Nouriel Roubini's Global EconoMonitor

20 Reasons Why the U.S. Consumer is Capitulating, thus Triggering the Worst U.S. Recession in Decades

Today’s news about October retail sales (-2.8% relative to the previous month and now down in real terms for five months in a row) confirm what this forum has been arguing for a while, i.e. that the U.S. has entered its most severe consumer-led recession in decades. At this rate of free fall in consumption real GDP growth could be a whopping 5% negative or even worse in Q4 of 2008. And this is not a temporary phenomenon as almost all of the fundamentals driving consumption are heading south on a persistent and structural basis. Consider the many severe negative factors affecting consumption. One can count at least 20 separate or complementary causes that will sharply reduce consumption in the next several years:

· The US consumer is shopped-out having spent for the last few years well above its means.

· The US consumer is saving-less as the already low household savings rate at the beginning of this decade went to zero/negative by 2006 and has now to raise to more sustainable levels.

· The US consumer is debt burdened with the debt to disposable income having increased from 70% in the early 1990s to 100% in 2000 and to 140% in 2008.

· Not only debt ratios are high and rising but debt servicing ratios are also high and rising having gone from 11% in 2000 to almost 15% now as the interest rate on mortgages and consumer debt is resetting at higher levels.

· The value of housing wealth is now sharply falling by over $6 trillion as home price depreciation will soon be 30% and reach a cumulative fall of over 40% by 2010. Recent estimates of this wealth effect suggest that the effect may be closer to 12-14% rather than the historical 5-7%. And with home prices falling over 30% about 40% of all households with a mortgage (or 21 million out of 50 who have a mortgage) will be under water (negative equity in their homes) with a huge incentive to walk away from their homes.

· Mortgage equity withdrawal (MEW) is collapsing from $700 billion annualized in 2005 to less than $20 in Q2 of this year. Thus, with falling housing wealth and collapsing MEH US households cannot use their homes anymore as ATM machines borrowing against them.

· The value of the equity wealth of US households has fallen by almost 50%, another ugly wealth effect on consumption.

· The credit crunch is becoming more severe as the recent Q2 flow of funds data and the Fed Loan Officers’ Survey suggests: it is spreading from sub-prime to near prime to prime mortgages and home equity loans; and from mortgages to credit cards, auto loans and student loans. Both the price and the quantity of credit are sharply tightening.

· Consumer confidence is down to levels not seen since the 1973-75 and 1980-82 recessions.

· Real wage growth and real income growth has been stagnant in the last few years as income and wealth inequality has been rising. And now with GDP and real incomes falling real consumption will fall sharply.

· The Fed is reaching the zero-bound on interest rates as the economy gets close to deflation given the slack in goods, labor and commodity markets. Deflation means that consumers will postpone consumption as future prices are lower than current prices, as real rates are positive and rising and as debt deflation increases the real value of the households nominal debts

· Employment has been falling for 10 months in a row and the rate of job losses is now accelerating. In the last recession in 2001 that was short and shallow (8 months from March to November 2001 with a cumulative fall in GDP of only 0.4%) job losses continued all the way until August 2003 with a job loss recovery and a total cumulative loss of jobs of over 5 million from the peak. In this cycle job losses have been so far “only” slightly over 1 million while labor market conditions are severely worsening based on all forward looking indicators such as initial and continuing claims for unemployment benefits. Massive job losses and concerns about job losses will further dampen current and expected income and further contract consumption.

· Tax rebates of over $100 billion failed to stimulate real consumption earlier in 2008. Only 25% of the tax rebate was spent as US consumers are worried about jobs and need to use funds to pay their credit card and mortgage. The tax rebate was supposed to boost consumption all the way through September 2008: in reality real retail sales and real personal spending rose only in April and May while starting in June and all the way in July, August, September, October and now into the holiday season real retail spending and real personal spending are down month after month. Thus, another general tax rebate would be as ineffective as the first one in boosting consumption.

· The 1990-91 and 2001 recessions were not global; this time around the IMF is forecasting a global recession for 2009.

· The recent rise in inflation – that is only now slowing down – reduced real incomes even further for lower income households who spend more than the average households on gas, transportation, energy and food. The recent sharp fall in gasoline and energy prices will increase real incomes by a modest amount (about $150 billion) but the losses of real disposable income and thus falling consumption from other sources (wealth, income, debt servicing ratios) are much larger and more significant.

· The trade weighted fall in the value of the U.S. dollar since 2002 has worsened the terms of trade of the US and reduced further real disposable income and the purchasing power of US consumers over foreign goods.

· With consumption being over 71% of GDP a sharp and persistent contraction of consumption all the way through at least Q4 of 2009 implies a more severe recession than otherwise. Consumption did not fall even a single quarter in the 2001 recession and one has to go back to 1990-91 to see a single quarter of negative consumption growth. But the worsening balance sheet of US consumers in 1990-91 (debt ratios, debt servicing ratios, employment contraction, wealth effects of housing and stock markets) was much less severe than the current downturn.

· Monetary easing will not stimulate durable consumption and demand for residential housing as demand for such capital goods becomes interest rate insensitive when there is a glut of capital goods; monetary policy becomes like pushing on a string. In the previous recession the Fed cut the Fed Funds rate from 6.5% to 1% and long rates fell by 200bps. In spite of that capex spending of the corporate sector fell by 4% of GDP between 2000 and 2004 as there was a glut of tech capital goods and it took years to work out such a glut. Today there is a glut of housing, consumer durables and autos/motor vehicles; so it will take years to work out this glut and monetary policy is becoming ineffective to resolve that glut.

· While policy rates are sharply falling the nominal and real rates faced by households are rising rather than falling: rising mortgage rates (and event near lack of any mortgage financing at even higher rates for sub-prime and jumbo loans), rising rates on credit cards, auto loans and student loans together with less availability of credit are severely dampening the ability of households to borrow and spend.

· To bring back the household savings rate to the level of a decade ago (about 6% of GDP) consumption will have to fall – relative to current GDP levels – by almost a trillion dollar. If all of this adjustment were to occur in 12 months GDP would contract directly by 7% and indirectly (including the further collapse of residential and corporate capex spending in a severe recession) by 10%, an exemplification of the Keynesian “paradox of thrift”. If such an adjustment were to occur over 24 months rather than 12 months you would still have negative GDP growth of 5% for two years in a row with a cumulative fall in GDP from its peak of 10% (note that in the worst US recession since WWII such cumulative fall in GDP was only 3.7% in 1957-58). One can thus only hope that this adjustment of consumption and savings rates occurs only slowly over time – four years rather than two. Even in that scenario the cumulative fall of GDP could be of the order of 4-5%, i.e. the worst US recession since WWII. Note that the cumulative fall in GDP in the 2001 recession was only 0.4% and in the 1990-9 recession was only 1.3%. So, the current recession may end up being three times as long and at least three times as deep (in terms of output contraction) than the last two and worse than any other post WWII recession.

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985 Responses to “20 Reasons Why the U.S. Consumer is Capitulating, thus Triggering the Worst U.S. Recession in Decades”

CNovember 14th, 2008 at 10:57 am

Generally when you buy a house, even with a 20% downpayment, you are underwater or nearly so, because of the costs to sell the house and move. If I’m underwater by $10k, $20, or $30k, it’s not enough for me to walk away. It would be interesting to note how many of the households that are underwater will be in a position where it is worth their while to walk away.

CNovember 14th, 2008 at 1:16 pm

Probably not, or it wouldn’t make sense given that home prices are still elevated and falling.There is a real fallacy in home equity. Even a lot of it generally doesn’t make you rich. I have a lot equity in my home, but if I want to cash it out and move to another home, I either rent, and pay considerably more a month on a gross and net after-tax basis for an apartment that is not as nice as my home, or I buy another house at what looks to be still a high price. If I wait for the market to come down, so does my equity. Equity is like water in a beaker. The market goes up, my beaker is full, but I have to exchange it for a like beaker, so I have no real gain. The market goes down, my beaker is less full, but I can still exchange it for a like beaker.

?November 14th, 2008 at 5:33 pm

Wow a place where renting is more expensive than owning. I did not know that type of place existed. Where is this place?

AnonymousNovember 14th, 2008 at 5:33 pm

Agreed, but it is even worse than that. Sometimes you are forced to move, and the equity (or not) at that moment in time is very relevant. If you’re analyzing a home purchase, you have to discount the asset value by the probability that you will be forced to sell by reason of divorce, sickness, layoff, job transfer. If the market is down at that moment, you cannot exchange for a like beaker because you may not have the down payment or the income to qualify for a loan on this like-beaker. You have a real loss.

redlegNovember 14th, 2008 at 9:44 pm

The problem goes like this: Your mortgage is upside down, the local unemployment rate is very high, and you are faced with the reality of having to move to where the jobs are knowing that you will probably lose your job in the next few months. The flooded, deflating real estate market with few buyers leaves little incentive to keep paying.The whole economy sure looks like it is in the death spiral, starting with personal and mortgage debt and feeding back through the system from there.

CNovember 15th, 2008 at 6:17 am

To “?”: I’ve owned my home since 1999. My mortgage payment (principal, interest, taxes) is less than rent on a comparable (actually not as nice) unit even before the tax benefit of the mortgage. If I want to take my equity out, I can get a home equity loan, something I’m against; move to a rental and get less home for more money; or sell my home and buy another one. In the last option, unless I move to an area where housing costs are significantly lower or I downgrade, I am in much the same position that I was before I moved. Unless I put all the equity I had from my former residence into my new one, I will have a higher mortgage (assuming I buy a comparable residence) and the equity I keep from the sale of my first home is much the same as a home equity loan, except I got it from the market. While there is a certain amount of wealth in having home equity, there is also a certain fallacy in the idea of home equity as wealth.

fencewalkerNovember 16th, 2008 at 4:27 pm

To C: And if your in California, add to your scenario a substantially higher property tax on the new purchase as a result of Prop. 13 (prop tax holds at the price you purchased, which was much lower in 1999 vs now).

BrettNovember 14th, 2008 at 12:59 pm

IMO, the people who will walk away are those who bought at the peak and have basically no chance of ever showing a profit on a future sale, like the people in Vegas who bought 250-300K houses that are now worth 150K and falling.

CNovember 14th, 2008 at 1:20 pm

There probably is a tipping point in negative home equity where many people walk away. It would be interesting to know what that is.

Leo70November 14th, 2008 at 5:31 pm

And then there is the issue of the tax bill that you get when you walk away from the house (the difference between what you owe and what the bank gets for the house, plus costs). It’s not that easy to walk away from the IRS.

AlexNovember 17th, 2008 at 4:14 pm

And not all banks in all states will let you walk away! After you send in the keys and even considering the IRS, the bank may (and some do) come after you for the difference Depends on the State rules, and on your individual income circumstances.

wishyWashyInformationNovember 15th, 2008 at 7:24 am

actually being underwater is mainly an issue for INVESTORS. Other people typically buy a house when they like to stay in an area more than a couple of years. EVEN IF we believe Roubini (a.k.a. Dr Doom), this recession/depression/downturn has an end a year or two or three in the future. By the time the houseowners want to move out, the value of the house could well have increased, right?So why all this attention given to underwater mortgages? No one believes that the civilisation (or humankind) will last past a couple of years more?Let’s be open about it, should we not? If it is worse than that then why not also admit that this downturn could well be worse than the Great Depression.

CNovember 15th, 2008 at 9:05 am

Except for the people who can’t afford to eat, heat their homes, or for that matter put a roof over their head, I guess it is not a problem.

GuestNovember 15th, 2008 at 10:27 pm

I work in real estate, generally in the foreclosure field…I can tell you for a fact that when foreclosures started to rise 2 years ago, it was generally about 3-6 months post reset on ARM’s, however, these days its happening in areas where we know the homes were oversold for far too high a price, and upon filing foreclosure papers we are noting a rise in NON ARM mortgages in these areas going into foreclosure. Another trend, some wise guys are buying smaller affordable homes before they let the “BIG” one go into foreclosure…So to answer your question, it becomes very viable, real quick when people get anxious.

JGUNovember 14th, 2008 at 11:00 am

“collapsing from $700 billion annualized in 2005 to less than $20 in Q2″Professor, $20 is not enough to fill up a tank of gas, I guess. Who was the lucky guy to withdraw that $20? lol.

GuestNovember 17th, 2008 at 8:51 am

The numbers presented by Dr. Roubini on home values are factually incorrect. If you want to know what’s really happening to home prices you have to check the data from OFHEO, Case Schiller index or the association of realtors web sites. Median home prices peaked in April 2007 and are down around 7% since then.

GuestNovember 14th, 2008 at 1:21 pm

Why would a Christmas without rampant consumerism be sour? Why would receiving more gifts than can be remembered on 26 December be bitter.We intend on having a jolly, memorable, and thrifty Christmas.If the retailers find they are bitter and sour….I say humbug to them.

GuestNovember 14th, 2008 at 5:18 pm

Good point, the retailers put christmas stuff out in September before Halloween. It’s crazy, they need to push some other model other than x-mas where people spend too much on useless gifts.

racoolknight bankNovember 15th, 2008 at 5:40 pm

I want to be the first to inform everyone that I am now a bank. First thing monday morning I will be at Mr. Cash-cow (we)’s door to ask for my money. I suggest Ford and GM do the same.

GuestNovember 14th, 2008 at 10:00 am Says Holiday Sales May Be Worst in 20 Years: VideoNov. 14 (Bloomberg) — Ellen Zentner, a senior U.S. economist at Bank of Tokyo-Mitsubishi UFJ Ltd., talks with Bloomberg’s Erik Schatzker and Kathleen Hays in New York about October U.S. retail sales data released today, and outlook for the economy, inflation and consumer spending. Retail sales fell 2.8 percent, the fourth consecutive drop and the biggest since records began in 1992, the Commerce Department said. (Source: Bloomberg)

ChakiraNovember 14th, 2008 at 10:09 am

Nouriel this is all well and good for the Depression porn crowd but to be quite honest, except for the cartoon you are a broken record. What you need to do is stop adding a new percentage point to your figures and start fleshing out the plot of this thing. We get it; the economy sucks and you were the guy who shouted first on that societal dialog’s comment thread. But can you make us understand exactly how this drama works in its relationship to temporality, recognition and other philosophical concepts that utterly overdetermine all economic discourse. Or will you continue with the voyueristic thrill of watching the coriolus effect and documenting the exact directions in which capital is now being flushed?

AnonymousNovember 14th, 2008 at 10:14 am

I agree. I can go to 35 blogs (not counting the tin foil hat blogs) all saying how bad things are. Where do we go from here, why, and let’s get ideas on the table-besides bailouts.

MandarinNovember 14th, 2008 at 10:28 am

This will seem obvious, but declaring a firm date for pulling out the troops from Iraq – together with a timetable for drawdown in Afghanistan – would probably do more to boost the markets in the short term than anything else. It seems as though economic policy per se should avoid the death of a thousand cuts we’re getting now, pending a comprehensive approach. At root this isn’t a banking problem or a credit problem – it’s a Washington problem. What’s required is a) peace b) limiting spending c) raising revenue and d) a recognition by the political class that the free ride for the dollar and the us consumer are over.This would staunch the bleeding. We can talk about redirecting the agenda toward people power and local power once these are accomplished.

GuestNovember 14th, 2008 at 5:05 pm

How about getting the US troops out of Germany, Japan, Korea, Poland, UK, etc.? How about ending the War on Drugs? How about ending programs not enumerated in the Constitution? How about if we try BK for insolvent companies?

AnthonyNovember 14th, 2008 at 10:36 pm

The reason the dollar is the standard currency in the world is our military bases all over the world. The US projects power. The reason we can’t abruptly pull out of Iraq is the same–it would deflate the world’s perception of our power.Working against all of this is our war on drugs, which other nations perceive as impotence on our part since we are losing this war. The war on drugs is insanely stupid.

GuestNovember 15th, 2008 at 10:22 am

Slashing military spending by 2/3 and spending some of that peace dividend on public transit and subsidies to renewable energy & home insulation would probably help too.

GuestNovember 14th, 2008 at 10:30 am

That’s what Miss America is for.Timing calls and forward moves.Also see the the working brain trust that Outerbeltway is putting together.

Fred VoetschNovember 14th, 2008 at 1:24 pm

Once again the greedy pigs want easy answers. This man has told us almost exactly what’s coming and if you haven’t cut your spending, paid off your debt and shorted the stock market you get what you deserve.Where we go from here is to change, just as those who lived through the despression changed; some had to be forced into change while others’ started saving early on.

bdNovember 16th, 2008 at 5:42 pm

Dang Fred, harsh but true!! What’s so difficult is to listen to a guy like Nouriel early on when all the others are saying its going to be fine. Talk about a bunch of crooks, huh. How do we ever get the real story now? I wander if they were lying, in denial, or hoping talking like its okay would make it okay. We need more like the professor to discuss what’s really going on and how to fix it, no matter what the truth is.

GuestNovember 14th, 2008 at 10:27 am

It is tough being wrong isn’t it Chakira. I remember when I was young and lashed out at those that were correct. Sometimes that is all one can do when one doesn’t have a clue.

chakiraNovember 14th, 2008 at 11:59 am

I am not “lashing out” at nouriel, he is obviously doing something important and picking up the ball where no one else is. I am just saying that the plot has gotten thicker not only on the numbers side, but also on the philosophical side. This is natural for me to say since I am trained to think this way. I do not care for prognostications over how to “fix” this problem. Rather I want to see more basic inquiries into the concepts themselves, from this empirical data. If NR is not the one to do that I fully understand as he is not trained for that, but it is high time that other civil servants like novelists and philosophers get off their asses and work this recession.

GuestNovember 14th, 2008 at 12:45 pm

I agree the economists still refer to this as an equation when I suspect it’s become much bigger and worse than that. It is time for for philosophical debate but remember this is a place where a lot of number guys come but you make a good point their numbers are becoming less significant as the problem grows larger and certainly more ideology must be mixed into the discussion. Economist like to ignore that economy is really a psychological phenomena or at least down play its significance because it’s difficult to predict and depicts vulnerability something humans like to shy away from.

chakiraNovember 14th, 2008 at 1:16 pm

I would not advocate a break from this quantitative analysis. But given the denigration of other forms of thought, it is time for philosophical inquiry to reassert itself in a real way and offer its own creative solutions to some of these problems which now run deep, deep into the narrative structure of the economic plot. I am just saying the bullet points are great and we need more and not less, but we also need a bunch of other stuff.

OutpootNovember 18th, 2008 at 3:52 am

I believe the analysis of NR is much more based deductive reasoning (and building simple models to quantify it) than any econometric modelling used by most economists. Most of the econometric models used prior to the crisis cannot comprehend the current situation, because it is not build into them.There are not many economists that stick out their necks to say how big or long the the recession will be, but here we have NR saying the cumulative impact will be 10% if it lasts 1 or 2 years, and about 5% if it lasts 3-4 years. If he is wrong, then he is wrong. But I believe this ball park figure is most like going to be correct. (Econometrically speaking, I would say with 80% confidence that this will be the most likely outcome 🙂 ). What is clear: the adjustment will be brutal.

blindmanNovember 14th, 2008 at 6:04 pm

chakira,i think the basic concept is “don’t count your chickens before they are hatched.” sadly we, as people, are not bright enough to understand the meaning of this rediculously simple truth. i would go into it further but i have to go to a baby finance has always been a cold hard speculation and that means swimming in a chum slick in the deep water while the big fish feed. that peoples lives are used for chum should be a crime but the big fish will have non of that.

RogaNovember 15th, 2008 at 12:20 am

For those who didn’t understand blindman please allow me to translate…I think the basic concept is “*Insert Platitude Here*” Sadly, blah blah blah, humanity sucks, blah blah blah, truth. Excuse for simplemindedness and inability to argue further.P.S. Certitude in the style and tone of Dubya followed by made up platitude relating to how fucked we all are.

GuestNovember 16th, 2008 at 10:05 am

roga,close. the point is that in a fiat currency system with fractional reserve lending the the treasury required a reserve of 1 dollar for every 10 dollars lent. when that ratio goes to 30 or 60 to 1 dollar in reserve you have a speculative bubble that cannot be sustained except by irrational and tremendous growth. investors in that market are counting chickens that have not and will never hatch.blah, blah .. “insert thoughtless insult here” .. blah.humanity doesn’t suck, leaches suck, but they have their place “den of thieves”, stewart.

ChanceNovember 17th, 2008 at 1:07 pm

Novelists are civil servants? Would that they were. I’d nominate William Burroughs for Secretary of Treasury and we’d all be eating Naked Lunches from now ’til Doomsday.

Bob BerkeNovember 17th, 2008 at 6:15 pm

It’s been going on for years in novels and the arts, but no one has been listening. Example: author Richard Russo (Empire Falls–a telling title if their ever was one) has made his career writing about life in the dying industrial belt of New England. The problem: everyone thinks he’s writing only about small time New England towns, but it’s really the American story over the last 30 years and the disappearance of industry from our shores along with the wreckage left behind, from Pittsburgh, to Gary, In or Detroit, MI. The busts of recent years, whether or collateralized mortgage, are really about creating pyramids out of nothing in a land drained of substance. I strongly urge you to read Russo’s books to understand what’s happening to life in America, and why he’s one of our best.

GuestNovember 14th, 2008 at 8:02 pm

So true, wisdom does come with age. For those of us who have lived long enough to live through a few economic crises, this is all too familiar. And, the Professor has told the everyone and anyone who is willing to listen the consequences of our country’s missteps. Professor Roubini has also laid down several sound recommendations over the course of the last year or two! But, he is not a politician, just a messenger, so please, don’t hang the messenger!

AnonymousNovember 14th, 2008 at 10:56 am

NR have done and keep doing VERY great public service in highlighting the risks and various scenarious for the real economy as we go through these unique (and rather scary) events.Personally i am ever so grateful for his remarkable ability to condense complex materia and economical systemic risks in a powerful way. I was able to withdraw from markets in time for the sharp fall. Thank you NR !!! You saved me a bundle. You also truly raised my interest in macro econimics so i better can judge and take in the extraordinary drama now playing out across the globe, and also prepare for worse times ahead (in Sweden, we are heavy on industrial exports but have a fairly healthy governement budget and also strong experience from our previous finacial crisis here)I agree in that it would be nice to see NR also become explicit and forwardcoming with more risk mitigation alternatives and reasoning behind them. Delevraging of households and companies is unavoidable and will (probably) lead to more pain then most of us can imagine (i did not live back in 74/75 and alike) – it would be helpful to many to see more meat on alternaties to deal with the very high risks and the severe recession in front of us, including all the mechanisms in play driving the process.That is equally good public service and of highest value.

AnonymousNovember 14th, 2008 at 11:16 am

You have a point – it is good to keep highlighting what many in ‘the market’ seems to dodge, or can’t speak out loud of due to their roles – there is also a balance not to strike too much panic in the process.First time i hear G Bush say in public over a year ago ‘this is a well contained problem, not to worry’ i got convinced this will be a mess

Fl CrackerNovember 14th, 2008 at 11:20 am

Here’s a plan for those who are looking- wouldn’t a move to a consumption tax rather than an income tax be a step on the right track toward rebuilding a strong economy? The prof has argued that the current model of the american consumer driving the world economy, and the unending deficits here and surpluses abroad are unsustainable. So, if the Fair Tax was implemented and corporate taxes eliminated, isn’t it possible that manufacturers would flock here and be could build a more balanced sustainable economy for the long run? I don’t get why this tax plan is the exclusive domain of the right wing folks that look like they live in a wax museum. Under this plan, all payroll taxes would be eliminated and everyone would get a check every month to offset the consumption taxes paid on the basic necessities equalling about $500 per month for a family of 4. Now if that’s not progressive, I’m not sure what is.

JeffNovember 14th, 2008 at 4:37 pm

I have not heard a solution for how someone who has saved their whole life is compensated for that savings with a consumption tax. After all they already paid taxes once, on much of their savings. In a consumption tax they would pay again when making a purchase. Seems to benefit those who spent more of their money, so again the savers would be bailing out the spenders. If I have this wrong please comment.

LaocoonNovember 17th, 2008 at 9:55 am

As a saver nearing retirement, I have a lot of concern about a consumption tax, since I have maxed the 401k’s, the IRA’s, and save substantially after tax. From having done ‘all the right things,’ I’d face a huge penalty with a consumption tax, a form of double taxation. I’ve always been a little paranoid that by deferring income through retirement accounts, I might face a higher tax structure when I start to withdraw, rather than a lower rate. There is always huge political risk when projecting decades into the future.But it’s not just me. Families spend a tremendous amount on consumption from the household formation phase until their children are launched (whether they are ever totally launched is a subject for another time!).Boomers are already consuming less, we just don’t need stuff any more in this phase of our lives.A consumption tax would just dry up whatever incentives remain to consume and decrease demand. If you think it’s bad now, just wait until the price of everything you buy goes up significantly. People will see that directly and it won’t matter to them that they aren’t paying income tax. Likewise, the poor and lower ends of the middle class will be hit the hardest.

JamesNovember 14th, 2008 at 12:03 pm

How can anyone possibly predict what’s going to happen when we don’t even know what’s going on with the (multiples of) 700 billion given to Paulson? Who’s getting it? What are they doing with it? There was supposed to be transparency, but that’s gone out the window, no pun intended. NR is excellent at analysis, but everyone needs data in order to base that analysis on and that is being withheld from us.

GuestNovember 14th, 2008 at 1:00 pm

At least he knows what’s going on and their ramifications. Not so Paulson and Bernanke. If NR was in charge things wouldn’t have spun so far out of control.

economicminorNovember 14th, 2008 at 2:07 pm

What is going to happen is that the unsustainable debt is going to keep unraveling until it is below economic value. Then, after assets have been re-valued at a much lower, sustainable level, the economy will pick up and we will start to recover.The quickest way to recovery is to quicken the devaluation and re-valuation of debts.Unfortunately, those in charge are also those who will lose the most. SO they are doing every thing they can think of to re-inflate the debt bubbles…All I can say is GOOD Luck!

GSMNovember 14th, 2008 at 6:02 pm

I maybe missing something here, but NR above has provided timelines and quantity to this economic decline. Now, if one is braindead and cannot now pick up and actually run with that very valuable ball, then I really am sorry. If you can make your way to this blog and not able to work with that info, your out of your depth my freind and good luck to you.In short you better learn how to help yourself real fast. Waiting for it to be served up on a plate may see you mown down by this monster. Get moving chakira.

AnonymousNovember 14th, 2008 at 6:53 pm

Its a good point, Chakira but if you really are a thinker, then do some, and work it out for yourself; if you’re told by a doctor that smoking will kill you, surely you can’t expect him to tell you that you’ve got to quit??I think the basic take-away from Nouriel’s message is to take any action you think is appropriate for you. The only reason he’s repeating his message is because the legislators are not responding, the analysts have yet to reduce their optimism sufficiently and the bankers have been givn the thought (by the legislators) that they’ll be bailed out. Fend for yourself, lead by example – other replies have given you what you need to do – kill off your ‘America’s the best’ ego and stop the mindless excess by getting back to basics. If you can’t do it, then the economy will.

MarkNovember 15th, 2008 at 2:27 am

One cannot predict the future. Period. Yes, there are likely outcomes, but in general the levels of details that one would have to flesh out in order to come out ahead put one in a higher risk camp. And maybe it works out, maybe not. Consider the hit that a lot of the hedgies took when the government stepped in during the middle of the game and changed the rules (on shorting). Perhaps not quite a Black Swan, but if one has to run around worrying about these kind of things happening then it’s a bit difficult to feel confident that one can project the future.If you bet against the rich and start to win they’ll change the rules.In another recent thread someone stated that you can win if you don’t play. Not sure about this, though I have had a similar saying: You can’t lose if you don’t play! The longer we play this system the longer we lose… Roubini still thinks that this is cyclical thing; in a way yes, but it’s really part of a larger cycle bounded by the availability of cheap energy (fossil fuels).

TonyNovember 15th, 2008 at 1:22 pm

And where is you head..? Likely up your ass, Talk about a self-centered diatribe.Ever considered that his warnings have saved many retirees and others their life savings just to mention one aspect.People need to WAKE-UP…and if one recognizes the import of the crisis and acknowledges that there is an moral obligation to inform others unless of course, you are not part of this society.Go flog your BS somewhere else..T

BrettNovember 14th, 2008 at 10:26 am

Apparently, some people, here, can’t handle reality. You want ideas? Here’s some: Pay down your debts, save some money, exercise some discipline and stop being so absurdly pretentious. “Coriolus,'” gimme a break.

GuestNovember 14th, 2008 at 11:40 am

If you follow this blog-you’ve done all of that. No debt, save money….. I mean solutions for “the country”–national solutions or ideas.I hear talking heads say (just yesterday)we need to make housing affordable and stimulate spending and credit cards blah blah. I think that “solution” is part of what got us here in this mess–but that doesn’t keep people from proposing it on national TV as a solution.My idea: JOBS. People will, eventually, spend money if they have a secure job that pays a decent salary. Until that is done-all the cheap cars in Detroit won’t get people to buy cars.

GuestNovember 14th, 2008 at 11:51 am

JOBS, yes, that is the root cause, loss of decent JOBS. You can’t replace Jobs with HELOC’s. We need decent JOBS.

economicminorNovember 14th, 2008 at 3:30 pm

People say JOBs as if it were easy to just create a meaningful job. Where do you think jobs come from?Putting people to work doing something that has economic value is not very easy when the cost per person for their overhead is many times the cost of labor in less restrictive and less developed parts of the world. Here the costs are outrageous. Dealing with all the government agencies that all want a piece and the tax people and all the rules and restrictions.Job cost is part of what caused many jobs to leave the US. It didn’t make economic sense to have jobs here vs. China, India, Brazil, Mexico, even Canada can produce cheaper than we can.. So if we raise the price or restrict the imports, then because our costs per unit are higher, that means fewer units per person or higher expenses.. That means our standard of living decreases.Just the same thing that is happening thru market forces… I just don’t see a way of short circuting markets in the long run. Balance will be sought after, no matter what people or governments do. Once the system gets way out of balance, chaos will pop its head up and things will spin out of control until things slow down and a new order is found. We are just living thru this..Add the cost of health care in the US to the cost of jobs, which is the most expensive place in the world to be well. And we have developed a system that is unsustainable and out of balance. On almost all fronts.Unfortunately just putting people to work so that they can have income is what the USSR did and we know how that worked out. Command and Control doesn’t work. That was part of why the Japanese corporate system produces beter products than ours. We are already over our heads in debt. So Yeah, let’s go borrow some more money to create meaningless jobs so we can get money into the hands of those who have been displaced by changing times… Then they can pretend to work and the governemtn can pretend to pay them. Those in power need to let the system correct.

GuestNovember 14th, 2008 at 5:26 pm

Meaningful Jobs where already created, they were just exported to 3rd world countries to circumvent labor and environmental controlsto the benefit of a few upper management (who incidentally benefit the most from the government taxpayer supplied bailout) at the cost of everyone else.So what’s better cheap stuff and no jobs ordecent jobs and regular priced stuff.

economicminorNovember 14th, 2008 at 7:05 pm

sometimes but often it was about cost analysis. Corporation do not exist for charity. They are exits to make profit. If your competitor finds a way to do the job cheaper and undersell you, you’d better do the same or you will be out of business. It is to simplistic to just blame the upper management. People buy Kirkland jeans instead of the Carhartt because they are more affordable.When the trade agreements were passed thru Congress, they, the Marie Antoinettes, never thought about the real big picture. They just took there campaign contributions and said Eye!Same story for the bail outs. Do you think Congress actually has a clue as to the consequences? No, they take the story from the story board and say Eye!

MarkNovember 15th, 2008 at 2:39 am

Spot on!All those thinking that we need to bring back high-wage jobs have to consider that this results in high-priced goods. And, given the rest of the world is either producing lower-priced goods (of the same) or cannot afford such goods in the first place (or perhaps due to recession/depression will no longer be able to), this isn’t a very probable outcome.Again, what has been the fundamental driver of economic growth? Energy, CHEAP energy! Energy is to real growth/productivity what huge volumes of banking transactions is to the financial sector.Those sectors that produce the least or are most wasteful of energy are dying. The financial sector is losing limbs- investment banking is dead-man-walking; and with people not actually saving (here in the US), basic banking is staring to be of less use. The retail sector peddling stupid consumer crap is dying: big energy sink with very little return in value. The transportation sector is the next one to cave in, with the automotive arm severely suffering from gangrene.Want to know what’s 100% certain? Localization. The current contraction will get us to a more energy stable (equation-wise) point.

YveNovember 17th, 2008 at 12:30 am

The end net benefit of producing cheap goods abroad is nil. Have any of you been into a Wal-Mart lately to buy something as simple as a toaster? What garbage. There are barely any small appliances made any more that are built to last. Disposable garbage of the first order, built to fail and be chucked out on the rubbish tip in under a year and a half. Flimsy dreck. I would personally pay more for a quality built item (kind of like the toaster I use at the cabin circa 1942), that lasts a life time and supported a domestic job. Instead we have plastic crap that is neither satifying to use & has the longevity of a green banana. Cheap isn’t necessarily better for many reasons, poor labour standards in the country of production, lax or non-existant environmental protection and the loss of our maunufacturing base are three I can come up with immediately. Sadly, once the means of production are gone, they are very difficult to bring back.

Mark in San DiegoNovember 14th, 2008 at 10:30 am

I think the pertinent question now is “where is bottom?” There is a “real economy” out there somwhere (not the past credit bubble economy) where people actually make things and buy things – GM could probably sell at least one million cars a year, and American Airlines could fly X number of people a year at a profit – we need to downsize quickly, even if it is painful to get to that point – let housing drop fast, and quit propping it up – then people could buy again at Two-times annual income which was the 60 year historic norm.

Devils advocateNovember 14th, 2008 at 10:38 am

GM Ford – even if they beg, borrow and steal $$$$$ to keep making cars – WHO WILL BUY THEM ANYMORE?———

devils advocateNovember 14th, 2008 at 10:42 am

Paul Krugman is correct (in today’s NY Times)Obama must do “the first hundred days” a la FDRmaybe, get a $2+ trillion infrastructure/new New Deal passed———this could stabilize things — and then we’ll worry about the dollar

GuestNovember 14th, 2008 at 11:19 am

I’m beginning to doubt that a $2 trillion New Deal would have any lasting effect other than putting most families deeper in hock.

Guest from CanadaNovember 14th, 2008 at 12:30 pm

Now an important disclaimer to Krugman’s article should be that he is an ardent supporter of Obama.In terms of the article itself, Krugman begins by explaining how this is not and will not be a depression:

“The economic news, in case you haven’t noticed, keeps getting worse. Bad as it is, however, I don’t expect another Great Depression”

He then argues that while this is not a depression, it is a circumstance in which tools similar to those used in the depression are required:

“But on both of these earlier occasions (recent recessions) the standard policy response to a weak economy — a cut in the federal funds rate… with no possibility of further interest rate cuts, there’s nothing to stop the economy’s downward momentum.”

With the Fed Funds rate effectively at zero he offers only one solution, SPEND SPEND SPEND, stating that the only risk is inflation, which he implies can easily be managed.The consequences of not spending, according to Krugman:

“Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction.”

But since he has already stated “no depression”, where does that spiral lead and how does that “place” compare to the SPEND SPEND alternative?I guess in the end we are just supposed to trust Krugman, after all he is a Nobel Laureate.

BrettNovember 14th, 2008 at 1:38 pm

Anyone who reccomends more spending to an already “Shopped out, debt burdened,” person with no savings, can’t be taken seriously.

MarkNovember 15th, 2008 at 2:43 am

Anyone who has caught Dr. Albert Bartlett’s presentation Arithmetic, Population and Energy can immediately recognize this as the “strength through exhaustion” strategy. Give me a 5 minute debate with Krugman and I’d crush him! (most here could as well)

GuestNovember 14th, 2008 at 8:25 pm

Where is the $2 Trillion going to come from??????? WE DON’T HAVE IT!!!!! Our nation is up to its eyeballs in debt!!

AnonymousNovember 14th, 2008 at 1:55 pm

It’s generally accepted that government spending on New Deal programs did not lift the economy out of depression. Massive government spending for WWII was the cure for the economy’s woes. At this time there is no reason to expect another great worldwide war.

MarkNovember 15th, 2008 at 2:47 am

This is false. WWII didn’t CURE anything. War is destruction, not construction!What you saw was a fascist rallying which resulted in the appearance of betterment. Had the US invested those military dollars in civilian production the economic recovery would have happened much quicker and would have been longer-lasting (not to mention it probably would have kept us from becoming the military-industrial complex that we are now, with the resultant profligate spending).

AnonymousNovember 14th, 2008 at 2:20 pm

Krugman isn’t always correct in his economic predictions. For example, in his May 12, 2008 NYT column, “The Oil Nonbubble,” he declared that oil is not a bubble but is priced correctly and that Goldman’s prediction of $200-per-barrel oil should be taken seriously. Of course, now we know that a prediction of $200-per-barrel oil anytime soon is a falacy. Many investors lost a lot of money because they were led to believe the sky was the limit for oil prices.

Mark in SFNovember 16th, 2008 at 7:56 pm

Krugman did not predict $200 oil. He just said it wasn’t a bubble, and that $200 was possible. Oil demand and supply are *extremely* inelastic in the short run. That drove prices up quickly. We have be seeing the reverse over the last few months as the world economy slows.

manINragsNovember 15th, 2008 at 12:47 pm

Start by taking care of our future. Let houses devalue so that the young can afford them. Savings are an affirmation of freedom, responsibility, and self reliance. Consumer debt makes the future itself a wasting asset. Love the future and turn off the lights when you leave the room.

YvesNovember 14th, 2008 at 10:39 am

Indeed, a deep recession, for the overdue rise in US savings and decline in US consumption cannot be balanced, as it should, by a rise in Asian consumption / fall in savings rate.In effect the latest figures suggest Asian savings are even increasing, as fear of recession mounts in all crountries.

devils advocateNovember 14th, 2008 at 10:44 am

another sharp observation from you, Yvessave – don’t spend – save …mantra heard round the world

yvesNovember 14th, 2008 at 10:13 pm


MarkNovember 15th, 2008 at 2:51 am

But printing more money won’t alleviate THE fundamental problem of diminishing natural resources (esp. fossil fuels). And clearly, doing so would only continue to distort a clearer allocation of such resources.The rich know all of this. They are only trying to figure out how to handle the masses once the masses get it that the world’s resources are in fact limited: yes, the world ISN’T flat, and, it IS finite!

CHRIS DAVISNovember 16th, 2008 at 5:24 pm


MedicNovember 16th, 2008 at 6:02 pm

Chris -The one thing that stands out most to me is the fact of the demographics. The Boomers are the largest segment of the population right now and they are going to need things that we cannot provide now, let alone down the road.Let me use my field as an example:Nurses are getting OLDER nationally. The average age of a nurse in the US last I checked was 48 and climbing! This is mostly due to the fact that the pay and conditions are less than attractive for younger people. Why would a 20-something want to enter a field that is notoriously underfunded, deal with obnoxious physicians and patients and risk their own health everyday for less money than they could make in most other fields?You may not think much of this now, but once the Boomers who are nurses retire, we will need a lot more to replace them because the number of patients is growing – only thing is, we are not increasing the number of nurses (nor lowering the average age) anytime soon.Some things will improve, but the biggest issue we will face soon is the lack of medical care that is able to be provided as more and more people require / request it. This is a huge disaster that anyone in medicine could have seen coming decades ago but we did not plan well enough to address it.What we need to plan for now is the fact that there will be a finite number of funds available in the future and we need to allocate them better than we have with the so-called bailout funds we have been throwing around.Oh, and don’t forget we have no real manufacturing base as 70% of this economy is consumerism.I am happy you think this is a short-live event. I am not so convinced.

MarkNovember 17th, 2008 at 2:17 am

AMERICAN SAVING RATE WILL APPROACH 10% BY 4Q 09What data or argument do you base this on? How can people save when they are massively in debt?Consider that unemployment WILL go up, and that boomers will be draining their savings. Also, new jobs will come with lower wages as well: that’s what the UAW negotiated earlier in the year. Oh, and taxes will have to be increased (or services cut- which means more unemployment).Just because something sounds good doesn’t mean that it’s possible

Doctor NoNovember 14th, 2008 at 10:51 am

I doubt that the propensity to save is a function of skin color or that it is a permanent obstruction to rebalancing trade.

CHRIS DAVISNovember 16th, 2008 at 6:58 pm

Dear Medic,like I said before, “Boomers” are only going to get the medical care they have paid for, which means, the US, like all the other OECD countries, will eventually get real and institute RATIONING for medical procedures for 65+ age group, OR, US will go broke: there is no other alternative

MedicNovember 16th, 2008 at 7:11 pm

Chris -You are correct. We have to reduce spending and better appropriate what we have. Boomers will not get what they have “paid” for…they (and they rest of us) will get what is left.While your above arguments have merit, I do think that this will be prolonged and slow to improve. There are just too many people who have incomes that are too low, debts that are too high and oportunities to improve their standing too few and far between.The lower end and the middle are growing in size and they are in trouble. That’s what will keep us from moving forward quickly.

Sam DimondNovember 14th, 2008 at 10:40 am

Sounds like a bunch of average joes in a coffee shop in December of 1929 wondering when the turn around will come. They then(and you now) had(have) no idea how bad it is going to get. The answers are:Pay down your debtPlant a gardenPay down your debtConnect with family and friendsPay down your debtKnow the difference between wants and needsFind a career that fills a needPay down your debtDrive an old car, wear old clothes, barter, thrift store shop, fix your crap yourself when it breaks, ectOh, and did I mention PAY DOWN YOUR DEBT!

MarkNovember 15th, 2008 at 2:54 am

FOOD, SHELTER, WATER… Yup, concentrate on THE fundamentals! Help others and be thankful when you can say that you’ve got these fundamentals met.P.S. Try biking and walking!

Facts of LifeNovember 14th, 2008 at 10:50 am

We are all waiting to be beamed up to the next level of human understanding a la Ray Kurzweil’s “The Singularity is Near”, however the velocity of information exceeds reality. And our faith in technology to manage our heuristics is short-sighted. Life is not a set of heuristics. Reality takes time, quantum change takes time. The quickest change takes place at the individual level, so, you can affect the most momentous change, now, all within yourself. Our current knowledge delivery systems transport externally generated, and shallow garbage. We must use technology to improve ourselves from within, that is the new frontier, ourselves. Before we can grasp the next level, we must understand (and google) Decartes, Hume, Hobbes, Bacon, Locke, Mises and others. We have not done our homework or cleaned up our rooms. We cannot truly progress until we do. We are still driven by custom, not reason. Knowledge, truth, reason should be spread further, the masses remain ignorant. Not only are we now dealing with the negative effects of the wealth polarity, but soon too with a technological polarity, the new haves and have nots. Thanks for the vine…

GuestNovember 14th, 2008 at 11:00 am

Leaps in human self-understanding occur during times of ebullient growth; personal development is best nurtured by a steady, slow pace. At all other times, raise the masses’ cultural level by limiting the number of tv commercials and funding PBS!

kilgoresNovember 15th, 2008 at 6:02 am

As I understand it, Jevons Paradox is really just the idea that when an advance in technology allows a given resource to be used more efficiently, the relative cost of using that resource goes down, causing its consumption to go up. The impact of such a technological advance hinges, then, on: 1) how much efficiency in usage of the resource is gained by the technology; and 2) how much of the resource you have to use. A technology which improves fuel efficiency for a gasoline-powered car from, say, 20 miles per gallon to 40 miles per gallon may result in faster consumption of an already limited supply of oil because using gasoline becomes cheaper. On the other hand, a substantial improvement in the efficiency of, say, photovoltaic cells is not going to have much impact on the supply of electromagnetic radiation because there is an infinite supply (for all intents and purposes). Of course, there would appear to be a whole spectrum of factors that could further inform the ultimate impact of technological advances in resource utilization, too.SWK

MarkNovember 15th, 2008 at 7:41 pm

Your interpretation is correct :-)With regard to PV cells, they’re not as exempt as you might think: don’t overlook their manufacture in this equation!

kilgoresNovember 15th, 2008 at 8:16 pm

Oh, I’m perfectly serious about PV technology — I certainly wouldn’t begin to dismiss improvements in it as a means of developing meaningful alternative energy sources. I’m a registered patent lawyer, and I am quite interested in this particular area at the moment! ;-)SWK

Jason BNovember 14th, 2008 at 10:59 am

I am going to repost this again. Please forgive me for beating what may be a dead horse. In combination with Nouriel’s latest statistic, it looks like he is being optimistic. Looks like this depression is going to be more sudden, deeper and more protracted than the Great Depression. Truly a Greater Depression. And it is 3-6 mos away. Will someone please talk me off the ledge?Baltic Dry Index (shipping cost) drops a staggering 98%LinkBond market either disfunctional or predicting a massive depressionLinkConsumer Sentiment drops record amount in OctoberLink

KJ FoehrNovember 14th, 2008 at 2:06 pm

So what will you say when the BDI bounces up from these levels, as it inevitably will, and after a 98% fall, one would assume that the bounce will happen sooner rather than later. Will that mean the depression has been averted? That we have seen the worst of the recession and recovery has started? Or won’t it change the scenario at all? How did you come up with 3 to 6 months from now?The same questions can be asked about retail sales, consumer sentiment, etc.Perhaps we are already at the bottom? If not, how do we know this is not the trough?Devil’s Advocate

kilgoresNovember 15th, 2008 at 6:17 am

Old news perhaps, but it remains important because the curve is now essentially flat and may stay so for so long as the credit markets continue to be impaired and disfunctional. I think you are misjudging the seriousness of the situation. An increase from 7.00% to 7.13% of the May 2008 peak of 11,793 is hardly worth crowing about. Without easily obtainable letters of credit and similar instruments necessary to mitigate counterparty risk in global shipping of bulk goods, the whole system grinds to a halt. The BDI has always been a pretty reliable leading indicator of economic activity, and so the significance of the continued anemia in the BDI should not be underestimated.SWK

GuestNovember 14th, 2008 at 11:04 am

When the part of the problem (govt) tries to become part of the solution, then a recession is likely to turn into a depression

BobNovember 14th, 2008 at 11:06 am

NR, could you please give your best estimate of unemployment will be in 2009? I think all of us understand that government intervention is the only possible slowdown to the speed and depth of unemployment. That said, this would be most helpful.Thanks

MorbidNovember 14th, 2008 at 11:06 am

Paradigm Shift: The Way Back Is The Way ForwardHere is an idea for how this all plays out. I know this may “sound” awful but the West has corrupted the East with its materialistic driven worldview. It is a pyramid scheme at best. It only works if ever more players are added. How many billions can the planet support? What is the logical conclusion of where this economic model leads us all? An ever higher cliff as near as I can make out – over which the rushing herd will go. The first in win – the rest will lose. It is clearly not sustainable. And Nobel Prizes to so many American economists for this crap. What is Nobel about it?The idea that one size fits all is a great mistake for nature Herself prefers to conduct as many experiments as possible. So I am in favor of local economies, home grown, like it used to be before WalMart’s and COSTCO’s arrived on the scene. So you pay a little more – but maybe a lot less in the long run. This One World Order financial Tower of Babel has put untold millions of humans in harms way. All that for a few bucks? It is a USA national disgrace that we have exported this nonsense. It is a national disgrace that we investors have participated in this Ponzi Scheme – knowing all along it was a Ponzi Scheme.

MorbidNovember 14th, 2008 at 1:01 pm

The Return To Local Economies – Is the IdeaCertainly the post below begins to flesh out that process of returning to local economies. Slow dependable growth is better than raping the environment and fellow humans.

AnonymousNovember 14th, 2008 at 12:31 pm

Agree! Wouldn’t it be nice if we didn’t have all the super chains and went back to our locally owned banks, restaurants, hardware stores, etc. without all the CEOs, stockholders, etc. This is what the country was built on; we are not suppose to have monopolies for good reasons-they have an unfair advantage in pricing, control, exploitation and political influence. The current model is not sustainable as in any Ponzi scheme, you eventually run out of money!

