A note to the economic doomsday prophets

[StrongBad]

There seems to be a lot of threads suggesting doom and gloom surrounding the stock market conditions and the recent sell-off that has occured. This has gotten people to suggest that the end of the U.S. capitalist system is imminent.

Put quite simply, these people are all wrong.

The U.S. economy, while not in an extremely healthy state, is not in any danger of collapse and probably has only a 40% chance of falling into recession.

I've been following the market for years day in and day out, and the activity that you've seen in the past few days is little more than the normal yearly cyclical price fluctuations one would expect at this time of the year. Remember a few months ago when people were saying that the subprime mortgate issues were going to be the death of us all? Well, in the following weeks the market recovered after reaching it's natural technical support level and subsequently reached new highs for the year.

This is going to happen again by the end of December, as it is the natural pattern that prices follow year in and year out. Bookmark this thread if you want, but by Jan 1st the market will be at its highs again and have an increase in the year by 2-3% at least.

Inflation is in check, earnings are moderate but respectable, the Fed has begun to cut rates and GDP is still not showing any imminent recession.

Any questions please ask, but don't be subject to hysteria that really isn't warranted.

[flvegan]

1. Dude, quit harshing on the 4th Q gloomfest.

You're gonna wind up brightening somebody's day.

[tekisui]

2. Thread bookmarked.

Hope your right.

[phantom power]

3. Ben? Is that you?

[Beetwasher]

4. Thanks For Blowing Sunshine Up My Ass!

I'm not a doom and gloomer. I have no clue what the future holds economically speaking, but these are hardly normal troubles we're seeing. Will there be an Armageddon? Probably not, but things are going to get worse before they get better,

[donsu]

5. you forgot to take off your rosy glasses

america has crumbled

[Mojorabbit]

6. A serious question

I have been thinking of pulling out of the market. Does not the fact that we are in so much debt make any difference this time? I read somewhere that we owed more money than we can ever repay. Also, I read that a lot of the mortgages will reset in 08. If we are only seeing the tip of the iceberg re subprime mortgage /cdo losses and with the fed pumping in gazillions of billions of dollars now... won't that have an effect next year?
Have we seen these conditions in the past in the market and doesn't that make a difference in what happens?

[StrongBad]

13. Anything can happen, but it's premature to start freaking now

The data right now show that for the most part the subprime debacle has been contained within the financial sector. Could this change and ripple out? Sure, but we're not seeing evidence of it yet.

[havocmom]

23. Reminds me of Ken Lay talking employees and small investors into buying ENRON

while he and the rest of the boys with big offices were selling their stock off.

[StrongBad]

25. Not really

You're talking about a singular company that the CEO had control to manipulate and I'm talking about the macroeconomy which no economic unit could singlehandedly manipulate.

[havocmom]

26. Not a 'singular company' by a long shot! Most employees in airline and mortage industries

would laugh their asses off at that ridiculous position.

:rofl:

[pscot]

30. 25 years ago it was the S&L debacle

that was going to cause the collapse of the American economy and western civ generally. Then it was the Japanese who were going to buy up America and rent it back to us. Now it's China and the falling dollar. As Emily Litella used to say, "It's always something." I don't mean to minimize the real problems that are out there, but let's not get carried away. The administration is monetizing the debt. Our refusal to pay for our middle-east adventures made this inevitable. Nixon did the same after Viet Nam. As the dollar falls, anyone who holds our paper ends up paying for the war. Clever, but it can be overdone. It tends to generate resentment among our creditors. On the other hand, fuck the Saudis and the Chinese.

[hobbit709]

7. Have you convinced anyone on a fixed income?

[dysfunctional press]

8. falling dollar, rising price of oil, rise of euro as oil currency, subprime mortgage crisis...

those things are following the same year-in year-out cycles...? :shrug:

[Viva_La_Revolution]

9. If you think the subprime thing is over, how can I give validity to the rest of your opinion?

edit: ...and "inflation is in check"? :rofl:

[BuyingThyme]

15. It's not like you can look into the future and figure out when

those things come due.

