kent nickell
Well-known member
I thought this article by Maximus on breaking through the firewalls and the strong statement by Krugman on the below video that we are heading into an L-shaped recovery have interesting correlations...
People worry alot about an L-shaped recovery but I think that is what we are headed for and that it could be good in the long run... U-shaped or V-shaped recovery assumes that we will return to where we were which to me seems out of the question with all the silly money that was floating around..
Of couse it all depends on where the L evens out but I think we will land on a new plain/plane that could very well be more stable and sustainable...
There will be pain along the way in this large de-leveraging process and it would probably make more sense to plan on how to mitigate this pain rather than hope to ride the V or U wave back up....
Mitigating this pain to me would include things like providing essential services during a rough re-adjustment process
Some interesting points from Maximus... The US will default on some of its debt obligations, ie probably esp social security and Medicare and possilbly some foreign debt.. Main street to feel the effects in 2009/2010. Touch decisions will have to be made on bailouts, from the state of California to auto companies. Interestingly he's hopeful for better global times in the future (I think he bases this on first getting our feet back on solid ground and then moving forward with better technology to better places. Technolgical advances have propelled us forward in the past and I hope this is the case but stable and sustainable will be a good place to start)
http://fabiusmaximus.wordpress.com/2009/01/26/sitrep-6/
A Situation Report About The Global Economy, As The Flames Break Thru The Firewalls
Fabius Maximus | Jan 26, 2009
1. Global summary
Metrics of economic activity are almost all falling. Many are falling rapidly; some are in free fall.
The world moves from a financial crisis ? in which governments bail out banks ? to a larger crisis in which entire nations must need bailouts. Iceland was the first. A long sick list is growing: the UK, Ireland, Spain, Italy, and many emerging nations (esp in Eastern Europe).
US banks continue to die despite massive infusions (gifts) of free money from you and I. The sums required to adequately recapitalize them are preposterous. Many of our major banks will be nationalized
4. Looking ahead, what can we expect for America?
2008 was a financial crisis, affecting mostly "Wall Street." 2009 will be the year "Main Street" gets hit. The damage to the real economy so far is trivial to what will happen over the next two years. There will be two big stories.
(a) Business bankruptcies
Going into 2007 we knew that our financial sector was unusually strong, well-managed with strong balance sheets. False! Going into 2009 we know that our non-financial business sector is well-managed (outside of some weak sectors, like autos), with strong balance sheets. Expect to be disappointed and astonished yet again.
(b) Triage
Everybody wants bailouts. Worse, the expectation of bailouts means that few preventive measures will be taken. It's call moral hazard. We see this at work in California. Already de factor bankrupt, nobody gives an inch. No lower government spending, no lower government wages, no reduced government employment, no higher taxes. Why compromise? The Fed will not let California go broke. Or the auto companies. Or the universities. Or the banks and insurance companies. Or millions of households.
There is not enough money to bailout everybody. Triage will be necessary,
Those who will die anyway: no treatment.
Those who will recover anyway: no treatment.
Those will will recover only with treatment.
Making these harsh decisions might be Obama's greatest challenge.
Hyperinflation always remains an option, as does atomic war and mass suicide. None of these are "solutions" in any meaningful sense. With a history of vast deficits behind us and larger deficits ahead (from boomer's retiring), the government will choose Door #2: default. We will just not pay all our obligations. This is historically the most common solution.
How we decide who to pay ? and how much to pay ? will test America as it has seldom been tested.
Do we pay our foreign debts?
To what extent do we renege on promised social security and medicare benefits?
To what extent do we raise taxes vs. defaulting?
8. Conclusions
Economic booms and busts are the natural working of our system. Busts resolve imbalances that we lack the wisdom or discipline to fix ourselves.
We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.
But this is only a temporary phase of maladjustment.
Krugman video... http://ca.youtube.com/watch?v=wvqg6QiXFD4
People worry alot about an L-shaped recovery but I think that is what we are headed for and that it could be good in the long run... U-shaped or V-shaped recovery assumes that we will return to where we were which to me seems out of the question with all the silly money that was floating around..
Of couse it all depends on where the L evens out but I think we will land on a new plain/plane that could very well be more stable and sustainable...
There will be pain along the way in this large de-leveraging process and it would probably make more sense to plan on how to mitigate this pain rather than hope to ride the V or U wave back up....
Mitigating this pain to me would include things like providing essential services during a rough re-adjustment process
Some interesting points from Maximus... The US will default on some of its debt obligations, ie probably esp social security and Medicare and possilbly some foreign debt.. Main street to feel the effects in 2009/2010. Touch decisions will have to be made on bailouts, from the state of California to auto companies. Interestingly he's hopeful for better global times in the future (I think he bases this on first getting our feet back on solid ground and then moving forward with better technology to better places. Technolgical advances have propelled us forward in the past and I hope this is the case but stable and sustainable will be a good place to start)
http://fabiusmaximus.wordpress.com/2009/01/26/sitrep-6/
A Situation Report About The Global Economy, As The Flames Break Thru The Firewalls
Fabius Maximus | Jan 26, 2009
1. Global summary
Metrics of economic activity are almost all falling. Many are falling rapidly; some are in free fall.
The world moves from a financial crisis ? in which governments bail out banks ? to a larger crisis in which entire nations must need bailouts. Iceland was the first. A long sick list is growing: the UK, Ireland, Spain, Italy, and many emerging nations (esp in Eastern Europe).
US banks continue to die despite massive infusions (gifts) of free money from you and I. The sums required to adequately recapitalize them are preposterous. Many of our major banks will be nationalized
4. Looking ahead, what can we expect for America?
2008 was a financial crisis, affecting mostly "Wall Street." 2009 will be the year "Main Street" gets hit. The damage to the real economy so far is trivial to what will happen over the next two years. There will be two big stories.
(a) Business bankruptcies
Going into 2007 we knew that our financial sector was unusually strong, well-managed with strong balance sheets. False! Going into 2009 we know that our non-financial business sector is well-managed (outside of some weak sectors, like autos), with strong balance sheets. Expect to be disappointed and astonished yet again.
(b) Triage
Everybody wants bailouts. Worse, the expectation of bailouts means that few preventive measures will be taken. It's call moral hazard. We see this at work in California. Already de factor bankrupt, nobody gives an inch. No lower government spending, no lower government wages, no reduced government employment, no higher taxes. Why compromise? The Fed will not let California go broke. Or the auto companies. Or the universities. Or the banks and insurance companies. Or millions of households.
There is not enough money to bailout everybody. Triage will be necessary,
Those who will die anyway: no treatment.
Those who will recover anyway: no treatment.
Those will will recover only with treatment.
Making these harsh decisions might be Obama's greatest challenge.
Hyperinflation always remains an option, as does atomic war and mass suicide. None of these are "solutions" in any meaningful sense. With a history of vast deficits behind us and larger deficits ahead (from boomer's retiring), the government will choose Door #2: default. We will just not pay all our obligations. This is historically the most common solution.
How we decide who to pay ? and how much to pay ? will test America as it has seldom been tested.
Do we pay our foreign debts?
To what extent do we renege on promised social security and medicare benefits?
To what extent do we raise taxes vs. defaulting?
8. Conclusions
Economic booms and busts are the natural working of our system. Busts resolve imbalances that we lack the wisdom or discipline to fix ourselves.
We are suffering, not from the rheumatics of old age, but from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another.
But this is only a temporary phase of maladjustment.
Krugman video... http://ca.youtube.com/watch?v=wvqg6QiXFD4