ThetaNovember 14th, 2008 at 2:37 pm

I had figured this economic downturn is an opportunity for just such a shift. If enough people support their local businesses then the super chains etc. will have to downsize. My money is in a local bank, I eat local and buy local produce or grow my own.”You must be the change you wish to see in the world.” – Mahatma Gandhi

BacaNovember 14th, 2008 at 9:16 pm

I agree. It seems the US economy has always been this way, it constantly needs more and more consumers to buy into the mirage, and it is a Ponzi scheme. Somewhere along the way, the idea of how economic growth should be just got corrupted. Growth just for growth’s sake is not the answer. The goal of ever expanding shopping malls, retail centers, and suburbs, that depend on continued population growth is absurd. The system is set up in a way that if population growth stops the economy stops. Everything that has been taught in business schools over the past 50 years; economics, investments, etc., should be thrown out. It doesn’t work.

Dr. CrowNovember 14th, 2008 at 10:48 pm

Well, if you really examine it, Capitalism is one big Ponzi scheme. So maybe Capitalism is now exposed as such and we can move to a more sustainable way of living, on all the levels. I mean, the current way of doing biz has gotten beyond ridiculous, no?

Slow LaneNovember 14th, 2008 at 11:13 am

I have been reading this blog for some time trying to make sense of events. Prof. Roubini has some excellent facts in this article that even non-financial or in-curious people can be horrified at such as the collapse in HELOCs. At any rate, I have determined that there is a solution to all of this, it is ugly and unpalatable but it exists:Step 1 – Prez Obama rescues the auto industry with a package. He is too smart to piss money away so he immediately protects our investment with significant tarriffs / % sales limits on imports or cars lacking a significant US / Canadian assembly and parts component.Step 2 – Massive US infrastructure programs announced, much of to accomplish mundane tasks like fix bridges or the city of Atlanta water system. Universal health care guarantee enacted by law. Fed prints money to finance its new commitments / investments as foreign governments have stopped buying T bills.Step 3 – This ignites a protectionist trade war, which we are happy to enter as the US is a huge economic area with natural resources and natural scale. Most other countries lack these features or their people are not blessed with initiative.Step 4 – Trade war accelerates and we see a huge dislocation in the US economy as localized manufacturing starts to flourish and employ people along with the public works. Many are not happy but the goal is to get the populace constructively employed and self-reliant.Step 5 – The US treasury receipts diminish to a critical level, say 70-80% of current receipts or an amount approaching current debt service requirements. US immediately suspends interest payments on debt held by non-US citizens and forces US citizens to accept lower returns on T-bills held under a patriotic war-bond type program.Step 6 – As a cumulative impact of these steps, the US inflates currency such that externally held debt starts to depreciate rapidly in real terms. It is also illiquid and of little value to foreign governments.Step 7 – Distressed foreign countries approach US to re-ignite free trade and revise tarriffs import restrictions in exchange for massive debt forgiveness.Step 8 – President Obama signs into law an act requiring the US to balance its budget forevermore with exemptions for periods of economic contraction, where limited stimulus will be allowed.New world order established.

GuestNovember 14th, 2008 at 11:33 am

Riding on two rails: national/protectionist in order to achieve a favorable international restructuring. The deal needn’t be approached by trade war brinksmanship – also once that genie is let out of the bottle, there will be no putting it back it. The Europeans will invite the Asians to dump dump dump US debt and we’ll be in a shooting war more likely than a trade one.We’re not – yet – in a hell of unemployment and unused capacity. We are most definitely in one of credit default. Besides, Obama will go along with the free traders. That’s the reigning orthodoxy that unites the moderate left, the center, and the right. The national socialist solution has no public face or voice other than Dennis Kucinich.

Slow LaneNovember 14th, 2008 at 12:14 pm

Why is war a likely eventuality here? It seems lost on many that the volume of Treasuries held by foreigners has ceased to be our problem and has become their problem (the old saw if i owe the bank $1k its my problem if I owe them $1m etc..). So, it seems that one can look ahead and suggest that it will be soon accepted that the US is functionally bankrupt and foreign nations already know that. All who read these threads accept that we have conducted policy in a morally bankrupt fashion for some time so the logical outcome is fast arriving. Given that, what is the incentive for war? We will still trade, particularly for energy but we will no longer accept that free trade is possible or good for us with centrally managed emerging economies. The Europeans will not love it but it is a page from their book.

GuestNovember 14th, 2008 at 10:33 pm

I don’t know about likely, but U.S. unwilling to give up world domination in aggressive attack on China a la Germnay under Hitler seems a real danger not too many years hence.

Wolf in the WildsNovember 16th, 2008 at 9:32 pm

The US won’t attack China. They will attack Iran. They would need real assets to back their currency. Oil, gold, silver, etc. WW3 will start in the Middle East

Slow LaneNovember 14th, 2008 at 12:19 pm

I recognize that the history books criticize depression era leadership over this issue. However, as always, the facts and circumstances are not the same. In the 1930’s the US was not trading with nations like China. I posited this prediction of one version of the future not because I advocate or believe in it but rather I went through a logical deductive thought process to arrive at a potential solution. The current solution set – do the same only more is obviously not credible. Debate welcomed!!

GuestNovember 14th, 2008 at 12:27 pm

Outerbeltway, doing more of the same does not seem to be working but this does not validate protectionism.Protectionism at this time will probably initiate counter protection and will hinder global coordination.

bill jNovember 14th, 2008 at 11:16 am

Just to take issue with a few of Dr Roubini’s pointsfirst, the 2.8% headline fall in retail sales, included a -13% fall in gas sales, a result of falling prices, without this fall, then retail sales fell $1.5%. Given that the fall in gas prices hadn’t, in large part come through in October, its reasonable to assume that future falls will have an even larger impact.second import prices fell by a record -4.7% in the month to October. This isn’t about to slow down eitherthird the Financial Obligations Ratio, the amount that households have to pay to service their debts, mortgages, credit cards, etc. has fell to 17.5% in Q2, its lowest level in three yearsfourth the collapse of the Baltic dry index will consolidate the fall in prices by cheapening importsfifth the collapse in MEW has already happened, it is unlikely to fall as far again, and was anyway a major reason for the high proportion of interest relative to disposable incomesixth the write downs of putative losses, having reached $950bn plus hundreds of billions of nationalised losses, don’t have to be made twice either. Mark to market ensures that the write downs are larger than the real losses. Hence with a stablisation of the market, there are big profits waiting thereJust to say there are important counter veiling tendencies, the full impact of which has not yet come through.

CNovember 14th, 2008 at 1:50 pm

Very good article. Loved this line, “The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end.” While I understand that low interest rates were the fuel for the fire that allowed people to live beyond their means, I have to ask, where was the common sense of the average person? If someone puts a piece of chocolate cake in front of you, you don’t have to eat it.

GuestNovember 14th, 2008 at 9:14 pm

You will note the disclaimer at the end of the article — he is a staff (not faculty) member at Wharton. This article has received more blog exposure than most and appears to have been quite prescient, to say the least.

WiseGuyNovember 14th, 2008 at 8:13 pm

I’ve gotta stop reading articles like this before I go to bed….Great article, though. Thanks for passing this along!

GSMNovember 14th, 2008 at 10:15 pm

As good as it is this is old news in fact. Looking forward, evading neutron bombs, preparation is where we should be heading.

MM CANovember 14th, 2008 at 11:51 am

Jealousy reeks throughout all your posts, you should acting like an important contributor without the hatred and 9th grade vocabulary…. Start your own web site and I’m sure all ayour follwers from here will follow you to that….

GuestNovember 14th, 2008 at 12:11 pm

Obama Change program:The government can acquire foreclosed homes in distress urban areas through eminent domain, raze them, and in there place build factories that produce green products.This reduces the surplus of homes, and provides jobs for the unemployeed.Richard Daley could head the coordination as he has some experience with this type of redevelopement.

furiouscalvesNovember 14th, 2008 at 1:04 pm

id prefer suburban areas. bigger waste of space and energy there. definitely a huge U.S. liability for generations to come. raze them and save on costs of maintenance and heating/cooling – going forward nobody should live in places that wasteful of energy on a square footage basis. those building are not remotely efficient and it is not acceptable for them to have a life expectancy longer than 10 to 15 years.Imagine the costs of living in these homes in the future. not to mention the compounded loss of tillable acreage that very well may be needed again for regional planners and architects have failed miserably since the 70’s energy shock and the opportunity to turn around the 50’s suburban development concept.they are not true “homes” – they cannot even “outlive” their own mortgages therefor they are almost worthless.Just another “liability” related to housing.

GuestNovember 14th, 2008 at 1:31 pm

Though no model of efficiency, new suburban homes even with minimum standards far exceed that of old housing in many distress urban areas. These old houses have outdated and dangerous wiring, leaking plumbing, insufficient insulation and bad windows, as well as old inefficient heating and air conditioning systems. In addition they are often plagued with roach, rat, and gang infestations.

furiouscalvesNovember 14th, 2008 at 2:05 pm

agreed, we raze them both. the factories in the inner cities and new smaller, more efficient, closer spaced homes in the burbs. and also lets demo the strip malls and make a town square type deal for businesses that is on the new light rail train route so that we can walk or ride the train rather than drive cars to buy cheeseburgers and socks. we can then reclaim lost agricultural land to save on shipping and the like and promote small scale specialty farming as a career.there’s some jobs for several decades.lets sell bonds to raise some cash tomorrow before the swf and foreign gov’t money is spent on an even more progressive large scale project in their own country.-or is it too late already.

MarkNovember 15th, 2008 at 3:12 am

People don’t need to live 1 to 2 in a 2,100 sq ft house! These over sized houses will become multiple residence buildings. The embedded energy in them is just too much to waste!The biggest shame is the loss of yard space in which to grow food on. Some suburban locations, however, do have reasonable yard space.

AnonymousNovember 14th, 2008 at 10:58 pm

come to my suburban home down south and i’ll blow your head off with my shotgun. raze your own damn house.

AnonymousNovember 14th, 2008 at 12:22 pm

CREDIT CARD HOLDERS-BEWARE: NR is right: my credit card company has reduced my credit line from $10k to $2k and now $1k as I found out yesterday when I tried to pay for my family’s dinner and my card was rejected! It would be nice if these parasites would let me know the same day they reduce my credit so that I am not embarrassed and left out in the cold! What would I have done if I didn’t have the cash in my pocket to pay the bill or if I’m at the checkout line with a cart full of groceries. Thanks Mastercard!

Nouriel RoubiniNovember 14th, 2008 at 12:24 pm

John Ryskamp is permanently banned from this site and blog. His vulgar, crass, insulting, demeaning, scatological and foul language is unacceptable. He will not be allowed to comment on this blog forum any longer. He is banned for good.I respect strong debates and views very different from mine as well as strong criticism of my views and of others here. But i don’t tolerate vulgarity and personal insults.This is a rule for all here.Nouriel Roubini

MM CANovember 14th, 2008 at 12:29 pm

I agree totally NR… Great call! Im sure he will surface as aguest though…I wrote earliar…Jealousy reeks throughout all your posts, you should acting like an important contributor without the hatred and 9th grade vocabulary…. Start your own web site and I’m sure all ayour follwers from here will follow you to that….Hide reply Reply to this comment By MM CA on 2008-11-14 11:51:12MMwhom are you addressing here?Hide reply Reply to this comment By Guest on 2008-11-14 12:18:55It was for Ryskamp, but seems his post has been removed… lol…Reply to this comment By MM CA on 2008-11-14 12:27:53

MANovember 14th, 2008 at 1:26 pm

Nouriel, does this mean he is banned from the related sites?I deemed my blog “Ryscamp free” some time ago, but could care less if he showed up.To me, my mental banning of NOT reading or replying to anything he said was probably the ULTIMATE slap that could be handed to him.(Not be listened to is a far greater punishment then being silenced)Ahhh… who am I kidding… I’m glad you dumped him. Less traffic on the Roubini information-super-side-street.Just my opinion.Miss America

GuestNovember 14th, 2008 at 2:43 pm

Absolutely correct professor. Intelligent discussion, even when spirited, always requires proper decorum and respect. Thank you.

WiseGuyNovember 14th, 2008 at 8:36 pm

Thanks Nouriel. I agree with your decision.That said, I wish John well. I have a feeling that there’s more going on in his life than we’ll ever know.

MarkNovember 15th, 2008 at 3:16 am

I’ll miss JR’s views, but most certainly NOT his way of delivering them. I hope that others here heed this warning of non-tolerance of abusive language. Thank you Nouriel for taking this step: it’s sad that you had to intercede.

WisconsinNovember 14th, 2008 at 12:26 pm

The way out is through shrinking the economy – whether it does it on its own or if it is controlled by governments is really the only question. An obese person doesn’t get healthier by eating more, but that’s exactly what Paulson is asking the banks to do. Lend to those that don’t need/want it. This is a natural contraction process, and painful for those that aren’t ready or haven’t been ready. I’ve always believed that the bloggers here are more proactive than most…

MandarinNovember 14th, 2008 at 12:36 pm

You’re banking on the ineffectiveness of their response, not its absence. We’d be cutting their market and causing a lot of dislocation. You may not care about that but with no other options they’d seize whatever assets of ours they could get their hands on and start shutting us out of every contested part of the planet. We’d only have the resources in which we were self-sufficient, assuming Canada and Mexico went along with us.Who is “they”? China, sure. Russia, also sure even though they hold less debt – they’ve been trying to create a Moscow Beijing axis.I don’t think our response would be restrained. War by proxy, or war over contested areas in Africa, Central Asia. If we won, we’d win nothing more than we have now. More likely the outcome would be an expensive stalemate, kind of like Iraq-Afghanistan to the twentieth power.True, protection does not have to be an all or nothing proposition. And right now trade is not fair. The Chinese are selective in what they let into their own market. But this is a weakness in their economic strategy, not a long term strength. I tend to think it’s too late for us to reinvent the wheel and develop a home grown and home based reindustrialization strategy, and at any rate it’s unnecessary. We can redirect our capital imports away from speculation and into new and green industries without protectionism.

Slow LaneNovember 14th, 2008 at 12:52 pm

As you say, protectionism is not all or nothing and facts are facts. If the major holders of our debt realize it is impaired, and by now they have or soon will, then they have only themselves to blame, caveat emptor. It will be in everyone’s interests to re-set the playing field (a sort of cram down Chapter 11, a re-boot if you will). Tariffs used selectively where competiition is deemed unfair will not be well received but they will be understood. The concept is to re-introduce fiscal discipline and fairness into the economic debate. It was never fair to ask our blue collar brethren (and, yes I do consider my countrymen to be brethren) to compete with emerging nation workers making a pittance, nor was it moral for us college educated types to sit on our high horse and justify it in the name of capitalism and creative destruction. The free market will survive, it just won’t be driven by the global search for lowest cost. If we don’t recognize this then we cannot save our automotive industry (see British Leyland for reference).

ChakiraNovember 14th, 2008 at 12:37 pm

NR thanks for going above and beyond and moderating the debate so well, not to mention starting it and keeping it going with real empirical data. I made some rather cryptic comments before about mutual recognition and philosophy as relates to this crisis. Actually this was sparked by a comment yesterday which spoke insightfully about the gap between the US HAVING no money (which might have been true for a while) and others SEEING that this emperor has no clothes. Like Wylie Coyote going off the cliff till he looks down, many situations of what some would call “the real” wait for language to catch up with them. This is what Shakespeare meant when he famously observed that the “time is out of joint.” Specifically that the language is always sort of playing catch up with the situation. A market dynamic supports this dramaturgy, with the language of the market allowing for a conversation which tries to be one step ahead but in reality is always three steps behind, the “real” of a given situation. The problems of translatability from a low rumble of nature in someone’s imagination to a large IPO or the converse, a trillion dollar write down, are similar intractable problems to those faced by philosophers. In my chosen profession we try to be avant guard only to find ourselves ready to fight the last battle. Some quick examples for the econ crowd would be Mr. Paulson’s readiness to stop 1929. Unfortunately for Mr. Paulson, the year 1929 ended on the first day of 1930 and did not continue into 2008; yet the new metaphors lie tantalizingly just out of reach, already presaged by those imaginative intutitions we are pushing away (just as we all felt vague misgivings about the market going up). In any case this drama of mutual recognition is incredibly interesting and increasingly inescapable. It forms a sort of supplement to the analysis offered by NR, who like a philosopher realizes that one must make an artificial break (or an impossible break) with a given system to gain some “perspective” even if this is only heuristic. Thus it is heartening that NR has not traded a stock in his life, and I would encourage those of us interested in truth to follow our esteemed interlocutor’s lead.

TheGoodDoctorNovember 14th, 2008 at 1:33 pm

With the spate of bad consumer, jobs and economic news, can someone explain the spastic market moves up? Are we expecting green smoke from behind the Fed curtain?

BrettNovember 14th, 2008 at 3:31 pm

If there’s one area where I disagree with the Prof. it’s that he constantly attributes stock market movements directly to economic events and announcements. IMO, the inventory problems of big money Wall St. insiders will always trump current economics. Don’t believe me? Then, explain why the market was up big, last Friday (11-07), off an unemployment report that exceeded Wall St. predictions on the downside.Here’s my explanation: Insiders had too much company on the short side, and some outsiders needed to be squeezed.

GuestCANovember 14th, 2008 at 1:45 pm

Anybody else wondering about this: “One can thus only hope that this adjustment of consumption and savings rates occurs only slowly over time – four years rather than two.”Is it better to have one year of disaster, mass unemployment and hit bottom fast or to have four years of drawn out misery?I tend to think that the latter case will be worse for general economic confidence and thus harder to recover from. Thus, I vote for (i) putting in place a safety net for the unemployed and homeless, (ii) arranging for quick resolution bankruptcies for the likes of GM (I don’t see a problem with selling all of our car manufacturers to the Japanese and Germans for $1 each), (iii) forcing all financial institutions to mark their books down to nuclear winter levels, (if you assume those CDOs are worth nothing, you can be surprised on the upside if you’re wrong), (iv) recapitalizing the best of the financial institutions and liquidating the rest.I would expect the economy to recover strongly once we reach a bottom. Of course, I could be wrong…

GuestNovember 14th, 2008 at 1:47 pm

We sold many of our manufacturing jobs. China bought Rubbermaid and shipped the mold for products to China as an example. The last TV Manufacture was in Tennessee If not mistaken they went out of business in 06. We are basically a service based economy that’s the problem, I will wash your car for 5 dollars and you will cut my grass for 5 dollars. How long can we keep passing around money for services to each other. We need to start manufacturing again. Most people I know are in service industries, back in the 70’s most people worked in manufacturing; steel, coal, railroad car production, Ship building, Garment industry, and on and on. We have placed ourselves in a closed circuit we create bubbles to sustain our service economy and the biggest and best bubble of all was housing, it provided jobs for the widest range of people and created side bubbles of its own, now it is all gone. If the housing bubble was managed correctly it could have lasted longer but greed moved in and accelerated its demise. I do not know what bubble will be next I only know we need one as good as the housing bubble was as soon as possible, however I do not see one that large on the horizon. The green movement may be a contender but it will not hold a candle to the housing bubble and the people do not have access to financing or any extra money thru savings to spend on it. The government is doing CPR on a 365 day old corpse the only reason the corpse is moving is because they are stomping on its chest. I think we are in deep trouble.

CahillNovember 14th, 2008 at 1:54 pm

Energy. Green or otherwise, if the US can be be the frontrunner in developing new energy ideas and bringing them to market we can get moving again. But there has to be some concerted effort between the government, big oil (I know everyone hates to hear that but they have the deep pockets, engineers and facilities), and the small but hopefully able to grow manufacturing sector. We have to make it feasible for the world so everyone wants a piece of it. We have to become the new middle east of energy resources. Otherwise we are just a tired worn out nation with nothing to offer the rest of the world but the leasing of our military. Cold hard facts

MarkNovember 15th, 2008 at 3:30 am

Green is a technology. Oil is a resource.When you absolutely have to burn something you reach for oil… OK, poor attempt to add humor…The technological economic advantage only lasts for so long, until others develop competing technologies. One can point to China’s ability to reverse engineer just about anything.Resources, however, can’t be replicated. And resources are the only leveragable trade goods.Don’t get me wrong, green stuff is good, but it won’t elevate the US back to economic prominence (esp. given current debt levels and the need for IT to consume much of any green energy product to reduce energy imports). Oh, and green technologies don’t necessarily mean green fabrication (energy intensive and hazardous waste).

PeteCANovember 14th, 2008 at 4:36 pm

Did you hear the old joke about the three used furniture dealers who were trapped on a desert island with a antique table? They sold it around amongst themselves, with each one taking a healthy cut, and they all lived happily ever after. :-)Think we can do the same thing???PeteCA

frankxNovember 15th, 2008 at 9:26 pm

Something missing from this model pete – I don’t see any banks on the island. So where are they getting the cash to pay for the ever inflating table ?I suggest one of them becomes a banker & offers attractive cheap rate loans to the other 2 guys to fund the operation.Better still, from a macro-economic POV, TWO of them could become bankers, they can then sell off these questionable loans to each other, as a hedge against the possiblity the last remaining antique dealer might default.O shoot….. of course they will also need a CENTRAL bank to guarantee them…. ( Don’t want any runs on the banks..)Ok, there’s this old joke about 3 bankers stranded on a desert island with only one sub-prime portfolio between them…….

GuestNovember 14th, 2008 at 2:28 pm

Home owners who are delinquent on their mortgages who will get more favorable payment terms (than their neighbors) plus the added bonus of forbearance of a portion of the principle.Banks that should have gone under getting low cost captial.Wall Street types whose companies were rescued and the bonuses they will receive.Union members and staff of the Big 3 when they are bailed out.CerberusWarren BuffettOther friends of the Fed and Treasury

Octavio RichettaNovember 14th, 2008 at 2:39 pm

This guy Ackman said in Charlie Rose that he was slightly negative as of 11/13. The link below says he is at around 2-3% YTD. So if he is supposed to be one of the wiz kids in the business; that tells you a lot about how difficult it has been to make money this year. Me, as of yesterday, I am up 5.9% YTD. I have been as high as 7.8% and have never been negative despite the 30% short position I held until recently. I fiddled with a 15% long position around the time of the election and closed it, loosing about 80 basis points in the process. Since 10/21 I’ve been long about 7% commodities (another poor move) and that has cost me another 80 basis points.This market is a tough horse. Even the gauchos with big cojones are having trouble taming it.

PeteCANovember 14th, 2008 at 4:32 pm

Amazing. Ackman negative. Goes to show how tought it is … he’s pretty bright. So think about it. He would have been better just sitting in T-bills, right? Point being – how long before a whole bunch of hedge fund investors figure out that they can achieve the same thing by buying their own T-bills??? We’ll find out next week … when hedge funds sell off to cover redemptions.PeteCA

MarkNovember 15th, 2008 at 3:41 am

Yeah, my (new) girlfriend was down about 14% on some money market funds (Canadian). She asked me what she should do. She talked to someone at the investment agency and was told that she should keep her money with them; and, as I has asked her to find out, she asked them what percentage was invested in equities. The answer? 14%! Interesting, roughly the very same amount that the funds dropped! So, this really means that their entire equities investment was bust!I told her that she’d be better off in a GIS (Canadian). She locked in at 4% for two years.As a complete novice I’m just about even over the course of the last two years. Cash (USD), PM and foreign currencies. Will sit still for a while.

Mmmmm, beerNovember 14th, 2008 at 2:40 pm

Hey I bought 200 shares of QID when Nouriel talked about one of the recent suckers rallys and now I am up enough to buy some better quality beer.

generalKurtzNovember 14th, 2008 at 2:04 pm

the growing population and its infinitely stimulated hunger for the materialistic worldbecame the biggest threat to first of all itself and then to the planet! We thoughtour political and philosophical problems were over after the collapse of Communism. Some evendeclared the end of history… But history never ends! Our relationships with each otheras human species and our relationship with our planet is now much more intense, much more complex and much more dangerousthan ever as a result of Globalisation. So I assume we’ll continue making history… May be not by wars but by playing with the delicate balance of the planet or with global social, economic or cultural crisis.Before one starts tinkering about “philosophical” solutions for the misery of human kind, he has to first explainhow 9 billion people in 2050 will be sheltered, given access to clean water and have a decent income???? So let’s start from the basics and then move on to philosophy!The above lines are just what came to my mind after reading some of the comments about the desire to have philosophical discussion. Personally I love philosophy but when it comes to talking about people who are about to lose their life savingsand don’t know how they will feed their kids let alone giving them a future then, we have to be realistic. No matter what the philosophy will be, it has to provide an answer to; how to find an equation that balances income, saving, credit, debt and their relationship with the planet. Now to me, this looks like pretty difficult question and I don’t know if we’ll ever find an eternal solution to this. I think we’ll continue to “react” to the whatever mess we’ll create and then solve it and then move on to the next one… and most probably the previous solution will be the reason for the next failure!

ChakiraNovember 14th, 2008 at 2:22 pm

Maybe you don’t understand what I mean by philosophy. I do not mean ideology, I mean a rigorous analysis of the conditions of possibility of whatever the given mode of subjectivity is. This is called transcendental critique and its genealogy begins with Immanuel Kant. This is what all modern philosophers of a certain tradition attempt to do. This is not about the story that comes after we all have warm homes and hearths to enjoy; although that might help the institutions of philosophy employ philosophers it has little to do with their ideas. This is about creating new modes of thinking which will allow us to get out of the ridiculous aporias we are trapped in.

Facts fo LifeNovember 14th, 2008 at 2:44 pm

A philosophical inventory can aid our leaders and us as a country in the presenting, selecting, implementing multi-facited solutions that will get us out of this mess. Even perhaps if we need to revamp long entrenched customs. Understanding truth, causal relationships, natural law and liberties. Without this understanding what we think are solutions will become nightmares.

Facts of LifeNovember 14th, 2008 at 3:07 pm

As commented above, I have just over the last couple of days revisited Descartes, Hume, and Hobbes. It is truly facinating to overlay philosophy with what we are experiencing and hope to experience on the other side of this challenging period. I hope we take the opportunity to ford the chasm to new understanding between ourselves and others. What a great opportunity if we discard our pleonexia and shed sweat instead of blood to solve our opportunities.

chakiraNovember 14th, 2008 at 3:36 pm

I would not have chosen those four examples. I would have said Kant, Hegel and maybe the next generation which does not like Hegel (Battaile, Benjamin, Adorno) and looks for a way out of dialectic.But I appreciate the sentimentIf we are going back that far, we should look for a minute at Spinoza, he might have some words for the panicky crowd.

WiseGuyNovember 14th, 2008 at 8:55 pm

I’m not sure it’s our thinking that’s the problem but rather our awareness.If you don’t know where you are, you can’t possibly know where you’re going or how to get there.Likewise, if you start from a set of false assumptions, all of the greatest systems of logic will lead you to false conclusions and all of your best philosophies will leave you bitter and hopeless.

MarkNovember 15th, 2008 at 3:45 am

WiseGuy, I’m really appreciating your wisdom! Just when I’m thinking that no one else is really getting it… Thanks for giving me hope that there really is intelligence on this planet!

WiseGuyNovember 15th, 2008 at 9:25 am

@Mark -I appreciate the compliment! Please remember this the next time that I make a truly idiotic observation or comment. 😉

GuestNovember 14th, 2008 at 2:11 pm

Insurers Mull S&L Status; Request Could Come Today (Update2)Nov. 14 (Bloomberg) — Several U.S. insurers have asked regulators about applying for status as savings and loan institutions, a step that could give them access to Treasury funding.“There have been some expressions of interest, no formal applications,” Bill Ruberry, a spokesman for the Office of Thrift Supervision, said today, declining to name the companies. “It’s possible that one could be finalized by the end of the day.”The inquiries follow decisions by financial firms such as Goldman Sachs Group Inc. and Morgan Stanley to convert into banks overseen by the Federal Reserve and accept government funds. Insurers, whose operations are regulated by individual U.S. states, may be eligible for capital from Treasury if they qualify for federal oversight from the OTS.The 24-stock KBW Insurance Index dropped by more than half this year and life insurance stocks had their worst month in at least a decade in October. North American insurers have posted more than $120 billion in writedowns and unrealized losses tied to the slumping U.S. mortgage market.Companies that own a savings and loan and thus are already regulated by the OTS include MetLife Inc., the biggest U.S. life insurer; No. 2 Prudential Financial Inc.; Allstate Corp.; Principal Financial Group Inc. and Nationwide Corp.

YveNovember 17th, 2008 at 1:32 pm

I miss him too, the comic relief helped me keep my sanity. Maybe he’s gone a.w.o.l. on us because there just isn’t anymore action in the market to report. SSG come KAFIGGIN BACK. BOOM BABY! I could use a laugh right about now.

GuestNovember 14th, 2008 at 3:39 pm

Oh I think you misunderstood my intention here, I liquidated half of my holdings 2 months ago. I’ve just been hoping for a nice big suckers rally so i can ditch the rest of my holdings for cash. I’m not committed to pulling it all out since it’s an IRA and I don’t want a 40% hit with taxes and penalty. So my decision 2 months ago was to safely put half in money market accounts within my IRA and let the rest ride as I won’t be retiring for another 30 years (that was my thought 2 months ago, not it’s looking like another 50 years). My hope was to get back to even on what i’ve lost, or at least close and then sell it all and get it all into money market, except for a few very long term plays i have.

GuestNovember 14th, 2008 at 3:56 pm

No, i understand you perfectly. You are the type sucker people like me prey upon. You say, “i want to wait to sell until i get back to even”….hahaha….you will watch it go down and down and down and then pull the trigger near the bottom. Additionally, you reference investing for the long term. What a joke. Follow this path and you will be swept away in the deflationary crash that is just beginning. Do yourself a favor, go to all cash on Monday. You have no business in these markets.

CahillNovember 14th, 2008 at 4:22 pm

Sir you are for lack of a better phrase an ass. If you knew me or anything about my investments you would be qualified to speak of it. So you know, 3.5 years ago I took $10K and turned it into $60K, by finding stocks with value and studying the market for that value and knowing when to leave. I have protected my money, and am at this point am down 16% from the $50,000 i made on top of my original investment, not bad for a market that is consistently down 40%. My long term plays are for companies I see value in many many years down the road. They are risks, they were risks the day I bought them. The money in those stocks was always a bet that my assumptions and research would be correct. When I buy I do so with the acceptance that I may never see a dime of that money again and I am quite fine with that. I will admit I have let some blue chips sit and those are the ones I was hoping to liquidate but again we are talking about 15% of my holdings so if i lose it all I am still doing better than the average investor out there. So far it’s worked for me very well. I have every business in these markets. If you continue to be a shortsited fool please do so, you’ll just be one more idiot that knows it all that I and others like me will have to support later on down the road.Have a wonderful weekend and Godbless!

CaponeNovember 14th, 2008 at 3:22 pm

pure flipping madness right now – is this finally the part where Bernanke fires his bazooka and the loud bang is followed by an even louder one when the market crashes ? dow futures down another 100 after the close… one last dramatic scary retest before rally or 2008 crash v2.0 ?

GuestNovember 14th, 2008 at 4:03 pm

I say we rally early next week on hype sure to come out of G20 on coordinated stimulus. These World leaders know they have to produce something tangible as the whole world is watching. Then we go to new lows shortly thereafter. Looking for 6700 INDU, 713 SPX and 1104 NDX…..then we will have a substantial rally that may last a month or two as people feel they have double discounted the bad news. This will set up just a horrific 2009 as the news on the macro front continues to get worse and worse with little to no end in sight..

GuestNovember 14th, 2008 at 3:22 pm

The stock market is a sideshow: it can go one way or the another. But it is not the economy. Paulson and Bernanke with their PPT are not going to be able to doctor, or fix or even influence the economy with their stock market. They can play it all they want. They can use up taxpayer dollars trying to make the stock market a political statement. But it won’t work.And it hasn’t worked. The public is not saying that the bankers have fixed things, that bailout and equity pumping were the right things to do, or that, thank goodness! we’ve got good people in the treasury and at the Fed..No! Here’s what the public is saying – it’s in these three letters to the editor in today’s “San Francisco Chronicle”:PLEASE, FOLLOW THE MONEYEditor – Is the existing administration attempting to bankrupt the U.S. government before the new administration can begin?Buried in the Nov. 11 Chronicle are two articles: “Treasury lets banks have big tax breaks” and more startling, “Fed won’t disclose recipients of loans (Daily Digest).” The latter disclosed that, “the Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans.”What is going on here?What are the Chronicle and the rest of the press doing to publicize what appears to be a raid on the national treasury? Why the secrecy? Are they lining the pockets of their cronies?I encourage The Chronicle to perform the duty that the freedom of the press allows you. Investigate this and let us know that you care and what we can do, if anything. JOHN BOERGER San FranciscoMUSICAL CHAIRSEditor – The one thing that seems to be certain is when all is said and done with this financial mess: The individual taxpayer will be the one without a chair.We have had all these companies, and the list continues to grow, that are in a business they don’t understand, and when through their own behavior and poor performance things fall apart, they come, hat in hand, and are taken care of.Today it is American Express. Obviously, it did a lousy job running its business, so it becomes a bank, which means it can get a handout.General Motors has yet to admit that its performance is responsible for most of its problems. Yes, it would be a shame to see GM go under, but we would still be able to buy a car. It would be interesting to look at all the companies that have gone away in the 50 years – and yet we have managed.It seems if you offer a product (e.g., Circuit City, Mervyns, Linens ‘n Things, etc.) then you can go out of business and not expect any help.We’ve committed a trillion dollars and we have gotten what? GEORGE TOPOR Corte MaderaCARS, POLLUTION, MONEYEditor—I love irony and there on the front page of the Nov. 13 Chronicle were two fine examples, with the stories on the U.S. auto industry about to go under (“Autos”) and the cost of the polluted air we breathe to the state of California (“Dirty air hits state’s economy for billions”).The auto industry is hurting in large part because it can’t sell cars, which is largely due to its lack of competitiveness with foreign manufacturers’ cars. This problem would have been averted if the industry itself had improved the mileage of its vehicles or if the federal government had raised the CAFÉ (Corporate Average Fuel Economy) standards. But, no, they didn’t want to do that; it was too expensive for the auto industry. So now we’re considering a bailout of on the order of $50 billion or more?The state of California wanted to limit auto emissions beyond the standards set by the federal government, but the feds wouldn’t allow it because it would be too expensive. Yet the pollution costs us billions in increased health care costs, lost time from work, etc.And of course, we can’t really do what’s necessary to combat global warming because, of course, it’s too expensive.Pay me now or pay me later. JACK KLINE Brettwood

ORNovember 14th, 2008 at 4:02 pm

Cool post! I am thinking about Cerberus and its looting of Chrysler. Who is gonna pay for dat one? Both companies should enter bankruptcy and their negligent management prosecuted!

AnonymousNovember 14th, 2008 at 5:39 pm

It seems our Government and corporations never learn the old adage: “an ounce of prevention is worth a pound of cure”! We have known about these problems since the 70s and have deliberately moved at a snail’s pace to run the marathon and now they cry “it’s too expensive”!

Octavio RichettaNovember 14th, 2008 at 3:54 pm

Paulson: We have “humiliated ourselves as a nation” agree with CR: Hanky, speak just for yourself; don’t trow us all into the pot:-)Don’t miss the Kashkari bashing video at the bottom!

ORNovember 14th, 2008 at 3:57 pm

We have in many ways humiliated ourselves as a nation with some of the problems that have taken place here,” Paulson said in an interview with CNBC television. (Reporting by Glenn Somerville, Alister Bull and Mark Felsenthal, Editing by Chizu Nomiyama)Any hackers out there who can provide a link to the video? I want to watch this.

ORNovember 15th, 2008 at 3:39 am

Wise guy, you are rigth! Great video! Most fun I have had in a long time!Stein: “subprime is a tiny tiny blip!”Afa, this one is for you. (Hint, the future, forecasting, probabilities, yes they are not totally useless).

KJ FoehrNovember 14th, 2008 at 4:00 pm

Sheesh! My screen shows Dow futures down 459 now and S&P down 46!Is that what is was on the close or after the close? Did some bad news break that I missed?There is only one word to describe what we are experiencing: BRUTAL!, or any synonym thereof.It has got to be excruciating for bulls and bears alike. I assume only the best (luckiest?) of traders can profit in this kind of environment.GLTA.

KJ FoehrNovember 14th, 2008 at 4:25 pm

Thanks for the tip. Got any other pearls of wisdom?I was referring to why it ended so low when we closed down just 337?

GuestNovember 14th, 2008 at 5:29 pm

Guest is correct about Friday futures but they are down about 120 on the Dow and 12 on S&P — on some sites when viewing the futures it is best to look at the actually index value e.g. Bloomberg has Dow Futures at 8371 —

GuestNovember 14th, 2008 at 4:08 pm

I would not call consistent trading lucky. Most good traders do not use stop/losses as they destroy value. I have been way short since middle of year. If I covered my shorts every time there was a reaction then I would make no money. It all depends where you entered the trade. It is gruelling but not lucky. It is usually rank amateures who ascribe to luck….

GuestNovember 15th, 2008 at 7:07 am

Yes, OR, I am waiting to take profits. I believe markets have another down leg before beginning what many will call a tradeable bounce which could last thru end of year into early next. This is the 7th time this year I have heard we have reached bottom form CNBC and the like. Enough with the drivel. We will go lower and quite possibly much lower than most people think possible in the near term. Longer term, as an asides, I will begin to buy stocks once I walk into a bar or restaurant and no longer see them playing CNBC……this culture will have to be broken just like any other huge bubble. The pyschology has definitely changed and will only get worse. I defy anyone to tell me how to model default rates in a depression….they can’t……

KJ FoehrNovember 14th, 2008 at 4:26 pm

I was talking about short-term trading not “short since the middle of the year” trading.Congrats and good luck going forward.

GuestNovember 14th, 2008 at 5:30 pm

One difference between the stock market and a casino that is having low attendance and is losing money, Oh never mind they are the same.

ORNovember 14th, 2008 at 4:32 pm

I hope a few years from now you will remember this post. This 700 billion of government free money will be squandered, stolen, burnt, pissed away by the management of the banks it was given to; and, at the end all this banks (yest they are all banks now) they will still have to be nationalized. The system is rotten.

generalKurtzNovember 15th, 2008 at 7:37 am

The bailout money is being managed by a 35 years old inexperienced kid! So of course it was going to be wasted. I think this financial crisis kind of showed that a bad education and its overvalued diplomas and graduates can harm the world a lot. You know what I am talking about: MBA education and its “bright” kids! The culture of “get rich quick” and its overvalued institutions lead many untalented “chumps” to critical positions. Now we are seeing what the consequences are…I think they couldn’t approach the crisis like engineers to understand what it is and its implications structurally. Here is what I think:-The issue started with sub-prime mortgages not being paid. The credit crisis and recession were the result of the mortgage crisis.-Given the above diagnosis, one would think about 3 options to fix the issue:1-I either increase the income of these mortgage payers so that they are able to pay and hence the losses will stop.2-Or I could reduce the debt burden of these households so that they could pay their mortgages.3-Or I buy all mortgages and mortgage backed assets from financial institutions and manage the risky mortgages myself as a government by forming a new organization to do this. This would mean that financial industry would continue function as it is at least. Meanwhile I would try to talk to homeowners and try to find a way to arrange the payments so that they could afford.It looks like they tried to do the option 3 but if it was so obviously difficult to find and price mortgage backed assets then they should have tried the option 2 from the beginning. That would be the logical answer from the start. I think that’s what they are trying now but I think it is too late already. Prof. Roubini had suggested something like option 2 when they had announced the first bailout package. So some people could see this… Not a rocket science!So I am kind of convinced that Paulson and his team is surprisingly untalented.Add to this the power of wall street elite, the wrong decisions that have been made so far have been low IQ and partly biased. One of the problems of capitalism is that the poor man has not a seat in the decision table. His influence is as big as his pocket!

HyperNovember 16th, 2008 at 3:37 pm

Paulson, a former Goldman Sachs CEO, has been giving his friends on Wall Street a little extra as a gift:Paulson’s Swindle RevealedWith such large numbers flying around, even a tiny percentage cut would be a significant amount to any one individual or business. There’s no doubt that there may be temptation by anyone through whom the money passes to somehow divert a small cut. Are there proper checks in place that ensures that 100% (and not 99.5%) of any money is actually going to their intended destinations?

tahutchNovember 14th, 2008 at 4:33 pm

Why don’t we just fix the root of the problem, housing, and be done with it? A good suggestion would be for the government to subsidize and decrease in mortgage rates as Yardeni and others have suggested.Let’s be honest, our government has been underwriting the housing market since the Great depression with all sorts of programs, including FNMA and FreddieMac.By offering a 4% re-fi rate, for example, we would be liquifying those most needing it. This idea works a helluva lot better than this “stabilize the banks” baloney – and probably lot less expensively. Plus it stimulates the economy which is what we need.Some of you might point out that this is socialistic, but let’s be real. The housing market for decades has been socialistic if we are honest with ourselves.What do you think???

AnonymousNovember 14th, 2008 at 5:24 pm

I have presented a similar plan to Ben Beranke and some other economists over 6 months ago with the response “thankyou for your concern”! This tells me, they have other motives which will eventually reveal themselves.

Average JaneNovember 14th, 2008 at 7:16 pm

So then, tahutch, what would you do with prudent people like me, who’ve stayed on the sidelines watching in horror as home prices went to three, four, five and six times my salary and who, like I have, prudently NOT BOUGHT A HOME I KNOW I CAN’T AFFORD? And home prices are only starting to come back down to earth and I’m faced with a 7% interest rate? Honestly, dear. Penalizing the prudent is just NOT the way to do this. If those who went for broke now can get a 4% interest rate, then I want it too. Sheesh. The problem is, home prices went way, way, way too far above a simple wage earner’s salary, for heaven’s sake. Double sheesh.

tahutchNovember 15th, 2008 at 1:03 pm

Average Jane, the market has already made housing prices much more affordable in most areas of the country. The fact is that a government program of 4% mortgage for “owner-occupied” housing would not only allow many people to get out from under, but it would also stimulate the economy on a much broader level. and by the way, many people did not “go for broke,” they simple wanted part of the American dream of home ownership. Obviously, there were abuses, but I contend the abuses tended to be mostly in Wall Street’s corner.One more detail, isn’t it a little curious that with the 10 year note rate in the mid 3% range that you’re looking at 7% mortgage rates from the very folks Paulson and Co are giving our billions to??Let’s go the 4% refi route. Fannie and Freddie can start this program on Monday with no sweat and you can watch your 101K become a 401K again . . . and if you want to buy a home with a 4% mortgage it’s there for you!

Average JaneNovember 15th, 2008 at 4:06 pm

Thank you for your remarks, tahutch. Truly I understand your point (yeah, the 4% spread with 10-yr versus 7% mortgage rate–what an absolute crock) but what I don’t think you understand is this is wider and deeper than you think. I’m in a major metro area in the upper Midwest that saw home prices rise 64% in less than five years. And wage earners like me did not see my wages rise to that level. Yet home sales went through the roof. So there were many tens of thousands of folks who, while perhaps not going for broke, took on mortgages that were still far above their ability to repay, particularly if the principal was three or four times’ annual salary. So while I’d agree that perhaps there were not so many of us making $50K a year that went out and bought a half million dollar home, there were plenty of us middle class making $50K a year that bought a quarter million dollar townhome. And prices have stayed stubbornly high in this particular metro area. (The Scandinavians here are notoriously obstinate.) That’s my point, my dear. I just could not make those kinds of numbers work for myself, but tens of thousands of others thought they could because as you know, a house is an “investment.” Yikes. My Dad is a retired loan officer and he simply could not believe the banks were making loans like this. He consistently told me home prices were unmanageable, that two and a half times’ my annual salary was the high end of the affordability spectrum, and I best sit tight. So I did. And I’m still waiting for home prices here to come down to that level of affordability.

tahutchNovember 17th, 2008 at 4:29 pm

Average Jane,I understand your point, but it’s obvious what’s going to “eventually” happen here. It’s the politically expedient thing that happens anytime politicians are in charge. Eventually, the currency will be defacto devalued enough to make up for the mess that’s been created. When this happens, employees compensation will rise as well.But for the moment, we have to deal with the current problem – or at least what they tell us is the problem. If it truly is these loans, thenlowering mortgage rates has an elegance in it’s simplicity. Frankly, if the government would offer a 4% rate program(or something akin to that), most of the bloodshed would be stanched and we’d be on to solving economic problem #2 -whatever that is.You do see that not only does a lower mortgage rate re-liquify homeowners, it also is a direct (and efficient) stimulus to the economy. Maybe they can do it before Christmas.

Octavio RichettaNovember 14th, 2008 at 4:44 pm

Cover your hatches!Deadline nears for investors to redeem hedge fund shares

Octavio RichettaNovember 14th, 2008 at 4:49 pm wave of CDOs at risk of defaultBy Paul J DaviesPublished: November 13 2008 23:55 | Last updated: November 13 2008 23:55Synthetic CDOs, the risky and complex debt products that are based on pools of corporate credit derivatives, are under increasing pressure after suffering a wave of default-related losses on top of general credit market deterioration.Synthetic collateralised debt obligations based on exposure to corporate bonds through the derivatives market have already seen $24bn of losses from the recent defaults of Lehman Brothers and other financial institutions, according to analysts at JPMorgan.Deals worth $103bn have been left in what the analysts call a “binary” position and could see a quick descent into losses if more defaults materialise, the analysts said. Between $32bn and $56bn of these mezzanine, or middle ranking, tranche deals are at risk of high capital losses with the next default.JPMorgan estimates there are about $757bn outstanding of synthetic CDO tranches based solely on corporate debt derivatives, many of which were created and sold during a boom in issuance through 2006-07.Synthetic corporate CDOs were instrumental in driving down spreads, or risk premiums, on credit default swaps during the height of the credit bubble, because the banks that created these products hedged them by selling contracts for protection against default on hundreds of individual companies referenced in the CDOs.The main concern for credit markets is that a flight by investors away from CDOs would lead to a reversal of this process, whereby banks would be forced to buy back huge volumes of protection and so push spreads dramatically wider from their already elevated levels.The JPMorgan analysts expect the rate at which investors look to unwind their trades will remain slow and gradual for now, in part because there are no market value triggers to cause a run for the door.“Having said that, the size of this market remains significant and investors experience of the first capital losses could be a turning point in their decisions around holding these trades,” said Yasmine Saltuk of JPMorgan.At the moment, market value losses exceed credit losses by most estimates. Analysts at Citigroup put market value losses on an estimated $584bn of outstanding synthetic CDOs at $67bn by November 10. This is a recovery from the $81bn loss position on October 24 when CDS spreads were around their widest.The private nature of the CDO industry makes estimating even just the size of the market difficult, hence the difference between the Citi and JPMorgan estimates.Ms Saltuk and her team estimate market value losses on about $436bn of remaining mezzanine tranches to be in the region of 30-40 per cent, or up to $174.4bn.Michael Hampden-Turner of Citi is more sanguine about the pace of unwinds, saying that investment grade defaults in the near future are not likely to be as numerous as during the recent weeks of extreme financial crisis. “The pace of [CDO] unwinds and restructuring has increased, but it still remains low and orderly given the overall size of the market,” he said.

AnonymousNovember 14th, 2008 at 5:29 pm

This is why we are in the mess we are in: discreet, complex, opaque, highly leveraged financial instruments that very few people understand become hidden ticking time bombs. Talk about a war!

GuestNovember 14th, 2008 at 4:59 pm

TELL THEM WE’LL TAKE THE CHANCE ~ Stop the blackmail!GM Collapse Would Cost U.S. Up to $200 Billion, Forecaster SaysNov. 14 (Bloomberg) — General Motors Corp., seeking a federal bailout as its cash dwindles, would cost the government $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.A GM collapse would mean “more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,” Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said today in an interview.Congressional leaders are preparing to bring a $25 billion aid package up for debate next week to help prop up GM, Ford Motor Co. and Chrysler LLC as they struggle with mounting losses and their worst sales year since 1991.Behravesh said his estimate was based on spending for existing programs, such as unemployment insurance, and new measures that would be needed to revive economic growth after millions of auto-industry job losses.GM said last week it may run short of operating cash by year’s end, and projected it would be “significantly short” of what it needs by June unless the auto market improves or it adds capital. The company has said bankruptcy isn’t an option.A GM shutdown would cost jobs among suppliers as well as at the automaker itself, pushing the U.S. unemployment rate next year to 9.5 percent, compared with current projections of as high as 8.5 percent due to the weakened economy, Behravesh said.Federal, state and local governments would lose $108.1 billion in tax revenue over three years in the event of a 50 percent reduction in U.S. automaker operations, according to a Nov. 4 report by the Center for Automotive Research in Ann Arbor, Michigan.

