Post by walompio on Nov 16, 2008 9:51:07 GMT -5
www.youtube.com/watch?v=COtE1J5NMbo
Sorry for this EXTRA LONG POST .. most of it is copy & paste articles relating to the subject. I would like to know what concensus we can reach here.
Cal, what is your take on the global economic crisis? What solutions would you present?
This G20 summit is dedicated to arranging a 'solution' to the global economic crisis.
From Financial Times:
Leaders temper G20 ambitions
By FT reporters
Published: November 14 2008 19:38 | Last updated: November 15 2008 00:14
World leaders played down expectations of dramatic breakthroughs at the start of this weekend’s Group of 20 summit on the economic crisis on Friday, conceding that the political transition in the US made big decisions unlikely.
However, European leaders kept up their drive for a timetable to reform global finance, as figures showed that the eurozone had fallen into recession for the first time since the birth of the single currency.
The Bush administration continued to resist a lurch towards regulation but conceded that there could be discussions on subjects such as hedge funds and derivative markets that it has blocked in the past.
“Everyone agrees we need to look at these things,” said Tony Fratto, a White House spokesman. But he added: “We don’t want to be chasing bogeymen.” The Barack Obama team kept its distance from the talks, even as its representatives met with visiting delegations.
The G20 was expected to pledge to support world growth, without promising any co-ordinated fiscal stimulus; agree to principles for financial regulation; lay out an action plan and commission working groups to report back on issues including regulation of securitised markets, accounting standards, credit ratings and pay schemes in the financial sector.
Support grew for a “college of supervisors” from different nations to monitor global banks. Leaders will review the International Monetary Fund and its resources, with Japan offering an extra $100bn, and recommit to free trade. They appeared set to reconvene in the spring.
While China and other emerging nations at the summit generally kept a low profile, their presence marked a historic recognition that industrialised nations could no longer dictate the rules of global finance.
“This summit is not going to be a second Bretton Woods,” a European diplomat said, invoking a phrased used by British prime minister Gordon Brown and Mr Sarkozy. “It is the beginning of a process.”
Hank Paulson, Treasury secretary, indicated that the US would accept some criticism. “We have in many ways humiliated ourselves as a nation with some of the problems that have taken place here.” But he said the US would not accept sole responsibility for the crisis.
Reporting by Krishna Guha, Daniel Dombey and George Parker in Washington; Ralph Atkins in Frankfurt, Ben Hall in Paris and Chris Bryant in Berlin
Copyright The Financial Times Limited 2008
> Bretton Woods
By Frank Tang
NEW YORK (Reuters) - Gold surged on Friday as world leaders gathered to battle the economic crisis, amid talk of a new Bretton Woods agreement to shore up the financial system, but calls to revisit the gold standard are unlikely.
The gold standard, a monetary system of fixed exchange rates in terms of gold, had been the cornerstone of Bretton Woods, which created the International Monetary Fund and the World Bank, until President Richard Nixon took the U.S. dollar off the standard in 1971.
Bullion, seen as a safe haven in market turmoil, has staged a $50 per ounce rally from Thursday's intraday low, as funds bought heavily ahead of this weekend's meeting, which includes leaders of the Group of 20 advanced and emerging economies.
"I think the anticipation of something from the G20 meeting is helping gold," said George Gero, vice president of RBC Capital Markets Global Futures.
World leaders, including British Prime Minister Gordon Brown and French President Nicolas Sarkozy, have recently vowed to change the international monetary system created at the Bretton Woods, New Hampshire conference in 1944, which helped draw up the post-war financial order.
Shaken investor confidence amid a bear stock market and the prospect of a protracted global recession have prompted some corners to call for a return to the gold standard.
The standard had been in place with minor modifications since Bretton Woods fixed the conversion rate for one troy ounce of gold at $35.
However, fund managers and commodity analysts said that the G20 meeting would not result in any agreement that resembles a new Bretton Woods agreement or the gold standard.
"That's basically a 19th century device that was repackaged in Bretton Woods, where the dollar was linked to a physical gold price," said James Steel, chief commodity analyst at
HSBC.
"I don't think that's happening at all because the gold market is far too small to be able to play any role in that dimension. That is not to say, though, gold won't reflect changes in the economy and currency value," Steel said.
OBAMA: NO GOLD STANDARD
But it seems that central bankers and governments around the world have already put a stop on a comeback of the gold standard as they prefer monetary policies without being restrained by gold reserves.