[ProfessorGAC]

10. I'm No Doom & Gloomer, But. . .

. . .your understanding of the macroeconomic condition is very limited.

First, the core inflation is in check, but total inflation is not. Add in the impact of direct energy and the impact of energy on food costs (not in the CPI), and it's higher than at any time since 1981.


Secondly, earnings are statistcally significantly lower than standard. These last 6 years are all the bottom quartile of the last 60 years. And, take away the defense industry and oil companies (all other SIC's, in other words) and all 6 years are in the bottom quintile.

Thirdly, the growth is overfunded by debt. (Both governmental and personal.) Exclude the excess debt (more than one sigma above the mean of the last 60 years), and you'd see the growth is recessionary, if not a conventional recession.

The overall economy, the grand capitalization, and the monetary situation still put the system in a state that causes change to be glacial. So, there will be no sudden collapse.

But, that's hardly the same thing as the rosy scenario you've painted.
The Professor

[StrongBad]

11. I'm not necessarily painting a rosy picture

I even pointed that out in my OP. I'm very willing to accept that a recession will occur, but we're not going to see a total financial collapse with people roaming the streets like savages because the dollar is worthless and not a means of transaction.

That's the sort of impression I'm getting from other posts here and what I'm trying to counteract.

[ProfessorGAC]

18. Then We Agree

However, you said earnings are moderate, but neither stellar nor horrible. I'm saying it's even less attractive than that.

Same with inflation.

However, we agree on the extremely low probability of any major negative impact occurring suddenly.
The Professor

[StrongBad]

34. Your insight on econ. issues is always appreciated

I always read your posts on these subjects and you seem to be one of the few voices that deals with these issues without hysteria in favor of data and economic theory.

[Birthmark]

31. Well, I usually worship at your altar , Prof. GAC...

...and greatly enjoy your posts, I don't entirely agree with this statement:

"The overall economy, the grand capitalization, and the monetary situation still put the system in a state that causes change to be glacial."

I think that used to be true. But I think in the brave new economic world that has been built over the last decade or more, that that glacier can calve in unexpected ways. All these derivative instruments may
well have introduced stress faults that are invisible to us. That doesn't mean Doomsday is imminent or even probably, just that I think it's possible.

Glacier prediction is a problem in global warming theory, too, btw. :)

[ProfessorGAC]

35. The Problem Is Just Not Large Enough

I'm certainly not saying the deriv market and the intrinsic problems are serious. I'm saying that the impact is not likely to foment a catastrophic result because the comparison of the problem to the total capital value of the macroeconomy is too small.

I'm not paiting any rosy picture either. Just not expecting any economic nuclear winter. Nobody's model, that i've seen, allows for it.
The Professor

[Birthmark]

36. I so hope that you're right.

In two or three years, I'll be set up in such a way that even the complete collapse of the economy will present nothing more than a minor, though perhaps persistent, annoyance. I'd be sorry to see it go, of course, and would feel bad for all those affected. But I'd be more or less proof from the effects.

But I need the time!

[Birthmark]

12. Tell me...

...what unit is the market measured in? If it's in dollars...well...:)

"Inflation is in check..."
Says who? Sorry, inflation is only in check if one doesn't eat or drive to work or heat their house. For those of us who do those things, inflation is outrageous.

"...earnings are moderate but respectable..."
Citing many TV commercials I've seen: Past performance is no indication of future...yadda.

"...GDP is still not showing any imminent recession."
Yeah, with fake inflation numbers and hedonic adjustments and other fun games, it'd be truly catastrophic if the GDP showed any recession. And I'll just note that the rise in GDP over the last 6+ years has been more than funded by debt. It's crazy and unsustainable.

In fact, while hysteria may not be warranted (and never is, imo, though it may be understandable), grave concern is the only rational way to view our current economic circumstances.