GuestNovember 14th, 2008 at 5:43 pm

GM should just rename itself to Goldman Merril,then congress and Paulson would declare the end of the world if a $250 billion dollar bailout with no strings attached isn’t passed within 24 hours. If it were to fail in the house of reprehesives, then it would be tacked onto a $50 billion bill in the sinate and passed within the week.

AnonymousNovember 14th, 2008 at 5:04 pm

We need a withdrawal of forces from Iraq and Afghanistan and a huge reduction in the military budget for starters; next, bailout money needs to be directed to strapped homeowners while insolvent financial institutions should be allowed to fail. Appropriate nationalizations must take place while government run infrastructure projects are mounted. Most important, credit controls as in wartime are absolutely necessary to regulate the flow of credit away from speculative investment and towards real production and employment.

Leo70November 14th, 2008 at 8:04 pm

The military budget cannot be reduced. It has been carefully distributed around all 50 states, so that no congressman/senator would ever vote for a cut (they’ll get a call to the effect that if they vote for it, the people in their district will be fired). Military spending is pure and simple pork, all 600+ B$/year of it. And no politician is going to get rid of pork. Needless to say, NASA is very similar.

GSMNovember 14th, 2008 at 5:26 pm

I am remiss. And , I do not do this often enough.Thank You, sincerely Dr Roubini, for making this most valuable insight and commentary available to the laymen and public, free and in a refreshingly honest and open way.Indeed, you are a MOST honourable man.

manINragsNovember 15th, 2008 at 1:39 pm

I’m new here and I agree. Thanks Dr. Roubini. Your website must be good – it attracts good posts by people that can spell or at least have heard of spell checkers!

AnonymousNovember 14th, 2008 at 6:00 pm

So a friend told me that this bear market is worse than a divorce. He said that his assets are half of what they used to be and his wife is still here…

GuestNovember 14th, 2008 at 6:58 pm

Funny – been there, done that 2x. Changed teams – got a toaster and no more alimony possibility in the future. Oh yeah.

MedicNovember 14th, 2008 at 7:48 pm

My wife and I have both been married before and suffered through terrible divorces. We agreed that if ever we can’t make this work, divorce is not an option…….Murder, however, is on the table.

MedicNovember 15th, 2008 at 5:09 am

Not me. But you could ask her 🙂 I am quite happy these days in that department.But it’s sad to see a hitman down and out. Have you thought about government service? I am sure the CIA still has a call for someone of your abilities…….

RogaNovember 18th, 2008 at 10:50 am

Hit man, not yet. No I’m far more dangerous than that; I’m an out of work Securitization analyst. I’m trying to adapt though and switch fields. I’m even considering doing something that will possibly provide value. Now if only I could find something that I can be sure will store that value I’ll really be on my way 🙂

GuestNovember 14th, 2008 at 6:34 pm

Reminds me of Samuel Butler’s “Letter to Miss Savage, 21 Nov. 1884:“It was very good of God to let Carlyle and Mrs. Carlyle marry one another and so make only two people miserable instead of four, besides being very amusing.”

GuestNovember 14th, 2008 at 7:04 pm

All right, here’s a forward-looking “philosophic economy” analysis you might want to sit up and notice:Almost everyone, including Professor Roubini, looks at economic contraction as if we were starting from a flat piece of ground and descending into a hole. The current and forward-looking analyses are all about how deep the hole is and how long it will take to get back to flat ground.However, in this first-ever global credit bubble (and what a hyper-bubble!) a better perspective would be that we left gently rising ground (1966-1982) to climb to the top of a steep, cone-shaped hill (1983-2007). How much of the “wondrous” world growth represented by that hill was simply inflation of new credit is hinted at by the U.S. aggregate debt/aggregate GDP level of 350% at the start of 2007. Once at the sharp peak of the hill, there was no where to go but down.The Professor was far from the first to call a descent from the peak of the credit hill; for ten years there were economists who described the credit-as-a-susbstitute-for-real-earnings-and-savings phenomenon and who predicted a coming credit (and accompanying business) contraction. Do not be misled by anyone (even the Professor) who tells you that this is one more recession, which, after plumbing certain depths, will end with a definable return to 2007 levels of economic activity. Certainly, that is the goal of all governments, but pumping the creditors and debtors of the world full of cash to try to re-ignite the credit bubble will most likely not succeed, because every participant in reflating the bubble will be at risk of exactly the kind of losses we now see being incurred, and most of the suckers in this pond have now been fished out.The effect of this credit contraction back down the hill to level ground (level ground being credit levels in 1983, with debt-to-GDP levels of less than 100%) is a severe business recession, but not the kind of recession you get through simple business cycling (excessive inventory-based). Rather, if the governments suceed in inflating credit back to the peak 2007 levels they desire, there will eventually be horrific price inflation that will be part of another severe economic crisis; more likely, they won’t succeed, and it will take a whole generation to pass (the one which is currently learning to avoid debt like the plague) and for another generation to come along before we can realistically look for another steep credit hill to start climbing.That’s what happened with the Great Depression – nobody but the government did any borrowing and lending until a new generation after the War started spending more than it earned and (not having been adults at the onset of the Depression) thought that taking on a bunch of debt sounded like a great path to a better life.

AfANovember 14th, 2008 at 10:11 pm

Well, yes, to some extent that is right.I was arguing sometime ago that this should be labeled a desinflation (for reasons similar to yours).Where I don’t necessarily agree is on the fatality. You said:”The Professor was far from the first to call a descent from the peak of the credit hill; for ten years there were economists … who predicted a coming credit contraction.”That is true, and for your information, Professor was among them, and this is one part why he is criticized. There are two very important ingredients that should be in every successful forecast; specifying timing and “exogenous” factors (such as government, treasury, fed, international “reactive” actions – to reflate for example). Otherwise, in absolute, any prediction would be correct: predicting the end of the world, the fall of an empire; some things that are inescapable, but without the how and when, it is meaningless.

kilgoresNovember 14th, 2008 at 7:10 pm

Another round of quotes that pretty well summarizes the situation this week:”The global economy is entering a slowdown of epic proportions comparable with the period after the 1929 crash, John Thain, chairman and chief executive of Merrill Lynch, warned on Tuesday.”″JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the U.S. recession ‘could be worse’ than the credit-market crisis that brought lending to a standstill.”″The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.”″Hey! There’s a hole in the boat!”– Titanic Captain Edward Smith(that last one was a joke)If only these guys had been reading Dr. Roubini’s blog for the past couple of years!SWK

kilgoresNovember 14th, 2008 at 7:26 pm

AJ:Kinda sums up all the belated comments by these purportedly knowledgeable financial big shots, doesn’t it? ;-)SWK

kilgoresNovember 15th, 2008 at 5:07 am

I think you may be right, OR:”After pledging that it would no longer reserve the right to raise interest rates at any time for any reason, Citigroup now plans to start raising rates for customers who have not had an increase in at least two years. The move appears to backpedal from a commitment that Citigroup executives made to Congress in early 2007 when they tried to fend off greater regulation by promising not to raise rates until an account expires.” much for voluntary cooperation. The looting has begun.SWK

ABNovember 14th, 2008 at 7:29 pm

Here’s a way to get consumer spending started again.The US govt issues “Credit Freedom Vouchers” to taxpayers. The vouchers are issued to taxpayers up to a limit (for argument sake say $10k) and in proportion to the amount of tax the citizen has paid in the last 3 years.Joe citizen takes the voucher to his bank, the bank reduces his home loan, credit card, car loan, etc. The bank takes the voucher to the government and they issue low interest super senior preferred treasury bills to the bank.Hopefully, the effect of this is to- Give the citizen more equity in their assets and rewards those who pay tax and contribute to the economy. Linking to tax paid should also link to income. If the citizen overborrowed, it won’t help so much. If they underborrowed, they still get a really good advantage. Citizens start spending again because they actually got something for nothing- Banks get homeowners and borrowers more committed to paying of their loans because they have more equity. They get a lower interest rate, but more certainty they will get paid.- Government frees up citizens to start spending again – Voters are VERY HAPPY- Credit rating of US govt tbills goes down, foreign owners of Tbills very unhappy – who caresWho loses from this??

MichelleNovember 14th, 2008 at 7:46 pm

Credit ratings agencies won’t downgrade the U.S., are you serious? These are U.S. corporations that won’t bite the hand that feeds them. Therefore, we should just print and print and print because we can “massage” the data, lie, cheat, and plunder because we’ve been pretty good at it so far. The foreigners will keep buying because the ratings agencies say our sovereign debt rating is AAA, why not keep printing.Until another country(ies) can step up and grab the baton, the world depends on us. Arrogant as it sounds, it has been happening for decades. When will the U.S. become accountable for all our past and present mischief? When the U.S. decides it would rather concede without bloodshed.

AfANovember 14th, 2008 at 10:24 pm

Who cares about what Moody’s says, anymore. The rating agencies are made irrelevant. The market, once it realizes the depth of the problems, would reprice and downgrade what has to be no matter what S&P says.Remember the monolines? How long it took the rating agencies to downgrade them? The markets, both equity and credit, were merciless, driving their stocks to pennies and their credit spreads to 4 figure bps.@ABWho loses? Everybody in the medium term.”Joe citizen takes the voucher to his bank, the bank reduces his home loan, credit card, car loan, etc. The bank takes the voucher to the government and they issue low interest super senior preferred treasury bills to the bank.” The bank make a loss, driving down the price of the bills and up the yields. Now the government has ask foreigners to lend some more. But since “Credit rating of US govt tbills goes down, foreign owners of Tbills very unhappy – who cares”. Those foreigners will tell them “go .. yourself”. In that case the government has no solution but to levy more tax on Joe by about the same amount of the voucher value or higher …

GuestNovember 14th, 2008 at 7:31 pm

Some Nobel prize winners have described the fame accompanying the receipt of the award as a drag on their inventiveness and future accomplishments. Not our pompous Paul Krugman, this year’s economics Nobel star. With this many big new ideas since the ceremony he should be crowned U.S. Money Czar and save us all before it’s too late. Just kidding. Now comes David Beito’s point by point analysis of Krugman’s poison; here’re a few excerpts from:“Krugman’s Prescription for Disaster”Paul Krugman calls for Obama and his advisors to push an expanded version of the New Deal… According to Krugman, they should boldly throw caution to the winds and “figure out how much help they think the economy needs, than add 50 percent. It’s much better in a depressed economy, to err on the side of too much stimulus.”Obama should reject this advice. If he listens to Krugman, the likely result will be a wave of stagflation that makes the experience of the 1970s look mild by comparison. Such a prescription would both continue and accelerate Bush’s fiscally reckless policy of propping up malinvestments through massive increases in spending, deficits, and easy credit by the Federal Reserve. As the continuing fall of the stock market and the rise of unemployment indicate, more bailouts and more “shock socialism” do not work. Obama made a fatal mistake in failing to oppose the aptly described billionaire bailout…More troubling, at least for opponents of war, is Krugman’s dubious contention that “What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.” The evidence does not support the view that that war was beneficial for the economy. In a seminal article for the Journal of Economic History, Robert Higgs convincingly challenged the Keynesian theory of World War II as put forward by Krugman and others.While unemployment disappeared during the war, it was hardly a step forward. Moving men and women from the unemployment lines to the killing fields of Anzio did not represent economic progress in any meaningful sense. During the war, Americans at home suffered from rationing, shortages, more accidents on the job, longer hours, and many other measures of economic deprivation. Moreover, as Higgs points out, “real personal consumption declined. So did real private investment. From 1941 to 1943 real gross private domestic investment plunged by 64 percent; during the four years of the war it never rose above 55 percent of its 1941 level; only in 1946 did it reach a new high.”According to Higgs, genuine prosperity did not begin to return until the last months of 1945 and 1946. This prosperity occurred under a policy of reverse Keynesianism…

ORNovember 15th, 2008 at 3:46 am

A good example of fame going to one’s head. He gets a Nobel prize, just a wad of cash and the endorsement of a few fellow humans in Sweden, and he starts thinking he is good.

GuestNovember 15th, 2008 at 5:46 pm

Krugman is foreshadowing what will become policy; he’s simply softening up the the media/public and trading on his newly “earned” designation. The spending program that Obama will unveil will be overwhelming and it’s best to clear the field in advance. The question is since we know this is coming how can it be played.

GuestNovember 14th, 2008 at 8:04 pm

From: The Good News: It’s Not About Race by William Norman GriggTo judge from the composition of the Obama transition team, the Exalted Apostle of Change (we pause to tug on our forelock) is interested in little more than the standard politics of corporatist plunder. Obama’s signature touch is to transpose that agenda into the key of cultural Marxism, as opposed to the pious militarism that remains in favor with what remains of the Republican Party.For Obama, the collapse of our financial system was a politically fortuitous event. For reasons that defy rational understanding, the public perceives Obama as a transcendent figure who can cast his gaze upon the turbid markets and command them, “Peace – be still.”The fact that the markets have reacted to Obama’s election with something less than confident relief has yet to register with the True Believers, who likewise remain untroubled by the fact that those whom The One has gathered as his inner circle of disciples include many of the architects of our ever-deepening financial catastrophe.Rahm Emmanuel, the issue of terrorist loins and one-time servant of an obnoxious foreign power chosen to be Obama’s Chief of Staff, made a cool $200 K in 2001 through a sinecure at Freddie Mac; this happened at a time when that government-sponsored entity (GSE) was one of the chief engines inflating the Housing Bubble. Three of Obama’s key economic advisers – Anne Mulcahy, Richard Parsons, and William Daley – enjoyed similar posts at Fannie Mae.Clinton-era Treasury Secretary Robert Rubin, another prominent figure in the Obama transition team, was a master chef at cooking the books on behalf of Citigroup and a consulting gourmet for Enron when that company’s degenerate corporate elite was looking for just the right recipe to use in swindling its shareholders. And more than a third of the spots on Obama’s transition team – which is a farm club for both ambassadorships and more consequential executive branch posts – are the most successful “bundlers” of corporate donations to His Holiness’s campaign.Already assuming the mien of a dictator before formally inheriting the mantle of dictatorship, Obama, asserting the suppositious authority of the non-existent “office” of president-elect (a status he won’t actually enjoy until after the Electoral College meets next month), Obama “is pushing Congress this year to approve as much as $50 billion to save cash starved U.S. automakers and appoint a czar or board to oversee the companies,” according to a Bloomberg report.This proposed nationalization of the auto industry, which has the support of the Wee Emperor, has been urged upon Obama by two of his key advisers, former Federal Reserve commissar Paul Volcker and former Treasury Secretary Lawrence Summers – two veterans of the entrenched Establishment Obama supposedly seeks to de-throne.In defining how Obama will rule, his practical connections to the entrenched corporate socialist oligarchy are much more important than his cultural Marxist background. There is little danger of Obama instigating a proletarian revolution; as John Derbyshire wryly pointed out, Obama can’t incite a worker revolt to seize control over the means of production, since all of our factories have already moved to China.Besides, what’s the point of staging a revolution from below to consolidate power in the state, when the Bush administration has already done all of the heavy lifting? The most tangible accomplishment of a generation of Republican rule is the creation of an apparatus of regimentation and wealth redistribution that Lenin would have coveted.There is not a particle of hyperbole in that statement. Witness the observation offered by Jeb Mason, the Treasury Department’s liaison to corporate lobbyists seeking a portion of the $700 billion in “bailout” boodle. Under siege by supplicants, Mason, a 32-year-old GOP apparatchik who served under the feculent Karl Rove, commented to a friend: “This must have been how the Politburo felt.”As I’ve noted before, the mechanism of wealth redistribution from the middle and working classes into the hands of corporate parasites is now fully autonomous: With the Treasury Secretary and the Fed Chairman able to create “money” in any volume they please, and disburse it as they see fit, with no oversight or accountability, Congress really doesn’t have a role – other than that of misdirecting the public.Those actually in charge of looting the country before its collapse – whether in the commanding heights, like Comrade Bernanke and Herr Paulson, or in the trenches, like K-Street Pimp Jeb Mason or the Wall Street bagman bearing the deliciously Dickensian name Neel Kashkari – are entirely unaccountable. From their perspective, the uninitiated have no right so much as to know how much is being spent, let alone for what, and for whose benefit, the sums are being spent.The $700 billion that raised the public’s ire and attracted the attention of corporate lobbyists is merely a small bucket drawn from the immense pool of “liquidity” flowing from the Fed. The ruling economic Triumvirate has actually taken on $5 trillion in liabilities since the financial collapse began last March, and I would be surprised if that figure didn’t at least double before Obama, sitting astride his magic unicorn, stages his triumphal entry into the Imperial Capital next January…

Guest-o-RamaNovember 14th, 2008 at 9:40 pm

Isn’t a big fat depression tailor made for a big fat liberal (or in this case a tall skinny one?). The Big O can follow Krugman’s advice and spend spend spend and if it doesn’t work blame it on Krugman! Personally I think the dude’s blessed with impeccable timing!

Average JaneNovember 14th, 2008 at 9:45 pm

I really can find very little with which to disagree in this very well written essay. I must confess, though, to being less than starry-eyed about our newest Elected Leader. The Audacity of Hope? Perhaps so, perhaps not. But one must admit that many of the populace find Obama to be compelling–witness the masses in tears after every well delivered speech the man has made. We are quite simply starving for leadership. Right, Peter JB? And perhaps we’re just getting crumbs in return. We shall see, shan’t we?

AfANovember 14th, 2008 at 8:48 pm

Another breaking News from Gloomberg:The Credit Default Swaps contracts (CDS) on Santa Clause & Co. (SCC) jumped to a new record today. The over-the-counter contracts traded as protection against potential default were quoted today 50% upfront as investors started to speculate about the rising risk of default by the company.”The CDS action today shows that the holiday season will be very difficult” said an analyst at Credit Suisse.”The credit markets are dysfunctional, the fundamentals of our company are strong and we are keeping our gifts expectations for this year” said SCC CEO.SCC is also applying for a bank charter before the end of this month to have access to the TARP. Treasury Secretary Henry Paulson expressed his worries about the systemic risks posed by a potential bankruptcy of Santa Clause. “We are going to allocate as much money as needed so that Santa Clause distributes enough presents this Christmas to our Wall Street friends” he said.

AfANovember 14th, 2008 at 10:43 pm

Oh, please not that. It reminds me of someone I hate – public enemy #1 – hint:He has, in many ways, humiliated this nation with some of the problems that have taken place here.Kiddin, thanks AJ for the compliment. You are just a reserve.

GuestNovember 14th, 2008 at 9:38 pm

Something is going on in the gold market.There have been persistent rumors about BRIC and middle east countries setting up their own gold-backed currency basket. Now here is another rumor about the G-20 and a gold-backed basket currencies. on top of that, here is another rumor how Saudi Arabia bought $3.5 billion worth of gold in the last two weeks. rumors, but makes one think

Dr. CrowNovember 14th, 2008 at 10:52 pm

They’re all hedging their bets, methinks. I mean, even where I live in the tuliberries I can hear the whir of printing presses and smell the ink… lots and lots and lots of paper coming outta the central banks pretty soon!

frankxNovember 15th, 2008 at 8:32 pm

I n the first article, gold-bug Krugman says : “Naturally, hoards of gold investors will cash in their gold. The central banks will pile it up. At the same time, other hoards of investors will not sell their gold, even at $10,000 an ounce. But the actual movement of the gold will not matter. It is the psychological impact and the devaluation of paper currencies that matters.”!!!!!!!! Believe me at $10,000 / oz I would be the first of millions in line down at the BOE to cash in . I can’t believe anyone who held any gold AT ALL wouldn’t. People would be pulling their fillings out. Total cost to world Central Banks ? … oh only a few trillion. No problem . ( No problem !!?? Hah hah hah !! )The whole article looks like an pretty comical attempt to talk up gold to me. But I do hope it’s true, of course ..

GuestNovember 14th, 2008 at 9:56 pm

With this deflationary picture and the USA borrowing going balastic…what’s the best guess for US Treasuries?

yvesNovember 14th, 2008 at 10:06 pm


AfANovember 14th, 2008 at 10:37 pm

I got it. This is why I was feeling something was missing today, an ALL CAPS post :)More seriously, isn’t that dangerous? I mean flooding a dry land market with new liquidity doesn’t it pose the risk of soil erosion – bringing the whole foundations down?The water – cash – would not be absorbed by the soil but rather flow away to join the next infectious and idle lakes (banks vaults)

Dr. CrowNovember 14th, 2008 at 10:59 pm

But Japan was a domestic sitch, this is now global. Yeah, I’m with yves, they’re going to flood the world to keep themselves afloat. Not since Noah will we have seen such a Flood!And I’ll prophesie: It won’t do much good and a lot of us will just drown anyway.

ORNovember 15th, 2008 at 3:51 am

I assume you are Yves Smith. If not, I would encourage you to change your alias as the names Yves is unique enough that it creates confusion. Yves, if it is you, don’t be a lazy bum and throw in your last name!

Wolf in the WildsNovember 17th, 2008 at 2:24 am

It is not the consumer cycle that you should concerned about, it is the negative vicious credit cycle that will kill the economy. And no amount of fiscal stimuli can create credit.Lower leverage/less credit leads to weak corporation defaults leads to weaker bank balancesheets leads to even less credit and so on so forth. No company in this world can survive without some sort of credit. The longer this lasts, the more damaged will be the real economy. And unfortunately, I think we have entered this vicious cycle and there appears to be no way out of it.

GUY FOX in Havana c/o: R.R.R. Key West/Tampa BayNovember 14th, 2008 at 10:35 pm

1250 quadrillion dollars of bad paper (derivatives, CDSs, CDOs, etc.) floating around out there! Global Warming! Peak Oil! Ocean fisheries collapsing faster than people pensions! GM and Ford $truggling to $urvive! Chrysler headed for extinction! The allergy $eason; the tax $eason; the hurricane $eason; the flu $eason… not to mention AIDES, SARS, West Nile Virus, and the bird flu. 2012!Man! All this Shit is happening… and I’m still struggling with Y2-K.

KJ FoehrNovember 14th, 2008 at 11:02 pm

Economy “falling off a cliff”US yearly econ growth hits new six-decade low –ECRI(Excerpt)NEW YORK, Nov 14 (Reuters) – A measure of future economic growth in the United States edged up in the previous week but its annualized growth rate set a fresh record low, indicating the U.S. economy is falling at its fastest pace in at least six decades, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said the annualized growth rate of its Weekly Leading Index slid from minus 24.6 percent to negative 25.9 percent, its historic lowest, according to ECRI data recorded since January 1949.”With WLI growth continuing to plumb new lows, not only is no economic recovery on the horizon, but the economy is falling off a cliff at its fastest pace in at least six decades,” said Lakshman Achuthan, managing director at ECRI.… guess that’s why they call it a “hard landing”.

JLCNovember 15th, 2008 at 1:46 am

chakira,Neither a novelist nor a philosopher could ever dream up a more sublime comedy of errors than our present predicament.

Octavio RichettaNovember 15th, 2008 at 3:56 am

With so much pesimism going around (just check the bloomberg main page) ain’t it time to play a bit contrarian?It is OK to be a contrarian but you have to be a smart contrarian. You may think/say: with so much pessimism going on, with over 90% of business headlines being negative, wouldn’t the “proper” contrarian posture be to go long?Answer: Contrarians make money when something the masses believe to be true (e.g., 2006 is a great time to buy a house) is actually wrong and they know it. When this is the case, and a contrarian goes against the crowd at the right time; then you make some money on your call (if you take action too early you will go broke:-)I used to have this friend, Hedgy, in Boston (I haven’t heard from him in a long time, but I know he is doing well, at least investment-wise:-). One of the best short sellers I’ve known personally; another one was/is Mr. Pink but that is another story. Hedgy used to tell me: “Octavio, in shorting, it is not enough to be right; you need to have a catalyst that makes the market realize they were wrong so that they come in line with your views; only then, you make money.”But going back to the stupid question, there is a good reason why over 90% of the headlines are negative: The truth about the economy has come out. There is not a “greater” contrarian truth out there. The pure truth is that things are really bad. Being contrarian at this time just because you think being a contrarian is cool because of so much pessimism out there, will get you killed:-)

Octavio RichettaNovember 15th, 2008 at 4:02 am

“Octavio, in shorting, it is not enough to be right; you need to have a catalyst that makes the market realize they were wrong so that they come in line with your views; only then, you make money.”For this crisis (i.e., the subprime crisis since “we are all subprime”), the catalyst were the events of the summer of 2007, starting with the collapse of the two BS funds. However, the equity markets still managed to get into record territory in October 2007. Yes, Virginia, shorting stocks ain’t an easy game.

ChakiraNovember 15th, 2008 at 5:53 pm

Everyone is so against me for being antiNR when I hardly am.I just think we need a supplematary analytic direction which is not neccesarily able to be provided by NR. But he is as far from wrong on his own points so far as almost anyone could be and deserves tremendous credit.

GuestNovember 15th, 2008 at 7:41 am

Great insight – betting against the crowd with a view to the crowd eventually coming around to your way of thinking – if one were to consider contrarian opportunities what about the US dollar?

ORNovember 15th, 2008 at 8:03 am

That is a hard one! I am 100% USD but I don’t claim to be right. Just the currency in which I keep score and to which my expenses are linked. Some see the Euro coming down furhter against the USD

frankxNovember 15th, 2008 at 10:04 pm

trouble is, being a contrarian 2 years early would likely kill you.So it’s all a question of knowing / guessing exactly *when* the lightning is going to strike.If you want to make money gambling ( on a house or a stock or anything else) you have to accept that you won’t make a fortune without taking a lot of risk. hence my short fingernails … ( & I’m STILL broke ..)

RedCreekNovember 15th, 2008 at 4:17 am

I believe that it is fair to say that we have now reached the stage of full system collapse?One positive to this financial and economic system collapse is that maybe policy makers will be forced to extrapolate the current collapse to the ecosystem. We can recover from an economic system collapse. We can probably not recover from an ecosystem collapse.Obama should pull Gore into his government team in a newly created function to push through very dramatic and all-changing environmental changes.

kilgoresNovember 15th, 2008 at 12:47 pm

Ha! Just a six-year-old Toyota Camry, my friend, which I am pleased to say I gets well over 22 miles to the gallon. I also live in a modest home. I don’t believe in conspicuous consumption or living a flashy lifestyle. All of my income goes to supporting my wife and three sons, one of whom is a special needs child who will never be capable of independent living and for whom I must sock away funds to ensure he will receive the care he needs long after I am dead and gone.Oh, and lest my foregoing post have been misconstrued — I hope not — I am, in fact, quite concerned about global warming and the apparent human contribution to it. I find myself arguing with supporters of Senator Inhoff quite frequently. My previous post regarding down or sunscreen was referring to the hypothesis that an increase in global warming could interfere with thermohaline currents and, paradoxically, precipitate the sudden onset of a new ice age. If that’s true, I guess I’ll need down jackets and stuff; otherwise, I’ll stick to breathable lightweight linen trousers, guayabera shirts, open sandals, and Panama hats (pretty much standard garb for us Floridians). ;-)SWK

RedCreekNovember 15th, 2008 at 3:42 pm

Thanks for the explanation and kudos to your life philosophy. If only more Americans could think like that.I myself try to live a similar life: I live in a small apartment in central London that i financed with 55% equity at the time of purchase (and the mortgage is on a cheap tracker rate that keeps going down!!). I have no car, and always try to take public transportation.And this despite having spent the past 8 years working “on Wall Street” in New York and London.I also spent a lot of time in Dallas and got utterly sick of the McMansion / Denali mentality. (Not to mention the mandatory piano in the entrance hall of the mansions where of course nobody knows how to play nor has any interest in playing the piano.)I am sick of people generalizing wall street bankers. Trash the bosses, not the people taking the sh*t. I can guarantee you that the majority of the investment bankers have not made the money you read about and are now in very serious trouble given that they are getting fired and have no prospects of landing another job in finance.Main Street people driving the Denalis and enjoying the McMansions and raking up the credit card debt and brainlessly polluting the suburbs in their massive SUVs are equally guilty.And on another note- the hedge fund hearing on the Hill a couple of days demonstrates how Congress just has no clue … And this is very scary.Obama should not only include Gore but also Clinton and a bunch of financial experts into his team. The rumors of the past 48 hours (Clinton as secretary of state) have been hopegiving. I hope that he assembles a real pipartisan star team. Maybe even including Lieberman.

ORNovember 15th, 2008 at 4:14 pm

“I also spent a lot of time in Dallas and got utterly sick of the McMansion / Denali mentality. (Not to mention the mandatory piano in the entrance hall of the mansions where of course nobody knows how to play nor has any interest in playing the piano.)”Excellent remark. You are a man of observation. This reminds me of my sister in law. She has a piano at the said location and lives in A Texas city not far from Dallas (Austin); of course, in a McMansion:-)Me, I paid 30K USD cash for the house we live in in Argentina. Furnished and the 30K includes the travel expenses of the trip we took from the US to see the house!

RedCreekNovember 15th, 2008 at 4:42 am

Jamie Dimon of JPM recently mentioned that the effects of the recession will be worse than the effects of the credit crisis.Paulson just changed his strategy for the investment of the usd 700bn favoring consumer credit rather than mortgage backed securities etc.When you have gangreen in your toe you chop off your foot in order to save your leg.Or maybe I should say: when you have gangreen in your foot you chop of your leg in order to save your life.Or is it: when you have the rot in your leg it is too late to survive?Paulson let Lehman fail and pushed for the bailout of Merrill by BofA in order to save Morgan Stanley and Goldman Sachs. His strategy change in the 700 bn program demonstrates that things have become much worse in a very short period of time; his strategy shift is similar to “chopping the foot in order to save the leg”. Let’s hope that the leg can be saved.

MarkNovember 15th, 2008 at 5:03 am

his strategy shift is similar to “chopping the foot in order to save the leg”. Let’s hope that the leg can be saved.Yeah, but it’s OUR foot that he cut off and it’s HIS (and his rich cronies) leg that’s being saved!

GuestNovember 15th, 2008 at 11:53 am

And let us not forget that Jamie Dimon is a Class A board member of the Federal Reserve Bank of New York, elected by member banks to represent member banks. His term expires December 31, 2009.His salary as Chairman, President & CEO at JP Morgan Chase & Co, according to his wikipedia bio, is US $15,500,000 (2007); Total US $27,797,300 (2007).

frankxNovember 15th, 2008 at 10:08 pm

US $15,500,000 ??? That’s the kind of salary that would enable you to worry about this particular crisis just in a nice comfortable theoretical sense isn’t it ?…

Octavio RichettaNovember 15th, 2008 at 5:28 am

My hope is that you can learn something from my experience with the following post. But since as they saying goes, no pain no gain, I am probably wasting your time and mine:-) However, I still believe there are some smart people out there who can learn without the pain so I will proceed with the time wasting exercise:-)My biggest investment disappointment in 2008 was giving 30% of my hard earned savings to Bill Gross (via his PTTRX) to manage: entered the year with the fed funds rate at 4.25%, and I knew rates were coming down low and hard.An environment of declining interest rates is usually great news for bonds funds in general, but not this time around. This time, there was plenty of risk in mortgage and corporate debt. (Just check bond fund results YTD and compare them to the annual return they had during the previous bonanza – i.e., the AG rate cuts of the millennium)I entered the year heavily into treasuries (with which I did well in 2007) at different levels of maturity but I am not an experienced fixed income investor. More specifically, I had no great experience riding interest rates down (even though, in retrospect, I see that, compared to Gross, I did an excellent job of riding down AG’s rate cuts of the new millennium).So here we are on January 1st 2008, with the subprime mess in full bloom, rates coming down, and the fact that risk averse people had already started taking refuge in treasuries in 2007. So with long T rates at low levels by historical standards, how much of a run was left in treasuries? Wouldn’t it be appropriate to diversify some into riskier debt and take advantage of an eventual tightening of spreads? BG’s shop with their bottoms up approach to investing, careful consideration of risks at the individual company level seemed to be the right choice. After all, they were one of the few who identified the mess that was coming. I believed BG was the guy who could get me some alpha while still avoiding the downside of nasty surprises.Well, it turns out I was wrong. Smart Bill had the clever Idea of selling AIG credit default swaps* (ouch!) and getting too heavily too fast into agency mortgage debt counting on Uncle Sam’s warranty. It turns out he bet wrong on AIG as it did not prove “too big to fail”. Benny and Hanky had the decency of making equity holders and careless creditors pay the price.The mistakes/learning: Once again I moved too fast (there was fuel still left in treasuries). BG also moved too fast. He moved into Agency debt too soon (IMO, despite the government guarantee, spreads won’t improve dramatically until the housing market does). On his CDS move with AIG, there he has no excuse. He thought he was back to his blackjack card counting days. He thought he assessed the risks right. But he forgot two things: i. His being right depended on humans (Benny and Hanky behaving the way he thought they would. Bill learn your lesson, human behavior is not as predictable as we may think). ii. He failed to take the worst case scenario seriously: What happens if I am wrong and I sold AIG CDSs? Answer: you can loose 100% of the insured face value which turned out to be close to a billion USD!My total loss in PTTRX was about 0.5% thanks to the dividends I collected. I sold on 11/10 at $10.40 share when the CDS mess started to hit the wires again. I didn’t want to run the risk of him having another AIG-type “surprise”.*To BG’s credit, other smart people (perhaps too smart) such as Bill Ackman (see link above) also got burnt with AIG.

GuestNovember 15th, 2008 at 7:25 am

My observation is that the Pimco crew are smart guys but their greatest talent is in marketing – they present themselves as neutral and unbiased, a rock of stability in a storm. Gross is the master, with his stamp collector manner, he comes across as a champion for the little guy.His understudy, El-Erian, is learning fast, presenting himself as everyone’s favorite professor able to translate the complex into understandable components. Just 6 weeks ago while El-Erian was on the interview circuit, he was telling the world that EEV (emerging markets) was the place to be – and he was correct, a 35% bounce from $34 to $22.

So is Pimco co-chief-investment officer Mohamed El-Erian. “Is there a cyclical case now for emerging markets? Yes there is,” he says. El-Erian, a recognized expert on emerging-markets, says Washington’s bailout plan could spark a rally in emerging markets more acute than any domestic bounce. He suggests buying MSCI Emerging Markets (ETF: EEM).

El-Erian (Barrons Sept 28)

Octavio RichettaNovember 15th, 2008 at 6:14 am

Afa This one is for you. Check out the bold stuff:, NOVEMBER 15, 2008INTERVIEWSifting Cautiously Through the RuinsHoward Marks, Chairman, Oaktree Capital ManagementBy LAWRENCE C. STRAUSSAN INTERVIEW WITH HOWARD MARKS: All we know is that “nobody knows.”TEXT SIZE PRINT EMAIL DIGG SINGLE PAGE REPRINTS GET RSS Subscribe NowWith these readers:Or copy the rss link:DURING HIS 40-YEAR CAREER, HOWARD MARKS has developed a reputation as a shrewd investor, most notably in distressed debt. Marks, 62, is chairman of Oaktree Capital Management, a multistrategy Los Angeles-based money manager with roughly $60 billion in assets. Besides being known for his investment acumen, Marks has developed a following for his memos to clients, in which he holds forth on topics ranging from fighting forest fires to Chuck Prince’s rocky tenure at the helm of Citigroup.Ian White for Barron’s”Everything is cheap. The question is: ‘What is the cheapest and what do you feel more comfortable with?'” –Howard MarksIn a 2005 interview with Barron’s, Marks asserted that many hedge funds would suffer from mediocre returns, not high-profile blowups.We recently caught up with him, first in early September, and again this month, to glean his observations about topics including the financial meltdown — which he thinks has produced some investment opportunities for careful investors.Barron’s: What’s your read on the financial carnage?Marks: We went through several years with the market swinging in one direction, and that was toward innovation, leverage and risk-taking. And those are the culprits for how we got here. The subprime crisis, No. 1, exposed the folly of those things and, No. 2, exposed and added to the swinging of the pendulum of the economy back from euphoria. What we are seeing today is a continuation of that.What caused this mess?Too much capital was available. Providers of capital ignored risk and competed to make loans and investments. Their competition took the form of demanding too little return, too little risk compensation and too little safety. So the stage was set for massive losses when the environment turned negative. Investor [and Barron’s Roundtable member] Marc Faber — and I paraphrase — said there was a surplus of dollars that led to a shortage of sense. There were incredible excesses in terms of innovation and leverage, which stemmed from a lack of concern over risk and what you didn’t know. But cheap money made all things seem appropriate.What are some examples?The shortest-term money is invariably the cheapest, because of the upward slope of the yield curve. So, it is always most attractive to borrow short rather than long. In a very narrow sense, it looks seductive. Just thinking about Treasuries, you could always make money by borrowing short and buying long-term bonds, because the yield curve is upward-sloping.But it can’t be that it always works, because there is no free-money machine. So there must be some risks in the overall proposition that are not captured merely by the yield curve. And those risks are that on a bad day, you could be asked to repay your borrowings, or you could be unable to roll over your borrowings. So to repay your borrowings, you have to sell assets. But assets could be either not sellable or only sellable at losses or prices well below what you think they are worth or what they are really worth.You look at this and say: “OK, I can borrow money short-term at 3%, and I can buy 30-year bonds at 6%. I’m going to make 3% a year forever.” That will work in the long run, if you can survive to enjoy the long run. It reminds me of one of the greatest adages in this business: Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep, on average. It is not sufficient to get through on average. You have to get through every day.What went wrong with risk management?First of all, you need a risk manager who knows the business — not somebody who knows everything about statistics but who has never been in the job. And you had risk managers who were statisticians. They could tell you what should happen most of the time.But what should happen most of the time is a heck of a lot different from what will happen on a bad day. So they extrapolate history, but the trouble is that history changes.One of the great lessons is beware of platitudes, such as “There has never been a national decline in home prices.” If you believe that there has never been a national decline in home prices and that there never could be, then you bid home prices up to levels that don’t allow for the risk of widespread losses, because you concluded it could never happen. Then the fact that they are at those new high prices introduces, in itself, the risk of a national home-price decline.So the actions of people relying on history change history, and that is what people lose track of.How did you and your colleagues at Oaktree react to the conditions that led up to the credit crisis?I wrote a memo to our clients a few years ago titled “It Is What It Is.” It said the first job of a money manager is to understand the environment you are operating in and its ramifications, and to act accordingly. We don’t make predictions around here, and we didn’t predict the things that are happening now. We said, though, that we were living in extremely bullish, euphoric and overconfident times, in which prospective returns are low and risk premiums are low, and that it wasn’t a time to take risk.There’s been a lot written about how retail-mortgage underwriting standards deteriorated. What about standards for underwriting deals?We were in a period in which people weren’t afraid of losing money; what they were afraid of was missing out on deals. So the competition to make deals got stronger and stronger, and people wanted to preserve and increase their share of the deal market.If you are a car manufacturer and you want to sell more cars, you would try to make a better car. But if your product is money and everybody’s money is the same, how do you increase your market share? You participate in an auction in which one person says, “I will take [returns of] 7%,” and another person says, “I will take 6%,” and another person says, “I’ll take 5%.” So it is a race to the bottom. And since everybody’s money is the same, for the most part, the way you compete is by making your money cheaper, and this cheap money is what drove markets.When we spoke two months ago, you said it wasn’t the day after Christmas in terms of buying opportunities. What do you see now?It is hard to say. If the world turns out to be reasonable, or at least within the context of what people are girding for today, then things are cheap. We know the world is going to get a lot worse over the next one, two or three years, but we don’t know by how much. So, to say that things are cheap today is what I would call the perceived merits. But there are a lot of shoes yet to fall, and the merits could certainly deteriorate in the next year or so. I wrote a memo to my clients in September titled “Nobody Knows,” and I stand by that title. If you are a smart person, that’s all you can say.Are you putting new money to work?We have a lot of dry powder, and we are spending some of it on a steady, gradual basis. There is enough out there to buy, and we could spend it all in a couple of weeks. But we want to leg into this, and that’s why we are doing it gradually.What particular areas of opportunity do you see?Most of the opportunities are in financial institutions, some of which have been tarred with a uniform brush. In times of crisis, markets don’t make fine distinctions between the good companies and the bad companies. The other area is the debt of buyouts, many of which probably were done at too high a price or with too much debt.What’s your assessment of bank loans?Bank loans are ground zero for the imbalance of selling over buying. These loans were perceived two years ago as ultrasafe, low-yielding investments, so nobody bought them for cash. They were primarily bought on significant leverage. Now a lot of those leveraged holders have to liquidate in order to reduce leverage, and so there is a technical imbalance. Since these loans are still pretty good instruments, their yields are still the lowest among the types of securities I’m talking about. But they are very attractive on a risk-return basis.What about junk bonds?High-yield bonds were not held on as much leverage, so they are not under the same pressure as bank loans. However, they are still under great pressure — everything is under pressure today, and everything is cheap.The spread for the average high-yield bond over Treasuries is around 1,400 basis points [14 percentage points]. And the spread on our portfolio over Treasuries is the highest it has ever been in 30 years. You might argue that the economic conditions are the worst they have been in 30 years, and I wouldn’t disagree. But, historically, when you bought at very high spreads, you made very good money.It sounds like being selective in terms of which bonds you buy is paramount.Yes, you have to be selective, and you have to diversify. Diversification is the key to high-yield bond investing, and that’s why individuals generally should not do it on their own. That’s true of all these areas, because one of the essential keys to prudent risk-bearing is diversification.What about opportunities in distressed investing?You have debt securities producing very, very high yields — if they pay their interest and principal. They haven’t shown intractable fundamental problems yet, so we are buying selectively and we are diversifying. The conditions for successful distressed investing certainly would seem to be in place today. We had a few years of imprudent lending, and then we’ve had events transpire putting that lending to the test. And we’ve had a collapse of risk tolerance and very serious technical conditions. So you put that combination together, and prices can go lower and things can get worse, but this looks like a good time for distressed investing.How do you define the various assets that cover the distressed sector?It is bank loans and high-yield debt where there is fundamental concern about the issuer. There’s not just generalized risk about the environment, but specific credit concerns about the issuer in that a lot of people believe it won’t pay the loan’s interest and principal.Are there any other areas that look interesting right now?Convertible bonds. You have a reduction of leverage in general. In this case, there is the technical factor, notably that in recent years a predominant portion of the buying of these bonds has been done by arbitrageurs, convertible arbitrageurs and hedge funds. They try to consistently create small, low-risk spreads. To turn a small, low-risk spread into a high return, they use a lot of leverage.So No. 1, the [Securities and Exchange Commission] rules interfered with their ability to short [stocks]. No. 2, these investors had to be leveraged. No. 3, the premise of the arbitrage is that if there is a problem, the convertible bond will hold up better than the stock.So, you go long the bond and short the stock. And the trouble is when you have these technical conditions, the relationships that should hold don’t. And the bond falls more than it should, relative to the stock.What’s the upshot of all that?Convertible-arb investors have reported terrible performance, so they are having capital withdrawn and they are deleveraging. As a result, they are forced sellers, which has made that market very cheap, as well. So everything is cheap. The question is: What is the cheapest and what do you feel more comfortable with?’You’ve said that the biggest threat to hedge-fund investors is disillusionment with returns — not major blowups.I imagine people are disillusioned, because in the past few years, they did not receive any astronomical returns. Any hedge-fund manager should produce either very high returns in the good times or great risk control in the bad times. And the greatest of the managers will produce both. Few investors got great returns in the past three or four years, when all the money was flowing into hedge funds. Now they are seeing that only the best hedge-fund managers have produced strong performance in earlier years without giving it back this year.Will there be a winnowing?Surely. The hedge-fund managers who were really risk-conscious and controlled the amount of money they took in will come through this period well. They probably will be offered more money, which they will probably turn down, because turning down money is a key to success.Where does that leave the whole alternative-asset phenomenon?There is no such thing as a free lunch. And, certainly, nothing is good because you put a label on it, be it growth stocks, or small-cap stocks, or hedge funds, or private equity. And when people start saying that something is good because of what it is called, then they are setting themselves up to lose money. Chances are they will overpay and be disappointed.Thanks very much, Howard.

GuestNovember 15th, 2008 at 7:44 am

Can someone tell me:What is wrong with Jublie as the total answer to this delima?What i mean is cancel all debts and start over immediately rather than allowing the economy to do the same thing of a period of years.

CahillNovember 16th, 2008 at 1:39 am

While you may be a generous enough soul to let all your holdings be wiped out so that others debts can be wiped out most people/nations are not. And that is what would have to happen, it would have to be a complete reset to zero, not just debtors as most asset holdings are on paper and reflect their portion of debt owed by someone else to them. It will just not ever happen, for good or bad, man is greedy and not forgiving by nature when it costs them something.

GuestNovember 15th, 2008 at 7:56 am

Paulson’s `Chump’ Kashkari May Ruin Christmas, Congressman SaysBy John Brinsley and Rebecca ChristieBloomberg Novemver 14 — On Capitol Hill today, Neel Kashkari became the “chump” who stole Christmas.Kashkari, who oversees the Treasury’s $700 billion financial rescue plan, came under fire at a congressional hearing, notably by Maryland Democrat Elijah Cummings. Cummings was angry about reports American International Group Inc., which got an expanded $150 billion government bailout this week, is setting aside $503 million in compensation for executives.“I’m just wondering how you feel about an AIG giving $503 million worth of bonuses on the one hand, and accepting $154 billion from hard-working taxpayers,” Cummings asked Kashkari. “What really bothers me is all these other people who are lining up. They say, well, is Kashkari a chump?”

PeteCANovember 15th, 2008 at 9:09 am

No. Elijah Cummings is the chump – for voting in the rescue plan in the first place. What made Congress think they’d get anything different than what;s really happening right now?PeteCA

GuestNovember 15th, 2008 at 10:27 am

Politicians such as Cummings are just hypocrites, doing what politicians do: they don’t want to be responsible for the decision, but they want to be able to criticize it. The guys who can make the points are the guys who voted against the bill, such as Bernie Sanders and Ron Paul. Rep. Sanders wants the lame duck session to change the rules of the $700 billion bailout, requiring a “yes” vote before the remaining $350 billion can be released. At the moment, it’s my understanding that the money can be spent unless Congress initiates a vote and says “no.” Regardless of what one feels about Congressman Sanders, unlike Elijah Cummings, he carries honor in his comments because he voted against the original bill.Frankly, we already have the opinions of Cummings et al; we have their votes. Congresssmen are well known for saying one thing in Washington and another when they get back home. Congress knew how the people felt before they rushed the vote, with plugs in their ears and blinders over their eyes. They’re belatedly engaging in a variation of the old Bob Doyle strategy — talk against a bill at the same time you are secretly arranging for its passage.

GuestNovember 15th, 2008 at 11:59 am

What is 503 million compared to 150 billion?So, you are suggesting that employees should not be compensated?I agree the bail-out shouldn’t have happened–and shouldn’t still happen– but compensation packages are barely a valid reason.

GuestNovember 15th, 2008 at 3:00 pm

The bonus payment being made by AIG is not being made with AIG money. It’s being made with taxpayer money. And since taxpayer money is being generated from people who followed the rules (and who themselves will not receive “bonuses”), it is wrong for AIG to use that money for employee rewards as if it were AIG management coming up with the funds for extra payment over and above salary.These companies who are saying they’re not going to use bailout money for bonuses and who then are giving bonuses, obviously are taking the money from bailout, switching it to general accounts and, because money is fungible and untraceable and interchangeable, using it for bonuses. In other words, if they didn’t have the bailout money, they wouldn’t have any money for “bonuses.” The key question is, whose money is it?And, by the way, $503 million is a LOT of money – or was. It’s only now that we’re on the road to Zimbabwe that everyone is tossing billions and trillions and zillions around as if dollars were paper dropped from helicopters. And, also by the way, why should AIG employees and all the Golden Nine employees get bonuses? and taxpayer-sponsored parties?

GuestNovember 15th, 2008 at 8:59 am

This economic time period is simply a thinning of the herd . Folks who got burned need to remain confident and positive that there will always be a second chance in America .