In August, then presidential candidate Barack Obama said he did not think a return to the gold standard was a good idea and noted that the U.S. currency was strong in the 1990s, even though there was no gold standard.
Obama was speaking in response to a question about if he thought the country should return to the gold standard, given that the weak dollar is exacerbating the rise in oil prices.
"I don't think they want to do that. I think that would panic the world," said COMEX gold options floor trader Jonathan Jossen.
Jossen said that gold could receive a boost if news out of the G20 meeting would stem the dollar's resurgence.
"Everybody wants the dollar to be weakened. A lot of people think the dollar has moved way too fast," Jossen said.
Caesar Bryan, portfolio manager of the GAMCO Gold Fund, said that funds have bought gold to position for possible favorable outcomes from the G20 meeting.
"There has been some talk about the Far Eastern countries increasing their gold holding. We have that speculation from time to time," said Bryan, who manages $280 million in mutual fund assets.
Bryan, however, said that he did not expect any substantial agreement from the G20 meeting that was only prepared in weeks and without the participation of the U.S. president-elect.
"I have been positive on gold because of the extraordinary measures that central banks have been taking. I would expect gold to do better without any G20 meeting," Bryan said.
(Reporting by Frank Tang; Editing by Marguerita Choy)
>Washington is Powerless to Stop the Coming Economic Depression
Barbara L. Minton
Natural News
November 14, 2008
The U.S. is in the grip of fear. People are so worried about the collapse of the economy that they’ve stopped going to the mall, and they’re cutting every expense they can think of to save money for the hard times ahead. They’ve even stopped going to Starbucks. Bankers too have pulled their purse strings closed and refused to lend anything to anyone. Investors have been selling their stocks and converting what’s left of their retirement accounts to cash that can be horded in a safe. Even the usually optimistic media now wonders if America is sinking into a depression. Everyone is waiting for Washington to do something to end the crisis and get the country back on track. But the truth is that even with its new administration, Washington is no more able to save the U.S. from depression now than it was in the 1930’s.
Today’s Americans have lived through unprecedented good times
Most Americans alive today have never witnessed a depression. They have lived through an unprecedented period of good times characterized by a predominance of peace, economic expansion and easy credit. Sure there were a few recessions along the way, but the general growth trend remained intact. People felt confident that this trend would continue, with each generation envisioning an even better future for its children.
People have come to think of wealth as ever-expanding. They have seen each year on the job entitling them to a raise, and the purchase of a house entitling them to capital gains. They have eschewed “safe” investments like certificates of deposit and government bonds, believing investment in stocks could pave the way to an early and cushy retirement. For many years Americans have contemplated their future with complacency. It’s been a great time to be alive, but good times always come to an end.
What is an economic depression?
A depression is a severe downturn in economic activity that lasts for several years. It is a period during which the economy fails to grow at all and actually shrinks. The last depression, named The Great Depression, began in 1929 and lasted ten years. Several years during this period experienced huge economic shrinkage:
1930 -8.6%
1931 -6.4%
1932 -13%
1933 -1.3%
The unemployment rate during this time rose to 25%, and wages for those who still had jobs fell 42%. Total U.S. economic output fell from $103 billion to $55 billion and world trade sank 65% as measured in dollars. For many people during this period it was not a question of whether they could afford the latest styles for their children. It was a question of whether they were able to provide their families with a few potatoes to eat.
Like the coming depression of today, the Great Depression followed a period of monetary expansion and easy credit that sparked a real estate boom. Just like today, many people moved into mansions and bought stocks believing that the market had no way to go but up. During the period from October, 1929 to July, 1932 the Dow Jones Industrial Average fell from about 375 to 48, a decline of 89%. The Dow did not regain the levels seen in 1929 until 1954, and that was only as a result of World War II. Without the war, the downturn would have lasted longer.
Why did it get so bad? Many people think that the monetary policies of the Hoover administration were to blame. Instead of pumping money into the economy and increasing the money supply, the Federal Reserve allowed the money supply to fall by 30%. The “New Deal” period created many government programs geared to ending the Depression, but unemployment remained in the double-digits until 1941, when the outbreak of World War II created defense-related jobs.
Today it is believed that another depression of this magnitude cannot happen because those in charge of monetary policy paid attention to the lessons learned from the Great Depression. People believe that laws and government agencies exist to prevent that type of cataclysmic economic pain from happening again. But the fact is that Washington cannot save the world from the coming depression, and here’s why:
The debt crisis is too big to be controlled by the U.S. government
Right now the government owes its creditors $52 trillion in interest-bearing debts. Based on estimates from the U.S. Government Accountability Office, there is another $60 trillion in contingency debts and obligations such as Social Security, Medicare and guaranteed pensions. Add to that $596 trillion (more than half a quadrillion) that represents the total value of U.S. debts and derivatives placed worldwide.
