNovember 7th, 2008 at 12:21 pm

So basically you are saying a grass roots group either claps or boos at obama depending on his leadership?How do you make it clear we’re paying attention?How do you give props and how do you start a grass-roots resistance?

OuterBeltwayNovember 7th, 2008 at 12:29 pm

Same way it ever was. Find the highest peak around, pick up your megaphone, get your words right, and start speaking.Stay civil. Stay focused. Repeat often. Engage your friends and family in constructive, appropriately-toned dialogue.Get educated about the problems, devise some alternatives, and start speaking out.Do what 99% of the people that come here to post are doing: collecting info, thinking, evaluating, deciding, and acting.It works. Remember, money only works as long as turnout is low. Don’t ever forget that. Anything that causes turnout to be high is dangerous ground for the power-brokers.And when the people start actively thinking for themselves instead of getting their programming from the TV…well, the rules change.A lot.

breaststrokeNovember 7th, 2008 at 2:06 pm

Obama voters got taken for a ride. One look at Obama’s voting record proves that. He ran as an “antiwar” candidate and for the first time since LBJ was backed by a mass movement of antiwar voters, but Obama voted for every Iraq spending bill since he’s been in the Senate. (There is also very little evidence he would have voted against the IWR.) He wants to keep soldiers in Iraq and push off more into Afg. He called Chavez an “evil dictator” (WTF??) and said it’s all still on the table with Iran. This guy is no antiwar politician. I’m guessing he’ll do some targeted bombing, killing more innocent civilians, within his first 6 months just to prove to the MIC and those Nascar dads that he’s no pansy. I doubt many people in Afghanistan are partying over Obama’s victory.

GuestNovember 8th, 2008 at 6:18 am

All sorts of people were saying what they needed to do, even demanding it.

Hey it is not so different from the comments on this blog. If Obama wants advice he would not have hire anyone. Just sign in on NRs blog and read the comments. This place is kind of like a pub:-)

breaststrokeNovember 7th, 2008 at 11:47 am

Mitt Romney is one of those guys who would put the final nail in the coffin of government working for the people. This guy is the epitome of casino capitalism. Colin Powell came out and said “So what if Obama is a Muslim.” It’s too bad when Obama was being accused of being a “socialist” that nobody actually came out and said, “What’s the problem with that?”

OuterBeltwayNovember 7th, 2008 at 11:54 am

Please consider the option of reading what the fellow said, identifying his thesis, and arguing the facts and the logic of his assertions.Labels and names and slander are not terribly helpful in the process of identifying and promulgating good public policy.

GuestNovember 7th, 2008 at 12:28 pm

so i read the article and if a republican won – (as per mitt) he would disregard his party and the people that elected him.”I can only hope the President abandons the populist current, which seems to be growing in our country.”i’m sorry but mitt’s speech at the convention was pure intolerance and fascism geared toward getting j-6pack and all his whiteness afraid of the “other guy” being out to get him if he doesn’t vote for what i get out of this is: romney would take advantage of his electorate by spreading hate and fear to get votes and then do whatever he wants after elected totally disregarding j-6pack. he believes that that is a moral prudent role to take as president?no way do i trust this cat. be afraid of him.

OuterBeltwayNovember 7th, 2008 at 12:34 pm

I agree with almost everything you said. I don’t know you, but I evaluated your words and found that they comport with my observations and prior thinking / closely held beliefs.I can say exactly the same thing about what Romney said. He said some smart things. I evaluated what he said, not what he is.That is a key, fundamental capability. Out of your enemies’ mouth comes some of the most important feedback you’ll ever get.Evaluate all inputs on their merits, from friend and foe alike.

GuestNovember 7th, 2008 at 1:37 pm

“America’s labor requirements and other peculiarities. That is a disguised form of protectionism.”protecting other humans from being exploited is good protectionism.

PeteCANovember 7th, 2008 at 1:46 pm

One of the risks for Obama is that Joe Biden will connect a lot of mainline Dems directly into possible job opportunities with the new administration. Biden was an asset in terms of countering Obama’s relative inexperience. But how will he influence the new administration?PeteCA

GuestNovember 10th, 2008 at 5:34 pm

Yes he wants to dump the Medicare and Social Security entitlements, and open trade further.We’ll all be working 20 hours a day for Chinese wages, until we fall down dead, if we follow his advice.

breaststrokeNovember 7th, 2008 at 11:54 am

It’s time for socialism. I’m no economist so I wouldn’t know how to deal with the short term, but it’s clear that neoliberalism is a joke and needs to be deep-sixed. Capital will always be able to get around the regulations (judicially, legislatively, and with mafia strong-arming like bribing politicians), so “re-regulating” capitalism obviously isn’t the answer any longer. And capital isn’t going to cough up single payer, free education through college, and strong union growth without a fight. Ralph Nader, Cynthia McKinney, and Brian Moore were the only candidates actually discussing true corporate accountability. Obama will be more of the same. He left his Alinsky roots a long time ago.

GuestNovember 7th, 2008 at 12:13 pm

Well, I haven’t been around that long, but based on my experiences, the government doesn’t do a good job at allocating resources. My experience with socialism is that they take from the productive and give to the nonproductive based on their imperfect idealogy, formulations and execution. Net results the government impedes more than promotes.So where is a good country to move to inorder to ride this storm out.

breaststrokeNovember 7th, 2008 at 12:25 pm

The whitewash from the media and 30 years of trickle down b.s. and neoliberalism have convinced most people that “government doesn’t do a good job of allocating resources.” Our government has done an absolutely fantastic job of “allocating resources” up, especially since the 1970s, when real wages stopped increasing. Concentration of wealth in this country is the worst it’s ever been. I don’t happen to think Obama even has 6 months to get it together, no matter what he does. He needs to intervene now before he even takes office, because the rapidity of economic decline doesn’t permit a normal sort of graduated political response. Six months from now, things could be really, really bad, and if he doesn’t have a coherent, dynamic program moving through Congress, he’s done for.

GuestNovember 7th, 2008 at 12:38 pm

I’m not buying socialism; it’s too expensive, it doesn’t do what it advertises, and you can’t return it once it’s out of the box.

dofNovember 7th, 2008 at 1:14 pm

YES!Death to neoliberalism and Friedman’s ‘Disaster Capitalism’ … let’s take it back to the left and maybe we’ll find some sort of rational balance on the way.Human survival depends on it.We’re such dumb animals.

GuestNovember 7th, 2008 at 11:49 am

Can someone tell me why stocks are up so much today given all the horrible news and the fact that the govt hid how bad the jobs numbers were until after the election? How can wall street have already priced that in? Goldman knew already maybe?

Octavio RichettaNovember 7th, 2008 at 12:29 pm

market was down a whooping 10% in the previous two days so a bounce back is normal. This does not mean we won’t retest the lows or that as Faber said we visit 1100 in the sp500 before 750.

MM CANovember 7th, 2008 at 12:12 pm

more bad news for Housing market… Dominos are falling everywhere

RichardNovember 7th, 2008 at 12:12 pm

Professor Roubini:I have often agreed with your analysis and commentary; your 6 November commentary on “The Economic Mess that Obama Will Inherit” was no exception, though I take issue with a few points, as noted below.On Obama’s Economic Panel:Obama is truly a man of leadership, vision and great intelligence, but also a charismatic leader who earnestly wants to solicit ideas from all corners. Take Larry Summers, William Donaldson, and Penny Pritzker, who are on Obama’s Economic Panel for 7 November. These people were “architects” that helped to create the economic problems that we have today (1. Summers: a key architect in the repeal of the Glass-Stegall Act, which has led to the imprudent and highly leveraged “bets” by our nation’s banks; 2. Donaldson, former SEC Chairman who agreed to allow 5 large investment banks to leverage up to 30 to 1; 3. Pritzker, Chairman of a Chicago bank that was an architect of the “no money down” subprime mortgage fiasco). In the best of all worlds, Obama should pretend to listen attentively to the likes of these people, then tell them he appreciated their contribution.Earnings Below $50?:John Mauldin recently presented a compelling case for a significant earnings drop among the S&P 500 companies. A quick review of John’s economic data presented in his Commentary entitled “Economic Blue Screen of Death” ( shows that the S&P earnings for 2009 might come in at under $50, if we’re lucky.Richard DiNucci

JohnRyskampNovember 7th, 2008 at 2:00 pm

Can you believe this garbage:”Obama is truly a man of leadership, vision and great intelligence”Obama is a Combine/Rezko flunkey and a moron.

artichokeNovember 7th, 2008 at 8:04 pm

Not a moron, but not especially brilliant in intelligence or inspiration. Clueless like most others at the moment.McCain had more ideas.Obama is surely not the type to envision a fundamentally sound, if difficult, solution, then to pursue it with conviction and determination. So the slide may not end.Hope I’m wrong …

GuestNovember 7th, 2008 at 12:15 pm

Interesting comment from Automatic Earth:One useful approach to analysing any situation is to put yourself into the shoes of the person being analyzed; then tweak your assumptions.If: Obama actually understands the abyss. andIf: He intends to attempt shifting paradigms. then-What would he (I) do first?Remember that you need the herd to keep following; including the Wall Street herd, specifically.I (he) would: assemble a top team of experts in the old paradigm. This will keep the herd on your side, because getting any herd to shift paradigms is a HUGE huge problem, and will take time- whether you have time or not.After a moderate amount of time- and after another catastrophe or two linked to the old paradigm- I can announce that “We gave it our best shot- but the truth is now clear, the old paradigm is bankrupt. It is NOW time to try something truly different.”At that point- some of the herd will be willing to follow. If in time you can show ANY kind of success in the new direction, the entire herd will follow, being utterly desperate for direction.I think if he announced, at this point, before even taking power, “Roubini is going to be the Sec. of the Treasury, and we’re going to adopt these 4 totally radical financial procedures…” he would lose support, and lose the herd…November 7, 2008 10:41 AM

RichardNovember 7th, 2008 at 12:30 pm

“getting any herd to shift paradigms is a HUGE huge problem”I agree with your “prognosis”; see my comment immediately above yours.Richard

OuterBeltwayNovember 7th, 2008 at 12:48 pm

Guest, thanks for posting this. I agree that we must keep the herd together, and I agree that paradigm shifting takes time.The “time to shift” is a function of pressure, not of inherent character. A grain of sand can have any attitude toward change it likes, but when it gets hit by a hammer, it will move.300,000,000 people is a very, very large hammer, and that hammer is now in motion by virtue of some inexorable economic realities.What remains for the citizens to do is to educate themselves, and not by watching TV. That is not education.Triangulate information from several different sources, and most definitely seek out views that are not the same as the ones you currently hold.

GuestNovember 7th, 2008 at 2:26 pm

feed in tarriffs…”Dr. Scheer, who has a doctorate in economics, realized that energy was a major weakness in Germany’s industrial future. The country didn’t have oil reserves or large rivers for hydroelectric projects and so was generating electricity with nuclear and coal plants. He realized that this made Germany vulnerable to the vagaries of geopolitics and that these were not sustainable forms of energy.He recognized that the sun radiates more than enough energy and that this energy from the sun or secondary sources like wind, wave, and biomass are sustainable. Even though he was a politician, Dr. Scheer founded the nonprofit Eurosolar to encourage renewable-energy initiatives in all sectors of society. His efforts, which coincided with the rise of the anti-nuclear Green party in Germany, struck a chord. Could renewable energy provide enough energy to shut down all nuclear plants? Dr. Scheer knew it could, even though scientists and other “experts” declared it was impossible for renewables to account for more than a small percentage of the nation’s electricity.With the Green party holding the balance of power in a left-wing coalition government, Dr. Scheer was able to introduce an innovative plan, a feed-in tariff, which commits the country to accept all renewable energy (primarily wind and solar) onto the grid and to guarantee a premium price for that energy for 20 years. That provided a huge incentive for individuals or co-ops to build turbines and install solar panels because banks would not hesitate to provide loans given those conditions.As a recent article in the Globe and Mail noted, the feed-in tariff, beyond giving Germany more than 20,000 megawatts of clean energy, has also created new economic opportunities. The renewable-energy sector now “generates about $24-billion in annual revenues and employs a quarter-million Germans. Germany’s wind industry created 8,000 jobs in 2007 alone, and one recent study suggested that the renewable sector could provide more work than the auto industry (currently the nation’s biggest employer) by 2020.”

MarkNovember 7th, 2008 at 11:21 pm

But how will this go forward in today’s crumbling economy?Yes, they were smarter in that they spent the last of the money on something that will keep on producing, but… this isn’t a recipe that’s going to work for others or into the future (given the economic collapse). Sigh. If only we’d taken this up a LONG time ago!

Octavio RichettaNovember 7th, 2008 at 12:36 pm

I just got the Shilling pitch for Shilling’s newsletter in my mailbox. I am not a salesman for him:-) On his forecasting record, he is usually right but early which is a heck of a lot better than most of the talking heads on business TV.Dear Investor,Among all of the financial prognosticators, commentators and pundits filling our airwaves and email inboxes with predictions and prescriptions, none has been more prescient about the current financial crisis than Forbes’ own resident economist Gary Shilling.As many of you know, Gary’s Financial Strategy column has appeared regularly in the pages of Forbes Magazine since 1983. Back in September 2004, Shilling first wrote a column in Forbes entitled “Wall Street in Dreamland” that accurately predicted that the financial markets and the U.S. economy, which parted company in the late 1990s, would eventually rejoin causing a lot of people to lose a lot of money. He warned his readers: “Don’t be one of them. Don’t buy a bigger house than you need, and don’t buy stocks on margin. Buy Treasurys.”What many don’t realize is that Gary had been warning his Insight newsletter subscribers as early as July 2004 about our subprime-fueled housing bubble and warning that when it burst, our entire economy would face dire consequences.“When house prices return to earth—and price declines of 20% in the U.S. and 30% elsewhere are warranted—the effects on the global economy will be serious…. Subprime loans are probably the greatest financial problem facing the nation in the years ahead.”- Insight, July 2004.Gary’s predictions have been eerily accurate. But Gary is not merely a doom and gloom economist. He also gives his newsletter clients specific advice on how to position their portfolios.In January 2007, for example, he laid out a 13-step roadmap for his subscribers. Among his predictions and recommendations:1) Prediction: The housing bubble will burst.Recommendation: AVOID homebuilders, building materials producers, mortgage and subprime lenders and related entities like Fannie Mae and Freddie Mac.Result: Housing prices are down 21% nationwide from July 2006. Homebuilders are down 68% from their high. Fannie Mae and Freddie Mac are insolvent and getting a $200 billion federal bailout.2) Prediction: “U.S. stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession.”Recommendation: SELL Stocks.Result: The current financial crisis wiped out over $7 trillion of stock market gains. The Dow Jones Industrial Average is at the same level it was in 1998.3) Prediction: China will suffer a hard landing due to domestic cooling measures and U.S. recession.Recommendation: AVOID Chinese stocks. China’s Asian trading partners and their currencies and stocks will be damaged by a weak Chinese economy.Result: China’s Shanghai Composite Index is down 70% in the last 12 months.4) Prediction: “Weakness in U.S. and China will spread globally, dragging down economies and stocks universally.”Recommendation: SELL Emerging Markets. Emerging markets have been driven by American and other offshore inflows. Capital will flee emerging markets and these export-driven economies will collapse.Result: Morgan Stanley Capital International’s Emerging Markets index is off 50% since the beginning of 2008.5) Prediction: “Treasury bonds will rally.”Recommendation: BUY Treasurys. They are the world’s highest-quality instrument, have huge market liquidity and can’t be called, which limits appreciation as interest rates fall. They can be sold anytime with ease and don’t need to be held to maturity.Result: Yields on 10-year Treasurys fell from 5.1% in June 2007 to 3.85% recently.6) Prediction: “The subprime slime fallout will spread.”Recommendation: SELL junk bonds. Losses from subprime slime will cause a credit crunch that will hit private equity firms hard and limit their ability to do deals. Overleveraged companies and debt-ladened mergers will suffer.Result: Junk bond spreads over Treasurys have skyrocketed. Single b-rated junk bonds for example now yield 14.19%, up from 8% in mid 2007, as their prices have plummeted. Spreads over Treasurys are now 1035 basis points, versus about 321 basis points in mid 2007.What is iconoclastic Forbes Economist Gary Shilling saying now?Among other things, Gary is warning readers against giddy enthusiasm over the government’s $700 billion bail-out and he warns that there will be more bailouts ahead.Gary is under-whelmed by the current plan and foresees at least another year of recession and dismal equity markets. He contends that the lynchpin of the global economy is consumer spending, here and in places like China and India. Given the current financial and housing-related job losses and the worldwide economic fall-out, Gary says consumer spending is likely to be crippled for many months ahead.However, Gary is not recommending that investors just curl up and hide. He is actively recommending a specific Bear market asset allocation plan that involves, among other things, buying Treasurys- even at these reduced yields! Gary also has specific recommendations for oil and other commodities.If you would like more details on Forbes Economist Gary Shilling’s predictions and a step-by-step program for profiting during the current market turmoil, please click here.Each 20 plus page monthly issue of A. Gary Shilling’s Insight includes:In-depth analyses of current global economic, political and financial trends and how they affect the investment world.Easy-to-understand charts, tables and other metrics dissecting economic indicators critical to making sound investment decisions.Specific investment theme action directives like “Dividend-Paying Stocks” and “Dollar Plays” and “Health care Productivity Enhancers.”Gary’s famous back page commentary on matters great and small, complex and mundane, serious and frivolous.Archived monthly issues of Insight going back four years….

WiseGuyNovember 7th, 2008 at 1:54 pm

I can’t wait to see this announced on Bloomberg News… followed by the E-trade TV commercial showing the baby spitting up.Seems like the two should go together…..

Octavio RichettaNovember 7th, 2008 at 12:57 pm

It is not just WS, heavier regulation is coming everywhere!Scandal Dethrones Miss VietnamVietnam’s new penchant for beauty pageants took an ugly turn after government inspectors found that the new Miss Vietnam didn’t live up to their standards.NOVEMBER 7, 2008 For Ex-Miss Vietnam, Uneasy Lies The Head That Quit High SchoolBeauty Queen Loses Crown, Miffing Some; Finding a Replacement Is a Royal PainBy JAMES HOOKWAY, Vietnam — Vietnam’s new penchant for beauty pageants took an ugly turn after government inspectors found that the new Miss Vietnam didn’t live up to their exacting standards.Like many up-and-coming nations, Vietnam has been using beauty contests to quickly make its mark on the world. In July, Vietnam played host to the Miss Universe pageant, which was presided over by Jerry Springer and former Spice Girl Melanie Brown (the one known as “Scary Spice”).For many ordinary Vietnamese, the event was more compelling evidence that the country has arrived than joining the World Trade Organization was the year before. Newspapers and TV channels repeatedly pointed out that this was the first time Miss Universe has been held in a Communist country.But that pride crumbled after government investigators found that the new Miss Vietnam, crowned on Aug. 31, hadn’t finished high school.Tran Thi Thuy DungShocked, Ministry of Culture officials stripped 18-year-old Tran Thi Thuy Dung of her most coveted prize — the right to represent Vietnam at this month’s Miss World contest in Johannesburg. Government officials in Hanoi are now trying to find a suitable candidate to send to South Africa. So far, they’ve drawn a blank.In an interview in her hometown of Danang, in the center of Vietnam’s long, snaking coastline, Ms. Thuy Dung tried to shake off her disappointment at staying behind. “I wish Vietnam can still find the right candidate to send to Miss World, even if it isn’t me,” she said.Other Vietnamese feel their government’s rigorous enforcement of its beauty-pageant rules has botched their chances of winning the contest. Britain and Australia don’t have any minimum educational requirement for their national beauty contests, while the U.S. gives beauty queens six months to finish high school after their first competition.”If Ms. Thuy Dung doesn’t have a high-school diploma, she can always make it up later,” says Trung Thi Anh Nga, 22, who works in a boutique here. “If Vietnam doesn’t send a contestant to Miss World, it would be a shame and suggest we don’t have anybody beautiful enough to go.”The head of the Ministry of Culture’s Performing Arts Agency is having none of this criticism. Le Ngoc Cuong says he has Vietnam’s reputation to protect.”If we didn’t have the education requirement, then lots of girls would drop out of school to focus on beauty pageants, and we can’t let that happen,” says Mr. Cuong, who is also a well-known choreographer of ballets and a winner of Vietnam’s National Artist award.Ms. Thuy Dung and her mother, Mai Thi Bich Ha, first realized she had a good shot at becoming a beauty queen when Ms. Thuy Dung turned out to be 5-feet-10-inches tall at the age of 17. Height is a major asset in Vietnamese pageants. “When we saw an advertisement in a fashion magazine inviting entrants for Miss Vietnam, I decided to enter,” Ms. Thy Dung says.After coaching in Ho Chi Minh City and armed with a rack of clothes from her mother’s one-room back-alley store, Ms. Thuy Dung was ready for battle.The annual Miss Vietnam pageant is fiercely contested, despite the contestants’ avowals that they are all sisters hoping to do the country proud. The competition was first held 20 years ago as Vietnam began opening up to the rest of the world following decades of war and seclusion. Just holding a pageant was a radical departure from the “everyone’s equal” ethos of the time. Kim Ninh, the Vietnam representative for the Asia Foundation think tank, who was there, says that first pageant captured the imagination of the nation. The top prize was a bicycle. She recalls that it was stolen from the winner.The stakes have risen since then. Winners of the Miss Vietnam pageant have won scholarships to study overseas. The winner of the 2006 contest, Mai Phuong Thuy, went on to star in Vietnamese TV commercials for Procter & Gamble Co.’s Pantene shampoo, as well as in a local TV drama about a beauty queen who contracted HIV. There was also a cash prize of $9,000 at stake and the chance to compete in the annual Miss World contest.During the nationally televised finals in Hoi An, a beach resort a few miles down the road from her home, Ms. Thuy Dung appeared to win over the judges with her humility and charm. “If I don’t win the title, it means a friend is worthier of such an honor,” Ms. Thuy Dung told the judges.The nation was shocked, and badly divided, when news broke that Ms. Thuy Dung had dropped out of high school. “There has been a tremendous outpouring over this,” says Ms. Ninh at the Asia Foundation.Vietnamese writer Ky Duyen worries that the country’s traditional culture and values are jeopardized by people seeking success by any means possible. She doesn’t really blame the young beauty queen in this instance, but she doesn’t like cutting corners. For Ms. Duyen, “our culture and education…are perhaps not strong enough to withstand the pressure.”Ms. Thuy Dung, meanwhile, says she has done nothing wrong. The organizers of the Miss Vietnam contest — a group led by the state-owned ‘Pioneer’ newspaper — concede they didn’t specify that contestants must have graduated from high school.”We competed in good faith in accordance with the regulations of the contest,” Ms. Thuy Dung says. Her mother, Ms. Bich Ha, says she took her daughter out of school earlier this year in order to prepare her for a high-school equivalency qualification that might give her a better chance of studying in the U.S.Now Ms. Thuy Dung plans to return to school to earn her high-school diploma. If she finishes school, she could try the pageant circuit again. Meanwhile, Ms. Thuy Dung has been getting bags of letters from Vietnamese soldiers who have read about her troubles or seen the lovely young woman on TV. “When I read about your case, I felt so sorry for you,” wrote Pfc. Pham Quoc Tuan. “Please cheer up, and believe in yourself. You can achieve anything you want.””My parents write the replies. They won’t let me do it,” says Ms. Thuy Dung, who says she doesn’t have a boyfriend. “Lots of them haven’t finished high school, either.”—Nguyen Anh Thu contributed to this article.Write to James Hookway at

GuestNovember 7th, 2008 at 1:10 pm

Retribution for a 12-year-old slave girlMani, now 24, sued Niger for allowing her enslavementTags: Anti-Slavery International, Hadijatou Mani, Niger, SlaveryA West African court has convicted Niger’s government of failing to prevent a 12-year-old girl from being sold into slavery. The precedent-setting case could help thousands of Africans who are still enslaved in Niger and neighbouring states by bringing more attention to their plight, and forcing governments to do more to eradicate the problem.The state of Niger argued that it had done everything possible to end slavery, which it outlawed just five years ago. But the Court of Justice for the Economic Community of West African States ruled otherwise on Monday. Niger was ordered to pay Hadijatou Mani 10 million CFA francs (about $25,000) in damages for allowing her to be sold into forced domestic and farm labour in 1996 for about $600.“We are law-abiding and will respect this decision,” Mossi Boubacar, an official for Niger’s government, told Reuters. Critics of the government, however, say the ruling is proof that the government needs to do more to implement laws against forced labour.

Octavio RichettaNovember 7th, 2008 at 1:03 pm

Still too optimistic! Cuts S&P 500 Profit Forecast, Citing Economic SlowdownBy Jeff KearnsNov. 7 (Bloomberg) — Goldman Sachs Group Inc. reduced its 2008 and 2009 profit forecasts for companies in the Standard & Poor’s 500 Index, citing slower U.S. economic growth and larger losses for banks and brokerages.David Kostin, who leads Goldman’s New York-based portfolio strategy team, cut his 2008 S&P 500 profit forecast by 9.7 percent to $65 and his 2009 estimate by 9.3 percent to $68. “The reduction incorporates a weaker economic outlook than previously assumed, greater estimated losses for the financial sector, and weak third-quarter earnings results and forward guidance,” Kostin wrote in a note to clients.The S&P 500 has tumbled 37 percent this year on concern almost $700 billion in credit losses and writedowns at financial firms worldwide will push the global economy into a recession, hurting the outlook for corporate profits. Companies in the U.S. stock benchmark are poised for the fifth consecutive quarter of falling earnings, the longest streak since the 2001 recession.“Financials writedowns and provisions continue to be the single most important driver of S&P 500 earnings,” Kostin said. He estimated that global losses from writedowns and provisions will total $1.6 trillion through 2011, more than his prior projection of $1.3 trillion.Goldman economists today forecast the deepest U.S. economic recession since 1982 after the unemployment rate climbed to a 14- year high and payrolls tumbled for a 10th month. The economy will shrink 3.5 percent in the fourth quarter and 2 percent in the first quarter, compared with previous estimates of 2 percent and 1 percent, economists led by Jan Hatzius wrote in a separate note….

AnonymousNovember 7th, 2008 at 1:10 pm

Wasn’t Larry Summers a big proponent of deregulating the trading of securities? Do you really think he would be a good choice for Treasury Secretary?

GuestNovember 7th, 2008 at 1:37 pm

you have to be enrolled at first and have made a contribution… not really but it would not surprise me – Note – there is a hint at his speech though in the content

ThetaNovember 7th, 2008 at 2:52 pm

There’s this big button on the front page that says “Submit your ideas.”If you really have something to add, you can always give it a shot. One word of warning, they require you to actually sign you name.

GuestNovember 7th, 2008 at 4:48 pm

The ability for readers to leave comments in an interactive format is an important part of many blogs, noticably absent there.

ThetaNovember 7th, 2008 at 6:10 pm

True, but as you mentioned, many blogs, not all.I was honestly expecting him to be like most politicians and use the webpage as promotion during the election and then dump it when he got in. The fact that it still exists, is being regularly updated and has plenty of additional information gives me hope that maybe his online supporters won’t be totally dismissed. Bitch about it if you want, but I’m gonna cut him some slack for not having his webpage up to my standards within the first week.

pb_2_auNovember 7th, 2008 at 1:27 pm

I’d say let Volker make the appointment (he’s too old himself)BUT the one of the usual suspects will get the nod, b/c the sword of a market swoon during the 1st 100 days is dangling and too quick a change of guard will decimate his power base.Summers is a terrible and unPC choice, Rubin’s obscurity to J6P is more likely.Obama Iconoclast? hardly.Hopefully it will be a temp position and eventually a secretary with less loose change rattling around will get in there.Obama for loose change!