Junk JohnNovember 15th, 2008 at 9:02 am

I must admit that I am impressed by the sheer number of comments in reply to the words of Mr. Roubini. The thoughtfulness of most of the comments is also impressive. My thoughts on were we go from here is simple. We are all waiting for the bottom of which no one knows. The desire to have an easier life will not disappear no matter how far down the valuation of assets goes. It will take many more articles and thoughtful responses for DEMOCRACY to develop a reply to the new economic landscape which WILL result from the mismanagement. For a history of part of the mismanagement see:

kilgoresNovember 15th, 2008 at 12:57 pm

Good Mother Jones article. Of course, the Wall Street Journal had a lead OP/ED piece today which basically suggests that there is no need to regulate credit default swaps because those markets are working well. Apparently, they refuse to be intimidated by the fact that a potential collapse in this $60-$70 trillion dollar market — about four or five times U.S. GDP and a little shy of the entire net worth of the U.S. — could precipitate even greater problems than we have now. Advocacy for unbridled free markets apparently dies hard.SWK

PeteCANovember 15th, 2008 at 9:30 am

Depression or Economic Collapse Coming ?What’s most noticeable right now ($INDU, 3-year plot, on is just how fast the market is sinking. Rebounds in the bear market have been weak, volatile, and without staying power. At the same time, consumer spending is literally imploding. Please note Tony Charniaslki’s comments at the link below, showing that year-over-year consumer spending in Sept was down almost 8% when adjusted for inflation. This means the October drop is probably much worse. possibility for a depression in America must be taken quite seriously at this stage.Even more seriously, the possibility of some form of financial collapse in the USA the next 3 months cannot be ruled out. Seen in this light, the meeting of the G20 nations is a critical event. But I have little hope that this meeting will produce the kind of concrete results that can avert major problems. More likely there will be bickering, finger pointing, and an annoucement of an agreement to “work together”. It’s too late for that kind of result at this stage. The world needs a global alternative for the US dollar right NOW … not a concept for how things might work. Right now global leaders are not displaying any vision at all. They are looking much more like a bunch of lemmings wearing dark sunglasses.Meanwhile, for the average American the facts are clear. None of our leaders have any idea what to do about this crisis. They are throwing darts at a dartboard. This especially applies to Congress. Americans are headed – in the immediate future – into an economy with a major loss of jobs and no easy way out. See this article …

Jason BNovember 15th, 2008 at 11:25 am

Pete,I couldn’t agree more. Thats why I keep reposting the leading economic indicators and begging people to tell me why this DOESN’T mean we are going into The Greater Depression.By all factual indicators we are in serious, serious trouble in 3-6 mos.

kilgoresNovember 15th, 2008 at 1:06 pm

This is happening with state and local governments all across the country. Here in Florida, where the state constitution requires that the state budget be balanced, the Legislature is in apparent denial over an anticipated shortfall in state revenue of over $1 billion: services and facilities will be disappearing soon. We’re seeing state, county, and municipal parks closing for lack of funds, unprecedented adverse impacts on state schools and universities, and on and on.SWK

Guest-o-ramaNovember 15th, 2008 at 2:24 pm

My understanding is the great depression was marked by 25% unemployment and projections now are only for 9-10%. What I don’t get though is how can they make those pronouncements. For 1. I expect a great number of illegal workers are unemployed and not able to make unemployment benefit claims. Have they been counted so far? If not the real total would be much higher. Although they aren’t legal and send some of their money home, they still were contributing to the economy and illegal jobs lost are still jobs lost and should be counted. Apparently the credit cards will be ok as long as unemployment doesn’t get over 10% (so says Cramer) but how can anyone say it won’t. Also, this seems to run so very very deep due to globalization. I and millions of americans don’t buy crap at Walmart and suddenly Chinese factory workers are being laid off. The recession hasn’t hit India but what’s going to happen to India when all the employees imported to work at the malls and hotels and business offices in Dubai get sent home because their real estate bubble is bursting; what jobs will they go back to? What’s going to happen when all the Brits who invested in the Dubai building spree lose 30% of their investments? Life savings will be wiped out and there won’t be jobs for retirees to go back to. Maybe that’s no big deal if you have a government pension to live off of but people in the US don’t generally have that. It seems almost viral and like the current models aren’t going to be able to deal with it all.Plus not only are the state government budgets supposed to be balanced but the worst thing you can do is raise taxes in a depression which all these state governments are going to have to do because they won’t have the money from residential taxes to meet obligations in coming years. Our county is looking at laying people off. We have bonds that we may not be able to sell for existing projects and new stuff’s on hold (which frankly is a good thing-exorbitant spending on schools are bankrupting our county in my opinon).Re higher education, my guess is higher education which was going to be facing huge retirements in coming years just won’t replace those positions. Maybe colleges and universities will all turn into “community” colleges where students go to school over the internet because they literally won’t be able to keep dorms and classroom buildings manned and heated with students and families unable to afford tuition. Also you’d have to be psychotic to take out an undergrad student loan in the face of rapidly rising unemployment and possibly a deflationary environment. You can’t get rid of student loan debt through bankruptcy. All those incoming freshmen this year will get one little tutorial before they sign for their loans. Talk about a bait and switch-oh, wait I forgot, “education debt is good debt”. Yep good debt when salaries are rising and you can get a job after you graduate. Maybe taking your chances and going off to Afghanistan for 4 years and waiting for the price of everything to come down including tuition would be more of a bargain. Very sad but me thinks (and me paid off 8% loans from 2000-2005 using home equity proceeds from a house sale and the best divorce that ever happened to me) probably true…Students as much as homeowners have been being sold a bill of goods as far as education loans are concerned and they are in as bad a position maybe worse than renting adults vis a vis making up their minds. Really you’re 18 and your parents can’t pay for college but you’re desperate to get out of the house. Of course you sign on the dotted line. You see freedom but what you’re getting if your lucky is a modern day indenture. What you’re getting if you aren’t lucky and there’s not a job for you and deflation? I don’t know. It almost seems Dickensian. Will the debts of the children every be repaid? Or will they like the mortgagees get refinancing at better rates and loan forgiveness. Might want to think about that now…

GuestNovember 15th, 2008 at 3:07 pm

I’ll admit that I don’t know much compared to most of the posters on this site, but my understanding about the unemployment figures is that they are generally about twice what is ‘reported’. This is an excerpt from an article posted just a bit further down the page:”Officially, US unemployment is 10 million, but if measured by pre-Clinton era standards unemployment is much higher. Statistician John Williams, who measures the unemployment rate by the pre-Clinton standards concludes that the rate of US unemployment is about 15 percent. President Clinton “reformed” the unemployment statistics by ceasing to count discouraged workers as unemployed.”

Average JaneNovember 15th, 2008 at 4:18 pm

I heard a blurb on local radio yesterday that Minnesota might be looking at a $2 billion deficit the next biennium.And I said months ago that the next middle class piggybank to raid will be the public retiree/pension funds. Watch. I know many retired professors, teachers, highway workers. It will be very ugly.

PeteCANovember 15th, 2008 at 10:21 pm

Jane … open a gun store and offer a discount to professors, teachers and highway workers. There are a few unforgiveable sins that the powers=that-be CANNOT commit while they try to “rescue” this country. One is to raid peoples’ retirement money or 401K’s. Another is to try to seize gold or precious metals. Public feelings are already at the “outrage” level. If they really try to raid the savings of hinest citizens, we could well go over the edge in this country.PeteCA

CahillNovember 16th, 2008 at 1:34 am

SWK,I’m a state tax consultant/accountant. We get updates on state activity daily. It’s bad, New York will be in a shortfall and is raising tax rates, California is doing likewise, MN is on the way, and of course Ohio and Michigan are in severe shortfalls and doing everything they can to revamp tax schemes to maximize taxes on companies not incorporated in their states. It won’t be long till it cascades and many other states follow suit. On an aside to all the anti capitalists that think corporations get too many tax breaks, they should look past income tax. Companies often times are double taxed on sales and use taxes, pay many franchise tax fees, fuel consumption taxes and local registration fees that individuals have no idea about.

kilgoresNovember 16th, 2008 at 6:21 am

You’re spot on, Cahill. My firm does a lot of work for state and local governments, including lobbying on their behalf. The situation is grim indeed.Interesting point about some of the other taxes and fees paid by businesses (not just corporations) that can be a drag on their bottom line. Of course, that varies so from state to state, too. Here in Florida, there is no state income tax for either corporations or individuals. Sales taxes are the same for natural persons and corporations. Fuel consumption taxes and fees, in my experience, tend to get passed onto the customer in one form or another. Clearly, there’s no free lunch for anyone.SWK

CahillNovember 16th, 2008 at 12:30 pm

Yes some states are more onerous than others. The pinch for pass-through taxes comes at times like these, the states are not lowering those by any means yet with values starting to deflate companies are going to start getting pinched on profit margins. They will need to start deciding how much of that tax they want to pass on to customers to stay competitive. The sales (really use tax) is more unforgiving on the company versus individual side. Full audits every cycle and extensive penalties and interest. But you are correct there is not difference in the tax rates.

Guest-o-RamaNovember 16th, 2008 at 9:14 pm

What happens if nobody can pay their state and local taxes? I understand we wiped out debtor prison a while back-well except for deadbeat dads. Seriously can they garnish your paychecks? Are tax debts dischargeable via bankruptcy?

kilgoresNovember 17th, 2008 at 1:07 am

Tax liens, like student loans, are typically not dischargeable in bankruptcy. Garnishment is always an option for the government, either directly where authorized by law (e.g., tax refunds due from the IRS may be garnished by the U.S. Department of Education without a judgment to satisfy unpaid student loans in default), or otherwise (like any other debt) pursuant to a final judgment. Local governments can foreclose tax liens, too, through they typically exercise restraint in doing so, even in normal times, because they don’t really want to take your property away from you and figure when the property is sold one day, they’ll have to be paid out of the proceeds. Specific authority for state and local governments to use measures such as garnishment, foreclosure, and so forth to collect unpaid taxes on real property may vary from state to state.SWK

PeteCANovember 15th, 2008 at 12:49 pm

True – for several possible reasons. One option open to the US Gov’t is a direct devaluation of the US dollar. One day they just come out and make the statement of a devaluation. This would cause an instant loss to all foreign holders of the dollar. For this reason, I remain amazed at how many foreign investors are still piling into American T-Bills. At this stage they are taking a risk. They would be much smarter to diversify into assets in other currencies. And as you say … a collapse in the dollar ia a real risk. Unfortunately, as you know the dollar has actually been going in the other direction (UP) due to deleveraging, which is causing investors to sell assets (e.g, commodities) and buy dollars. But what happens when this trend reverses. Answer: Instability in the global currency system. A shockwave as the dollar collapses. This is what the G20 should be trying to avoid at all cost … but they are moving too slowly.PeteCA

Wolf in the WildsNovember 17th, 2008 at 3:46 am

Exactly Pete. As the deleveraging takes a breather, the next shoe to drop will be the start of a global currency crisis. This event will give the world the political/economic opportunity to move away from the USD as a settlement currency. However, this will make the US even more vulnerable as they would begin to require foreign reserves to support their imports. Frankly, I have no idea how they can afford to do that. There will be a great attempt to keep the system as is but at the end of the day, economic fundamentals and reality will force countries to watch their own back.I am afraid this will lead to global military conflict as the US becomes a true Banana Republic. Economic necessity will lead to to military conflict to gain assets that will generate foreign reserves. It is a path I will rather not see taken.

GuestNovember 15th, 2008 at 10:29 am

Krugman on Liquidity Trap (or my title – “A Justification for the coming huge Obama stimulus package”)November 15, 2008, 8:00 amMacro policy in a liquidity trapThat’s the title of a new report from Jan Hatzius et al at Goldman Sachs (not available online). The Goldman guys, like me, come up with scary figures about the size of the gap in demand that needs to be filled — figures that suggest the need for a fiscal stimulus that’s enormous by historical standards. Their approach is different, and probably better than mine; I’ll get to that in a bit. But I want to talk conceptual stuff for a moment……What’s the answer? Huge fiscal stimulus, to fill the hole. More aggressive GSE lending. Maybe a “pre-commitment” by the Fed to keep rates low for an extended period — that’s a more genteel version of my “credibly promise to be irresponsible.” And maybe large-scale purchases of risky assets.Krugman November 15No question that huge huge stimulus is coming shortly after Jan 20 – the question is how to invest around that directly as MA suggest via Alt-E and indirectly e.g. shorting the dollar perhaps???

GuestNovember 15th, 2008 at 10:32 am

Also check out under the Spotlight Issues heading at the top of the main RGE page the title:Liquidity Trap Possibility: What’s the Solution?

GuestNovember 15th, 2008 at 11:03 am

@ OR: “But going back to the stupid question, there is a good reason why over 90% of the headlines are negative: The truth about the economy has come out. There is not a “greater” contrarian truth out there. The pure truth is that things are really bad. Being contrarian at this time just because you think being a contrarian is cool because of so much pessimism out there, will get you killed.” 03:56:44These views of economist Paul Craig Roberts on the “difference” in this economic crisis are of major importance, IMO. In 1993 the Forbes Media Guide ranked Dr. Roberts as one of the top seven journalists in the United States. No one has been a stronger critic of Bush’s economic policies than Roberts.”America’s Economic Crisis Is Beyond The Reach of Traditional Solutions” |By Paul Craig RobertsBy most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a “mini-depression,” and that designation might be optimistic. The Russian economist, Mikhail Khazin says that the “U.S. will soon face a second ‘Great Depression.’” It is possible that even Khazin is optimistic.I cannot predict the future. However, I can explain what the problems are, how they differ from past times of troubles, and why traditional remedies, such as the public works programs that Reich proposes, are unlikely to succeed in reviving the U.S. economy.Khazin points out, as have others, such as University of Maryland economist Herman Daly and myself, that consumer debt expansion is the fuel that kept the U.S. economy alive. The growth of debt has outstripped the growth of income to such an extent that an increase in consumer credit and bank lending is not possible. Consumers are overburdened with debt. This fact takes monetary policy out of the picture. Americans can no longer afford to borrow more in order to consume more.This leaves economists with fiscal policy, which, as Reich realizes, also has problems. Reich is correct that neither a reduction in marginal tax rates nor a tax rebate is likely to be very effective. Reich, a Keynesian, has an uncertain grasp of supply-side economics, but as one who has a firm grasp, I can attest that marginal tax rates today are not the stifling influence they were prior to John F. Kennedy and Ronald Reagan. As Art Laffer said, there are two tax rates, high and low, that will produce the same tax revenues by expanding or contracting economic activity. Marginal tax rates are no longer in the higher ranges. As for a tax rebate, Reich is correct that in the present situation a tax rebate would be dissipated in paying off creditors.Reich sees the problem as a lack of aggregate demand sufficient to maintain full employment. His solution is for the government to spend “a lot” more on infrastructure projects on top of a trillion dollar budget deficit –“repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy.” This spending would boost employment, wages, and aggregate demand.I have no opposition to infrastructure projects, but who will finance the baseline trillion dollar US budget deficit plus the additional red ink spending on infrastructure? Not Americans. The US savings rate is zero or negative. Home mortgage foreclosures are in the millions. Officially, US unemployment is 10 million, but if measured by pre-Clinton era standards unemployment is much higher. Statistician John Williams, who measures the unemployment rate by the pre-Clinton standards concludes that the rate of US unemployment is about 15 percent. President Clinton “reformed” the unemployment statistics by ceasing to count discouraged workers as unemployed.For years, the US government’s budget has been dependent on foreigners financing the red ink. Countries such as Japan and China and OPEC suppliers of oil to the US have huge export surpluses with the US. They recycle the dollars by buying US Treasury bonds, thus financing the US government’s red ink budgets.The open question is: how much longer will they do so?Foreign portfolios are overweighed in dollar assets. Currently the dollar’s value is benefitting from the financial crisis, as investors flee to the reserve currency. However, sooner or later the huge outpourings of dollar debts will cause foreign creditors to draw back. Already China, America’s largest creditor, has sent a signal that that time might be drawing near. Recently the Chinese government asked, as they do indirectly through third parties, “Why should China help the US to issue debt without end in the belief that the national credit of the US can expand without limit?”Is the rest of the world, which has demanded a financial summit to work toward a new financial order, going to permanently allocate the world’s supply of capital to covering American mistakes?If not, the bailout and the stimulus package will have to be financed by printing money.And the bailout needs are growing. Car loans and credit card debt were also securitized and sold. As the economy worsens, credit card and car loan defaults are rising. Moreover, AIG needs more money from the government. Fannie Mae’s loss has widened to $29 billion despite the $200 billion bailout. General Motors and Ford need taxpayer money to survive. General Motors says that its GMAÇ mortgage unit “may not survive.” Deutsche Bank sees General Motors shares “as likely worthless.”Shades of the Weimar Republic.What Reich and the American economic establishment do not understand is that the recession paradigm does not apply. There are no jobs waiting at US manufacturers for a demand stimulus to pull Americans back into work. The problem is not a liquidity problem. To the contrary, there have been many years of too much liquidity. Credit has grown far more than production. Indeed, US production has been moved offshore. Jobs that used to support the growth of American incomes and the tax bases of cities and states have moved, along with US GDP, to China and elsewhere.The work is gone. All that are left are credit card and mortgage debts.Anyone who thinks that America still has a vibrant economy needs to log onto and face the facts.Economists associate economic depression with price deflation.However, traditionally, debts that are beyond an economy’s ability to service are inflated away. This suggests that the coming depression will be an inflationary depression. Instead of falling prices mitigating the effects of falling employment, higher prices will go hand in hand with rising unemployment–a situation worse than the Great Depression.The incompetent Clinton and Dubya administrations, unregulated banksters and Wall St criminals, greedy CEOs, and a no-think economics profession have destroyed America’s economy.What is the remedy for simultaneous inflation and unemployment?Three decades ago the solution was supply-side economics. Easy monetary policy had pushed up consumer demand, but high tax rates had curtailed output. It was more profitable for firms to allow prices to rise than for them to invest and increase output.Supply-side economics changed the policy mix. Monetary policy was tightened and marginal tax rates were reduced, thus stimulating output instead of inflation.Today the problem is different. The US has abused the reserve currency role, thus endangering its credit worthiness and the exchange value of the dollar. Jobs have moved offshore. The budget deficit is huge and growing. If foreigners will not finance the widening gap, the printing presses will be employed or the government will not be able to pay its bills.The bailout funds have been wasted. The expensive bailout does not address the problem of falling employment and rising mortgage defaults. Treasury Secretary Hank Paulson could not see beyond saving Goldman Sachs and his bankster friends. The Paulson bailout does nothing except take troubled assets off banks’ books and put them on the overburdened taxpayers’ books, thus endangering the US Treasury’s credit rating.What the Bush Regime has done is to stick the taxpayers with the banks’ mistakes. An intelligent government would have used the money to refinance the troubled mortgages and stop the defaults. By saving the mortgages from default, the banks’ balance sheets would have been made secure. By failing to deal with the subprime crisis, Bush and Congress have added a financial crisis to the exhaustion of consumer demand and the problems of financing huge trade and budget deficits.Belatedly, Paulson has realized his mistake. On November 12, Paulson announced, “We have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use [bailout] funds.”The financial crisis has cost taxpayers far more than the amount of the bailout. Americans’ savings and pension funds have been devastated. Americans in investment partnerships, who have been required by IRS rules to pay income taxes on gains in the partnerships’ portfolios, have had the accumulated multi-year gains wiped out. They have paid taxes on years of “capital gains” that have disappeared, thus doubling their losses.America’s economic troubles will rapidly accumulate if the dollar loses its reserve currency role. To protect the dollar and the Treasury’s credit standing, the US needs to curtail its foreign borrowing by reducing its budget deficit. It can do this by halting its gratuitous wars and slashing its unnecessary military spending which exceeds that of the rest of the world combined. The empire has run out of resources, and the 700 overseas bases must be closed.Can Americans afford massive infrastructure spending when they cannot afford health care? In Florida a Blue Cross Blue Shield group policy for a 60-year old woman costs $14,100 annually, and this is a policy with deductibles and co-payments. Supplementary policies from AARP to fill some of the gaps in Medicare can cost retirees $3,300 annually. When one looks at the economic situation of the vast majority of Americans, it is astonishing that the Bush regime regards wars in the Middle East and taxpayer bailouts of Wall Street criminals as a good use of scarce resources.US corporations, which have moved their production for US markets offshore in order to drive up their share prices and provide their CEOs with multi-million dollar bonuses, can be provided with a different set of incentives that encourage the corporations to bring employment back to the US. For example, the corporate income tax can be restructured to tax corporations according to the value-added in the US. The higher the value-added in the US, the lower the tax rate; the lower the value-added, the higher the tax rate.Cutting the budget deficit by halting pointless wars and unnecessary military spending and reducing the trade deficit by bringing jobs back to America are simple tasks compared to confronting inflationary depression.The world has had enough of American irresponsibility and is taking away the reins. At the November 15 economic summit, the world will begin the process of imposing a new financial order on the US in exchange for continued lending to the bankrupt “superpower.”With bailouts eating up the world’s supply of capital, continued foreign financing for Washington’s wars of aggression is out of the picture.Paul Craig Roberts was Assistant Secretary of the Treasury during President Reagan’s first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand.

GuestNovember 15th, 2008 at 11:40 am

not addressed to me and notwithstanding his credentials, Roberts has some interesting perspectives on a variety of topics –Gullible Americans by Paul Craig Roberts

“Now we are being told another improbable tale. Muslim terrorists in London and Pakistan were caught plotting to commit mass murder by smuggling bottles of explosive liquids on board airliners in hand luggage. Baby formula, shampoo and water bottles allegedly contained the tools of suicide bombers. … More probable explanations of the “plot” are readily available. According to the August 11 Wayne Madsen Report, informed sources in the UK report that “the Tony Blair government, under siege by a Labor Party revolt, cleverly cooked up a new ‘terror’ scare to avert the public’s eyes away from Blair’s increasing political woes. British law enforcement, neocon and intelligence operatives in the US, Israel, and Britain, and Rupert Murdoch’s global media empire “

GuestNovember 15th, 2008 at 11:45 am

All the charges were dropped against every single person arrested in this farce. Roberts was right. This “plot” was cooked up in the White House and Number 10 Downing Street – not in the madrassas.

DanNovember 15th, 2008 at 12:03 pm

Obviously one of the very possible outcomes of the current mess is combination of depression and inflation. This presents a requirement for a different approach in preparing yourself for the upcoming situation.I personally believed that the most probable course would be depression with deflation. Such belief made me take steps to ensure that my investments are basically in treasuries and other types of government bonds all with very low returns but safely placed in short term bonds.With possibility of depression – inflation combination I am not sure that this is the best approach. Or maybe it is not so bad provided that I closely watch the developments and move the money from bonds to equities when the signals of the government created inflation become more obvious.I would very much appreciate if some of you with more insight than me (which really means most of the people on this site) would give me advice.Thanks

ORNovember 15th, 2008 at 1:29 pm

Many thanks for th great article! If he is right, I will have to come up with a low risk strategy* to protect holdings that are heavily focused on US fixed income. But given that I am the type of guy that is always early, even when I make a move there will be some time left, and I haven’t (i.e., I haven’t even started thinking about making a move). Keep your eyes on ECRI’s FIG. Inflation will not come as a total overnight surprise.*strategies such as going into gold are not low risk

Pecos BankerNovember 15th, 2008 at 11:17 am

Just read Nouriel’s column. Not to engage in Schadenfreude, but on a certain level, you’ve got to laugh. God, what a bunch of uneducated trailer trash we’ve been! As Paulson says, “only three shillings the box, allow me to sell you a couple?”Nevertheless, I feel sorry for those innocent people who are suffering and who got suckered into this mess by those smiling Florida real estate salesmen in their plaid blazers, such as Paulson, Bush, Greenspan, & Co. Nothing ever changes in America. Who’s the next bunch of slick dudes?

KJ FoehrNovember 15th, 2008 at 11:42 am

“God, what a bunch of uneducated trailer trash we’ve been!”Yes, you got it. The dumbing down of America was the most profoundly negative factor in our downfall. Right wingers have always known that in order to control the great unwashed masses, they must be kept ignorant: you can’t control them if they know too much.So that is what has led to W’s election – twice! And to being able to pull the wool over the eyes of the public with lies only fools would believe about the need to invade Iraq to fight the war on terror. And which allowed Wall Street and corporate lenders to snooker millions of people with bad mortgage terms. And which made it possible for Rush and Sean Hannity and others to convince many millions of Americans that government was the enemy, not the protector of the people; thus enabling the administration to weaken oversight of everything from food and drugs to corporate financial reporting and the sale of financial instruments such as derivatives.The good news is that era is over. It will take many years to undo the damage, but we can do it if we have the will and enough brainpower left to see what is really in our best interest – the best interest of the people, not the corporations and the wealthiest 1%.

RedCreekNovember 15th, 2008 at 11:56 am

“God, what a bunch of uneducated trailer trash we’ve been!”Not really. I would rather call it Hummer and Denali trash.

KJ FoehrNovember 15th, 2008 at 12:49 pm

Yes, but yesterday’s Hummer will become tomorrow’s trailer soon enough: it was “bought” with a HELOC and the house is now worth less than the debt, so both the SUV and the house will be gone.

kilgoresNovember 15th, 2008 at 1:13 pm

Gee, RedCreek, now it appears your above response to my post was intended as an insult. You really should try not to be so judgmental based on your interpretation of a single line — not even a full sentence — someone posts on a blog like this. As the old saying goes, to assume facts not in evidence can make an ASS out of (yo)U and ME! ;-)SWK

ORNovember 15th, 2008 at 1:37 pm

IMHO, RedCreek’s comment supports your great line. He elaborates on it with style, gives it strength, brings it up to date. It is just like a Jazz jam session: improvising!

kilgoresNovember 15th, 2008 at 4:34 pm

Peace, brother RedCreek. BTW, my wife and I lived in Hampstead (in a rented ground floor flat on Gayton Crescent) in the 1980s when I was pursuing an advanced degree in law. No car, just the tube and buses to get around (well, once in a blue moon, we’d take a taxi for a special treat). We really miss it, especially this year with the October snowfall everywhere!Best,SWK

GuestNovember 15th, 2008 at 12:08 pm

What’s scary is it took a complete financial melt down to finally get rid of them. Their calling Obama a terrorist campaign was working very well before the stock market crashed. Rush Limbaugh and Sean Hannity have been the most destructive forces to the middle class as there could ever be and ironically they claim to be champions of the middle class.

KJ FoehrNovember 15th, 2008 at 1:13 pm

Yes, big lies appear to work better than small ones on the weak minded. And they are still at it, driving the biggest wedges between people in this country since Vietnam. The latest is that Obama will take people’s 401Ks to pay down the national debt! And wingnuts everywhere are buying all the guns and ammo they can cram into their gun safes before the new Prez repeals the 2nd amendment! Can you believe people are really so naïve?

bcdogsNovember 15th, 2008 at 3:16 pm

Talk at the local flea market is not that they are buying guns because of Obama’s presidency, it’s because they think the unwashed masses, hordes of homeless are going to descend on anyone that has anything left in six to 12 months from now…and this is in a conservative, right wing leaning county.

GuestNovember 15th, 2008 at 4:16 pm

With respect to those nasty rumors about Obama taking people’s 401ks, perhaps the President-Elect should get his new #1, Mr. Emanuel, to sharpen up his elbows and rein in some his supporters including Congressman George Miller (D-CA):

But the Chairman has also signalled greater ambitions. At a hearing last month, Mr. Miller put the 401(k) system into play. Under the current system, employers match employee contributions that aren’t taxed until redeemed, an indirect subsidy worth some $80 billion today. “We have to start to think about in Congress . . . whether or not we want to continue to invest that $80 billion for a policy that’s not generating what we now say it should,” Mr. Miller said. “For a taxpayer investment of this size, we must ensure that the structure of 401(k)s adequately protects the nest eggs of participating workers.”

NOVEMBER 14, 2008 Targeting Your 401(k)Congress has an eye on the tax break for your retirement. (November 14)And yes I know the source is questionable but I couldn’t find any reference to this on the DailyKos, so we’re stuck with those wingnuts from the WSJ.

GuestNovember 15th, 2008 at 5:44 pm

Naive, hell. Obama has supported all of Mayor Daley’s attacks on the Second Amendment for years. We managed to stop more than 15 of Hizzoner’s bills in the General Assembly this year. Now, Daley has a big “in” there in the White House. Stocking up on essentials is not being naive, but rather it is being prudent.

GuestNovember 15th, 2008 at 2:29 pm

“The good news is that era is over.”That statement in the first response best sums up what Pecos Banker is describing. I guess there is hope after all for those with a piece of Florida swampland to sell.

AfANovember 15th, 2008 at 12:12 pm

@ORGross Bill “Says Consumer Lenders Attractive After TARP Shift”.Do you think that BG is making the same mistake one more time (I do not know if he is investing accordingly)?And BTW, thanks for the referenced article. Didn’t you want to highlight phrases such as:”So the actions of people relying on history change history, and that is what people lose track of.”

Octavio RichettaNovember 15th, 2008 at 1:08 pm

BTW, did you read the Barrons article I posted for you above? Don’t be lazy!:-) it looks long but it is not. A pleasure to read takes 15 min at the most.On BG’s investing in general, I like to be a bit dramatic and exaggerate a bit. The guy is trying to buy stuff that “looks”/is cheap with the hope of generating some alpha (he needs quite a bit of it just to cover his fees so he is under pressure to perform). And the time for his picks to work out may yet to come. I would not be surprised if he goes back to beating the market in the not too distant future. What really pissed me off was his gamble on AIG. That was a very risky play that I believe did not assess well and that if it had been his own money he would not have done it but after all it is clients money. If he got it right he gets glory. If he gets it wrong he says I am sorry. With my stuff, loosing money does not stop at being sorry I feel the consequences of the loss for quite a while:-)On his consumer debt bet, It is quite possible that once again he is early and that he is overly confident on what the new administration will do. The CC mess has only shown the tip of the iceberg. CC spending something people got enticed into by the banksters is at the root of the debt problem in American society. I doubt the coming administration will support this too deeply.

GSMNovember 15th, 2008 at 6:03 pm

A feature of this shambles thus far has been the ability of those responsible to create er “manage” it, has to be consistantly WRONG as to it’s force, size and complexity- therefore hideously underestimating it’s destructive power.I trust Obama has noticed this and acts accordingly.

GuestNovember 15th, 2008 at 1:08 pm

It would be great to hear comment or speculation from the professor as to what he feels will be the outcome of the g20 meeting, but anyones opinion or insight would be valuable?

GuestNovember 15th, 2008 at 1:55 pm

I had missed this little Gem from last Tuesday:”Merrill Lynch Chief Executive John Thain said the global economy is in a deep slowdown and will not recover quickly, and the environment recalls 1929, the advent of the Great Depression.”

Octavio RichettaNovember 15th, 2008 at 1:59 pm

For those readers who would like to spike their reading with some of the more radical stuff: will stir your brain a bit. Do you dare checking if the evidence to support your strongest beliefs really exists or you rather continue your ostrich play? Have you taken most of the stuff you believe in mainly on faith/what you read in the MSM?

MorbidNovember 16th, 2008 at 5:38 am

Information Clearing House – A One-sided Dude@ORYou read that crap? Anyone that far off to one side has got to have a serious psychic problem. Yes, the world is a dangerous place but this person is truly unbalanced.

ORNovember 16th, 2008 at 1:35 pm

I read everything but don’t believe everything I read:-) QA lot of the stuff is bad and stupid. But some of it at least withstands “first past” scrutiny.

ORNovember 16th, 2008 at 1:35 pm

I read everything but don’t believe everything I read:-) QA lot of the stuff is bad and stupid. But some of it at least withstands “first past” scrutiny.

Octavio RichettaNovember 15th, 2008 at 2:35 pm

So how do you like this one? The richest city in the US is lining up for TARP! Bet you Hank will give it to them. Why not Detroit?San Jose to Request $14 Billion from TARP,_California…The large concentration of high-technology engineering, computer, and microprocessor companies around San Jose has led the area to be known as Silicon Valley. As the largest city in the valley, San Jose has billed itself “the capital of Silicon Valley.” Area schools such as the University of California, Berkeley, University of California, Santa Cruz, San José State University, Santa Clara University, and Stanford University pump thousands of engineering and computer science graduates into the local economy every year.High economic growth during the tech bubble caused employment, housing prices, and traffic congestion to peak in the late 1990s. As the economy slowed in the early 2000s, employment and traffic congestion diminished somewhat. In the mid-2000s, traffic along major highways again began to worsen as the economy improved. San Jose had 405,000 jobs within its city limits in 2006, and an unemployment rate of 4.6%. In 2000, San Jose residents had the highest median household income of any city with a population over 300,000, and currently has the highest median income of any city with over 280,000 people.[citation needed]San Jose lists 25 companies with 1,000 employees or more, including the headquarters of Adobe Systems, BEA Systems, Cisco, SunPower and eBay, as well as major facilities for Flextronics, Hewlett-Packard, IBM, Hitachi and Lockheed Martin. Sizable government employers include the city government, Santa Clara County, and San José State University.[38]The cost of living in San Jose and the surrounding areas is among the highest in California and the nation.[1] Housing costs are the primary reason for the high cost of living, although the costs in all areas tracked by ACCRA are above the national average. Despite the high cost of living in San Jose, households in city limits have the highest disposable income of any city in the U.S. with over 500,000 residents.[39][40]San Jose residents produce more U.S. patents than any other city.[41] Thirty-five percent of all venture capital funds in the U.S. are invested in San Jose and Silicon Valley companies.[41]…

GuestNovember 15th, 2008 at 5:52 pm Cities pay huge salaries despite fiscal crisis|March 30,2008A city nurse earned $350,000. A fire department battalion chief pulled in more than twice as much as the mayor. And a municipal park ranger took home $188,000 in overtime on top of his $71,000 salary.Such generous payouts were criticized for hastening the fiscal downfall of the city of Vallejo, which narrowly averted bankruptcy this month. But the nurse, firefighter and ranger aren’t from Vallejo – they’re among hundreds of top earners working for the cities of San Francisco, San Jose and Oakland.[Search for the Bay Area’s top-paid city employees.]A Chronicle examination of top salaries in the Bay Area’s three biggest cities last year indicates that employee compensation and perks in those cities are similar to – and in some cases more lucrative than – those blamed for pushing Vallejo to the edge of financial doom.In Vallejo, a midsize city of 121,000, there were 292 municipal employees who earned more than $100,000 last year. But in Oakland, with roughly three times more residents, 1,333 city workers were paid six figures in the same period. San Jose, a city of almost a million people, had 2,312. And San Francisco, which serves as a city and county government for its 809,000 residents, had more than 8,000.None of the region’s largest cities faces the imminent threat of bankruptcy, but all are weathering their own financial crises – even as firefighters and police officers often earn more than City Hall department heads…During the dot-com and housing booms, cities were flush with cash and spent lavishly, committing to salaries, raises, benefit packages, overtime structures and staffing levels that now appear unsustainable, he said…According to The Chronicle’s analysis of salary data for the 2007 calendar year, many lower-ranking employees hit the top of the pay charts by earning tens of thousands of dollars in overtime.In San Francisco, Christian Kitchin, a health department nurse who supervisors said regularly worked 16-hour days caring for county jail inmates, made $216,000 in overtime to make himself the city’s highest-paid employee… Kitchin was one of 15 city workers – including six deputy sheriffs, two Muni supervisors and a firefighter – who made more than $100,000 in overtime alone…In Oakland, park ranger Kent McNab earned $188,000 in overtime last year, bringing his salary to almost $263,000. He was one of 25 employees who earned more than $100,000 in overtime, including 18 officers in the city’s chronically understaffed Police Department and two civil engineers in the building inspection unit…San Jose did not provide details on how much of each employee’s pay came from overtime.But city officials confirmed that overtime pushed Fire Battalion Chief Ivan Lee to the top of the city’s pay chart with $270,000 in total compensation…San Francisco faces a $338 million budget shortfall for next year, which is the result, in part, of a projected $62 million cost overrun in overtime expenditures this year and new police and firefighter contracts that will cost the city $32 million more next year…Oakland, meanwhile, was almost $10 million over its general fund budget at the end of 2007, said officials…But City Council President Ignacio De La Fuente said he expects a much larger deficit than city staff has projected…San Jose is facing a $137 million revenue shortfall in the coming fiscal year, the result of steady increases in salary, health and retirement benefits coupled with weak tax revenues…But officials in the region’s largest cities may be so hamstrung by staffing mandates and demands for wage and benefit increases that they may be unable to curb escalating costs before facing a financial meltdown, said Charles Marsteller, a longtime government watchdog in San Francisco.”We’ve got an automatic pilot going here,” he said. “I think it will be accommodated until it can no longer be accommodated.”– To see the database of public employee salaries of more than $100,000 in Bay Area cities, go to up the top-paid city employees in San Francisco, Oakland, San Jose and Vallejo at

GuestNovember 16th, 2008 at 11:10 am

The government both local and Federally have been soaking up the unemployed from outsourced jobs and jobs eliminated by technology, property taxes and huge deficits have allowed the government to provide these high paying jobs that otherwise would not be available. Now with the credit crisis and depreciating home prices government jobs are in serious trouble. This is all ultimately the result of allowing more and more gains in the private sector to be received by the top management and large equity holders. Or just a fancy way of saying the rich get richer the poor get poorer until they bleed the system dry and you get financial collapse.

Octavio RichettaNovember 15th, 2008 at 2:43 pm

In statistics, there is something called the null hypothesis which represents that which is assumed true unless strong statistical evidence to the contrary is found in the data. concept can be applied to the US economy. For the US economy the null hypothesis will soon be that we will assume things will get worse/are worse than we are told until we see strong evidence to the contrary.Even though people should have had enough of Goldilocks by now there are still plenty of talking heads advertising a short V-shaped recession. Jee, there may even be a few who still doubt we are in a recession:-)

Miss ItalyNovember 15th, 2008 at 5:20 pm

Unfortunately, the majority of people have a null hypothesis that everything is fine, if not good, unless the opposite is strongly proven. It looks like that in sinking ships, a lot of lives are lost just because many don’t believe the signs of alarm. Do you know how may of my friends are holding on because they think the stock market will shoot back? I’m so frustrated and the evidence of dangerous times should be clear enough by now…

Jason BNovember 15th, 2008 at 7:16 pm

OR -In the scientific method, every theory sets out to disprove the null hypothesis. A theory can never be proven, only disproven, in the strict sense. Our null hypothesis would be that the economy is fine.

Octavio RichettaNovember 15th, 2008 at 3:12 pm

Next time you find a great bargain on something you don’t really need always remember that you will save even more if you don’t buy the piece of junk in question!Do you need more clothing even though no more stuff fits in your closet?more kitchen stuff even though you seldom cook elaborated meals and most of the time use the same pot to boil instant soup?A new ultra fast laptop even though you don’t do much more than hang around the Roubini blog?More sleek furniture despite all the stuff you have abondon in storage facilities?

John SlaterNovember 15th, 2008 at 3:13 pm

This post confirms what I have been thinking for some time. All current proposals for stimulus are doomed to fail because they are aimed at preserving something that cannot be preserved: i.e. the excessive and unsupported consumption economy in the United States. It’s quite clear that our desire to consume has exceeded our ability to produce for some time, likely by somewhere between five and ten percent of GDP. Until this imbalance is fixed, increases in consumption will not solve our problem.The political culture is dominated by a desire to push consumption to the highest levels possible as evidenced by Pres. Bush’s “go out and shop” following 9-11 and the current focus on saving an outmoded automobile industry.Instead of subsidizing unaffordable consumption, fiscal policy must be reoriented to investments that will restore national productivity and prepare the U. S. to compete in the 21st Century global economy, including:1. Creation on a modern transportation infrastructure structured to minimize energy use. This will likely entail a significant move to urbanism and a recognition that the current long-distance commuter culture is not sustainable in the long term.2. Development of a sustainable energy infrastructure.3. Massive investments in workforce retraining and a reorientation of the failing primary and secondary educational systems.4. Creation of an efficient digitally based health care system and creation of a national system of preventive care.5. A significant increase in the current level of investment in basic scientific research.6. Aggressive build out of broadband infrastructure to provide utility-like universal access to a minimum of 40 megs at the household level.7. Infrastructure investments to support all of these efforts, not a blind focus on rebuilding the current automobile/long haul over the road truck focus of the current transportation system.In order to offset the deflationary forces built into the long term downward adjustment in consumption expenditures, the scope of these programs must be set at a level more often association with a national war mobilization.This will take a major realignment of political priorities and real leadership from the top, including a new-found willingness to “tell it like it is”.

GuestNovember 15th, 2008 at 3:29 pm

The idea of urbanizing is a good one as it’s suggested a lot but what troubles me about it is it makes societies more vulnerable. In the great depression the people who suffered the most were in urban areas. History suggest that rural living is less vulnerable to economic events or tragedy.

MM CANovember 15th, 2008 at 8:44 pm

Great post John Salter… Question is how much will it cost? I’m estimating 500-700B annually for at least 10 years.

jomosNovember 16th, 2008 at 7:25 am

“Aggressive build out of broadband infrastructure to provide utility-like universal access to a minimum of 40 megs at the household level.” This one scares me. Has anyone noticed the correlation of bandwidth capability to unconstitutional acts against the citizens by ubiquious (sp?)governmental entities.OH-WELL-I-AM, misspelled on purpose.

London BankerNovember 15th, 2008 at 3:41 pm

Last year I said here that my only equity recommendation was Hormel – that Spam consumption would soar as the economy worsened. Since then I’ve updated periodically with Hormel’s outperformance. Today I can do so again:

New York Times:In a factory that abuts Interstate 90, two shifts of workers have been making Spam seven days a week since July, and they have been told that the relentless work schedule will continue indefinitely.Spam, a gelatinous 12-ounce rectangle of spiced ham and pork, may be among the world’s most maligned foods, dismissed as inedible by food elites and skewered by comedians who have offered smart-alecky theories on its name (one G-rated example: Something Posing As Meat).But these days, consumers are rediscovering relatively cheap foods, Spam among them. A 12-ounce can of Spam, marketed as “Crazy Tasty,” costs about $2.40. “People are realizing it’s not that bad a product,” said Dan Johnson, 55, who operates a 70-foot-high Spam oven.

GuestNovember 15th, 2008 at 7:00 pm

Anxiety in Japan/“Elderly crime increasing number of households on welfare reached 1.1 million last year, an increase of 300,000 since 2001,The government aims to cut 220 billion yen ($2.3 billion) from social welfare spending in each of the five years starting 2006 as it seeks to balance the budget by 2011. As part of this plan, the government introduced a new health insurance system that would raise premiums for some elderly patients….stimulus: cutting from social and giving to ?

RedCreekNovember 15th, 2008 at 3:43 pm

To SWK / Kilgores.Copy of my response to your post much higher in this blog.Thanks for the explanation and kudos to your life philosophy. If only more Americans could think like that.I myself try to live a similar life: I live in a small apartment in central London that i financed with 55% equity at the time of purchase (and the mortgage is on a cheap tracker rate that keeps going down!!). I have no car, and always try to take public transportation.And this despite having spent the past 8 years working “on Wall Street” in New York and London.I also spent a lot of time in Dallas and got utterly sick of the McMansion / Denali mentality. (Not to mention the mandatory piano in the entrance hall of the mansions where of course nobody knows how to play nor has any interest in playing the piano.)I am sick of people generalizing wall street bankers. Trash the bosses, not the people taking the sh*t. I can guarantee you that the majority of the investment bankers have not made the money you read about and are now in very serious trouble given that they are getting fired and have no prospects of landing another job in finance.Main Street people driving the Denalis and enjoying the McMansions and raking up the credit card debt and brainlessly polluting the suburbs in their massive SUVs are equally guilty.And on another note- the hedge fund hearing on the Hill a couple of days demonstrates how Congress just has no clue … And this is very scary.Obama should not only include Gore but also Clinton and a bunch of financial experts into his team. The rumors of the past 48 hours (Clinton as secretary of state) have been hopegiving. I hope that he assembles a real pipartisan star team. Maybe even including Lieberman.

RedCreekNovember 15th, 2008 at 3:52 pm

By the way – everybody working in investment banking or private equity knew that things were unsustainable and were about to explode.Two years ago I was at a private equity conference in NY where a Carlyle MD mentioned that the average leverage on portfolio companies in their mezzanine fund was 8.5x (net debt / ebitda) and this compares to a historical 6.5x.We all know that economies are cyclical and that if the cycle turns this leverage will cause companies to go bust.Go after the banking HEADS who provided the leverage you could say. Yeah… but what were they to do? If they applied any sense in their lending practices etc they would have pushed themselves out of business.Chuck Prince’s (former CEO of Citi) comment underscores this: he publicly said that they (citi) had no choice but to keep dancing until the music stops. And he was right. If you want to be competitive as a bank then you have to offer Carlyle 8.5x leverage if that is what the market offers or you are out of business. Every banker knew this, but only Chuck Prince dared to publicly say it as it was. Of course he got beaten up for what he said, and when he got fired every newspaper mentioned how “dumb” his music/dancing comment was. The guy was damn right – he just didnt have a way out.

KJ FoehrNovember 15th, 2008 at 4:15 pm

Yes, you and we do have much reason for hope that we will indeed transform ourselves into a more sustainable culture, relying less on material consumption and more on spiritual growth for our happiness.And yes, President Obama will assemble a “team of rivals” — just as Lincoln did.As I have said before, change HAS come to America, and it is not just a campaign slogan. cynics scoff, but I firmly believe this guy is the real deal. He is not just another ego driven politician without true values and principles. He really does want to change America and his whole career has been in that direction. His foregoing a lucrative career on Wall Street to work for $35K as a community organizer in Chicago and all that has followed tells me he sincerely wants to help the poor and middle-class people, and to make the USA a leader of the world rather than the ruler or policeman of it.I also believe he knows protecting our global ecosystem is a necessity and will act accordingly.

GuestNovember 15th, 2008 at 4:58 pm

He’s a narcissist who ran one of the most divisive campaigns in American history. But I do agree he has values and principles; “From each according to his abilities, to each according to his needs.” Sorry for the sarcasm but do you honestly believe that this guy is the real deal?

KJ FoehrNovember 15th, 2008 at 6:13 pm

Well I very seldom feel 100% certain of anything, but I would say I’m about 90% sure in this case. But, obviously my “real deal” is quite different from yours.I have heard that right wing talking point before, and although I have always admired the fairness implied in that statement, I don’t believe Obama is a Marxist. If he is, it isn’t apparent in the two books he has written.Also, I feel McCain’s campaign was much more divisive than Obama’s, but because I am biased in favor of him, my judgement may be clouded on that. However, I do firmly believe that over the past 15 years or so, it was the right-wing that has been a very divisive force and has turned Americans against each other. And I believe that deliberate political strategy has hurt us all and the country as a whole. I strongly believe it is in all our best interests to act as one people and one nation, especially in this time of economic crisis and war.IMO, it is time to care less about who is liberal and who is conservative, and to instead work together to stabilize our economy and to resolve the war or terror in a way that focuses on the gang of criminals who attacked us instead of attacking entire countries such as Iraq while bin Laden slipped out the back door in Afghanistan.

GuestNovember 15th, 2008 at 6:54 pm

IMO, it is time to care less about who is liberal and who is conservative, and to instead work together to stabilize our economy and to resolve the war or terror in a way that focuses on the gang of criminals who attacked us instead of attacking entire countries such as Iraq while bin Laden slipped out the back door in Afghanistan.I completely agree with your statement above – and I do apologize for the sarcastic innuendo – PS I am not an American and generally lean well left of center on most issues – I just don’t like Obama as in I don’t trust him. Let’s hope I’m wrong.

