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silatix

economy in crisis..

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I'd watch that movie.

 

I'm imagining something like Bloodsport. Greenspan, Bernanke, Paulson in a fight to the death. Of course none of us really would win if any of them made it out of the ring.

 

Though he doesn't have the same notoriety as other predictors Gerald Celente is at least right about the Federal Reserve and the folly of manipulating interest rates to somehow centrally plan an economy.

I hope he's wrong about the state of things in 2012, but realistically he may not be...

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Au contraire on the Gerald Celente opinion. Without the Fed manipulating interest rates, at worst we'd still be in 70's-style stagflation, and at best we'd have much wider boom-bust fluctuations than we have now. It's a tool that people can either use badly or well, kinda like the Shine of monetary policy. By the time he left the Fed, Greenspan had overused the tool so much that he left us with zero leeway to use it--it's a bullet that was already shot, and a bullet we really need badly. But rates were already as low as they could go, no chance to lower them without going effectively negative in real terms--nominal rates minus expected inflation (imagine paying someone to take your money--effectively that's what was happening in Japan during the 90s when they were in something like this situation).

 

Greenspan was like the guy at the film trailer company who does every single title with the default red-orange-white glow so that nobody else can ever use it. He admitted as much just last month, the shine-meister. Back to history, when Volcker put into place the Uncle Milty Friedman-ish monetary tightening in 1981, the zany interest rates that ensued (short-term rates hit 20%) caused a predictable recession for nearly a year in 1982, but also cured nearly a decade of terrible economy that started with the oil embargo of 1973. It was hard medicine, but it worked like expected and set the basis for the eternally expanding economy nearly everyone here has enjoyed their entire lives. It'll be a tool that works again some year soon, just not until like 2012 or whenever the Fed thinks the economy is strong enough to require a tightening (aka pulling the punchbowl when the party gets going). The big difference is that from now on, based on the hard lessons of this monster, I don't think the Fed will ever again act as Greenspan made it act, when he somehow didn't realize that private enterprise could screw up and massively misallocate resources rather than be the always-right-by-syllogism panacea of John Galt's wet dream.

 

By the way, we're not in any position to do the Volcker/Friedman tightening now because the credit markets would completely break. Different horses for different courses, only problem is our horse is a balding old nag wheezing toward the end of eight years of running backwards with half a shoe hanging off and Dick Cheney driving his heels into its flank.

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A crisis in the economy isn't bad news for everyone. Here's my situation:

 

My pay is the same and likely to stay the same.

House prices have fallen sharply (I don't own a house yet).

Interest rates are dropping fast.

Inflation has slowed.

Retailers are offering great deals to stimulate sales.

 

Unless the economy goes into a fully blown depression I'm much better off than I was a year ago. A crisis for some is an opportunity for others.

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I agree that Greenspan way overused the manipulation of interest rates. I'm on the same page with you on that. I think where our paths diverge is whether or not it is EVER a good way to try to "manage" things. I'm of the Austrian school of economic thought and so I'm fundamentally opposed to the Keynesian approach of interest rate control and generally trying to centrally plan an economy. It's really not a free market at that point and can ONLY lead to out of control inflation.

It's not a particularly popular view, as the west has been obsessed with Keynesian economics and debt driven economies for a long time. The problem lies in the fact that this sort of economic theory strongly favors the banking and financial centers in the short term, so there is little motivation to change or reevaluate it.

Debt and consumption are just not the same as economic growth, but have recently been mistaken for it.

 

Govinda: I completely agree on the broad strokes you outlined in your history. Volcker, though unpopular at the time, did the right thing by finally trying to stem the runaway inflation of the preceding years. Limiting the money supply is one policy that I wish would have stuck around. But, unfortunately, we're back to trying to manipulate interest rates, print more money, and generally attempt to prop-up artificially high prices.

 

Destro: You're absolutely right. If we can avoid meddling with the economy further then prices will eventually begin to reflect reality. Housing prices have been unrealistically high for many years. They, along with many other things, need to come down in price and natural market forces, if the government doesn't try to artificial prop them up, are doing their job of bringing things back to a more realistic equilibrium. I too hope that things don't spiral down even further and that we can all keep our jobs and buy a house. That doesn't appear to be our governments plan though. <_<

 

As an interesting side-note: Greenspan used to promote a more sound, precious metal based, monetary policy. But then he became Federal Reserve Chairman and, well, Govinda already agave the history lesson about what he did.