JohnRyskampNovember 7th, 2008 at 1:58 pm

After 8 years of looting by Bush, and four years of Obama looting on behalf of the Combine, will there be anything left?

GuestNovember 7th, 2008 at 1:33 pm

Obama Economic press conference about to begin — stocks up or down — Currently +200 – I say up 200 more once he is done — PPT trying to keep their jobs in next administration.

GuestNovember 7th, 2008 at 1:50 pm

he’s 20 minutes behind schedule and market is now up 250 – these markets will soar once he starts speaking, it’s all about confidence — Where’s SGG? The folks on CNBC are beside themselves with glee in anticipation – here we go

GuestNovember 7th, 2008 at 1:52 pm

you should see the crowd 0 is with on stage — Buffett, Schmidt (Google) oh man this is unreal — I wonder if the spirit of JP Morgan himself will be summoned

SopftwarengineerNovember 7th, 2008 at 2:20 pm

SOME SOUND REAL ESTATE ADVICEReal estate will hit bottom if and when Obama causes America to depopulate.Real estate and household incomes will continue to plummet if America continues to populate.You can take my advice to the bank.

GuestNovember 7th, 2008 at 2:17 pm

He has a bit of a stammer without the teleprompter – He is confident that he and his team will be able to right things — the best was when he singled out a reporter who asked questions about what kind of dog they will be getting… apparently that topic is generating more interest on his website than anything else… at bit Kennedyesk –

AnonymousNovember 7th, 2008 at 2:18 pm

The Oracle of NY (NR) has spoken…. The markets are going to go down further 20-30%.Thank you NR for your insight….

dofNovember 7th, 2008 at 2:31 pm

As horrible as the bush administration is, there is a second party that is proportionatly culpable.By Guest on 2008-11-07 13:17:45NO! I disagree. American voters are totally ‘cupable’ for everything that their ‘elected’ representatives do.

GuestNovember 7th, 2008 at 4:56 pm

At least the average middle class can get something from Wally World and China for their hard earned money, instead of wasting it on the .gov

dofNovember 7th, 2008 at 7:09 pm

We’ve exported slavery. I take no pleasure in understanding that reality.There’s some who’ll say that we’re improving the quality of life for all, but I’ve seen no evidence of that.

Octavio RichettaNovember 7th, 2008 at 2:42 pm

A high school world history teacher back in HS once told me:”Octavio, history is based on facts not suppositions”,when I asked him how history would have turned out had Napoleon not stepped into Russia, which to me looked as a very foolish decision coming from such smart general…His answer is probably the best answer ever I got to an in-class question. It is certainly the one I remember the most. My learning from his clever answer is that we must try to learn from past mistakes, and in doing so try to improve our future; but that wondering about how things would have turned out had we done this or that is a total waste of time.However, being the stubborn guy that I am, I cannot help having “what if” history-type questions flashing my mind. I just had one of them after listening to Obama speak, followed by a Bloomberg commentator who made a very positive comment on how Clinton handled the Presidency.The stupid questions that came to mind were as follows:How would have the world turn out if Clinton had not made the stupid Monica Lewinsky mistake?Would Gore have won the presidency?Would we ever have had to put up with a GWB presidency?Would we have had 9/11 (i.e., if Bush wasn’t elected in 2000, would we had had such a careless president that when briefed during the summer of 2001 that some middle east guys were interested in fliying lessons that did not include learning how to land)?It is all a stupid waste of brain energy but I cannot help wondering:-)

WiseGuyNovember 7th, 2008 at 2:53 pm

I’ve also heard that:(1) History is agreed-upon lies.(2) History is written by the victors.Assuming that either or both of those are correct, I’m not sure where you would get the historical “facts” that your teacher spoke of.

GuestNovember 8th, 2008 at 6:29 am

yes you can not always be sure whether they really are facts that you are reading…history is also subject to interpretation…so reading history one needs to differentiate between the facts and the authors opinion (the interpretation), but this latter can be sometimes masqueraded as fact (with the help of the authors writing style)…

Octavio RichettaNovember 7th, 2008 at 2:55 pm

I will keep on wasting brain energy. Possible answer:Gore would have won since the economy was apparently doing great in November 2000.The tech bubble would have burst and a recession would have started in early 2001 (as it did in real history).AG would have responded to the recession but would probably not have taken interest rates down to 1% for so long; and, thus, we might have avoided a housing bubble, or at least have a smaller one.The recession would have probably been even shallower than it was as we would not have had the extremely high cost of defending ourselves against terrorism and fighting stupid trillion dollar useless wars.By 2004, people would probably be tired of democrats anyway and McCain would probably have won the Republican nomination and then the presidency in 2004; and assuming he didn’t screw up as badly as George, he would have been elected for a second term running against Hillary or someone else; but it is highly unlikely that someone else would have been Obama.

KJ FoehrNovember 7th, 2008 at 3:49 pm

OR, I agree with almost everything except the part about Obama not running in ’08 had McCain succeeded Gore. I think the Obama presidency was / is destiny.During every presidential election the candidates say, “This is most important election of our lives”, which of course is usually BS. But I really believe the 2000 election was the most important and in that 5 to 4 Supreme Court decision heaven and earth were set apart. Here are a few reasons:I believe 9/11 would have still happened, but that we would have cornered and eventually captured bin Laden in Tora Bora in 2002, and Iraq would never have been invaded. And by now Saddam Hussein would once again be our ally against Iran, which of course would be a MUCH better situation than the one we currently face.

GuestNovember 7th, 2008 at 8:24 pm

To be honest I don’t see why your reasons are very important. To you it’s just a matter of which useless war we fight.Obama got elected by beautiful presentation of prepared speeches, and by other circumstances like the economy, McCain’s pick of Palin, having the good luck to succeed the most unpopular President in US history, etc.Listening to Obama give speeches makes one think that some sort of destiny is involved. Reading those same speeches makes one think there’s no there there. (Compare to FDR’s speech at his second inaugural, 1937, for a real contrast.) His speaking voice and phrasing is somehow otherworldly and hypnotic, but it’s just a speaking voice.

MarkNovember 7th, 2008 at 11:39 pm

Wasn’t it the Dems who pretty much signed off on setting the stage to attack Iraq?When “sanctions” are set in place they are the initial attack. If these don’t work then the ONLY next step is an offensive defensive war!And now I’m reading Albright’s name popping up?It’s got nothing to do with the puppets, everything to do with the system…

Wild BillNovember 7th, 2008 at 2:57 pm

Octavio, I don’t think it’s a waste of brain energy. It is possible thousands who have died would not have. Trillions of dollars that were lost would not have been. Untold damage to foreign relations would not have occured. Environmental degradaton would be much less. This is not the first time in history that global affairs hinged on romantic ones. The history of the United States may be subtitled “An Oral History Gone Wrong.”

Octavio RichettaNovember 7th, 2008 at 4:26 pm

When a smart guy like Clinton does something as stupid as what he did, one can not help but conclude that when push comes to shove, men don’t behave much better than horny monkeys:-)

GuestNovember 7th, 2008 at 6:04 pm

OK, So if we dial back to Troy…if only Paris had kept his d!#k in his pants (or skirt) and didn’t get the hots for lady Helen, then where would be be???If only Achillies had minded his own business…or maybe decided he wanted lady Helen for himself…gosh, I bet the stock market would have been up say…300 points yesterday…puhhhhhleassssse

PeteCANovember 7th, 2008 at 2:43 pm

Jennifer Granholm (Gov. Michigan) was with Obama in the news conf. I wonder is this is a direct sign that they plan to bail out the US auto industry, or that Ms. Granholm has a place in the new administration? Or both.Meanwhile, the financial blurbs on Yahoo are filled with stories today about the imminent collapse of GM, Ford and Chrysler. They will go under without some sort of dramatic rescue package – or at least that’s the story that these companies want to tell.But the problem is … there’s every reason to believe that we have not seen the bottom in personal consumer expenditures (PCE) for Americans. PCE will probably go a lot lower in the next few months. So there’s no conceivable turnaround in the purchases of big-ticket items in the near future. Therefore … where does that leave the US auto industry???The world has got to face the fact that this time we are really seeing the collapse of the US consumer as the major engine driving global consumption. It is OVER folks. There is no economic recovery plan that is going to succeed anywhere on this planet until people realize this fact – and deal with it.PeteCA

GuestNovember 7th, 2008 at 2:59 pm

Well obama wants them to retool to build more efficient cars.Such Plug-in hybrids which ‘get up to 150 mpg’. Infact there is a tax credit for plug-in hybrids now. Nice, but there are no manufactures of plug-in hybrids.Maybe they can retool to build windmills?

CahillNovember 7th, 2008 at 3:07 pm

I could not agree more. The very thing that caused this meltdown (over consumption) is the only thing that could save/reestablish it which would lead to an even bigger meltdown down the road. We all have to face that this is the time for a massive writedown in assets and debt (sorry that’s the accountant in me). Life and the way we think regarding spending is changing, it has to. I appreciate the attempt to take us in for a softer landing but it only puts us in a worse position later. We have to tighten our belts, reprioritize, accept that which is difficult and do our best to keep going.Blame whichever set of politicians you want, but they are all guilty as are we the american consumer. But the blame doesn’t end there, the factory worker in Malaysia and any other third world country may not know how the global economic markets work but their governments do and they chose to ride along with us. We are all to blame so it’s time to stop pointing fingers, time to move past how it happened and get moving on how to get through it, not fix it. This current structure is not fixable, it must evolve into something else, something hopefully managed with plain common sense. The days of 30-40% returns are gone, they were never sustainable, once every 20-30% years an idea comes along that allows for that kind of growth but only until market saturation then we all go back to 6-8% growth per year till the next big thing, not imaginary bubbles that lead to this.Sorry if that seemed like a rant I just truly believe we have to move on and put our feet to the ground and rebuild sensibly.

MarkNovember 7th, 2008 at 11:43 pm

Thank you Cahill. This wasn’t a rant, it was the truth! If we can only get more people to come out of their programmed mental states…

GuestNovember 7th, 2008 at 3:42 pm

@PeteCAI posted this earlier above – but since you brought this issue up here I wanted to repeat.Obama, is consulting with Karl Marx – don’t ask me how – but this is where we are headed. A pure socialist world. They will bail out Detroit to appease the unions – which ought to be eliminated. They will bail out Detroit to save jobs – it is welfare.The VOLT electric car is a joke @ an estimated price of $47,000 apiece!!! That is $78.34/hour blue collar unionized BS for you.BYD has a much better machine according to the specs. I am reading.

CahillNovember 7th, 2008 at 3:47 pm

New car technology aside the big 3 have not built a decent family car in 20+ years. Take a page from the Asian automobile companies, build some stylish and reliable. And I agree with PeteCA completely about the unions. I’m sorry but when my sister who is trying to educate the youth of today for less than $20 an hour can triple her salary by standing in a line and punching a button to make a machine put a bolt on a car something is seriously very wrong. Again, just my 2 cents.

GuestNovember 7th, 2008 at 8:32 pm

Ever try one of today’s Chryslers, say the 300C? It’s maybe the best family car ever built (and the SRT8 is a barrel of fun and truly world class.) And affordable.Detroit is now building great cars. If they didn’t have the burden of much higher health care and pension costs than their Japanese competition, they could flat-out win. This is the issue that needs to be addressed: keeping them operating while reducing those costs. Bankruptcy (but operating in bankruptcy, Ch. 11) may be the answer, it’s tough on those workers but they still have a good deal going all things considered.The auto companies are performing now, and we need them. They are national security assets. Any right plan would save them, and Obama is looking in the right direction.

PeteCANovember 7th, 2008 at 10:03 pm

The only short-term hope that Detroint has could be an increase of the yen vs. the US dolar. An increase in the Japanese currency would push up the price of Detroit’s major competition – Toyota. However, would Japan and the Bank of Japan (BOJ) ever really allow that to happen. Whenever you look at the currency pair yen/dollar, in many ways it reflects a direct war over the future of the auto industry. Obama will need to push the dollar down realtive to the yen, or alternatively to impose some sort of import tax on foreign auto’s. We’ll see how this plays out. There is a real possibility that we are entering a period of “trade wars and tarrifs”.PeteCA

CahillNovember 8th, 2008 at 8:49 pm

WHO said anything about Unions and Obama, my comments were directed to trade unions, not government employee unions which are greatly needed, there is a very distinct difference. As for the Chrysler 300, 1 car out of the three major auto companies in detroit is not a good statistic. There is not a decent general motors car (not SUV or truck) other than the corvette and that’s not the standard family car. Fords own CEO admitted it’s passenger cars were an embarrasment. Chrysler is desperately looking for anyone to take them over, that can’t be a symptom of making more than 1 decent model. As the former owner of a Chrysler I can honestly say I will NEVER willingly own another piece of junk from them. I do not deny that we need these companies, almost a million americans would be out of work without them, we HAVE to keep them running, but they ABSOLUTELY must improve quality and style, there is no question about that.

GuestNovember 7th, 2008 at 2:57 pm

Sales Statisticsfor SAN DIEGO County CARealist’s most recent recording date for this county is 10/30/2008Single Family ResidenceTime Period Number of Sales Median Sale PriceSep 2008 2,016 $370,000Sep 2007 1,128 $541,000Aug 2008 1,947 $385,000Aug 2007 1,672 $565,0002008 YTD 16,129 $410,0002007 18,280 $555,000CondominiumTime Period Number of Sales Median Sale PriceSep 2008 1,044 $245,000Sep 2007 788 $370,000Aug 2008 1,075 $266,500Aug 2007 1,130 $360,0002008 YTD 8,770 $294,0002007 12,872 $374,000hlowe

JavierNovember 8th, 2008 at 2:58 am

Actually, the story behind the story is that a drunk Ph.D. student accidentally spilled tequila into a chemical vapor deposition machine, nearly ruining it. He flipped on the switch of the heater to boil off the evidence and voila! “Professor, you see, it was late in the lab and I had some tequila and…” “Manuel – no need to explain – BRILLIANT – sheer brilliance! Let’s assemble your Ph.D. committee tomorrow!”

GuestNovember 7th, 2008 at 3:11 pm

He was elected just in time for the Digital T.V age and man they can do some tricks with that Green screen, we could fight and win a war that never was with great sound and close up shots. We could be scared and herded to unknown places without any real danger. However we all know that this new digital broadcasting will not be misused. It will only be used for better TV viewing experience. Good thing we are all honest or the masses could be fooled by scenes that did not exist. Will you really be able to watch the news with confidence once the digital experience begins in Feb. 2009?

GuestNovember 7th, 2008 at 3:27 pm

Sales Statisticsfor RIVERSIDE County CARealist’s most recent recording date for this county is 10/29/2008Single Family ResidenceTime Period Number of Sales Median Sale PriceSep 2008 3,754 $248,000Sep 2007 1,841 $383,000Aug 2008 3,901 $250,000Aug 2007 2,397 $391,0002008 YTD 30,365 $275,0002007 29,091 $399,000CondominiumTime Period Number of Sales Median Sale PriceSep 2008 312 $220,000Sep 2007 259 $310,000Aug 2008 301 $225,000Aug 2007 335 $330,0002008 YTD 3,004 $255,0002007 4,206 $325,000———–Sales Statisticsfor ORANGE County CARealist’s most recent recording date for this county is 10/28/2008Single Family ResidenceTime Period Number of Sales Median Sale PriceSep 2008 1,643 $485,000Sep 2007 877 $670,000Aug 2008 1,813 $500,000Aug 2007 1,377 $715,5002008 YTD 13,602 $530,0002007 15,558 $700,000CondominiumTime Period Number of Sales Median Sale PriceSep 2008 784 $330,000Sep 2007 569 $435,000Aug 2008 794 $330,000Aug 2007 664 $450,7502008 YTD 6,153 $360,0002007 8,400 $460,000————————–Sales Statisticsfor IMPERIAL County CA (this is East of San Diego)Realist’s most recent recording date for this county is 10/15/2008Single Family ResidenceTime Period Number of Sales Median Sale PriceSep 2008 151 $185,000Sep 2007 85 $261,500Aug 2008 123 $200,000Aug 2007 79 $257,5002008 YTD 1,107 $201,0002007 1,274 $259,000CondominiumTime Period Number of Sales Median Sale PriceSep 2008 11 $154,500Sep 2007 6 $191,500Aug 2008 4 $171,000Aug 2007 5 $207,5002008 YTD 37 $172,0002007 74 $200,250hlowe

CuriousGeorgeNovember 7th, 2008 at 3:42 pm

4 saves today at the 8800 level on the Dow, I wonder what they don’t want us to see down in the basement….

JohnRyskampNovember 7th, 2008 at 4:22 pm

Gee Nouriel, you nauseating little dog, is Rahm Emanuel also a man of “leadership, vision and great intelligence.” Is there anyone in the political system you won’t suck up to? Corrupt hyena.Daily Observor, November 7–“Having convicted Ryan, Fitzgerald started to move on the Great Untouchable in Chicago politics-Mayor Richard M. Daley. In 2005 his office indicted a number of top aides to Daley on charges of mail fraud, alleging numerous instances of corruption in hiring practices at City Hall. Despite a federal decision allegedly removing hiring as reward for continued political service, it seems Mayor Daley had turned a blind eye to its operation. Fitzgerald found that a Daley top aide fielded requests for promotions from taxpayer-paid civil workers in recompense for political work they performed-including flooding the neighborhoods with canvassers in the 5th district which cuts an oddly-shaped swath across the city’s north side…in behalf of Rahm Emanuel.Emanuel is a lean and hungry Cassius…a former ballet dancer but who is definitely not a girly man…a brash and profane son of an Israeli immigrant (he uses the “f” word in almost every sentence), who owes his soul to Mayor Daley and who had become (a) political director of the Clinton White House where he regularly defended the 42nd president in the media vis-à-vis the Monica Lewinsky affair and (b) a multi-millionaire by learning first-hand from those close to ex-treasury secretary Robert Rubin how to make money in the investment banking business by using his old political connections. He became independently wealthy…$16 million net worth… managing a merger involving Chicago’s major utility, Com Ed which as a novice he managed by hanging on the phone and following orders dictated by Rubin associates. He was on the board of Freddie Mac, never mentioned in a laudatory “New York Times” bio, Freddie Mac having been fined $50 million during the time of his service for serious ethical impropriety). He ran for Congress in the 5th district (Dan Rostenkowski’s old district) and when a senile worker for Emanuel’s Democratic opponent claimed Emanuel had duel citizenship (here and Israel) Emanuel raised a stink, claimed his opponent was anti-Semitic and got the nomination, tantamount to election.Still and all, his election ground game was run largely by patronage workers from the city water department, for which its recruiter, Don Tomczak, went to jail-a matter Fitzgerald is still looking at. Once in the House, Emanuel proceeded apace, is a member of Ways and Means and is now chairman of the House Democratic Caucus. He has just been appointed as Obama’s chief of staff in the White House. But needless to say, Emanuel will never forgive Fitzgerald for prosecuting the man who mobilized city water department employees into a political army that elected him and others.”

John RyskampNovember 7th, 2008 at 6:46 pm

Yes, John is VERY accurate regarding the Chicago political machine, including the Rezko/General Mediterranean pimp Barack Obama.If “Guest” would like to find out more, then “Guest” should read Evelyn Pringle’s “Curtain Time” articles, which are online.”Guest” might also like to read up on 18 USC 1346, the “honest services” section which will nail Obama.How ignorant is “Guest?” Pretty damned ignorant. Obama is a cheap hood and he has surrounded himself with other cheap hoods like Emanuel.By the way, did you notice that the economic criminal Robert Rubin was at the “economic summit?”These dogs will steal the last nickel in the United States. Wait and see.Oh Paddy Fitz, where are ye now, laddy? Are ye readin’ this now, my sweet?

MandarinNovember 7th, 2008 at 7:22 pm

Wow! You make Emmanuel sound like the second coming of Jay Gatsby. As a longtime Chicago resident now an expat I can already smell the grease of well oiled palms. The question is whether anything gets done in the process. In my city corruption was a fact of life but the machine did manage to deliver the goods. Chicago was not the shining city on the hill but it has generally been liveable. Significant parts of its educational and commercial base have been viable.Does it matter who it is at the top who will come out of this with all the marbles? The Gang is going to give the marbles to the strong hands. That’s always the way a crisis plays out. The Democrats will throw a few bucks at distressed homeowners/hard pressed workers. That’s only fair. The system is going to drive down their wages and home values until the market clears. Moral support is about the only recourse, because this system isn’t going to institute the Social Justice regime any time soon. Neither can it suddenly revert to Hard Money or abolish moral hazard.Right now we should be ready to make a deal with the devil to keep the dollar as reserve currency, bring the troops or most of them home, and end the government’s repressive stance in the war on terror. That would be enough, and that’s what we’re going to get. And Obama isn’t quite the devil now, is he?

GuestNovember 7th, 2008 at 8:41 pm

A Mandarin as in Chinese. No wonder you want a strong dollar. That’s the subtext behind every Chinese comment I see. Don’t inflate away our dollar hoard.But American needs inflation. The debt in strong dollars is unpayable. The Americans will just work less. Look man, it’s gonna be inflated somewhat and you knew that when you bought all those T-bills. Not hyper inflation, but very significant inflation. The dollar may not be strong enough to be your reserve currency, that you use to yolk Americans into debt slavery.Oddly the rest of your commetns I agree with. But there’s always that idea of “strong dollar” slipped in that has to be identified and highlighted so that people don’t get fooled into thinking it is a part of the solution.

AfANovember 8th, 2008 at 12:31 pm

Mandarin is not Chinese, not more than Free Tibet (if I’m not mistaken they are both Americans). Names are sometimes deceptive.Plus, I see nowhere in his post an argument for strong dollar. All he said is “keep the dollar as reserve currency” which indeed may require a somewhat strong dollar, with which I agree. To not make this long, in real life, economic indicators and variables are not linearly related, and cause-to-effect relationships are not always stable, clear or predictable. Think about what a weak dollar may cause, in addition to “less” debt burden.

GuestNovember 7th, 2008 at 5:36 pm

What was interesting about Obama’s speech today was that he stated right up front (and correctly so) that his new job does not start for another 74 days and until that time this mess is the responsibility of the current president. One thing he also said was that he will need to review the data and make necessary modifications to his promises once he does take over. I didn’t have my stop watch handy but it appeared that he spent more time on the question about selecting his new dog than any single question on the economy. He actually went out of his way to locate the reporter who asked the dog question. The question that should be asked is why did he have the press conference at all.

JohnRyskampNovember 7th, 2008 at 6:49 pm

Because they ordered him to have one. We’re about to see just how stupid a wind-up doll Obama really is. This moron will make Dan Quayle look like Aristotle. He’s a REAL dodo.But that’s all right. If the scum is not indicted before inauguration (but then, Biden and Cari are also Rezko scum, so…President Pelosi? Baltimore mafia princess? Gee, what’s a country to do), wait to see people start throwing things at him when they realize that he’s just a front behind whom a bunch of thieves are hiding!! Ha ha!!

JohnRyskampNovember 7th, 2008 at 10:25 pm

Why do you think Biden was chosen? Check his man Cari, who is also talking to Fitzgerald now? Like I say, President Pelosi. Just hope to God Fitzgerald’s car doesn’t blow up some fine morning! It’s him who needs the Secret Service protection, not the scummy moron Obama.And guess who’s behind all these dogs? The loathesome Kennedys. Why do you think that freak Caroline was involved in the VP selection? We’ll never be rid of the hood Kennedys until silver stakes are driven in their hearts. But they obvious get along with the Syrian mafia (who, after all, are Christians!!).But what is Emanuel doing in this frightful crowd of antisemites?

JohnRyskampNovember 7th, 2008 at 10:28 pm

I found the answer to my own question. From Emanuel himself? “Nancy Pelosi’s valet.” Some people will do anything. Maybe Rahm should read Proust instead of choreographing the removal of his own finger. That’s so hurtful!!!

GuestNovember 7th, 2008 at 5:56 pm

Part of the problem with this economy is that too many people nowadays spend far too much time surfing the internet and posting on and/or reading message boards like this one instead of actually engaging in productive activities (i.e., working) which benefit the economy.

AnonymousNovember 7th, 2008 at 5:58 pm

The worst tragedy facing the economy is people who are too cowardly to use their real names when posting.

GuestNovember 7th, 2008 at 6:29 pm

What I’ve learned here has allowed me to become a more informed and productive citizen, not to mention it’s helped me put my money in the right places so that in the future I’ll remain self-supporting and won’t need the government to rescue me. See.

CaponeNovember 7th, 2008 at 7:08 pm

blah, blah, blah, blah, blah… do you think that post was included in the government’s productivity numbers?

Guest2November 8th, 2008 at 9:22 am

So, I’m guessing if you’re hear posting, you’re part of the problem too?Believe it or not, some of us are talented enough to do both.

AfANovember 7th, 2008 at 6:58 pm

Just the mention of Sarkozy, Brussels (sorry to any Belgians here), emergency, deadline … makes me very wary and reminds me of those post-war imperialist plans and treaties that reshaped the geopolitical realities of the world.Any historian here to draw any parallels?Sarkozy said. “We have to react and we have no time to lose.”Indeed, not even enough time to make the loss materialize, they will swiftly rearrange the cards … once again.

JohnRyskampNovember 7th, 2008 at 7:07 pm

Yes of course there are parallels. Sarkozy is the illegitimate child of the same-sex marriage of Laval and Petain. Vive l’Etat Francais! On a besoin de l’Action Francaise!! Maintenant!!! Tout de suite!!!! Tirez le pianiste!Ce que je dis trois fois, c’est la verite.

MandarinNovember 7th, 2008 at 7:48 pm

Sarkozy pointedly mentions a “100 day” time frame for action because he knows Obama will take over in January. We must not roll over for Monsieur le President. With the right type of political muscle. We can preserve the dollar’s reserve status now and make the necessary changes that will get us a reasonable deal later. Obama will be a thousand times more credible than Bush/Paulson.

WiseGuyNovember 7th, 2008 at 8:57 pm

Perhaps Obama will appoint you as U.S. ambassador to the U.N. given your obvious “people skills” 😉

GuestNovember 7th, 2008 at 8:46 pm

Exactly right. But who says the French guy is going to get his way? It seems Bush is inclined to go out doing the right thing, lately I cannot fault his leadership. This is the time when “hands-off” is most important, so the banks are not protected at others’ expense.

GuestNovember 9th, 2008 at 3:12 pm

The views of French President Nicolas Sarkozy, current holder of the rotating EU presidency, have become a key factor in global economic coordination programs.As “The Australian Jewish News” wrote May 8, 2007, “Many expect Sarkozy’s presidency to bring a dramatic change not only in France’s domestic affairs, but also in the country’s foreign policy in the Middle-East.”The Jewish news site reported:It remains to be seen whether his personal history will affect his foreign policy and France’s role in the Middle East conflict.In the 15th century, the Mallah family (in Hebrew: messenger or angel) escaped the Spanish Inquisition to Provence, France and moved about one hundred years later to Salonika.In Greece, several family members became prominent Zionist leaders, active in the local and national political, economic, social and cultural life.To this day many Mallahs are still active Zionists around the world.Sarkozy’s grandfather, Aron Mallah, nicknamed Benkio, was born in 1890.Beniko’s uncle Moshe was a well-known Rabbi and a devoted Zionist who, in 1898 published and edited “El Avenir”, the leading paper of the Zionist national movement in Greece at the time.His cousin, Asher, was a Senator in the Greek Senate and in 1912 he helped guarantee the establishment of the Technion – the elite technological university in Haifa, Israel.In 1919 he was elected as the first President of the Zionist Federation of Greece and he headed the Zionist Council for several years. In the 1930’s he helped Jews flee to Israel, to which he himself immigrated in 1934.