KJ FoehrNovember 15th, 2008 at 9:38 pm

@Guest at 18:54:14I understand your concern about narcissism; many see him as arrogant, and that is tough for me to accept too. I tend to think less of people who think they are better than others. But I have learned over the years that some arrogant people are not stupid people who just think they are better than others, but truly are gifted people who know they really are better than most of the rest of us in some way.But whether he is arrogant or only appears that way is hard to say. He doesn’t really come across as smug like Al Gore; in fact after the election, at his first press conference, he described himself as a “mutt”, which smacks of humility rather than arrogance. However, whether he is arrogant and narcissistic or not, I do believe he really is gifted.It is a gift that his father apparently had too – the ability to captivate people wherever he went with his articulate speech and cool, confident demeanor. It is some kind of powerful charisma that he inherited from his father, coupled with an open-minded idealism and desire to “change the world” that he got from his mother that has made him who he is.My only disappointment in him so far is the fact that he decided to become Christian after being raised areligious, and after studying and finding wisdom in all major world religions as a child at the behest of his mother. I suspect he did it for political reasons and remains, deep within his heart, agnostic or maybe atheistic. I also suspect he doubts the wisdom of that decision given the damage his former preacher, Rev Wright did to him early in the campaign.All told, and arrogant or not, I still believe his heart is in the right place, and that he will be a very wise leader from which the entire world will benefit. I usually am a good judge of character, but having never met and talked to him face-to-face, there is definitely more guesswork involved. But, I never met Gorbachev, either, and I pegged him pretty good. So let’s hope for the best and plan for a serious recession in the meantime…

ORNovember 15th, 2008 at 4:48 pm

” also spent a lot of time in Dallas and got utterly sick of the McMansion / Denali mentality. (Not to mention the mandatory piano in the entrance hall of the mansions where of course nobody knows how to play nor has any interest in playing the piano.)”Reminds of of my sister in law; she has both the Mcmansion and the piano at the entrance to match. And she lives in Texas (Austin):-)

GSMNovember 15th, 2008 at 6:10 pm

Your one eyed enthusiasm worries me KJF. You have extremely high hopes of BO.Likewise millions more like you.

KJ FoehrNovember 15th, 2008 at 7:26 pm

To a blind person, one eye is a miracle.OrOne does not eyes to have vision.I have never been this enthusiastic about any politician or about the prospects for change in this country, but I really do sense this guy is different, just like I felt Gorbachev was different when he first came to power and lo and behold, he was! And the Soviet Union unraveled!As for change here in the USA, I usually don’t expect much from presidents. But in this case, we have moved so far to the right over the past 28 years and to an extreme in the last 8 years, that I feel a palpable change is quite possible now as we (Obama) begin(s) to swing the pendulum back to the left.I may be disappointed, of course, and my conclusion is based mostly on my feeling that comes from reading his books and hearing him speak for the past two years now. To paraphrase W, when I look into his eyes, I see sincerity, the real deal. But as Chancellor Sutler said in V for Vendetta, “If there is one thing I am sure of Inspector Finch, it is that this government does not depend on your feelings.”But I hope I am right because, God knows, we do need change in this country.

KJ FoehrNovember 15th, 2008 at 7:31 pm

oops, should read: One does not need eyes to have vision.But perhaps one does need new glasses to type and edit correctly!

CHRIS DAVISNovember 15th, 2008 at 3:58 pm

Why No Mention of Savings due to lower Commodity Complex??o Price of crude down $90/bbl from high: savings $591bn on 18m bbl/day + $105bn on 2m bbl/day no longer importing at all = $696bn annual savingsWhy No Mention Massive Potential Leverage of Mortgage Relief Program???o Cost to govt to subsidize 50% annual mortgage pmnts 10m mortgages @300000/unit @7%payment factor only $105bn/yr. Implementation of this type of program would immediately stop foreclosures, cause 10m mortgages to be current, increase value all other mortgages and financial intermediaries that hold them. Or are we really to believe super-left Pelosi et al. team won’t implement a plan similalr to this??Are Consumer Debt Numbers Before or After $2.0tn of Foreclosures???o Consumer doing a great job on his own of lowering his debt burden, thank you, by defaulting on his mortgage in record numbers. Consumer also busy defaulting on credit card + automobile debtWhy no Meention Huge Savings Accruing due to Ongoing Plunge in CPI??o At the moment, in case you haven’t noticed, the price of EVERYTHING is falling. Soare goods & services prices falling faster than real wages or not?? If they are, thoseconsumers who are still employed just got a WAGE INCREASE

AfANovember 15th, 2008 at 5:15 pm

More importantly, are these enough to compensate for reduced or closed credit lines?I am not saying this is a good or bad thing.

Miss ItalyNovember 15th, 2008 at 5:02 pm

Nice article. I can almost say that I’ve understood it, despite my lack of formal study of economics, + I finally understand the economic framework of Reagan’s tax cut policies. Thank you OR.

BrianNovember 15th, 2008 at 5:40 pm

My usual comments involve either the economy or the stock markets; however, to the extent that people here are discussing solutions, I thought I would add to that discussion a bit.In the discussion of infrastructure build-outs as stimulus, there are assumptions that everyone seems to make that are inappropriate.I will not be discussing the value of an infrastructure program as stimulus, since that would be a much longer post. If one accepts that infrastructure projects are valuable as a stimulus, or if you presume that the government will undertake such projects whether they are truly stimulative or not, then it is critical that we not engage in building infrastructure al la 1932. In other words, yes, roads a bridges are important, but in the next century we need:1) Water Desalination! Massive buildouts to prevent chronic droughts and destruction of farmlands resulting from climate changes.2) Atmospheric CO2 and CH4 removal systems and CH4 recapture systems.If we are thinking of dumping trillions into make-work projects, let’s at least get something out of it. Carbon Dioxide and Methane gas will destroy the global economy within 20 years even if it was to be saved from the current crisis. There are known methods of removing these gases from the atmosphere, but they would require huge public works projects and expenditures. This seems like a perfect fit. The rewards would be saving the planet from biosphere collapse.Water wars will ravish the globe within the next 20 years. Western and Southern states are already experiencing massive water shortages that threaten crops and, ultimately, entire cities and those states’ economies. As the drought spreads over time (from global warming) a lack of water will devastate the entire USA. Massive coastal desalination facilities would be hugely expensive, but would pay a dividend of potable water and water for irrigation for generations. Water will become more expensive than oil within 20 years. Imagine the economic value of having unlimited supply.These are two legacies that can be left by us to future generations that would at least let them know that in this time of crisis, we thought about them and the future.Less roads and more productive investment!–Brian

GuestNovember 16th, 2008 at 12:31 am

Are there proven CO2 and methane removal systems? I was under the impression that nothing solid has been put forward in this regard. I do agree with you that water supply and our atmosphere are critical issues, however.

kilgoresNovember 15th, 2008 at 8:38 pm

I think the business of student loans is, and has been, a horrid scam unwittingly supported by well-meaning (and some not-so-well-meaning) legislators. How many other forms of debt are deemed not dischargeable in bankruptcy? Not many.The interest and fees racked up by private financial institutions for loans that fall into default when graduates can’t earn enough to repay them, or when good paying jobs are lost, are simply obscene. Young people come out of school so saddled with debt that their choices with respect to career and family become unduly circumscribed. Society loses out because graduates are driven to the jobs that will pay them the most, since they cannot afford low-paying but socially needed and personally rewarding careers that they might otherwise be inclined to pursue.Some learning institutions have gained from the student loan system, too. They look the other way while students who are often young and naïve get saddle themselves with educational debt, while the institutions proceed to build on the backs of those students, and at their expense, wonderful new facilities using the monies paid by the students as tuition and fees.If the government ever wanted to get serious about supporting higher education to make the U.S. competitive in the world economy, it would cut out the middleman and offer such loans on an interest-free basis, and provide a means of allowing graduates who find themselves without sufficient income to repay their loans a means of reducing the principal balance through public service, whether military or civil. in the meantime, my advice is to steer clear of borrowing to finance one’s education, even if it takes 10 or 12 years to graduate.SWK

jomosNovember 16th, 2008 at 8:20 am

One of the many benefits of deflation: cheaper college cost, home prices, fuel prices… Come back to papa, runaway deficit spending!

kilgoresNovember 16th, 2008 at 9:15 am

I think we’ll see a lot more college-bound students staying at or close to home to attend community colleges to save money, then transferring into a four-year institution in their junior years to complete their degrees. Probably will see a lot of folks taking half-loads, too, as they may not always have the funds for tuition and books for a full semester/quarter of classes.SWK

Guest-o-RamaNovember 16th, 2008 at 8:34 pm

NIH already has such a program. The catch is that you compete after the fact for loan forgiveness so you can’t be sure you’ll get it at the time you make your career choice that your debt will forgiven. I think its difficult to go into research (as opposed to higher paying clinical work) when you may or may not be saddled with debt because you may or may not get selected by a committee that thinks your research has promise 5 years after you enter school and because NIH may or may not still have the program when you need it. Oh you also have to get employed as a researcher before you can apply for the loan forgiveness and keep your job and reapply each year until its paid off. The military has a program but for clinicians physicians, psychologists etc…Not for biomedical research. Still models do exist for this type of thing. More would be good though.

kilgoresNovember 17th, 2008 at 1:12 am

Yes, the only other such opportunity of which I’m aware at present is one that would allow working off a portion of student loans through teaching special needs children, though I’m not sure what all the details of that are or whether it is currently still an option. Probably has the same sort of catches attached to it, though, as you pointed out for the NIH program.SWK

GuestNovember 15th, 2008 at 5:58 pm

Oh you’re an oligarch and your on the ropes no problem you’re too important to society so here’s 2 trillion dollars of tax payers money who by the way can’t afford to pay it back but by the time that gets discovered you can spend all the money in over sea assets and investments.Isn’t this kind of what the bankers did the first time with derivatives? By the time any one figured out the loans were no good the oligarch’s already got paid. And now we’re letting them do it again.

ORNovember 15th, 2008 at 6:34 pm

The Economy Gets a Margin CallWhere Have All the Consumers Gone?Latest from Maulding:The Economy Gets a Margin CallWhy Is the Dollar Rising?Can We Actually Muddle Through?The Potential for a Large Stock Market RallyIs GM too Big to Let Fail?New York, Moving, and Another One Leaves the Nest

AfANovember 15th, 2008 at 8:14 pm

I like Maulding, but why is he still pushing the same broken button, asking that question “Can We Actually Muddle Through?”?Well, you can always try to muddle through against the torrent at the edge of a fall, but it won’t matter much.

PeterJBNovember 15th, 2008 at 7:13 pm

I’ll say this again:”Leadership” is shot and do not have the competence nor the intelligence to confront the current socio-economic collapse with anything but looting for their own benefits.”Leadership” means the bureaucracy, the political, the institutional, the economist clique, the bankers cum financiers and those that make decisions… They are collectively unequipped mentally and ethically to deal with the current events in a responsible manner.The G20 are busy with photo events and stealing the silverware; and apart from making nonsense noise they are just wasting time and money and should be ignored. The IMF is a joke.Obama is nothing but much of the same of a different flavour.Economists opinions are just that – “opinions” founded in agenda.The US Congress is superfluous and irrelevant.The global economy is in free-fall and the response that will come in the short term is the default mode; the elite “leadership” survive and thrive and the others pay and suffer.It is time to not follow – it is a time to think and use your weapons of mass destruction (WMD) er, brains. Expect the worst and you will never be disappointed.And as I have said before; the current war of the FedRes vs. the people – is about a cash grab – for the faithful clique of bankers and trusted moronic fascists and a power grab – by the FedRes for the Godhead for Pope Benjamen.Oh Yes, expect things to get much worse as the Internet gets censored and you need endless forms of identification to claim what is yours and the sycophantic bureaucrats and bankers really start to put the screws on.”Stimulus” means wealth transfer… which your unborn great grandchildren will still be paying for after you are fully rotted in your grave.None of the “fixes” opinionated across the World, including here, come anywhere near that which is necessary and none address the real issues and circumstance in which we find ourselves at this time.A horse, a horse… my kingdom for a horse…”ho hum

AfANovember 15th, 2008 at 8:50 pm

🙂 You mean that ..?Yeah, this site has the privilege of being an artistic expression whiteboard of diverse schools.PeterJB’s style happens to be influenced by a mixture of impressionism, baroque and dadaism.

Octavio RichettaNovember 15th, 2008 at 7:24 pm

Kass: Warren Buffett Has Lost His Groove by Doug Kass

Octavio RichettaNovember 15th, 2008 at 7:41 pm

I thought this was going to be a frivolous shallow article. I was wrong. IMHO, DK is right on the money.

GuestNovember 15th, 2008 at 8:12 pm

good read, thanks – It speaks to how different the dynamic is this time — yes I think it is different this time – and WB’s results might be evidence.

AfANovember 15th, 2008 at 8:36 pm

WB, BG …Are we living through the few days subsequent to meteor hitting earth and before dinosaurs start going extinct?

chakiraNovember 15th, 2008 at 9:13 pm

No, nothing has really changed at all but we are now much more aware on a decision making level of the depth of problems that began sometime as I was being born. That having been said the imagination needs to catch the up with the situation and provide us with new ways of thinking and creating wealth. So if WE are the dinosaurs, meaning everyone in the world, probably not. If the dinosaurs mean those people who used their small brains to contrive this scheme, then I sure as hell hope so. In any case life is much more persistent than credit markets.

PeterJBNovember 15th, 2008 at 10:03 pm

On this planet it is only our context and manner of thinking that changes and we are at the point of a major change of direction, shift if you prefer, in mental focus.We have the choice of following the quantitative path of least resistance or alternatively, we could rise to a deterministic direction of our own making, which is founded in the philosophies and physics; a qualitative shift.There is no doubt that as we prefer “leadership” to be drawn from the infinite ranks of the “incompetent and stupid” – in religious loyalty to the faith of our feverish categorization of state “democracy” (which is actually a “republic” in the instance of the USA, and colony in the instance of Australia, etc., etc.), the route we will take is that of ‘least resistance’ as ‘denial’ is the game we can all play.And its easy to get a consensus and a Nobel Prize and or a knighthood, etc…So, expect mileage to vary and for many, like me, to do (doing) very well; thank you… but I do feel sorrow for those innocent victims of “leadership” who prey on the gullible and trusting… and expect also, just more of the same ad nauseum.Ho diddly hum

AfANovember 15th, 2008 at 11:06 pm

Of course, what I meant by Dinosaurs are those creatures from another time building their civilization altars on a sacred, dark and ancient science. I happened to be in possession of a 2006 AD dusty manifest written by a not so known alchemist, a witness, according to historians, of the folly and the travesty of that age. The writer chosen a bizarre, but apparently frequent at that time, title of “Structured Finance Modeling”

MarkNovember 16th, 2008 at 2:42 am

the imagination needs to catch the up with the situation and provide us with new ways of thinking and creating wealth.I think that our imagination (virtual over the physical) IS the reason we’re in the mess that we’re in. It’s led us to this dream state in which we have discounted the value of actual physical resources (including environmental impacts).New exploitable resources are become scarcer and scarcer.Further, maintenance of existing complex system is requiring increasingly more input, which means decreased probability of the creation of significant “new” wealth.

GuestNovember 15th, 2008 at 8:55 pm

Yves Smith on Naked Capitalism features London Banker in “Yet More Trade Finance Worries (Not for the Fainthearted)” (36 comments at this hour)z:Readers may know we have been concerned about the dramatic fall in shipments of basic materials, as reflected in the collapse of the Baltic Dry Index. This in turn, as we have also stressed, is in large measure to the difficulty of obtaining trade finance, in particular letters of credit.A very good post at London Banker, “Systemic Risk, Contagion and Trade Finance – Back to the Bad Old Days,” (hat tip reader Bruce) gives a very good recap of the problem and the ramifications. Key excerpts…

GuestNovember 15th, 2008 at 9:22 pm

Is London Banker no longer featured in RGE Monitor’s Finance and Banking weekend sector? I can’t seem to find him.

dofNovember 15th, 2008 at 9:15 pm

‘Big Chill’There’s no way forward without likes of ‘Ryskamps’.If this forum is offended by Ryskamp … then you lose.Just my thoughts.

GuestNovember 16th, 2008 at 10:27 am

I didn’t catch all of the alleged contentious words as is arguments were so played out I often didn’t read his post , but he probably got booted off because so many other posters kept calling for N.R. to get rid of him. I hope they didn’t influence N.R. because that brings a degree of forced bias to the forum.

GuestNovember 16th, 2008 at 7:02 pm

You must have missed it. Some of his final posts were full of inflamatory profanity. I saw them. There was plenty of good reason to boot him.

GuestNovember 16th, 2008 at 8:09 pm

This is NR’s blog; Dr. Roubini can and should do whatever he wishes with Ryskamp or with me or whomever.Having suffered through more than a year of his posts, I’ll indicated that Ryskamp has behaved like an ass–arrogant, insulting, repeatedly posting repetitious unrelated posts, many of which insulted NR and others who had the temerity to disagree with him. He was repeatedly invited to create his own blog, but didn’t, because virtually no one would have gone to it. I do worry about his mental health, but have little doubt that NR did the right thing.I’ll remind the community that many here, most especially myself, are here at NR’s charity; and many have and do abuse that charity through posts unrelated to main post. Unrelated posts and bad behavior have led other economic-related bloggers like Calculated Risk to consider similar policies restricting commenting. It is the tragedy of the commons in action.I thank NR for his charity in allowing people like myself to access this blog in these times; reading his paper on the housing market two years ago has saved me quite a bit of potential 401k losses. This is one of 4 blogs I access frequently to form an investment strategy, and this is the best of the macro blogs. Thanks, Dr. Roubini; I don’t think many of we lurkers voice our gratitude sufficiently for the service you have provided us, in providing access here.

GuestNovember 15th, 2008 at 9:50 pm

“Facts and Figures, Whys and Means” |HellasiousFact 1: There is too much debt in the economy to be properly serviced by the earned income generated. Total debt has doubled as a percentage of disposable income in the past 25 years.Why did it happen? Because wages and salaries (i.e. earned income) were kept artificially low in the name of “competitiveness”, while consumption was boosted through ever increasing debt.What does it mean? Assuming even more debt and/or replacing private debt with public, as is currently happening, cannot resolve this fundamental problem. Instead, debt must be liquidated.Fact 2: Saving has disappeared in the US. Every penny earned is consumed.Why did it happen? The stagnation of real wages and salaries meant that less income could be saved and had to be consumed to maintain the American Lifestyle. In addition, way too much social emphasis was placed on consuming vs. producing.What does it mean? The US economy cannot finance itself internally and has to rely on foreign investors and lenders. Unless reversed, this trend spells big trouble geopolitically.Fact 3: There was wholesale removal of manufacturing from the economic base after 2000 (aka China’s “miracle”). Millions of well paid jobs were replaced by service sector jobs, many in the very low-pay area of leisure and hospitality (waiters, chambermaids, etc.).Why did it happen? Because neo-liberal and neo-con policy makers made a conscious decision to replace manufacturing with its pesky labor unions and associated politically troublesome middle class, with an indentured social class of dependent service workers…What does it mean? The imminent end of the US as a superpower. Supercomputers and fuel cells are not developed by a java-and-jelly donut economy. Globalization means that education, knowledge and technology are, in fact, fungible and transferable. In the absence of a local base of utilization high value-added jobs are free to go where they please.Conclusionsa) Debt must be liquidated and earned income increased.b) Saving must be increased by reducing consumption in order to fund investment (preferably in energy infrastructure) and to reverse the loss of geopolitical importance.c) Manufacturing must be emphasized in order to regain technological leadership.

MarkNovember 16th, 2008 at 3:01 am

Every penny earned is consumed.Read that again!At first glance one would tend to reel from this statement. But, consider what it really means: balance!If we all saved more then wouldn’t that mean surplus, over production?Of course, the real problem is that it’s not a zero balance but a negative one: we’re consuming more than we’re producing. In fact, I’d argue that the world’s entire population is basically consuming MORE than it’s producing. How? We’re extracting more resources than can be renewed, we’re borrowing from nature’s future to pay for today. No amount of efficiency is going to alter this equation. We MUST come to balance with nature, not some virtual balance sheet.

tutterfrutNovember 16th, 2008 at 5:30 am

Yep, nature should be our guide. And for man to become human, we should all be in touch with it.Food, energy, environment cannot be left in the hands of some anonymous pyramid scheme multinational. But its base should always be more local.Same goes for savings. Reinvest the majority of savingslocally so that misallocation can be avoided.Trade excess capacities or goods with eachother. Not blanc cheques or debt paper.

MarkNovember 16th, 2008 at 5:52 am

Yup!I’d caution, however, that the notion of “excess capacities” has to be viewed with cautious eyes, as it presents an avenue of exploitation.I remember a fairly recent Democracy Now! interview with Willie Nelson in which he talked about biofuels. I was bracing myself to conclude that he was yet another biofuels fool, but he came through as the wise man that he is- he said that biofuels must not be exported from the community from which they are produced. He stated that any energy gains are lost/defeated by shipping the fuels.So, export opens the way for exploitation and it also reduces the intrinsic value of the exported goods.

tutterfrutNovember 16th, 2008 at 6:42 am

When my father was a kid, he got an orange for Christmas. It was an exotic product and had its true value(worth decades of memories). Now, one out of three oranges in his fruit bowl will probably be thrown away. No one no longer knows any value of anything because of so many misallocations of credit and subsidies.Things should be restored from the base not from the top. In Europe farmers look to the subsidies to decide what to plant or even destroy.Subsidies granted by the same central planners that didn’t see the financial meltdown coming.If we don’t bring back logic to man, we’ll never be able to have fair trade and balance.

Average JaneNovember 15th, 2008 at 10:29 pm

Sooo, what do you think would happen, O People of the Blog, if every person who owns a credit card in America (estimates, anyone?) were told it (or they) were being taken away?Would you, too, feel just that little frisson of panic?

Jason BNovember 16th, 2008 at 4:38 am

Hence the 1st Infantry 3rd BCT defending the homeland in full battle rattle

kilgoresNovember 16th, 2008 at 9:38 am

I noted the subtle reference in the article to managing “civil unrest.” They used the Army in the 1930s to manage civil unrest, too. I think there has to be an anticipation that civil unrest is coming in the next couple of years.SWK

GuestNovember 16th, 2008 at 11:42 am

What do you think will be the catalyst that triggers things – CITI going down would do it – A change to the country’s credit rating …

kilgoresNovember 16th, 2008 at 5:16 pm

It’s hard to say…potentially, any number of things could trigger civil unrest. I’m not sure a natiional bank failure alone would do it, or a change to the U.S. credit rating. These things don’t impact people directly — they seem distant and amorphous to most folks.What more likely would do it would be, say, reaching a certain critical level of foreclosures and job losses such that large numbers of families that had never known poverty wound up living in their cars and having to rely on soup kitchens and food banks and so forth to feed themselves and their children. THAT would do it. Another potential trigger could be a sudden breakdown of the food distribution system that resulted in large numbers of people, even those with jobs who remain in their homes, being unable to get basic necessities at the grocery store.These are extreme circumstances that I hope will never happen, of course, but I can’t discount the possibility that they could happen in the next two or three years. If they were to occur, there is no question that the U.S. would be compelled to engage the military, not just to keep order, but to assist in overcoming the problems giving rise to the disorder.SWK

kilgoresNovember 16th, 2008 at 9:43 am

Well, when my wife tells me the kids need new clothes for school, my guess is we’d be heading to the thrift shop instead of JC Pennys where I could float a couple of thousand dollars for a few months. It would save us money, but it wouldn’t help the retail sector any. It would just serve to reinforce the downward spiral of the feedback loop: less credit -> less retail purchasing -> lower revenues -> layoffs -> less private aggregate demand -> less retail purchasing -> etc.SWK

GSMNovember 15th, 2008 at 10:46 pm

Even with 1% interest rates, were it not for a) off balance sheet finance and b) sympathetic ratings agencies, this derivative toxic catastrophe could not happen. If banks were forced to hold their own mortgages to maturity/payout ON balance sheet, if the ratings agencies were absolutely neutral and held accountable for all their ratings decisions, if banking regulations did NOT allow such a gigantic unsupervised world of complex derivatives to grow exponentially unseen like a sea of toxic weed- then none of what we are experiencing would be possible.Therefore, we must be very careful NOT to throw the baby out with the bathwater in the coming avalanche of financial change heading our way and leave the TRUE perpetrators unscathed and ready to morph again into a bain on ours and our children’s lives.I find it beyond perplexing that the Basel2 acccords (off balance sheet finance) and the ratings agencies have not had their respective bellies yet put to the torch. Are we seeing a conspiracy of silence here? Is there something herein that deserves MUCH more closer scrutiny and exposure?The instigators of these WMFD were exercising their freedoms developing this toxic derivative mess within a secure framework provided to them! Yes, of course they got greedy. But how exactly were they allowed to proliferate and prosper for so long and in so foul a way?We must lift the rocks and shine the torch on these bastards. They should not be left alone with their unelected powers and omnipotent positions sans accountability. In effect, they control much of our lives, yet we know them NOT.KJF, if OB is to enable and create change, then let him start here.

PeteCANovember 15th, 2008 at 11:31 pm

“But how exactly were they allowed to proliferate and prosper for so long and in so foul a way?”Because they all graduated from the same educational institution … “The Marie Antoinette School of Finance and Management”. Motto: Thou shall let the peasants eat cake – or twinkies if cake is not available.BTW, remember you old piece of wisdom? “This will not be over until people hate equities and the banks”. Well guess? We’re moving along quite nicely towards that final destination.PeteCA

AfANovember 15th, 2008 at 11:34 pm

GSM,Although I think it is past time for any finger pointing, I believe that the “original” sins (and mistakes) are really few. In a closed surface, with enough heat, a matter seemingly as hollow as air can tear up steal. Pressure is what sets the initial motion, what happens next is just a cascade of events, chain of reactions. If the hot air did not release its pressure the way it did (lousy lending, underwriting, packaging, slicing, dicing, securitizing, rating, buying, speculating, leveraging, regulating …) it would have done so otherwise, with the end results, not necessarily less dramatic.I’m not saying the others (like the ones you mentioned) are blameless, what I am saying is that, for me, for a global and radical change to occur, the heat is more responsible than the air, or to be more accurate the ones who set the heat. The rest, well, if subpoenas and regulations do not take their course, then the markets will deal with them.Do you think the big 3 rating agencies will get out of this unscratched with the same business model, and we are not even done yet?The heat for me were the fiscal and monetary policies – to keep it brief.

MarkNovember 16th, 2008 at 3:08 am

If not these vehicles then others… Greed cannot be purged from man. It was greed that got us here. Demands for ever-increasing returns. Consolidation of power always braids its own hanging rope…

GSMNovember 16th, 2008 at 12:03 am

This has been really bugging me. I’ve seen a few agents of “change” in my time.And I do know I’m too sceptical. But this time it really is different. I feel we are flirting right now with a cliff edge. If the wrong paths and choices are chosen, true , debilitating and enduring hardships worldwide could result.In essence, I’m voicing my distrust in the US political system to empower the minds and integrity I see as absolutely vital at this point to avoid a major worldwide financial catastrophe. Because, like it or not (I am not a US citizen), the US IS the free worlds leading financial force.In all respects, it must lead – and right now.In my adult life I have seen 8 US presidents.This is the most important Administration since 1980. Possibly since Ike.BO will need to step well up. His choices are being micro analaysed worldwide and with good reason. If he chooses Paul Volcker as his SecTreas, I’ll sleep a lot easier. Nuff said.

MarkNovember 16th, 2008 at 3:16 am

I’m afraid that Volcker will be battling the wars of the 1980s, just like Bernanke is fighting the wars of the 1930s.It’s a whole ‘nother beast this time. From the David P. Goldman article “Who will finance America’s deficit?”:Foreign net purchases of US Treasury securities peaked at a $400 billion annual rate, and will fall sharply from this level. Domestic resources to purchase Treasury securities, moreover, are thin. When Ronald Reagan took office, America’s personal savings rate was 10%; today it is around 0%, although it has spiked up in recent months. Disposable income in the US now stands at slightly under $11 trillion. If the US returned to the personal saving rate of 1981, individuals would save $1 trillion a year, enough to fund the Treasury deficit, assuming that all net new portfolio investment flowed into Treasury securities. Nothing, though, would be left over for investment in anything else.Existing debt loads are just too huge. We won’t be able to both pay down our debt AND maintain/revamp our infrastructure, the very infrastructure that is needed for trade.

MarkNovember 16th, 2008 at 3:34 am

I’d add that this scenario of the US citizen saving $1 trillion/year is highly unlikely given his/her personal debt levels.It’s liquidation time. Wasn’t this what Reaganomics was really aiming for? I suspect that it’s the bad medicine that we refused to take…

GSMNovember 16th, 2008 at 4:50 am

Mark,At least with Volcker we would have someone who actually knew he was in a war and was indeed a bonnafide and accomplished vet. The lineup of failed wannabe’s this far inspires little more than dread.

MarkNovember 16th, 2008 at 5:42 am

I agree with the premise. But on the other hand false hope can suck a lot of energy :-(Again, no matter how smart someone is they cannot overcome the facts…

GuestNovember 16th, 2008 at 7:22 am

The problem is that the various positions will be lose lose; as NR has stated the trains have already left the station, whether we are going into a two year U or ten year L, those in charge will be blamed for either not doing enough or not doing the right thing. Having said that the prescription is clear – Spend and keep spending until the patient doesn’t feel any more pain.Obama urges Congress to quickly pass rescue plan

chakiraNovember 16th, 2008 at 12:15 am

Why shouldnt he pick the esteemed Prof. Roubini who has shown himself to be as astute as any macroecon person?Roubini should AT LEAST get treasury.

GSMNovember 16th, 2008 at 12:36 am

Because chakira, despite the enormous respect I’m sure we all have for NR, what is needed is someone of known stature tested by fire.When the s**t is really hitting the fan, you want someone at the healm who has been there and done that. Someone, who by virtue of his very presence, inspires calm and confidence. Someone who it is obvious all can believe in.Really, I do think it is that critical.

PeterJBNovember 16th, 2008 at 1:07 am

“… what is needed is someone of known stature tested by fire.”Well said – and he is of enough experience to handle this well in the best interests of civilization as we know it – while he can tell all those greasy lobby type to get lost – without putting himself in jeopardy.I like wisdom… where its real value is far greater than gold.

Octavio RichettaNovember 16th, 2008 at 4:54 am

WASHINGTON (AP) — President George W. Bush underscored how dire the economic crisis has become when he told world leaders that he had agreed to a $700 billion rescue plan for financial institutions only after he’d learned the U.S. was at risk of sinking into a “depression greater than the Great Depression.” of you keeping score on what he says. How late was GWB saying the economy was fine?

PeteCANovember 16th, 2008 at 11:05 am

Question: Wno gave George Bush that advice? Did it come from economists working for Bernnake (the Fed)? If it did, it is consistent with the inside rumpr that was circulated a few weeks ago that economists working for Washington saw a real danger of the US economy imploding by Jan, 2009. As always, it is difficult to confirm such talk.PeteCA

Octavio RichettaNovember 16th, 2008 at 5:31 am

First came the banks looking for a federal rescue plan to stay afloat. Next it was the automakers seeking a bailout. And now state governments say they, too, need emergency federal assistance to remain solvent. a buncha sissies! Here in Amerika, we are quick learners on the way up. Everybody learned to live well beyond their means and now that some belt tightening is needed, most lack the cojones to endure some hardship. How about trying to learn a few quick survival skills in the way down?LB, spam is too expensive. Beef bone with all the meat that remains attached to them after they remove the expensive cuts, potatoes, cabbage, onions and carrots makes great soup. It is more nutritious and cheaper than Spam and has no Nitrates! Yes but you have to cook it; Spam comes in a can.My father made it through WWII and I was married to an Armenian for almost 10 years. I learn a thing or two about belt tightening from them!

Octavio RichettaNovember 16th, 2008 at 5:38 am

And BTW, the addicted Amerikan consumer didn’t stop spending because he is more conscious about the hardship that is coming. He had to max out credit in order to stop. He could slowdown, he had to crash against the wall. The recent cut in home equity and CC lines of credit made consumption come into a halt a lot faster. I wonder how many now “up against the wall” bought ipods, iphones, the latest blackberry, on their maxed out credit cards. Wat a buncha irresponsible sissies!

MarkNovember 16th, 2008 at 6:15 am

Easy OR… much was accomplished through the finest marketing/propaganda forces that have ever existed. This becomes clearer after watching The Century of the Self. But granted, it’s up to the individual to be aware of his/her surroundings…BTW (as a US citizen) – I have never owned a credit card. Never purchased a new car. With zero debt I’m looking at relocating to another country, one that’s more fiscally responsible.

subgeniusNovember 16th, 2008 at 11:36 am

At this point, given that you seem to understand the issues are more than just the arbitrary unwinding of over-complex financial products, why would the local level of “fiscal responsibility” be of any interest in a place to relocate to?Surely the choice would be better informed by finding locations with a centuries-old lifestyle/pace of living that can therefore weather problems generated by modern industrial civilization. Somewhere like Brittany. Then again – I moved to LA to see the fireworks….

MarkNovember 17th, 2008 at 2:43 am

Fiscal responsibility says a lot about a place, a people.Why should I hang around and see my responsibleness be punished? It’s also a moral decision: I’m tired of paying taxes for illegal wars.

MorbidNovember 16th, 2008 at 6:51 am

Just Say NO to DetroitWSJ * NOVEMBER 15, 2008Given the abysmal performance by Detroit’s Big Three, it would be better to send each employee a check than to waste it on a bailout, says David Yermack.Before Michael Moore became famous for documentaries like “Fahrenheit 9/11” and “Sicko,” his first big success came in 1989 with “Roger and Me.” In that film, Mr. Moore followed General Motors chairman and chief executive Roger Smith with a camera crew, asking him why the company was closing plants and producing low-quality vehicles. Mr. Smith looked flustered and inartfully avoided Mr. Moore’s camera crew while it lingered outside his country club or GM’s executive offices.”Roger and Me” was entertaining, but it missed the real story about Roger Smith, who turned out to be a forward-thinking genius. Mr. Smith made big investments in information technology and satellite communications, acquiring Electronic Data Systems in 1984 for $2.5 billion and Hughes Aircraft in 1985 for $5.2 billion. Mr. Smith’s successors divested those businesses at huge profits — EDS was taken public in 1996 for more than $27 billion, and Hughes, renamed DirecTV, went public in 2003 for more than $23 billion. (The man who sold EDS to Roger Smith at a bargain price was H. Ross Perot, who then convinced many people that the experience qualified him to be president.)Mr. Smith understood all too well that GM shouldn’t continue investing in its failing automobile business. That was 25 years ago. Today, our government is being asked to put tens of billions of dollars in GM, Ford and Chrysler, but we would be much better off if Washington allowed these companies to go bankrupt and disappear.In 1993, the legendary economist Michael Jensen gave his presidential address to the American Finance Association. Mr. Jensen’s presentation included a ranking of which U.S. companies had made the most money-losing investments during the decade of the 1980s. The top two companies on his list were General Motors and Ford, which between them had destroyed $110 billion in capital between 1980 and 1990, according to Mr. Jensen’s calculations.I was a student in Mr. Jensen’s business-school class around that time, and one day he put those rankings on the board and shouted “J’accuse!” He wanted his students to understand that when a company makes money-losing investments, the cost falls upon all of society. Investment capital represents our limited stock of national savings, and when companies spend it badly, our future well-being is compromised. Mr. Jensen made his presentation more than 15 years ago, and even then it seemed obvious that the right strategy for GM would be to exit the car business, because many other companies made better vehicles at lower cost.Roger Smith, who retired as chairman in 1990, seemed to understand that all too well, and so did Chrysler’s management, which happily sold their company to Daimler Benz for $30.5 billion in 1998. That deal, one of the savviest corporate divestitures ever, ended very badly for Daimler, which essentially paid Cerberus a few billion dollars (by agreeing to retain pension liabilities) to take Chrysler off its hands in 2007.Over the past decade, the capital destruction by GM has been breathtaking, on a greater scale than documented by Mr. Jensen for the 1980s. GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM’s physical plant during this period was $128 billion, meaning that a net $182 billion of society’s capital has been pumped into GM over the past decade — a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998.As a society, we have very little to show for this $465 billion. At the end of 1998, GM’s market capitalization was $46 billion and Ford’s was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges. Along with management, the companies’ unions and even their regulators in Washington may have their own culpability, a topic that merits its own separate discussion. Yet one can only imagine how the $465 billion could have been used better — for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad. Many are suggesting that $25 billion of public money be immediately injected into the auto business in order to buy time for an even larger bailout to be organized. We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.Two main arguments are being raised to justify a government rescue of the auto industry. First, large numbers of jobs may be at stake, perhaps as many as three million if one counts all the other firms that supply the Big Three. This greatly overstates the situation. Americans are not going to stop driving cars, and if GM, Ford and Chrysler disappear, other companies will expand to soak up their market share, adding jobs in the process. Many suppliers will also stay in business to satisfy the residual demand for spare parts even if the Detroit manufacturers go under. If the government wants to spend $25 billion to protect auto workers, it would do better to transfer the money to them directly (perhaps by cutting each worker a check for $10,000) rather than by keeping their unproductive employer in business.Second, it is suggested that the failures of the U.S. financial industry, which have cost us something like $700 billion, justify bailouts of other sectors of the economy. This makes no sense. If the government diverts our national savings into businesses that have long track records of destroying investment capital, eventually we’ll end up with an economy like France’s — or Zimbabwe’s.Other arguments are on the table as well. Some see the troubles at GM and Ford as opportunities to retool the auto industry to produce environmentally friendly cars. Given their long track records of lobbying against fuel economy standards and producing oversized gas guzzlers, this suggestion seems ridiculous, sort of like asking cigarette companies to help with cancer research.Not many of my students today remember “Roger and Me” (many confuse the film with another picture from the same era about the cartoon character Roger Rabbit). However, Roger Smith’s example casts a long shadow over the auto industry today. It’s time to cut our losses and let society’s scarce investment capital flow to an industry with more long-term potential to create jobs and economic value.David Yermack is a professor of finance at New York University’s Stern School of Business.PS If ObiNation tries to vote-buy a bailout of this mess it will speak volumes of his “team” and his lack of depth to be a Savior which an amazing number of people around the world have projected into this fellow.

GuestNovember 16th, 2008 at 8:34 am

Japan’s government has a long history of giving unchecked support to its auto companies, to gain market share they Toyota used to take losses on their sales in America now you suggest we be totally dependent on whatever prices Japan decides to set on their prices. Just like Home depot at first had the most incredible deals and now that they destroyed every mom and pop hardware store they charge $50 bucks for a hammer. Reagan economics said this kind of capitalism where the weak get weeded out was the best thing for the country he meant best for shareholders and oligarchs not the country. This article is just more trickle down fascist we should all just be slaves to the capitalist oligarchs argument. We gave you the control of our country for the better part of 30 years and you almost destroyed it, just admit you were wrong and go home look yourself in the mirror.

MorbidNovember 16th, 2008 at 11:15 am

Look Yourself in the MirrorPerhaps you are right. We are going to find out given that ObiNation now rules the land. They will conduct their experiment only if to fulfill the wet dream they have been nursing for 30 years now – creating a welfare state and other “caring/compassionate” USSR Marxist-failed policies. I’m surprised Putin is not on Obi’s team by now.So, instead of a middle ground the pendulum swings from the far right to the far left – until the net worth of all goes to zero it seems.

MorbidNovember 16th, 2008 at 11:20 am

PSComparing Toyota with GM is laughable – didn’t you read the WSJ article? It is like comparing day to NIGHT.

GuestNovember 16th, 2008 at 2:05 pm

WSJ yea unbiased liberal Rupert Murdoch’s publication whose love for unions and workers is well documented. In fact the prevalence of anti-worker sentiment is in virtually every news publication despite your political butt kicking? The capitalistic pigs own the media I can’t help that.

MorbidNovember 16th, 2008 at 5:25 pm

UNIONSDo they have unions in China, India, Mexico, Japan, etc? Do they have to contend with that layer of cost?As near as I can see Unions are for babies who haven’t learned how to stand on their own two feet yet. Who haven’t a clue about self-actualization. Further it is something promoted by all these university liberals in academia who never have to live in the real world.

jomosNovember 16th, 2008 at 7:02 am

Nouriel has already commented on his take of the G20 committing themselves to a common solution. With this article “20 reasons…”, am I reading this right ? Central planning has just been elevated from each countries’ interest to the world’s interest thus weakening the effectiveness of the whole. Do I have 20/20 vision on this professor ?

GuestNovember 16th, 2008 at 7:16 am

The socialization of debt, the partial nationalization of banking and the potential nationalization of too-big-to-fail automakers represents the beginning of the end of the American Republic. Well, one can argue about the exacting timing of the “beginning” of this end. All that prevents us from becoming the Argentina del Norte — let’s call this new bailout nation of ours Argenmerica — is the fact that foreign central banks continue to accept our treasury debt. But their purchases will slow, and they will want higher interest soon to compensate for rising U.S. debt default risk, and/or risking risk of loss of principal via inflation. Within a very short time frame, we will see long term interest rates go through the roof, once Asia pulls the plug on trying to sustain our unearned standard of living. I remember how, when I was in the Army in the 1950’s, those of us rotating back to the zone of the interior (ZI) would talk about returning to the land of the Great PX (post exchange) — the consumer society. Germany was still a nation of savers (pfennig pinchers) and German cab drivers pushed their Mercedes forward at the cab stands by hand, rather than spend money to have their cars’ engines idle. Even enlisted guys could bring over their large U.S. gas guzzlers (strassenkreuzern) to Germany, as PX gas prices were very low. Well, say good bye to the land of the great PX. It is OVER. But the Congress, the FED and the U.S. Treasury seem to think that they can pull rabbits out of the hat with yet more slicing and dicing of U.S. debt paper — which will help speed up the conversion of U.S. treasuries into a new form of toxic waste securities.

GuestNovember 16th, 2008 at 8:13 am

Productivity is being strangled to death in this country by debt, debt forgiveness would act as a redistribution of wealth following new loans could be issued. It would cause a lot of inflation at first and the dollar would crash but with protective measures we would be fine as a nation and poised to excel within a few short years. The problem is that the multi-national corporations and banks control everything and would be the biggest losers of debt forgiveness. Banks didn’t want to forgive mortgage debt through bankruptcy and still somehow got 700 billion of tax payers money that’s how powerful the oligarchy is in this country. Debt forgiveness would cause a lot of poverty and chaos in the short term but would put us back on track quickly. With our infrastructure, our educated society and natural resources debt forgiveness would not make us a third world country like so many people here claim, it would not be the end of capitalism it would mark a new beginning for it.

rdNovember 16th, 2008 at 7:18 am

Two scenarios posted here; the one above noted the difference between a gradual decline in sales versus a sudden collapse and an earlier one posted about providing a national sales tax holiday (for cash purchases) with the Government reimbursing the states, could be combined. Would this provide a way to soften the collapse of sales this year and allow for incentive buying of the type of tax rebate recommended by the IMP?

DanNovember 16th, 2008 at 7:38 am

“Nov. 16 (Bloomberg) — The cost of living in the U.S. probably fell in October by the most in almost sixty years, while manufacturing and homebuilding sank deeper into a recession, economists said before reports this week.Consumer prices probably dropped 0.8 percent last month, the most since 1949, according to the median estimate in a Bloomberg News survey. Builders broke ground on the fewest houses in at least a half century and factory output weakened further, other reports may show.”On the subject of inflation vs. deflation discussion: It appears for the time being that the deflation is in the lead.

GuestNovember 16th, 2008 at 9:15 am

Lots there except on how all of those initiatives will be paid for. Interesting that limited access to 401k accounts will be permitted, though I’m not sure of the wisdom of allowing retirement savings to be used for example, to pay down credit cards. The NAFTA and other comments on Trade hint ever so slightly at protectionism. Let’s hope his policies are the correct ones as I don’t think there will be a second chance.

JeffNovember 16th, 2008 at 9:20 pm

I think that retirement money saved in 401k’s should be left for retirement purposes, but at the same time it is better that people are allowed to spend there own money to bail themselves out, rather than society doing it.After reading my own statement, I can’t help but think that this could then cause them to need bailing out at retirement age.There are no easy answers to financial hardship, whether their problems were caused by bad luck or overspending.

OuterBeltwayNovember 16th, 2008 at 10:26 am

RGE BrainTrust Conference Call Wednesday 19 November 09:00 U.S. ESTObjectives of conference call* Convert talk to action* Convert disconnected individuals into a coherent group. Force multiplier.Some have expressed concern that a conference call of 30 members will be chaotic. To address that risk, I’ll institute some meeting protocols. The other risk is that we don’t effectively use the conference call to establish and foster the group’s potency.Let’s examine the nature of a conference call, and consider its strengths in contrast with a blog. The unique strengths of a conference call include:Focus. A lot of attention and brainpower can be concentrated on one place for up to an hour at a time. Problems melt under that kind of concentrated heat.Decision-making. It’s easy to ask the full group a question, get all viewpoints, and then take a vote.Action. Because we can identify issues, present all viewpoints, and take a vote, we can confidently take action as a group.I’m sure we’ll be able to master the mechanics of consensus-building and decision-making as a group. I want to move aggressively to enable the group to get a sense of its own potential power. As we conduct these conference calls and the trust level among us builds, I suggest that we keep these questions in mind:1. What is the group’s power based upon? Here are some dimensions, are there others?* Knowledge and experience* Time and effort* Contacts* Resources2. What types of activities would we engage in during a conference call? Here are some activities, are there others?* Setting agenda* Listening to presentations* Q & A* Voting to take action as a group* Forming sub-groups, and giving/getting work from those sub-groups3. What roles can the participants play during the conference calls? Here are some, are there others?Moderator. Grants privilege of addressing the group to Presenters or Interlocutors. Maintains the tenor and decorum of the conferences. Has the group’s authority to eject players that repetitively engage in unhelpful conduct. Moderator arranges for conference calls, and announces them on the blogScribe. Maybe some things deserve to be recorded and made available for subsequent use by the group or other stakeholdersPresenter. Gets the undivided attention of the group for a limited time to present well-prepared materialInterlocutor. Questions the presenterVoter. Vote for or against proposed group actions or decisions.4. How do we focus the group’s power?a. Find the common ground, and focus on itb. Specialize based on capacity and interestc. Prioritize and stick to the prioritiesDate and TimeThe first conference call will be on this Wednesday at 9AM U.S. EST. It will last for about an hour. It will start exactly on time.The time differential across all attendees is 16 hours. In order to enable the maximum number of people to participate, I set the time as 09:00 U.S. Eastern Standard Time, which would be 6AM in San Francisco, 2 PM in London, 3PM in Frankfurt, and 10PM in Hong Kong and 1AM in Melbourne. That puts some of the U.S. participants on the call during work hours, and for some that may be a problem. Let me know if this puts you out of the game.The other alternative is to do a 7:00PM EST call, that would make it 4PM in San Francisco, midnight in London, 1AM in Frankfurt, and 8AM in Hong Kong and 11AM in Melbourne. This may keep our European members up too late.I will go with the 9AM U.S. EST time unless I hear shrieks of dismay.Access Number and CodeCall in few minutes before the conference starts.* Dial this U.S. number: 218.339.4300* Enter this access code: 882086# (don’t forget the pound sign)* Announce your arrival to the group. Say “<your screen name here> has joined the group”AgendaI will separately publish a list of the participants that are currently signed up, as well as a suggested agenda for our first call.It’s Not Too Late to JoinFor those of you that want to attend, but have not yet signed up, please do so below. Please provide two bullet-point issues that you want the group to take action upon. Remember: this group is about converting talk to action.

Jason BNovember 16th, 2008 at 11:44 am

I’ll be listening.My interests in converting talk into action is what steps to take now assuming that a Greater Depression is on the way, and what changes can be made to ensure this doesn’t happen again (in the next 80 years at least)Many of you have probably already seen this, but for those that have not, take the crash course

DanNovember 16th, 2008 at 12:25 pm

Due to my work schedule I cannot join the conference but would be very interested as to the discussions and conclusions. It would be great if some kind of Minutes of Meeting get issued on this site. Do you plan to do that?

MedicNovember 16th, 2008 at 1:52 pm

OB – do you have an agenda yet and can you email one out once you do?Thanks,Medic (

OuterBeltwayNovember 16th, 2008 at 2:19 pm

Medic – I’ll publish an agenda here on the blog on Monday PM, and again on Tuesday so it’s available for all.Dan, I’ll ask someone to be the scribe during the call, and we’ll publish the meeting minutes on the blog.Hopefully, we’ll be able to work a schedule so that you can join us on the next call.

Average JaneNovember 16th, 2008 at 2:20 pm

OB, I don’t know if I can attend as this is 8:00 am Central time which is when I start work. I was going to offer my services as scribe, since I am a peon and have nothing more to contribute (don’t know any muckety-mucks nor do I have access to them; just a workin’ class gal). I used to be a scribe when the union I worked for was in collective bargaining negotiations–I’m a fast typist and can take almost verbatim notes (a la court reporting). But I won’t have an answer until sometime tomorrow. I would suggest a couple of scribes, at any rate (we scribes need bathroom breaks–haha).

