Market crash: are we there yet ?

[Idiens]

Hmmmm... Sounds ever more like the engineer arguing with the brake-man who is responsible for the runaway train. You're riding on it guys. Wreck ahead.

[TropicCat]

Originally Posted by Idiens

Hmmmm... Sounds ever more like the engineer arguing with the brake-man who is responsible for the runaway train. You're riding on it guys. Wreck ahead.

I'm beginning to think that "Wreck Ahead" might be an appropriate description. Windy, I think Shadow Stats are a lot closer to the truth than what the government is releasing these days. As far as I'm concerned they can close BLS anytime they like.

It's getting really weird. Recent analysis exploring the extent of our debt crisis reveals the sad fact that the debt build-up in the U.S. today is far greater than it was on the eve of Great Depression I. The chart below, shows how prior to the 1930s, the total debt in the U.S. was between 150% and 160% of GDP. Now it’s close to 350% of GDP. And that's the reported GDP. If measured against actual GDP, it would be more like 500%.




Here's the really scary part.... What this chart doesn't show is derivatives, which barely existed in the 1930s but which are now sinking banks deeply into the red.

I'm having a hard time understanding how the government bailouts are going to fix this. It seems that it's very likely too little, and too late to end this crisis. I'm beginning wonder if the bailouts will even affect this mess???

Great Depression II is no longer a question. It's not if...it's when. Anyone who's in the market now needs to enter therapy immediately.

To John, Sailaway21 and Chuckles.... that thud we just heard was the sky falling.

[camaraderie]

OK...lets say I buy "Great Depression II". What should individuals do to best insulate themselves from personal financial disaster?

[sailaway21]

Here's an op-ed from the Detroit News in favor of an auto industry bailout. Mind you, the News is the conservative paper in town!
Editorial: Strings could lessen benefits of auto loans | The Detroit News | detnews.com

Given what is necessary to right the auto industry, I'm not sure that bankruptcy is still not preferable. Those job cuts and plant closings are going to come one way or another. Is it realistic to think that the Big Three are going to sell their way out of this crisis in a down economy? If not, you might as well give them the loans to keep the lights on, at least. Perhaps the good news is that, with gas prices plummeting, people who are in the market for a new vehicle will be less likely to insist it gets forty miles per gallon and settle for thirty mpg. But I hardly think they're forgetting the recent unpleasantness.

Rick Wagoner, the GM CEO, thinks its unnecessary for him to resign should GM get bailed out. While he is not wholly responsible, nor even majorly responsible, for GM's troubles someone surely is and sacrifice, like glory, should start at the top. Wagoner should resign.

With top management gone, the Feds should resist the urge to put a lot of strings on any federal aid offered. Not that the temptation won't be great but, Detroit already has an ample supply of auto experts who are confused enough about what to do concerning the future and don't need 535 designated experts additional. From government's point of view, you'd like to treat any bailout rather dispassionately, bearing in mind that if too many conditions are placed on any loans you, the government, could easily become in a position of "you broke it, you bought it".

[TropicCat]

Originally Posted by chucklesR

Once again you amaze me. You obviously didn't even look at the link.

Those numbers were adjusted dollars (note the use of the word adjusted)..

What does it take to get through to you? The offical adjustments to GDP are crap. That's the point. What do your numbers look like if the official inflation rate were x2 or x3? They'd be negative GDP which is in fact what has happened. That's the point.

All I can say is to watch the presentation. If you choose not to, please don't bring this up again.

[TropicCat]

Originally Posted by camaraderie

OK...lets say I buy "Great Depression II". What should individuals do to best insulate themselves from personal financial disaster?

Cam, I'm looking at the very same thing this morning. Suddenly, I have a pressing need to learn what we should do.

[wind_magic]

Originally Posted by TropicCat

Windy, I think Shadow Stats are a lot closer to the truth than what the government is releasing these days. As far as I'm concerned they can close BLS anytime they like.

Agreed.

The government has every motivation to exaggerate the CPI numbers to the downside because so much is now pegged to CPI as a measure of inflation. Social Security benefits, especially, are pegged to the number, and some argue that the government (under Clinton and others) changed the meaning of the numbers to keep them artificially low. CPI is also used for inflation adjusted Treasury securities which, again, is every motivation for the government to doctor the number.

Originally Posted by Shadow government statistics (SGS)

In particular, changes made in CPI methodology during the Clinton Administration understated inflation significantly, and, through a cumulative effect with earlier changes that began in the late-Carter and early Reagan Administrations have reduced current social security payments by roughly half from where they would have been otherwise. That means Social Security checks today would be about double had the various changes not been made. In like manner, anyone involved in commerce, who relies on receiving payments adjusted for the CPI, has been similarly damaged. On the other side, if you are making payments based on the CPI (i.e., the federal government), you are making out like a bandit.

...

The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.

...

Shortly after Clinton took control of the White House, however, attitudes changed. The BLS initially did not institute a new CPI measurement using a variable-basket of goods that allowed substitution of hamburger for steak, but rather tried to approximate the effect by changing the weighting of goods in the CPI fixed basket. Over a period of several years, straight arithmetic weighting of the CPI components was shifted to a geometric weighting. The Boskin/Greenspan benefit of a geometric weighting was that it automatically gave a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price.

Once the system had been shifted fully to geometric weighting, the net effect was to reduce reported CPI on an annual, or year-over-year basis, by 2.7% from what it would have been based on the traditional weighting methodology. The results have been dramatic. The compounding effect since the early-1990s has reduced annual cost of living adjustments in social security by more than a third.

...

Source: Shadow government statistics (SGS)

Originally Posted by TropicCat

Here's the really scary part.... What this chart doesn't show is derivatives, which barely existed in the 1930s but which are now sinking banks deeply into the red.

Yep.

[PBzeer]

Sorry Rick, didn't hear any thud here. You are right about one thing though, the bailouts aren't going to help. In fact, all they will really accomplish is put off the inevitable, making recovery that much harder and longer.

[Cruisingdad]

Originally Posted by sailaway21

Horse-pucky. Dow Jones clears 15,000 before years end-you read it here first!

Oops....

- CD

[Cruisingdad]

Originally Posted by camaraderie

OK...lets say I buy "Great Depression II". What should individuals do to best insulate themselves from personal financial disaster?

I can never remember his name, but he writes for CNN. Great writer. He was one of the first to break the Roubini stuff and his DefCon theories. He recently did anarticle on this. Excuse me if I miss-state some of the points as it has been a couple of weeks since I read it, but he said:

1) Learn a new trade.
2) Stock lots of food, especially can goods.
3) Stock money away (like under your mattress??)
4) Do NOT use the stock market as an indication of how good/bad things are or are going to get. He said the stock market is a terrible indicator as some of the best rises ever of the Dow were during the Great Depression.

I think his name is Glenn Beck... but someone feel free to correct me. Good writer and he has been spot-on. He started writing about this in January'ish' of this year and has not missed a beat. People made fun of him that he said this was going to happen. Of course, he was using Roubini as a model for his thoughts and quotes him.

Incidentally, people are not laughing at him anymore.

I personally find living in the country or the boat the best places to be. At least I will be able to feed my family that way. I think being in a city is a nightmare. You know, standing back and looking at this, should a great depression happen, there is a huge difference between the people of 1929 and today - they were much more independent. They likely kndew how to farm. People still traded food and goods for services. They did not depend on the modern luxuries that we now consider mandatory today. As a city cannot support itself, those in the city would be in for a rude awakening.

My opinions, only.

- CD