JohnRyskampNovember 7th, 2008 at 6:53 pm

“AP – President-elect Obama answers questions during a news conference in Chicago, Friday, Nov. 7, 2008. (AP … CHICAGO – Inheriting an economy in peril, President-elect Obama warned on Friday that the nation faces the challenge of a lifetime and pledged he would act urgently to help Americans devastated by lost jobs, disappearing savings and homes seized in foreclosure.”Yes, he will make sure that surplus dog food is IMMEDIATELY provided to them.But actually, when you think about it, isn’t that better than they deserve?

GuestNovember 7th, 2008 at 8:48 pm

Now I’m confused John, are you being sarcastic, you who supports maintaing the fact of their current housing permanently?

WiseGuyNovember 7th, 2008 at 9:08 pm

Yeah, I guess I’m confused now too, John.I was under the impression that you were pro-housing.Or is that right to housing pertain only to certain people?

JohnRyskampNovember 7th, 2008 at 10:19 pm

Why don’t we wait and see just what they do wind up with, hmmmmmmm? It has nothing to do with what I WANT to happen. What matters is what WILL happen. Ask people themselves why they don’t have more rights. You’ll get an earful of their fascist b.s. There are always a lot of dead bodies between any right and its enforcement. Who killed them?

CaponeNovember 7th, 2008 at 7:19 pm

What happens when a leader mesmerizes the people into believing in hope, change, promise for a better tomorrow and the reality ends up being extremely painful and disastrous for a long time? Stay tuned… Today I was home sick and some of the morning talk shows were mentioning an O’Bama baby boom in 9 months. WTF (what the f_ _ _ !) Are people complete and total morons? At least, he is mentioning and emphasizing to a small degree in both his election night and today’s addresses that it will be difficult…

AfANovember 7th, 2008 at 7:53 pm

You don’t seem to understand (or overlook, remember) is that … such, is the psychology of the herd. They want to mystify their own making and believe it has divine powers, create their own gods and worship them, they want to believe that someone else can do the change instead of themselves, relieve them from that burden, cut roads in the middle of the sea and lead them to the their deliverance.As Warren Buffett once said: “Apparently, a reluctance to recant, and thereby demystify the priesthood, is not limited to theologians.”Somehow, I am more afraid for O’Bama than of him.Or as good Professor didn’t say, “let us delude each other”

CaponeNovember 7th, 2008 at 11:09 pm

I have often wondered lately if he has any idea truly what he is about to endure and experience. For example, does he know he will lead the US into WWIII?

GuestNovember 7th, 2008 at 9:33 pm

“least, he is mentioning and emphasizing to a small degree in both his election night and today’s addresses that it will be difficult…”Funny to think that just 10 days ago the world was pretty much the same as it is today yet the Pres-elect was not talking much about the coming difficulties. That perhaps explains along with media complicity that the “complete morons” (apt description) will indeed be celebrating a visit from the stork late next summer. It is truly amazing how a public that twice elected Bush have not learned from history.

GuestNovember 8th, 2008 at 5:30 am

Spreading the TRUTH@Mark,Your link, your “friend”, apparently like yourself has stumbled upon a truth. What he doesn’t realize is that this truth cannot be shared – it must be quietly lived inside as a great burden within one’s self. It will lead to a religious experience – no other words for it.Good Luck

GuestNovember 8th, 2008 at 1:31 pm

I read it the first time you posted it. Bookmarked it so that I can go back and read it again whenever I need to. Thank you.

AnonymousNovember 8th, 2008 at 4:52 am

same thing happened with bush.for last 8 years you and your friends have drank wines from republican heaven and swam in oceans of cash.In fact nobody from red state admits bush was ever wrong.never.Bush was,is and will be always correct.If you check aproval ratings(actual) in texas,bush is popular than obama.hey there will be next memorial for Bush near lincoln doubt about it.

JLCNovember 8th, 2008 at 11:57 am

I wouldn’t be surprised if there were a small baby boom. I was asking our midwife about how her business is holding up these days. She said that midwifery always booms during hard times. Sex is a coping mechanism. Nothing to do with BO.As an interesting side note, we discussed how major insurance companies are encouraging midwifery these days because they realized they can save 80%+ on delivery costs compared to a hospital birth.

AfANovember 7th, 2008 at 8:12 pm

It seems I am seeing funny stuff even when there is none. Bloomberg headline:”China Minister Xie Leaves Peru Early to Fix Economy”The article doesn’t say, however, whether Mr. Xie took his mini-van and toolbox with him, for the quick intervention.

AfANovember 8th, 2008 at 12:39 am

Dude, you are worse than me :+)What I originally meant was that he left “to fix economy” as if the economy can be fixed in one afternoon or as if economic crisis caught him by surprise. Problems have been dragging for some time now.After reading the headline, the mental image I had of Mr. Xie was that of Bush after being informed of 9/11 attacks. “Minister, exports have been hijacked by global recession, and they are heading toward the economy, warning they will blow it up. Intelligence report says that the SSE and Heng Seng already collapsed”. Which made me laugh like a mad person, just to myself.”They told him he has to resolve an economic problem and that he’s the only one who could do so,” de Swinnen said.It sounds like a typical excuse of someone who found the conference utterly boring.

GuestNovember 8th, 2008 at 7:08 am

It sounds like a typical excuse of someone who found the conference utterly boring.

You are right but it could also be he left for some valid, even personal, reason (politicians have families too). Or that it was the journalist that messed up by writing about the dudes departure in that manner. Perhaps because of translation error. I heard last week about the difference between Chinese and English languages, that they are very different and require totally different ways of thinking. An example that was given was that in Chinese it is not possible to say “you are what you eat”.

MarkNovember 8th, 2008 at 11:02 am

AfA, actually I was meaning to convey the image of McCain back in October canceling his campaign and flying back to D.C. to “fix” the economy… Yes, he said that he was going to work with others to do so, but it’s the same thing (like he has special powers).

AfANovember 8th, 2008 at 12:18 pm

oh, I forgot that bit, yes, it is actually relevant, except that Xie would not need to worry about any votes.

MarkNovember 8th, 2008 at 2:54 pm

Cannot reply directly to Afa’s latest response (why does this happen that some don’t allow “Reply to this comment”?].oh, I forgot that bit, yes, it is actually relevant, except that Xie would not need to worry about any votes.But failure brings execution… maybe picking Palin really was strategic for McCain?

AfANovember 8th, 2008 at 6:07 pm

Mark, the “Reply to this comment” option is limited to the first 3 successive responses, which makes sense given that an indentation is created for each new response, making the width of a far post very narrow.

GuestNovember 8th, 2008 at 6:12 pm

“(why does this happen that some don’t allow “Reply to this comment”?].”Because the format does not allow the comments to post any further over. There’s no limit to the amount of replies to a single post, but you really can’t perform much of a conversation on a one-to-one basis, as once you get to about the 4th or 5th response, you’ve run out of ‘room’. Did that make the slightest bit of sense? Because I’m not sure I explained it properly.

MarkNovember 8th, 2008 at 12:01 am

Another example of how our own elected government officials (where is Senator Dodd [head of the Senate banking Committe] anyway?) can’t do their jobs!

GuestNovember 7th, 2008 at 8:52 pm

Obama said a very good thing in his speech on election night in Chicago: we can’t have a rich Wall Street and a poor Main Street. Now he talks about protecting the middle class today.It is almost too good to be true: he’s improved after the election!I like Obama better now than a few days ago. Maybe it’s really true that the banks will NOT get their money’s worth for all the money they contributed to his campaign. If so, I wish President Obama all good fortune in carrying out the agenda of protecting Main Street at the expense of Wall Street.

GuestNovember 7th, 2008 at 9:02 pm

“protecting Main Street at the expense of Wall Street.” Sounds somewhat vengeful to my way of thinking (and understandable), but for the candidate of unity and change why not a message of prosperity without it being at the expense of another.

GuestNovember 7th, 2008 at 9:39 pm

Yup, it’s vengeful. Because justice is important. Main Street should be able to feel it’s not the only one suffering, and should not be lied to.Main Street will know that BASE salary on WS is at least 100K, they will not accept the payment of bonus on top of that this year even though each little employee didn’t cause this.Unity with Wall Street? Haha. WS was never interested in that before so it’s too late now.

WiseGuyNovember 7th, 2008 at 9:42 pm

I think the burden of proof is on Wall Street to prove that it has a useful role to play in our economy.During that past couple decades, Wall Street has rewarded growth companies at the expense of smaller, stable companies. This has led to endless mergers resulting in countless job eliminations or relocations. And, to add insult to injury, the resulting larger company is generally NOT better than the sum of the companies that were consumed by it.However, as long as “investors” made money, we were told it was OK.

painterNovember 8th, 2008 at 4:42 am

Obama gives me hope and that is scary. I just HOPE its real. Feed the poor and help the sick, tax the rich till there are no rich no more.

Brother, can you spare some change.November 8th, 2008 at 9:44 pm

The financial corporations have already received a very good ROI for financing both sides of the ‘race’.

Edwin WayNovember 8th, 2008 at 2:28 am

RAISE TARIFFS OR WE WON’T GET MUCH OUT OF OUR FISCAL STIMULUS; if the government has to run severe deficits over the next two years that translates into a continued strong dollar vis a vis the Yuan and other Asian currencies. What’s left of our industrial tradable goods and import competing sector will be battered and we will find ourselves in 2011-12 even more in debt to China and even more on the periphery of the global economy. Let’s hope the US isn’t on the verge of becoming the Argentina of the 21st century.

GuestNovember 8th, 2008 at 8:33 am

The corporate elitist have long left this country behind their eyes are all set on the Chinese consumer, do you really think they’ll allow the gov. to put in tariffs just to save our jobs?

GuestNovember 8th, 2008 at 4:23 am

“So the brief sucker’s rally is over ….”Well I would not bet on that. I think we are in for a major sucker’s rally which could last for months.There are lots of normaly bearish people talking about a “bull” opertunity so I would not be surprised if DOW soared and reached 11000.I do not think Obama can change anything. The party is over and the only way that economy could go back to its bubbly “normal” is to restart creditmania. I think that is impossible because you need not only banks willing o lend but also lenders.What good will Obamas stimulus plans do? well it will put food on the table but not more. It will not trigger more car sales and I cant see the economy jumpstart due to Obamas stimulus packade.However I truly think that US goverment soon will have to bee bailed out and that jobb has to be done by marsians or some other onknown xtraterrestial species.Are the world in for a depression. I thinks so

GuestNovember 8th, 2008 at 5:57 am

Paul Krugman On Lou DobbsDid anyone see this interview? I tried to find a link or a youtube – no success.I saw part of it. Lou grilled Paul about how to pay off all the debt the gov. is taking on. Paul’s answer: It doesn’t matter how much debt. We must get the economy going again!A severe very looooong depression is in store folks. They are in PANIC mode. That’s how bad it is.My sense of it – they will not be able to re-inflate this beast. Get ready to hunker down.Poor Obama, he who joked about not being born in a manger, is about to understand what Abe Lincoln went through in his presidency.

GuestNovember 8th, 2008 at 7:35 am

Here is the transcript of Krugman on Lou Dobbs:

(COMMERCIAL BREAK)ANNOUNCER: This is LOU DOBBS TONIGHT. News, debate and opinion. Here again, Mr. Independent, Lou Dobbs.DOBBS: President-elect Obama today told the American people at his first news conference as president-elect that his top priority is to create jobs and to help our struggling middle class when he does take office.My guest tonight writes in his column in “The New York Times” that the president-elect should work quickly and aggressively to achieve his goals. Joining me now is Nobel Prize-winning economist and “New York Times” columnist Paul Krugman.Paul, good to have you.PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST: Good to be on.DOBBS: And again, congratulations on your Nobel Prize. That’s wonderful.KRUGMAN: It’s pretty nice, thank you.(LAUGHTER)DOBBS: Got it.Well, as we listened to, you know, not even the first press conference today, but to watch Barack Obama as president-elect on Tuesday night, I mean, it’s a sobering set of challenges that he faces. He’s obviously keenly aware of them.The idea of more stimulus, though, in this economy, as he called for upon taking office, I mean, we’ve got over $2 trillion in stimulus, when you look at what the Fed has done with the banking system and what will be spent as the result of the bailout.How much more stimulus do we need?KRUGMAN: Lots, unfortunately. And this is — this is like you’ve got some kind of infection and you tried all the usual antibiotics and they haven’t worked and so now you go for the really heavy stuff.I’m sorry, but this is — this is bad. This is clearly the worst thing in 25 years and it’s probably the worst in 70 years. This is, this is bad.DOBBS: The worst in 70 years, I mean, that covers some pretty profound area, when we’re talking about the depression, a banking system that came to a halt, capital — capital markets that were effectively defunct.KRUGMAN: Well, you know, the thing is, we — the modern banking system is mostly not banks. It’s stuff that functions like banks but it isn’t treated like banks, the shadow banking system. And that has really collapsed. I mean when you think about — auction rate securities.That was a $300 billion effectively banking system that’s — disappeared. Asset backed commercial paper was $1.2 trillion. It’s now $600 billion. $600 billion of banking disappeared.This is big stuff and it takes…DOBBS: By the way that’s worth the support of now the Federal Reserve in the — in the commercial paper. KRUGMAN: That’s the only thing that’s kept it from going down further, that’s right. So we’re doing — there’s nothing — Ben Bernanke has done everything he can, but we need, now — we need, now, Uncle Sam.DOBBS: We need Uncle Sam. We’ve got Uncle Sam to this degree. We’ve got a $700 billion bailout. We’ve got just approaching what will be about $900 billion of capital injection into the Federal Reserve. We’ve got another $500 billion in Fannie Mae, Freddie Mac. I mean, the list goes on …KRUGMAN: But all of that is financial.DOBBS: I understand.KRUGMAN: Right? And what’s happened is, really, until the last two months is now the epicenter of the earthquake has shifted from the financial system — from Wall Street to Main Street. And now comes the time when you really have to do — we now need to talk about jobs. We need to talk about stuff that’s really going to support Main Street.DOBBS: Is it possible, is it conceivable, Paul, that the mistake was focusing on the financial economy rather than the real economy to begin with?KRUGMAN: You need to do both. I mean, it’s like — the financial system, you can’t have a working economy if that falls apart. You’ve got to rescue the banking system.But for whatever reason, we didn’t do it soon enough or just too much accumulated, trouble, now we’ve got to rescue the rest. It’s awesome. I mean, I don’t like the prospect of, you know, more than $1 trillion deficit but I don’t see how we avoid it.DOBBS: It looks like we’re on the path of $1 trillion to $1.2 trillion – estimates make great sense. But even with that deficit, which should be stimulative (ph) beyond belief, we still have a president-elect talking about trying to encourage job creation, which is a short-term approach, but one can’t clearly see a path to a short- term approach to job creation.We’ve watched manufacturing today is now down to a level of 1942 in this country. We haven’t got the way — I can’t find a way in which there is a direct correlation between the money the federal government can spend and the jobs that can be created for our middle class.KRUGMAN: Well, a lot of what we can do is, for starters, construction. There’s a lot of infrastructure that needs to be built or repaired. A lot of things you can do there. You just had earlier in the program all about the state and local governments cutting. That’s slashing — give them some money so they don’t have to do that. It’s actually destructive — it’s doubly destructive now.Not only cutting services but we’re also destroying jobs by doing that. So there’s a lot that Uncle Sam can do. Now, manufacturing is a concern. You know, exports has been one of the good things for our economy. But now the rest of the world is in trouble so that’s a problem. But you do, you know, lots of stuff. There’s no single answer.DOBBS: If we continue, then, we do spend — what do you think will be spent, another trillion dollars?KRUGMAN: I’m guessing four to five percent of GDP, which is basically saying $600 billion to $700 billion of stimulus.DOBBS: I’m going to round it up to $1 trillion.KRUGMAN: Well, there’s other stuff. We’re going to be …DOBBS: So now we’re talking about that level of stimulus. Matching the size of the entire federal budget in one year in stimulus.And when we talk about those jobs, infrastructure, we have a president who, for eight years, has been talking about we have jobs that Americans won’t do. One of those jobs is construction. We have a situation which Wal-Mart, when we drive purchase of goods in the consumer market, we’re talking about Chinese goods. We’re not getting the multiplier effect back because we don’t have that production. It’s a very difficult formula, isn’t it?KRUGMAN: There’s parts of it. I mean, think you’re exaggerating. Even buying stuff from Wal-Mart, most of the price of what you buy from Wal-Mart is not Chinese. Most of it is U.S. value- added. It’s true, some of this will spill over, but, you know …DOBBS: I don’t want to argue with a noble prize winner, but point of fact, Wal-Mart is the third largest exporter from China and most of those goods are from China.KRUGMAN: But, in fact, there’s a lot of — we can argue the number but it’s — but, you know, you can see the fact that the multiplier still works you can see by the fact that we’re in such big trouble right now. If it was all from China, then the collapse of our housing bubble wouldn’t have done so much to our economy.DOBBS: What can we do for that housing bubble?KRUGMAN: Housing was overbuilt, overpriced …DOBBS: I wish it were a bubble. I misspoke. For the collapse of the housing bubble?KRUGMAN: There’s a line economists sometimes use. You don’t have to fill a flat tire through the hole. We don’t have to reflate the things that were over-inflated and collapsed. But we do need — we can do a lot. Again, infrastructure, we can do a lot of spending — it’s not easy. But — and nobody says we’re going to bring prosperity. We’re really just talking about trying to minimize the damage. DOBBS: All right. Well, I wish we could end on a happier note. But, Paul, thank you very much, as always, we appreciate your insightful analysis and, again our congratulations to you. Paul is the author as well of the book — I don’t even like to use the title. But the book is “The Return of Depression Economics and the Crisis of 2008.” Paul, thanks a lot for being here.KRUGMAN: Thanks a lot.

MarkNovember 8th, 2008 at 11:31 am

Krugman didn’t say a damn thing! I mean, this guy wins a Nobel prize in economics and all he can say is that there are a lot of things that can be done? Yeah, on the backs of our children… But I guess seeing how inept these economic geniuses are I guess the load bearing would be better off on the back of our children than these worthless puppets!

datadaveNovember 8th, 2008 at 2:25 pm

i think Krugman’s a great guy for trying to alert us to the economic follys of deficit spending and tax cuts by the Bush 2 Regime…but I find of late he is trying to ‘calm’ us by saying things aren’t That Bad. It’s only fair and expected as if he really gins up the Negavity…it could be a self fulfilling prophecy. He has been uniformly careing of the lower income folks (unlike Rethugians) and if he says too much he knows the saving and non-consuming by those who read his columns who are likely to be upper incomed will only hurt the lower-incomed or middle working class.Do I think he’s softpedeling his foresights?…you betcha!(whatever he predicts….raise it a hundred percent or more and it’ll be approx. accurate…but hope I am wrong!)A focused stimulus is what is coming from Obama…not some flat tax refund for everybody. People can invest, and employ and thus a future might return.

GuestNovember 8th, 2008 at 4:22 pm

Wow, what an incoherent rambler. THAT gets you the Nobel Prize? He’s USELESS outside the confines of his office.

GuestNovember 8th, 2008 at 7:17 am

What good will Obamas stimulus plans do? well it will put food on the table but not more. It will not trigger more car sales and I cant see the economy jumpstart due to Obamas stimulus packade.

In that case I guess it suffers from the same issues as Bush’s stimulus package…and likely the same as McCain’s would have suffered of…3. Do not put your trust in princes, in mortal men, who cannot save.4. When their spirit departs, they return to the ground; on that very day their plans come to nothing.(Psalms 146:3-4)

GuestNovember 8th, 2008 at 8:04 am

Came across this in the archives circa 2005 about Obama’s new #1 Rahm Emanuel – It will provide some insight into how Obama intends to provide us with the “Change We Need” (I suspect this guy will make Rove look like a rank amateur) — Has anyonoe noticed that Biden has become the invisible man – Look for Emanuel to be Obama’s VP running mate in 2012. (Rolling Stone – 2005)The EnforcerRep. Rahm Emanuel

JohnRyskampNovember 8th, 2008 at 12:11 pm

Both Obama and Biden have big Rezko problems. Google Biden and Cari. Cari is already cooperating. This is one big huge mafia takeover of the White HOuse.’Member when I said Obama is the Manchurian Candidate? Gee, I was right. Now you have a certifiable hyena in the White House.

MarkNovember 8th, 2008 at 11:52 am

In the political realm if I’d have to pick out just one person that I trusted (without verifying) I’d have to say that it would be Phillips.

GuestNovember 8th, 2008 at 12:54 pm

Great link – I loved this gem from Phillips:”Because what they want to do with the money and seemingly it’s okay by a lot of the people involved is use it for bonuses, for dividends, for sitting around so they feel comfortable, for mergers. It’s mind boggling. They created a panic psychology, which has taken a lot of people’s 401(k)’s and savings accounts and pension opportunities and pointed them right toward the toilet. And now they got their bailout, scaring everybody to death, and what do they want to do with it? Nothing.”

ORNovember 8th, 2008 at 8:14 pm

Thanks!”And I believe if Bill Clinton hadn’t had a zipper problem, the Democrats would have had it for three terms. But at this point I think what you’ve got is a troubled enough set of circumstances for the United States, economically and globally, that people in the White House are not going to be able to make enough of a stalwart rallying impression to set up another supremacy like you got out of 1860 with the Civil War or 1896 or 1932. I think they’re gone. I think the roots of political parties are more tenuous now. And nobody will have that sort of supremacy”

PeteCANovember 8th, 2008 at 10:58 am

A couple of points worth noting in Chris Puplava’s latest article here: the way – for those readers who want to understand the economy the long-term trends plotted in articles by Mr Puplava are often very helpful. Other services are also availabel that show financial and economic data in long-term trends, but these usually require some sort of subscription. Mr Puplava is kind enough to share some of his data for free.First, note the chart showing personal consumer spending – which shows a direct trend towards negative numbers. This chart is slightly out of date, and the data for Sep 2008 confirm that the consumer spending numbers are headed into negative territory.But the real eye openers in this article are Figures 9 & 1o which show the trends in freight indexes for global shipments. Both sea freight and air freight are plummeting, showing a rapid decline in orders on a global basis. The drops are so big – that frankly it’s pretty scary. No wonder that world leaders like Mr Sarkozy in France are panicking.PeteCA

GuestNovember 8th, 2008 at 11:51 am

From NakedCapitalismSaturday, November 8, 2008The Black Hole Gets Bigger: AIG Back for Yet Another BailoutThe Financial Times reports that AIG is up to its old tricks, back again to the trough for more money. Christmas The Iceland credit default swaps settlement is coming soon, you to article

GuestNovember 8th, 2008 at 11:55 am

and this article as well”China may be heading for a severe economic slowdown”The dreary forecast comes from Eric Fishwick, chief economist at CLSA, an Asia-focused private equity firm. His reports in particular contends that the Chinese cannot possibly meet its growth projections for next year.One does not cross the officialdom in China casually. That suggests that either 1) CLSA is quite confident they won’t be making any investments in China for a while, and can afford to annoy the powers that be by building credibility with their non-Chinese audience; 2) it is an open secret how bad things are likely to get so that the CLSA call is no revelation if you are plugged in; and/or 3) CSLA is a sufficiently small player that they can risk making a gutsy call (they aren’t high profile enough to merit lasting anger).From the Time Online in “Respected analyst Eric Fishwick says that China may be heading for a severe economic slowdown”:link to article

PeteCANovember 8th, 2008 at 3:22 pm

Well, the OPEC countries have seen their stock markets go down. But let’s not kid ourselves. They’re still sitting on the world’s oil supply – and they can boost oil prices if they cut production rates. They have still got the rest of the globe over a barrel.PeteCA

MarkNovember 8th, 2008 at 5:13 pm

Yes! This is why (quite some time back) I’d stated that with the exception of Russia BRIC was dead.It all comes down to physical reality- resources!

AfANovember 8th, 2008 at 1:43 pm

“Octavio, history is based on facts not suppositions”Octavio, lesson #2; future is also based on facts not suppositions.To answer this question, probably we need to confront two … philosophies, school of thoughts, or even two realities. In physics, they are quantum mechanics and relativity theory. In probability, they are Gaussian distribution and power law. Between Euclidian geometry and fractal geometry, between smooth and erratic historical process, between the view that history is shaped by unknown average people and that it is shaped by few influential men and events, between Benoit Mandelbrot and his doctoral student Eugene Fama, between random walk and auto-correlation, between systems theory and chaos theory…Humanity is still looking for that “Universal Theory” that would resolve Zeno’s Arrow Paradox.Why I am saying this? If you take something similar to quantum mechanics and apply it to real life, then you can very well “speculate” about any set of scenarios/ situations (no matter if they are in the past or the future). “What if” questions make perfect sense, if we want to understand our past or explore our future. However, if you follow a more “relativist” thinking, questions are irrelevant about both past and future. Even probability of an event occurring is meaningless because, for any event at any point in time, there are only two discrete possibilities; occur/not occur; 0 and 1. Exploring what is in between is an intellectual endeavor that humans cannot live up to, they can only delude themselves they can master. How could anyone say what would happen if Al Gore won? Would it make anything any different? Impossible, because there is only one reality and only one dimension. Possible because there are many.One more thing. The personal opinion I have, contrarily to what many could believe, and why many would reject one of these philosophies for accommodation (convenience) rather than commodity (usefulness)*, is that they are both random, and deterministic at the same time, the only difference is the level of each. In quantum mechanics (and their equivalents in other fields), the processes (causality) is well understood and deterministic, but the actual outcome is chaotic and unpredictable (some call it arbitrary/random, but I don’t like those words). In relativity theory (and its equivalents) the processes are not well understood, almost unpredictable, yet the final outcome is stable and well known.*Specifically, many atheists embraced the quantum mechanics thinking because they thought it refutes destiny because it proves randomness in the world. Similarly, many theologians embraced the global relativity because they thought it refutes randomness because it proves destiny.My opinion? Truth has many faces, and I’m not sure we ever find that “Universal Theory”. The smart is the one who knows when to use what.Sorry for the OT.