OuterBeltwayNovember 16th, 2008 at 4:12 pm

AJ:Tks for the offer to be scribe. I’d love to take you up on that, if you can swing it. I really, really hope you can find a way to attend. I think several people are going to be in your situation, and I’m feeling the pinch of that. We’ll figure out something. Meantime, if you can wangle a way to attend, that’d be super. Let me know. outerbeltway at yahoo dot com.

Wild BillNovember 16th, 2008 at 3:34 pm

Sign me up! I would like to discuss:*WPA-like government initiatives.*Government sponsored stimulus for entrepenours.

crgordonNovember 16th, 2008 at 5:14 pm

Would love to participate/listen in – have all day meeting set for Wednesday and may need to scoot before the hour is up. If that is problematic then will step back for someone who has the full hour to participate.

OuterBeltwayNovember 16th, 2008 at 5:56 pm

CRGordon:We have 96 slots available, and my guess is that we’ll have about 50 participants, give or take a few. There’s room for you. Join us.

lanceNovember 16th, 2008 at 8:39 pm

I would be delighted to participate. I believe that responses to the present crisis need to include the promotion of regional, self-organizing sysytems of production and distribution. My contemporaries are small farmers, fishermen, tradespeople, artisans and artists, who together can contribute to assuring a high quality of life.Connecting such people to the people on this blog may yield interesting results.

OuterBeltwayNovember 17th, 2008 at 7:41 am

Lance: I’m glad you made the point about “connecting communities”, and also about self-adapting regional production and distribution systems. The energy picture is going to have a direct impact on the viability of the world-wide supply chain. There’s also the personal life-values issue, which is implied with the “quality of life” phrase. This is the sociological dimension of the economic upheaval that’s not well understood. The group needs more insight into these trends and social forces. Welcome aboard.

WiseGuyNovember 17th, 2008 at 8:31 am

As long as I’m able to move some work around, I’ll still be able to take part in this. I hope to talk & listen to you all on Wednesday!

Mother of GodNovember 17th, 2008 at 9:17 am

This would be a long-distance call and would therefore require paying charges for an hour, am I correct? I am unable to participate if that is the case. Wish you were doing this through Skype, where up to a hundred people could speak for FREE (though Skype requires a broadband connection).Hate to miss it, but I doubt you will all be discussing the principles of pay justice anyway, and if you aren’t focused on fixing the root of the problem, which is extreme inequality/injustice guaranteed by humanity’s fatal attraction for allowing unlimited personal fortunes capitalism, then you’ll just be pulling leaves while the root of the problems grows faster than you can pull leaves…and that leads only to more hope-fatigue.Fail to see the whole whole, fail to get the first essential fundamentals right, fail to admit that overpay has nowhere to come from but from underpay, fail to make the crucial distinctions between self-earned wealth and other-earned wealth and between unlimited-fortunes captalism and pay-justice capitalism, fail to acknowledge only work creates wealth, fail to concede the pool of wealth is finite, fail to realize market forces shift the work one direction and wealth the other direction, fail to get jiggy with the fact that all working people are working at roughly the same level of sacrifice of time and energy, fail to internalize the truth that the primary LEGAL THEFT is inherent in the very nature of transaction itself, fail to notice and identify myriad LEGAL THEFTS and fail to recognize this theft causes the violence pollution in this world that kills more people than any other pollution, and fail therefore to fix pay-injustice……and you cannot fix ANYTHING.Then the world blows up because E=mc2 is NOT a fact subject to your emotive persuasion.

WiseGuyNovember 17th, 2008 at 10:48 am

Great points!It will make all the difference whether we focus our energies trying to work within the current economic/social/political paradigm — which, as you point out, would be just like “pulling leaves.”It appears that some people would be content to go from the obscene inequality we have today and return to the merely excessive inequality of years past. Either way, a large portion of the population on this planet loses.

Mother of GodNovember 17th, 2008 at 11:47 am

That’s the thing that nobody sees: the tiny drop of inequality that is INHERENT in EVERY transaction grows AUTOMATICALLY and EXPONENTIALLY into an ocean of extremely violent economic troughs and peaks – with or without human agency helping it along – which proves this is a simple MATH problem not a MORALITY failure in the exchange – and so any sane species will install a mechanism to correct for the fact that money (and money is power) concentrates ENDLESSLY and violently if you don’t clip the peaks and dump them into the troughs to make smooth sailing for EVERYONE.The purpose of life is TO BE HAPPY. How how how very much much much total human happiness has been sacrificed by being soft on pay-injustice?Justice is not a cost: Justice is a virtue essential for happiness. Lift the skirts of pay-justice and find a Golden Age of peace and plenty and happiness and survival.The investment in pay-justice – which is the most important justice – will pay dividends beyond our wildest dreams.

WiseGuyNovember 17th, 2008 at 1:07 pm

We are in overall agreement, MOG.I might take issue with your statement that “the purpose of life is to be happy,” though. However, I assume your definition of “happiness” is broader than simply the self-centered definition that comes to my mind.Thanks, again, for your insights!

Miss ItalyNovember 17th, 2008 at 4:06 pm

I will join. I hope we can put on the agenda the possibility for a public debate that I’m trying to organize in New York City and which all bloggers and contributors are welcome to join (see my post below). I hope this can get some support. Thanks

OuterBeltwayNovember 17th, 2008 at 4:57 pm

Miss Italy: This is a great idea. The agenda for this Wednesday’s meeting is already set, but I’ve proposed a sub-group that is responsible for “events” like debates and presentations. If you get on the Events sub-group, that would give you the platform you’re looking for to champion your cause.

RedCreekNovember 16th, 2008 at 11:37 am

Interesting article: 28, 2008Hardships Past Haunt Europe’s Search for Financial SafetyBy KATRIN BENNHOLDCliff Serna for the International Herald TribuneGert Heinz, a tax adviser, has stored six months of rice, sugar, flour and a brand of powdered milk that can last 50 years. He examined his stock amid canned goods in his basement.“I haven’t forgotten history,” says Gert Heinz, a tax adviser in Munich. “If you depend on paper money you can lose everything. We’ve learned that the hard way after two world wars.”So when Chancellor Angela Merkel went on television recently to tell Germans that their bank accounts were safe, Mr. Heinz, who at 68 still remembers the rows of canned food that his mother hoarded in the attic, decided he would rather be safe than sorry.He converted a chunk of his savings into gold, as he had done before, and stocked up on a six-month supply of rice, sugar, flour and a special brand of powdered milk that lasts 50 years.Mr. Heinz may be an extreme example, but he is not alone. As Europeans grasp for security in the face of a financial storm that — at least so far — has affected them much less directly than it has many Americans, they are reflecting the history of their tortured continent that has weathered wars, revolutions and financial crises over the centuries.In America, wealth and retirement savings are much more tied up in the stock market, with a majority of people owning at least a modest stake. By contrast, only 13 percent of German households and 24 percent of French ones own shares, according to 2006 figures compiled by the European Savings Institute.Pensions are still largely state-dependent, not 401(k)-style investment accounts. Even when it comes to the British, who look more like Americans in terms of credit card debt and mortgage exposure, only about 20 percent of them have invested in the market.But history teaches Europeans that situations can go from bad to perilous in no time, and there is a long tradition of burying the family’s treasures in troubled times.Today, tales of people taking money out of banks to keep it somewhere else are circulating in Paris bistros and London pubs. Companies selling or renting safes are reporting an increase in demand, though hard numbers are difficult to establish.“History matters. In times of crisis you really get to know a country and its people,” said Toni Pierenkemper, a professor of economic history at the University of Cologne. “Traumatic events are seared into the collective consciousness and often survive into the next generations.”Germany, where many people lost their savings twice in the 20th century, is one of the richest laboratories of European historical scars — welts that help explain the country’s fears of inflation and its interest in maintaining a complex public-private banking system.The network of 446 publicly owned savings banks, which have been guaranteeing their deposits for three decades, have proved popular in recent weeks as nervous Germans moved part of their savings onto their books.Even more striking, an overwhelming surge in the demand for gold has forced several Internet sites and gold vendors to temporarily shut down their sales operations.“I’ve never seen anything like this. We’re basically sold out until the end of the year,” said Robert Hartmann, co-founder of ProAurum, a gold vendor based in Munich.Despite the shortages, about 200 customers line up at his counter every day, he said, asking for coins and bars, not certificates. According to his estimates, “only about 5 percent of German investors” are interested in converting a small part of their savings to gold, “but it’s enough to put suppliers under strain.”Mr. Heinz, the financial adviser, started diversifying his investments in the run-up to the 1992 recession. He has bought land and gradually built up a stock of gold, which he buys in small units, suitable as emergency payment, and keeps in a safe at a specialized company.He still remembers the stories his grandfather told of a suitcase full of bank notes buying no more than a loaf of bread during hyperinflation in 1923 Germany. He also remembers the currency changes of 1948 that again wiped out savings.Some of his clients share his fears.He tells of one who dropped a vacuum-sealed sack filled with gold and silver to the bed of a lake, in case the government were to levy an additional tax on wealth or try to ban households from owning gold. Another has buried his riches in a forest. All of them think that it is just a matter of time until another wave of inflation erodes the value of money.In France, gold sales have also increased, but people are more trusting of the government.The entire French banking system was state-owned as recently as 1987, and the state has played a prominent role in the economy since the days of Louis XIV.In contrast to the unease and suspicion among most Americans about the government’s taking stakes in distressed financial institutions, many people in France feel comforted — even vindicated — in their belief that the state has a responsibility to look after the economy.“We nationalize, we denationalize and we re-nationalize. That’s the way it goes in France,” quipped Bernard Candiard, director-general of Crédit Municipal de Paris, a 231-year-old pawnshop that is doing brisk business these days and is a state monopoly.“Today we are again in the process of nationalizing banks,” Mr. Candiard said. “It’s a sign to the people. The government wants to give them confidence. And confidence in France is the state. We have a different tradition from America.”In Eastern Europe, where people were hardened by modest living standards under communism, the trust in government is more limited.In Bulgaria, for example, more people are looking at moving their money to Western European banks that offer an unlimited deposit guarantee, said Adriana Alexandrova, a financial executive at the TV2 television station in Sofia.“There is a great lack of confidence in the banks and in the government,” said Ms. Alexandrova, whose parents had to close their pharmacy business after several Bulgarian banks collapsed in the mid-1990s. “Several of my friends have moved their money to safes.”The phrase “he likes gardening” has a double meaning in Bulgaria, she added. “Under communism it mainly meant people preparing jars of pickled vegetables to get them through the winter. These days, it mainly means someone is hiding money in their garden or under their pillow.”

bythewayNovember 16th, 2008 at 12:07 pm

OTC-Casino wächst weiter(the OTC-casino growth continues) speculation goes on and reaches 683,7 bil$.They dont stop the game until all goes bust and draw us all down to hell.

blindmanNovember 16th, 2008 at 12:51 pm

dr.,i imagine you are a busy man but perhaps you could compose a compendium synopsis along the lines of “twenty reasons why the u.s. producer capitulated.”? maybe it’s the same list as every dollar of consumption correlates to every dollar of production? no?is the imbalance of trade the real u.s. problem? after all, over consumption may feel good momentarily but is not sustainable or healthy for anyone so it doesn’t make any sense to attempt to sustain that or characterize it as status quo.could globalization justify leveraging to a degree previously understood to be unsustainable? apparently many people think it does. ????

MichaelNovember 16th, 2008 at 1:51 pm

How does consumer deflation offset the ominous signs of hyperinflation? The Federal Reserve is expanding the money supply at incomprehensible levels. The US government is extending loans to every major corporation. I fail to see how deflation caused by a consumer retraction will offset the increase in the money supply. If anything I would think that a deflationary period will exacerbate inflationary pressures.I guess my confusion comes from my belief that inflation is caused by an increase in money supply. I understand that Friedman is more intelligent than me but I think experience has shown that his policies are inherently flawed and have failed in every real world experience.Also, about a month ago I wrote that China would enter a major recession. I am sadly vindicated. I’d like to add that I think China will go through a revolutionary period. The Chinese have a historic tension between the coast and interior. Whenever the coast gains too much prosperity the interior rises up and takes them down a peg. China’s environmental problems will hasten this process.Feel free to e-mail me with any suggested reading.

PeteCANovember 16th, 2008 at 2:38 pm

Michael: The Fed is transferring a tremendous increase in money supply to US banks. But the money supply stops there – it is NOT being released to Main Street. And therefore, it is NOT making it into the mainstream US economy. The reason is because a huge number of US banks are tightening their lending standards, in response to rising loan defaults and deliquencies. Therefore, the Fed’s actions are stymied at this point. This is why you hear people say that the “Fed is pushing on as string”. And this is why you also hear lots of cries from Congressmen that “American banks MUST make money available” . But the Fed money policy is ineffective in reaching anyone at this stage – except the banks. Meanwhile, the banks are absorbing tremendous injections of liquidity from the Fed, or swapping bad assets for good assets, in an effort to repair their bad balance sheets (translation: they took on huge numbers of crummy loans for residential and commercial mortgages, and are now desperately trying to stay afloat by absorbing money from the Fed).Ultimately, if the US Gov’t wants to inject large amounts of “printed money” directly into the US economy they can always succeed. But they have not invoked those mechanisms yet.PeteCA

MarkNovember 17th, 2008 at 2:53 am

Or, perhaps, another way to look at it is that the Fed is handing out big erasers (or a lot of “white out”), which allows “chosen” institutions to erase bad debt on their books.

GuestNovember 17th, 2008 at 6:42 am

But eventually that money will be loaned out, whether or not it’s loaned to people in this country or companies investing in China is another story all together. Eventually the re-inflation will start I suspect it will show up in the price of oil and other commodities.

MarkNovember 18th, 2008 at 2:40 am

Not necessarily… we’ve got a contraction happening. What’s going on is that less and less money is in circulation because it’s being removed!The re-inflation that you mention won’t be bringing “back” anything. Inflation will “create” new money.I suspect that it’s all semantics… that’s what happens when everything is purely virtual (electronic bit manipulations).

MichaelNovember 19th, 2008 at 5:21 pm

PeteCA, thank you for the comment. I followed what you said and understand its implications but my problem with these discussions is that none are considering what will happen when foreign central banks are unable or unwilling to purchase US T Bills.The US Banksters are hoarding dollars but these dollars must be created through some mechanism. I understand that the fed is exchanging its clean paper for dirty paper but that dirty paper still remains. Honestly once it hits this level I’m lost. The only thing I understand is that the dollar is being destroyed by the Fed to protect the Banksters.

GuestNovember 16th, 2008 at 1:55 pm

Can someone explain to me why globalization is so important? We are constantly hearing it as being synonymous with words like freedom and liberty. Why is so critical that my grocery store offers oranges and apples grown half way around the world how does that make me more free? It sounds more like a system of absolute dependency, dependency on other people all the way around the world, dependency on lots of extra energy to bring those much needed products that I so dearly need to be free. Look at how dependent we’ve become to gigantic multi-national corporations and gigantic banks/governments gigantic everything. Is this freedom or extreme vulnerability?

PeteCANovember 16th, 2008 at 2:46 pm

Every time you buy something from WalMart, Target, or J.C. Penney you are receiving direct benefits from globalization. Why do you think that prices are so low at Wal Mart? It’s not because all those goods were made by Americans. If they were – you’d be paying a lot more for everything. But many US jobs have been outsourced to China (as one example), and the payback is that you get a lot of goods made by workers who are paid low Chinese wages. So Americans have been reaping the payoffs from globalization for years and years. Can we dump globalization? Yep, we sure can. But you can expect everything in WalMart to cost a LOT more than it does now i.e. that option takes us directly to much higher price inflation in America. I am not defending globalization or arguing against it. I’m just pointing out that America lives in an interconnected world, and we can’t avoid that.PeteCA

GuestNovember 16th, 2008 at 2:48 pm

You’re right. It’s a system to prevent self sufficiency, and to ensure our jobs are not safe either. To turn neighbor against neighbor.It’s backwards-talk. When they say freedom, assume for you and me it means slavery.

MarkNovember 17th, 2008 at 2:58 am

Yup.Globalization was/is merely the creation of a big Kyhber Pass: forcing trade to be routed through the hands of the few, hands which are extracting a take.All made available by cheap energy/oil. This scheme was destined to run out.

GuestNovember 16th, 2008 at 1:57 pm

‘Trust me, I’m a doctor,’ says Gordon Brown, but it is he who should trust us

AnonymousNovember 16th, 2008 at 2:50 pm

The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America , food riots and tax rebellions – all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.“We’re going to see the end of the retail Christmas….we’re going to see a fundamental shift take place….putting food on the table is going to be more important that putting gifts under the Christmas tree,” said Celente, adding that the situation would be “worse than the great depression”.“ America ’s going to go through a transition the likes of which no one is prepared for,” said Celente, noting that people’s refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis., who successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as “The Panic of 2008,” adding that “giants (would) tumble to their deaths,” which is exactly what we have witnessed with the collapse of Lehman Brothers, Bear Stearns and others. He also said that the dollar would eventually be devalued by as much as 90 per cent.The consequence of what we have seen unfold this year would lead to a lowering in living standards, Celente predicted a year ago, which is also being borne out by plummeting retail sales figures.The prospect of revolution was a concept echoed by a British Ministry of Defence report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, “The world’s middle classes might unite, using access to knowledge, resources and skills to shape transnational processes in their own class interest,” and that, “The middle classes could become a revolutionary class.”In a separate recent interview, Celente went further on the subject of revolution in America .“There will be a revolution in this country,” he said. “It’s not going to come yet, but it’s going to come down the line and we’re going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen.”“The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop.”“It’s going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more.”“We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to. It’s going to come as a shock and with it, there’s going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last (1929) Depression, [there were many factors that mitigated the impact of the financial collapse, and those factors do not exist now].”

EdgarCayceNovember 16th, 2008 at 4:41 pm

Is this the Depression porn thing someone mentioned above? How ’bout his predictions that didn’t come true, any of those?

CHRIS DAVISNovember 16th, 2008 at 5:00 pm

Forecasts such as these are often a sign that we are reaching a bottom. To suggest that the US will suddenly become a third world country because the consumer debt to GNP ratio is excessive due to a temporary oversupply of residential housing units is ludicrous. Has anyone ever visited the favellas of Rio? the barrios of Caracas? the slums of Jakarta? Haiti? Congo? No?Btw the takeup rate for residential housing is 1.2m units per year. Also,just because Paulson was too stupid to implement a mortgage payment relief program doesn’t mean his successor won’t and it’s effects are highly leveraged to the upside.Celente should study a similar crisis which occured in Sweden in 1992-1994 caused by credit bubble with ensuing severe recession, govt guarantees of debt, deposits & mortgages before he confuses misallocation of capital withcultural deconstruction. What garbage.

MarkNovember 17th, 2008 at 3:02 am

If you don’t believe that change can come quickly then a study of the collapse of the Soviet Union would be in order.Greatest debtor nation. Greatest consumer nation. A change in the housing market (which will NOT come) is but a sliver of the problem.

WiseGuyNovember 17th, 2008 at 8:53 am

While I enjoy a good ghost story as much as the next guy, the truth is that anyone claiming to have an accurate forecast at this point is, in my opinion, revealing their ignorance (or trying to sell a book).This situation will play out in ways that no one can possibly envision at this point.Maybe it’s my philosophy, but I still believe in free will — both collectively and individually. We still have the power to guide where the future goes (for better and worse).I think we sometimes confuse our economy with a true physical system. If a large asteroid was suddenly discovered heading for earth and would strike one day from now, I’d agree that no amount of free will could stop it. However, the economy is a human construct. It’s a system and encompasses various ways of looking at the world. As such, it can be changed.The future is not inevitable.

Octavio RichettaNovember 16th, 2008 at 2:53 pm

Via Angry Bear. Watch Obi in action… Lots of good ideas. Green energy is the next bubble:-)

PeteCANovember 16th, 2008 at 2:57 pm

G20 – What Happened Behind The Scenes ???From a top-level viewpoint, it looks like nothing came out of the recent G20 meeting. I’ve seen nothing substantial announced that would justify the airplane fares for all these global representatives. So was it just a waste of time? Maybe.But let’s face it … meetings aren’t held for no good reason. So what could be behind the scenes? Let me speculate that perhaps the US is contemplating a devaluation of the US dollar, and wanted to let world leaders know about that. I’ve got no direct evidence, but a dollar devaluation is a really logical step for the USA right now. And it’s not the kind of move that you want to advertise ahead of time – but it still has to be coordinated.We’ll see what happens.And by the way. G20 should have made major progress on establishing a replacement global currency for the dollar (most likely solution: a basket with a few major world currencies). The fact that G20 did not make a major announcement on this key issue represents a huge FAILING of the meeting, in my opinion. Like I said before … Lemmings wearing dark sunglasses.PeteCA

AnonymousNovember 16th, 2008 at 3:09 pm

Following your post PeteCA,When you go thruogh and listen to what Gerald Celente has predicted to happen, he has been predicting that there are going to be four major currencies in the world, Euro, USD, one Asian and one South American./Toby

PeteCANovember 16th, 2008 at 9:45 pm

Seems very plausible … yuan, euro, dollar and Brazilian real as the new basket of world currencies. All fully acceptable for purchase of global commodities. Question would be what to do about yen and ruble as viable alternatives … this is what the G20 should have thrashed out.PeteCA

Octavio RichettaNovember 16th, 2008 at 4:47 pm

Mish has the best take on the g20 meeting I’ve come accross: G-20 leaders, representing 90 percent of the world economy, blamed the crisis on investors who “sought higher yields without an adequate appreciation of the risks.”My Comment: Banks and brokerage packages sold poison apples. The G-20 is blaming those who bought poison apples not those who knowingly sold poison apples.RAOTFLMAO!

GuestNovember 16th, 2008 at 5:26 pm

Dr. Roubini, whoever selects your featured comments selected one that has a term that I consider vulgar. And I remember that vulgar and scatological language were words you used for removing a recent blogger. This word is both. If this word is now acceptable then the blog’s standards are a little too low for me. It’s bad enough that REG Monitor ignores such words on the blog: it’s another thing to feature them.Sondra

Octavio RichettaNovember 16th, 2008 at 5:47 pm

Wow! wat a buncha nice guys! Are we supposed to thank them?:-)Goldman Chief Blankfein, Top Executives to Forgo 2008 Bonuses

GuestNovember 16th, 2008 at 8:23 pm

In an era when hundreds of corporation executives consistently steal from their stockholders, Black is one of the very few to be convicted. The political ideas here are typical Black, soft-soap for political leaders and pretend predictions that front for the dangerous special interests he represents. And please, Black is not a conservative. Riding on a milk wagon so you can steal the milk doesn’t make you the milkman.

JLarkinNovember 16th, 2008 at 7:29 pm

Nouriel,Loved your comments explaining “pushing on a string” as it relates to inventory and a glut of housing and cars. In the 2001 tech bust, those of us in telecom saw that Cisco stopped ordering parts all of a sudden as they realized they had too much inventory. (Ironic, because they were supposed to have sophisticated ERP systems for inventory management.) Anyway, when Cisco stopped ordering materials, the glut spread down through the supply chain. This is like the roller skating game of crack the whip, when the leader makes a sudden turn, the further down you are in the supply chain, the more the turn is amplified. Each supplier in the supply chain stops ordering material, but the situation is multiplied further down the line. This is because the suppliers near the end of the line have less power than those near the front, so they are forced to hold more safety stock, keep more inventory on consignment for their customers, build up inventory months ahead of a slowdown, etc.Lately we are seeing the effects of no new residential building and car plants cutting back production. I look for many construction/automotive supplier company bankruptcies and hundreds of mid-cap company layoffs in the months ahead. This will sweep our manufacturing base like a storm, and hit China and Mexico as well. Virtually all industries participate in the automotive chain.

ditch diggerNovember 16th, 2008 at 8:07 pm

INFLATION or DEFLATION with increase or decrease in USD?THE NEW Administration plans on saving any company who employs 1000s of workers (auto, airlines, etc) and is ready to spend any amount of money necessary to do it!This is what the entire policy boils down to!

blindmanNovember 16th, 2008 at 8:34 pm

m,p, the thing is the fed was pulling our leg, not really pushing a string. the intent was always to try to make the banks or at least some banks solvent. the other thing is i don’t know that the u.s. consumer contracted so much as the u.s. consumer was cut off. if it is worth mentioning?we are in a not so funny place, maybe two different places at the same time for the first time in history? it seems we need more money in the hands of consumers to make the economy move but we need less money in the system to make the money we have worth more so the “foreign” investors won’t lose interest. the deleveraging process is the thing. so the trick will be to deflate some and take the lumps and inflate some to meet the deflation half way. then pray to something other than money. and set some limits on leverage, or put a label on the stuff, a warning tag so people know that they could be wiped out in pursuit of high yield. and do something to keep the speculators out of the lives of the ill, the young and the elderly. it is just cruel and civilized people should know better.really, lets get back to working and living. we will never be happy if we are constantly contemplating financial land mines. dismal art forms. just a thought.

Tom ZNovember 16th, 2008 at 9:44 pm

The following steps will go towards addressing a large part America’s financial problems:1) Overhaul entire financial structure, public and private, to reward creation of savings and equity using a non-debt based monetary system. Remove interest deductibility for all non-business loans including mortgages.2) Dissolve the Federal Reserve system and replace it with semi-fiat money system directly controlled by Congress.3) Limit the power to order military operations in foreign soils from the president. By a 2/3 majority, the Senate shall have the power to order the cessation of US military operations.4) Ban derivatives, swaps, and similar financial products with leverage greater than 10. All trades must be counter-party through clearing houses. Pass credit rating laws to certify agencies with violations under criminal code. Ban independent investment banks and insurance companies.And while I am at it, the US presidential system of government is obsolete. Name one country in the world who uses it. (Well, there is one – the Philippines, but that’s because it was a former colony. It is even more messed up then the US – military coups, impeachments aplanty.) Fact is NO country wants to use it. America should consider switching to a parliamentary system and shorten it’s election from 2 years to 2 months.

PeteCANovember 16th, 2008 at 9:57 pm

Bloomberg news quoting president-elect Obama on Nov 16’th …—————–“The government will do “whatever it takes” to revive the economy, Obama said. That means “we shouldn’t worry about the deficit next year or even the year after,” he said, adding that in the short term, “the most important thing is that we avoid a deepening recession.” “—————–Looks like Obama’s economists are not quite giving him the real scoop on the US economy. We’re already in a deep recession. What else do you call things – when Detroit is imploding and needs critical life suport??? But his comments are quite informative – in terms of what we can expect in 2009. Literally “we shouldn’t worry about the deficit next year”. Talk about a recipe for monetary inflation, rising interest rates (collapse in US bonds), and a collapse of the US dollar. The path is being laid out for us here.PeteCA

GuestNovember 16th, 2008 at 10:53 pm

After the recession of 1991, Bush 1 went to Iraq.After the recession of 2001/02, Bush 2 went to Iraq.After the recession of 2007/08, to be continued… but I am wondering what will be the “whatever it takes” this time…

GuestNovember 16th, 2008 at 11:08 pm

Well, anyone who reads and posts on this blog could already see the path; the rocky terrain, eventually leading into a bottomless pit. The difference is that now they’re installing runway lights, all the better to guide us into this disastrous crash landing.

GSMNovember 17th, 2008 at 1:18 am

The US hasn’t worried about it’s deficit for nearly a decade so what’s another year or 2? Notably however, here you have a kindred spirit to Ben bernanke. “Whatever it takes” seems to me to be a very loaded premise coming from an incoming US Presiedent elect. This fits well with Ben’s proposition that the Fed has the ability to impart reflation through use of the printing press.That said, for at least into 2010 Obama clearly intends to spend his way out of this mess. And spend big. I’m betting Trillions- he will go for broke on this because he knows that if the economy has not significantly improved come the next election then a 2nd term is that much more harder to attain. He will need to spend in vast sums in order to overcome the tsunami of financial destruction already well underway.

GuestNovember 17th, 2008 at 12:03 am

peteca,we need monetary inflation desperately to put the base under the pyramidic cupola that was formed by mr. lee’s theoretic model that justified the existence of derivatives. am i on the right page here? good chance not? don’t worry about inflation, let newt gingritch do that. the u.s. dollar will collapse in 1913 and no sooner. where is paul warburg when you need him?obama is intelligent and in power. you have to feel good about that. it has been a long time.remember, fiat currency among fiat currencies. leveraging didn’t bother ubs or j.p morgan or china or russia or citibank, or just about anybody else, but you and me.our shadow bankers have simply created a mess that will destroy themselves and the financial climate. we either let it go and see what is left to scavenge or we meet the fraud halfway by pumping money into the base of their pyramid so the cupola does not collapse. does this make any sense to you? have i lost my mind entirely?would you prefer 30 percent unemployment?i doubt it. you sound like a good man. just more sand in the gears. have a wonderful evening.

MorbidNovember 17th, 2008 at 6:50 am

God’s With Feet of ClayObi has this huge “save us” projection by 53% of the Americans and others in the world. He is no “savior” – he even admitted he was not born in a manger. If Obi does one thing in his presidency I hope it is to extract us out of Iraq and Afag. Our constitution does not encourage us to be the World Cop. Close the 141 foreign bases, pull all the troops home and let the rest of the world deal with their own shit.What we are seeing are the desperate acts of men with clay feet – so many – all hoping to avoid the pain, avoid accepting that the party is over and now we have to pay the bill. But Camelot runs strong in Obi’s blood as it did in JFK’s – Utopia is just around the corner – health care is a right – give me a break. Life is tough and rolling the dice for ever higher stakes to stave off the inevitable is just putting more nails in the coffin.

GuestNovember 16th, 2008 at 11:57 pm

Let’s sum this up easily.There are two problems.1) TOO MUCH DEBT for the lower and middle class and the gov’t is getting there too.2) NEGATIVE real earnings growth for the lower and middle class.Who has MOST of the positive real earnings growth, the least debt, and owns most of the debt? THE SPOILED AND RICH who are exploiting an oversupplied labor market.

Red SmalesNovember 17th, 2008 at 12:36 am

So find ways to unite the proletariat. There is so much division and diabolical distraction, it’s nearly impossible to get anyone to pay attention and discuss the facts of classism. That will only change if there is a sustainable collapse. If not, enough concessions will be made to keep the middle and upper classes playing the game. A permanent under class has already been established and continues to ‘thrive’. Try to inform and be of service to them.

MorbidNovember 17th, 2008 at 6:58 am

Sustainable CollapseAll that we have known is at an end. Structures that have supported our world will soon not be there anymore. This is THE WASTELAND T.S. Eliot wrote about – that heap of broken images.

ABNovember 17th, 2008 at 5:48 am

Plenty of doom and gloom on this blog. Can I suggest a few positive points just for a change.- The US has outsourced manufacturing to Japan and China. However, this also includes unemployment, unemployment benefits, and workers social security- Any country that wishes to have an export driven economy (to the US) has to effectively capitalise the US dollar (by holding dollars or US debt). If they try to convert US dollars to their currency, it appreciates, and they no longer price competitively.- Presumably, the US has outsourced lower margin products and kept higher margin services. Relatively speaking consumers should continue to buy services in a downturn and cut off spending on products quickly. This means more unemployment in foreign countries and less in the US- The US still have many industries that manufacture and export to the world including defense, aircraft, technology, education, software, and soft commodities. Don’t sell these short, they are great high margin business’s.- If the US dollar falls 20-30%, all the global US companies (the list is massive) will be exporting 20-30% more profits back to the USA.- If the US dollar falls 20-30% against the Yuan, many good manufacturing business’s will get rebuilt in the US over time. Its a virtual certainty this will happen with the current imbalance in China’s holdings of US dollars and the needs of their own country. Also, a 20% fall means they receive back only 80% of what they paid in their own currency. They hold all the currency risk.- If US consumer spending goes down $1t, and the Chinese stop buying US Treasuries, well, there’s another $1T that US citizens have saved and can use to buy treasuries.- The Japanese can no longer export to the USA profitably at current exchange rates. They now must choose to start buying American goods/services, or take pay cuts to reduce manufacturing costs.I’m pointing out that the US is in a very good position globally and if other countries don’t buy their access to the US economy, they will wither and the US will be back on top. I’m looking for China to be entering its Great Depression over the coming 12m, not the US.Hope this puts a small smile on a couple of faces!

GuestNovember 17th, 2008 at 6:15 am

“Don’t sell these short, they are great high margin business’s.”This is the problem all of our exports at this point are high margin which is another way of saying the lion share of profits don’t go to employees. Unfortunately this does not help our economy like one might think. It is great for shareholders and upper management but those people are so few that it doesn’t generate enough economic activity. We need low margin exports or shared profit exports to create jobs.

GuestNovember 17th, 2008 at 6:24 am

This is why the big 3 are so critical to our nation because those companies have extremely low profit margins as their employee costs are high. Everyone judges a company on their profit margins as to their importance but the opposite is true low margin companies with high employee costs create the greatest benefit to society. Many people with high levels of credentials unfortunately don’t seem to understand this. Like no matter how high your position or title is regardless of how prestigious your degree is the emperor wears no clothes seems to apply to our most suspiciously informed and well connected citizens.

MarkNovember 17th, 2008 at 6:25 am

If US consumer spending goes down $1t, and the Chinese stop buying US Treasuries, well, there’s another $1T that US citizens have saved and can use to buy treasuries.This ignores the fact that the US “consumer” is massively in debt. Any such reduction in spending will go toward paying down debt, which, unfortunately, means that, in a 70% consumption-driven economy only further pushes things negative.Ah, but it was such a nice try at putting lipstick on the pig 🙂

ORNovember 17th, 2008 at 8:01 am

All the points you make are good ones. However, your views are arguments that just soften a bit the consequences of the biggest debt bubble burst of all times!

ABNovember 17th, 2008 at 6:34 am

exports may be high margin, but if the US currency devalues by 20%, low margin exports to the US will no longer be profitably, really, thats all it will take

AnonymousNovember 17th, 2008 at 7:12 am

If the US currency devalues by 20%, then how will Americans keep paying for rent, mortgage, healthcare, education, food, utilities, insurance, etc. Will those all go down by 210% also???

ABNovember 17th, 2008 at 7:45 pm

USD devaluation only effects the prices of imported goods (they go up). Products and services sourced in the US don’t change in price unless their is a foreign component. As prices for foreign goods go up, US companies will find a cheaper way to produce them in the USA.

GuestNovember 17th, 2008 at 6:59 am

Last week I heard one commentator suggest that there’s no such thing as a triple bottom e.g. the next test will go straight through – looking at the 8:00 am futures Dow (-191) and S&P (-17) – it will be interesting to see if he’s correct.

MarkNovember 17th, 2008 at 7:06 am

Where did you come up with these numbers? I’ve been watching them for hours now and the lowest that the DOW has been was around 92 pts (down): currently it’s down 55 pts.

GuestNovember 17th, 2008 at 7:28 am

You need to factor in fair value, which is currently 112 points above the Friday close. So even with Dow futures down 68 – they are 180 below fair value. If you look at Bloomberg (time delay) you will see Dow closed Friday at 8497 but if you look at futures they are saying -54 yet they are showing 8317 as the value e.g. they are factoring in fair’s a link that explains the concept

GuestNovember 17th, 2008 at 10:43 am

The commentator that I think you are referring to is Jeff Macke, who is a “fast money trader” and also writes for Minyanville. He is/has been right about a lot, so his words are worth consideration. I heard his comment too and agreed with them then and now.

Octavio RichettaNovember 17th, 2008 at 7:39 am

I am sure investment gurus think they look kinda cool by saying that in investing, they ignore the economic cycle ad that timing the market is a fools game. This strategy certainly worked well in the 1980-2000, the greatest bull market of all times but after the tech bubble burst and now with the double bubble burst stocks + housing and a deep recession the likes of which have not been seen since the depression. IMHO, it is silly to say that in investing now one should ignore the economic cycle. I honestly believe that fine-tuning one’s investment strategy via the work of the guys at ECRI is likely to generate excess adjusted returns. Not everybody follows these guys and that is actually following them is still likely to work.I just read the latest Hussman piece and even though he keeps drilling these points across. An easy, straightforward conclusion from his analysis is that we haven’t seen the bottom of this yet. He specifically mentions that the depression market bottom didn’t happen until 1931! That was a full 2 years after the crash of 1929. It seems to me that right now we are more like in late 1929 than 1931. I am not a big fan of technical analysis but look at this chart and honestly ask yourself if a bottom is in place/downside risk in equities is limited.^dji;range=my;compare=^ixic+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

MarkNovember 17th, 2008 at 8:03 am

The Dow’s low following the dot-com downturn was 7,591 on July 1, 2002. That’s about 10% lower than where we’re at now, which is clearly a lot rougher time. My conclusion: it’s easily going to go below 7,000.

Miss ItalyNovember 17th, 2008 at 8:51 am

To Rich Hartmann in particular and to all the other bloggers:I’ve contacted a person in NYC who is affiliated with the Italian Democratic Party. The only reason being is he is the only one I know that have the capability to organize a public debate where a group of bloggers and collaborators of RGE monitor could participate.I’m just trying to have and give people here access to a larger audience. The fact that he’s involved in a political activity is, again, just because he’s the only one I kow that could do something like this and I hope that politics won’t be part of this work. He is also interested in bringing sound ecomomic informations as opposed to the bad ones on the main channels.I hope we can use the conf call on Wednesday to bring ideas and put this activity on the to do list. For Rich and bloggers in New York, or that are willing to join, please prepare a possible discussion subject that we could cover.He’s name is Gianluca Galletto. Again I don’t really know him personally, but just because of joining a couple of debates he organized. What I did is I contacted him and was successfull in interesting him on a possbile activity in divulgating point of views of the bloggers and collaborators of this website.Prof Roubini, if you think that this is not convenient and contrary to the spirit of the blog, please let me know and we can try to organize personally. My e-mail is:, I hope a few will be interested and we can use this place to build a coherent proposal to send to Gianluca, and I hope we can already discuss it this Wed on the conf call.

PeteCANovember 17th, 2008 at 9:11 am

Nov 17’thNew York manufacturing down to worst figure on record (since data started in 2001).”By Shobhana ChandraNov. 17 (Bloomberg) — Manufacturing in New York contracted in November at the fastest pace on record as orders and sales plunged.The Federal Reserve Bank of New York’s general economic index fell to minus 25.4, the lowest since records began in 2001, from minus 24.6 percent in October, the bank said today. Readings below zero for the Empire State index signal manufacturing activity is shrinking.Factories are trimming production as banks restrict lending, worsening the economic slump that may be the longest in decades. A slide in overseas demand is also slowing American exports, which were helping manufacturers cushion the slide in U.S. sales.“It’s almost like a snowballing effect as we’re starting to see the manufacturing numbers get worse,” said Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, who had forecast the Empire index would drop to minus 25. “We expect sharp declines with a slow recovery from this recession.” “Note the comment … snowballing effect.That is exactly the danger – right there.Collapse in credit leads to reduction in economy and rise in unemployment.Which feeds back to a bigger collapse in credit.The operative word is snowball.PeteCA

AnonymousNovember 17th, 2008 at 9:21 am

Posted before, take a crash course in the basics of the Economics, Energy and Environmental situation and explore some of the facts given to you.You need to evaluate the information and truely question whatever is presented to you.In the end, it is your call!/Toby

MarkNovember 18th, 2008 at 2:54 am

What a hoot! Thanks!Here’s a hyperlink:“”Loved this part:If nothing else, giving the TARP money to me removes the unreliable middleman from the equation. Whatever of the first $5 billion I cannot spend myself, I will give to my wife and children, and maybe also to a dissolute uncle. You’ll be happy to know that we Lewises consume avidly but seldom shrewdly. When it comes to finding a bad deal — good for the seller, good for America — there’s really no one on the planet better than my wife.

Mother of GodNovember 17th, 2008 at 9:28 am

I posted this above, but figure it may get lost up there, so here it is again. Will someone please confirm that the phone conference-call would require payment of long-distance charges…or correct my mistake in thinking it would? Thanks.repost: This would be a long-distance call and would therefore require paying charges for an hour, am I correct? I am unable to participate if that is the case. Wish you were doing this through Skype, where up to a hundred people could speak for FREE (though Skype requires a broadband connection).Hate to miss it, but I doubt you will all be discussing the principles of pay justice anyway, and if you aren’t focused on fixing the root of the problem, which is extreme inequality/injustice guaranteed by humanity’s fatal attraction for allowing unlimited personal fortunes capitalism, then you’ll just be pulling leaves while the root of the problems grows faster than you can pull leaves…and that leads only to more hope-fatigue.Fail to see the whole whole, fail to get the first essential fundamentals right, fail to admit that overpay has nowhere to come from but from underpay, fail to make the crucial distinctions between self-earned wealth and other-earned wealth and between unlimited-fortunes captalism and pay-justice capitalism, fail to acknowledge only work creates wealth, fail to concede the pool of wealth is finite, fail to realize market forces shift the work one direction and wealth the other direction, fail to get jiggy with the fact that all working people are working at roughly the same level of sacrifice of time and energy, fail to internalize the truth that the primary LEGAL THEFT is inherent in the very nature of transaction itself, fail to notice and identify myriad LEGAL THEFTS and fail to recognize this theft causes the violence pollution in this world that kills more people than any other pollution, and fail therefore to fix pay-injustice……and you cannot fix ANYTHING.Then the world blows up because E=mc2 is NOT a fact subject to your emotive persuasion.

OuterBeltwayNovember 17th, 2008 at 10:12 am

M.O.G.:Yes, participants are responsible for LD charges. If you use SkypeOut, I believe their rates are about 2.2c per minute, in which case it would cost you about $1.30 to join us.I explored the possibility of using Skype (first option, recommended by LB), but opted for phone-network conf call because some people don’t have broadband. That’s the balance I struck: $1.30 per person more in order to include people that don’t have broadband.Compromises. Annoying but necessary.Now, about that post of yours. I think you are somewhere between 5-10 years ahead of your time, M.O.G. A lot of the ideas you have will (with proper re-packaging and transfer-of-originator) be taken up by the “leadership” some years from today.You may be able to influence the take-up rate of your ideas, though. During the conference call series I expect to set out some tools before the group that you may find very interesting as you seek to influence the course of the West’s economic development.I suggest you consider that $1.30 investment in light of what this conference call series may develop into.In subsequent conference calls I wonder if we might set up a debate. Let’s pit the “ahead of their times” crowd .vs. the “what’s achievable now” team to debate the best means to incorporate advanced thinking into the stolid, clay-footed, ossified bungling that passes for economic development in our day.Conference calls open a new world of possibilities, don’t you think?$1.30 = 1 slice of pizza. Think outside the bun.

OuterBeltwayNovember 17th, 2008 at 11:08 am

PhilW: There’s a post up-thread that sets out the details. Don’t forget to add in your two “here’s what’s important to me” bullet points.

Mother of GodNovember 17th, 2008 at 11:07 am

Thanks for replying, OB. I’ve never purchased anything from Skype (but have made an especial effort to give them lots of (deserved, imo!) Good Word-of-mouth) …but I’ll check into buying some time from the SkypeOut thang. I hadn’t even conjured up that possibility (she said, though she was a tad embarrassed to admit to such a glaring oversight, har har)A big YES AGREE to conference calls enabling new possibilities: As a matter of fact, I am firmly convinced (by observation and evidence) that ONLY – and I mean ONLY a grassroots growth in awareness and maturity and clarity in the people can save us now. What is required is cold, hard reasoning, careful, unbiased re-thinking down to the bedrock fundamentals of life and of economics, the willingness to hunt down our errors in thinking, the willingness of this species to put their most cherished mistakes in thinking before a cross-examining tribunal of their wits.It is not yet time for other actions, not while the majority general consciousness still mis-thinkingly prefers overpayunderpay, but it is waaay past time for the action of educating ourselves and each other to the relationship between survival-and-happiness and stopping paying people for things thatARENOTWORK.I am also convinced that WEare in a GLOBALOCAL EMERGENCYand we HAVE NO RIGHTto waste time seeking agreement on answers to all the wrong questions.

Free TibetNovember 17th, 2008 at 11:17 am

“ONLY a grassroots growth in awareness and maturity and clarity in the people can save us now….”Yes. See below. That’s what I meant.

Forensic economistNovember 18th, 2008 at 11:12 am

Sorry, too early for me to join from the West Coast. The kids will getting dragged out of bed and sent complaining to school at that time. I suppose I could tell them it was more educational than anything else they are learning in 8th & 9th grades.I want to give a big thank you to OB for setting this up.Look forward to hearing about the results on this board.

Free TibetNovember 17th, 2008 at 10:58 am

That’s ambitious. What are you going to do? Wait until the second coming? Baby steps please. Baby steps.The solution has to be bottom up. Or as Kennedy put it, (more or less) “until the return of our saviour God’s work is in our hands.”

Mother of GodNovember 17th, 2008 at 12:01 pm

Will the epitaph of humanity be:”They thought they could choose which parts of reality to face”?The price of Democracy is Vigilance, but few can answer “Vigilance ABOUT WHAT?”It’s pay-justice or kablooey for this planet. Our geno-sadism can go too far…wether or not it’s tax deductable or Obama approves.

JamesNovember 17th, 2008 at 9:31 am

The Military-GOP industrial complex is trying to lock in high costs for the future as a way to limit the ability of the Obama administration to fund social or any other new programs. Basically, they are trying to sabotage our future for political purposes. This is more of the same by the so-called-conservatives who have been hell-bent on destruction of our government and economy.

MorbidNovember 17th, 2008 at 10:22 am

The MICHow many “workers” are involved in the MIC? Including troops, civilians working the bases, etc. Has got to be in the millions. If spending on the Defense Budget is cut 25% as Barney Frank would like to do (fine with me) how many out-of-work hit the streets?

MarkNovember 18th, 2008 at 2:58 am

And how many people around the globe WILL be able to work because THEIR businesses and homes wouldn’t be bombed? People who are actually PRODUCING something useful for their fellow humans (rather than something destructive).

ollerNovember 17th, 2008 at 9:38 am

I have not seen comment on how prescient LondonBanker’s last blog has been. Stories about cottonexports grinding to a halt and India’s emergency measures to maintain trade credit are tied to hisanalysis. I have been extremely impressed by hisintellect. What a great complement to the professor.

kilgoresNovember 17th, 2008 at 10:03 am

Agreed. LB’s 14 November blog entry was outstanding, and we are blessed to have the benefit of his knowledge and perspective.SWK

Alessandro - 17th, 2008 at 1:38 pm

SWK,which one of the London Bnaker post was not outstanding? ;)BTW: I read your brief self-portrait a couple of days back. You would be surprised how much I could use exactly your words as my own self-portrait as well. Really amazing.

GuestNovember 17th, 2008 at 9:38 am

ABCPMMMFLF Spells Fed Relief for JPMorgan, Citi Shadow BankingNov. 17 (Bloomberg) — The U.S. Federal Reserve’s emergency lending programs, intended to thaw commercial paper and money markets, are also helping banks limit losses from some of their $4 trillion in off-the-books guarantees and loan commitments.A Fed program to buy as much as $1.8 trillion of short-term debt from U.S. companies means they don’t have to tap backup credit lines provided by banks, which would have forced JPMorgan Chase & Co., Citigroup Inc. and other financial institutions to record the loans on their balance sheets and raise more capital. Another Fed program, with the acronym ABCPMMMFLF, aims to shore up the $1 trillion market for asset-backed commercial paper issued by off-the-books financing vehicles guaranteed by banks…

JimmyTheBankerNovember 17th, 2008 at 9:44 am

Today’s Indust. Prod numbers call for a 15% drop in earnings for 2009, not a 20% gain like the street i still pricing in. The S&P is headed for the 600’s my friends, it is that simple.

GuestNovember 17th, 2008 at 10:52 am

PPT!! PPT!! PPT! Dow about to change from Red to Green. They are not going ot let this fall apart, they just aren’t.

GuestNovember 17th, 2008 at 1:17 pm

Who’s keeping track of the $700 Billion? Also, is it true Semi truck loads of money was lost in Iraq?hlowe

GuestNovember 17th, 2008 at 10:59 am

S&P green now. Look at a daily chart of the S&P, talk about a rocket launch. What just got leaked to GOldman we don’t know yet?

JimmyTheBankerNovember 17th, 2008 at 11:53 am

Your dating yourself with that reply, you know that don’t you! And I guess I am dating myself as well becuase I know exactly where that comes from!

