The Economic News Isn't All Bleak
online.wsj.com
online.wsj.com
But extending beyond economics, also consider the US political commentary of the past year and a half. It was, not to put too fine a point on it, shit. Take the conventional wisdom for any day of your choice four weeks before the election to a year before the election, then come back to it two months later. Uniformly, the boldly-made predictions and much-blabbered conventional wisdom were horribly, horribly wrong. As I like to say, if it had been right, we'd be awaiting President Clinton's swearing in after defeating Guiliani 75-25.
Future predictions have never been that great, and maybe it's just that I'm paying attention now, but the "horizon of wrongness" seems to have moved a lot closer to the present now. Pundits are rarely even close to right for events a month in the future now, and it's getting to the point that I can't understand why anybody even listens to them, because they are so wrong, I can't hardly even point out the people who were right.
Play it conservative. Keep your savings up. Any techie after 2001 should know that anyhow. Maybe the future will indeed be awful, but at this point, I'm burned out on punditry, and I would say that at the very least, try not to let this doom and gloom depress you too unduly. The people selling you doom and gloom... and I use the term "selling" on purpose, because it's the literal truth... have a horrible track record. Let's wait and see what happens.
"less than two years ago, conventional wisdom dictated that the housing bubble would be painful but that global economic growth would remain stable."
Forgive me, Mr. Writer, but my recollection is that less than two years ago, few people in the mainstream were acknowledging that a housing bubble even existed. Hell, even a year ago, half of the mainstream press was essentially reprinting press releases from hacks like Lawrence Yun (widely quoted "expert" for the National Association of Realtors), who never saw a bad housing statistic that he couldn't spin for the positive. Those who were calling a bubble a bubble early on (as early as 2003) were labeled jealous curmudgeons who missed out on the easy-money party.
I keep trying to come up with a lesson from this, but the only thing I can think of is that our society doesn't reward dissent. No matter how insane and extreme the conventional wisdom, it doesn't pay to be the guy who vocalizes against the herd. If you're a contrary thinker, it's best to just keep your head down, your mouth shut, and do whatever you were going to do anyway.
My recollection is different, because I was reading Business Week more than three years ago. The housing bubble has looked like a bubble for a long time to people who considered how much faster house prices increased than wages.
Michael Lewis's collection of articles, Panic,
http://www.amazon.com/Panic-Story-Modern-Financial-Insanity/...
includes articles that foresaw the housing crash more than two years ago.
I have edited my post to replace the word "nobody" with "few". Mea culpa.
It's entertaining watching the tulip bulb story happen over and over again. Hopefully next time I'll have more capital to take advantage of the situation.
However, your last paragraph is totally on the money.
The next bubble will likely be the green one. It's large, necessary, and completely possible to go overboard regardless of what you'll hear every pundit saying for the next 10 years.
It was common knowledge.
That's how I remember it, anyway. You might be confusing this with the mortgage crisis, which is an entirely different (but related) matter.
It's entirely possible for someone to play it safe, stick to cash savings and then get burned if/when dollar is devalued by 75% simialr to Argentina 2001, Russia 1998 or Iceland 2008.
(Which is not to say some reasonable preparation for emergencies is a bad idea. I'm just saying that once you're proposing massive inflation, it's not like having a huge stash of gold in your basement is going to save you, or there's anything else you can hoard that can't be taken from you by force by a rampaging mob.)
Citation needed. According to FerFAL, who actually lived through the 2001 Argentinian peso devaluation, a large stash of gold will save you because there won't be a rampaging mob robbing everyone, especially not if you own a gun.
Ten kilos of gold should be enough to get you anywhere on the planet; after all, it should be worth 300,000 current dollars or so. The only scenario where that would be useless is a nuclear holocaust.
This is the second thread I have seen where gold was mentioned, and the second time I have seen a vitriolic response about gold.
Gold will always be valuable and it will always be part of a sane person's plan for dealing with a "things are going to crap" scenario. Along with some form of food storage to deal with logistic interrruptions and some form of personal defense (mace, pepper spray, knives, guns, etc.)
How do you know? While I'm all for world & class asset diversification, the whole reason is because I/we don't know.
2. It is internationally recognized as being valuable, regardless of culture. That is, cultures as diverse as India, China, England, Russia, pan-Arabic (i.e. non-Jews in the Middle East) have all viewed gold as having value, and that over at least 1000 years of recorded history each.
3. It does not corrode or rot the way paper money does. In Israel they recently found some Byzantine-era gold coins, aside from the obvious numismatic/collector value they still retain value for the gold itself.