OuterBeltwayNovember 9th, 2008 at 5:46 am

AfA:I am writing a paper on “wealth” – what it is, where it comes from, and the role it plays in healthy economies. I don’t want to publish it yet. I would like for you to read it and comment upon it, if you would. It’s about 3 pages, and there’s no rush on response. If you’re willing, pls drop me a line at outerbeltway at yahoo dot com.Thanks in advance!OB

Octavio RichettaNovember 9th, 2008 at 6:06 am

Once the future materializes the facts that unfold are indistinguishable from a deterministic sequence. Before the fact, the future involves uncertainty; uncertainty involves risk; risk can be gauged somehow via a probabilistic assessment of how likely each possible outcome is, but you are right, only one outcome materializes so it would appear that the future is deterministic but it is not. We do have the power of making choices and choices influence outcomes. Suppose you have a loaded coin (probability of heads is 0.6, tails, 0.4); now consider the following game, heads you win 10 bucks, tails you loose 10 bucks. The odds are in your favor, the expected win per game is 0.6*10-0.4*10=$1; but every-time you play the game you either win 10 or loose 10. If you play this game a very large number of times, you will break the house. So in the context of “games” that repeat themselves many times and the cost of loosing is not fatal, probabilities (if you assess them correctly) are VERY RELEVANT. But if are facing a game you only play once and the cost of loosing is high; then, knowing the probabilities is great but not the only consideration one must take.Consider space travel; a bunch of rich guys are now into the hobby of tourism in space which is a lot riskier than flying in a commercial jetliner. The odds of dying in an space mission are in the order if 1 in a 100, the odds of dying in a commercial jetliner are in the order of 1 in a million. I fly commercial jetliners but no way I would venture into space until it is safer.Then, there is the problem of getting the probabilities wrong. For phenomena that repeat themselves a lot of times, the probabilities can be derived from historical data. That is how we know about the odds of dying in a commercial jetliner. But if you get a drunken pilot, the odds of dying in that commercial jetliner change significantly. For rare events it is even harder. How do you assess the probability that Hoover dam will break and flood Vegas within the next 50 years? The theory of rare events, assessing probabilities for rare events is very very challenging. This is what got LTCM broke the fall of 98. Their models considered that the probability of interest rates diverging in europe when the Euro was coming was expremelly low and it was not, and even if the probability was low, the low probability event materialzed interest rates in europe did diverge and the arbetrage game they were playing got the broke. So when the stakes are high, you must be extra careful. Leaving low probability events out of you models, the so called tail risks that El-Erian talks about so much, is stupid.THE BIG PROBLEM with using probabilities for decision making in life events is that what you see in the time line is only one sample path, either you get it or you don’t. In life you get to play the game only once soo you have to take probabilities with a grain of salt. However, in life, there are smaller things that one does many times and for those, considering probabilities is important. I will give you several examples:1. Driving without a seat-belt. If you forget to use the seat-belt once, it is highly unlikely that you will get involved in a traffic accident and die because you were not wearing your seat-belt. But if you always drive without a seat-belt, and you ever get involved in a traffic accident (the probability in a lifetime is significant) you run a very high risk of getting injuries you could have avoided by using a seat-belt.2. Going to the casino. If you go to the casino once, you may even come out winning despite the fact that the odds are against you. But if you are a sistematic gampler, the casino will clean you out.So in the case of Clinton and his affair with Monica; the guy was really stupid because getting caught had an extremely high price, and on top of that, the probability of it being caught where high due to the “romantic” nature of the relationship with a girl who didn’t make a living out of it. It took a lot more partying for Spitzer to get caught as he was playing the game with call girls. But in either case, even if the probabilities of getting caught are low, the price of loosing the game is so high that playing such games is utterly stupid!

datadaveNovember 8th, 2008 at 2:09 pm

This is dire news. I just registered here knowing of Roubini’s prescient and dareing honesty. For a long time I thought this would happen….and if blame should be thrown around…I put the late President Reagan and his ‘revolution’ at the top of the list. But besides Republicans, plenty of Democrats share blame esp. Bill Clinton’s Treasury Secretaries Rubin and Summers. Larry Summers is top of the picks for Treasury Sec for Obama. He at least seems to finally get the picture: it’s not merely subprime mortgages at Fannie Mae et al that are the cause of this downturn…but it’s system wide failure of middle class incomes faoling to to meet credit demands. Suffusing the credit bubble with yet more credit (supply side) isn’t enough.Although not a Marxist, I suggest that the concentration of ‘kapital’ and the squeezing of the middle class in the last decades is a much more serious cause of system failure. Just growing the innovation of Finance and merely giving more credit to a declining income majority of people is at fault…not some Democrats overly protective of GSE Fanny Mae which is now Republican boilerplate reasoning which the public will be subjected to over and over again to pillory Obama and the Democrats. (supply side capitalization has been the dominate religion.)Everyone now in the middle class sees the precipace and they are stopping consuming. Everyone is for themselves and their family stocking up savings and fearful of the inevitable lowering of wages, income, loss of business. I like many will be esp. hard hit as I am self employed and late middle aged. Jobs with a living wage are not available and I will not be elgible for unemployment. Only a windfall keeps me secure for a few years and then what? (And I am better off than 50 percent of the Americans). I mention myself as I feel like ‘Everyman’, a typical average American.Look in the yellow pages and see many more small businesses than only a couple of years ago and remembered my venturing into similar self employment is like many…more of a “push” than a “pull”. Many people emigrated from employment to self employment as the major corporations have been so strigent in job and wage cuts ever since Reagan….small business was the only place many of us could go. And we small businesspeople, usually with employment of less than 10 people per business have been the life spring of employment for the USA. Now, I see my friends in retail, food, construction, computers, All seeing the same stark reality: Income is going down, down.Larry Summers or someone in treasury needs to Get Real: a mere 300 billion stimulus will barely make a dent in this onslot. The NEW, New Deal will need massive intrusion into the economy to keep working the hugely growing human detrius that is coming down the pike.Perhaps this be Revenge for the Shock Therapy that we encouraged in the former USSR in the ’90s. Shameful though that Obama is giving the same Harvard Boys involved in that another Retread moment. One consolation though is that they may have learned something from their past failures.

GuestNovember 8th, 2008 at 3:12 pm

The media is a huge beneficiary of the elections. The longer the elections are, and the more spirited the competition, then the more money the television networks, major newspaper chains, radio, etcetera, collect. The money raised (you say $5.9 billion) goes straight to the media and public relations people (some to travel,staff, etcetera), but most of it is just a present to the media.On the other hand, in the chip industry, the beneficiaries are the producers — growers, agribusiness (fertilizer, machinery, research), shippers, packers, processors, packagers, marketers, retailers…Britain, I believe, confines its major political campaigns to three weeks: wouldn’t that be a tremendous savings for America? It’s one thing if that money were going to make the media more useful: but it’s another if it merely gives the media monopoly more power to clip the political campaigns the next time around.

Brother, can you spare some change.November 8th, 2008 at 10:12 pm

Furthermore, potato chips, unlike elections, do not leave a bad taste in your mouth.

GuestNovember 8th, 2008 at 2:29 pm

With the appointment of Rahm Emanuel to the position of Chief of Staff, referred to as “the most powerful position in an administration second only to the President,” President-Elect Obama is, in my opinion, opening himself up to criticism concerning the Middle East peace process. Many have said that the key to better relations with many nations of the world is get the Palestinian question settled as quickly as possible. Prior to the George W. Bush administration, American presidents have conscientiously tried to keep the United States in a position of honest brokerage between Israel and the Palestinians.Presidents Carter, George H.W. Bush and Clinton, for example, took extra care in trying to keep the U.S. as neutral as possible during negotiations. President George W. Bush threw that policy to the wind, coming down strong on the side of Israel.My worry is that President-Elect Obama’s credentials for this question could possibly be weakened because of his pro-Israel advisers. Emanuel, who is Jewish, has worked for Israel’s causes, holds joint U.S. Israeli citizenship and his father was a fighter in the Israeli underground. The thread linking Senator Obama to Rahm Emanuel is David Axelrod, Obama’s campaign manager and top strategist, and a close friend of fellow Chicagoan Emanuel. Axelrod, also Jewish, and a signer of the ketubah (Jewish marriage contract) at Emanuel’s wedding, has just now been named to the powerful position of Senior Adviser in the Obama White House.Barack Obama’s extremely strong speech supporting Israel at the American Israel Public Affair Committee (AIPAC) meeting during the campaign was a surprise to many of his supporters. Emanuel accompanied Obama to a meeting of AIPAC’s executive board just after the Illinois senator had addressed the pro-Israel lobby’s conference last June

GuestNovember 8th, 2008 at 6:10 pm

The post of White House chief of staff has often been referred to as “gate keeper” and past holders of the post have even prohibited cabinet secretaries from having access to the president.The chief of staff is the primary point man on legislation and can be responsible for all hiring and firing for White House staff.Rahm Emanuel is a U.S. citizen and an Israeli citizen. Is it anti-Semitic to suggest that the ENTIRE world sees this as a compromise in U.S. neutrality in the Middle East?

GuestNovember 8th, 2008 at 8:58 pm

What’s even more amazing is how all 4 candidates would praise the virtues of Zionism in various speeches. None of these candidates are stupid they all knew the way to the White House. I mean come on how does Palin some chick from Alaska have a Israli flag front and center on her desk in Alaska. The butt kissing by all the candidates for the Zionists movement was sickening.Zionist love to hide behind the Jewish name plate and cry anti-semitism when questioned. A Zionist is not a Jew and a Jew is not a Zionist. Judism is a religion and Zionism threatens to get us all killed in world wide nuclear destruction for the sake of some stupid land that they stole. Incredibly selfish and self-destructive and we all have to pay the price.

GuestNovember 8th, 2008 at 9:05 pm

What’s really sick is that the central bankers set up Israel and zionism and attached it to Judism as some holy cause and battle cry for the purpose of maintaining indefinite instability in the region to gain access and control of cheap oil reserves. Funny how the middle east and Africa are always unstable and having wars while the corporate elite steal their resources.

GuestNovember 8th, 2008 at 7:24 pm

Speaking of anti-Semitism, Alexander Cockburn says in his “Hail to the Chief of Staff,” that Rahm Emanuel is “a super-Likudnik hawk, whose father was in the fascist Irgun in the late Forties, responsible for cold-blooded massacres of Palestinians.”Says Cockburn: “Dad’s unreconstructed ethnic outlook has been memorably embodied in his recent remark to the “Ma’ariv” newspaper that ‘Obviously he [Rahm] will influence the president to be pro-Israel… Why wouldn’t he be [influential]? What is he, an Arab? He’s not going to clean the floors of the White House.’”In that Arabs are Semites, (i.e., descendants of Abraham and Hagar’s son, Ishmael), Dad’s remark, it seems fair to say, can be classified “anti-Semitic.”

GuestNovember 8th, 2008 at 8:25 pm

There was nothing anti-semitic in that statement, it’s just largely true. I don’t blame all Jews for the greed of a just a few that was your assumption. There is however something to be said about a possibly more permissable attitude within the modern day Jewish culture with regard to the morality of usury and excessive property rights with in a society. This is of course is not true for all Jews and also not exlusive to Jews but still worth noting given their heavy influence and level of control in the banking industry. I have many friends and spiritual mentors who are Jews and in that regard actually I aspire to be a Jew. However modern day Jewish culture seems to be lacking in spiritual awareness, this is just an anecdotal observation but worth noting as we further examine our banking failures.note: Marx was a Jew and he’s my hero and so was Christ another good guy.

GSMNovember 8th, 2008 at 11:49 pm

Obama is a FIGUREHEAD, pure and simple. Like most US presidents.If he does not choos Volcker for Treasury then don’t expect the change you were promised. It will all be the same- repackaged like a pig with new lipstick.But who will have the gut’s to stand up and say they were ripped off? Or worse- conned?

GuestNovember 8th, 2008 at 6:22 pm

This excerpt from a Nov. 7 AP article, “Obama’s pick for chief of staff known as ‘Rahmbo,’” says Emanuel was with Freddie Mac during its height of malfeasance:Midway through Clinton’s second term, Emanuel left for Chicago to work in investment banking. The firm he joined was soon sold and Emanuel made millions, giving him the financial security to get back into politics.Clinton appointed Emanuel to mortgage giant Freddie Mac’s board, a post that paid him at least $292,774 in director’s fees, according to a financial disclosure report Emanuel filed in 2002 when he ran for Congress. Emanuel served on the board when Freddie Mac misstated its earnings by $5 billion for 2000-2002. When the problem was uncovered in 2003, three top Freddie Mac executives were forced out.He was vice chairman of the Chicago Housing Authority and also served on the boards of the Chicago Mercantile Exchange, and Slim-Fast, whose founder, S. Daniel Abraham, is a major Democratic donor.His first financial disclosure statement as a House member showed that he had about $9.7 million in earned income in the previous year.When he was tapped to oversee the 2006 congressional campaign effort, Emanuel led a record fundraising effort, bringing in far more money than four years earlier. The single biggest source of money was other members of Congress, which irritated some members who faced fierce pressure to contribute…

JLCNovember 9th, 2008 at 12:10 am

Wow. I knew he was a savvy political operative, but I didn’t know he had this much baggage.But then again, how would anyone find a politician who is not somehow beholden to the FIRE complex (Finance, Insurance, Real Estate)?

MedicNovember 8th, 2008 at 2:46 pm

So I’m behind on my reading this week, but let me pose this for thought (and appologize if it has already been discussed here).With the auto makers and thousands of other businesses facing huge costs for healthcare of employees, why is universal health not on their list of wishes from the Fed gov’t?If GM is losing money because it has to pay pensions and healthcare costs for millions of former employees, why not nationalize healthcare and take that cost away?Before anyone jumps up and down and has a stroke about me being a commie, just look at what every other industrialized nation does: they provide at least a minimum of coverage for all citizens. This is not the cadilac of policies, it is basic coverage. When you see your doctor routinely, it is covered. When you require prescription meds, they are massively discounted or you have only a small co-pay or they are free. If you require an ER visit, it is covered if you are admitted. If you are not admitted or are wasting resources (because you refuse to see your doc) you get a co-pay.This type of basic coverage can then be augmented with supplimental insurance you pay for out of your own pocket if you wish to have more or better coverage.Of course, this does not solve every issue, but before you guys jump on me, let me assure you that I have worked in medicine for more than 15 years. Trust me when I tell you that I understand the system. The one we have is broken – badly. It needs to be fixed and limited resources need to be spent more wisely than they are currently.None of this should be done alone however. There needs to be reform of the laws that govern malpractice. No provider should be ordering thousands of dollars worth of tests just because they are concerned they might get sued for not doing so. This is a science and an art. We can and do make mistakes – but the enormous costs associated with tests ordered from a purely defensive posture is astronomical.As an additioanl step, there should also be a huge push to educate new medical staff and providers – not just physicians, but nurses, PA’s, respiratory techs, lab techs, radiology staff, etc. We are so short-handed that we are already overwhelmed much of the time. We are not getting younger as a society and as time moves forward, we will need much more help. Of course, if we don’t change the present system, it will become much worse just as we need it to become better.Where are the business leaders and owners? Come on; this will be a help to all of you. How can we compete in an international marketplace when all our competetors have the advantage of lower labor costs because their societies provide this benefit?Don’t just think about this in terms of capitalism and free markets vs socialism. Last I checked, we were not the only capitalistic nation on the planet. It seems to me that Germany, the UK, Japan and many other of our competitors seem to have the ability for their citizens to better themselves with hard work, make plenty of money, and thrive even when universal health is provided by the government.Oh and to pay for this, how about a 1-2% tax on something everyone needs so that no one is exempt of payment. Tax food. All food. From a restaurant or grocery store, doesn’t matter. That way, the workers don’t pay alone via payroll taxes and no one gets something without paying for some portion of it.What do you think?

PeteCANovember 8th, 2008 at 3:28 pm

MedicYou raise legitimate questions.As you know, we need a major reform of our whole health care system. At this stage – I don’t think small adjustments are even close to solving the problem. We are going to have to redically re-think how we deliver medical care in this country. It will affect the insurance companies and the trial lawyers, as well as hospitals and health care professionals. The issue of health care reform is so complex, and so emotional, that it’s a major challenge just to tackle this goal. Obama almost needs to appoint a special health care czar to go after the issue. But we’ll see what happens.PeteCA

MedicNovember 8th, 2008 at 4:31 pm

Pete,I believe completely that the insurance industry will crumble and the government will be forced to step in and save the healthcare system. They will need to assure that healthcare is available to citizens at a time when the majority of the population is elderly or close to it.Insurance companies will fight through this to reduce payouts to providers, which will only weaken the rest of us. To hell with them – they had their chance to make this system better and they used it to line their own pockets. They can go away for all I care.We need to rebuild this system and make it:efficienteffectivefairavailableaffordableThis should be a priority and its effects will benefit not only healthcare, but most busisnesses – insurance companies excluded – will see a benefit. Especially if we don’t ask employers to fund it alone. We will all benefit so we should all pay. Again, a tax on all foods would make sure no one was exempt of paying in.The answers exist – just not here. Taiwan did this in the mid 1990’s. They went from a system like ours where only 60% of the population had coverage and went to 98% coverage with a 30% reduction in costs. How does this happen? Reasonable people built it and lobbyists were not among them.

GuestNovember 8th, 2008 at 10:04 pm

I respect both of you guys very much. Medic, the qualities you seek in a medical system: efficiency, etc. would never be realized through a government run program. There are certainly many problems with our system. I think they are only exacerbated by government involvement in the system. We all have had bad experiences with it. The stories we could tell are endless. But I don’t think we could get anything close to what we get here in any other country. People complain about the costs, but I could look at anybody’s budget and find that they spend as much or more on entertainment as they do on their own heathcare.

MedicNovember 9th, 2008 at 6:22 am

Guest -I would argue that the government runs the VA system and does it in a much more cost efficient way than the private system runs theirs. The VA has a fixed budget every year that they have to live within. To reduce costs, they have regionalized and concentrated services in specific ares of the country. As an example, in the VA hospital I used to work in, the surgical services were very limited – they did not do large or complicated surgeries like cardiac bypasses. Those are all done in the Boston area in a single facility instead of having all VA’s in the Northeast do it.Why? The result is that fewer staff are needed because they don’t duplicate efforts in other facilities. The other huge benefit is that the staffs who do the surgeries get very good by doing so many. There is a direct correlation between numbers and outcomes. The more you do, the better you are.The system is very efficient and it’s goal is to do the best it can for as many as possible. Sure, there will always be patients who are unhappy – that’s life. Plenty of people will never be happy and too many are not willing to change their own behavior to improve heath. That we can’t fix.But to put off an overhaul of the healthcare system because the government couldn’t possibly be efficient is a poor argument. As I am fond of saying, government is not the problem – BAD government is the problem. We just need to hold those in charge accountable.

GuestNovember 9th, 2008 at 3:41 pm

Medic,With all due respect the VA is the one of the poorest run HEALTHcare facilities in the country, possibly the world. Sure they stay within budget and sure they are streamlined, but good luck getting treated before you die. My father uses the VA, he tore up his knee 9 months ago, so far they haven’t been able to schedule him for a follow up after the initial emergency exam saying he tore both ligaments, so he went out and bought himself a brace, and taked vicadin several times a day,that’s just 1 of several stories I could tell you about that hell hole.

MedicNovember 9th, 2008 at 5:01 pm

@ Guest on 2008-11-09 15:41:51I don’t know which particular VA hospital you are dealing with, but in my area they do a very good job considering what they are given for funding. If an operation is not emergent (like a knee ligament repair) people wait because they can. There are not enough surgeons or open beds in the system to treat every patient right now. Waits are a part of life – we have just become too accustomed to the “drive thru” mentality of getting what we want right now. Remember, there is a difference between need and want.That having been said – I do hope your father does well. If you need to, call his primary care doc and get him in to be evaluated again. He really should advocate for himself as much as possible if he feels things are changing or getting worse. Communication is the key to effective care.

HubbsNovember 8th, 2008 at 4:23 pm

From very interesting comment re: deflation vs inflationLetter Re: Deflation Possibly Followed by Mass Inflation?Jim,I believe that we are in for deflation, not inflation. A simple error that most people make when considering this topic is language related: When discussing actions of the Fed they talk about ‘printing’ money. Well, the Fed (actually the Treasury) hardly ‘prints’ any money at all. In Zimbabwe they print money. Lots of money with lots of zeroes. Here, they just increase the number of zeroes in a computer. The difference is profound. When there is a lot of currency floating around then people use it to buy stuff. More currency with higher values means more currency chasing the same amount of goods and that means inflation. The currency does not go away. If fewer goods are on the market, the same amount of currency is there chasing it and prices go up. The currency doesn’t get destroyed.In the US the amount of credit used is orders of magnitude more than the amount of currency in circulation. Credit can be destroyed. If the value of your house goes down by $100.000, that $100,000 is just gone. It doesn’t exist any more. It is not in the money supply. This is deflationary. Further, if the bank repossesses your house and then sells it to someone else, the difference in sale price has an effect on the banks ability to lend. If they lose $100,000 on your house then they have effectively lost the ability to lend $1 Million because of the fractional reserve system. That $1 Million is not in the money supply any longer. That is deflation. And, of course, the amount of money that will vanish in exactly the same way as part of the derivative mess is orders of magnitude larger than the amount to be lost due to housing.As can be seen by looking at virtually anything in the last few years (gas, oil, corn, gold, wheat, houses, cars, the Dow, etc.), prices for everything have gone up while there was credit in the system and banks wanted to lend. Now there is dwindling credit, severe unwillingness to lend, and a Fed that is contracting the ‘money’ supply. Value/dollars/money is vanishing at an unprecedented rate. Prices on everything are coming down hard. This is deflation. Your dollars are becoming more valuable, not less. Hold on to cash.I know this is counterintuitive, and I am an abject Austrian regarding economics. But, the majority of people (including many Austrians) are fooled by the difference between an expansion of cash and an expansion of credit. Weimar Germany, Argentina, Mexico, Zimbabwe – these places all created lots of currency and had rampant inflation. We cannot use that as a model. In the Great Depression we had deflation because the Fed contracted the money supply. This is well documented, as are the effects. This is the model we need to use now. The effects this time around will be much worse, they have the same genesis and the same result. People will need/want/hoard cash.Now, once we are near the bottom of a deflationary cycle (I predict 4-to-5 years from now), who knows what the government will do? At that time they may crank up the printing presses because everyone will want dollars and no one will trust the banks. Then all bets are off. Then we could have inflation. But for now, your dollars are getting more valuable not less. Get what you need in order to get through hard times, but, short of a societal collapse a la your novel [“Patriots”].Some FRNs in a fireproof box in your gun safe (and not in some bank that may fail) are your best bet. – Michael W.

GuestNovember 8th, 2008 at 7:14 pm

Hubbs and Jim,Some Austrian Economists certainly consider credit as a vital part of the money supply. The last several years, we’ve had a huge expansion in credit, which was inflationary (visible in home prices and stock prices). You can buy a burger on credit and consume it, then it is as good as money. Now, we have a huge contraction in credit, which is deflationary (again, visible in home prices and stock prices). The fed is now trying to expand the true money supply, to replace the loss of credit, which is causing the deflation. The difference between the computer issuance of money and the physical printing of money, just makes it easier to absorb/withdraw in a shorter period of time (ie. the fed has better control of true money supply). But, don’t get me wrong – I don’t think the fed can expand money as fast as credit is contracting, because it is VERY difficult to measure the supply of credit. True credit is a function of the total amount of lending institutions willingness to lend and (not or) the total consuming population’s willing to borrow (nearly impossible to measure). Thus, the HUGELY important issue of timing the withdrawal of true money in the system exactly when the system heals (a la the consuming populations return of confidence) is almost surely to be wrong (and probably late). If the fed is late, the result will be inflation. If the fed is early, the result will be continued deflation and a thwarted recovery. So says at least one amatuer (student of) AE.

GuestNovember 8th, 2008 at 9:28 pm

You haven’t viewed the first-day events of the post-Obama victory unless you read London Banker’s pulls-no-punches analysis.

PeterJBNovember 8th, 2008 at 8:22 pm

The extraordinary lengths that fascists, er, bankers go to in order to fleece it victims er, clients:My friend has an account with an Australian Bank which he had bled dry and had not got around to closing it formally; during a busy period at work he got a call from one of the “slicks” who told him in rapid bursts that he was from the bank and would he…. blah, blah, blah whereupon my friend acknowledged he knew he was from the banks and just said okay, okay – assuming this guy wanted him to put a few lousy dollars in the account and hung up:WRONG!A week later he get a whole swag of letters from this Bank which includes an application form for an insurance policy – an insurance policy – a letter thanking him for his application to purchase an insurance policy – and a bank statement showing that:1. The deduction in full for the cost of the insurance policy where the amount took the account into debit,2. A huge charge (deduction) for an overdraft taking the account further into debt (so as to cover the cost of the insurance premium) and,3. A letter of demand from the Bank with a threat of legal action if the account is not brought into funds.Are telephones Weapons of Mass Destruction?As I have commented many times here before, the Bankers want your money – all of it – and the government will help them get it as they also get a share – when taxation and then GST and then inflation doesn’t get them enough – next comes the straight-arming leaving the question as to when do we expect them to kick down the doors of our homes?Fascism; the next step and then onto communism before the final ensuing depression. How history repeats itself ad nauseum when government gets put in the hands of the incompetent and stupid. Oh, Yes, G20 meets this weekHo hum

GuestNovember 9th, 2008 at 4:46 am

Not sure about Austria, but in Germany you can cancel any contract that you made over the internet or telephone within two weeks.

PeterJBNovember 8th, 2008 at 9:44 pm

The worst advice for Obama that I have seen yet:”Listen to your economists. “ guy us a nut case and probably a friend er, colleague of Krugman’s to boot.Ho hum

GuestNovember 8th, 2008 at 10:18 pm

Wealth creation comes from the minds of human kind, not from the printing presses of the fed. After college, a doctorate and post doc program, retiring at 49 , and starting my education over again, I feel I know very little. But this I do know. Pumping up the money supply a few more trillion on dollars doesn’t give us another Roubini or Setser. It merely places immense wealth in the paws of a handful of greedy bastards. My God! These are the same bastards who screamed the sky was falling in with weapons on mass destruction in Iraq.

mozzareNovember 8th, 2008 at 10:40 pm

Pumping up the money supply a few more trillion on dollars doesn’t give us another Roubini or Setser. It merely places immense wealth in the paws of a handful of greedy bastards- So are you saying that the velocity of inflation is more beneficial to greedy bastards at the cost of non greedy bastards?

PeterJBNovember 8th, 2008 at 10:43 pm

Maybe it’s that “God Particle cum gene” stuff that has run amok? Wine from water and all that stuff…”Oh Lordy…”Ho hum

GuestNovember 8th, 2008 at 10:54 pm

With oil at $60 and China contracting at an alarming rate and forced to spend dollars at home to prop up their own economy, where will the foreign dollars come from to buy our Treasuries? Won’t we be forced to print “unsterilized” dollars and cause runaway inflation? In addition, isn’t deflation the worst of all worlds for the Fed and will avoid it at all costs?

RobNovember 9th, 2008 at 3:46 am

If China decides to spend their US$ at home, it will cause a collapse of the Yuan / Dollar exchange rate. This will effectively leave their whole export sector uncompetitive and useless.

