Jump to content
Sign in to follow this  
silatix

economy in crisis..

Recommended Posts

To quote Kenneth Boulding: "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist."

Except ideas aren't finite.

 

When you have a new idea that you can sell to other people, you create value. With six billion people, this happens millions of times a day. Add that up over the years, it's growth. If the world grows a mere 3% per year, that's huge.

 

But when everyone pours money into a system blindly expecting returns, to the point where supply curve moves outward, then prices decline. In other words, when every single person of net worth greater than US$150,000 starts buying houses, multiple houses, flipping houses, houses in fringe areas, guess what happens. Want to know a sure sign that you should stay the fuck out of a market? When people like us start saying how great an idea it is to buy something. Or dentists, or plumbers. EVERYONE was talking up the 'sure money' in buying a house. Sure sign that things were going to blow. Or you could have read Paul Krugman...http://www.nytimes.com/2005/08/08/opinion/08krugman.html, who wrote that column in 2005.

 

The Subjective Theory of Value is relevant here. People who want us back on gold subscribe to the Intrinsic Theory of Value, which I haven't got any time for. Only two things have intrinsic value to me, and they both belong to my friend Heather, and Chris Smith knows who I'm talking about.

 

Back to the issue at hand, before every nutty idea on the planet gets tossed into this thread. This crisis isn't down to fundamental problems with our economic system, but problems around the edges regarding regulation. Like when you deliver a spot with bad motion blur because you threw Reelsmart Vector Blur over the top of 2d layers as well as your 3d layers--it fecks everything, but you'd never say that the idea of motion graphics itself is flawed.

 

Here's a Powerpoint someone emailed me last week, which explains it from the perspective of 'greedy and stupid people made shitty loans.' Nobody's done the powerpoint for 'greedy and stupid people took out shitty loans' yet. Look for the 'Page forward' icon on the Scribd toolbar at the top.

 

http://www.scribd.com/doc/2190705/CDO-Powerpoint-SubPrime-Primer

Share this post


Link to post
Share on other sites

Because I can't quit posting multiple times until the thread is dead...tomorrow the House will vote on the bailout...again. This time, Republicans are promising they won't

and support this sucker like they should.

 

Here's Clinton economic advisor Robert Reich on this latest bailout:

 

In fact, the bailout bill isn't really taxpayer supported. It will be funded by additional federal debt, issued mostly to foreign governments -- especially the Chinese and in the Middle East. And, strictly speaking, it's not even a bailout. The Treasury will buy and hold mortgage-backed securities whose value is now unknown because there's no market for them, until housing prices start rising again, by which time the securities should be worth something -- perhaps even more than the Treasury pays for them. (Note that there continues to be great confusion about the extent to which the Treasury will hold a reverse auction, paying banks the minimum price at which they're willing to sell the securities -- perhaps 20 cents on the dollar -- or whether the Treasury will buy the securities outright for their face values and take warrants or shares of stock in return.)

 

But whatever it's called and however it's financed, it's still an outrage. America's foreign policy is made no more flexible by going into deeper hock to the Chinese and the Middle East. And the deal still subjects American taxpayers to some risk, especially if the housing market doesn't bounce back for many years. Worse, the bill can't help but prop up the earnings many Wall Street executives whose malfeasance, greed, and stupidity got us into this mess in the first place. And it does nothing for average Americans except avoid economic calamity. (The provision ostensibly helping distressed homeowners is to be used at the discretion of the Treasury Department, so it's mostly a sham.)

 

The larger economic outlook is not encouraging. All signs point to the economy worsening, bailout or no bailout. Unemployment will continue to rise. Median earnings will continue to drop, adjusted for inflation. More Americans will lose their health insurance.

 

The Era of Angry Populism has only just begun.

 

We're all Scott Frizzle now. :D

Share this post


Link to post
Share on other sites

National debt broke $10 trillion yesterday. The bailout adds at most $1 trillion, but probably less than that, and not all at once.

 

For those of us younger than 30, in 1990, the S&L bailout was to cost $300 billion, a number so large that nobody had ever heard anything like it before (now, since the Iraq war, numbers like that are sadly commonplace). So what happened after that terrible awful mess that had everyone so angry (and which John McCain was involved in)?

 

Here's Mr Wiki again: "U.S. General Accounting Office estimated cost of the crisis to around USD $160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government from 1986 to 1996."

 

Then what happened was that the 1990s became boom years, one of the longest sustained periods of growth in US history. There was a recession in 1991 caused by the first Gulf War, then full steam ahead. The dotcom and tech bubbles didn't come around until well afterward, and they didn't ever cause a recession.

 

So there you go.

Share this post


Link to post
Share on other sites
Except ideas aren't finite.

 

When you have a new idea that you can sell to other people, you create value. With six billion people, this happens millions of times a day. Add that up over the years, it's growth. If the world grows a mere 3% per year, that's huge.

 

 

Seriously?