An essay by Greenspan himself (1967)

Edited by SaintEfan

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Today I had my first taste of this economy here where I work. My bosses talked to everyone, there's only 3 of us, plus 2 bosses, and we are having a few cutbacks. We're losing our paid cell phone plan, health care stipend check, and a few other small things. Not a huge deal since they gave us the iPhones they bought in lieu of paying our cell phone bill, and I was never really using the healthcare stipend as of yet. They did have to cut our office coordinator down to part time and we're hoping some jobs will come through and everything get back to normal. 4 jobs that were slated for Nov and Dec disappeared so the cost cutting is to counter that.

 

Though, it's got me a bit freaked, thinking of what if it does get worse. Work down here in FL is sparse...

Edited by a2visual

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It's good to see that many people in this community are keeping an eye on the issue and are concerned about it. The more our community, and people in general, prepares for the worst and starts saving now the better off we're going to be if the shit really does hit the fan.

 

a2visual, I'm glad to here that your company's taking steps to limit its spending rather than just waiting till it's too late and firing people. Everyone limiting their spending and beginning to save again, even companies, is going to really help.

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Gotta issue one correction: Manipulating rates to reach a non-inflationary equilibrium isn't Keynesian. That's a Milton Friedman thing that didn't really occur to people until well after Keynes was gone.

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A crisis in the economy isn't bad news for everyone. Here's my situation:

 

My pay is the same and likely to stay the same.

House prices have fallen sharply (I don't own a house yet).

Interest rates are dropping fast.

Inflation has slowed.

Retailers are offering great deals to stimulate sales.

 

Unless the economy goes into a fully blown depression I'm much better off than I was a year ago. A crisis for some is an opportunity for others.

 

every sign is pointing to depression. i wouldn't breathe a sigh of relief until all the major corporations decide their 09 budgets in January. I don't think the advertising/entertainment industry is going to feel a huge amount until then.

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I don't know about you guys, but I'm just not feeling the pinch.

Maybe it's the fact the NYC f*cks you in the ass every single day.

It seems like tomorrow is just another day.

 

We'll talk in a couple months. ;)

 

-m

 

Also: Great post SaintEfan.

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every sign is pointing to depression. i wouldn't breathe a sigh of relief until all the major corporations decide their 09 budgets in January. I don't think the advertising/entertainment industry is going to feel a huge amount until then.

 

I'm in New Zealand so it's not as bad as the US. Our Govt debt levels are low so we have a bit of a buffer. I'm also in the free-to-air TV broadcast industry so the net effect of an economic slow down is close to zero. The price per viewer per hour goes down but the number of viewers and the length of time they view goes up.

 

I am still worried it could turn into a depression here. If the US Asia and Europe go under, we will too. It really pisses me off. It's not like this hasn't happened before. Unrestrained greed = inevitable economic disaster. I'm no economist but it doesn't seem that hard to understand.

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It's a tool that people can either use badly or well, kinda like the Shine of monetary policy. By the time he left the Fed, Greenspan had overused the tool so much that he left us with zero leeway to use it--it's a bullet that was already shot, and a bullet we really need badly. But rates were already as low as they could go, no chance to lower them without going effectively negative in real terms--nominal rates minus expected inflation (imagine paying someone to take your money--effectively that's what was happening in Japan during the 90s when they were in something like this situation).

 

I :H that explanation. I remember Japan in the 90s this way, because I was in the habit of buying at least one Japanese motorcycle per year. Prices and financing were fantastic...on this end.

 

Greenspan was like the guy at the film trailer company who does every single title with the default red-orange-white glow so that nobody else can ever use it. He admitted as much just last month, the shine-meister.
I'm no student of economics...my checkbook would prove it. But I did buy a home in the late 90s, back when I was a 20-something bachelor and qualified for the first-time home buyers' program. I remember seeing the prime rates drop and wondering how they ever work their way back up...I mean, if the banks are loaning out billions at 3-5%, doesn't that take away any "wiggle room" in the rates that banks themselves get? Again, I don't know the specific mechanics of it, but it looked to me like the financial "system" was painting its way into the corner. This comes from the perspective, mind you, of a kid who realized that his cheap Ninja bikes were the result of a wonky economical situation in Japan. It just seemed like we were inching toward the same sort of deal.