GuestNovember 8th, 2008 at 11:50 pm

“Forget the Honeymoon” by Justin RaimondoWhen I hear talk of a “honeymoon” for the President-elect – to last as long as six months, by some accounts – I think: “Fine. You lay off, and I’ll do the same.” But oh no, it doesn’t work that way. Obama has already started in on us, and he hasn’t even taken the oath of office yet.I’m talking about his appointments, starting with Rahm Emanuel as his chief of staff.Hey, I thought we were gong to be treated to a bipartisan approach by the Obama administration, that he was going to “reach across the aisle” – what happened to that? Señor Emanuel is known as a street-fightin’ Democrat, and that’s understating it. A Rolling Stone profile of Emanuel had this to say:”There’s the story of how, the night after Clinton was elected, Emanuel was so angry at the president’s enemies that he stood up at a celebratory dinner with colleagues from the campaign, grabbed a steak knife and began rattling off a list of betrayers, shouting ‘Dead! . . . Dead! . . . Dead!’ and plunging the knife into the table after every name. ‘When he was done, the table looked like a lunar landscape,’ one campaign veteran recalls. ‘It was like something out of The Godfather.'”He’s mean, he’s ultra-partisan, and he’s a fully-paid up member in good standing of the War Party: during the Democratic primaries in 2006, when Emanuel headed up the Dems’ congressional operation, he backed pro-war candidates over antiwar Democrats every time. As Bill Safire put it on “Meet the Press” just before Tim Russert died:”What about Rahm Emanuel [for Vice President], the most powerful voice in the House of Representatives that agrees with Hillary Clinton on foreign affairs? He’s a hawk. And although he’s a rootin’ tootin’ liberal on domestic affairs, he is a hawk on foreign affairs. I was at the – a roast for him for Epilepsy Association, and Hillary Clinton was there, and I said, quite frankly, here you have the hawkish side of the Democratic Party. If they get together, the bumper sticker will read ‘Invade and bomb with Hillary and Rahm.'”When the House Democratic majority passed a military appropriations bill slated for Iraq, a clause that would have prohibited an attack on Iran without a vote in Congress was deleted at the instigation of Emanuel and House Speaker Nancy Pelosi.When Rep. John Murtha presaged the popular rebellion against the Iraq war by coming out against it in no uncertain terms, Emanuel urged Pelosi to refrain from endorsing his call for withdrawal, arguing that it would hurt the Democrats politically…Read the rest of the article

GuestNovember 9th, 2008 at 12:09 am

Anecdote from California / Americans Reducing Their TravelDirect comments from taxi drivers operating in Los Angeles and Sacramento today (Nov 8’th) …”People have cut back their business travel and personal travel substantially. Taxi drivers are having a hard time making it now. The typical taxi driver who was working 9 hours per day now must drive 14 hours a day to make the same money. Some drivers are getting very burned out – only seeing their families for a few hours each day, minimal sleep, then back on the road again.”Just something to think about.PeteCA

Octavio RichettaNovember 9th, 2008 at 6:07 am

To afa above on the future looking deterministic after the fact but being probabilistic before the fact:Once the future materializes the facts that unfold are indistinguishable from a deterministic sequence. Before the fact, the future involves uncertainty; uncertainty involves risk; risk can be gauged somehow via a probabilistic assessment of how likely each possible outcome is, but you are right, only one outcome materializes so it would appear that the future is deterministic but it is not. We do have the power of making choices and choices influence outcomes. Suppose you have a loaded coin (probability of heads is 0.6, tails, 0.4); now consider the following game, heads you win 10 bucks, tails you loose 10 bucks. The odds are in your favor, the expected win per game is 0.6*10-0.4*10=$1; but every-time you play the game you either win 10 or loose 10. If you play this game a very large number of times, you will break the house. So in the context of “games” that repeat themselves many times and the cost of loosing is not fatal, probabilities (if you assess them correctly) are VERY RELEVANT. But if are facing a game you only play once and the cost of loosing is high; then, knowing the probabilities is great but not the only consideration one must take.Consider space travel; a bunch of rich guys are now into the hobby of tourism in space which is a lot riskier than flying in a commercial jetliner. The odds of dying in an space mission are in the order if 1 in a 100, the odds of dying in a commercial jetliner are in the order of 1 in a million. I fly commercial jetliners but no way I would venture into space until it is safer.Then, there is the problem of getting the probabilities wrong. For phenomena that repeat themselves a lot of times, the probabilities can be derived from historical data. That is how we know about the odds of dying in a commercial jetliner. But if you get a drunken pilot, the odds of dying in that commercial jetliner change significantly. For rare events it is even harder. How do you assess the probability that Hoover dam will break and flood Vegas within the next 50 years? The theory of rare events, assessing probabilities for rare events is very very challenging. This is what got LTCM broke the fall of 98. Their models considered that the probability of interest rates diverging in europe when the Euro was coming was expremelly low and it was not, and even if the probability was low, the low probability event materialzed interest rates in europe did diverge and the arbetrage game they were playing got the broke. So when the stakes are high, you must be extra careful. Leaving low probability events out of you models, the so called tail risks that El-Erian talks about so much, is stupid.THE BIG PROBLEM with using probabilities for decision making in life events is that what you see in the time line is only one sample path, either you get it or you don’t. In life you get to play the game only once soo you have to take probabilities with a grain of salt. However, in life, there are smaller things that one does many times and for those, considering probabilities is important. I will give you several examples:1. Driving without a seat-belt. If you forget to use the seat-belt once, it is highly unlikely that you will get involved in a traffic accident and die because you were not wearing your seat-belt. But if you always drive without a seat-belt, and you ever get involved in a traffic accident (the probability in a lifetime is significant) you run a very high risk of getting injuries you could have avoided by using a seat-belt.2. Going to the casino. If you go to the casino once, you may even come out winning despite the fact that the odds are against you. But if you are a sistematic gampler, the casino will clean you out.So in the case of Clinton and his affair with Monica; the guy was really stupid because getting caught had an extremely high price, and on top of that, the probability of it being caught where high due to the “romantic” nature of the relationship with a girl who didn’t make a living out of it. It took a lot more partying for Spitzer to get caught as he was playing the game with call girls. But in either case, even if the probabilities of getting caught are low, the price of loosing the game is so high that playing such games is utterly stupid!

GuestNovember 9th, 2008 at 7:32 am

But probability is also a measure of belief. Events in the past are not so clear-cut either. This is the reason why historians disagree, economists disagree, and so on. Even if the historian was a totally rational person (unbiased), still there would be serious disagreement among historians. Also, if a coin was unbiased, and there is a 50-50 chance that heads or tails would occur, probability holds that as the number of trials get very large, the outcomes would tend to be equally distributed distributed between heads and tails. But nevertheless it is also an assumption that such an unbiased coin could ever exist, or even if it indeed was unbiased, as the trials go to infinity, such a distribution would hold (what would be the “nature” of infinity?). I mean fundamentally it is still a matter of belief, as the axioms of probability are found in basic human assumptions regarding the “essence” of events and the “essence” of coutcomes. A quantitative analysis ignores human assumptions in the quality of events. Also, there is no such thing as complete “independence” of events. The probability distribution of a fair coin above is based on this fundamental assumption that the trials are independent. Again a matter of belief. Descartes showed that the axioms of Mathematics aren’t a necceasy and sufficient truth with the evil joker example.For example, how could you say that the events were totally independent, as after the first time you flipped a coin, you held it again in your hands in a certain way, you flipped it again in a certain way, the coins motion can be traced to the way you flipped it, and its outcome can be traced to its motion. So, events weren’t completely independent, however there could be an argument that because of the limitations of the sensory experience of the person, the outcome wasn’t an act of volition, that he didn’t think that he made the coin biased by holding it and throwing it in a certain way, nor did he preconceive how that would effect the chances of how it came about, but it was nevertheless a result of his actions. This limitation makes us assume that the events were independent, the coin was unbiased, but everything, in actuality, did follow a natural order of events here, and the events, in a sense were, completely dependent. Only the forces that acted on the coin were unknown. As for instance, flip a coin in front of you. All the forces, if known, acting on the coin would predetermine its outcome, but “you” wouldn’t know that because of your “limitations”. Hence, you would nevertheless “assume” that the coin was a fair trial, and that it was an independent trial.Now this is how I understand free will also. Not that everything is totally deterministic, but it is deterministic to the point where we lack knowledge because of limitations of sensory experience. To the extent that we do, we have choice. The “degree” of control is the “ability” to control and therein lies choice, however everything else is deterministic, which we call “random” out of convenience.

GuestNovember 9th, 2008 at 6:42 am

Ron Paul is No Obama MamaPosted by Karen DeCoster at 09:51 PMRon Paul was interviewed by Alex Jones this week. He makes great points about the boldness and rhetoric of the Obama camp. He also points out that Obama is the chosen man of the establishment, and though he ran as a “man of the people,” he raised and spent a grotesque amount of money in his campaign. He mentions that Obama has been gunning for this power grab for a very long time. Ron talks about the plans for a world reserve currency, world regulations, and world government — meaning, a new monetary order. Remember way back when …… when people were making fun of those who opposed a New World Order because they understood where all of this hyper-centralization was taking us? Go into your closet and get out your tin foil hats, because they are going to be hip again.The global crisis was orchestrated in order to bring forth more socialism, intervention, and bondage. Now Obama, the establishment’s man, will use the financial crisis to take control over everything that is left somewhat free from government intervention. He will intensify and grow the Bush security state, military state, and police state. His main goals will be to take control of natural resources and money. This will be the purpose of the New World Establishment. Paul also suggested that “any escalation could be facilitated by false flag events such as Gulf of Tonkin style incidents.”As Ron Paul notes, McCain was selected as an “acceptable” backup man, should Barack Obama’s establishment-backed campaign fail. Barack Obama has been groomed to lead America into the New World Order. The fact that libertarians – even on this blog – once hailed Obama as a potential libertarian champion, is frightening.

MedicNovember 9th, 2008 at 7:12 am

Guest -What if this disaster was not the result of a major conspiracy? What if it was a result of greed and irresponsibility? What if the US is in trouble because it spent money it didn’t have on purposes that had no return on investment? What if unchecked and unregulated capitalism was part of the problem?No. You’re right. It’s most certainly a conspiracy by the socialists. Here’s to more fear mongering from the right. Hey, they need someone to blame instead of the ones they see in the mirror. Accepting responsibility is hard……blaming someone else for your failures is easy. For everything else, there’s Mastercard.

Average JaneNovember 9th, 2008 at 1:00 pm

Medic, I applaud your no-nonsense, common sense posts. Bless you a thousand times. And while I’m here, I wholeheartedly agree with your remarks about national health care. Your having been in the trenches, as it were, carries great weight.

MedicNovember 9th, 2008 at 3:02 pm

Sorry Guest – I am not a high-paid specialist who cleans up financially. I’m the one who deals with patients, families and the realities of life. I clean bedpans, start IV’s, give meds, do CPR – you name it. I spend all my time at work trying to help people – and I am grossly underpaid compared to almost anyone. But hey, you can feel superior if you wish – likely you won’t think well of us until one of us keeps you alive or relieves your pain or comforts you when your spouse dies suddenly.I’m not looking for much, but a little respect might be nice.

Average JaneNovember 9th, 2008 at 3:30 pm

The only ones making money off of health care are the health insurance CEOs, the pharma CEOs and the lobbyists. Medical professionals are too busy making enough money to pay their malpractice premiums. Really, my dear, you ought to pay a visit to your VA hospital or local nursing home and see what the “real” medical professionals do. And particularly you should visit rural America just to see how well these people are feeding off said “trough.”And BTW, Guest, perhaps you should get to know Medic a little better (read some of his earlier posts; he is a thoughtful person) before you make such a snap judgment.Medic, you said this much better than I per your post below, but I couldn’t let this go without ditto-ing your riposte. There is simply no excuse for ignorance in this brave new world.

Octavio RichettaNovember 9th, 2008 at 6:47 am

Re: Rahm EmanuelTo JohnnyRiskcamp and all other posters on this subject. Politics is otuside my area of expertise but I fail to see why the choice of RE for chief of stuff was such a bad choice. After, reading the Rolling Stones article in the link provided I came out thinking RE was an excellent choice for chief of staff (I admit I didn’t think too hard, this was my gut feeling after casual reading) .Try again, I am an open minded guy. Give me the evidence that makes me change my mind so that I also come to the conclusion that despite all his smarts Obama started on the worng foot.

lennyNovember 9th, 2008 at 7:56 am

his father is hard-core zionist …former irgun…rahm volunteered not for the u.s. army but the israeli army…in case you didn’t know, there’s a big problem in the u.s. regarding israeli spies…i’ll be watching to see if he’s granted a security clearance…or if he’s pushed aside……by the way, PIMCO total returns was good for my 401K last fall…so thanks for mentioning it… luckily i got out in time…moved into schwab money market…

GuestNovember 9th, 2008 at 10:37 am

I’ve admired your posts in the past, but was disappointed in this one. If you have time take a moment to review some of the things that have been said, specifically that Emanuel has been an Israeli citizen and served in the Israeli military, and most revealing, is his father’s comment to the “Ma’ariv” newspaper:“Obviously he [Rahm] will influence the president to be pro-Israel… Why wouldn’t he be [influential]? What is he, an Arab? He’s not going to clean the floors of the White House.’”How can the Obama White House present a neutral position for Middle Eastern foreign policy in light of this perceived bias?

ORNovember 9th, 2008 at 11:12 am

Hey, I am not well informed on the subject. That is why wanted to stir some discussion on the subject. OK, RE is not his father. I admire my old man but I am about a million light years from where he was and where he still is.So far, all I get is stereotype labels on the guy. Give me hard facts.

GuestNovember 9th, 2008 at 12:20 pm

An excerpt from the Rolling Stone article that foreshadows the approach Obama’s #1 may use a bipartisan approach to bring people together:

“Friends and enemies agree that the key to Emanuel’s success is his legendary intensity. There’s the story about the time he sent a rotting fish to a pollster who had angered him. There’s the story about how his right middle finger was blown off by a Syrian tank when he was in the Israeli army. And there’s the story of how, the night after Clinton was elected, Emanuel was so angry at the president’s enemies that he stood up at a celebratory dinner with colleagues from the campaign, grabbed a steak knife and began rattling off a list of betrayers, shouting “Dead! . . . Dead! . . . Dead!” and plunging the knife into the table after every name. “When he was done, the table looked like a lunar landscape,” one campaign veteran recalls. “It was like something out of The Godfather. But that’s Rahm for you.”Of the three stories, only the second is a myth

I’m not so sure that was what some of Obama’s supporters had in mind when they voted for “change”. Though it is consistent with tactics employed against his opposition during the primaries and the election. It’s too bad that the media was more interested in Palin’s wardrobe than Obama’s judgement and intentions.

JohnRyskampNovember 9th, 2008 at 12:41 pm

Israel, Schmisrael. Emanuel’s real problem is that he’s a card carrying member of the Combine. Let’s hope Fitzgerald has enough on him to indict him. He’s a dog, like the rest of Obama’s looter crew.That’s all they’re going to do: loot. I hope you’re not stupid and ignorant enough to think Obama is there to do anything but loot.Loot loot loot.

Octavio RichettaNovember 9th, 2008 at 7:07 am

Ouch! El-Erian, you little rascal, you got out just in time to look like a hero when in fact you left a big mess behind at Harvard. And now you write a book in which your asset allocation model includes not trivial amounts of the illiquid stuff that is breaking havoc at endowments and all over the world! Not happy with that, you now want to bring the same approach to the masses via PIMCO in the new “back box” product you recently featured in your website. Were are you gonna move to next? Return to Harvard? I guess East Coast-West Coast commuting must be lots of fun:-)On university endowments/hedge funds astronomical returns on the last few years, even though the theory (Yes, Afa, including probability sutff of which modern financial theory is full of; not of all it is useless) indicated their crash would eventually happen; I, with my meager 5-7% returns since 2000, sometimes a bit more when I got lucky, looked like a fool for quite a while.I must admit that seen them now come crashing down gives me a sense of satisfaction, in particular the fact that this god-like guy Swensen at Yale is getting plenty of egg in his face. And it is only starting. I see some of these endowments down as much as 50% in the no so distant future. It must be fun to play with OPM (other people’s money). If you win, you get a huge bonus, if you loose you get to leave with a huge severance package., NOVEMBER 10, 2008BARRON’S COVERCrash CourseBy ANDREW BARY | MORE ARTICLES BY AUTHORTHE GLOBAL BEAR MARKET HAS DEALT ONE OF THE BIGGEST BLOWS in decades to college and university endowments, prompting administrators across the country to cut budgets, freeze hiring and scale back ambitious building projects.It’s tough to gauge precisely the extent of the woes because most big universities haven’t released information on their endowment returns since June 30, the traditional end of the academic fiscal year. Based on anecdotal evidence, however, and the turmoil in financial markets, the numbers aren’t pretty.Endowment dollars have helped build impressive campuses at Harvard, top and right, and Princeton.The president of Amherst, a Massachusetts liberal-arts college, recently said its endowment is off about 25% since June 30, when it totaled $1.7 billion. Maine’s Colby College said its endowment has fallen by a similar amount since its peak a year ago. Wesleyan, in Middletown, Conn., is delaying the construction of a major science building and filling vacant positions only when necessary, to help cut $10 million to $15 million in expenses in the next few years. Cornell is freezing most hiring and delaying new projects.The three super-rich Ivies — Harvard, Yale and Princeton — also are getting pinched, although few will cry for them. They’ve been trend-setters over the past decade, generating superlative returns from an asset-allocation mix that looks nothing like what individuals typically maintain. These schools are light on U.S. stocks and bonds, and heavy on illiquid assets, such as private-equity, real-estate and commodity holdings, and hedge funds.Now these schools’ endowment managers ought to be considering more investments in stocks and bonds, as alternative assets have offered too little diversification and liquidity while generating returns that indeed are correlated with the miserable ones now being turned in by the stock market.With major U.S. stock indexes trading below their levels of a decade ago, and yields on corporate bonds at juicy levels, it could be time to switch back to conventional assets, which look inexpensive and cost less to buy.Reflecting the philosophy of David Swensen, its influential endowment director of the past 23 years, Yale has 70% of its endowment invested in three categories: hedge funds, private equity and “real” assets, including timber, real estate and oil- and-gas properties — one of the most aggressive allocations among major endowments. Princeton similarly has 70% in hedge funds, private equity and real assets, while Harvard has 57% in those groups.THE IVIES’ RESULTS IN the past 10 years have been very impressive. Harvard’s endowment was up an average of 13.8% annually, bringing it to $36.9 billion as of June 30, tops in the academic world. Yale’s endowment grew at an average annual pace of 16.3% in the same span, to $22.9 billion, making it second to Harvard in size. Princeton’s endowment rose at a 14.9% annual clip, to $16.4 billion. Stanford, in Palo Alto, Calif., also has shined; its endowment rose by 14.2% a year, to $20.4 billion.These returns compare with the 6% yearly advance for the average institutional portfolio, and 3% for the S&P 500 over the same decade. Yale calculates it has added an extra $13 billion to its endowment, compared with how it would have done with the performance of the typical college endowment.The growing endowment wealth has enabled the schools to upgrade their facilities, expand enrollment and boost financial aid for students. And a lot of less well-endowed schools have used the same investment strategies in an effort to catch up.But times — and markets — change. Even if the markets resume rallying, the endowments of the Big Three Ivies could trail more conservative peers in the current fiscal year. Harvard, Yale and Princeton aren’t saying anything specific about their returns. But on the basis of their reported asset allocations, we estimate each could be down 25% or more since June 30 if they were to assign realistic values to their illiquid investments.Private equity, for instance, is a disaster, despite what optimists like Steve Schwarzman, the CEO of Blackstone Group (ticker: BX), assert. (See here.) There probably isn’t much equity value in most of the leveraged buyouts completed during the bubble years of 2006 and 2007, owing to the weak economy, overleveraged balance sheets and declining values of comparable public companies.If this argument seems extreme, consider AP Alternative Assets and KKR Private Equity Investors, formed to invest in deals engineered by their sponsors, buyout specialists Apollo Management and Kohlberg, Kravis Roberts. The KKR vehicle wrote down the value of its assets by 15% in the third quarter. More important, shares of these companies, traded in Europe, fetch about 25% of the asset values assigned by their managers, indicating that investors don’t believe the valuations provided by Apollo and KKR.With cash-strapped endowments and other institutional investors looking to sell some of their private-equity funds, an informal secondary market is developing. The going rate is said to be about 50% of stated investment values.Commodities — another favored asset class — have plummeted more than 40% since June 30, with publicly traded oil-and-gas stocks off 50%. Real-estate investment trusts are down 35%. (The S&P 500 is off 28% in that span.)Timberland prices rose to ridiculous levels this year despite weak markets for wood. The catalyst: what one Wall Street analyst called a “frenzy” of buying by endowments seeking to emulate Harvard, a longtime holder with a 9% allocation — nearly as much as its 11% holding in U.S. stocks. In May, Chip Dillon, a former Citigroup forest-products analyst, wrote that timberland was selling at 20 to 30 times annual pretax cash flow. If the Ivies are carrying their timber at those levels, they’ll have to make major downward adjustments. Emerging-market stocks, another Ivy favorite, also have been crushed, falling by 45% since June.A key question all endowment chiefs should ask is: “How does the valuation of our illiquid investments compare with those of comparable public companies?”Another question: “If private-equity funds are being sold at half of net asset value, should we keep ours at 100%?”Swensen, the most influential investor in the nonprofit world, has argued that endowments, with a long time horizon, are ideally suited to buy illiquid investments where market inefficiencies can be best exploited. Low-return bonds should be kept to a minimum, in his view.”The heavy allocation to nontraditional asset classes stems from their return potential and diversifying power,” Yale wrote in its endowment report last year. “Yale is not particularly attracted to fixed-income assets, as they have the lowest historical and expected returns of the six asset classes that make up the endowment.”YALE WAS BULLISH ON private equity as recently as the summer of 2007, just before the bottom fell out of that market. The endowment then raised its targeted private-equity allocation to 19% from 17%, citing “bottom-up opportunities, even in this heated market.” Princeton has about a quarter of its endowment in private equity.The Swensen approach may be too aggressive, particularly for endowments that need access to their money and have less skilled managers than Yale’s. Endowments typically must disburse 5% of their value every year to support university operations.One unpleasant twist: Private-equity firms are asking endowments and public pension funds to fork over cash committed, but not invested, when the markets were much stronger. The private-equity outfits are eager to recoup losses on bad leveraged buyouts by making new investments.In a typical private-equity arrangement, a college would agree to invest a certain sum, say $10 million, with a firm like Blackstone or KKR, which would request the money only when suitable opportunities arose. Unfortunately, in a bad market like today’s, distributions from already-made private-equity investments could dry up at the very time the private-equity firm is asking the college for some or all of the money it had pledged to make available for new private-equity investments. This mismatch can force the college to put, say, 18% of its endowment in private-equity holdings, even though it might have planned to invest no more than 10% at anytime.The capital calls from private-equity firms are squeezing endowments and pension funds, including the giant California Public Employees Retirement System. Between spending needs and such capital calls, some endowments may have to liquidate 10% of their assets in the current fiscal year, one investor tells Barron’s. No wonder endowments have been selling stocks, among their most liquid assets.Even Harvard appears to be facing this problem. The Wall Street Journal reported last week that the university was marketing about $1.5 billion in private-equity funds. That’s stunning, considering it is an awful time to be selling such holdings. It’s unknown whether Harvard found a buyer.JEREMY GRANTHAM, THE HEAD of GMO, a large Boston investment firm, worries less about Yale than about the hundreds of Yale wannabes. “It’s obvious to me that few of those emulating Yale have the resources of Yale and the talent of Yale to pick the right managers,” he says. Yale, like most endowments, farms out the bulk of its assets to outside money managers.The pressure to follow Yale was intense at other colleges, foundations and charities. “The charities have all these consultants, and they’ve been herding the buffalo in one direction, toward alternatives,” says Thomas Kahn, president of Kahn Brothers, a New York investment firm. “The consultants say: ‘Yale has alternatives. Harvard does. Look how well they’ve done. You’ve got to have 20% in hedge funds.’ “The hedge-fund talent pool isn’t deep, and the Ivies have locked up some of the top managers. The blow-ups in the hedge-fund industry may cause a reassessment of this trend. Grantham believes that, given their high fees, hedge funds over all create little value for investors.Endowment declines of 25% would hardly be disastrous for Harvard, Yale and Princeton, but such losses would matter mightily at smaller institutions.That’s why it may be time for most colleges and nonprofits, which can’t afford to hire the very best talent, to move away from the pack and to rethink any heavy exposure to illiquid investments, especially when so many opportunities seem to beckon in global stock and bond markets.As master investor Warren Buffett has noted, there’s an inevitable trend in many pursuits, including money management: First come the innovators, then the imitators and, finally, the idiots. Or as Charles Darwin might put it: Those who don’t evolve pay the price.

heroNovember 10th, 2008 at 4:57 am

This is a very important article.I know many schools are losing money and they will notadmit it in public.Horie of Livedoor and Murakami of Murakami Fund of Japanwere arrest a few years ago due to fraud. Their primaryclients were US universities.These schools will do anything to raise money.hero

Octavio RichettaNovember 9th, 2008 at 7:21 am

Hot off the press. Keynesian economics applied at the worldwide level. Let’s hope it works!China announces $586 billion stimulus planChina announces $586 billion spending package to boost domestic demandSunday November 9, 2008, 7:15 am EST

Octavio RichettaNovember 9th, 2008 at 7:23 am

Wall St. Bonuses Plummeting — to Merely ‘Astronomical’ Levels—-to-Merely-‘Astronomical’-LevelsNuthing to do about it. Despite Obama and all, the world will always belong to the rich.

ORNovember 9th, 2008 at 7:25 am

The article for those to lazy to click, copy and paste:Wall St. Bonuses Plummeting — to Merely ‘Astronomical’ LevelsPosted Nov 07, 2008 04:13pm EST by Aaron Task in Newsmakers, Recession, BankingRelated: GS, MS, JPM, BAC, XLF, MEREverything is about “relative valuations” on Wall Street – from stocks to asset classes to compensation.Relative to recent years, 2008 is shaping up to be a very tough year on Wall Street, with massive job cuts and a far smaller bonus pool.”Compensation experts predict [bonuses] will plummet 20% to 50% from last year,” The Wall Street Journal reports.But relative to the rest of humanity, Wall Street is still living extra-large.Even after a 50% year-over-year decline, managing directors in investment banking are expected to get average bonuses of $900,000 and $1.1 million in 2008, the WSJ says. In commodities, the same level executives are looking at a 25% drop in the average bonus — to $3.5 million to $4 million.Even more appalling, some firms will reportedly use government bailout (i.e., taxpayer) money to pay bonuses to “retain” employees who:Should be grateful they have a job, especially given today’s grim news on overall U.S. unemployment.Really don’t have many options to leave current employers given the decimation and consolidation in both the brokerage and hedge fund industries.Seem to think bonuses are automatic rather than being tied to actual performance, either individually or company-wide.But even in this new “age of austerity” on Wall Street the legacy of the gilded era lingers on.

GuestNovember 9th, 2008 at 11:49 am

Dude, what’s wrong if someone is making more money? They earn it with their skills…However, bailing them out is totally wrong. You and I have ben cheated regardless of the consequences of what would have happen and all the rubbish. There are winners and losers, this is capitalism. Why take the taxpayers money? The blame lies sorely with the congressman and the president. Vote them all out

GuestNovember 9th, 2008 at 8:02 pm

What’s wrong with it is that the profit of their industry was an illusion. Smoke and mirrors. They shouldn’t be able to write up a CDS contract on crap assets and say Bingo! instant money! And then give themselves above-astronomical bonuses. That’s fraud in most people’s book.

Average JaneNovember 9th, 2008 at 1:10 pm

Umm, can we say “entitlement”?It just frosts my cornflakes that these people, who played at the casino and pocketed their ill-gotten gains and then lost my after-tax, actually earned-money Roth IRA dollars, are the first ones to cry “we can’t disturb the most entrenched of all legal principles, that of contract law, so don’t you dare take away our contractually guaranteed bonuses.” Hence my hard-earned Roth IRA tax dollars are paying those damned bonuses. Talk about redistribution of wealth.

HubbsNovember 10th, 2008 at 9:43 am

Amen AJ.What is all this crap about having to maintain bonuses and pay high levels to retain executive “talent.”Talent? When all of these talented apex parasites have run these companies into the ground and ripped off the shareholders? At best, these “talented” execs are incompetent and shouldn’t be paid anything more than minimum wage. At worst, they are criminals, but “talented” criminals, who have run off with the money scott free. Willie Sutton, you said why do you rob banks? Well today you would say why be a bankster or CEO?

