You know, you need sell all these products to somebody... And when US consumer stops buying new iPhones (or what ever) combined with recession then situation is going be really really tough.
So this will be worse that 2008. Much worse. Back in 2008, China was growing and helping to ease the recession. I do not think China's economy will grow during this cycle.
What is happening, right now, is literally what happened in the Great Depression (with the concurrent reemergence of nationalism) and is what led to two back-to-back world wars https://www.dartmouth.edu/~dirwin/Eichengreen-IrwinJEH.pdf
That hasn't been exhausted even in the slightest.
The Fed has the exact same tool at its disposal as it did in 2008: it controls the global reserve currency and can run an annual trillion dollar QE program for years as necessary, forcing the rest of the world to partially foot the bill of that QE program to the benefit of the US economy.
The Fed took rates to zero for seven years and utilized multiple QE rounds to reinflate the economy and asset prices. The same exact approach is at its disposal heading into the next recession.
Last I read they were only holding about 1 trillion in USD treasuries. Selling all of that would not inflict much damage on the US economy or government. If there's one superior skill the US Treasury and US Fed have it's selling/buying even more massive amounts of debt than that. Markets are used to it. So, a $1 trillion dollar bond sale event might hurt for a short while, but it wouldn't really be all that heavy.
Over the next ten years the public US debt will hit $32 trillion give or take (possibly closer to $35t; I'm expecting a +$3.5t deficit in just two years in the next recession), about 1.2x to 1.3x GDP at that point. China's share of that $32-$35 trillion will be a mere 3% or lower. By the day their position becomes less meaningful (at this point the US Government is running up enough new public debt to equal China's treasury holdings every year, and that's before the recession blows out the deficit).
At personal level, I find adventure one of the most level headed and dispassionate commentators esp. about Finance/Business/Geopolitics.
The whole China treasure holdings argument is at the best paper tiger. The argument is debunked by every respectable finance commentator.
What are China's options if it sells US Treasuries? If it simply parks that money internally, what does that do?
And, how does QE cause other players to lose their treasury holdings?
I feel like this while correct will look funny in the context of history. I believe inflation will explode in the next 5 years with near zero interest rates and the fed printing money for all the programs we hear about during the recent debates.
The same arguments were made against the New Deal.
Time will tell whether recapitalizing the American educational system and/or cost-limiting health care is wise or foolish.
No, it's a consequence of printing money as soon as the newly printed money gets out into the economy. The only reason the previous rounds of QE in the last decade didn't cause inflation was that practically all of it stayed in the banks' accounts at the Fed and never got loaned out, so it never actually got into the economy.
> The same arguments were made against the New Deal.
Yes, and they were valid then too. The New Deal didn't work; what restarted the US economy was World War II.
Printing more money doesn't inexorably produce inflation, for a lot of reasons. If the money printed is used unwisely, in ways that do not grow the economy, then it certainly does.
If the money supply (times velocity) is X, and I print more money so that it's now 1.1X, if I spend the new 0.1X in a way that grows the economy by 10%, then printing the money wasn't inflationary. If I spend the 0.1X in ways that don't grow the economy, then it was inflationary.
No, inflation is either an increase in the money supply (according to classical, i.e., pre-Keynesian, economics) or an increase in the average price level, often qualified to be the average price level of "wage goods" (according to Keynesian economics).
The underlying argument behind "size of economy/money supply" is that if the economy is growing (more precisely, if the rate of economic activity is growing), then increasing the money supply will not increase the average price level. In fact, if for whatever reason (and Keynesians have no trouble coming up with plausible-sounding reasons) you want the average price level to remain basically the same, you should print more money as the rate of economic activity increases.
While these are true statements, they ignore the fact that printing more money is economically equivalent to a wealth transfer from whoever does not get the newly printed money to whoever does get it (which under our current system is banks and other financial institutions). In other words, it's the same economically as a tax on ordinary people whose proceeds go to rich bankers and financiers. But it's much more palatable politically, which is why it's our current system. (The old system, before the Federal Reserve and other central banks gained power, was that when governments got in financial trouble they had to explicitly go to rich bankers and financiers and ask for bailouts, which was politically unpalatable, not to mention a huge pain for the rich bankers and financiers since people would see that they were effectively profiting from the economic woes of others. So the rich bankers and financiers got together and sold the politicians a system of central banks where all of this could be done under the radar so the ordinary taxpayers wouldn't see it and wouldn't complain about it.)
> [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy
... is not a fully accurate statement?