 

By the way, we're not in any position to do the Volcker/Friedman tightening now because the credit markets would completely break. Different horses for different courses, only problem is our horse is a balding old nag wheezing toward the end of eight years of running backwards with half a shoe hanging off and Dick Cheney driving his heels into its flank.

 

Isn't that the root problem of all this...too much debt, period? My friend says his motorcycle dealer trade magazine advises sales people to "sell the customer a low payment, not a $xxx motorcycle" or something like that. It just seems to me that between the consumer, the private business, and the federal government, we're all just sunk too darn far with credit. Is it too simplistic of me to think that maybe we pampered Americans need a real no-shitter to jolt us into reality, instead of instinctively financing everything without even thinking? That is, of course, with fingers crossed that such a jolt can come without crashing the whole system to the ground.

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Isn't that the root problem of all this...too much debt, period? My friend says his motorcycle dealer trade magazine advises sales people to "sell the customer a low payment, not a $xxx motorcycle" or something like that. It just seems to me that between the consumer, the private business, and the federal government, we're all just sunk too darn far with credit. Is it too simplistic of me to think that maybe we pampered Americans need a real no-shitter to jolt us into reality, instead of instinctively financing everything without even thinking? That is, of course, with fingers crossed that such a jolt can come without crashing the whole system to the ground.

 

It very much is the root of the problem. America's consumption far outweighs any sort of production, which on a whole causes a dangerous situation. The only thing that was keeping us going was other countries, particularly China in recent years, buying up our fake (printed by the Fed) currency. Basically they were buying our debt. So for many years the only thing that America was exporting was our own money. As other countries are beginning to reevaluate the stability of the American dollar as a reserve currency they are beginning to slow down on their consumption of our currency (debt) and will eventually stop. If other countries stop buying our currency, which is inevitable, and we continue to print more and more of it then it doesn't take an economist to predict what will happen to the prices of things in America.

( It has happened before )

 

"Since striking workers were paid benefits by the state, much additional currency was printed, fueling a period of hyperinflation. The 1920s German inflation started when Germany had no goods with which to trade. The government printed money to deal with the crisis; this allowed Germany to pay war loans and reparations with worthless marks and helped formerly great industrialists to pay back their own loans. This also led to pay raises for workers and for businessmen who wanted to profit from it. Circulation of money rocketed, and soon the Germans discovered their money was worthless."

 

It's as if we are borrowing their playbook.

"The only lesson we ever learn is that we never learn." - Robert Fisk

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My friend says his motorcycle dealer trade magazine advises sales people to "sell the customer a low payment, not a $xxx motorcycle" or something like that.

 

As an odd job before I got into mograph, I worked at a used car dealership. Although it was a reputable one, the goal was to always sell the customer on payment. Half the time they had no idea they would be financing upwards of $25k for a mid priced used car, depending on rate and other products etc. People used to come in with balloon loans that totally tanked them, I mean, people would owe $30K on a car maybe worth $8K. It was bad, and these things happened a lot and on a regular basis. Since it was a Honda dealership there wasn't really room to sink someone that bad, and it was against company policy, but the local Mitsubishi, Ford, and Kia dealerships did this all the time. And these are people who can't afford to finance that much money.

 

It's sad because this is a general mindset with most consumers, especially on the lower end, where most consumers fall. If they can afford the monthly payment they don't care how much it was. Even if they couldn't afford the monthly payment, they still do it, default, and do it all over again. If someone bought the paper, who cares? It was depressing...shit, still is...

Edited by a2visual

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We're feeling it, and have been feeling it since a few weeks. Projects are on hold, there's a hire-freeze, and spending is not allowed unless it's absolutely necessary. Around me it still not all sour grapes, but we're barely into Q4, lots of decisions on budget had already been made prior to this whole meltdown.