These are the numbers that are on the table as of now. They don’t include the increasing line-up of companies doomed to fail, such as General Motors and Ford or the increasing need for handouts to companies already on the list of the “too large to fail”, such as AIG. As times get harder for all Americans, more and more companies will begin to fail and look to the government to save them. The precedent has been set. The list also does not include the mortgages that will implode when the second leg of house price declines kicks in following increased job loss. The figures also don’t include government handouts to those whose families are hungry because the parents are unemployed.
Now, consider that even after the additions to the ever lengthening list of pledged government bailouts in recent months, the total amount of rescue money announced in the U.S. so far is $2.7 trillion, a huge sum but miniscule in comparison to the massive debt that needs to be accounted for.
Yet the mantra still exists that Washington can save us from another Great Depression because they won’t repeat history and make the mistakes that were made in the 1930’s. Americans continue to think that Great Depression Part II will not come to pass. It’s time for Americans to start adding up the numbers and drawing some conclusions.
Washington is powerless to raise the kind of money needed without borrowing
The U.S. economy is like a ship that has struck an iceberg and is taking on water. With the economy sinking, Washington is unable to fund the bailouts and reign in the debt with higher taxes. Higher taxes would crimp even more the amount of money available to be spent by consumers to keep the economy propped up. And as more and more people lose their jobs, the tax base gets smaller and smaller.
Many people think it is no problem for Washington to get its hands on money since it owns the printing presses. This would be the easiest solution to the problem - print up huge amounts of money and cause hyperinflation. That would solve everything. Salaries would increase and therefore taxes would increase. GDP would expand in dollar terms and the debt would begin to seem small since it would have been conceived in “old dollars”, and the “new dollars” would be hyperinflated. But this won’t work because a huge amount of U.S. debt is held by foreign creditors who have insisted on stability for their investments. There is no way they would stand for the U.S. launching a mode of hyperinflation because it would drastically decrease their value of their holdings. Right now these foreign debt holders are the country’s benefactors. Without them, American is sunk. They are calling the shots and America is scrambling to keep them happy.
There is nothing for the government to do but go out into the world with its hat in its hands and try to borrow more money. In fact, this has already started with the borrowing of $550 trillion dollars in the fourth quarter of this year, more than the entire deficit of fiscal year 2008. According to Goldman Sachs, the immediate needs of the Treasury will be a whopping $2 trillion to finance the bailouts, the existing deficit, and the next refunding.
This huge refunding of the federal deficit will result in an avalanche of new Treasury securities that have to be sold to someone. In order to beat the bushes for buyers in these skittish times, the Treasury will have to increase the interest rates offered on these securities, adding even more fuel to the debt fire.
Americans realize they have too little savings and too much debt
The reason given to Congress as need for speedy approval of the bailout was that without it, no one would be able to get a loan. The specter of the masses with their credit cards planted firmly on their hips was a scary thought to the Secretary of the Treasury and the Fed Chairman. Washington needs consumers to borrow more, spend more, and save less. But consumers are doing just the opposite. Recent sales figures point to a collapse in retail sales.
Washington is pushing bankers to lend, but they won’t do it. It’s as though everyone has been slapped in the face with cold water. As a result, the economy is left to fall on its face. It is this coming together of debt and deflation that makes a depression inevitable. It’s what happened in the 1930’s and it’s what is happening now.
Debt and deflation produce a powerful downward spiral
The downward spiral is across many areas and will inevitably encompass most of American life. Consumers and businesses slash spending and lay off workers, leading to fewer consumers with money to spend at the businesses, resulting in the need to lay off more workers and so on. Mortgage delinquencies and foreclosures bring on selling of more real estate, driving the prices lower and lower. These falling prices then bring on more mortgage defaults. Fear of bankruptcy forces selling of stocks in companies, and the selling of stocks brings on more bankruptcies. It is the inevitable unwinding of the good times that lasted for 30 years. It will take awhile for all this unwinding to play itself out. The unwinding of the Great Depression took 10 years and the debt overhang was nothing like it is today.
Source for facts about the Great Depression:
Kimberly Amadeo, “What is a Depression?”, About.com US Economy.
The following video was intersting in that it gave me a new perspective into what I believed to be an over-population problem...
www.youtube.com/watch?v=oheM9H5RYWA
PEACE!