4. Gold does not require a government to enforce its value. It's value is innate or intrinsic to the thing itself. As such if a government falls or decides to modify the value of a paper dollar (as Mexico, Argentina etc. have done in the past) then the value changes. Gold that you have in your pocket cannot have its value modified by a government order.
Here's one response to the gold bug arguments, by Nobel prize winner Krugman:
http://web.mit.edu/krugman/www/goldbug.html
Even libertarians like Arnold Kling don't really have much time for the gold standard:
http://econlog.econlib.org/archives/2007/01/the_new_deal_an.... (and in other articles)
Generally, it's not regarded as territory for "serious economists", although of course it is always possible that serious economists are wrong.
Both are much better than the Krugman piece.
The gold standard, having been around for 2,000 years, is the constant subject of serious study by economists.
Incidentally, I think the "because we did it that way for a long time" argument is a terrible one. There are plenty of things we've done for a long time as humans and as societies that aren't very good, and are worth discarding. I don't think the gold standard is a good idea myself, but in the arguments for it, there are better ones than that one.
I personally haven't met anyone who has argued for the gold standard and has read it although that may be a comment more on the academic backgrounds of the people who used to write pro-gold stuff and stuff it into my inbox back in college than the theoretical basis of the argument. So while gold may have a place as an investment (especially as a hedge against inflation) in large part people who spend considerable breath on extolling its virtues using words like "intrinsic value" and "stability" and "natural" are kooks. Their choice of the word "natural" is also odd since gold coinage is hardly more natural than paper and in fact is less easy to control the asset base.
When economists talk about not repeating the mistakes of the 1930s, they are by and large talking about the importance of maintaining liquidity in the system to prevent deflationary spirals, and avoiding liquidity traps. They are also cognizant of Keynes' proof that Say's Law does not work once people want to start doing things like holding liquid assets, and the dismal performance of things like the zero-inflation policy in Canada and other countries through the 1990s.
I'm amazed by the number of Internet libertarians who have jumped on this bandwagon.
It appears (to me and probably others) that part of the current problems the USA is facing is due to a govt that grows and grows, without a method to have a feedback loop that would restrict it - currently it seems the answer is to just print (electronically or physically) more $100 bills (which cost about 4 cents to make).
The lesson the Keynesians took from this episode was not to go on a gold standard in the first place. The lesson the Austrians took was that government should not dilute the currency. Since all government's prefer to dilute the currency, and most "mainstream economists" are government funded, mainstream economists are almost all Keynesian, not Austrian.
The best two articles I've read in defense of gold are these two: http://unqualified-reservations.blogspot.com/2007/11/who-hec... and http://unqualified-reservations.blogspot.com/2008/02/return-...
For varying values of valuable. Our bold leader Gordon Brown sold off the UK's gold reserves for about a third of the current market price. He even announced well in advance that he was planning to dump a load of gold on the market, so the price dropped even further. Gold's a great asset but it's not the be-all and end-all.
In fact several countries have survived hyperinflation without the mobs. Once again, Russia 1998, Argentina 2001, Icelad 2008.
On the other hand USA 1930 and Nazi Germany saw confiscation of gold by the government and it might make sense to prepare for that as well by storing your gold abroad.
Well, I cited at lest some foundation to my argument - there were numberous cases where serious devaluation did not coincide with too much social disorder. I don't see how being "the foundation of global economy" makes Americans any more likely to riot and pillage. The only cases I can think of this happening in developed countries is an outright revolution, for which there does not seem to be basis in US right now.
You're quite right to worry about government doing the pillaging though. While probability is low, the consequences would be disastorous and if one is hedging their bets might as well include this possibility. Hence why I suggested keeping your goods abroad - that way you are diversified across two political systems.
It seems to me that the best predictor of how the economy is doing is the way that it is perceived. For all the talk of this being the "worst economy since Hoover," we're not in a depression and not all is lost. I see a lot of optimism accompanying the incoming administration, which will probably do more for the economy in the short-term than any sort of monetary or fiscal policy could.
Where are you stashing what you're buying?
You are putting your money on that prediction, right?
China is developing fast, but a lot of the development does not go very deep. So China is not yet ready to function as a counterweight to the U.S.
Europe is doing fine, even if it is sluggish as always. Africa is at it's most conflict-free of the last 50 years and lots of >5 growths there.
In general, the U.S needs to get a bit more dynamic, modernize it's infrastructure, take back the production, and it will be as fine as always.
The fundamentals of the economy are fine.
(I'm writing this on my iPhone so I apologize for not ellaborating with a more coherent response, but just think about some of these things. No one knows what will happen, but things could easily get pretty 'bleak'. I hope not. I hope we can figure out ways to prolong any mess from occuring.)