GuestNovember 9th, 2008 at 4:03 pm

Mr. Schiller article in the New York Times Nov. 7. and his ideas on Bridging the wealth Gap”we need to subsidize financial advice for the common man. The crisis we are in is largely due to investor ignorance.”Does this mean no commissions?

MiddleNovember 9th, 2008 at 8:46 am

Rahm is EVIl LB wrote “Perhaps the combination of a Nigerian goat herder’s son with an Irgun terrorist’s son will be a winning combination for crafting a durable peace. But many in Israel, the Middle East and Washington will expect that future acts of aggression by Israel against Iran or other neighbours will be defended – if not promoted – by the man at Obama’s elbow.”Rahm was a director at Freddie MAc ? Sheesh

London BankerNovember 10th, 2008 at 5:54 am

Two things:(1) I want to disassociate myself from the first statement in this comment. I do not believe Mr Emanuel is “evil” – merely that he is a pro-Israel, pro-war, pro-pre-emptive-aggression, dangerous hawk. He shares this characterisation with Hillary Clinton, among many others in US politics. It disappointed me that Obama would put him in a position of power to perpetuate the destructive, pro-war policies of the Bush administration in the Obama administration. Many around the world hoped for better.(2) Mr Obama’s father was from Kenya. I’ve corrected the blog accordingly.

GuestNovember 9th, 2008 at 9:07 am

A little backup history from the July 22, 2008, issue of the Belfast Telegraph: “With Goldman Sachs at the heart of Wall Street, and Wall Street at the heart of the US economy, few expect its power to wane. Indeed, The New York Times columnist David Brooks noted that Goldman Sachs employees have given more money to Barack Obama’s campaign for president than workers of any other employer in the US. “Over the past few years, people from Goldman Sachs have assumed control over large parts of the federal government,” Brooks noted grimly. “Over the next few they might just take over the whole darn thing.”

GuestNovember 9th, 2008 at 10:07 am

It begins, the loss of hope for peace in the Middle East ~“Obama: by his friends you shall know him” by Dr. Sahib Mustaqim BleherNovember 7, 2008 — With the initial euphoria of the election of the first “black” president of the United States of America slowly subsiding, it is time to take a good look at the colour of Obama’s politics rather than skin. It quickly becomes apparent then that there won’t be much change after all. Early on in his campaign, Barack Obama gave a speech to the American Israel Public Affairs Committee (AIPAC) indicating his unwavering support for Israel. His selection of staff and advisers confirms that he is not going back on his word.Obama’s campaign manager was David Axelrod, an American Jew from Manhattan, who will be rewarded with the post of Chief White House advisor. As Chief of Staff, Obama selected Rahm Israel Emanuel, who also holds Israeli citizenship and served as a volunteer in the Israeli Defense Force (IDF). John Podesta, also Jewish, heads the new president’s transition team. Likely candidates for treasury secretaryare Lawrence (Larry) Summers, Timothy Franz Geithner, and Paul Volcker, all Jewish. John Kerry, whose parents converted from Judaism to Roman Catholicism, might become Secretary of State. An exception with regard to kosher credentials might be former CIA director Robert Gates, who could be invited to stay on as defence secretary – not much change in Iraq or Afghanistan then. James (Jim) Steinberg, likely to become National Security Advisor, is part of the tribe again, as is another contender for this post, Dennis Ross, who was Clinton’s Middle East Envoy. The few expected black appointments will be safe choices, such as Susan Rice, potential Ambassador to the UN, a former protege of the infamous Madeleine Albright.So colour really doesn’t matter all that much. Those who hope that the Bush administration’s unconditional support for Israeli aggression might change with Obama will be in for a nasty surprise. Of course, McCain wouldn’t have been any different. And just for the record: Given that only about three percent of the American population are Jewish, their heavy concentration in the corridors of power is, of course, purely coincidental!– Mathaba Author Dr. Sahib Mustaqim Bleher is a German living in England, a Muslim and a pilot.

kilgoresNovember 9th, 2008 at 11:14 am

O.K., Adolf, let’s just throw those 3% of American Jews in concentration camps and that will fix the whole problem, won’t it? Go peddle your bogus anti-semitic worldwide Jewish conspiracy nonsense elsewhere.Episcopalians make up an even smaller percentage of the U.S. population — 1.7% — yet 25% of all U.S. Presidents have been Episcopalians and 10% of all Vice-Presidents have been Episcopalians. Episcopalians have a disproportionately large representation in Congress (9% of the Senate and 7% of the House of Representatives comprises Episcopalians). Is this just “purely coincidental?” Episcopalians simultaneously have been accused of being in league with Israeli interests and being anti-Israel and pro-Palestinian. Of course, Madeline Albright was an Episcopalian of Jewish extraction. Just to be on the safe side, maybe we should just throw all the Episcopalians in concentration camps, too?None Dare Call It Conspiracy (because it isn’t).SWK

GuestNovember 9th, 2008 at 1:38 pm

It’s just really weird when most Americans could really care less about the state of Israel that all of our political leaders are willing to risk the lives of our entire country for Israel. Follow the money trail and who controls the banks and media and you soon find out why but on closer examination it’s really all about keeping that area of the world and maintaining a U.S. presence there for oil. Zionism is a fraudulent front and the Jewish people are being used like suckers. It’s a deadly game about oil and power.

RachelWNovember 9th, 2008 at 3:03 pm

SWKI mostly like your contributions but this is too much. Please answer this (hypothetical) question:If Obama’s administration was filled with rich, powerful and patriotic 2nd generation Palestinians, would you expect OB to act fairly in dealing with that problem?Successive US adminstrations have conspired to support an oppressive ‘Aparthied’ system in Israel/Palestine. It is not anti-jewish to acknowledge that fact.

kilgoresNovember 9th, 2008 at 6:17 pm

Rachel:Thank you. I appreciate what you are saying, and I’ll try to answer your question as best as I can.It is one thing to criticize U.S. foreign policy towards Israel (and there is plenty of room for such criticism). It is quite another to attribute U.S. bias towards Israel to a cabal of traitorous Jewish conspirators who have infiltrated the halls of power in the U.S. with the aim of advancing the cause of Zionism without regard to what is in the best interests of America. I would feel the same way if we were talking about the presence of “powerful and patriotic 2nd generation Palestinians” in the U.S. government.There are already plenty of good arguments that may be mounted in support of, and in opposition to, the conduct of U.S. foreign policy towards Israel. The injustice of perpetuating what is tantamount to a Palestinian ghetto in the West Bank and Gaza Strip is a compelling fact that need not be diluted by reference to speculation as to the motivations of members of the U.S. government who are of Jewish heritage. Objections to Israeli policies towards the Palestinian people do not find resonance exclusively with gentiles: many Israelis remain highly critical of their own government and its policies towards the Palestinans, and you will find a number of U.S. Jews that find certain of those policies objectionable as well.The point is, it is mentally lazy to jump to the conclusion that one’s heritage or association has a necessary bearing on, or overwhelmingly informs, his or her actual foreign policy viewpoints. When I travel abroad, I rightfully may take umbrage at a foreign national’s attempt to pigeonhole me as to my views on U.S. foreign policy based on the fact that I am an American, or white, or a man, or an Episcopalian, or whatever. My actions and my statements are the only reliable measures of what I believe, and I think it is generally counterproductive to focus on anything else. In my mind, this presidential election just past, and the theme of Mr. Obama, was about the need for all of us to begin to transcend these petty, polarizing characterizations and assessments in favor of tacking the real issues underlying our problems.U.S. foreign policy towards Israel, like its foreign policy towards every other country in the world, is driven by perceived U.S. interests, to which other important issues, such as human rights, often take a back seat. The last president that attempted to focus on human rights as a driver for U.S. foreign policy was Jimmy Carter (see., e.g., the book, Power and Principle by Zbigniew Brezinski). While I personally think the Carter Administration got a bad rap for this, as the promotion of human rights should always be in the best interests of the U.S., there are many other Americans who believe such an approach to be foolhardy and naïve. This is why we’ve supported, and even encouraged, aided, and abetted human rights abuses by, foreign leaders such as Shah Reza Pavlavi, Pinochet, Saddam Hussein, Diem, and others throughout the world.Even when motivated to see injustices corrected, our government must strive to balance a number of strategic interests, and this can be very frustrating in delaying remedies for such injustices. This doesn’t mean, however, that the U.S. does not make its preferences known and exert significant influence over Israel with respect to international law, human rights, and other important issues. We support Israel, it is true, but we have also put pressure on Israel and expressed our displeasure when we have considered its actions to be unwise or illegal. For example, Israel did not elect to engage in a preemptive strike against Egypt and Syria in 1972 out of concern of alienating the U.S., and thereby received full U.S. support when the Yom Kippur War was initiated by Syria and Egypt when they launched attacks on Israel first. Sometimes, despite U.S. protests, the Israeli government will proceed to act in its own perceived security interests. Thus, when at a press conference in early 1990 George H.W. Bush openly (and correctly) described East Jerusalem as occupied territory and not under Israeli sovereignty as the Israeli government claimed — essentially reminding the Israeli government that the U.S. would not countenance its unlawful attempt to annex East Jerusalem in contravention of international law — the Israelis balked, and relations with the U.S. chilled for some time thereafter.Mr. Obama has recognized the need for a Palestinian state as integral to any lasting peace in the region. Unfortunately, that is not something that the U.S. can compel unilaterally, and so it must patiently work towards that goal while maintaining its support for the territorial integrity and security of Israel, which it deems to be in its overarching strategic interests.SWK

Forensic economistNovember 9th, 2008 at 12:36 pm

Why is anyone surprised that Obama is pro-Zionist?He announced in his campaign that he believed that Jerusalem should remain the undivided capital of Israel – ie the 1967 conquests should not be rolled back. This has not been official US policy ever.Obama gave a speech at AIPAC where he competed with other candidates as to who was the most pro-Zionist.Rahm Emmanuel is not necessary to influence Obama to be pro-Zionist, he was already. RE may have been picked in part because he reflects Obama’s views.

GuestNovember 9th, 2008 at 1:50 pm

Honest to Pete, I thought that speech was just a ruse to hold down the conflagation until he was elected. I voted for Obama because I thought he would save the lives of innocent people… because he was opposed to the war in Iraq. Talk about self delusion.It’s one thing to have statements made in a campaign, and it’s another to appoint to the most powerful position in the White House an attack dog to carry out the extremes of what some believe was campaign rhectoric.But, you’re right, I should have known.

GuestNovember 9th, 2008 at 10:34 am

China’s largest banks, with 4 trillion yuan ($586 billion) of cash, are resisting government efforts to boost lending to 42 million small and medium-size companies that drove the economic boom of the past decade. On Nov. 2, the central bank scrapped curbs on loans after three interest rate cuts in seven weeks failed to revive economic growth that has sagged to its slowest in five years.By Li Yanping and Chia-Peck WongNov. 9 (Bloomberg) — China announced a 4 trillion yuan ($586 billion) stimulus plan to spur expansion in the world’s fourth-largest economy, helping sustain global growth as the U.S., Europe and Japan teeter on the brink of recessionExactly the same amount of money in all the china banks. Who put money in china banks?

DanielNovember 9th, 2008 at 10:59 am

China has already turned into downsession. what everywhere is not in recession, neither in China. all stimulus packages in China are too little. China GDP will come out 4-5% level.

ORNovember 9th, 2008 at 11:15 am

Let me see with a population of over 1.2 billion, the 600 billion plan comes to 500 bucks per head. Wow! I am impressed!

AfANovember 9th, 2008 at 12:09 pm

You imagine? If that “stimulus” plan was global however, it will come to $100 for each human being on earth. Some people may even stop working for the rest of the year if they get that much.

GuestNovember 9th, 2008 at 10:56 am

perfect prediction I would say. this ugly equity market can not rally like the few days ago. it must go down to the reality of fundemental assured level. S&P down to 400 level is more likely. only 2-3% chance S&P can prevent from down to 400’s level. let us travel downside session to the depression level. then getting better…

JohnRyskampNovember 9th, 2008 at 12:50 pm

Fedex and UPS not far behind. These are very good facts on the ground economic indicators. These were fairly well paying grunt jobs. Now what do we do this these people? People who think unemployment is going to top at 9%, are completely out of their minds. And what will Obama give them? $900 per month in unemployment benefits–while Goldman Sachs loots what is left in our pathetic dogpatch of a country!!BAN HOUSING EVICTIONS NOW. People say, Why reward people who made bad decisions? Answer:Because there is nothing more important than housing.SAN FRANCISCO (MarketWatch) — Deutsche Post AG is planning a cost-cutting program that could result in thousands of layoffs at its cargo shipping firm DHL, a German newspaper reported Sunday.An article in the German-language Frankfurter Allgemeine Sonntagszeitung said that Deutsche Post — the corporate owner of DHL — is planning to announce a cost-cutting program Monday that could result in as many as 40,000 layoffs at DHL, according to the Associated Press.About half the planned layoffs could take place at DHL’s U.S. Express business, which competes with larger rivals UPS . A large facility in Wilmington, Ohio, could be hit hard by the layoffs, according to the report.Companies in the shipping space have been hit hard by the global slowdown. Last month, Deutsche Post cut back its earnings forecasts for this year and next, predicting that pretax profit will fall 8% in the third quarter.Deutsche Post is reportedly planning a news conference Monday to outline the cost-reduction plan.

GuestNovember 9th, 2008 at 1:29 pm

Deutsche Post sucks, just another monopolist with a corrupt CEO who had to resign for tax evasion reasons. German government still stupidly killing all potential competitors by law.

GuestNovember 9th, 2008 at 2:48 pm

Yes, I agree! Ban housing evictions now!!!I will immediately stop paying my mortgages on my 5 houses! It will save me over $90,000 per month!!! And my bankers can kiss my ass while I basically steal that money from them.Hell, I would even consider buying a few more mansions that they would be banned from kicking me out of. What a wonderful free ride you propose. And no one would get hurt.I wonder why no one else ever thought of just banning housing evictions? You are a genius, sir!!!

GuestNovember 9th, 2008 at 3:12 pm

Uh only on primary residences? It’s laughable right now but down the road it may be the only solution to save the economy. Property and asset owners will fight to the bitter end but the end may be nigh.

GuestNovember 9th, 2008 at 3:51 pm

Oh, only on primary residences. I see…I guess I will need to “sign over” one of my mansions to my wife, and one to each of my two daughters. (Of course, I’ll have a buyback contract with each of them, allowing me to repurchase for $100). Hmmm, my fifth house will be more difficult. I guess I’ll need to sign that one over to be the primary residence of one of my staff who is a renter. That will probably cost me a few hundred bucks a month.Still, beats the hell out of $90,000 per month!I guarantee you that between me and my team of lawyers, any plan to ban housing evictions will be a windfall to me :-)Go JohnRyskamp, Go!!! Let’s make those bankers pay for lending me so much money! I want to have all my houses for free!!!

GuestNovember 9th, 2008 at 4:06 pm

Wait for a minute. I own my house and another house that I rent out to a family whos been paying me rent. What does this do for them? Now if they stop paying me their rent do they get to stay in the house and I can’t do any thing aobut it? Or can I evict them to get someone who will pay me?If it’s not my primary residence do I still hvae to pay the bank even if they stop giving me rent? The house is worth more than I owe. If they don’t have to pay rent, I”ll go broke soon.Please help me understand.

GuestNovember 9th, 2008 at 9:15 pm

Your true worth is not in property or assets that mentality of thinking “The magic of compound interest” is what is causing the economic collapse.

AfANovember 9th, 2008 at 1:31 pm

Hey, OR, part of me would tend to agree with you, another part, however, would not be so convinced.”Once the future materializes the facts that unfold are indistinguishable from a deterministic sequence. Before the fact, the future involves uncertainty”Why not say: Beforehand, the future appear to be involving uncertainty to us. Or, said otherwise, uncertainty/ probability reflect not what will actually happen but our interpretation of it. From the viewpoint of Relativity, time is a flat dimension, just like the edge of a razor. If you take a razor and hold it exactly horizontal to the level of your eyes, there will be a position where the razor “disappears”, or seems so. At that time future and past seem indistinguishable and form just ONE thing – one thread not a tree of events and scenarios.My opinion, it is important to distinguish the future from our interpretation of it. The future is unpredictable and uncontrollable, it is one-way highway, except that we are building it “au fur et à mesure”, we don’t know it because we are driving in the middle of a 0 visibility fog; we are in the process of sharpening the edge of that razor. The future as we perceive it is one of probabilities and scenarios as you described it.By the way this notion of determinism – at least as I perceive it – does not exclude the notion of free-will and vice-versa, nor does chaos exclude regularity and vice-versa. I can even say that each is built in the other, or that one is a side effect of the other.Saying that the world is regulated by “randomness” as some scientific theories assert (I’m afraid out of ideological motives) creates contradiction of the essence itself of modern sciences that the world is logical/ written in mathematical language; an event is random means that its happening or that of another one is totally arbitrary and therefore there is no stable and reliable “cause-to-effect”, and therefore, literally, no causality relationships hold. Therefore, if the causality process is not unique or not existent, which proves fatality (a flawed one, I should say, the way fundamental theologians perceive it) by refuting itself. I didn’t know that science is another word for oxymoron. Similarly, many scientific theories refute, by their own conclusions, the notion of free-will, which only strengthen the case of fatality. On the other hand, even strong causality proves determinism, through its own nature, and proves fatality, given the “original” trigger/act; just like a well-built trap game – once the kid pushes the small ball and all process goes as planned until the last trigger and trap is activated. Perfectly knowing and controlling processes/causality lead, invariably, to fatality. (Similarly, theologians arguments that God has dictated our destiny, therefore, the world is not governed by logic, is self-contradicting, but this is not our topic)Take an example of investor OR. You build and run your models, which, based on historical data, gives you where (Xi) and how much (Wi) to invest. The fact that you choose to invest in something based on probabilities is, from some standpoint, just a strong manifestation that you, the investor, have no control or free-will and that past events are shaping your decisions and, therefore, becoming self-fulfilling.Some of the ideas here are personal opinions which are not based on any others’ (I know of). Take this probability exercise: What is the probability of an event, given that it WILL NOT happen? What is the probability of an event, given that it DID happen? As we all know, those are the only two possible outcomes (happen/not happen). Of course, the answer to both questions are straightforward, however the condition is, in the first case, impossible to know and, in the second case, useless to know.The difference between our ability to answer the probability question by a discrete and nominal number as opposed to a continuous range lies in our limited knowledge not only about all possible inputs, but also all possible processes, no matter how small, ephemeral or indecisive they are. Since we cannot do that, we may be able to control and decide our own actions, but we cannot control how those actions would affect all of us. Again, for me both determinism and free-will are two faces of the same coin, this is why I embrace the chaos theory, up to a point. It was Clinton’s choice to have an affair with Monica (or so we can argue), but I’m sure he never intended to have all that impact. You ask how could it all be so different if he didn’t, or if he was not unveiled, one answer could be that the person who did reveal that information (for blackmailing, political pressure … I’m sure) would have found another “critical” information about him anyway, so that the end result would have been the same, in aggregate, but not necessarily on a micro level.And sorry if my ideas are not succinct, I’m rushing to go for lunch.

AfANovember 9th, 2008 at 4:31 pm

No, I was just hungry.All I was trying to do is present another part of the story, we don’t need to always be obsessed by trying to control and assess everything, what-if this, what-if that. Sorry OR if I appeared to be rejecting ALL of the mainstream probabilistic school of thought; it would have been stupid of my part.

GuestNovember 9th, 2008 at 3:17 pm

My personal anecdotal evidence…For two years I’ve been managing to paying my bills, taxes, insurance, car note, etc.No discretionary income, I’m just in survival mode. I thought, “things will improve.”Now, my house is down 30% in value, 401k down 30% in value.Basically, the things I own, go down in value, the things I buy (food, insurance, fuel), going up in value.Now my job ain’t so secure !My next move – raid the IRA’s and 401k’s?I need something positive – someone throw me a bone !But this guy Roubini says we are just seeing the tip of this Iceburg!Oh, I hope he is wrong!I’f I’m struggling, others MUST be sinking !

PeteCANovember 9th, 2008 at 3:29 pm

Just some comments.You must decide your own investment plans yourself.If you talk to different economists and financial advisors you will get different answers. But I think it’s a fair bet that the next 8 months (at least) in America are going to be pretty rough. Where it goes after that is anyone’s guess. As far as possible, try to keep your current job (don’t p*** off your boss, even if you hate him/her). To be practical … have you thought about dumping your house? If you are upside down on the equity, that could be one approach to think about. If I were you, I wouldn’t be raiding any IRA’s and 401K’s unless things are absolutely critical. The downside to dumping your house is that you’ll get a black mark on your credit rating, and that will make renting more difficult. But at least think through that option. And yes, other people are sinking. And a boatload of Americans are taking on water fast.PeteCA

ORNovember 9th, 2008 at 3:36 pm

Thanks for the input. You seem to be a good representative of the average responsible American household. How long have you been reading Roubini?How long did you know it was coming?How do you feel about Paulson, TARP, the bailout of BS, all the help to the banks that has made possible for irresponsible outfits like ML to survive in a merger with BA?The JPM wiz kids who knew they were feeding toxic waste CODs to others and keeping none of it?How mad are you?Whom did you vote for?Do you expect Obi to follow on GWB steps and continue handing money over to the rich banksters like there is no end while forgetting the little guy, shipping jobs to China and India by the ton?

GuestNovember 9th, 2008 at 4:01 pm

I was joking on the lack of objectivity as I find anecdotal information and observation as equal or more relevant. 95% of the so called objective based pro’s never saw this comming.

PeteCANovember 9th, 2008 at 4:10 pm

Don’t know if you were talking to me specifically. In my own home we do try to be an “average responsible American family”. I believe there are lots of other folks trying to do the same thing. And it’s pretty hard with the way that Wall St and the Fed are running things … the banksters have been driving the honest citizens into the ground. Definitely I would say that folks like Paulson, the Fed, and the “JPM wizz kids” are some of my least favorite people in the universe right now. I am hoping that Obama is going to start to really sort things out – and part of that means getting to the TRUTH about how this country has been running. A lot of bad stuf has to be undone. But to do that Obama can’t just follow a strongly liberal bias – he’s got to stay more to the political center and inject a lot of common sense into US politics. Easy to say – but hard to do. With unemployment rising rapidly in America – I expect an increase in union activity and a trend towards protectionism for jobs and trade. The world is probably moving quickly towards various kinds of global trade wars.BTW, I have been reading and participating on this forum for a few years. Prof. Roubini is a very good guy, but he does tend to come across pretty negative a lot of the time. One day you’ll see Prof Roubini post some positive comments, and then you’ll hear a big THUNK. That “thunk” will be my head hitting the computer keyboard after I just fainted :-)In the long term I am positive about America. We’ve got a lot of great people in this country! We will recover. But the road is tough.PeteCA

GuestNovember 9th, 2008 at 4:47 pm

I would think five times about selling my house in a down market: I would look into renting out a room or two, or even renting out the entire house, while I took cheaper quarters. Then you can depreciate your house on your taxes, etc. In my personal experience, it has been my house(s) that did better than my 401(k).There is always work: even during the Great Depression most people were employed. But you have to go where the jobs are — and, of course, you then would have to sell you house, or rent it.Unfortunately, Emanuel is one of the key pushers of NAFTA and American jobs may continue to be eliminated on an ongoing basis, and moved to foreign competitors. In that case, all bets are off — for all of us.In short, you haven’t lost on your house, you haven’t lost on your 401(k), and you still have a job. If you sell your house now and it’s below what you paid for it, then you have lost on your house. If you’re paying your bills, keep doing it — because the Federal Reserve has gone to each sector of the ecoomy where there is money and taken it — there isn’t any money anywhere.You are riding a bucking bronco. My advice is to hold on.

artichokeNovember 9th, 2008 at 6:25 pm

My advice is to drop out — if possible.I grew up in the late 60’s so it is a theme from my youth. But now the system is indeed trying to suck you dry, especially if you are a responsible middle class American. Your output is needed to reliquefy the banks after all.Bernanke said that the strong American economy would pull the banks through this. I don’t want to help, personally, and if I were to start to run into trouble, I have plans already to be gone in a heartbeat.If you can, sell out, exchange your currently strong dollars into some cheap foreign currency of a country with nice climate (Latin America), move there, make a living teaching English.

artichokeNovember 9th, 2008 at 9:05 pm

Already described one way above.It’s necessary to approach this with objectivity and determination. It’s not easy maybe but not that hard either. Who said one should only do the easy things?As Barack Obama said on the day he was elected, we will need self reliance. That was a true statement and good advice.

GuestNovember 9th, 2008 at 8:01 pm

Basically, the things I own, go down in value, the things I buy (food, insurance, fuel), going up in value.

I guess that is a good reason to get a amount of land and start growing food.

GuestNovember 9th, 2008 at 3:57 pm

China spends 586 billion on domestic infrastructure, this is a lot of money relative to average Chinese income.What does this mean for their continuing capacity to buy treasuries?Is this the big transition from China from export growth to consumer growth?What effect will this have on commodity prices as the U.S. was counting on deflation of commodities for its own recovery?IMO this is the beggining of the end for U.S. dollar domination. Even N.R. said it was essential to get China’s help and certainly this lessens their capacity and or willingness.

Octavio RichettaNovember 9th, 2008 at 5:12 pm

I am not much a technical analysis believer but take a look at this chart. The big picture is that the 2000 stock market bubble burst seems to have kicked off a major bear market and that the bull that followed the 2001 recession/2002 stock market bottom was just a long suckers rally made possible courtesy of AG low interest rates and the housing bubble. It looks like the nosediving that started this year will continue despite some possible ups and downs.^ixic;range=my;compare=^dji+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

GuestNovember 10th, 2008 at 6:45 am

OR, that’s pretty much it, but as always, technical analysis doesn’t identify the structural reasons behind market behavior. We’re having the recession we should have had in 2001-02 that was largely avoided (“jobless recovery”) because the Fed reflated the economy via the real estate bubble. We’re now paying for that impossibly stupid policy decision by having a depression instead of a recession.