> > [inflation] is a consequence of printing money as soon as the newly printed money gets out into the economy
> ... is not a fully accurate statement?
If you are saying I should have added a qualifier "assuming the rate of economic activity stays constant", yes, that qualifier should be there (if we define "inflation" as "increase in the average price level"). But I don't agree that any qualifiers like whether or not the money gets spent "foolishly" or "unwisely" need to be there.
Also, our current measure of "rate of economic activity", GDP, is not independent of the money supply, because it measures "activity" in dollars. So the fact that US GDP is growing does not necessarily mean the real rate of economic activity is growing.
My point was that simply increasing the money supply may or may not result in objective inflation over modest timescales.
It certainly usually does, because foolish things are more politically popular than effective things. But it doesn't have to be so.
That's certainly how such policies were sold to the labor force, yes. But it's not what actually happened.
> We would not have our modern understanding of a middle class lifestyle had it not been for New Deal policy
To the extent that this is true, it means that our modern understanding of a middle class lifestyle is not what "middle class" meant at any previous time in human history. "Middle class" used to mean entrepreneurs--what today we would call small business owners. In other words, people who understood that the only way to make sure of the lifestyle they wanted was to manage their own business risks and not entrust them to anybody else.
Our modern understanding of "middle class" is what used to be called "wage slaves"--people who are content to let the leaders of the large organizations they work for take care of all the business risks, in exchange for a safe source of steady wages and benefits. But the leaders of the large corporations, unlike the "middle class" who worked for them, always understood that the steady wages and benefits were not "safe"--that as soon as the business realities changed (i.e., as soon as the huge new markets that opened up after WW II became saturated, which was happening by the mid-1960s to early 1970s), the large corporations would basically renege on all the promises they made to the labor force during the boom. Which is exactly what happened, and which amounted to whatever surplus value was in fact captured by labor being temporary. And the New Deal did absolutely nothing to prevent it.
If Brexit were behind us, no doubt. But that's a lot of uncertainty tainting the euro.
https://upload.wikimedia.org/wikipedia/commons/thumb/5/5f/20...
And it can't do that as effectively again. Treasury bonds were at 8% back then, now they're at 4%.
With interest rates near zero, and the old monitarist avenues generally exhausted with this procyclic hangover, we have nothing left to do but the real ask fiscal shit jobs guarantee or UBI.
Hopefully people realize work sucks and it would be nice if computers were used to their full potential so we get UBI instead and then we can write expert systems and reduce meanial labor and other useful shit.
Note: I understand that "yield curve inversion" does not mean "recession, depression, war" is inevitable or likely - only that these things are indicators at best. That said and understood...
Either our society is the dumbest there is (in aggregate - but possibly in general, too - with small pockets of intelligence, just not enough - and they are under constant attack) - or "someone" (not saying an individual or a group - or even planned for that matter) is wanting us to "go to war" - which if the past is any example, could very well be - or turn into - "the final war" (hah - who am I kidding - any survivors would probably battle each other with sticks and stones).
It's like were either really, really stupid in some regard - or there is this almost innate need by some portion of the species (or at least our American society) that desires and needs mass death and tragedy on a worldwide scale. If either is true, it points to a vast failing of our own making.
The sad thing? I can see it, others see it or have seen it; heck, those who were leaders and/or have been in "large-scale combat" have seen it up close and personal and don't want it.
This isn't a new observation at all; it is thousands of years old: "War is Hell" is a recent colloquial form of the message, and nobody (sane?) wants it.
So why, why, why do we keep doing it? Seriously - why?
I'm not expecting an answer; the possibilities and such are vast, likely rooted in various philosophical reasonings, etc - but seriously - all we have to do is...stop. Stop doing it. Stop being...dumb.
Education, even from an early age, does not seem to work - or at least, it doesn't seem to work on everyone. Many internalize the message, the idea, that "violence is bad" - and try their very best to avoid it. The "reptilian brain" keeps trying to reassert itself - but with some minor effort, we can avoid the issue mostly.
I'm not sure what its going to take for it to really stop. The Star Trek universe was built on the idea that humans had to first go through a massively devastating war before they would finally stop. Nice idea, but I think even that wouldn't be enough. We seem to be a species that constantly performs a "tragedy of the commons" experiment - and ultimately this need for "war" won't be won until only 0 to 1 humans are left. Even with only a single human around, I'm sure it would find a way to war...
