Economics

Some Monday Morning Pessimism Re: Financial Crisis

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Reason contributing editor and San Francisco Chronicle reporter Carolyn Lochhead pens an absolutely downbeat story about our current predicament:

If the averages of previous crises hold, Americans can expect unemployment to reach 11 or 12 percent, housing prices nationally to drop 36 percent, stocks to lose more than half their value, and real output per capita to plunge 9.3 percent, according to economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University, who have tracked financial crises back to 14th century England.

"Certainly the averages themselves are pretty discouraging," said Reinhart. "Because this crisis is as bad as they come."

Pessimists observe that Japan's Nikkei stock index peaked around 39,000 in 1989 and two decades later is languishing around 7,500. Japan's real estate market still has not recovered after 17 years. The Dow Jones index did not rebound from the 1929 U.S. stock market crash until 1954.

But just like in a Billy Mays TV pitch, wait—there's more!:

[University of Chicago economist Robert] Aliber thinks the cycle may soon bottom out. Crashes, like bubbles, always end. Rather than a fifth wave [of large-scale crises], he expects the next excess to be over-regulation and too-cautious lending.

Hoo boy. Whole thing here. Sadly, regarding the soaking up of toxic assets, the TARP et al. programs are more likely to work about as well as Mays' Zorbeez, which is to say not at all.

Regarding the Dow Jones index, recall as well that between 1960 and 1980, the thing basically moved sideways. Yet that hardly tells us much about U.S. society or wealth. Over the same period, for instance, the percentage of people going to college grew and so did home ownership rates. Those are two broad indicators of rising wealth. So the DJIA doesn't necessarily tell the whole story.

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  1. “Because this crisis is as bad as they come.”

    I stop reading when I see this crap.

  2. If the averages of previous crises hold, Americans can expect unemployment to reach 11 or 12 percent, housing prices nationally to drop 36 percent, stocks to lose more than half their value, and real output per capita to plunge 9.3 percent

    Take off the rose colored glasses. We’re in for MUCH MUCH worse. I keep hearing the current crisis compared to the Great Depression. In five years, I think we’re going to be talking about the Dark Ages. That is, if we’re talking at all.

  3. So the DJIA doesn’t necessarily tell the whole story.

    No way.

    A little while ago, CNBC put up a chart of the Nikkei showing the sustained drop from the late-‘eighties high. What I saw was sustained large scale government spending crowding out private investment.

    But I’m a wackjob.

  4. I mostly just feel bad for my kid.

  5. The sham wow kicks zorbee butt every day and twice on Sundays.

  6. Regarding the Dow Jones index, recall as well that between 1960 and 1980, the thing basically moved sideways.

    Only if you don’t count dividends, and you need to count dividends. That was the era before M$, WMT and other growth stocks changed the dynamic.

  7. I mostly just feel bad for my kid.

    Amen to that. I have the feeling the current kiddies are just flat screwed no matter what. God knows the boomers and the rest of us adults are gonna try like hell not to take the hit, so they’re gonna push as much of the cost as they can off onto the kids. It really pisses me off, but apparently everybody else is just fine writing checks somebody else will have to make good.

  8. We are not headed for the Dark Ages Warren. But we are going to have to take our medicine one way or another. The problem is that we should be taking it now. Instead, we are running up trillions in debt to avoid the inevitable. So when we do get the problems listed in the report, we will have a socialized government and trillions more in debt on top of it.

    The problem is that we have a left that is completely morally and intellectually bankrupt. No one believes the principled leftist position anymore. They haven’t since the 1980s. So the left has become a movement of narcisstic symbolism (think Hollywood environmentalism) and naked power graps.

    The right is no better since its politicians have corrupted by the allure of government money and power. No one on either side will stand up and tell the American people the truth because no one wants to admit that sometimes you have to make the best of a bad situation and chose the least of bad options. No instead, everyone expects the government to waive its magic wand and allow us to get something for nothing.

    But of course the truth isn’t all bad. That is the beauty of the creative destruction of the market. If the banks fail, new, smarter ones will rise. If people get their homes forclosed, someone gets to buy a house that they wouldn’t have been to afford otherwise. When a business fails, smart people are allowed to go and work for more productive enterprises. If unemployment is high, people work harder and save more which in turn helps to create more jobs and end the unemployment problem. It is called creative destruction for a reason. It sucks when you are in it, but you are better off on the other side.