GuestNovember 9th, 2008 at 5:54 pm

“Markets Need Time, Not More Poison” by Robert P. MurphyA recent story from the front page of the Wall Street Journal illustrates the bankruptcy of mainstream macroeconomic thinking. The piece contains so much nonsense that the only appropriate critique is to go through the article step by step:“Shrugging off a flurry of grim economic news, stock investors pushed the Dow Jones Industrial Average up more than 10% as they anticipated new medicine from the Federal Reserve.”I realize the WSJ is in the business of selling newspapers, and that calling injections of Fed funny money “medicine” is a catchy opening. But if our present crisis is the result of prior injections of artificial credit, then the medicine is in fact arsenic. What is especially ironic is that this very article later on alludes to the possibility that the housing boom was fueled by Greenspan’s low rates. In any event, the most recent Fed cut was largely symbolic, since the actual fed funds rate (as opposed to the official “target” set by the Fed) had already been below 1 percent for some time:Let’s return to the article:“The case for more rate cuts strengthened Tuesday, with new reports showing the economy deteriorating sharply. The Conference Board said its monthly measure of consumer confidence hit 38.0 in October, the lowest level since the New York-based business research group began keeping records in 1967… The housing market also took a turn for the worse. Earlier in the summer, some housing indicators suggested home-price declines might be slowing. But the S&P/Case-Shiller home-price index for 20 large cities was down 16.6% in August from a year earlier, a record decline. Falling home prices can feed a downward housing spiral, creating pressure for more foreclosures and resulting in mortgage losses among banks.”It is true that spiraling home prices are the ultimate driver of the immediate problems, but to repeat, we are in the present mess because of an unsustainable boom in housing. Everybody agrees that investors foolishly bought into a rising market, and that the incredible appreciation in house prices was not based on fundamentals. How else will the economy move on, if these admittedly overvalued properties do not shed some of the gains during the artificial boom? Government efforts to prop up house prices will waste billions of taxpayer dollars and will only serve to continue denying reality.The article touches on this point — unintentionally — when it says:“[T]he last time the Fed pushed rates [to 1%], it helped to plant seeds for the current credit bust, some economists argue, by contributing to a frenzy of borrowing by households and on Wall Street. That doesn’t appear to be a concern for Fed officials now. Credit markets are so shaky and the economic outlook so unpromising, another speculative frenzy now looks remote.”What this passage overlooks is that the economy still needs to cleanse itself from the previous bout of malinvestments. Too many resources were channeled into housing (and other “high-order” sectors), and workers need to be laid off and transferred to more appropriate areas… The government is doing everything in its power to prevent this adjustment in light of the true economic realities. Alan Greenspan spurred an unsustainable boom, and now Ben Bernanke is preventing the recovery from it.Ah, but we now come to my favorite part of the WSJ article. Get a load of this:“The US economy is still far from deflationary territory, according to the yardsticks the Fed favors. But some Fed officials have recently highlighted a risk that inflation could become uncomfortably low.“’Some prominent forecasters at this stage are concerned that inflation in future years could decline to levels below what is consistent with price stability,’ Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech earlier this month.”For the reader’s benefit, I have put Yellen’s statement in bold. I have no further commentary, except to say: Please read that bold statement once again, and really let it sink in. Orwell would be proud…The present crisis is scary, but only because no one knows what crazy new scheme the government will introduce every other day…

OuterBeltwayNovember 9th, 2008 at 6:01 pm

PeteCA:First, thanks for posting that excellent piece fromChris Puplava. He’s quite good.Here’s a link for those of you that haven’t read this yet:, and others that are interested:The common wisdom holds that once all the private engines of GDP flame out, and they have, then the FedGov’t will step in with Fiscal Stimulus to re-start the stalled economy. That’s what’s happened in the more severe recessions over the past 50 years.But then some gadfly comes out with “Yeah, but that was back when there were people, or countries, that were in a position to buy our debt. Things have changed”.How confident is the RGE Braintrust that buyers of U.S. bonds are ready, willing and able to step in and fund our next round of debt?I assert that the price of raising the next round of funds (whether for consumption or infrastructure) will be much higher than in the recent past…and that this will both signal and precipitate the shift from deflation to inflation, since the U.S. will then actually start “printing money”. And the amount of money to be printed could be unprecedentedly large.I address all readers: What is your view of this dynamic?Who will be our next creditors? Who is in a position to lend, and has the confidence to lend?

MedicNovember 9th, 2008 at 6:36 pm

OB -You ask a very good question. From my vantage point I don’t see where the investment comes from. There is no way that countries continue to support our debt. Not unless they see changes that lead them to believe that there is a good chance that we pay off and not default on our debt.Right now, I’m not buying treasuries – and I live here.

AfANovember 9th, 2008 at 7:54 pm

Medic,From my vantage point I don’t see it as a CONfidence game. I believe that the key word here will be “ability” rather than willingness of foreigners to buy more treasuries; at least the trigger of any bear market in the bond market will be so, what will happen next (dumping, panic, default) is another story. Remember that major creditor countries’ decision to buy, hold or dump UST are not highly impacted by return, while they have no winning position in case of a US default.However, in the ensuing global recession, the probability that the ability trigger would be activated by some relatively small creditor increases significantly, and this is what I see the main risk.

GSMNovember 9th, 2008 at 7:13 pm

OB,I posted last week my thoughts that the USD is headed full tilt into a crisis.The fundamentals of US external debt, internal bailout obligations now and for the future future, new political regime expenditures, economic contraction, housing bust etc- all point to a much lower dollar. The only question is the “when”.At this point, who pray tell will step and buy US treasury debt in the volumes obviously needed to to keep the US finances and economy afloat? On the surface- no one.Which indicates that either the US lives within its means or some large monetization is in store because NFW will this new Administration allow its new life be snuffed out along with its spending plans.But we can expect lots of subterfuge and camouflage, behind the scenes strongarming etc.The oil arabs will be expected to pony up or lose thier protection. Japan also will be give a list of To Do’s.It won’t be enough however. Therefore what will result is a managed decline in bond prices along with the USD. Well, let’s all hope it unfolds that way.A US bond/dollar collapse at this point would be truly horrendous for the US and the world. Which is why, IMHO, we are having such high premiums of physical gold over Comex prices. Insiders are getting set?

AnonymousNovember 10th, 2008 at 5:31 am

Gulf Arabs respond: “Don’t throw us into the briar patch, B’rer Fox!”So they will lose their “protection” after seeing what “protection” means in Afghanistan and Iraq? I think that’s exactly what they are trying to achieve. They want to yoke of US militarism and the dollar peg off their economies by peaceful means so they can trade freely with the more rapidly growing economies of Asia without implied threats from Washington.The long history of assassinations, violence, car bombings, small plane accidents and military interventions directed from Washington are the reason they are playing this crisis very, very carefully. Nonetheless, the objective will be greater independence from USA and realignment toward China.

PeteCANovember 9th, 2008 at 9:11 pm

OuterBeltwayTake a look at $UST on http://www.stockcharts.comThere‘s a prety god argument that the price of 10-year US treasuries is now declining, and is restricted to a downwards trading channel. Since the 10-year price is declining, that means the yield is increasing over the long term.The immediate challenge for the US Treasury is to sell something like $500-$600 billion treasuries and bonds by the end of the year. That’s a huge amount of debt to move into the marketplace. So we’re going to find out in pretty short order how things work out. It’s difficult to see how prices on UST’s won’t be further depressed by this type of volume.PeteCA

Jason BNovember 9th, 2008 at 9:32 pm

I completely agree. Here is a relevant cut-and paste from chrismartenson.comWhy the dollar rally is going to failSaturday, October 11, 2008, 3:25 pm, by cmartensonThrough all of this crisis, as regulators and politicians and bureaucratshave labored to inject needed funds back into failing financialinstitutions, few are asking the harder questions.Such as:Does this crisis represent something deeper, like a general and unavoidablefailure of our entire monetary system?Are the failing institutions worth saving?Will it work?Can the government afford it?I understand the desire and urgency to “get something done,” but I worrythat a failed effort will be worse than no effort. Why? Because ourmonetary system is, to put it bluntly, somewhat of a Ponzi scheme, andtherefore depends more thoroughly on trust than other systems.After all, when a currency is backed only by a taxing authority, it iscritical that the legitimacy and omnipotence of that authority not be calledinto question.People are beginning to ask questions.This next article is a real doozy and directly calls into question the lasttwo questions I posed above: Will the rescue efforts work, and can thegovernment afford it?Quote:The 2009 budget deficit could be close to $2 trillion, or 12.5 percent ofgross domestic product, more than twice the record of 6 percent set in 1983,according to David Greenlaw, Morgan Stanley’s chief economist. Two weeksago, budget analysts said the measures might push deficit to as much as $1.5trillion.Link (Bloomberg)Back in August, which seems like another lifetime ago already, I was callingfor a US government deficit of between $1 trillion and $2 trillion andleaning towards the high end of that range. Now it seems that others areready to publicly admit to the same range.This is the most remarkable of all the possible data because it is astaggering proposition. More than twice the old record. 12.5% of GDP.For the boom years of 2003-2007, the US was borrowing 80% of the world’sentire pool of savings to fund its deficits and excess consumption. Weborrowed between $600 billion and $800 billion during those years.Now, in a world of declining prospects, the US finds itself in need of 200%to 300% more than that. While I recognize that people tend to save moreduring downturns, there are also fewer profits to save, so we might expectthat the “plan” at this point is for the US to assume it can borrow morethan 200% of next year’s savings. The entire world’s savings.I flat out do not think this is a workable plan.There is no way to pull this off legitimately. Which leaves us with theillegitimate option – direct money printing by the Fed. I am sorry to sayit, but I simply do not see any other mechanism by which the needed amountscan be secured by the US government.This means that the dollar is at severe risk of decline, and certainlyborrowing costs (interest rates) are going to rise, which will onlyexacerbate the borrowing needs as higher interest rates enforce higherpayments. The first signs are appearing that this dynamic is already inplay (from the same article as above):Quote:That means a lot more borrowing by Treasury, which will push up interestrates, said Greenlaw. “The Treasury’s going to be ramping up supplydramatically over the course of coming months to meet this enormous federalbudget obligation,” Greenlaw told Bloomberg this week. “The supply willtrigger some elevation in yields.”Treasuries have fallen the past four days even as stocks sank, a signinvestors are preparing for bigger U.S. government borrowing.Now the reason this gets really dicey is that the US government, in itsinfinite wisdom, has been engaged in a form of ARM financing of its own.Over the past decade, as interest rates have fallen, the US Government hasslowly turned more and more to shorter duration T-bills as the means offinancing its operations. This made sense, in a short-term way, as theT-bills came with the lowest interest rates and hence the lowest interestcosts.But, and here’s the big thing, these T-bills need to be “rolled over” everytime they come due. This means that if a billion dollars of T-bills mature,a fresh offering of another billion dollars must be made.The total amount of T-bills now stands at $1.48 trillion, representinganother $1.48 trillion that MUST be “rolled over” twice a year, at aminimum, but more likely three times, when we average out the three- andsix-month issues. That is, 28% of all outstanding “debt held by the public”is basically an adjustable rate mortgage that needs to be refi-ed threetimes per year.Plus, there are whatever Treasury notes and bonds and TIPS are coming due aswell, and that pool is $3.7 trillion in size, so we might guess that $0.5trillion of those come due in any given year.So even as the US is seeking to borrow another $1.5 – $2 trillion this nextyear, there’s another $1.5 – $2 trillion that must be “rolled over” in openmarket auctions. What this means is that somebody has to willingly buythose bills and bonds when they come due. If not, then we could face themother of all catastrophes, the failure of a US government debt auction,which also goes by the very unpleasant name of “sovereign default.”This will not happen, though, because the Fed would almost certainly step inand buy those bonds. A US government default would basically light up the”tilt” indicator on the global financial game, so it would be avoided at anycost. The Fed, of course, would use its magic checkbook and create theneeded money out of thin air, the most inflationary of all possible actions.I just don’t think that there’s $3 to $4 trillion of extra cash lying aroundthe world right now, ready to be deployed in the US. So there it is, that’sthe reason I think the recent dollar rally is the biggest suckers rally ofthe year.This is certainly part of the G7 discussions that are ongoing right now.Each country has enormous borrowing needs of its own, and I can only imaginehow tense the situation is in that room right now. Germany must be having afit right about now, seeing that the US is actively lobbying to unleash theinflationary monsters.So, to answer my own questions:This crisis represents a generalized failure of the monetary system, and thesooner we get to that conclusion, the sooner we can begin to talk aboutsolutions that treat the cause, not the symptoms.The failed institutions are not worth saving, because they represent a modelthat is now broken beyond repair.The current bailout plan cannot work, because it is too small and it isdirected at the symptoms, not the causes.The government cannot afford the cure. But even worse, the US government isalready insolvent (when factoring in entitlement liabilities), and nobody isasking how borrowing an additional 12.5% of GDP does anything but make thatproblem worse.

Alessandro - 10th, 2008 at 5:13 am

The damn comment system ate my reply! And I don’t have time to rewrite it.Short summary: This is the last leg of the global Ponzi scheme, but it will last longer than most people here think. To understand why track the cash flow out of the high yielding debt instruments (issuance, not trading) to the US bonds and back to the same troubled corporations via alphabet soup facilities. Total US debt (personal, corporate, public) is not expanding is just moving from personal/corporate into public debt and so is credit.Think GE. You are holding a GE CP, you get the cash at maturity and buy a Treasury note, the Treasury give the cash to the FED, the FED buy a newly issued GE CP. Cash is back where it started, credit flow is more complex.

Jason BNovember 10th, 2008 at 6:36 am

Yes, but at what point are there no more foreign buyers for treasuries? Or at least all the treasuries that will have to be sold to finance the debt, deficit and bailouts? Then the fed will print to buy them, which is the end of our current system.I dont think domestic buyers switching from CP to Treasuries can make up for for the lack of foreign buyers.

GuestNovember 9th, 2008 at 7:15 pm

This is not going to happen. Period. No main stream Dem has shown support for this. Drumming this up is just scare tactics from the right wingers. Let’s talk reality, m’kay?

GuestNovember 9th, 2008 at 8:16 pm

Well republicans haven’t been all too keen on protecting pension plans when the corporations threaten to go bankrupt and take everything down.Could be interesting;In the interview, Obama said, “The Supreme Court never ventured into the issues of redistribution of wealth, and of more basic issues such as political and economic justice in society.” The Constitution says only what “the states can’t do to you. Says what the Federal government can’t do to you,” and Obama added that the Warren Court wasn’t that radical.Although in 2001 Obama said he was not “optimistic about bringing major redistributive change through the courts,” as president, he would likely have the opportunity to appoint one or more Supreme Court justices.“The real tragedy of the civil rights movement was, um, because the civil rights movement became so court focused that I think there was a tendency to lose track of the political and community organizing and activities on the ground that are able to put together the actual coalition of powers through which you bring about redistributive change,” Obama said.

HubbsNovember 9th, 2008 at 6:51 pm

If foreigners no longer lend to us, then essentially aren’t we the same as if we were in trade war with protectionism born of isolationism? How are we going to make things if credit dries up? If China diverts its cash reserves internally then US can not “afford” to buy China’s products, or anyone elses. The US will have to rebuild its former industries. Where to get the money? The government will have to print it from within, as will each debtor country. The effect will feel the same as if the world were in a wide scale trade war with protectionist barriers.

GuestNovember 9th, 2008 at 8:54 pm

But it will feel good. A country’s borders will mean something again. Can we send back the H1B’s too?

JohnRyskampNovember 9th, 2008 at 7:03 pm

Here’s an update, my little froggies: Obama wants the scum Valerie Jarrett to succeed him in the Senate. Nouriel, you scummy dog, is Jarrett also a person of “leadership, vision and great intelligence.” Nouriel, can you tell us a little bit about how much of a hood you are?? Just a little!!Here’s Evelyn on Jarrett:In his interview with the Tribune on March 14, Obama said Rezko “was a part of our finance committee and was listed as part of our finance committee.”In 2003 and 2004, his finance committee raised the money as the Planning Board scheme was set up and the scandal unraveled. Yet Obama told the Tribune in regard to Rezko, “at that time, there were no indications that he was involved in anything inappropriate.”Apparently, Obama expects the public to believe that nobody on this committee bothered to tell him he received a single contribution of $10,000, and the money came from a person he just recommended for the Board.Other members of the committee included Rezko’s wife Rita, and Valerie Jarrett, who got her jump start into a lucrative real estate career in the Combine’s Daley administration. She now serves as chairman of Obama’s presidential finance committee.Jarrett racked up eight years in Chicago government, first as deputy corporation counsel for Finance and Development, then as deputy chief of staff to Daley and finally, as commissioner of Chicago’s Department of Planning and Development, according to a summary of her achievements obtained from the Business Week website on April 8, 2008.While serving as Commissioner, Jarrett “consolidated the Department of Planning, Economic Development and Urban Renewal; implemented a model program for the revitalization of three Chicago neighborhoods; and created a business express unit to cut red tape to service Chicago businesses,” says the Cook County Information Center.Obama’s introduction into the “Combine” came when his wife Michelle was hired by Jarrett in the early 1990s, and served as Jarrett’s assistant in Daley’s office and followed her to the Department of Planning and Development.Jarrett was appointed chairman of the University of Chicago Medical Center Board in June 2006. She was also made chairman of a newly created Executive Committee of that Board, according to a June 13, 2006 University announcement. In addition, Jarrett was named vice-chair of the University’s Board of Trustees, the announcement states.Michelle landed a high paying job at the University of Chicago Hospitals. Two months after Obama became a US senator, she was appointed vice president for community and external affairs. Tax returns show the promotion nearly tripled her pay to $317,000 in 2005, from $122,000 in 2004.On February 14, 2008, Wilhelm endorsed Obama in a call with reporters, citing the senator’s “masterful” campaign organization and strategy as well as his “undeniable momentum.””He has outworked, outorganized and outraised his opponents every step of the way,” Wilhelm said. “The Obama campaign, win or lose, will serve as a model for future generations to come.”Wilhelm’s firm has received a subpoena for records related to pension fund investments.”Let’s hope Patrick Fitzgerald has enough on the dog-monster Jarrett to indict her!!BAN HOUSING EVICTIONS NOW–BEFORE OBAMA AND HIS HOODS TAKE THEM ALL!!! AND GIVE THE PROCEEDS TO GOLDMAN SACHS. ASSERT YOUR RIGHTS IN ORDER TO PROTECT YOURSELF FROM BEING KILLED BY OBAMA AND HIS CORRUPTION!!!!LET’S GO ON A FEDERAL TAX STRIKE!!!

GSMNovember 9th, 2008 at 7:58 pm

I admit his tone stinks- but sometimes the points he raises are interesting and contrarian. I say let him post , but with better manners.

MedicNovember 9th, 2008 at 8:14 pm

Yeah, like that will happen. The one thing missing from John’s posts is any respect for others. It’s all about him and his agenda. Why did we invite him back?

JohnRyskampNovember 9th, 2008 at 9:07 pm

Gee, I’m just trying to save your lives in spite of the fact that you’re pigs. See how difficult it is?John Ryskamp: Maybe it might be easier if you stopped calling them pigs.John Ryskamp: But they are pigs.John Ryskamp Wull….

GuestNovember 9th, 2008 at 8:04 pm

Hey now, hey now, he does provide some original content and is somewhat entertaining. Just skip his posts if you like, beside what’s wrong with a federal tax strike.

JohnRyskampNovember 9th, 2008 at 9:01 pm

Gee, am I popping readers’ Obamaloons? Just because he’s Barack Capone and will loot the Government, don’t let that lead you to believe that that has any influence on “economics.” Just because corruption and lack of rights led to this fiasco in the first place, don’t let anything “political” interfere with your “thinking.” Idiots.

Bourning_MarketsNovember 9th, 2008 at 8:25 pm

I’m thinking about a G-50 or G-60 compromising and coordinating a Global Public Spending strategy. Monetary policy is now caught in the mother of all Liquidity Traps. But in a globalized world, unilateral keynesian public spending dissipates towards other countries that may not be using that policy. Is sub-optimal, inefficient. Have most countries in the world compromising 10%-15% of their GDP and announcing it openly, that maybe would make a difference. Now everybody is using public money to support dead weights. I’ve translated it to english, you might want to take a look and consider (PDF):

GuestNovember 9th, 2008 at 9:04 pm

The FED is a private company with authority to spend an infinite amount of tax payers money so I don’t see how the freedom of information act can gain any information.

JohnRyskampNovember 9th, 2008 at 9:05 pm

Of course it’s a liquidity trap. We all know that. It’s called “to hell in a handbasket.” I think this is the “basket of commodities” so beloved of mediocre economists (I moiself prefer Sraffa, despite his constructivist mathematics influenced by the loathesome lunatic idiot Georg Cantor–it’s better than that rancid fart Keynes!).The question is (how far behind the curve are you, cher lecteur mon semblable mon frere?), what do you do about the facts on the ground?TAX STRIKE.You’ll see–we’ll get there.As for Jarrett, simply another mafia princess. A pure organized crime play. What IS taking Fitzgerald so long to indict Barack Capone?

chazNovember 10th, 2008 at 7:23 am

JR, I read Pringle’s “Curtain Time” series of essays. There’s some interesting and in many ways damning info there, but no compelling case is made against Obama. It’s all circumstantial, i.e., just another Whitewater that will go nowhere. Breathlessly waiting for a conviction is going to leave you disappointed. (Perhaps grinding axes here on RGE makes you feel better.)And why have such confidence in Fitz? He spat the bit with Plamegate, letting Rove and Armitage off the hook, while merely nabbing Scooter and imprisoning a reporter. Fitz may be a tough MF but he won’t get the Pres.

AnonymousNovember 9th, 2008 at 9:06 pm

Lookout! When national debt as a percent of GDP reaches 83% (currently at 70%)this will trigger a severe recession/depression. Is this possible? As people lose their wealth, jobs, homes and cut back on spending (decreasing GEP)while the government continues to spend at a record pace (increasing debt), it is not only possible but hightly probable! Lookout DOW 6000!

JohnRyskampNovember 9th, 2008 at 9:12 pm

Ha ha! And check out THIS on Jarrett. This woman is a public menace. Scum scum scum:Valerie Jarrett, a senior adviser to Obama’s presidential campaign and a member of his finance committee. Jarrett is the chief executive of Habitat Co., which managed Grove Parc Plaza from 2001 until this [past] winter and co-managed an even larger subsidized complex in Chicago that was seized by the federal government in 2006, after city inspectors found widespread problems.

JohnRyskampNovember 9th, 2008 at 9:13 pm

And come on Nouriel, you loathesome creepo, is Valerie also a person of “leadership, vision and great experience.” Barack called her a “dear friend.” Ha ha! You stupid dog.

JohnRyskampNovember 9th, 2008 at 9:20 pm

More on mafia witch Jarrett!!!!!!!!!!!!!!!!!!!Valerie Jarrett may be someone voters in the 2008 Presidential election should examine. With the recent increase in chatter about Obama’s associations and friendships like Rev Wright, William Ayers, Tony Rezko and Franklin Raines, friends and associates like Valerie Jarrett are getting a free pass on scrutiny in most places but not here. From a Sept 2007 report from Lynn Sweet of the Chicago Sun Times, Jarrett’s importance to Barack Obama is highlighted early in the piece. As a matter of fact her increased role in the campaign over a year ago and her long standing connection to Obama are expressed in the title.WASHINGTON — “She’s always been the other side of Barack’s brain.” That’s how an Obama insider described Valerie Jarrett as an Obama campaign aide announced Thursday night the former CTA chief and current Habitat Co. CEO is taking on a larger role to help her close friend win his White House bid.Valerie Jarrett’s involvement with Habitat Co and the dismal management of rental property in Chicago was referenced in an earlier post on this blog. Valerie Jarrett, a senior adviser to Obama’s presidential campaign and a member of his finance committee. Jarrett is the chief executive of Habitat Co., which managed Grove Parc Plaza from 2001 until this winter and co-managed an even larger subsidized complex in Chicago that was seized by the federal government in 2006, after city inspectors found widespread problems.The dramatic failure above is representative of many of Obama’s friends and associates in their real estate dealings with many of them having a connection to the Daley Chicago Political machine, the University of Chicago and other groups and organizations common to Obama’s history. While the portion of the Lynn Sweet report below suggests Jarrett’s ambitions point to a future as Mayor of Chicago, the concern should be the probability of her landing in a potential Obama cabinet or other high level job in a presidential administration.Jarrett has a close, long relationship with both Barack and Michelle Obama. Like the Obamas, Jarrett is a South Sider with deep ties to the University of Chicago.Jarrett met Barack as she was hiring Michelle to work with her in Mayor Daley’s City Hall, where she served in a variety of top positions. Jarrett was finance chair of Obama’s 2004 Senate bid and once he was elected, was the treasurer of HOPEFUND, Obama’s political action committee. Jarrett’s resume and connections could make her a contender to succeed Daley.With so many references to Barack Obama citing links to other countries including his time in Indonesia and foreign born associates as well as suggestions he has taken millions in foreign campaign contributions, Valerie Jarrett has ties to Iran. She was born there according to a Wiki bio. Okay, bring on the complaints that this sort of announcement is biased or unfair, etc. Sorry to offend anyone (not really) but there are just to many foreign links related to Barack Obama to simply be coincidence. It is a trend or pattern. And for many it is a disturbing trend or pattern.But what is more troubling is the large number of common characteristics of Obama friends and associates. The earlier post on this blog called ‘Obama Accomplices’ features the laundry list of the likes of Jarrett and Rezko and their slumlord reputations in Chicago Real Estate. The links between Jarrett, the Obamas, the law firms and the office of Mayer Daley as well as foundations and political groups that share a far left liberal if not socialist set of agendas. The Chicago Annenberg Challenge featuring Barack Obama and domestic terrorist William Ayers promoting leftist social justice rather than real education reform and being supported and lauded by none other than Mayor Daley is another piece of history that points to the radical nature of Obama and his bid for the White House.Valerie Jarrett is central to this agenda which would be the Obama Administration if elected to office this November.Obama adviser shapes city housing policyBy Jason Grotto and Laurie Cohen | Chicago Tribune reportersJuly 5, 2008Valerie Jarrett, a close adviser to Barack Obama, stands at the center of Chicago’s controversial efforts to redevelop public housing.With the near criminal practices of Valerie Jarrett and other Obama friends in Chicago real estate ventures as documented in a post in this blog and the report above how can anyone support her continued involvement in public housing or the candidacy of a man who chooses friends/advisors so carelessly? Jarrett’s connection to the Chicago Housing Authority goes back decades when her grandfather was involved.The questionable philosophical, political and financial histories of the people surrounding the Obama 2008 campaign should set off alarms across the board in the voting public. Those who blindly support Barack Obama for President including the far left fringe and the MSM are carefully distracting the public from these facts. There is little time left before the election and it is good that the McCain campaign is finally focusing on these matters. It will take more of us who understand the dangerous nature of Barack Obama for president to avoid a big mistake being made in November by misinformed voters not to mention all the fraudulent voters that Obama’s ACORN friends have perpetrated.

MosesNovember 10th, 2008 at 4:43 am

@John,Thanks for the information. It is a GOOD THING to have a Dr. Doom on political matters involved on this thread. Always helpful to see what the possible downside, the unintended consequence, is of the bankrupt political system.I guess that the only thing which will flush all this crap down into the sewer where it belongs is a revolution. If your worst fears come true then we will need someone to run SIM-CITY scenarios so we can begin to catch a glimpse of what the “true” future for our world will look like to set us free from this “slavery”. Maybe it will be like what happened to the Jews when Moses set them free from Egyptian captivity.