 

I expect Q4 and Q1-2009 to be as bad, or even worse, when it comes to directly affecting staff. The real economy is just starting to feel the pain, just wait when those numbers come in. :o

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there's a hire-freeze

 

I believe I'm running head-first into this right now. :( Granted, I'm in a second-tier market (Chicago), so opportunities were slimmer to begin with. But I've had several interviews in the past month that went quite well and seemed promising, yet it seems caution has stayed the hand that hires.

 

It's really frustrating, as I think I could get in somewhere in a first-tier market, yet don't have the funds or desire to move to either coast just yet...especially not in this economic climate.

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(Oops I was too harsh. I edited this back.)

 

Everyone is worried about China. This is very recent stuff from the World Bank about them. Note that you're getting this on a motion graphics board, better info than you'll get out of most newspapers because they don't think people can handle this much detail.

6. The last thing anyone needs to worry about is fall in Chinese demand for US treasuries.

 

The Treasury market obviously isn't worried - not it 10 year Treasury yields are
. And there is little reason for the bond market to be worried if current trends continue.

 

The World Bank forecasts that China's current account surplus will RISE not fall in 2009, going from an estimated $385 billion to $425 billion. How is that possible if real imports are forecast to grow faster than real exports? Easy – the terms of trade moved in China's favor. The price of the raw materials China imports will fall faster than the value of China's exports. China's oil and iron bill will fall dramatically.

 

In macroeconomic terms, China's fiscal stimulus will offset a fall in domestic investment leaving China's current account (i.e. savings) surplus unchanged. The 2009 surplus is expected to be roughly the same share of China's GDP (9%) as the 2008 surplus.

 

In dollar terms, the World Bank forecasts that China will add almost as much to its reserves in 2009 than in 2008. That is a bit misleading: the 2008 reserve growth number leaves out the funds shifted to the CIC (ballpark, $100b in 08) and the rise in the foreign exchange reserve requirement of the state banks (ballpark, another $100b). But it captures a basis truth. Even if a fall in hot money inflows means that China will be adding $500b rather than $700b to its foreign assets, its foreign assets will still be growing incredibly rapidly. China already has – counting its hidden reserves – well over a $2 trillion. It is now rapidly heading for $3 trillion.

 

In broad terms – if oil stays at its current levels – China will be the only large surplus country in the world, and it will essentially be financing a US deficit of roughly equal magnitude to China's reserve growth. It makes everything plain to see.

 

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Everyone is worried about China.

 

I was asked to quote recently for a number of 3D footage items that would have kept me going nicely for most of the next year. Mindful of the fact this was a shedload of good quality work I submitted a competitive quote only to find the client (who has contacts all over the industry from film to broadcast) had been contacted by a mate in China who was setting up a firm of Chinese artists, partially funded by the Chinese Government and with lots of room and lots of kit.

 

Their quote for the same job, as well as the schedule for doing it was jaw-droppingly low. No way I could compete, even as a sole trader working from home without the overheads. I was asked to re-quote but declined; I might as well go and sell my arse on a street corner as work for that sort of money.

 

There's a revolution coming . . .

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I was asked to quote recently for a number of 3D footage items that would have kept me going nicely for most of the next year. Mindful of the fact this was a shedload of good quality work I submitted a competitive quote only to find the client (who has contacts all over the industry from film to broadcast) had been contacted by a mate in China who was setting up a firm of Chinese artists, partially funded by the Chinese Government and with lots of room and lots of kit.

 

Their quote for the same job, as well as the schedule for doing it was jaw-droppingly low. No way I could compete, even as a sole trader working from home without the overheads. I was asked to re-quote but declined; I might as well go and sell my arse on a street corner as work for that sort of money.

 

There's a revolution coming . . .

 

I heard somewhere that the Chinese government is opening upwards of 1,000 art schools...And they have over 1 billion people :huh:

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I heard somewhere that the Chinese government is opening upwards of 1,000 art schools...And they have over 1 billion people :huh:

 

The upside is that the billion plus people in China have or will have needs for art/animation/media, etc. and we could look at that as an opportunity for more business for everyone. If we sell eye candy -- That is a lot of hungry eyeballs.

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