[sinkingfeeling]

14. There's a hell of a lot more to the American economy besides the 'market'. If those 7 countries that

are threatening in getting out of the 'lend money to the USA' business, take their funds out of our bonds, what do you think will happen? We owe almost $10 trillion dollars. Do you think we'll just print up some more like we did to 'assist the market' a couple of months ago when the subprime lenders were crying? Having the Fed cut rates just continues to prop up business.

[magellan]

16. You lost me at "only a 40% chance of falling into recession"

You base your reasoning on the markets and the numbers provided by the government? ROTFL. We're in a recession NOW.

Say hello to Tinkerbell for me.

[redqueen]

17. Sorry but no.

The sub-prime fiasco has only just begun. Time will tell how it goes from here but to think that it's over and 'recovered'?

:wtf:


Also, the credit crisis is not imaginary or overblown... why did you fail to comment on it? I think that more than anything else is what is worrying most economists these days.

[StrongBad]

19. Look, I'm totally open to any possibilities regarding the future

But, there is no data or evidence at the present moment to suggest that the subprime thing is going to spillover. A credit crunch has not occured yet and funds still remain relatively liquid when compared to the demand for them.

All I'm saying that this naysaying is premature. Wait a little longer for some new information and take it from there...

[redqueen]

29. There's no credit crunch? So... explain this then, please?

http://www.marketwatch.com/news/story/worsening-credit-crunch-pressures-british/story.aspx?guid=6CB73ADC-7B51-44EF-9E65-6FBB001B603C&dist=SecMostRead

[StrongBad]

32. This confirms exactly what I'm saying

A credit crunch is possible (but not definite) in the future but so far the damage is limited to financial sector companies such as Citigroup, Goldman, Morgan Stanley, and of course the companies that dealt with sub-prime issues.

Please find me evidence that shows a spillover effect happening now in terms of economic growth or skyrocketing interest rates. If you can't find one it's because while it's somewhat probable it hasn't surfaced yet so it's premature to conclude such a thing.

[redqueen]

37. So... you say it's possible... they say it's worsening...

and you're right because...?


And I don't get your logic there... if there's no spillover effect yet that means there can't / won't be one?

:shrug:

[StrongBad]

39. Sure

The thing with these issues is that we're always reactively making our predictions based on incoming data.

Right now, I will not deny that financial companies are hurting because of what went on. This is confirmed by their recent earnings releases and the write-offs they declared because of the sub-prime crisis.

However, there still is no data saying that other sectors of the economy are being hurt bad and will cause a major recession. Sure, it's possible. But why conclude that it's definitely going to happen when it's only a possibility at this juncture?

[redqueen]

42. I get ya... yes... anyone predicting surefire doom & gloom

would be premature, indeed. Same with assuming nothing bad will happen and that things are as bad now as they'll get.

:hi:

[pscot]

40. The credit crunch

referred to in that article was focused on the credit worthiness of a few English banks who speculated a little too enthusiastically in derivatives. In this country credit is still readily available, at reasonable rates to any qualified borrower. A 30 year home mortgage goes for about 6%. Any body who can scrawl an X on paper can get a credit card. Any college kid willing to hock their future can do so? Where's the credit crunch? In fact we have the opposite problem. Many people have borrowed more than they can realistically afford. We may have a debt crisis, but there is ample credit.

[havocmom]

20. Wall Street & advocates sure working hard to convince US that SS payroll taxes

should be turned into forced payments to Wall Street. Seems like they are getting a clear picture they have sucked up as much voluntary investment as they can and now need enforcers to squeeze the working class.

That does not seem like the actions of a robust institution/economy.

Inflation is NOT in check. They just keep tweaking the index to knock out those things which are going up much faster than growth and income. Go to the grocery store, gas station, order up some heating oil and come here and argue that inflation is in check.

Earnings for regular workers up 1.1% (from info blondeatlast posted in another thread) and THAT figure INCLUDES the 38% increase the CEOs and top officers got, so REAL WORKERS lost some ground!