    Sadly, we have a President who isn’t smart enough to understand the market and even if he was is too cynical and short sighted to tell the truth. Markets are creatures of mass psychology. For that reason, pessimissm and optimism are often self fullfilling prophecies. For that reason, the President’s most important job is to exude confidence and use his position to impart that confidence to people and markets. Clinton and Reagan were both fabulous at this. BO doesn’t seem to understand or care about this. What he sees is the short term political goal of paying off his constiuencies through the spending bill. To accomplish this he runs around and talks down the economy and all future prospects to try to scare people into supporting his cockeyed plan. In the proccess he causes the markets to tank even further and makes the problem worse.

    Obama has revealed himself in just over a month to be completely shallow, valueless and cynical. He isn’t up to the job of being ward alderman in a crooked Chicago precinct. Worse still, he doesn’t even understand his limitations. He has spent his entire life around hucksters and guilty white people. He has never had his views challenged or had any moment of failure or self reflection. He is utterly encapable of such actions. During the election I thought BO was a nice guy but an empty suit. I was mistaken in that. He is not a nice guy. He seems to be completely without redeeming quality or merit. The fact that we could allow someone of his ilk to rise to the Presidency says terrible things about our society and our future.

  9. A little while ago, CNBC put up a chart of the Nikkei showing the sustained drop from the late-‘eighties high. What I saw was sustained large scale government spending crowding out private investment.

    Well, I think we have that cued up.

  10. That is the idea RC. Why the hell would someone like BO or David Axelrod want the private sector out doing things that they can’t profit from or control?

  11. So professor, would you say it’s time for our viewers to crack each others’ skulls open and feast on the goo inside?

  12. I mostly just feel bad for my kid.

    You have a kid?!? Why?!? You know about pulling out, assfucking, stuff like that, right?

  13. “You have a kid?!? Why?!? You know about pulling out, assfucking, stuff like that, right?”

    Some people actually like the critters. Sadly, we live in a country where having children is only financially possible for those who are too rich to care about the costs or too poor to give a shit about their kids.

  14. Some people actually like the critters.

    Bullshit. They just think they do.

  15. “Some people actually like the critters.

    Bullshit. They just think they do.”

    You were a child once to. Someone felt sorry enough for you to dig out out from under the rock where they found you. Given that fact, you can’t really slam on other people doing the same.

  16. Bullshit. They just think they do.

    At some point, they turn into big people. If you’ve done your job right, they turn out to be interesting and intelligent. Of course, YMMV.

  17. If you’ve done your job right, they turn out to be interesting and intelligent.

    If not, they shoot you (or your girlfriend) while you’re taking a nap on the couch.

  18. If you want a pet, get a dog.

  19. Plus kids are one of the few ways to get a tax break! Well, that and owning a house. The American Dream!

  20. Other people’s kids are fine in moderation. It’s the thought of the demon spawn I would create that gives me pause.

  21. Bullshit. They just think they do.

    Bullshit yerself. She’s in preschool now, but in a couple of years we gonna start with the firearms training. Plus, she rarely if ever listens to adults and insists on doing everything herself, which is evidence of a nascent anti-authoritarian streak. She’s awesome.

    Plus kids are one of the few ways to get a tax break! Well, that and owning a house.

    Two for two as of last fall. Fingers crossed…

  22. If you want a pet, get a dog.

    You can teach kids better tricks. Like telling teachers that education majors have the lowest test scores and GPAs of all college graduates. That went over well. I was amused, though, and isn’t that the point?

  23. As someone graduating college in May, I think that this is a wonderful time to be trying to find a job…oh wait, the worst time in the past 20 years to start job hunting, great. Though unemployment may still sink Obama has a plan for saving the housing market. I think that we need to let the foreclosures happen but he thinks otherwise, http://www.newsy.com/videos/prescription_for_u_s_housing_crisis/

  24. Max-

    Teach yourself to be an electrician. You won’t have much trouble getting a job.

  25. Xeones, T, how dare you procreate. Your inferior genes deserve to be eradicated. I’ll just have to bang your wives and impregnate them to permeate my superior genes.

  26. Bring it, Epi. You are destined to fail. My progeny shall have your skull as a plaything!

  27. to permeate my superior genes.

    You might want to try “perpetuate” in that sentence; “permeate” just doesn’t work.