 

I think you're missing the point here. By tangible, i mean something that can PHYSICALLY create value. Thinking ideas have value in a world based on abundant & cheap energy is quite a farce.

I think it's the myth of free markets and innovation that has you blinded with infinite possibilities, in a limited resource world.

 

Really, it's not that hard to understand that there are limits to growth. I think the thermodynamics metaphor is pretty spot-on, if i say so myself.

Share this post


Link to post
Share on other sites
Then what happened was that the 1990s became boom years, one of the longest sustained periods of growth in US history. There was a recession in 1991 caused by the first Gulf War, then full steam ahead. The dotcom and tech bubbles didn't come around until well afterward, and they didn't ever cause a recession.

 

So there you go.

 

Once again, this is all based on abundant & cheap energy. No growth = loss of value, in a continuing downword spiral of devaluation. There is no such a thing.

 

The only way you would ever be right, is when tomorrow, we find a cheaper and better alternative to oil.

Share this post


Link to post
Share on other sites
Once again, this is all based on abundant & cheap energy. No growth = loss of value, in a continuing downword spiral of devaluation. There is no such a thing.

 

The only way you would ever be right, is when tomorrow, we find a cheaper and better alternative to oil.

 

Using oil as an energy source to drive internal combustion engines is a combination of resources and ideas. There are plenty of resources that are pretty limitless, solar, wave, wind, atomic fusion etc, it is the ideas that will render them an economic resource. The ideas, as Govinda says, keep coming, some of them do more harm than good, and they may not come in time to save the world from catastrophes. But we also have not necessarily reached any limits in the sense of a closed thermodynamic system.

Share this post


Link to post
Share on other sites

So what resources are you going to use to convert that current technology to newer, cleaner, and cheaper technologies?

 

Let me clarify, i agree that alternatives will be there, but thinking this will be a walk in the park is pretty naive.

 

Using oil as an energy source to drive internal combustion engines is a combination of resources and ideas.

 

No, it's a matter of supply and price.

Share this post


Link to post
Share on other sites
Seriously?

 

Seriously! Growth is not going to stop. It'll have hiccups, it'll slow in percentage terms, but it's not going to stop. Why is this idea the foundation of economics? Not just because it's a nice theory for guys in gray suits, but because empirical data have supported the idea over several centuries. We also understand the mechanism for how it happens--it was Adam Smith who first talked about comparative advantage.

 

If you suddenly find a new place to put a banana, and people like it, you'll make money that you never made before. Value gets created seemingly out of thin air. And when you have a worthwhile idea, everyone else is a tiny bit better off also. In sum, across millions of people, this becomes economic growth. Last thing: value creation isn't a zero-sum game--nobody loses when you gain.

 

A good example would be the emergence of Asia. That helped drive the 90s as well as cheap oil. Suddenly there was a market for goods in SE Asia that wasn't there before, and it helped make the world a wealthier place in aggregate. Next up have been China and India. After that it'll be possibly Brazil. By the end of my lifetime good parts of Africa. And when everyone is equally developed, there'll still be growth because ideas and products won't stop coming, and because geography is just one of many dimensions of possible new growth.

Share this post


Link to post
Share on other sites
If you suddenly find a new place to put a banana, and people like it, you'll make money that you never made before.

 

I know just the place <_<

 

And I'm taping it happen.

Share this post


Link to post
Share on other sites

kinda dissapointed by the bailout vote but will have to learn more. more so than literally not having our currency spedifically backed by gold per se, i think the problem is more in the reckless extent of fractional reserve banking, and the virtual creation of money via FED and consumer lending of this made-up money creates artificial value through money being treated almost like the starter money they give you in vegas. because its there, it gets spent, whether or not you would have with your *own* money.

 

the S&L thing is a good point, esp. the involvement of many of the same players. although i read somewhere that part of the dot-com boom, that i barely missed out on being old enough to be in on, was also partly caused by a bailout of brazil, which again created a pool of money that had to br invested somehow.

 

its like trust fund kids - when the money just falls in your lap, the spending pattern will skew towards and past the subjective theory of value, towards a "what are you going to spend it on" type of demand.

 

im not really, but im amazed how many people i know have been significantly effected by the stock mkt's fluctuation. so i take it this sub-prime stuff just riddled through most mutual funds and 401k's?

 

think of the short-term bubble that privatizing social security would have caused

Share this post


Link to post
Share on other sites

I'm hearing from Joseph Stieglitz that the 91 recession was due to the S&L bailout.

 

I don't think we should be very optimistic about this. we'll probably be able to absorb this in the future, but then again stakes are a lot higher now than they were in the early 90s. we're definitely headed for a period of recession, we don't for how long. china and russia are stepping in where we've already burned our bridges in the mid east and south america for oil resources. i'm not optimistic about the future at all.