Fortunately it looks like I was wrong, but it also looks that “liberal democracy” is on its way out in many former bastions of said democracy. I fear that a new nasty recession right now will throw us out directly into a war, we’re at the 1937-1938 moment when almost all of Europe had gone the wrong way in the previous decade (politically speaking).
> but I really can't picture a scenario that leads to another world war, even in today's relatively unstable political climate.
Ten years ago I bet almost no-one was picturing the late-1980s anti-nuclear treaties going the way of the Dodo bird. Or a land war in Europe (Ukraine is indeed in Europe). Or German politicians being shot for their political beliefs. Or British politicians being shot for their political beliefs. Ten years ago I wasn't seeing US soldiers and their trucks almost every time I take the highway in order to visit my parents in the countryside (I live in an Eastern-European country and NATO member, a geo-political stone's thrown away from Russia). Ten years ago Russia wasn't testing a nuclear-fueled rocket.
Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it. Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again. The West has largely let it happen, and while I don't understand why, at this point it's hard to see why that would change. US troops have been in Europe for a long time. Whether you saw them more or less in the past, troop levels there haven't changed that much.
They haven't been in Romania, which is, like I said, a stone-throw away from Russia. And they started showing up after the start of the conflict in Ukraine.
> Assuming you're talking about the US pulling out of the INF treaty, that's not really a meaningful change. The Russians and various other countries were already largely ignoring it.
That's not my understanding of it, at least not when it involves Russia (China is another story).
> Russia's territorial shenanigans are what really cemented the idea that we're not fighting a major super-power to super-power war ever again
Not sure how that follows. When you have nuclear weapons that you can launch from anywhere at anytime you are a super-power. The US and Russia are 100% military super-powers because they can basically annihilate each other at a moment's notice. I'd add China to the list, probably the UK and France too (not sure if France has nuclear submarines, though, too lazy to check right now). Even though Israel has nuclear weapons I don't treat it as a military super-power because of its lack of nuclear submarines or IBCMs. The same goes for Pakistan and India.
https://www.globalsecurity.org/military/facility/romania.htm
They have been, in fact.
Dates for WW2: 9/1/1939-9/2/1945
Dates for Great Depression: 10/29/1929 to 1939
What I was saying was the underlying currents in the economy and politics are similar to the ones that led to those 3 events separately, not necessarily in the causal order in which they happened.
The first industrial revolution was punctuated with the American civil war. The second industrial revolution was punctuated with the great depression and World War 2.
Just imagine what the digital revolution is going to be punctuated with.
We are in for a hell of a bumpy ride.
2008 was bad because the collective banks of the US realized trillions in mortgages were money on the books that wasn't real and was never going to be real. The correction involved resetting said books and taking a few banks and a trillion dollars of US taxpayer money along the way.
What is the correction this time? All it would really be is a run on confidence in global financial markets. This has happened many, many times (and did happen in 2008 but it was a response to the insolvency of banks). It happened in 2000, it happened in 1993, it happened in 1980, etc.
If its just a correction in overvalued stocks, futures, and a contraction in loans and interest rates thats just a normal recession. We're due to have one, they happen all the time, and since there shouldn't be an influx of millions of displaced / homeless suddenly because this isn't the result of mass foreclosures on defaulting home loans it shouldn't be as disruptive this time. A lot of theoretical stock value gets wiped out, some people lose a lot of money, and then you get to start the cycle over again with rates back under 1% and the DOW down a a few thousand points from its current cresting highs.
Firstly, I totally agree with you on 2008 - bank failure driven recessions are always worse than regular recessions, so 2008 already takes a lead.
However, there is another aspect -- the 2008 crisis was controlled by a combination of controlling interest rates and other QE measures. We're now still in ZIRP (zero interest rate policy) so one of our key tools for combating a crisis is gone (it is like being at the bottom of the hill and realizing you are already on low gear.)
Of course, we have other QE as well as fiscal tools, but lowering rates wont be one of them.
Dropping rates creates speculation of future economic growth that can make stocks go up and thus make the capital class happy their assets are accruing but it seems new business growth is fairly exclusively on the side of consumer demand pretty much this entire century. Increasing money supply isn't doing jack. If theres no money out there looking to buy goods and services you could be giving away money to banks with no meaningful economic benefit for it.
Europe has been in this kind of glut longer than the US has but its infecting the whole world - too few people have enough money to create the real demand that stimulates real economic growth. Theres only so many yachts a billionaire wants or so many summer homes a millionaire stakes. Wealth inequality is the driving force behind the slowdown and none of the forces that participate in shaping policy are aligned with the goal of fixing it.