    *makes horrible screeching noise on blackboard with broken piece of chalk*

  28. Other people’s kids are fine in moderation. It’s the thought of the demon spawn I would create that gives me pause.

    Actually, people can tolerate behavior in their own children that they would not tolerate in other’s kids.

    I’ts almost always a girlfriend’s kids that gets shaken, not stirred.

  29. Once Xeones’ toddler gets done beating you like a rented mule, come on by, Epi. After the kid and the wife get done with you, I’ll just have to squeegee the blood and bits off the tile. If I wasn’t crazy, the two of them would probably scare the hell out of me. They’re mean, angry, bitter women.

    Besides, to eradicate my genes you have to take out a cryo facility in an undisclosed location.

  30. Yet that hardly tells us much about U.S. society or wealth. Over the same period, for instance, the percentage of people going to college grew and so did home ownership rates. Those are two broad indicators of rising wealth. So the DJIA doesn’t necessarily tell the whole story.

    While I agree that the DJIA does not tell the whole story, it is unwise to look at home ownership rates as an indicator of wealth in this instance.

    Under the government’s no-deadbeat-left-behind program, the banks were coerced into making “sub prime” loans and the rest, as they say is history.

  31. Where the fuck is Reason on why nationalizing the banks would be a bad idea.

    I’ve been warning about this for more than a week.

    I know it sort of goes without saying, but some people in DC seem to have forgotten.

    What the fuck … Rreason’s going to be late to the party again and start opposing it after the battle is over, just like the bailouts?

  32. Besides, to eradicate my genes you have to take out a cryo facility in an undisclosed location.

    Are talking about the time you jacked off all over the refrigerator?

  33. Are talking about the time you jacked off all over the refrigerator?

    No, I gave that refrigerator to the roommate when I moved out. If she doesn’t want dried spooge on the fridge, let her clean it.

  34. No, I gave that refrigerator to the roommate when I moved out.

    You let a woman take your manly essence? Paternity lawsuit in 3… 2…

  35. re: “If the averages of previous crises hold…”

    Did I miss it, or did Lochhead never explicitly state which crises were being averaged? Par for the course for newspaper articles on the financial crisis, I suppose.

  36. Within five minutes of their birth, I apologized to my crotchspawn for the shit they’re going to be dealt.

    … Unless the husband and I can find a suitable location to which we may defect.

    Any progress on the Island paradise staffed by Monkey Butlers? Or do we need to hire another species of butlers, seeing as how monkeys are falling into recent disfavor?

    *ducks*

  37. “Any progress on the Island paradise staffed by Monkey Butlers? Or do we need to hire another species of butlers, seeing as how monkeys are falling into recent disfavor?

    I hear they are about to resurrect Neanderthals for our domestic needs.

  38. Everyone who participated in the Great Housing Bubble (borrowers, lenders, legislators, regulators, middlemen, Wall Street repackagers, foreign investors who didn’t understand what the middlemen and legislators and Wall Street repackagers had created) is culpable, and they must pay the price for their greed and ignorance. Sadly, those of us who chose to live responsible lives must also pay the price: the price of living in a so-called “civilized” society in which scoundrels ruled the day.

  39. John,

    Obama has revealed himself in just over a month to be completely shallow, valueless and cynical.

    No, he hasn’t revealed anything. All that was out of the bag way before the election was over. It was obvious that he was shallow (read: empty suit). You cannot be enough of a politician to make president anymore unless you are at least 90% value-free. And liberals are cynical by definition.

    The fact that we could allow someone of his ilk to rise to the Presidency says terrible things about our society and our future.

    More like, the fact that we had a choice between him and McCain says terrible things about the state of our political system. Which is now doing terrible things to our future.

    I mean, I can even understand why the conversation degenerates to discussions of jerking off on a refrigerator. Nothing else we’re discussing is anything but doom and gloom, and the only debatable question is, how long will it last. [unfortunately jerking off on a refrigerator doesn’t last long, but you can do it over and over and over….]

    Hazel, you’re quick. But nationalizing the banks is only part of what lots of people should be railing at right now.

    Of course, public opinion seems to be running largely against the bailout bullshit and both R’s and D’s have jammed it down our throats anyway. I don’t usually buy into conspiracy theories but this one actually has me wondering a little. The only resistance I see is a little (and it’s going to be largely token) coming from the Right.

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