Share this post


Link to post
Share on other sites

somewhat off the topic, but an elephant in the room is population is reaching the earths carrying capacity, al gore mentions it briefly in his book, the PNAC nazis mention it, it seems pretty real but its the one thing no one is pushing. we all believe in the social contract, but i dont think the majority of leaders of the world aren't there for us to keep on keepin on for *our* own good

 

govinda, you're the man, but i disagree that exponential growth is possible and sustainable, if i heard you right. obesity kills, metaphorically

 

i think we mographers and game studio peeps will have a diff world vew, because of all our computer time, down time to read, and workplaces that reinforce our individualty, as opposed to many in thr population that get their insights from tv, best sellers, and conversation

 

even then, i still feel like tons of important shit is happening that we will not know about for a long time, in which time it will be history

Share this post


Link to post
Share on other sites

Exponential growth, not possible. Compounded percentage growth, possible, probable, very likely...but when it starts again is anyone's guess.

 

but then again stakes are a lot higher now than they were in the early 90s.

 

Yep, I was being 'good cop.' The 'bad cop' now would jump in and say as you do that things are different now. Back then the Baby Boomers were just hitting their peak earning years, whereas they're 5 years from retirement now. In the 90s for that and other reasons the US was flush with cash that had to go somewhere. It went into mutual funds, in a huge way. Mutual funds were the innovation of the early 90s that actually created wealth because they offered a new way of optimizing investing by means of variations of the Capital Asset Pricing Model and portfolio theory, and now I'm asking a lot with my hotlinks. :D

 

In the 90s we had cheap oil (as Parallax said) and in fact all commodities were in the middle of the 'great commodities price depression,' which was terrible for miners and soybean farmers but great for everyone else.

 

I'm thinking we have a bad year or two, then things pick up. China and India will help a lot to pull us out of this. When they grow, everyone grows.

 

Unemployment is looking ugly in the near future, could break 10% in the US. This InTrade graph shows what people are expecting.

Share this post


Link to post
Share on other sites

Krugman this morning:

http://krugman.blogs.nytimes.com/2008/10/03/a-grim-morning/

A grim morning

 

Double plus ungood news on multiple fronts this morning. The credit crunch is getting worse: LIBOR jumped again, the TED spread is at a new record. Bad news on employment:...broad measure (U6) up from 10.7 to 11.

 

We are going over the edge.

The House votes on the bailout today. I haven't seen the vote projections, but this thing really has to pass. NOBODY likes it, but the alternative is too terrible to contemplate. If it doesn't pass, the markets will need a lot of faith that something will pass sometime soon, or else I'm taking out the harmonica and the barrel and walking down to Union Station to hitch a ride.

 

The idea is to pass something, ANYTHING, and then fix it soon after January 21, when a new and surely better administration and Congress come into office. Sound dodgy? Believe me, this is what the people I respect are saying...just pass anything for chrissakes, anything, and we can fix it later.

Share this post


Link to post
Share on other sites

More Krugman from yesterday:

http://www.nytimes.com/2008/10/03/opinion/...tml?ref=opinion

Edge of the Abyss

For the fact is that the plan on offer is a stinker — and inexcusably so. The financial system has been under severe stress for more than a year, and there should have been carefully thought-out contingency plans ready to roll out in case the markets melted down. Obviously, there weren’t: the Paulson plan was clearly drawn up in haste and confusion. And Treasury officials have yet to offer any clear explanation of how the plan is supposed to work, probably because they themselves have no idea what they’re doing.

 

Despite this, as I said, I hope the plan passes, because otherwise we’ll probably see even worse panic in the markets. But at best, the plan will buy some time to seek a real solution to the crisis.

Share this post


Link to post
Share on other sites
The idea is to pass something, ANYTHING, and then fix it soon after January 21, when a new and surely better administration and Congress come into office. Sound dodgy? Believe me, this is what the people I respect are saying...just pass anything for chrissakes, anything, and we can fix it later.

Doesn't part of you... even a tiny little bit... want to watch the country explode under Bush's watch?

I'd wear a barrel for a couple of months just to see that happen.

 

-m

Share this post


Link to post
Share on other sites

PASSED.

 

Just enough pork to make it sweet. Diane Watson gets money to keep film production in LA. God knows what else is in that bill. When it's $700 billion, they could have sold submarines to Andorra.

Share this post


Link to post
Share on other sites
PASSED.

 

Damn, not a moment too soon. I don't like the bill or anything, but you're right Govinda, the alternative is way worse. This week the company I work for is facing losing our two biggest clients in the fallout from the bank mergers. Hopefully this bill will help prevent any more giant upsets, or at least keep them at bay long enough for me to find another job. :lol:

Share this post


Link to post
Share on other sites
The idea is to pass something, ANYTHING, and then fix it soon after January 21, when a new and surely better administration and Congress come into office. Sound dodgy? Believe me, this is what the people I respect are saying...just pass anything for chrissakes, anything, and we can fix it later.

 

You know for a fact that Sarah Palin isn't going to be running things this time next year after McCain succumbs to a stress induced stroke...

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

×
×
  • Create New...