CHRIS DAVISNovember 9th, 2008 at 10:04 pm

COMMENTS ON ARMAGEDDON:vs. July highs of $147/bbl, global savings on crude @85m bbl/day = $2.5tn/yr(gross)to consuming nations. Significant savings on rest of commodity complex, also.OK, let’s say 10m US mortgages underwater: you want to stop foreclosures? It’s easy: 10m mortgages x$300k/ea = $3.0tn @7% total payment factor = $210bn annual servicing cost, 50% of which = $105bn,which Uncle can borrow at 3% a year, for $3bn out of pocket to shore up $3tn of mortgages = 1000:1leverage. No big deal.More significantly, are BOTH political parties too idiotic to implement this, or similar low cost plan? Who knows? (Rahmbo Emmanuel is fixated on passing a comprehensive, Belgian-style health careplan in January 2009. What the Dems haven’t told their loyal, but mindless followers is that all theother OECD countries which have a single payer system employ RATIONNING FOR OLD PEOPLE, REPEAT, RATIONNING)

MedicNovember 9th, 2008 at 10:33 pm

Chris (though you sound suspiciously like John);We already ration healthcare here. Don’t think so? Try getting in to see your personal physician in the next 12 hours. You likely will not be able to. Now try to get in to see a specialist like a urologist in the same time frame – won’t happen.There is a reasonable thought process behind your statement about not spending large amounts of limited funds on the elderly. First of all, in US we spend 75% of all Medicare dollars in the last 6 months of life. Does that sound like good utilization of resources to you? Really, with life expectancy of 76-82, why would you think that more resources utilized in the latter stages of life would be truly beneficial?As an example, let me use a member of my own family. Two years ago, my 90 year old grand mother was diagnosed with colon cancer. The options were: perform surgery and remove the cancer (hopeful, but risky) or make her comfortable. She had many other medical problems that made any attempts at surgery very risky. I was concerned that she would have a stroke or heart attack and be further debilitated and not cured with surgery and that would cause her to lose any chance at enjoying her last months. Her doctor disagreed and talked her into surgery.She was operated on and did well for 2 days, then she had a stroke and spent the next 2 months in a nursing home trying to rehab. She finally made it home, but only days later we found her to be jaundiced and discovered that surgery was not effective and the cancer was back and now worse.She died shortly thereafter, never having made it back to her childhood home several hours away – which was her wish when first diagnosed.The point? The Medicare system spent a very large amount of money for ineffective treatments that led to further costs due to complications. The original decision was wrong because of her co-morbidities and thus the cost of treatment vs. paliative care was much higher with the same ultimate outcome. Also her quality of life for the last 3 months of her life was poor.Why do we do this? It defies logic (we all die) and can boarder on inhumane. Reasonableness is missing in our current system – and facing the fact of death is difficult for patients and families – but it is a fact of life. No one is exempt.

CHRIS DAVISNovember 10th, 2008 at 12:20 am

Hey Medic,totally agree US needs to call a halt to unlimited procedures for the elderly NOW!!Under Bush, total federal liabilities have more than doubled to $67tn, with Medicare’s$9tn actuarial deficit accounting for the largest single item. But Dems want to increasethe pool of people eligible for unlimited procedures:this is what my liberal dorm matesfrom harvard aren’t telling you on the nightly news —

GuestNovember 10th, 2008 at 1:31 am

Reasonableness is missing in our current system

Sure is. Look at all of the millions upon millions U.S. spends in the military.But it is impossible to always know whether a medical procedure will definitely help or whether the patient would soon die anyway. So this type of cases will always happen.Actually if U.S. would cut their military spending by 50%, they could well afford to medical care for their elderly.OK, so it is very unlikely that they would reduce military spending. How about then taking the same mentality with medicare as they do with $$ funnelled to Wall Street? It is funny that there is always unlimited amount of $$ to give to financial institutions and military. But when it comes to money for Medicare or social security, complainers start popping up like mushrooms after rain…

MedicNovember 10th, 2008 at 6:37 am

Guest -Military and healthacre spending are different – I do agree that military budgets can and should be cut by significant amounts. But healthcare can also be improved. Your comment above regarding procedures’ effectiveness being an unknown is partly correct – we never know 100% what will work and be effective, but we do know with great accuracy what is likely to help and what is likely to make matters worse.The psychology of life and death is complicated, but we seem to believe that everything can and should be done so that nothing is left as a possibility that might have been helpful. What we deal with often not about the patients, but their families feeling guilty. But we can do better and help them move towards acceptance of death instead of letting them think heroics have much of a chance. The best possible scenario should be that people who have a good chance should be given that chance and people with very low probability of improving should be made comfortable. That is the humane approach.

GuestNovember 9th, 2008 at 11:12 pm

Bloomberg said Nov. 7 in ““Absolute Enforcer’ Emanuel Given Big Role by Obama,” that “Barack Obama once joked at a charity dinner that when Rahm Emanuel severed his middle finger, it almost rendered him mute.”Said Bloomberg: “Obama announced that Emanuel, an often-profane, combative Chicago congressman versed in the ways of the White House and Capitol Hill, would have one of the biggest voices in his administration: chief of staff.”It’s a role akin to being the chief operating officer of the nation, the gatekeeper to the Oval Office…”Obama and Vice President-elect Joe Biden then went on to meet with billionaire investor Warren Buffett, former Securities and Exchange Commission Chairman William Donaldson, former Treasury Secretary and Citigroup Inc. senior counselor Robert Rubin, former Federal Reserve Chairman Paul Volcker and other members of his team of economic advisers.”Emanuel will be at his side…” said BloombergAccounts say that every other word uttered by this man, Emanuel, who is to be one of “our biggest voices,” is the “f” word. IMO, he and his severed middle finger are a caricature of human venality, a symbol of the shoddy political cesspit Washington, DC, has become, where the pornographic destruction of human values is debauching the American soul.

GuestNovember 9th, 2008 at 11:22 pm

AIG, U.S. May Expand Bailout to $150 Billion, Cut Interest RateNov. 10 (Bloomberg) – American International Group Inc., the insurer bailed out by the U.S., may get an expanded government rescue package valued at more than $150 billion that includes lower interest rates and more time to repay the debt.The U.S. will cut the original $85 billion loan that saved the New York-based insurer in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by AIG, according to a person familiar with the matter. The funds will help AIG retire part of its credit-default swap portfolio and bolster its securities lending operations, said the person, who declined to be identified because the plan hasn’t been officially announced…

CHRIS DAVISNovember 10th, 2008 at 12:13 am

Paulson should have already created a COMPLETE CDS book by now and gotten to work on it, not let DTC do its half-assed effort

Octavio RichettaNovember 10th, 2008 at 5:02 am

The Chinese do it their way. In Amerika we do it the Paulson (GS) way:150 billion USD each (no strings attached) into the largest 6 Insurance-financial outfits=900 billion (JPM, BS, BA, ML, AIG, GSEs). Datz what we call efficient use of taxpayer money. Then, we say there is no money left to patch potholes, repair falling bridges built before WWII, even WWI.These WS outfits should have been taken over by the government at no cost, and then use the money to rebuild them with a focus on activities that really help the economy instead of their management. The key concern seems to be that they do not loose their talent! The talent that got us into this mess! They should all be fired!We are most definitely not in the business of “spreading wealth around”. As many have said, that is what would real be dangerous for the country. Best give it to the WS boys for their looting activities. Those who jumped so aggressively at Obi’s most famous remark to date remind me of an old Roman Circus joke:The Romans had this Cristian buried to his neck in the coliseum arena, he was supposed to fight a lion just using his head. When the lion attacked, the Cristian managed to take a good bite at one of the lion’s rear legs; The crowd got up shouting repeatedly “gag him, gag him, the bastard is cheating!”People are lazy but they will start to get mad/move their behinds as the economy worsens…There was a NYT this weekend by Shiller on wealth inequality being the most pressing issue for the new administration. I don’t think the way we have tried to save the economy will do much on this front.

GSMNovember 9th, 2008 at 11:45 pm

This is monopoly money. It’s only a matter of time before US creditors accross the globe say enough is enough- we won’t be caught holding this baby when she blows.How about gold and PM’s as the coming new bubble?

CHRIS DAVISNovember 10th, 2008 at 12:10 am

not Monopoly money:if funds are an asset swap, like most of TARP. You need to study 1992 Scandanavian credit bubble bail outs before you make sweeping statements about money creation

GSMNovember 10th, 2008 at 12:39 am

It’s money creation by slieght of hand. You give me your wothless paper crap , I swap it for you with new crisp US Treasuries, which you can turn to cash anytime you like (but don’t). This works fine until on the margins those already holding treasuries get so nervous they start reducing exposure to US treasury debt. The Fed has become the Super SIV.Now, when Ford, GM and Chrysler stick their hand out for the mannah, plus countless others, that line reaching all the way back to the US taxpayer’s pockets is starting to look rather long to the creditors standing in it.Call it what you like CHRIS DAVIS,that is semantics. This is USD debasement at it’s core, hollowed out from the inside.

GuestNovember 10th, 2008 at 1:41 am

@JohnRyskamp on 2008-11-09 12:41:10

Israel, Schmisrael. Emanuel’s real problem is that he’s a card carrying member of the Combine. Let’s hope Fitzgerald has enough on him to indict him. He’s a dog, like the rest of Obama’s looter crew.That’s all they’re going to do: loot. I hope you’re not stupid and ignorant enough to think Obama is there to do anything but loot.

I am starting to wonder if Ryskamp is saying this because he is rasistic?On another note, Ryskamp, how is your “no eviction” plan suppose to work without leading to squatters?

Octavio RichettaNovember 10th, 2008 at 5:10 am Street jobs axe threatens 70,000By Francesco Guerrera and Aline van Duyn in New YorkPublished: November 9 2008 23:32 | Last updated: November 9 2008 23:32The financial industry is bracing for a fresh round of job cuts as Wall Street banks slash costs to cushion the blow of further market turbulence and deepening economic woes in 2009.Executives and analysts say the redundancies – to be finalised this month as banks prepare next year’s budgets – could top 70,000 among US groups alone and add to the estimated 150,000 jobs already lost by the financial sector worldwide.EDITOR’S CHOICEFull coverage: US downturn – Oct-03Video: View From The Markets – Meredith Whitney – Nov-10Buying of US toxic assets urged – Nov-09Clive Crook: The choices that confront America – Nov-09Turmoil in labour market deepens – Nov-07Obama set to push ‘big bang’ reform package – Nov-09The job losses are expected to be concentrated in the investment banking and trading businesses that have been hit hard by the near-freeze in capital markets and the collapse in takeover and financing activity.The continued shrinking of the banking industry will deepen the economic plight of financial centres such as New York, London and Hong Kong by reducing tax revenues and putting pressure on the local housing market.“The fourth quarter is going to be very disruptive,” Meredith Whitney, analyst at Oppenheimer, said in a video interview with the Financial Times. “For many of the capital markets intensive players, you’re going to have resizing of anywhere from 25 to 30 per cent of their workforce. But if you think about it, from the peak, revenues are down more than that.”Goldman Sachs, which has fared better than many rivals during the downturn, last week began a planned 10 per cent reduction in its 32,500-strong global workforce. That cut is part of the expected fourth-quarter cull.Most other US banks have already announced cuts.Citigroup is in the midst of scrapping 23,000 jobs, Merrill Lynch has lost an estimated 5,700 – nearly 9 per cent of staff – while Morgan Stanley has made 4,400 workers redundant, according to Bloomberg data.These redundancies came on top of the estimated 23,000 jobs lost after the collapses of Bear Stearns and Lehman Brothers.But bankers say more is to come as the industry’s revenues continue to fall in the fourth quarter and show little sign of improving in 2009.A senior executive predicted that, based on his company’s own estimates, the next round of redundancies among US-based firms could reach 70,000.A recent study by the Federal Reserve concluded that New York city alone could lose between 55,000 and 78,000 financial jobs over the next few years.Most banks declined to comment on their redundancy plans, saying they had yet to be finalised.Analysts said the more likely candidates for further cuts included Merrill Lynch, which is about to be bought by Bank of America, Citigroup, and securities groups such as Morgan Stanley and Goldman Sachs, which are reliant on capital markets activity.

Octavio RichettaNovember 10th, 2008 at 5:14 am,dwp_uuid=b8efc2ae-d98d-11dc-bd4d-0000779fd2ac.htmlObama set to push ‘big bang’ reform packageBy Edward Luce in ‘WashingtonPublished: November 9 2008 19:17 | Last updated: November 9 2008 19:17US President-elect Barack Obama intends to push a comprehensive programme of social and economic reform beyond an immediate emergency stimulus package, Rahm Emanuel, the next White House chief of staff, indicated on Sunday.Mr Emanuel brushed aside concerns that an Obama administration would risk taking on too much when it takes office in January. He said Mr Obama saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.EDITOR’S CHOICEAnalysis: Team Obama – Nov-07Full coverage: The Obama transition – Nov-07Obama to review Wall St bail-out – Nov-08John Gapper blog: Summers for Treasury chief? – Nov-07Obama appoints key White House aides – Nov-07Woman in the News: Michelle Obama – Nov-07Tackling the meltdown would not entail delays in plans for far-reaching energy, healthcare and education reforms when all three were also in crisis, he said. “These are crises you can no longer afford to postpone [addressing].”Mr Emanuel, Mr Obama’s first appointment after his emphatic victory over John McCain last week, added that Mr Obama would push hard during the 11-week transition before he is inaugurated for early assistance to the collapsing US car industry, which he described as “an essential part of our economy”.His comments increased pressure on George W. Bush to approve a widely-touted $25bn emergency package for Detroit – possibly as part of a second emergency stimulus package to stave off further decline in the rapidly deteriorating US economy.Mr Obama will meet Mr Bush on Monday and is likely to seek the outgoing president’s reassurance that he would not veto any stimulus package that could be passed as soon as next week when Congress meets for a “lame duck” session.Sunday’s comments also reinforce the impression that Mr Obama’s transition economic advisory board – which includes leading lights of the Clinton era, such as Lawrence Summers and Robert Rubin – is tilting heavily towards a “big bang” approach that would combine a short-term stimulus with large public investments to raise the longer-term US growth rate.In a radio address to the nation on Saturday, Mr Obama emphasised the urgency both of passing a fiscal stimulus package, which could include a middle-class tax cut, and of moving swiftly ahead on long-term public investments.“We can’t afford to wait on moving forward on the key priorities that I identified during the campaign, including clean energy, healthcare, education and tax relief for middle-class families,” said Mr Obama. “We also need a rescue plan for the middle class that invests in immediate efforts to create jobs and provides relief to families watching their paychecks shrink and their life savings disappear.”Economists have estimated the US budget deficit could more than double next year to almost $1,000bn, raising concerns about whether Mr Obama could deliver on expensive campaign promises including $150bn in investments in alternative energy over the next decade and a $60bn-$110bn plan to provide universal health insurance for Americans.In contrast to 1992, when Mr Clinton postponed longer-term investments in favour of urgent budget deficit reduction, advisers to Mr Obama, including Mr Summers, who is tipped by some as his first Treasury secretary, are tilting towards investments. They emphasise that Mr Obama will stick to a medium-term goal of restoring fiscal discipline.

GuestNovember 10th, 2008 at 9:31 am

Out with Paulson, in with Emanuel and Summers — Obama, their marionette, moves at the jerk of a string.America goes from Hell, deeper into Hell.

Alessandro - 10th, 2008 at 5:14 am

@OuterBeltway on 2008-11-09 18:01:15[duplicate]The damn comment system ate my reply! And I don’t have time to rewrite it.Short summary: This is the last leg of the global Ponzi scheme, but it will last longer than most people here think. To understand why track the cash flow out of the high yielding debt instruments (issuance, not trading) to the US bonds and back to the same troubled corporations via alphabet soup facilities. Total US debt (personal, corporate, public) is not expanding is just moving from personal/corporate into public debt and so is credit.Think GE. You are holding a GE CP, you get the cash at maturity and buy a Treasury note, the Treasury give the cash to the FED, the FED buy a newly issued GE CP. Cash is back where it started, credit flow is more complex.

GuestNovember 10th, 2008 at 5:23 am

CNN: The government is giving more money to troubled insurance giant AIG, including $40 billion in return for partial ownership.

Ray TurkhanNovember 10th, 2008 at 5:38 am

There is just one thing I like to know… Where is a safe place to park ones money? I just want to preserve my wealth and avoid getting caught in a commodity or currency that tanks. Can anyone offer insight? I wish Nouriel Roubini would make a clear suggestion in this regard – he once said that cash was king but a week ago on BNN he said the USD would be weaker in a years time – so not sure what his stance is…

GOLDMAN, AIG, AND THE "BIG" BANKNovember 10th, 2008 at 6:26 am


GuestNovember 10th, 2008 at 6:34 am

Magical formula for any bank, or indeed any company, to get the too-big-to-fail status: Take big risks and hope for big returns. The key is to design the portfolio such that every risky asset of yours is totally intertwined with the system (if those assets lose value drastically, 15 other companies’ assets do, too). Borrow as much as you can to buy these risky assets which can be a “threat” to the system (they “have” to be a so-called threat to the system to get the too-big-to-fail status).

GuestNovember 10th, 2008 at 6:44 am

Roubini has been guest hosting cnbc this morning — I wish they would let us know in advance (I’m trying to cut down watching CNBC and just turned it on now)

OuterBeltwayNovember 10th, 2008 at 7:57 am

@GSM, PeteCA, JasonB, Alessandro, AfA:OK. Looks like we’ve got convergence on “we’re heading toward inflation because we going to need massive new and rollover of massive existing short-term debt”.We have some good push-back from Alessandro on the timing per his insight on rotating debt from Treasury to industry. This is limited by the amount of new debt that Treasury can raise, but it’s a factor.Are we agreed on the general trend? Can anyone refute the trend? If not, I suggest we zero in on two dimensions.Question one: What’s the timing? JasonB’s excellent post tells us that the impending 3-6 months roll-over of $1.5T in short-term debt is one major wave. Who can tell us when the Fed goes into the market, in normal times, to fund its operations? Do we have a Fed funding operations guru on-deck? Calling all cars: when are the funding spikes during a normal Fed fiscal year, and is the timing of the spikes likely to change due to circumstances (e.g. auto bailout, and next “stimulus package”).Question two: What are the moves? We know that other countries already have strong claims on what remains of their savings. What is their calculus?a. Use the local-currency savings to do local stimulusb. Use the foreign-currency savings to:b.1. covert to local, direct to stimulus. This would mean selling UST/US agency holdingsb.2. leave in UST/USA positionsWould increased interest really change their thinking? Is rent-rate on their savings going to matter to our creditors’ decision-making?Let me ask you more directly. What do you see as the alternatives available to the Fed and the Treasury and Congress. There are a few more alternatives beyond simple “print money”. That is just yet another bailout, “treating the symptoms”, as JasonB puts it. Another alternative is to conduct a major political fight about spending. There are other alternatives. If there aren’t, then we have arrived at the right place and time to generate them.But let’s take a second to accurately set the context for the debate. What are the possible moves from within our shores, and among our creditors in Asia, ME, and Europe?I invite all interested observers to pile on.

PeteCANovember 10th, 2008 at 8:47 am

You should wait and see what effect the new stimulus package for China has – on investments flowing from the West to Asia. This move by China really gets to the heart of the global problem and the solution. China has $600 billion in surplus that they can use to fix any economic problems that are developing in their country. America does NOT have the same money – so the only thing that Obama and the Dems can do is to borrow more money (increase US debt) in order to try to create a stimulus for the USA. See the point? One stimulus is based on real money from real productivity. The other stimulus is illusory … it just expands debt. If the Chinese stimulus works (for China and Asia) then they will not need to buy some many US treasuries.PeteCA

OuterBeltwayNovember 10th, 2008 at 9:43 am

PeteCA:I halfway agree with you. I agree that China is using their own money for their stimulus, not borrowed money. But that doesn’t necessarily mean they’ve got a solution, and we don’t. Our situations are very different, and spending money doesn’t necessarily equate to results.To wit: If China spends their remaining savings on increasing production, what does that give them if no one’s buying? China has to increase consumption domestically, or find another trading partner that has savings (or can borrow) in order to buy their increased output. I do expect China to increase domestic consumption, and to increase domestic investment. That solution will work for them for years to come. They have all Asia to bring up to the West’s standard of living. That’s a lot of demand. That explains why Jim Rogers moved to Asia.In contrast, the U.S. doesn’t actually have any of its own savings to spend on either consumption or investment. The U.S. already consumes too much – it has the opposite of China’s problem.The U.S. has (at least) two choices: cut spending and re-program via actual political debate (“Adult Democracy Method“), or do a phony fiat-borrowing from itself (inflation) to forcibly move money from people’s savings into some Fiscal Stimulus Band-Aid Zone. This the is “Continued Looting Via Lollipops for Dummies method“.Neither of the re-programming options are well-debated, thought out, or systematic. They are spastic, reactionary bailouts instead of comprehensive re-designs of the economy.For the U.S., mercantilism ended a while ago. Colonialism has passed its economically viable point. The West has now arrived firmly on the doorstep of the 21st century. Finally.Now, what’s next?

PeteCANovember 10th, 2008 at 9:55 am

China’s move could be a very big one. They stand the chance of really tipping the momentum of global trade at this juncture. Will this be the “stimulus that changes everything”, or just a temporary shot-in-the-arm for the Chinese (and Asian) economy? We don’t know. But we’re going to find out. If this change marks the rise of the “Chinese comsumer” as a force to be reckoned with, then it’s a big deal.PeteCA

AfANovember 10th, 2008 at 10:26 am

It is true that the Chinese economic stimulus is a large one, but speculating on its success is dependent on knowing details about where how much funds will be “invested”, how long before any beneficial effects will show up (beyond any market euphoria) and who will benefit.However, comparatively speaking, it is clear that the Chinese stimulus plan is superior to the past US one, not just $wise by where and how funds are directed. A major point in that plan is reduction in taxes, where most of the plan is directed internally.Judging from a piece of information appearing on Bloomberg over the weekend (that made me laugh), the Chinese finance minister, interrupted his participation in a G20 meeting to “fix economy” in a clear sign (according to me) that China is declaring that everyone’s on its own now, no matter what other countries or analysts are saying.What does this mean for US? I fail to see how that the American economy would benefit from this plan, that is directed stimulate internal investment and consumption, in fact, I believe it is directed to Chinese “intermediate or supply-side consumption” (that of companies as opposed to people). A $600B for China’s economy is a $600B less for US’s debt (re)financing. There might be some benefit for some US multinationals in the margin, but I believe that risks largely outweight any benefit.This will just make US one step closer to the day of reckoning you are asking about OB. From my perspective, I would recommend that you consider an attempt by FAT (Fed, Admin, Treasury) to inflate our way out and monetize debt, when time comes, as a fait-accompli, an exogenous variable, which we do not have much influence over it (for the sake of planning). So think accordingly, it is the alternative scenario (gov wises up) that should be based on for as a contingency plan.

Jason BNovember 10th, 2008 at 10:08 am

PeteCA-If the Chinese spend $600B domestically, that is money that is not going to buy treasuries. Even worse, they may sell treasuries to fund that domestic stimulus.The danger I see is that the Chinese will no longer sterilize our debt and deficit payments by purchasing and sitting on treasuries.

OuterBeltwayNovember 10th, 2008 at 10:27 am

JasonB:I concur. The impact of China’s spending savings on consumption or internal investment .vs. the mercantilism play (holding savings in dollars to keep exchange rates favorable) may be decisive.I know asking “what’s next” is like asking our society to scale a 1000′ vertical cliff.But the cliff is here. The Sentient Beings of the West must see, accept, and start generating solutions.What’s next?

2centsNovember 10th, 2008 at 10:33 am

@OBWhat has the government done in the past when it needed money it didn’t have? The current method is to sell debt to foreigners. Given Asia’s Japan’s and Europe’s fiscal condition, this is non-operandi now. Then there is the Gulf States. While the Gulf States aren’t in terrible fiscal condition, their bubble-gum machine is broken. Exorbitant profits are not there anymore, therefore they will be much more conservative going forward.Just before this method, the US sold debt to it’s citizens. This is not a likely scenario going forward, because we basically shifted out of this mode when our needs exceeded our internal funding capability. If this were to become the method of funding it would just increase the feedback factor in the current spiral i.e. less money will be available for capital investing/spending.There are really no other options I can think of! (emerging countries — no way, confiscate foreign assets — ??? very risky, default internationally — ??? same risky, default nationally — ??? bye, bye republic, little green men — ??? bring e’m on)I think that given the situation, we will end up funding internally. This will be done similarly to the way War Bonds were done, except forced. Yes, it will increase the feedback factor but it will be ‘sold’ as necessary for US survival. Since the banks are being nationalized anyhow, soon all paychecks will be electronically deposited into a nationalized bank. Directly off the top will come a ‘forced savings amount’ based on your financial category/ranking. This forced savings will be diverted to fund US operating budget. It will be combined with current retirement accounts to ‘supplement’ Social Security. All funds in this setup will pay guaranteed Treasury rates.People will be disgusted by retirement plan losses and will gladly accept guaranteed Treasury rates going forward. Furthermore, people are learning that credit can be destructive and that forced savings are probably a necessary lesson and will accept this intrusion. Going forward, this will eventually fill the financial pit, but the problem then becomes similar to Social Security/Medicare. Just how will we ever unwind those obligations long term. Today’s money will go towards paying off yesterday’s debts which were borrowed from tomorrow’s earnings. Of course rest assured that once you do not have any earnings anymore this money plus interest will ‘be there’ for you to draw down and live happily ever after.

AnonymousNovember 10th, 2008 at 8:37 am

Prof. Roubini for he United States Secretary of the Treasury. Everyone else just says stuff. He says stuff that makes sense whether we want to hear it or not. The Fed could use a dose of reality.

Dan WNovember 10th, 2008 at 9:00 am

“…President Obama will also choose a first rate economic team: individuals such as Larry Summers and Tim Geithner would be excellent choices for the position of Treasury Secretary…”You’ve lost me here Doc. more of the same Keynesian growth-obssessed SHITHEADS as far as I can see.

GuestNovember 10th, 2008 at 9:17 am

A Quiet Windfall For U.S. BanksWith Attention on Bailout Debate, Treasury Made Change to Tax PolicyBy Amit R. PaleyWashington Post Staff WriterMonday, November 10, 2008The financial world was fixated on Capitol Hill as Congress battled over the Bush administration’s request for a $700 billion bailout of the banking industry. In the midst of this late September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.”Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no,” said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. “They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks.”

GuestNovember 10th, 2008 at 10:09 am

The Buffet Formula:(WFC + WB) – C = Taxpayer pays WBWhat a nice man he is; saving the taxpayer from having to subsidize the purchase of Wachovia by Citi by having his own Wells Fargo purchase Wachovia at seven times the price Citi was offering. Of course thanks to the change in rules the taxpayer is still on the hook perhaps for even more, but at least it’s going to a good cause as in WB (Warren Buffett).Why Wells Fargo Really Wanted Wachovia

GuestNovember 10th, 2008 at 12:45 pm

and then form a charitable trust to depose of those profits… i see his bottom line improving but there still is the question of all of those tents in the parking spaces.

GuestNovember 10th, 2008 at 9:17 am

Notwithstanding the pop in the markets these past couple of days – Goldman Sachs continues to fade, now trading at $72 what’s up with that? GS

GuestNovember 10th, 2008 at 9:41 am

Here are the links to Roubini on CNBC this morningRoubini on CNBC November 10 (part 1 )Roubini on CNBC November 10 (part 2 )Roubini on CNBC November 10 (part 3 )Roubini on CNBC November 10 (part 4)Roubini on CNBC November 10 (part 5)Additional clips where he participated a bit in the conversationRoubini on CNBC November 10 (advertising industry – not much Roubini in this clip )Roubini on CNBC November 10 (Auto industry not much Roubini in this clip)Roubini on CNBC November 10 (Jobs – not much Roubini in this clip)

AnonymousNovember 10th, 2008 at 10:25 am

Prof Roubini: Can you explain how higher capital gain and corporate taxes will improve the US economy during a two year, profound global recession?

Richard GaleNovember 12th, 2008 at 9:44 pm

You overlook the fact that Pres Carter killed our energy independence by blockingg nuclear power and the Dems in Congress blocked all efforts to develop other sources of viable power supplies therby causing the disasterious spike in fuel costs. Combine that with the DEms easy credit policies and Obama spending Millions of dollars for months broadcasting doom and gloom, and the downturn was inevitable. Obama bought the election but with the severe price of the recession. He got what he deserves and now he had better fix it. Blaming the Republicans won’t cut it with any inteligent citizens.

AnonymousNovember 12th, 2008 at 10:22 pm

I really have to question your judgment when you say Larry Summers and Tim Geithner are good choices for Treasury Secretary. Talk about putting the fox in charge of the henhouse.

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