Sorry for this EXTRA LONG POST .. most of it is copy & paste articles relating to the subject. I would like to know what concensus we can reach here.
Cal, what is your take on the global economic crisis? What solutions would you present?
This G20 summit is dedicated to arranging a 'solution' to the global economic crisis.
From Financial Times:
Leaders temper G20 ambitions
By FT reporters
Published: November 14 2008 19:38 | Last updated: November 15 2008 00:14
World leaders played down expectations of dramatic breakthroughs at the start of this weekend’s Group of 20 summit on the economic crisis on Friday, conceding that the political transition in the US made big decisions unlikely.
However, European leaders kept up their drive for a timetable to reform global finance, as figures showed that the eurozone had fallen into recession for the first time since the birth of the single currency.
The Bush administration continued to resist a lurch towards regulation but conceded that there could be discussions on subjects such as hedge funds and derivative markets that it has blocked in the past.
“Everyone agrees we need to look at these things,” said Tony Fratto, a White House spokesman. But he added: “We don’t want to be chasing bogeymen.” The Barack Obama team kept its distance from the talks, even as its representatives met with visiting delegations.
The G20 was expected to pledge to support world growth, without promising any co-ordinated fiscal stimulus; agree to principles for financial regulation; lay out an action plan and commission working groups to report back on issues including regulation of securitised markets, accounting standards, credit ratings and pay schemes in the financial sector.
Support grew for a “college of supervisors” from different nations to monitor global banks. Leaders will review the International Monetary Fund and its resources, with Japan offering an extra $100bn, and recommit to free trade. They appeared set to reconvene in the spring.
While China and other emerging nations at the summit generally kept a low profile, their presence marked a historic recognition that industrialised nations could no longer dictate the rules of global finance.
“This summit is not going to be a second Bretton Woods,” a European diplomat said, invoking a phrased used by British prime minister Gordon Brown and Mr Sarkozy. “It is the beginning of a process.”
Hank Paulson, Treasury secretary, indicated that the US would accept some criticism. “We have in many ways humiliated ourselves as a nation with some of the problems that have taken place here.” But he said the US would not accept sole responsibility for the crisis.
Reporting by Krishna Guha, Daniel Dombey and George Parker in Washington; Ralph Atkins in Frankfurt, Ben Hall in Paris and Chris Bryant in Berlin
Copyright The Financial Times Limited 2008
> Bretton Woods
By Frank Tang
NEW YORK (Reuters) - Gold surged on Friday as world leaders gathered to battle the economic crisis, amid talk of a new Bretton Woods agreement to shore up the financial system, but calls to revisit the gold standard are unlikely.
The gold standard, a monetary system of fixed exchange rates in terms of gold, had been the cornerstone of Bretton Woods, which created the International Monetary Fund and the World Bank, until President Richard Nixon took the U.S. dollar off the standard in 1971.
Bullion, seen as a safe haven in market turmoil, has staged a $50 per ounce rally from Thursday's intraday low, as funds bought heavily ahead of this weekend's meeting, which includes leaders of the Group of 20 advanced and emerging economies.
"I think the anticipation of something from the G20 meeting is helping gold," said George Gero, vice president of RBC Capital Markets Global Futures.
World leaders, including British Prime Minister Gordon Brown and French President Nicolas Sarkozy, have recently vowed to change the international monetary system created at the Bretton Woods, New Hampshire conference in 1944, which helped draw up the post-war financial order.
Shaken investor confidence amid a bear stock market and the prospect of a protracted global recession have prompted some corners to call for a return to the gold standard.
The standard had been in place with minor modifications since Bretton Woods fixed the conversion rate for one troy ounce of gold at $35.
However, fund managers and commodity analysts said that the G20 meeting would not result in any agreement that resembles a new Bretton Woods agreement or the gold standard.
"That's basically a 19th century device that was repackaged in Bretton Woods, where the dollar was linked to a physical gold price," said James Steel, chief commodity analyst at
HSBC.
"I don't think that's happening at all because the gold market is far too small to be able to play any role in that dimension. That is not to say, though, gold won't reflect changes in the economy and currency value," Steel said.
OBAMA: NO GOLD STANDARD
But it seems that central bankers and governments around the world have already put a stop on a comeback of the gold standard as they prefer monetary policies without being restrained by gold reserves.
In August, then presidential candidate Barack Obama said he did not think a return to the gold standard was a good idea and noted that the U.S. currency was strong in the 1990s, even though there was no gold standard.