US debt is a lot of things, but it's not toilet paper. If they start defaulting then we'll talk.
You do know our country has the single largest manufacturing output in the world, right? Misleading soundbites are often repeated until they become popular wisdom.
China surpassed us recently, and the US losing its hegemon status is very bad for the dollar. The only thing they have left to do (and are doing) is build up their military. They do have quite a few domestic political problems though, but analysts were already confused how capitalism thrives in China anyway so there's no telling what will happen. I think these problems and what they produce are the unknown factors that will determine the new world economy. That is just my pet theory.
I'm not trying to spout doom and gloom, I just find this stuff interesting. I wish I understood macro and history/politics better so I could make my own predictions that might be worth paying attention to.
Most electronic components are produced in China. If China decides to increase their currency, their electronics will get expensive, and phillipines, malaysia, thailand will be happy to take over this role.
Political unrest is really the least problem we face right now. Since I was born in 1980, I cannot remember a time when the news had so little conflict.
I'm not saying the U.S is perfect, the U.S has big problems. What I think the root cause of the problems is is that a lot of power is given to big companies. It's a sort of self-sustaining monopoly. Americans are now looking upwards - look at big VC companies to give them money, look at corporations for jobs. Small to medium business should be the backbone of any company, not massive shareholder companies.
actually $50 trillion in paper wealth was wiped out in the last twelve months alone.
The fundamentals of the economy are fine.
no they are not. the comptroller of the US govt estimates our own unrealized debt at potentially $70 trillion. outstanding derivatives total over one quadrillion USD. that is not a typo. global total debt is over one half of one quadrillion USD. the house of cards of global debt financing is only beginning to unwind.
take back the production
short of world war three, that manufacturing base is gone.
Duh, no one knows exactly what will happen or how, but I do believe it is foolish to write off these 'bleak' predictions from analysts who have proven their credibility and can back up their predictions with logic and reason.
Plus, this article is self-defeating is it not? If we are supposed to ignore these 'bleak' predictions because of how innacurate predictions have been in the past, shouldn't we ignore the optimistic predictions like this one, too?
EDIT: I don't endorse everything Schiff says.
That's just not how it works pal. Everyone is bound to be wrong in the long run. Sorry.
Do you take any advice? By your logic it doesn't look like it. I wouldn't want you running our country right now, sorry.
If that cycle is invariant, but via some means the time variable could be compressed, such that 1 in 7 days was a recession - suddently that seems not so bad (kind of what the article was hinting at?). So you compress time, increse the severity of changes but reduce the impact time (which is I guess where the real human damage is done). Will be interesting to see.
I haven't yet seen one that acknowledges the possibility that it might be worse than the Great Depression.
That seems to me to be obviously wrong. If what we're in is likely to be worse than everthing else since the 1930s, can it really be so clear that it's not actually worse than the G.D. too? It seems like the readily available journalistic cliches just don't allow for that possibility...
there is a very strong historical parallel - the french revolution. no matter what interpretation of this event you find in literature, they will all point to excess debt as one of the key, if not the key motivation for the revolution. weimar germany is another scenario where excess currency abuse literally did in the nation, and incidentally ushered in nazism.
there is no way the US can now get out of debt or even hope to slow down deficits. the rate of growth of the debt is astounding. one must wonder where the death bond lies...that dollar of debt that we issue that is rejected by all buyers and signals the end of the US. once the US dollar is rejected by all buyers, the US govt immediately ceases to exist by definition. police, army, firefighters...none of their paychecks have value anymore, so none of them will report for work.
how much is too much? our debt is around twelve trillion now, my guess is that at around twenty five trillion, its game over. we will reach that point by 2018 at the latest. the US is gone by 2020 at the latest. if any political structure survives, it will be helmed by an american stalin who will gorge on the nation and utterly obliterate it.
it will take the world one hundred years to reconstruct after the obliteration of the USD-backed fiat-debt financial system. pax romana was nothing more than a promise and a hope...once it went away the west lost centuries. the USD is no more than the pax romana of our era...a idea backed only by faith, not values
(Of course, if anything like the same thing happens to the US as happened to Germany then that would be very, very, very bad. I just think you're exaggerating.)
As though we can just "augur" that. Small business loans might not pick up even in a low interest environment if banks reveal more off-balance sheet holdings and run into more troubles with capital requirements.
>The rush to declare the future bleak has obscured the fact that no one knows the outcome of an unprecedented event. No one.
I think he (minorly) slipped up and didn't follow his own advice a little earlier in the article =P.