No imminent recession because we are already past that point. People are out of work by the TENS of THOUSANDS. Jobs do not equal the same jobs people lost. Jobs now equal a shit load of just above minimum wage, no benefits, less full time jobs. NOT THE SAME as the jobs that have been lost/send overseas.

Hope you stay safe in your comfy niche. The rest of the people are hurting or know people directly who are hurting.

Changing the formulas for the reports does NOT make the economy OK. It doesn't fool very many people anymore either.

[Romulox]

21. "the market" does not determine the health of the average American.

If you are a Saudi oil billionaire, perhaps "the market" directly determines your fortunes, but the average American's wages have not kept up with inflation while "the market" hit record-high after record-high.

So "the market" is, in reality, a very small component of the health of the average American. What you are saying is that rich investors will do fine no matter what.

Well duh. :eyes:

[crispini]

22. What do you think will happen ...

if the countries that are considering pegging their currency against the Euro instead of the Dollar do so?

I'm thinking about getting into some Euro mutual funds myself. Thoughts?

[blondeatlast]

24. At least you didn't suggest that traffic is a great way to measure our economy as did one DUer

yesterday.

Still, might not be ALL gloom and doom, but it sure as hell isn't looking pretty for the working stiffs, be they poor or middle class.

For the one-percenters, though--yeah, things look really lovely.

[havocmom]

27. Brava~

:applause:

[blondeatlast]

41. Every chance I get!

;)

[A HERETIC I AM]

44. Obviously that rhetorical device was completely lost on you as well

I never suggested that "traffic is a great way to measure our economy". Suggesting i did is disingenuous.
I am not so damned stupid as to think that traffic noise is an appropriate measure of how well people are doing. That was not the point. The point i was trying to make was COMMERCE will not stop.

Obviously i need to do a better job of spelling out precisely what i mean because discerning subtlety or rhetorical devices should not be a burden you and the others similarly equipped should have to bear.

Edited for redundancy

[leftofthedial]

28. BUY! BUY! BUY!

all is well.

no problemo.

Buy more chinese shit for Christmas than you ever have before!

Happy days!

Woohoo!

Why not take a day off from one of your $7.50 an hour jobs and go buy a new TV! You deserve it!

Party time!

The stock market is a great way to gamble AND support the corporate oligarchy!

Get with the program!

[Deja Q]

33. Agreed. And if we worked more to make our own products to get to market,

that will help as well. Globally and/or locally.

Nothing hurts.

People SHOULD chill.

[MadHound]

38. It is the underlying structures in our economy that have many people worried

Using the market to judge anything is a crap shoot at best. However if you look at the numbers behind the market, that where things get dicey. A huge and growing national debt and defecit. Maxxed out personal debt. Housing market tanking, energy prices soaring along with food prices, a credit market going down the tubes, consumer confidence starting to tank, a dollar that is becoming less valuable than toilet paper, and Enron style bookkeeping that would do Lay proud(for instance, you do realize that if unemployment were counted the same way as they did twenty five years ago, we would be standing at ten percent rather than the figure being bandied about today, just under five)

All of this adds up to an economy that is on the verge of a recession, and possibly even a depression. Most experts that I read or talk to share this opinion, and even Bernanke is using weasel words to hedge his bets.

But hey, if you want to keep whistling past the graveyard, fine. Just don't say that we didn't warn you when it all comes crashing down around you.

[LanternWaste]

43. Financial End-Timers? Economic Revelationists? Doomsday Dollarists?

Financial End-Timers? Economic Revelationists? Doomsday Dollarists?

Apocalypse, whether from the religious world or from the secular world has a nutjob or two hiding amongst the analysis.

I think it was only last week that one of my... esteemed fellow posters on DU prognosticated civil war in place of the '08 elections due to unrest brought about by the elections and the economy.


I was called rude because I asked for evidence. :evilgrin:




On edit: I'm certainly no economist, and the numbers in my head get me nop farther than balancing my bank account every month, but I do love a good end-of-the-world-as-we-know-it scenario...