Obama was speaking in response to a question about if he thought the country should return to the gold standard, given that the weak dollar is exacerbating the rise in oil prices.
"I don't think they want to do that. I think that would panic the world," said COMEX gold options floor trader Jonathan Jossen.
Jossen said that gold could receive a boost if news out of the G20 meeting would stem the dollar's resurgence.
"Everybody wants the dollar to be weakened. A lot of people think the dollar has moved way too fast," Jossen said.
Caesar Bryan, portfolio manager of the GAMCO Gold Fund, said that funds have bought gold to position for possible favorable outcomes from the G20 meeting.
"There has been some talk about the Far Eastern countries increasing their gold holding. We have that speculation from time to time," said Bryan, who manages $280 million in mutual fund assets.
Bryan, however, said that he did not expect any substantial agreement from the G20 meeting that was only prepared in weeks and without the participation of the U.S. president-elect.
"I have been positive on gold because of the extraordinary measures that central banks have been taking. I would expect gold to do better without any G20 meeting," Bryan said.
(Reporting by Frank Tang; Editing by Marguerita Choy)
>Washington is Powerless to Stop the Coming Economic Depression
Barbara L. Minton
Natural News
November 14, 2008
The U.S. is in the grip of fear. People are so worried about the collapse of the economy that they’ve stopped going to the mall, and they’re cutting every expense they can think of to save money for the hard times ahead. They’ve even stopped going to Starbucks. Bankers too have pulled their purse strings closed and refused to lend anything to anyone. Investors have been selling their stocks and converting what’s left of their retirement accounts to cash that can be horded in a safe. Even the usually optimistic media now wonders if America is sinking into a depression. Everyone is waiting for Washington to do something to end the crisis and get the country back on track. But the truth is that even with its new administration, Washington is no more able to save the U.S. from depression now than it was in the 1930’s.
Today’s Americans have lived through unprecedented good times
Most Americans alive today have never witnessed a depression. They have lived through an unprecedented period of good times characterized by a predominance of peace, economic expansion and easy credit. Sure there were a few recessions along the way, but the general growth trend remained intact. People felt confident that this trend would continue, with each generation envisioning an even better future for its children.
People have come to think of wealth as ever-expanding. They have seen each year on the job entitling them to a raise, and the purchase of a house entitling them to capital gains. They have eschewed “safe” investments like certificates of deposit and government bonds, believing investment in stocks could pave the way to an early and cushy retirement. For many years Americans have contemplated their future with complacency. It’s been a great time to be alive, but good times always come to an end.
What is an economic depression?
A depression is a severe downturn in economic activity that lasts for several years. It is a period during which the economy fails to grow at all and actually shrinks. The last depression, named The Great Depression, began in 1929 and lasted ten years. Several years during this period experienced huge economic shrinkage:
1930 -8.6%
1931 -6.4%
1932 -13%
1933 -1.3%
The unemployment rate during this time rose to 25%, and wages for those who still had jobs fell 42%. Total U.S. economic output fell from $103 billion to $55 billion and world trade sank 65% as measured in dollars. For many people during this period it was not a question of whether they could afford the latest styles for their children. It was a question of whether they were able to provide their families with a few potatoes to eat.
Like the coming depression of today, the Great Depression followed a period of monetary expansion and easy credit that sparked a real estate boom. Just like today, many people moved into mansions and bought stocks believing that the market had no way to go but up. During the period from October, 1929 to July, 1932 the Dow Jones Industrial Average fell from about 375 to 48, a decline of 89%. The Dow did not regain the levels seen in 1929 until 1954, and that was only as a result of World War II. Without the war, the downturn would have lasted longer.
Why did it get so bad? Many people think that the monetary policies of the Hoover administration were to blame. Instead of pumping money into the economy and increasing the money supply, the Federal Reserve allowed the money supply to fall by 30%. The “New Deal” period created many government programs geared to ending the Depression, but unemployment remained in the double-digits until 1941, when the outbreak of World War II created defense-related jobs.
Today it is believed that another depression of this magnitude cannot happen because those in charge of monetary policy paid attention to the lessons learned from the Great Depression. People believe that laws and government agencies exist to prevent that type of cataclysmic economic pain from happening again. But the fact is that Washington cannot save the world from the coming depression, and here’s why:
The debt crisis is too big to be controlled by the U.S. government
Right now the government owes its creditors $52 trillion in interest-bearing debts. Based on estimates from the U.S. Government Accountability Office, there is another $60 trillion in contingency debts and obligations such as Social Security, Medicare and guaranteed pensions. Add to that $596 trillion (more than half a quadrillion) that represents the total value of U.S. debts and derivatives placed worldwide.