JJNovember 17th, 2008 at 12:03 pm

Why has our Country turned into a place where the people who havelived their lives the right way get nothing but the people who run uphigh credit card debt, mortgages they cannot afford, etc. get bailedout by the government? Is this great Country we live in now a placethat rewards bad behavior but punishes the people who try and livetheir lives the right way. I did not get a stimulus check last timeand bet I will get missed again. Is it FAIR that someone who is payingless in taxes than me is getting a check instead. Has this Countryfinally come to its end like the Roman Empire? Give me a DAMN breakalready. Where is my handout?

GuestNovember 17th, 2008 at 12:18 pm

Please be careful not to blame the poor/middle class it’s an easy scape goat and a very superficial explanation. Please dig deeper into the source of the problem and you will find that “fractional reserve banking” or at least an abuse of it plus a “free market/unregulated capitalistic agenda for the past 20 to 30 years that are the main culprits behind our demise. Follow the money trail and it leads to the Federal reserve system and banking cartel that have destroyed economic freedom and instead created a system of serfdom. Blaming the average Joe who took out mortgages or home equity lines of credit because they couldn’t find life sustaining work is very superficial. You’re right that we are like the falling Roman empire but it’s because of the same abusive usury that led to their demise as is leading to ours. Is it FAIR that the people receiving tax credits may not have enough food or shelter for their children while the so called deprived tax payers have ample food and shelter? I mean you can twist inequality any way you like but inequality is still inequality at least to someone who can see through superficiality.

GuestNovember 17th, 2008 at 12:30 pm

Please be careful with the not enough food and shelter bit. Been there and done that. People are MUCH better off now then times not all too long ago and those who are struggling have much better circumstances inspite of self inflicted ignorant greedy overconsumption.

GuestNovember 17th, 2008 at 12:39 pm

You have no idea come to Michigan and take a drive through Detroit, then try an get a job here and when the only thing you can find is $8 dollars an hour please explain to us all how you would be able to provide for yourself on that amount of money let alone take care of a family. Some people are living in their own private little worlds.

GuestNovember 17th, 2008 at 12:42 pm

When poverty is not on your daily driving route or not in your neighborhood you tend to believe it doesn’t exist.

Mother of GodNovember 17th, 2008 at 12:47 pm

The THIEVES are the ones with all the MONEY, yet the COMPLAINTS and BLAME get directed to working people who have been underpaid all their lives, who have never received equal pay for equal sacrifice, whilst emotive defenses of billionaires being in legal possession of unlimited amounts of other-earned wealth exist between the ears of billions who are underpaid.Utterly irrational. Complete Global Insanity.

MarkNovember 18th, 2008 at 3:14 am

In support of MOG’s comments:”If you are not careful, the newspapers will have you hating the people who are being oppressed and loving the people who are doing the oppressing.”- Malcolm X

GuestNovember 17th, 2008 at 12:40 pm

Your 2 comments are true both. Common sense is scarce and average people rarely understand the risk behind debt. And don’t count on politicians to regulate ; they usually make matters worse, especially during crisis.The reference to the Roman Empire is true also. Just have a look at the territory mouvements. It’s all about that. Europe and America were THE Global Empire. They broke of a few years ago. Since then their political power shrank. So did their economical power. History doesn’t repeat itself, but the mecanic of it does.

Mother of GodNovember 17th, 2008 at 12:57 pm

The Purpose of Government is JUSTICE. The State built on injustice CANNOT STAND. Every Empire has perished when and because inequality grew large. Roman and USA no difference, except now we have nuclear bombs that the violence caused by the ever-escalating inequality will touch off.Money makes money means money rakes and takes money means that the work that creates the products and services the money is token of is NOT making the money, hence someone is working, sacrificing time and energy, and his pay is being stolen off him and given to someone who didn’t do the work.And every theft, legal or not, comes with an angry person attached.The rich get richer and the poor get poorer means the rich get more and more pay for a unit of work and the poor get less and less pay for a unit of work.Do you want to live in a world full of angry people on a globe wired to blow, or do you believe in equal pay for equal sacrifice??There are no other choices.

JimmyTheBankerNovember 17th, 2008 at 12:26 pm

I am convinced, after today’s production numbers and its implications for earnings going forward, combined with the recent market swings, that we are in for a heap of market trouble shortly. These “clearing rallies”, and the crazy 1000 point ranges, tell me that several large “favored” or essential” institutions are not on the right side of what is to come and you are wittnessing them getting on the right side. Once they are positioned and have limited downside exposure, I think this gets very, very ugly. Just one mans opinion, be careful out there…

Jason BNovember 17th, 2008 at 12:29 pm

How shortly is shortly? How long does it take the favored institutions to get on the right side of what is to come? Days to unwind the positions? A week? A month?Thanks for sharing your insights.

GuestNovember 17th, 2008 at 12:31 pm

WLI Growth Falling at Fastest Pace in 60 YrsReutersNovember 14, 2008(Reuters) – NEW YORK, Nov 14 (Reuters) – A measure of future economic growth in the United States edged up in the previous week but its annualized growth rate set a fresh record low, indicating the U.S. economy is falling at its fastest pace in at least six decades, a research group said on Friday.The Economic Cycle Research Institute, a New York-based independent forecasting group, said the annualized growth rate of its Weekly Leading Index slid from minus 24.6 percent to negative 25.9 percent, its historic lowest, according to ECRI data recorded since January 1949.”With WLI growth continuing to plumb new lows, not only is no economic recovery on the horizon, but the economy is falling off a cliff at its fastest pace in at least six decades,” said Lakshman Achuthan, managing director at ECRI.But the index inched up 111.3 in the week to Nov. 7, from 110.8 in the previous period, initially reported as 110.9.The weekly index ticked up due to lower interest rates and higher stock prices, partly offset by weaker money supply growth and higher jobless claims, said Achuthan.No one speaks with more authority about the economy’s turning points.

GuestNovember 17th, 2008 at 12:39 pm

I think you are correct in your assessment. Meanwhile trying to trade this market is pure gambling. You think you have pattern identified and then you get today — when the market rallies 2 hours ahead of schedule and then rolls over.Here’s a good article about Peter Schiff

GuestNovember 17th, 2008 at 12:32 pm

Marc Cuban accused of insider trading, how dumb can you get he liquidates his whole position just before new stock offering. I know he’s not guilty of anything but lets say he is like maybe he could have sold 75% or something. Not that that would be honorable or anything but it just shows how untouchable someone in his position thinks he is. I’m rich I deserve it, you can’t touch me, and I’ll flaunt it to the world. Is this another microcosm or representation of how and why we’re sinking into a huge hole, we’re too many people getting away with too many things for a society to sustain?

GuestNovember 17th, 2008 at 12:48 pm

This is a civil action – what are the odds of a criminal proceeding like with Martha? She was sent up the river for obstruction and lying to investigators, but the more serious charges of securities fraud were dropped, all for 4,000 shares and avoidance of a $50k loss. This Mark Cuban is ten or twenty times the size.

GuestNovember 17th, 2008 at 2:35 pm

Um, lying to to investigators and making false statements are felonies. Period. Cuban hasn’t yet had a chance to make such statements. Should he, he’ll see the slammer as well.

ForkNovember 17th, 2008 at 4:47 pm

The admirable SEC’s outstandingly consistent, even handed, and thorough enforcement of all regulations, a model to be exalted and praised globally for decades to come, decision to regulate Mark Cuban (who some say is possessed by evil spirits) has absolutely nothing to do with the Mark’s recent website designed to track where all the bailout money is going:

GuestNovember 17th, 2008 at 6:18 pm

Should have known when do they go ever go after someone just like Eliot Spitzer when he started going up against Wall street. Mess with Wall Street and your messing with the dark force.

GuestNovember 17th, 2008 at 1:15 pm

PPT!!! Only they would have the kind of money it jsut took to wipe out losses in the indexes in minutes!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

GuestNovember 17th, 2008 at 1:34 pm

This PPT conspiracy stuff gets old on this site….it really detracts from the otherwise honest debate….give it a rest…

GuestNovember 17th, 2008 at 2:19 pm

I can only assume you do not subscribe to PPT theory. If we are to have an honest debate we require evidence, circumstantial or otherwise.

GuestNovember 17th, 2008 at 2:21 pm

In this bear market the big bulls have needed more than just regular sips of life-giving moneyed water from the taxpayer trough. With accelerating bad economic news and the smell of panic in the air, the bulls now need more than the bailouts.Every time the Dow begins to start its 1929 impressions, the bulls need a little boost from Executive Order 12631, established March 18, 1988. This presidential order established the “Working Group on Financial Markets.” For all its provisions, the bulls like the portions best that give four men the authority to use the federal treasury for “enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence.” Translation: these men, or their “designees” can buy as many equities secretly whenever they want, using every last penny in the Federal treasury.The four are treasury secretary Paulson, Fed chairman Ben Bernanke, SEC chairman Cox, and Commodity Futures Trading Commission chairman Bart Chilton.Pick any number you like on the roulette wheel but be advised, the “plunge protection team” is holding a magnet under the table.

GuestNovember 17th, 2008 at 1:54 pm

November 15, 2008WASHINGTON, D.C. – U.S. Senator Jim Inhofe (R-Okla.), in a letter to his Senate colleagues, laid out his plan to push for legislation that will require Secretary Paulson’s plan for the remaining $350 billion in authorized Troubled Asset Relief Program funds to be ratified by an affirmative vote in the U.S. Congress. In the letter, Senator Inhofe writes that the lame duck session provides Congress a tremendous opportunity to change course. Below is the text of the letter.Dear Colleague,I write to inform you of the actions I will be taking during the lame duck session of Congress regarding the funding status of the Troubled Asset Relief Program (TARP). Given the recent news about Secretary Paulson’s execution of the TARP program, I firmly believe action is required by Congress. I plan to push for legislation that will require Secretary Paulson’s plan for the remaining $350 billion in authorized TARP funds to be ratified by an affirmative vote in the U.S. Congress.In my statement opposing the Paulson Plan last month, I laid out two primary reasons why I voted ‘no.’ The first is that I wasn’t convinced that asset-purchase program was the right way to do this, and the second is that it would lead to increased lobbying for handouts and bailouts by any industry facing financial trouble.I stated at the time that my vote was against the Paulson plan – not against taking extraordinary action to provide necessary confidence to financial markets. I stated that “The Paulson plan would have Washington take $700 billion worth of toxic Wall Street assets from financial firms’ balance sheets and put them on the balance sheet of the federal government…. I’m not confident in its success.”The critics were right. On October 14th, in a significant shift, Treasury outlined a plan to directly purchase equity stakes in of major financial institutions. The Wall Street Journal noted that “critics…say Treasury should have formulated a comprehensive plan earlier in the crisis.” This past week, Secretary Paulson announced that he has completed a remarkable about face, as summarized by November 13th Investor’s Business Daily front page headline, which read, “In Major Reversal, Treasury Won’t Buy Bad Mortgage Debt.” This is a complete reversal. Why did Paulson reverse course? Thursday’s Los Angeles Times provides the answer. “Treasury Secretary Henry M. Paulson’s decision to abandon plans to buy troubled bank assets shows that he has come to two conclusions about what was once the chief focus of the government’s $700-billion bailout: The first is that it wouldn’t work.”I know many of you have serious concerns about how Secretary Paulson has executed the financial rescue program and I share them with you. Congress abdicated its Constitutional responsibility by signing a truly blank check over to the Treasury Secretary. However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.During the lame duck session, I will be taking the following actions. First and foremost, if Secretary Paulson submits his plan to Congress in order to access the remaining $350 billion while we are in session, a doubtful prospect, I plan to immediately introduce the disapproval resolution pursuant to Section 115 of the EESA and push for its enactment. I will also introduce and actively pursue enactment of legislation to do two things: First, it will amend Section 115 of the Emergency Economic Stabilization Act of 2008 (EESA) to require an affirmative vote on the part of Congress to approve Treasury’s plan for the remaining $350 billion, instead of the current statutory process which gives Secretary Paulson far too much latitude. Second, it will require a freeze on any remaining funds of the first $350 billion. It is imperative that we not allow that amount of money to be added to a deficit approaching $1 trillion this year without any input from the legislative branch.Secretary Paulson stated in a CNBC interview at 2:00pm on Friday, November 14th that “the financial markets have been stabilized.” If that is the case, it is Congress’s duty to have a say in what happens with the remaining authorized amount of $350 billion. It is clear that it was a mistake to sign a blank check to one man for such a tremendous amount of money. Though there are still significant challenges in financial markets, it appears that the threat of a catastrophic financial crisis, which was the justification for the grant of such sweeping authority, has subsided. Perhaps the additional $350 billion should not be added to the deficit. Congress should have a debate.I appreciate your time and attention to this matter and look forward to working with you in the coming week.Sincerely,Senator Jim Inhofe

GuestNovember 17th, 2008 at 3:36 pm

To be in favor of letting the second half of the Troubled Assets Relief Program (TARP) go through without a Congressional vote, is to favor taxation without representation. Representation would allow Congress to be put on record on whether they are opposed to the remaining bailout, or in favor of it. It’s one thing to oppose it: it’s another thing to show initiative and write a “Dear Colleague” letter as Sen. Inhofe has done.Those who favor spending the remainder of the $700 billion without vote, favor rubber stamp government which the private bankers favor, of course, as well as those members of Congress who want to help the lobbyists without the people back home getting involved. A lot has happened since the bailout bill was passed, specifically, that Paulson unilaterally changed its entire purpose. Also, a number of economic events have occurred since.This reminds me of how members of Congress handle their wage increases. It’s set up so that the increases go through automatically, UNLESS some unpopular member tries to force a vote.

AfANovember 17th, 2008 at 3:57 pm

I dunno. I just feel it won’t matter, after all.Even if they vote no, it will be just as if you put a credit card in the hands of a shopping addict.

GuestNovember 17th, 2008 at 2:27 pm

Thanks for posting this – if this gets bogged down in congress it’s back to those great days of early October or worse and could explain some of the market behavior of late.The GOP has nothing to lose in hanging Paulson out to dry – we will be in limbo until Jan 20 (or at least until a new Treas Secretary is chosen and makes known his/her intentions).

GuestNovember 17th, 2008 at 3:29 pm

What a joke. Rome burns and Washington fiddles.Will the markets give ObamaNation (abomination) a honeymoon wave.

GuestNovember 17th, 2008 at 3:18 pm

Rep. Bernie Sanders also is proposing that a vote be called again in the House that would allow a “no” vote on the remaining $350,000,000,000 bailout. I know he would have the support of Rep. Ron Paul and others, including we, the people. I appreciate Sen. Inhofe’s points: no one I know of but Congress would sign a blank check over to Treasury Secretary Paulson and the rest of the Goldman Sachs investment bankers who call the U.S. Treasury home.

GuestNovember 17th, 2008 at 4:05 pm

Did the vote for or against the initial bailout bill have any material effect on the results of the election? It seems that the same swine are more or less reemployeed.

GuestNovember 17th, 2008 at 5:41 pm

For We the People, being represented by Congress is a little like being represented by the March Hare in “Alice in Wonderland”:“Have some wine,” the March Hare said in an encouraging tone.Alice looked all round the table, but there was nothing on it but tea. “I don’t see any wine,” she remarked.“There isn’t any,” said the March Hare.

MarkNovember 18th, 2008 at 3:22 am

Didn’t this clown vote for the $700+ billion to begin with? Even commoners like us KNEW that this was a bad thing, to hand over a blank check. But now this clown and others (mainly GOPers) who have done their part to pass money to the rich bankers are NOW? going to clamp down?Moral f*#king hazard!

John E.D.P. MalinNovember 17th, 2008 at 4:00 pm

Senator Inhofe is too deficient in mathematical competence to write a letter to Treasury; he lacks mental competence and academic training to weigh in on this extremely important issue.

Octavio RichettaNovember 17th, 2008 at 4:03 pm

Inflation or deflation?by Martin Hutchinson November 17, 2008! This guy has got it all figured out! I wonder where he bought his crystal ball. I want one of those too!

BrianNovember 17th, 2008 at 6:05 pm

Yeah, it all seems to come from a crystal ball, since he puts out no supporting evidence.”The US savings rate and the balance of payments both need to be improved by about 5% of Gross Domestic Product, so a top-to-bottom decline in GDP of at least 5% is likely,. However there is little reason for GDP to decline more than 5% top-to-bottom, or maybe 7% to allow for a little overshoot. Once GDP gets to its new equilibrium level powerful factors stabilize it and produce renewed growth – after all, at that new level of GDP the United States is once again internationally competitive, selling goods and services to customers worldwide in a way that has been impossible for a decade.”Why? Why 5%? Why would that make the US competitive? What “powerful factors” is he talking about?The author makes a lot of claims that are backed up by . . . nothing.–Brian

subgeniusNovember 17th, 2008 at 4:57 pm

But, as with all discussions perpetrated by those with backgrounds solely in economics, he sees the problems as being entirely related to the system of capital – there is no understanding that what we are currently standing on is the edge of the precipice where the old rules cease to apply.There can be no fix because people are wising up to the facts and are unlikely to fall for the old “trust me, I am a professional” line any more. The resource base is already depleted and getting worse. Without resources there can be no profit. As has been pointed out here before, technology IS NOT a replacement for resources…Until this is recognized we are going to keep replaying the current farce. Ad nauseam. As pointed out above, the *other* Howard Marks probably has a better grasp on reality… 😉

MarkNovember 18th, 2008 at 3:25 am

technology IS NOT a replacement for resources…I feel somewhat a sense of relief that some people actually get this all too important point. Thanks subgenious!

OuterBeltwayNovember 17th, 2008 at 4:47 pm

RGE BrainTrust Conference Call AgendaCall starts: Wednesday November 19 at 09:00 U.S. ESTDuration: 1 hour8:45 – 9:00 Call in, announce yourself to the group. Dial this U.S. number: 218.339.4300Enter this access code: 882086# (don’t forget the pound sign)9:00 – 9:05 Establish conference call protocolsee reference materials below for protocol.9:06 – 9:10 RGE representative’s remarks (if RGE cares to make any)9:15 – 9:20 Establish the process for deciding our:Mission. Define our common ground. Vote on it now.Strategy. Priorities and plans – debate it on the blog, vote next meetingSubgroups. Which ones are necessary to execute the mission. Debate it on the blog, vote next meetingRefer to reference materials below for more detail.9:21 – 9:30 Vote on this proposed “common ground” mission statement:We are going to build and use grass-roots power to influence the evolution of our economy.9:30 – 9:45 Open mike. “My vision of what this organization could accomplish”. Moderator will solicit up to 3 presentations from the group.* 2 minutes to tell,* 3 minutes for Q & A9:46 – 9:50 Set time for next meeting. Nov 26th, or Dec 3?9:51 – 10:00 Presentation: Tools for rebuilding our economy from the bottom up.Presenter: OuterBeltway* 5 minutes to tell* 5 minutes for Q & A===== Reference Materials for First Conference Call =======1. Protocol for running a conference call• Moderator controls the “you-have-the-floor” baton• Speak only when you have the baton• Stay within your time allocation• Pass the baton between moderator and presenter• Pass the baton between presenter and interlocutor2. Decisions that build strong, effective organizationsMission. What is our strongly-held common groundGovernance. How do we set direction and allocate resources. Minimalist.Strategy. How do we:* Pick goals. Make plans. Allocate resources. Adapt to reality.* Accommodate diversity of interests while accomplishing the main group goalsSpecialization. What sub-groups are created based on need, interest, and commitmentCulture. How do we relate to one another, and to our external challengesInstitutional knowledge. How do we establish and maintain the core things that we all know about our situationIncentives. Why would people expend the time and energy to do the group’s work?Resources. How will we identify and acquire the time, energy, contacts, materials and tools we need to be powerful?3. Finding the common groundWhat we have in common* We are powerless. Evidence of this is the $700B bailout. It was an expensive, dumb idea that passed in spite of almost universal opposition.* We see big changes coming, and we don’t like what we see.* We don’t have the proper tools to influence the outcomes.* We are not poised to take advantage of the impending economic crisis.* We don’t currently have a strategy to change our situationWe will vote on this proposed mission statement:We are going to build and use grass-roots power to influence the evolution of our economy.4. Where we differOur differences are mainly in terms of which problems to attack, and in what order. Prioritization.One operational strategy is to build infrastructure that can be used at either the individual or the group level. We come together to build power and apply it according to our common interests, and we go our separate ways to do things at the individual or sub-group levels. It is possible to build such an organization.5. Sub-groupsHere are some possible topics to form sub-groups around. What sub-groups do you think are needed?Tools. What tools do we need to increase the group’s power?Institutional knowledge. What are the things we need to know in common?Economic forces. What are the main forces causing the economy to change?Debates or Speaker’s Bureau. Topics might include such things as:* What’s a valid stimulus plan, and how can it be paid for?* What are the main forces affecting the evolution of tomorrow’s economy?* How is our situation today different from 1930, and how is it the same?* What are the sociological forces that will impact the adaptation of Western economies to globalization and resource contention?Administration* Scheduling, promotion of events (calls, presentations, debates, etc.)* Scribe

ForkNovember 17th, 2008 at 4:53 pm

Tools, hmmm, I’m thinking pitch forks, yes definitely pitch forks and maybe some glow sticks and flashlights. I’m not sure about the last two, what do you think?

OuterBeltwayNovember 17th, 2008 at 5:01 pm

I’m trying to maintain decorum, otherwise I’d laugh out loud. Channel it, Fork, channel it. Think “overwhelming numbers”.

Mother of GodNovember 17th, 2008 at 6:20 pm

“…influence the evolution of our economy” – in what direction? evolution from what to what?grassroots power is already driving our economics. what is driving everything that is going on is what’s in people’s heads. the CAUSE of our terrible troubles is everyone believes in the system of having everyone go after whatever they can get out of the pool of wealth and no one believes in simply calculating how much one has self-earned so all can abide by justice, take that amount no more and no less, and be safest and happiest and most secure and prosperous through realization that the Golden Rule is not feel-good advice to be nice or philosophy – it is HARD SCIENCE.In your whole agenda, the word justice does sadly appear nowhere.If justice – economic justice – is not to be your focus, goal, and guide, then this project is another part of the problem, not part of the solution.

GuestNovember 17th, 2008 at 6:38 pm

pitch forks, yes in the sense that we need to go back to the basics. The very basics. Think food, water, shelter. Think farming.When the economy tanks really big time people will go back to the basics. The basic humans needs are what count.

Detlef GuertlerNovember 17th, 2008 at 5:54 pm

I`d say for debating plans, priorities and strategies of the group we can`t use this blog, even less for subgroups – too much traffic, too much STOCKSGOINGGREEN, and even the most valuable content vanishes within days and will never be found again. Though a blog seems to me to be the best medium for communicating and working around the globe, it should be an other blog with its (our) own agenda, structure and speed. I would prefer a place on the RGE website (RGE GrassRoots Economonitor), but of course we could as well move to blogspot like LB or to some other host.

OuterBeltwayNovember 17th, 2008 at 6:40 pm

Detlef:I will address this vital issue during my “Tools” presentation. I agree with everything you’ve said. We’ll start out on training wheels and build the bike as we go.

BrianNovember 17th, 2008 at 6:10 pm

Two comments. First:For those of us on the West Coast, the time of this call is prohibitive. Next time, maybe you can include us by making it later than 6:00am.Second, you should really have chosen software from for this meeting. A phone call is going to be totally unwieldy (imho, as the CEO of a sizable company who is accustomed to conference calls, and the chaos that occurs when more than a well-known group of 6 or so people is on the call at once).Using Virtual World software to hold business meetings is MUCH more organized and productive.I hope to participate in the future.–Brian

OuterBeltwayNovember 17th, 2008 at 6:38 pm

Brian:First, thanks for your excellent comments. We’ll use your feedback to improve. Regarding the 6AM time for West-Coasters, we have people from Asia, the Americas, Europe and Australia attending, so we had to make compromises.We’re looking forward to your participation.

Mother of GodNovember 17th, 2008 at 6:57 pm

Where is the response to my comments about justice being THE NECESSARY PRIORITY, OB????????WHY will you not go near what is REQUIRED TO SOLVE THE PROBLEMS WE FACE?????

Average JaneNovember 17th, 2008 at 7:31 pm

Oh, MoG, welcome back. I have been trying to find you.Implicit in the gathering of folks on this site is the concept of justice for all, please believe that. We are all railing against the injustice of having our Constitution shredded, our liberties decimated, our voices squelched. A single step begins a long journey, but one must make that first step. This group is beyond denial and wants to get Into Action. I know I hear your cry and I’m sure many others do too.

OuterBeltwayNovember 17th, 2008 at 7:33 pm

M.O.G.: My main strategy around the issue of justice goes like this:a. justice only happens when power is equalb. power isn’t equalc. I should concentrate on creating power for the people that don’t have enough of itNow remember, those are my values. The group will weigh in, and express its values.Finally, I do listen…don’t always respond right away, but I do listen, and on rare occasions, I learn 😉

GuestNovember 17th, 2008 at 7:49 pm

Suggestion from a regular reader, but not a regular poster: Why not consolidate and make a list of your questions and concerns, the issues that you feel most need to be addressed, and then post the list here. Include some possible solutions, if you can. Repost it if necessary, on any subthread of OB’s. Get people thinking about all of it before the conference call.I do apologize for sticking my nose in where it doesn’t belong, but I really think that this approach would go much further towards a solution to your concerns than the post that I’m responding to. Do you not agree?

OuterBeltwayNovember 17th, 2008 at 5:14 pm

Dear Dr. Roubini:We’d like to draw your attention to the grass-roots-movement conference call that is being organized by the regulars that post in your Global EconoMonitor blog. We’ve published the conference call’s agenda in the November 17 blog, and we invite you to read it. The conference call will be held on Wednesday November 19th at 09:00 U.S. EST.We’ve allocated five minutes at the beginning of the conference call for you or your delegate to address the group. We cordially invite you to join us. All of us are hopeful that you or someone from your staff will be able to attend.Thank you for the privilege of using the RGE blog.Yours,OuterBeltway and the RGE EconoMonitor regulars

KeineahnungNovember 17th, 2008 at 5:26 pm

Re: the dollar. Roubini’s argument has often been terrifyingly, but fabulously right. However, I’m seeing signs that, like a market with an excess of sentiment, he’s overdoing it. Take the following statement: “The trade weighted fall in the value of the U.S. dollar since 2002 has worsened the terms of trade of the US and reduced further real disposable income and the purchasing power of US consumers over foreign goods.” True enough as a long-term phenomenon, and it would be significant if the trend could be said to be holding. One cannot. Over the last year the trade-weighted value of the dollar has increased. We trade mostly with Canada, and that currency is down dramatically (1.2292/dollar vs. parity in July). Our next most important partner is Europe, and the Euro has been on a similar trajectory for some time and, with the ECB’s lowering of interest rates, there’s no reason to expect a recovery. Next is Mexico, and so on. Finally, the credit crisis hasn’t even dinged the dollar despite microscopic returns on government paper. This does NOT mean the consumer has any money to spend, or any desire to spend it if he has it, but it seems in complete error to say a declining dollar is working against him. If there were a general perception that the dollar was worth less and less each day, the consumer would spend money as it came in rather than hold it for another day when its purchasing power would be weaker. The real reason — and it seems obvious — that consumers spent beyond their means was not because they developed an inflationary mentality (it takes a lot more inflation than we had to do this) but, rather, because they binged on credit. Finally, the savings rate has begun to increase, which suggests, in addition to some long overdue prudence, the perception that cash dollars are increasingly worth something.I therefore see only 19 reasons the consumer is capitulating, and the only reason I see 19 is I haven’t yet subjected all of them to the same scrutiny. One wonders whether increased scrutiny of each reason might not yield a higher rate of inflated argument than the mere 5% I argue for here.

KJ FoehrNovember 17th, 2008 at 6:19 pm

What a cheap shot. Whether there are 20 reasons, 19 reasons or just 1, the evidence indicates the consumer IS capitulating as Dr. Roubini has stated. So go ahead and nit-pick the other 19 and get back to us with your findings (opinions). In the meantime, I’m staying short consumer discretionary stocks and commercial real estate.

GuestNovember 18th, 2008 at 4:13 am

To the youngster who said I took a cheap shot at Roubini, excuse me, Doctor Roubini. I think anyone could see I took a reasoned, empirical shot at him. It’s a higher compliment than your uncritical reverence for his views. Fanatical acolytes who can’t tell a cheap from an expensive shot taken at their idol are the clowns of this game, especially, most especially when they start telling you how they’ve invested. What would you say if I told you the consumer is not capitulating but has already capitulated and that Roubini’s essay is primarily a look in the rearview mirror? Same trade? Would you want to waste time shorting oil after it had already crashed? Re commercial real estate, what would you say if I suggested you pick the reits that will survive (this is not brain surgery since they are among the most transparent commercial entities out there) and buy their preferreds now and that if you took the risk of doing so you could have an asset that earns you 15% a year for a very long time. That’s more than double the average long term return of equities. You have a bit to learn …Regarding the post below: 1. There is something to Williams in that he’s right to point out how drastically a situation may change in a short period of time and that one may have simultaneous trends whose confluence challenges ordinary reasoning. However, his apocalyptic visions seem faintly ridiculous. I’m not surprised that his remedy — surprise! — is a new gold standard. This old saw about gold and “worthless” paper money is really fairly silly, gold being just a yellow metal with a certain fluxuating commodity value in which we choose to invest our desire for absolute value. Going off the gold standard reminds me very much of what happened when perspective was introduced in the Renaissance. It had been a persistent belief in medieval times that a work of art had to have expensive materials (gold and lapis lazuli). As the power of perspective took over, dependent on pure oil painting (a cheap bunch sticks, canvas, pigment and oil medium), all the valuable materials vanished, or were banished to the frame. Some 600 years later, I still don’t think we risk a Leonardo being devalued in favor of a piece of wood with some pretty stamped gold ground surrounding a group of flat, stiff figures with robes rendered in a pretty mineral. The gold standard guys are the ones who fail to see that a piece of paper currency is like perspective, representing far more — the health of an economy, a quantity of a much wider array of commodities — than a lump of a single metal, however pretty and legendary. From a practical point of view, and speaking as someone who has crossed hostile borders with actual gold in the days of the gold standard, let me also tell you that each country had a different, sometimes wildly different price for it. Dirt cheap in Saudi, wholesale in Latin America, contraband in America. And that would be our store of absolute value? You must be kidding. I’d be happy to accept paper currency representing a unit of value of a national economy or basket of commodities (which it does at the moment since 50 bucks buys you a barrel of oil) and the ability to change that into another paper currency of a more responsible nation without impediment. Financially, gold is just a hedge, and a pretty lousy one compared to all the various hedging contracts and derivatives available.2. I also think the hyperinflation argument is questionable. The current crisis has already removed many trillions of dollars of liquidity from the system. I’ve heard figures as high as 60 trillion in certain quarters. So if the government pumps 750 billion into the banking system (and today’s news suggests they won’t use the whole 750) that will eventually create about only $7.5 trillion dollars — maybe not even that since the banks seem not to be using the cash for lending. Even if the follow on effects (and who knows what the multiplier is today) double that to 15 trillion, it’s still nowhere near enough to replace the liquidity that has been lost, let alone enough to create the excessive dollars one needs for high inflation. At the same time, we know that the ability of the Fed to affect inflation is asymmetric. There is a limit to rate cutting, so in a deflationary environment, if you are already at 1%, a rate cut of 25 basis points will have no effect. In principle, you could pay people to borrow money, but at that point a fiscal stimulus is the real option (that’s why Roubini is, correctly, so keen on this). On the other side, there is no ceiling to rates, which may be raised dramatically either to choke off inflation or defend the currency (some years ago Sweden raised central bank rates from about 6 to 20% overnight to deal — very successfully it turned out — with a monetary crisis). So, it will be impossible for the Fed to reflate the economy, with the result that whoever holds dollars (rapidly appreciating, pace Roubini, on a trade-weighted basis) will not let them go easily as they become worth more every day (would you expect different in an era of deleveraging and massive asset deflation?). How long this could last is anyone’s guess, but the lost decade of Japan arguments are beginning to look more plausible by the moment. When inflation eventually does arrive, a regime of rate hikes should suppress it without too much trouble.

MarkNovember 18th, 2008 at 6:09 am

you could have an asset that earns you 15% a year for a very long timeHave you not figured out that the days of high returns are over? Growth is dead dude! None of the conventional sense exists or will resurface.

KeineahnungNovember 18th, 2008 at 9:27 am

Not predicated on growth, dudelet. Think it through before you talk. Take a cumulative preferred for stock x that is yielding 12% and sells 33% below call/issue price but is not the first in line to be called because of low coupon, say 6%. Said company has a good dividend coverage on the common. Said company has to cut 100% of the common dividend before touching the preferred, and even then is on the hook for any missed preferred dividend. If said company survives and 10 years from now the spread b/t the current and the call/issue price closes up (2/3 to 1 is a 50% gain), that’s 12% per annum dividend + 5% per year cap gains (50% div. by 10, you can do this simple math, right?) = 17% earnings yield per year, or more than twice the long term average earnings yield on the broad stock market. Some reits have gone bankrupt, and a few more will still, but do you really want to bet that the best of breed will not survive? Don’t forget, good reits are a lot less leveraged than the average company, are subject to greater market discipline since they need to go to the capital markets more frequently and are very high on the transparency scale. Want to bet that the value of a portfolio of the best reit preferreds, dumped on the market courtesy of forced selling by hedge funds (and endowments that are in violation of ratings covenants) will be worth less in 10 years? I’ll take the other end of that bet, no problem.

keineahnungNovember 19th, 2008 at 7:37 am

Thank you for your kind wishes. I’ll do my best. Being 80% in cash since the Dow hit 13,500 has been a dream come true, and I owe Nouriel Roubini (and Shiller and Taleb and some others) for that. The movie’s got a ways to run still, but a taste of prudent risk probably won’t spoil it. Best of luck to you too.

GuestNovember 17th, 2008 at 11:16 pm

It’s hard to make predictions, IMO, when most U.S. economists and forecasters rely primarily on convoluted government statistics, as presented by the BLS or the Fed. And I think perhaps consumers are saving more now, not so much because they believe cash dollars are increasingly worth something, but because they fear the future and are squirreling away sustenance for hard times. Consumer confidence certainly is way down.In any case, you might be interested in this April 8, 2008, HYPERINFLATION SPECIAL REPORT by John Williams of Shadow Stats, who is the only man I trust regarding government statistics. Williams examines how the current circumstance can evolve from an inflationary recession to a hyperinflationary depression and then great depression. Said Williams in March, “[A]s the Federal Reserve continuously monetizes the federal debt, the rapid growth of the money supply causes rapid growth in inflation which becomes hyper-inflation.“I would define a hyperinflation when the largest currency note prior to the inflation (in this case it would be $100 bill in the U.S.) becomes worth more as functional toilet paper than as currency. Then you have a hyperinflation.”Says Williams in his April report: “As to the fate of the developing U.S. great depression, it will encompass the fire of a hyperinflation, instead of the ice of deflation seen in the major U.S. depressions prior to World War II. What promises hyperinflation this time is the lack monetary discipline formerly imposed on the system by the gold standard, and a Federal Reserve dedicated to preventing a collapse in the money supply and the implosion of the still, extremely over-leveraged domestic financial system.”Major predictions made in April by Williams are:Inflationary Recession Is in PlaceBanking Solvency Crisis Has Opened First Phase of Monetary InflationHyperinflationary Depression Remains Likely As Early As 2010.His April “Overview” begins:The U.S. economy is in an intensifying inflationary recession that eventually will evolve into a hyperinflationary great depression. Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road. The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests, and gross mismanagement.The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover their obligations. The alternative would be for the U.S. to renege on its existing debt and obligations, a solution for modern sovereign states rarely seen outside of governments overthrown in revolution, and a solution with no happier ending than simply printing the needed money. With the creation of massive amounts of new fiat (not backed by gold) dollars will come the eventual complete collapse of the value of the U.S. dollar and related dollar-denominated paper assets.What lies ahead will be extremely difficult and unhappy times for many. Ralph T. Foster, in his “Fiat Paper Money” (see recommended further reading at the end of this issue), closes his book’s preface with a particularly poignant quote from a 1993 interview of Friedrich Kessler, a law professor at Harvard and University of California Berkeley, who experienced the Weimar Republic hyperinflation:”It was horrible. Horrible! Like lightning it struck. No one was prepared. You cannot imagine the rapidity with which the whole thing happened. The shelves in the grocery stores were empty. You could buy nothing with your paper money.” … latest commentary for Newsletter (Issue No. 47) November 14th, 2008 begins:• Still-Intensifying U.S. Inflationary Recession • Systemic Solvency Crisis • Market Instability Not Contained • Obama Faces Same Limited Options as Bush • Hyperinflation Possible in 2009 • Despite extraordinary actions by the Federal Reserve, U.S. Treasury and other central banks and finance ministries, the global solvency crises, financial panics and market distortions and instabilities continue. While the collapse of a functional U.S. banking system has been avoided, so far, bank lending has not resumed meaningfully, and other weak links in the economy appear ready to break. Possible failures of the “Big-Three” U.S. automakers now are touted in the financial media. Where GM once boasted, “What is good for General Motors is good for America,” a failure there would be the ultimate symbol of structural destruction that has sapped U.S. economic activity for decades. Structural issues drove the economy into deep recession well before any crises exacerbations. With the economy in recession, oil prices down and the dollar stronger, deflation concerns abound. Yet, inflation ultimately is a monetary phenomenon, and the Fed’s recent monetary incontinence promises much higher inflation ahead, regardless of near-term CPI gyrations from the pre-election plunge in gasoline prices…

AnonymousNovember 17th, 2008 at 11:38 pm

Without John Williams how could the people protect themselves economically against the manufactured numbers the government and banking cartel are using to distort economic perception?But, there is a greater risk to Americans than the “systemic” failure of a flawed financial plan drafted by self-dealing central planners at the Fed. And that is collapse of this once vibrant economy. In order for America’s economy to revive, the present financial “system” must be allowed to die a natural death. It is a financial scheme backed by fraud, extortion and paper assets, benefiting the few at the expense of the many, sucking the lifeblood out of this great land of plenty. We must save the economy.The economy is our sustenance, value based on the work and production, distribution and consumption by millions of individuals: to exist it must operate by voluntary exchange in a free market economy (not deregulated to accommodate special laws legalizing plunder for the bankers and corporatists).

John E.D.P. MalinNovember 17th, 2008 at 5:50 pm

Let us first decide what mathematical competence is required to assess and judge economic models: Is it Linear Algebra? Calculus? Advanced Calculus? Partial & Differential Equations? Point Set Topology? or Algebraic Geometry?Who understands the distinction between mathematical calculations performed on paper using pencil/paper/brains and machine state algorithms processing mathematical calculations? Is it not obvious that humans are relying too much on data generated by computers, not internalizing its content & context well?Do we really want to solve this financial-economic mess? Who profits from large-scale human horror? Individuals? Corporations? Banking Entities? Religious Groups? Government? The Very Wealthy [the $200 Million+ crowd}? Criminal Enterprises? Small Mom-Pop Businesses?Do you know where the following money amounts obtain and pertain?I. $550 Trillion Dollar Notational Derivative Markets globally (A.D. 2007);II. $15 Trillion Dollars of cash sucked out of the ‘real’ economy by Derivative Investors globally (A.D. 1995-2007);III. $33 Trillion Dollar global ‘real’ economy (A.D. 2006);IV. $14 Trillion Dollars U.S. ‘real’ economy (A.D. 2007); andV. $2.4 Trillion Dollars U.S. Government tax revenues (A.D. 2007).Do we wish 100 million American citizens to starve to death within a six-month period?We have 200 million more Americans to breed, lie, steal and cheat to reduplicate the cycle.Remember, we are still using ignorant 40-century old sexegesimal numbering system for our economic dupery which came out of the Babylonian astronomical-mathematical priesthood in ancient Akkad.What is the purpose of capital? Manipulate money to make money (usury), or investment in labor, materials & human mental capital? Which system permits you to make more money in a quicker time frame? Is making cash rapidly the only purpose for human life?

GuestNovember 17th, 2008 at 6:31 pm

Is making cash rapidly the only purpose for human life?

Along these lines I would be interested about the role of greed in the modernisation of society. Mainly in the sense of ‘what changed during the time period between 300 AD – 1300 AD?’ Did greed, or the ability to make money, or capitalism have a major role in this change? Any pointers to material (book, website) about this would be appreciated.TIA

GuestNovember 17th, 2008 at 6:33 pm

actually I probably should have made the time period between 400 AD – 1400 AD, as I feel that the modern era started slowly around/after 1400.

phalangesNovember 18th, 2008 at 10:19 am

The Medici’s started banking as we know it in Florence in the early 15th Century, when they came up with a way of getting around the Vatican’s prohibition on making profit out of loans (usury). They were even offering currency exchange and creaming a percentage. Investors were rewarded with “discretione”, ie interest.HTH.

John E.D.P. MalinNovember 17th, 2008 at 6:56 pm

Guest:The term ‘greed’ is too murky of a concept. Best to leave it in the incompetent hands of dry moralists and delusional religious ministers.However, it was a mini-warm age that spurted economic development in Europe [A.D. 900 to 1350], and the expulsion of Jews out of Spain supplied the mental capital for the slow development of a capitalistic system [think Dutch commerce and Florentine banking interests].Economic historians can supply you the tedious, paltry details.Respectfully,John E.D.P. Malin & James F.D.P. Malin

GuestNovember 17th, 2008 at 7:50 pm

check out the two part video “money masters”, i think you can see it for free on google video or you tube.the bulk of the material has to do with the 19th and 20th century. the chris martenson video recommended above is good too.

GuestNovember 17th, 2008 at 6:39 pm

I am watching Barney Frank being interviewed as I write this. He is outlining the T&C for the Auto Bailout he and his allies Speaker Pelosi and Leader Reid support. I would draw a comparison to the Three Stooges except I would not want to offend the memory of Larry, Curly and Moe.Enough said – there is no hope.

GuestNovember 17th, 2008 at 6:49 pm

“The Crisis Has Hardly Begun” by Paul Craig Roberts”The prospects of a government rescue for the foundering American automakers dwindled Thursday as Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition,” reported the NY Times last Friday. [Chances Dwindle On Bailout Plan For Automakers, By David M. Herszenhorn, November 13, 2008]Wow! The entire country is steamed up over the Republicans bailing out a bunch of financial crooks who have paid themselves fortunes in bonuses for destroying America’s pensions. Why do Democrats want to protect Republicans from further ignominy by not giving them the opportunity to vote down a bailout for workers? Quick, someone enroll the Democratic Party in Politics 101.GM’s divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn’t.Conservative talking heads are saying GM is a “failed business model” unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model.The head of the FDIC is trying to get $25 billion–a measly 3.5 percent of the $700 billion for the banksters–with which to refinance the mortgages of 2 million of the banksters’ victims, and Bush’s Secretary of the Treasury Paulson says no. Why aren’t the Democrats all over this, too?Apparently, the Democrats still think they are the minority party—or else their aim is to supplant the Republicans as the party of the rich.Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America’s manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance.A country that doesn’t make anything doesn’t need a financial sector as there is nothing to finance.The financial crisis has had one good effect. It has cured Democratic economists like Robert Reich and Paul Krugman of their fear of budget deficits. During the Reagan years these two economists saw doom in the “Reagan deficits” despite the fact that OECD data showed that the US at that time had one of the lowest ratios of general government debt to GDP in the industrialized world.Today Reich and Krugman are unfazed by their recommendations of budget deficits that are many multiples of Reagan’s. Moreover, neither economist has given the slightest thought as to how the massive budget deficit that they recommend can be financed.Both recommend large public spending programs. Krugman puts a price tag of $600 billion on his program. If it takes $700 billion to save the banks and only $600 billion to save the economy, it sounds like a good deal. But this $600 billion is on top of the $700 billion for the banks, the $200 billion for Fannie Mae and Freddie Mac, and the $85 billion for AIG. These figures add to one trillion five hundred eighty-five billion dollars, a sum that must be added to the budget deficit due to war and recession (or worse).What we are talking about here is a minimum budget deficit of $2 trillion. The US has never had to finance a deficit of this magnitude. Where is the money coming from?The US Treasury doesn’t have any money, and neither do Americans, who have lost up to half of their savings and retirement funds and are up to their eyeballs in mortgage and consumer debt. And unemployment is rising.There are only two sources of financing: foreign creditors and the printing press…If foreign creditors do not save the Obama administration, the Treasury will print bonds and give them to the Federal Reserve, which will issue money.The inflation will be severe, particularly as Americans will not be able to pay for the imports of manufactured goods from abroad on which they have become dependent. The exchange value of the dollar will decline with the domestic inflation. Once inflation is off and running, the printing press dollars will only have goods made in America to chase after. The real crisis has not yet begun…

John E.D.P. MalinNovember 17th, 2008 at 7:07 pm

Guest:Pay attention to what I have written above, stand back, and do that most irritating of tasks—namely, think for three minutes about what I have written.Then write a response to save the global financial system.What institutions do we need? How does one eliminate $65 Trillion Dollars of historical debt by the American people?Who benefits by debt?John E.D.P. Malin & James F.D.P. MalinCecilia, Louisiana 70521-0460Contact:

MarkNovember 18th, 2008 at 6:12 am

Seems that he asked some pretty straightforward (and important) questions. The first question, “What institutions do we need?” is, for the most part, new here. The other ones have been pretty much hashed.

Average JaneNovember 17th, 2008 at 7:40 pm

I have watched with disgust in the past few days the MSM whipping up a pseudo-frenzy of outrage about bailing out the auto industry. All this talk about making them accountable for a mere $25 billion (and note how we are all now inured to the idea of billions and trillions, are we not?) and meanwhile Hanky Panky has handed out $350 billion to his wall street cohorts with zero, count it, zero accountability–witness Bloomberg’s lawsuit. Really this is just a farce.And as I watched our President-elect on 60 Minutes last evening, I quite simply marveled at the tough questions that were asked of Mr. Obama and could not help but think, “why aren’t we seeing these exact same questions directed at the current president?” It is just astonishing, the hypocrisy.

GuestNovember 17th, 2008 at 8:38 pm

I think it’s way beyond Bush vs. Obama (that’s a side show) – it’s the American people vs. corruption and right now we need to figure out who if anybody, is on the side of the former. The MSM is not credible and definitely not a reliable source of information or truth, tough questions or otherwise; they are puppets and performers, a sad state of affairs in such a serious crisis.

KJ FoehrNovember 17th, 2008 at 8:42 pm

W won’t go on 60 Minutes, that’s why. He is insulated from tough questions.In the 60 Minutes interview Obama seems to have been born to be president: wisdom, intelligence, calm, confidence, humor, all rolled into one. He shifts from world affairs to college football with ease and handles all questions like he has been dealing with the issue all his life.Finally, we have a president to be proud of again. Can you imagine W answering some of those questions? The difference is night and day. And that’s why he doesn’t go on – he knows he would look bad.

GuestNovember 17th, 2008 at 8:43 pm

a. jane,the u.s. consumer has capitulated when it comes to consuming anything w. says. it would be pointless to even ask never mind listen.

MorbidNovember 18th, 2008 at 4:56 am

Simply Charming@Jane,I almost fell in love with Obi watching 60 Minutes. The guy is so genuine and natural – typical of a feeling type. He arrives on the scene at the right moment that is for sure – the country/world is going to suffer long and difficult season(s) so his charm should help soothe.I was surprised that he wants to kill Osama Bin Laden – I would have thought he would first want to talk with this enemy of our country and hear his side of the story and what he wants for peace. After all it is our foreign policy that seems to have created this mess – pushing our way, over the generations, into the business of foreign governments. How would we like it if foreign governments came over here and did what we did? Ron Paul had the courage to face this dark shadow of America but apparently Obi hasn’t come to grips with the deeper blackness of our country.I wish him well. He senses a call of destiny aka his affinity with Lincoln. I believe in destiny and so it is his fate to have to experience this. I wonder if he realizes the personal suffering this entails.