An even larger amount of money was placed on bets on whether those mortgages were real, as opposed to the mortgages themselves.
Don't forget the Europeans. The 'prudent' Germans of Deutsche Bank were in the thick of it too:
* https://www.thelocal.de/20110415/34419
* https://www.reuters.com/article/us-deutschebank-suit-idUSBRE...
See also:
* https://en.wikipedia.org/wiki/List_of_writedowns_due_to_subp...
Good book on how things went down and my who is Crashed:
Incredible book. Tooze's interviews and lectures on the subject can only scratch the surface of what the book covers, but they are worth a listen too. I can recommend his appearance on the podcast Talking Politics:
https://www.talkingpoliticspodcast.com/blog/2018/113-crashed
The financial system is not in that same position this time and as for China, China's growth is largely kept to china itself and guarded jealously, China did little or nothing to ease the 2008 financial crisis for the west.
Serious question - how has that changed? It looks to me like since about 2009 banks have been trying very hard to get back to the same shenanigans they were pulling before 2008, and are mostly succeeding. They were given the message that, "Hey - you're too big to fail. Uncle Sam's got your back, and there will be no consequences for the people at the top. Do whatever you need to do!"
Also, like, Lehman Brothers collapsed in 2008, and Bear Stearns and Merrill Lynch both got sold at fire sale prices. Shareholders don’t want those risks, and even if managers are too insulated from financial consequences of a collapse they probably care about reputational risks as well.
What you're describing is just the normal stuff that happens in all recessions.
And as much as we had a long boom, we also had quite a long painful recovery from 2008, it wasn't the same as normal recovery which explains why it's been so long since the last recession.
What do you think about the carbon bubble?
Whaaaat, noooo, we don't have any of those...
Wells Fargo has already proven that the same rules that were in place in 2008 that allowed those that caused the collapse to escape unpunished are still there.
Assuming the current administration is in power, government assistance programs will be greatly cut leading to desperation on the part of the nations 40% that cannot afford a $400 emergency.
Household debt, especially student loan debt is far above what it was when the 2008 recession hit making people even less prepared to handle a financial collapse. "Student loan debt hit $1.486 trillion, according to credit data from the New York Federal Reserve. By comparison, student loan at the height of the financial crisis was $611 billion and has been mostly rising since"
Assuming the ACA case makes it through the courts before the recession is over, health care will likely be stripped from millions of those worse equipped to handle it. Many of the homes that were affordable a decade ago have now been bought by mega renters and are rented out at high rates. People who lose their jobs will be unable to afford rents that are only increasing nation wide.
I think large companies and banks will weather it relatively well.
We will likely invade a middle eastern country to distract the proletariat.
https://www.marketwatch.com/story/us-consumer-debt-is-now-br...
I think something overlooked by many is that without the small cushion of having family to fall back on if everything went bad or a nest egg, many of today's entrepreneurs would not exist. Risk for those whom failure means living on the street is generally avoided, especially for people with kids. A UBI would allow them to try and compete or at least live life without waking up terrified every day.
That doesn't mean a recession can't be really bad, though. Particularly when our normal tools for handling recessions are constrained, like interest rates already being low.
We're also still dealing with the greater inequality effects from the 2008 debt monetization, which is partly (according to that model) responsible for the greater populism political effects of that (like Trump's election, who ran as a populist in 2016).
The recession will be weak, the recovery will be weak. The repeating behavior and stacking debt is resulting in lower dynamism in all regards. We've already seen all of this: Japan showed us exactly how it works, why (government debt), and how it cycles toward increased stagnation, perma low rates and low inflationary pressure.
The overly dramatic doom predictions are merely making the perceived easy call, and piggyback riding on what happened in 2008. A repeat, much less something worse, is not what we're going to see at all.
But other times it sounds like he's saying the real "big one" is still about to happen, rather than just another recession.
Where does he publish his stuff?
Big Debt Crisis is an interesting read if you have an interest in his economic outlook. Still a free pdf I see..
https://www.cnbc.com/2019/08/16/bridgewater-ray-dalio-on-pos...
It can only get worse if there is something that was NOT present in 2008 will manifest itself.
In 2008, you had a major failure (within days) of Lehaman Brothers and some major financial institutions, all were a complete surprise.
A recession in china (controlled recession) might actually be a good thing overall.
I've heard that the US mostly sells stuff to itself, i.e., trade is a relatively small component of its GDP. I haven't looked into it, yet, though.