These are the numbers that are on the table as of now. They don’t include the increasing line-up of companies doomed to fail, such as General Motors and Ford or the increasing need for handouts to companies already on the list of the “too large to fail”, such as AIG. As times get harder for all Americans, more and more companies will begin to fail and look to the government to save them. The precedent has been set. The list also does not include the mortgages that will implode when the second leg of house price declines kicks in following increased job loss. The figures also don’t include government handouts to those whose families are hungry because the parents are unemployed.
Now, consider that even after the additions to the ever lengthening list of pledged government bailouts in recent months, the total amount of rescue money announced in the U.S. so far is $2.7 trillion, a huge sum but miniscule in comparison to the massive debt that needs to be accounted for.
Yet the mantra still exists that Washington can save us from another Great Depression because they won’t repeat history and make the mistakes that were made in the 1930’s. Americans continue to think that Great Depression Part II will not come to pass. It’s time for Americans to start adding up the numbers and drawing some conclusions.
Washington is powerless to raise the kind of money needed without borrowing
The U.S. economy is like a ship that has struck an iceberg and is taking on water. With the economy sinking, Washington is unable to fund the bailouts and reign in the debt with higher taxes. Higher taxes would crimp even more the amount of money available to be spent by consumers to keep the economy propped up. And as more and more people lose their jobs, the tax base gets smaller and smaller.
Many people think it is no problem for Washington to get its hands on money since it owns the printing presses. This would be the easiest solution to the problem - print up huge amounts of money and cause hyperinflation. That would solve everything. Salaries would increase and therefore taxes would increase. GDP would expand in dollar terms and the debt would begin to seem small since it would have been conceived in “old dollars”, and the “new dollars” would be hyperinflated. But this won’t work because a huge amount of U.S. debt is held by foreign creditors who have insisted on stability for their investments. There is no way they would stand for the U.S. launching a mode of hyperinflation because it would drastically decrease their value of their holdings. Right now these foreign debt holders are the country’s benefactors. Without them, American is sunk. They are calling the shots and America is scrambling to keep them happy.
There is nothing for the government to do but go out into the world with its hat in its hands and try to borrow more money. In fact, this has already started with the borrowing of $550 trillion dollars in the fourth quarter of this year, more than the entire deficit of fiscal year 2008. According to Goldman Sachs, the immediate needs of the Treasury will be a whopping $2 trillion to finance the bailouts, the existing deficit, and the next refunding.
This huge refunding of the federal deficit will result in an avalanche of new Treasury securities that have to be sold to someone. In order to beat the bushes for buyers in these skittish times, the Treasury will have to increase the interest rates offered on these securities, adding even more fuel to the debt fire.
Americans realize they have too little savings and too much debt
The reason given to Congress as need for speedy approval of the bailout was that without it, no one would be able to get a loan. The specter of the masses with their credit cards planted firmly on their hips was a scary thought to the Secretary of the Treasury and the Fed Chairman. Washington needs consumers to borrow more, spend more, and save less. But consumers are doing just the opposite. Recent sales figures point to a collapse in retail sales.
Washington is pushing bankers to lend, but they won’t do it. It’s as though everyone has been slapped in the face with cold water. As a result, the economy is left to fall on its face. It is this coming together of debt and deflation that makes a depression inevitable. It’s what happened in the 1930’s and it’s what is happening now.
Debt and deflation produce a powerful downward spiral
The downward spiral is across many areas and will inevitably encompass most of American life. Consumers and businesses slash spending and lay off workers, leading to fewer consumers with money to spend at the businesses, resulting in the need to lay off more workers and so on. Mortgage delinquencies and foreclosures bring on selling of more real estate, driving the prices lower and lower. These falling prices then bring on more mortgage defaults. Fear of bankruptcy forces selling of stocks in companies, and the selling of stocks brings on more bankruptcies. It is the inevitable unwinding of the good times that lasted for 30 years. It will take awhile for all this unwinding to play itself out. The unwinding of the Great Depression took 10 years and the debt overhang was nothing like it is today.
Source for facts about the Great Depression:
Kimberly Amadeo, “What is a Depression?”, About.com US Economy.
The following video was intersting in that it gave me a new perspective into what I believed to be an over-population problem...
www.youtube.com/watch?v=oheM9H5RYWA
PEACE!