MarkNovember 18th, 2008 at 6:17 am

What, we should continue to sell our children’s future for a failing paradigm?Concentrated power does this (be it in the hands of management or labor). This is a perfect example of power ignoring reality…

ewulfNovember 17th, 2008 at 8:03 pm

From the consmption theory point of view,and within the guessing territory ,there some additional options:a.- The wealth effect do not decline as much as expected.b.- The strong income effect,which would lead to a decrease in current consumption,is counterweighted by a stronger than expected subsitution effect, in favor of higher current consumption.-c.- In such a (a+b)case , consumption would decrease slowly within a broader time span.d.- Fiscal expenditures package (in this case more effective than tax cuts), can make the difference,to avoid a deeper than expected decline on US GDP.e.- Do not rule out the tradable sector, and the emerging economies capabilities to keep external demand alive.-

CahillNovember 17th, 2008 at 8:15 pm

I’m not trying to be partisan in any way whatsoever, but I am so tired of all the blame going on the GOP. It seems to me that the democrats all voted yes on the bailout the first time through and that a large group of republicans voted no. Now eventually there votes were bought, but let’s just be honest, Pelosi, Reid and Frank pushed for Pualson and Bernanke’s plan to pass. So please stop all the partisan blaming, there is MORE THAN ENOUGH blame to go around for both parties.

GuestNovember 17th, 2008 at 9:06 pm

the bright side is that when the investors lose their money and the big corporations go under and the banking businesses fail and real estate becomes dirt cheap and the state and municipalities lay everyone off then maybe someone, a young person, with a good idea will have the time and resourcesreadily available to start a money making business here in this country. you may say i’m a dreamer..maybe not? the status quo is not so quo no mo’.

jugglingcdosNovember 17th, 2008 at 9:31 pm

guest you just reminded me of John Lennon’s songImagineand please imagine a nuclear winter while youre at it

Average JaneNovember 17th, 2008 at 9:49 pm

I agree, Cahill. If one is to be intellectually honest, this really is beyond Republican and Democratic politicking.Whatever happened to “one nation, INDIVISIBLE, with liberty and justice for ALL?” (To me that means no exceptions.) (And emphasis mine.)

CahillNovember 17th, 2008 at 10:24 pm

I just wish more people could see past the blame and start looking forward. You are right we are one nation indivisible or at least should be.

GuestNovember 18th, 2008 at 2:12 am

There’s no doubt the democrats are beholden to corporate and bankers interest as well and I find it despicable too however I’m sorry to say this is most definitely a war of ideology. The pervasive notion or acceptance of supply side economics and trickle down theory was brought to fruition and successfully propagandized by the republicans. At one point liberalism or any degree of socialism was so frowned upon that they were and still are considered dirty words that no one dared to speak. So now to suggest we ignore partisanship would be to ignore the very essence and ideology that caused our demise. I have no problem throwing neo-libs into the equation and chastising them as well but if we’re ever to get out of this mess we are going to have to see the world in a more 360 degree light that is both sides of the equation supply and demand are equally as important. That means an abandonment of Reagan economics an abandonment of those overly zealous ideals of complete free and unregulated market’s that allowed the exploitation of the worker and disregard for the demand side of economics. I find partisanship and there attached implied ideals very relevant.

GuestNovember 17th, 2008 at 10:15 pm

30 reasons for Great Depression 2 by 2011 …says Mr Farrell at: I guess we will then start World War 3 to get out of Great Depression 2? hmmmm…it does not look viable as so many countries are armed with nuclear weapons. So looks like there is then a need to find another enemy, one that does not have a lot of weapons…doesn’t need to be a country of course…

jugglingcdosNovember 17th, 2008 at 10:30 pm

previously someone commented that US needs to wait for the emergence of a “fascist” leader to make the “war” legal (didnt worked with Iran)the thing is, other nations do not have to make a physical attack,theyre just bidding their time and watch US dies internally,why risk yourself attacking a bazooka wielding man dying slowly of drinking low grade cyanide,if US wants to stick to the same formulae, they have to become the “aggressor”but we already have that (remember Iraq)From here, one can only guest what US will do..I dont have the slightest of idea..

jugglingcdosNovember 18th, 2008 at 12:12 am

group of people….??hmmmm am i thinking what youre thinkingnow that would be a catastropheArmageddon in factcrescent/moon VS the cross

GuestNovember 18th, 2008 at 1:00 am

or crescent/moon AND the cross?would serve the needs of those feeling that the earth needs a population reduction because of the environmental situation. Some say it may need it also because of the economical situation.

GuestNovember 17th, 2008 at 10:26 pm

Bloomberg U.S. Mortgage Delinquency, Foreclosure Rates (Table)By Alex TanziNov. 17 (Bloomberg) — The following table shows residential mortgage delinquency rates for U.S. loans as reported by the Bloomberg non-agency database comprised of over 45 million securitized loans.=========================================================================10/31/08 09/30/08 08/31/08 10/31/07 10/31/06=========================================================================Bankruptcy 1.35% 1.28% 1.23% 0.77% 0.85%of which Prime 0.60% 0.53% 0.50% 0.18% 0.13%of which Alt-A 1.06% 0.93% 0.87% 0.35% 0.02%of which Subprime 2.52% 2.44% 2.38% 1.60% 2.08%Foreclosure 7.20% 7.10% 6.83% 3.37% 1.34%of which Prime 3.34% 3.25% 3.03% 0.87% 0.22%of which Alt-A 6.04% 5.82% 5.56% 1.73% 0.37%of which Subprime 12.54% 12.39% 12.03% 6.66% 2.80%Real Estate Owned 4.20% 4.13% 3.96% 1.64% 0.49%of which Prime 1.66% 1.54% 1.42% 0.37% 0.07%of which Alt-A 2.89% 2.76% 2.52% 0.70% 0.13%of which Subprime 7.96% 7.90% 7.67% 3.37% 1.03%=========================================================================10/31/08 09/30/08 08/31/08 10/31/07 10/31/06=========================================================================Delinq. (30,60,90,REO&Fore) 20.87% 20.22% 19.27% 11.48% 6.09%of which Prime 10.12% 9.57% 8.80% 3.96% 1.78%of which Alt-A 18.96% 18.10% 16.74% 7.95% 3.48%of which Subprime 35.14% 34.23% 33.16% 20.37% 10.85%Delinquency (30 days) 3.59% 3.56% 3.28% 3.09% 1.97%of which Prime 2.02% 2.04% 1.81% 1.48% 0.85%of which Alt-A 4.09% 4.06% 3.64% 3.22% 1.93%of which Subprime 5.31% 5.18% 4.91% 4.73% 3.15%Delinquency (60 days) 2.07% 1.99% 1.86% 1.50% 0.73%of which Prime 1.15% 1.09% 1.01% 0.56% 0.21%of which Alt-A 2.22% 2.14% 1.93% 1.24% 0.45%of which Subprime 3.15% 3.02% 2.85% 2.58% 1.37%Delinquency (60+ days) 17.28% 16.66% 15.99% 8.05% 3.53%of which Prime 8.09% 7.53% 6.98% 2.26% 0.70%of which Alt-A 14.87% 14.04% 13.10% 4.68% 1.32%of which Subprime 29.81% 29.03% 28.23% 15.47% 7.18%————————————————————————-=========================================================================10/31/08 09/30/08 08/31/08 10/31/07 10/31/06=========================================================================Delinquency (90 days) 3.80% 3.44% 3.34% 1.50% 0.97%of which Prime 1.95% 1.64% 1.52% 0.44% 0.19%of which Alt-A 3.72% 3.32% 3.08% 1.00% 0.36%of which Subprime 6.12% 5.68% 5.64% 2.80% 1.97%Delinquency (90+ days) 15.20% 14.67% 14.13% 6.55% 2.80%of which Prime 6.94% 6.44% 5.98% 1.70% 0.49%of which Alt-A 12.65% 11.90% 11.16% 3.44% 0.86%of which Subprime 26.64% 25.99% 25.36% 12.88% 5.81%=========================================================================SOURCE: Bloomberg non-agency database of 45 million securitized loans.To contact the reporter on this story:Alex Tanzi in Washington at

GuestNovember 18th, 2008 at 7:07 am

so if I am reading this correct, on 10/31/08 within these 45 million securitized loans we had…Bankruptcy 1.35%Foreclosure 7.20%Real Estate Owned 4.20%Delinq. (30,60,90,REO&Fore) 20.87%Delinquency (30 days) 3.59%Delinquency (60 days) 2.07%Delinquency (60+ days) 17.28%Delinquency (90 days) 3.80%Delinquency (90+ days) 15.20%

GuestNovember 18th, 2008 at 4:35 pm

g,i read that just like that. the trend from 2006looks bad too. i wonder who has possession of these”investments?”.

GuestNovember 17th, 2008 at 11:52 pm

S&P 500 May Fall More as `Retest’ of Low Fails to Spark RallyNov. 18 (Bloomberg) — The Standard & Poor’s 500 Index is poised to extend this year’s 42 percent drop after a rally from last week’s five-year low lasted just one day, say analysts who study charts of trading patterns and prices to forecast changes in stocks.After rebounding 11 percent Nov. 13, the benchmark index for American equities slipped 6.6 percent during the last two days and will probably keep falling past 818.69, its lowest level since 2003, according to three top-ranked technical analysts. The S&P 500 declined below its Oct. 10 low of 839.8 before rallying last week, making it a “retest” to chart readers.“Historically you would’ve had a better charge from the bulls at this point, and it hasn’t developed,” said Jeffrey de Graaf, a senior managing director at ISI Group Inc. in New York, in a telephone interview. “The buyers haven’t presented themselves in a meaningful way to show that there’s a sustained move to the upside, so the concern is that you just drift here.”The 11 percent trough-to-peak gain in the S&P 500 on Nov. 13 was one of six “key reversals” in the past 40 years, according to de Graaf, who defines the term using intraday levels and moving averages. Its 4.2 percent retreat a day later was the worst showing after such a turnaround by a factor of seven, he said.De Graaf, the highest-rated technical analyst in Institutional Investor magazine’s survey the past four years, said other indicators suggest stocks will keep falling. They include declining stocks outnumbering rising ones; higher trading volume when the market is falling than when it’s rising; and two- year Treasury note yields near record lows at 1.17 percent, an indication investors are seeking to avoid risk.Yearlong DropThe S&P 500 tumbled 44 percent this year to a five-year low on Nov. 13, and dropped 48 percent from its October 2007 peak, according to data compiled by Bloomberg. Stocks were dragged down by almost $1 trillion of writedowns and credit losses at financial companies globally stemming from the collapse of the U.S. subprime mortgage market.The index is headed for its biggest annual decline since the Great Depression, when it fell 47 percent in 1931. Of the 30 stocks in the S&P 500 that traded at $100 or higher at the peak, 24 now trade under that threshold, and eight fetch less than $50, according to data compiled by Bloomberg.The Nov. 13 slide pushed the S&P 500 below its previous intraday low for the year on Oct. 10. The index fell 2.6 percent yesterday.“The final low will be much lower than this,” and may not occur before the fourth quarter of next year, de Graaf said.At a minimum, stocks are likely to revisit their lowest levels of 2002 and 2003, when a 51 percent slide from the March 2000 peak sent the S&P 500 as low as 768.63, said Mary Ann Bartels, chief market analyst at Merrill Lynch & Co. in New York.`Young Base’“You need patience and a lot of time to build a base” from which the market can rally, said Bartels, who ranked second in the Institutional Investor poll this year. “This is still a very young base. If you want to use a football analogy, we’re in the early part of the first quarter.”The process can take from five months to a year, and is likely to take a year this time, Bartels said. One indication is a proprietary measure showing sellers driving volume rather than buyers, she said.“What we need is buyers to come back into the market and we don’t have that,” she said.The S&P 500 is likely to fall to around 680, 20 percent lower than yesterday’s close, probably by the end of the year, said John Roque, senior technical analyst for New York-based brokerage Natixis Bleichroeder Inc.“Every low hasn’t held yet, so why should I assume this one’s going to?” Roque said.

Octavio RichettaNovember 18th, 2008 at 3:47 am

Good morning,Washington Broker The Evolution of Hank PaulsonA Conversion in ‘This Storm’By David ChoWashington Post Staff WriterTuesday, November 18, 2008; Page A01First of two articles Treasury Secretary Henry M. Paulson Jr. had a stern message for more than two dozen of the nation’s most powerful hedge fund managers gathered in the third-floor conference room near his office.Paulson told them it was time to begin regulating the opaque realm of hedge funds, reversing his long-held opposition. “You should not be thinking about how to fight it but how to make it work,” he recounted telling them at the meeting last month.They were stunned. One manager recalled muttering as he walked out: “What happened to the Hank Paulson we knew?”…

MorbidNovember 18th, 2008 at 6:04 am

Time-Lined Colored Text?Could a different colored text be imposed as each day passes or some other scheme and time increment.Within existing tags a timeline could be artificially created by first starting out using normal black text.Then after maybe 12 hours have all new posts show up in bold font; then in the next time period force all posts to be italicized; then bold and italicized.

Octavio RichettaNovember 18th, 2008 at 5:08 am

Got to watch this one!For those that miss all the yelling from the talking heads during the political season, the Onion panel debates if the government should stop dumping money into a hole

AnonymousNovember 18th, 2008 at 5:30 am

Hilarious but yet so true…OR: How do you assess the official data, such as GDP, Inflation data etc, how manipulated are they?It would be easier to understand current situation if the GDP was less and inflationen a bit higher… (At least I have feeling that I get less for my money in my day to day life)Secondly, the profile of a company(as a legal person) is really almost matching a profile of a phychopath. Why should they stop?/Toby

Octavio RichettaNovember 18th, 2008 at 6:31 am

Perhaps a bit pretentious of me but I would hope this is one of those posts worth saving. Even hanging on a wall so that we don’t keep in making the same mistake.To toby above: We are in crazy times.Yes, inflation, unemployment are probably [strike that] certainly higher than officially reported. Thus, US GDP, which is recorded in real terms, is and has been lower than we are told for quite a while now. In the long term, this affects company earnings growth rates which go hand-in-hand with GDP and thus stock valuations. It also cheats investors in TIPs who get shortchanged in their inflation-adjusted returns.Company profits despite the reforms that followed the Enron/MCI collapse continue to be manipulated. A good chunk of the managers in charge of companies are no more than a bunch of crooks and thieves that cheat and rob the stockholders (this is not an original, check the likes of Vanguard’s Boggle).The separation of ownership and management creates a conflict of interest in that managers have an incentive to rip off stockholders. Even in cases of managers who are significant stockholders (e.g., Martha Steward), lack of principles give them an incentive to cheat other stockholders. The rationale is as follows:If I own 50% of the company I manage and I stick stockholder with 100% of my expenses, even if they are not business related (like having the company driver and car drive me around on weekends while I shop for antiques), then I get a 50% subsidy from the stockholders; actually, I also get a subsidy from the taxpayer as business expenses are tax deductible. The few managers that are OK (i.e. claim to be honest), become dishonest as they claim they are forced to cheat in order to compete with their cheating counterparts (e.g., citi’s former CEO Sam Weil).So as not to be left behind, money managers also steal from investors through fees that approach 20% of earnings (yes close to 2% in assets which means 2% of earnings if their returns were around 10% which they are not). During the 20-year bull market(1980-2000) investors didn’t care about being robbed by management and money managers since they were all dancing to same beat at the same ecstasy-laced rave party courtesy of a market that provided an average of 15% annual returns (someone confirm that). But now that returns have been flat to negative for over 10 years, investors are waking up! If the situation does not change, the crookery of management and money managers will continue to hurt earnings and stock returns; so as the market realizes US businesses and money managers are not as efficient as they claim to be, investors will adjust valuations accordingly.So the investor is hit from all sides, company managers and money managers rob from them like there is no tomorrow. It is no wonder equity returns for the last 10 years are negative. Investors have been disappointed with stocks and may continue to be for a long time. IMO, they will not return to the happy 90s. So stocks may be cheap (even that is debatable with US real growth in the next 10 years of at most 2%yr) but they may stay cheap for a long time; such as they did for 50 years (roughly 1930 to 1980) look at this chart:^dji;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefinedSo as Hussman, Buffet, Gratham, Howard Marks, Jeremy Siegel, etc. salivate at the prospect of huge returns from here. They may be in for a surprise. perhaps the tortoise invested in safer fixed income will beat the turbocharged equity investing hare. I am not saying there will not be some merit to owning some equities as prices continue to decline and ECRI indicates things start to get better. But you have to hedge your bets by limiting your level of exposure to equities (for me that level is 30%). The bottom line here is that I am trying to present a contrarian point of view that IMO is as valid as the bullish case but which you will not read about in MSM.Check around, except for some currencies, MM funds, and US government bonds ALL asset classes year to date are in negative territory. Investing in 2008 has been like walking in a freakin WWII mine field. So yes investors investors are mad, and yes Sondra, the are very pissed off.

subgeniusNovember 18th, 2008 at 7:07 am

HERE is a salutary tale about the World Bank. The first draft of its 1992 World Development Report, dedicated to sustainable development, contained a diagram labelled “the relation of the economy to the environment”. It showed a rectangle labelled “economy”, with an arrow entering it labelled “inputs” and an arrow exiting it labelled “outputs”. That was it.It was my job, as senior economist in the bank’s environment department, to review the draft and offer suggestions. I said drawing such a picture was a great idea, but it really had to include the environment. As drawn, the economy was receiving inputs from nowhere and expelling outputs back to nowhere.I suggested we draw a big circle around the economy and label it “ecosystem”. Then it would be clear that the inputs represented resources taken from the ecosystem, and the outputs represented waste returned to it as pollution. This would allow us to raise fundamental questions, such as how big the economy can get before it overwhelms the total system.When the second draft came back, a large unlabelled rectangle had been drawn around the original figure, like a picture frame. I complained that it changed nothing. In the third draft, the diagram was gone. The idea that economic growth should be constrained by the environment was too much for the World Bank in 1992, and still is today. The bank recognised that something must be wrong with that diagram – but better to omit it than deal with the inconvenient questions it raised.That was when I realised that economists have not grasped a simple fact that to scientists is obvious: the size of the Earth as a whole is fixed. Neither the surface nor the mass of the planet is growing or shrinking. The same is true for energy budgets: the amount absorbed by the Earth is equal to the amount it radiates. The overall size of the system – the amount of water, land, air, minerals and other resources present on the planet we live on – is fixed.The most important change on Earth in recent times has been the enormous growth of the economy, which has taken over an ever greater share of the planet’s resources. In my lifetime, world population has tripled, while the numbers of livestock, cars, houses and refrigerators have increased by vastly more. In fact, our economy is now reaching the point where it is outstripping Earth’s ability to sustain it. Resources are running out and waste sinks are becoming full. The remaining natural world can no longer support the existing economy, much less one that continues to expand.The economy is like a hungry, growing organism. It consumes low-entropy natural resources such as trees, fish and coal, produces energy and useful goods from them, and spits out high-entropy waste such as carbon dioxide, mine slag and dirty water. Mainstream economists are mostly concerned with the organism’s circulatory system, how the energy and resources can be efficiently allocated, while tending to ignore its digestive system. As my experience with the diagram showed, the sources of the resources that the organism consumes and the sinks into which it deposits waste are ignored. Effectively, economists are assuming they are infinite.Because of this, they recognise no limits on the capacity for economic growth. In a report published earlier this year, the Commission on Growth and Development reviewed the experience and policies of 13 countries, including Botswana, Brazil, China and Japan, which since the 1950s have grown at an average annual rate of 7 per cent or more for 25 years or longer. The commission suggests that this is an example the rest of the world should follow. If the global economy were to grow this fast, however, then in 25 years it would have increased to five times its present size. They don’t say what would happen after that; presumably we should simply aim to do the same again.Generally, when the cost of an activity starts to outweigh any benefits, we stop doing it. Buying one ice cream makes sense if it brings us pleasure and satisfies our hunger. Once we have eaten two or three, however, we do not buy more because, despite the pleasant taste, we start feeling sick. This “off switch” is not working for the economy as a whole, though, because our national accounts do not separate the costs of economic activity from the benefits. Instead, both are counted towards a country’s GDP. We count as desirable growth both the beneficial activity that causes pollution and the costly activity of cleaning up the pollution, for example. And when cutting down trees and selling the lumber boosts GDP, we subtract nothing for the loss of forests.When the cost of an activity outweighs the benefit, we should stopThe scale of the global economy is approaching the limits of what our planet can cope with. As the oceans are emptied of fish, forests shrink from logging and levels of pollutants and greenhouse gases in the atmosphere rise, the environmental and social costs of further growth are likely to intensify until we reach a point at which the price we pay for each unit of extra growth becomes greater than the benefits we gain.In fact, there is evidence that we have passed this point, at least in well-off countries such as the US and UK. Since our GDP accounts cannot reveal whether this has happened or not, scholars have devised ways to track other potential indicators such as health, well-being and the state of our environment. These include the Index of Sustainable Economic Welfare, the Genuine Progress Indicator, the Ecological Footprint, and the Happy Planet Index. They have found that as GDP goes up, these other measures are levelling off and even declining. Economic growth may already be making us poorer rather than richer.As long as our economic system is based on chasing economic growth above all else, we are heading for environmental, and economic, disaster. To avoid this fate, we must switch our focus from quantitative growth to qualitative development, and set strict limits on the rate at which we consume the Earth’s resources. In such a “steady-state” economy, the value of goods produced can still increase, for example through technological innovation or better distribution, but the physical scale of our economy must be kept at a level the planet is able to sustain. Can we transform our economy from a forward-moving aeroplane to a hovering helicopter without crashing? After 200 years in a growth economy, it is hard to imagine what a steady-state economy might look like, but it does not have to mean freezing in the dark under a communist tyranny (see “Life in a land without growth”). Most of the changes could be applied gradually, in mid-air.http://www.newscientist.comSpecial report: Economics blind spot is a disaster for the planetThe idea of moving to a steady-state economy will appear radical to many, perhaps politically impossible. But the alternative, a macro-economy that is structurally required to grow in scale beyond the biophysical limits of the Earth, is an absurdity, and heading for the ultimate crash. Before we reach that radical physical limit, we are already encountering the economic limit at which benefits of extra growth are increasingly outweighed by the costs.

GuestNovember 18th, 2008 at 7:23 am

This is all great and I agree but with the promise of zero point technology and nano technology someday producing natural resources from nothing or producing something out of carbon our even air molecules our potential level for consumption maybe never ending especially if you include space travel etc.. Given these technologies are not here yet your argument makes a lot of sense now but I would suspect ultimately this kind of concern for the planet must come from a elevated level of consciousness not a limited amount of resources. It may well be that the limit of resources could help teach us how to live in less wasteful ways now but over the long haul the technology to create something from nothing I suspect will prevail and then it will be a moral decision as to how we care for the eco-system.

MorbidNovember 18th, 2008 at 9:35 am

Elevated Level of ConsciousnessPain & suffering are the fastest horse to wholeness – according to C.G. Jung. I guess we have as a world now entered that arena. This may lead to a whole new worldview. Pay attention to your dreams and learn from them – they are the light that will shine in the coming darkness.

MarkNovember 18th, 2008 at 7:39 am

This is the very thing that I’ve been trying to get across here for a long time!Unless people are ready and willing to undertake a massive societal shift we’re heading over the cliff, for good!

AnonymousNovember 18th, 2008 at 7:46 am

You are absolutely right and it is going to be a tough lesson for mankind.”The greatest shortcomingof the human race is ourinability to understandthe exponentialfunction.” – Prof.Al BartletIf you would put population growth in a time line, you will se the graph of an exponential function, energy consumption, US debt, minerals, fish, farming land etc etc, the list is long. They all look exponential to me, and guess what, it goes fast in the end.If you then understand the our current monetary system is based upon continous growth is does not take a geniuos to figure out that it is not sustainable.The question is when and that I hope someone could be more specific about.Which exponetial graph is the most critical one and when do it hit the roof?Who, but the grass roots can drive us towards a “steady-state” economy?How about that as a topic for the conf. call./Toby

MarkNovember 18th, 2008 at 7:51 am

Yes, please do push this as THE keystone. Without this everything else is destined to fail.P.S. nano shmamo… too much energy to manipulate, and the consequences will be disastrous (unleash crap into the environment that we won’t be able to call back?); and zero-point energy? come on people, wake up, none of this crap addresses the fact that we’d still be spoiling our nests.

GuestNovember 18th, 2008 at 9:44 am

Can you tell us all precisely where the technological cut off point is? When will science come to an abrupt halt what is your formula?

GuestNovember 18th, 2008 at 11:49 am

Any time I hear people talk in terms of the finite I immediately get suspicious, once people thought the world was flat too. Certainly relative to our primitive knowledge and existence the universe is infinite.

subgeniusNovember 18th, 2008 at 1:15 pm

Guest on 2008-11-18 11:49:57

Any time I hear people talk in terms of the finite I immediately get suspicious, once people thought the world was flat too. Certainly relative to our primitive knowledge and existence the universe is infinite.

Am I correct in thinking you are an economist/MBA/finance-type? If so, please get yourself an education in an appropriate subject before commenting with such nonsense.EVERYTHING is finite.

AnonymousNovember 18th, 2008 at 7:48 am

conclusions are correct; when the interests of the few decide the interests of the many the world’s precious and limited resources are squandered until a threshold is crossed leading to disaster and ultimate extinction of the planet and it’s people! Of course, business schools teach our best and brightest to ignore all of this and focus one’s energy into continually increasing profits for one can never be big enough! Of course, this has been know for thousands of years: “the LOVE of money is the root of all evil”!

GuestNovember 18th, 2008 at 8:22 am

Between 8:30 and 9:00 am on CNBC America – a guest commentator stated that the market action on October 10 and 27 had all of the markings of the PPT. – They all just about fell out of their chairs – I went on to see if they had posted the videos – but they skipped the period between 8:15am and 9:00am. One anchor even went out of her way to state that CNBC in no way supports the idea of a Plunge Protection Team.

AnonymousNovember 18th, 2008 at 9:14 am

5 stars for that post! To watch the talking heads deny any market manipulation was hilarious!This is the main reason that the market turning points so difficult to predict.

GuestNovember 18th, 2008 at 11:09 am

Wonderful, thank you. Oh, and of course they denouced it as an “internet conspiracy”. Those furious reactions is even more proof to me that the PPT did intervene.

GuestNovember 18th, 2008 at 9:44 am

As established by Executive Order 12631, the Working Group consists of:·The Secretary of the Treasury, or his designee, i.e. HANK PAULSON — CHAIRMAN of the PWG·The Chairman of the Board of Governors of the Federal Reserve System, or his designee, i.e. BEN BERNANKE·The Chairman of the Securities and Exchange Commission, or his designee, i.e. CHRIS COX, and·The Chairman of the Commodity Futures Trading Commission, i.e. BART CHILTON, or his designee.Chilton is a former lobbyist for the National Farmers Union who was Deputy Chief of Staff for Secretary Dan Glickman of the U.S. Dept. of Agriculture under the Clinton Administration.Executive Order 12631 — Working Group on Financial MarketsMarch 18, 1988By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:(1) the Secretary of the Treasury, or his designee;(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;(3) the Chairman of the Securities and Exchange Commission, or his designee; and(4) the Chairman of the Commodity Futures Trading Commission, or her designee.(b) The Secretary of the Treasury, or his designee, shall be the Chairman of the Working Group.Sec. 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence, the Working Group shall identify and consider:(1) the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987, and any of those recommendations that have the potential to achieve the goals noted above; and(2) the actions, including governmental actions under existing laws and regulations (such as policy coordination and contingency planning), that are appropriate to carry out these recommendations.(b) The Working Group shall consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible.(c) The Working Group shall report to the President initially within 60 days (and periodically thereafter) on its progress and, if appropriate, its views on any recommended legislative changes.Sec. 3. Administration. (a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Working Group such information as it may require for the purpose of carrying out this Order.(b) Members of the Working Group shall serve without additional compensation for their work on the Working Group.(c) To the extent permitted by law and subject to the availability of funds therefor, the Department of the Treasury shall provide the Working Group with such administrative and support services as may be necessary for the performance of its functions.Ronald ReaganThe White House,March 18, 1988.[Filed with the Office of the Federal Register, 11:23 a.m., March 21, 1988]Ex-USDA Chief Dan Glickman, joined Akin, Gump, Strauss Hauer & Feld, one of the major lobbying and law firms in Washington. He will advise clients on food and food safety, health, biotechnology and international trade. The firm has a total lobbying income of $11,800,000. They invest in technologies such as agbiotech, typically giving between $50,000 and $250,000. Their list of clients is a who’s-who of agbiotech, bankers, cigarettes, construction, communication, food, fossil fuels, media, pharmaceuticals, rightwing organizations, and sweat shops. Paulson, former CEO of Goldman Sachs, is also the man who as president of Nature Conservancy turned that once environmental group into a series of cattle ranches around the world for Goldman Sachs fast food. (Goldman Sachs White House: Capitalism and Slaughterhouses):[url][/url]It was the “Wall Street Journal” that first designated the Working Group as the “PPT”.

AnonymousNovember 18th, 2008 at 9:52 am

Enlightening! Is there any way to forecast at what levels the PPT will operate (i.e. why 8250 yesterday and 8100 today?)

GuestNovember 18th, 2008 at 10:18 am

The psychology of perception? Trying to feed the bad news to the public a little at a time so it won’t perceive the full impact of the head-on crash: sort of a train wreck in slow motion?

GuestNovember 18th, 2008 at 11:50 am

And y’all bitched at me for my conspiracy theory PPT posts!!! Shame on you! Those who choose to ignore the realities of the world around them end up with sh%t on their heads…

AnonymousNovember 18th, 2008 at 8:31 am

For more knowledge to big for us????To define the new global sustainable economic system./Toby

GuestNovember 18th, 2008 at 9:06 am

Excerpts from: SOROS-FUNDED DEMOCRATIC IDEA FACTORY BECOMES OBAMA POLICY | Nov. 18 (Bloomberg)Thanks in part to funding from benefactors such as billionaire George Soros, the Center for American Progress has become in just five years an intellectual wellspring for Democratic policy proposals, including many that are shaping the agenda of the new Obama administration.CAP has been an incubator for liberal thought and helped build the platform that triumphed in the 2008 campaign.CAP’s president and founder, John Podesta, 59, former chief of staff to President Bill Clinton, is one of three people running the transition team for president-elect Barack Obama, 47. A squadron of CAP experts is working with them.Some of the group’s recommendations already have been adopted by the president-elect.To help promote its ideas, CAP employs 11 full-time bloggers who contribute to two Web sites, ThinkProgress and the Wonk Room; others prepare daily feeds for radio stations. The center’s policy briefings are standing-room only, packed with lobbyists, advocacy-group representatives and reporters looking for insights on where the Obama administration is headed.“The center is the premier progressive think tank in Washington,” said Mark Green, head of the New Democracy Project, an urban-affairs institute in New York.Just eight days after the Nov. 4 election, CAP released a 300,000-word volume called “Change for America: A Progressive Blueprint for the 44th President” that offers advice on issues such as economic revival and fixing the Federal Emergency Management Agency. Work on the book began almost a year ago.CAP, which has 180 staffers and a $27 million budget, devotes as much as half of its resources to promoting its ideas through blogs, events, publications and media outreach.The center’s future was far from certain in 2003, when wealthy donors such as Soros and film producer Stephen Bing gave $10 million or more to fill what they believed was an intellectual void in the Democratic Party and create a vehicle to produce an agenda for the party’s eventual return to power.“Others strive to be objective, we don’t,” said Jennifer Palmieri, CAP’s vice president for communications.Podesta likes to say, “we’re not a think tank, we’re an action tank,” said Dan Weiss, who joined CAP last year.CAP isn’t the only Democratic-leaning research organization in Washington with enhanced cachet after Obama’s election.The 92-year-old Brookings Institution, for example, has advisers in Obama’s inner circle, including economist Jason Furman and foreign-policy expert Susan Rice. Others are working either part-time or full-time in the Obama transition.Yet CAP may be the most influential. In addition to Podesta, at least 10 other CAP experts are advising the incoming administration…

GuestNovember 18th, 2008 at 11:02 am

CAP’s activity is not research, it is not information, it is not policy, it is lobbying. There’s no other description for it. These people are just like the hat-in-hand lobbyists on Capitol Hill who try to buy out, blackmail or influence very susceptible Congressmen.They have tried to promote their theory that there’re not enough liberal talk on radio, that it’s not fair that there are so many rightwing talk show hosts. That’s why Podesta is a promoter for the “fairness doctrine.” He’s for a quota system – i.e., since the people don’t want liberal radio and won’t pay for it, what we need to do is to cut back on conservative radio.It’s a replay of the old saw, “The people don’t know what’s good for them.”

GuestNovember 18th, 2008 at 9:34 am

@ Mark: Didn’t this clown [Inhofe] vote for the $700+ billion to begin with? Even commoners like us KNEW that this was a bad thing, to hand over a blank check. But now this clown and others (mainly GOPers) who have done their part to pass money to the rich bankers are NOW? going to clamp down?…”No, Sen Inhofe voted against the initial bailout bill.UPDATE: Sen. Jim Inhofe, an Oklahoma Republican, said that he also intends to introduce a bill blocking the second half of the bailout. His bill, he added, would freeze any money from the first half that had yet to be spent. Inhofe opposed the initial bailout vote. 2, 2008 — WASHINGTON – The Senate easily passed a $700 billion bailout Wednesday of the nation’s financial system as leaders from both parties continued to warn of the economic woes that necessitate such dramatic action.Approved by a vote of 74-25, the bill now goes to the House where a similar version was narrowly rejected earlier this week.Oklahoma’s two senators – Republicans Jim Inhofe and Tom Coburn – split on the vote with Inhofe voting against the bill and Coburn voting for it.

MarkNovember 19th, 2008 at 2:22 am

OK, good to know that the clown didn’t vote for it to begin with. He’s still a clown though 🙁 But in this case not a hypocrite.

GuestNovember 18th, 2008 at 9:59 am

Isn’t what’s good for the goose also good for the gander? In fairness, shouldn’t the second article below read: Deadbeat Bankers Goldman, Morgan Stanley Squeeze Exchanges With New Platforms?DEADBEAT HOMEOWNERS TAP TEXAS BANKRUPTCY LAWS TO DUCK CREDITORSNov. 18 (Bloomberg) — Homeowners fleeing underwater mortgages in California and Florida know where to come up for air: Texas.“Texas is an extremely friendly place to live if you owe money and do not want to pay,” said Marjorie Britt, a bankruptcy attorney with Britt & Catrett PC in Houston. “If you have a lot of money and even more debt and want to shelter your assets, you can live fairly normally.”Distressed borrowers can hang on to luxury cars, a primary residence, paychecks, retirement accounts, and even jewelry that creditors might claim elsewhere, Britt said.A still-robust job market draws nonresidents trying to get away from houses worth less than what they owe on the mortgage, said Jay Westbrook, a business-law professor at the University of Texas in Austin. These newcomers find employment, buy a home in Texas, and mail lenders the keys to the house they abandoned…Lenders in most states can sue to recover the difference between the mortgage balance and proceeds from selling the repossessed house, Westbrook said. Once a borrower has relocated to Texas, such judgments can’t be satisfied with alimony, child support or garnisheed wages…, MORGAN STANLEY SQUEEZE EXCHANGES WITH NEW PLATFORMSNov. 18 (Bloomberg) — Goldman Sachs Group Inc., Morgan Stanley and investment banks in Europe are using the early success of new trading platforms they have backed to push exchange fees lower.Goldman and Morgan Stanley, whose profit in the first three quarters is down 44 percent from last year, and brokers at firms such as Merrill Lynch & Co. and Citigroup Inc. have demanded European exchanges cut trading tariffs. The companies have won new clout by backing alternate trading platforms such as Chi-X Europe Ltd. and Turquoise and by urging rival bourses to set up shop in Europe.“Banks have been angry for some time about fees,” said Benn Steil, director of international economics at the Council on Foreign Relations in New York and an expert on exchanges. “They’ve pointed out that volumes have grown and fees haven’t come down. And in an environment like this, you can expect them to ratchet up pressure. They definitely have more leverage now with the likes of Turquoise and Chi-X.”

Mother of God get a clue, humanityNovember 18th, 2008 at 10:41 am

It is beyond hilarious for the human species to continue speaking of Democracy as if it exists.Democracy is made IMPOSSIBLE BY DEFINITION by our wealthpower inequity factor that now resides in the billions and is automatically everescalating minute by minute courtesy of this species full-on embrace of having the opportunity to be in legal possession of other-earned wealth.

AnonymousNovember 18th, 2008 at 11:05 am

True, but anyone who promotes equality when it comes to money is automatically branded a socialist! Does the guy working in the fields picking grapes in 100 degree heat to produce those fine wines deserve to make 1/100th of the CEO sitting at a desk who can afford to drink that wine? Since neither could perform each other’s job as well as the other, aren’t both people to be valued more equitably! And who is really consuming the disproportionate share of resources in this world; the average joe or the guy with the yacht, jet, 100 suits, 5 cars and 10 houses? Bottom line: those in power want nothing to do with democracy!

ollerNovember 18th, 2008 at 11:08 am

Read today’s Big Picture blog. There is a reference toMartin Feldstein WSJ article on modifications. I takeaway a suspicion that the banks want to convert thenon-recourse loans to full recourse loans in a modification. Is this what you see in Feldstein’s proposal? He is the administration’s point man.Are they going to try to trap the borrowers? Whatare they up to?

GuestNovember 18th, 2008 at 11:22 am

From NCIn a weird world, yields on Tips point to deflationBy John DizardPublished: November 18 2008 02:00Would you believe that we shall actually have significant deflation in the US next year? And the year after that? And flat consumer prices for the year following? That’s happened only once in a developed country since the 1930s – when Japan recorded a negative 1.6 per cent consumer price index for 2002…

Mother of God to bovine humanityNovember 18th, 2008 at 11:39 am

The love of money is NOT the root of all evil, People!We need to love our money MORE, not LESS. NOT loving our own money enough is what has got us into this mess!There is NOTHING wrong and everything RIGHT with loving having **SELF-EARNED** money! Money is GOOD – it is the JOKER good, good for all needs and most wants! Money is your shelter and food and water and medicine and education! It is precisely because having self-earned money is SO very GOOD, that NOT having your self-earned money is so very, very BAD! Having self-earned money means getting more goods and services by producing/providing more goods and services! THERE IS NOTHING WRONG WITH THAT.IT IS THE LOVE OF HAVING THE OPPORTUNITY TO LEGALLY POSSESS **OTHER-EARNED MONEY** THAT IS THE ROOT OF ALL EVIL!IT IS THE LOVE OF HAVING **OTHER-EARNED WEALTH** THAT IS THE ROOT OF ALL EVIL!THIS DISTINCTION IS VITAL! This distinction that 6-billion-plus people are failing to make is CRUCIAL!START MAKING THIS CRUCIAL DISTINCTION or Humanity WILL succumb to the results of having the next and the next and the next wealthpower giants, ad infinitum til the globe blows up from the violence caused by the INJUSTICE of ENFORCED MATERIAL INEQUALITY.ONLY work creates wealth! Work is ONLY one of two things: it is either the sacrifice of time and energies a human makes – which is the only thing that can be given pay without violating justice – or it is work that was done for us by Mother Nature – which work She gives freely!We MUST understand that our MotherFolly is PAYING PEOPLE FOR THINGS THAT ARE NOT WORK, THAT ARE NOT SACRIFICE OF TIME AND ENERGIES MADE BY A HUMAN BEING.OVERPAY has nowhere to come from but from UNDERPAY. Overpay IS Underpay – the two things CANNOT be separated! OverpayUnderpay is the ROOT CAUSE of 99% of unnecessary human and planet suffering! Individual contribution to the pool of wealth has a maximum limit, therefore the pool of wealth is FINITE, therefore overpay has nowhere to come from but from underpay!THERE IS NO WAY OUT OF THE EXTREME PICKLE WE ARE IN WHILST WE TOLERATE OVERPAYUNDERPAY!THERE IS NO JUSTIFICATION – NONE – FOR UNEQUAL PAY FOR EQUAL SACRIFICE, AND THIS FACT IS THE WHOLE OF ECONOMICS!MERITOCRACY IS 100% IRRATIONAL AND IS HUMAN AND PLANET DEATH! Meritocracy is paying people for work Mother Nature did! Meritocracy is paying people for having made NO sacrifice, for having done NO work! Meritocracy is making a working person donate their sacrifice of time and energy to someone who is doing no more sacrificing but who simply won greater gifts in the birth lottery. Meritocracy is forcing the lesser-gifted to overpay the better-gifted their whole lives long just because the better-gifted won the birth lottery! WHEN NOBODY CHOSE TO WIN LESSER GIFTS!EQUAL PAY FOR EQUAL SACRIFICE IS YOUR ONLY HOPE, IS THE ONLY SAVIOUR!And your silence about this fact and your denial of this reality WILL NOT protect you!How many ways does it need to be said before any human groks that you CANNOT do an end run around JUSTICE and SURVIVE?????????Every minute, every human is choosing. Are YOU choosing pay-justice and survival and happiness, or are YOU choosing fatal injustice and no future???NONE of the rationalizations that people use to try to justify overpayunderpay hold up to rational examination!The VIOLENCE of overpayunderpay IS AT YOUR CHILDRENS’ THROATS RIGHT NOW! WHAT WILL YOU DO ABOUT IT?Will you make the crucial distinction between self-earned wealth and other-earned wealth? Will you make the crucial distinction between unlimited-fortunes capitalism and pay-justice capitalism?TICK-TOCK, HUMANITY! Time to put your big-girl panties on and DEAL WITH REALITY!Hundreds of thousands have LOST THEIR LIVES in the past few weeks while you’ve continued to IGNORE and/or DENY the simple fact that overpayunderpay is absurd, fatal, diabolic STUPIDITY.Oh dear dear dear – We might die if the resources run out?GOOD GOD!!!! People ARE dying every MINUTE in a world awash in ABUNDANCE AND PLENTY!!!!!! For chrissakes the “third world” has a 9/11 event EVERY FOUR HOURS NONSTOP, in terms of the number of casualties!! It is NOT a SCARCITY problem – it IS a MAL-DISTRIBUTION because of INJUSTICE problem!!YOUR CHARACTER IS DEFINED BY WHAT YOU TOLERATE HAPPENING TO PEOPLE WHO ARE NOT YOU!!Stop it with this bullshit the world is overpopulated bullshit! Stop it with this bullshit we are almost out of resources bullshit! Stop it with this “now that we have ours there’s not enough for others to have theirs” bullshit!! Goddammit STOP IT WITH THIS DOING THE WORK OF WEALTHPOWER GIANTS FOR THEM BULLSHIT!!! The enemy has outposts in your head! You’re going to get everyone killed with this FALSE scarcity BULLSHIT!! You are just enabling the lies that there is not enough to go around and so the house of havenot has to remain without their rightful wages and without material wealth!!!!!!!!!The dieoff camp is in bed with the wealthpower giants – WHETHER THEY KNOW IT OR NOT!The wealthpower giants LOVE those who spread the “dieoff is inevitable” message for them – in preparation for those who already have, accepting the “inevitable” getting rid of “useless eaters”!!!!!THAT IS SOME EVIL GENO-SADISTIC BULLSHIT and the perfect COVER for continuance of OVERPAYUNDERPAY!!!!!!!! There are PLENTY of resources and we WILL do things in sustainable ways, but it is ONLY possible with justice and equity and WITHOUT wealthpower giants having the power to STOP us doing everything we do in sustainable ways!We would already have reached sustainability if we didn’t so stupidly tolerate PAY-INJUSTICE!Oh, why do i bother? This species is INSANE and the supposedly grownup sector is composed of adult infants.SCUTTLE THE ARKmemo to Noahpeople are disgusting for not being horrified by the horrorsthey are disgusting for a million trivial tv shows amidst the horrorsthey are disgusting for not being in earnest to get out of the messthey are disgusting for not picking up on the hints that have been thrown out to themthey are disgusting for fiddling while the world burnsthey are disgusting for their vanity, their self-flattery, their egotism, their prejudice, their violent beliefsthey are disgusting for their denial, for their facile head in the sand behaviour, for the poverty of their horizonsthey are disgusting for their lack of shame at not being fairthey are disgusting for their selfdestructionthey are disgusting for many reasons there is no point in listingmost of all they are disgusting for erecting a wealthpoverty, masterslave situation whenever they have an egalitarian opportunity so they can indulge their taste for sadomasochism for a few centuries and then when they get tired of that, have a killfest, and then do it all again

WiseGuyNovember 18th, 2008 at 2:16 pm

You have an important message, MoG. I don’t share your pessimism, though.If you believe in free will, there is hope in that. If you believe that even a few can see the light, then it is possible that more will be able to see the light too.

GuestNovember 18th, 2008 at 12:05 pm

Yeah! Right! Housing is getting better! My ass!1:00 p.m.U.S. Nov. homebuilders’ index record low in all 4 regions1:00 p.m.U.S. Nov. NAHB index falls to record-low 9 vs. 14 Oct.

AnonymousNovember 18th, 2008 at 12:16 pm

If one loves money more than everything else than none of your “disgusts” can be adequately addressed. Of course, everyone wants and needs money, but it is the insatiable desire, the sole focus of one’s life to grab as much as one can at the expense, misuse or harm of others that subordinates all other human activities to a lesser and unjust status. Do you really want to challenge the wisdom of Jesus as well as the 10 commandments?

Mother of God!November 18th, 2008 at 2:07 pm

there is NOTHING in what i wrote that challenges the wisdom of Jesus and the ten commandments! what i wrote is the EPITOME of Jesus’s teachings! Love yourself so much you’d never hurt another and love others like you love yourself BY REFUSING TO GO ALONG WITH ROBBING PEOPLE OF THEIR PAY because they can’t SURVIVE without their pay, and they WORKED but didn’t get paid equitably!

John E.D.P. MalinNovember 18th, 2008 at 2:37 pm

To Anonymous:Cash is social energy: the fuel we need to survive as upper primates.The more cash you have, the more of a rewarding life you can lead.With 6.4 billion humans presently on this planet, we are neither needed nor required [the planet can sustain only 3.5 billion humans, and even that amount is too many for the fragile resources of Planet Earth].Economic might tips the scales in your favor to survive in a particular region or territory.The notion of ‘justice’ without the collateral notion of ‘righteousness’ [both Semitic concepts in origin] is merely sterile legal rules, regulations & code.Morality and religion have nothing to do with economics. Economics is a number driven system; it is not word-driven.Thusly, it is in the realm of mathematics that we must contemplate.DO WE POSSESS THE MATHEMATICAL CALCULATIONS TO CAPTURE THE PHYSICAL REALITY OF ECONOMICS? Control & release on feedback (positive and negative) alone regulates a system.Let us not use ignorant moralisms here!John E.D.P. Malin & James F.D.P.

AnonymousNovember 19th, 2008 at 10:36 am

If this is your mantra, then let’s use those mathematics to determine equitable pay: how much pay should the day laborer make compared to the CEO? 1/100th, 1/10th, 1/5th, 1/3rd, 1/2?Do you believe a CEO could work as hard as the day laborer if he were to assume that job?Do you believe a CEO would become a CEO without those who were willing to work for much less?The lessons in the Bible provide the wisdom to guide man to determine what is right and what is wrong, fair vs unfair or equitable vs unequitable. Violation of that wisdom results in an ever increasing degradation of civilization.

GuestNovember 18th, 2008 at 6:24 pm

j.m.,cash is king and the king can be either a tyrant or benevolent. cash is also a fragile social contract, voidable by either party in the transaction, until you get to the point of calling out the troupes. cash, in a fiat currency, is also potentially just scrap paper. i’ve seen it used as a medium for rough sketches of bulls and matadors. decent art. good art even. cash is also the contract that represent everyones debt to everyone else. this can be a great burden as well as fuel for some to survive.when morality and economics have decoupled, well, you are into a very dark place. a place where sane people cannot survive. what do you think?

datadaveNovember 21st, 2008 at 7:43 am

Hey, Dr. Roubini. You’ve been correct so many times and this time i hope your recession predictions are as mild as you say. Recession? What recession? It’s a Depression. (oh well, I hope not…but the capitulation of the consumer is causing a viral spiral that’ll mean huge losses of jobs and huge social costs in trying to keep people from camping out and starving. The ‘young’ are going to be shocked outta of their xboxes, suv’s and comfy lives pretty quick and the resulting bitterness? If is as mild a depression as you say….. we might survive. )thx for the optimism! (and allowing us commenters a place to vent…keeping the fingers and ideas nimble.)

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