The Nobel Prize economist, Paul Krugman, warns our economy is in early stage of depression and predicts this time around depression will be much more severe than the Great Depression in 1929.
Do you really believe his remarks and others as well?
Your challenge (being English professor, Art teacher, diplomat, CPA, physician, stock broker, general contractor, CPA, architech, Manager, etc.) to this eminent scholar's opinion, please.
Both. Money is simply a "store of value" of sorts, so it will eventually go to those who are most productive. We have militaries to keep those who desire to take our money and stored production (food etc) from doing so without our permission.
For the last 40 years, since the environmental laws were passed, we have "voluntarily" moved our wealth creating productive capacity (especially low skilled work) overseas. We have tried to eliminate all pollution at the cost of becoming non-competitive. It has caused our standard of living to drop. Probably another "unintended consequence" of legislation.
We essentially are now trading our past wealth (money and assets--corporate ownership) to those who still are producing wealth in their countries. Japan, Germany, and Asian countries.
Ghost...As always, I enjoy reading your messages...! My question is this, in outsourcing, are we raising the standard of living of people around the world or are we lowering our standard of living down to theirs...???
Only if you agree with the policies to keep the cost of doing business higher than in the rest of the world. If they let free market rates for wages, and prices actually control, our employment will eventually return to much lower levels. If the government continues to fight to keep wages and prices artificially high and continues to direct capital into non-wealth producing activities, unemployment will remain high.
In the 60's the Mexican farm workers would just come for the harvest season than return to Mexico.
A certain congressman from Texas, named Gonzales, changed all that by suceeding in getting a bill passed which allowed the farm workers to stay year round. Things have not been the same since. My family owned a farm in Salinas, so I know of what I speak. alf
I saw this on a blog by one Mr. Rinehart who has developed some indicators for Market Analysis. RLT stands for "Rinehart Long Term" Indicator and RST stands for "Rinehart Short Term" Indicator.
"The NYSE Daily Index has made two major tops in past six weeks. The high on April 14 2010 followed by a second top (but slightly) on April 23 2010. The market made a secondary bottom on June 07 2010 as can be seen on the RLT/RST Indicator graph and recently formed a lower top on June 18 2010. The current formation looks like a “Head and Shoulders” and it is possible for markets to crash after a Right Shoulder forms based on historical data. Since the market is at a major “resistance level” what happens next (in next three weeks) could be critical. These markets are dangerous and it looks like the Bear Rally has ended. Based on purely cycles, the market is expected to still continue to drop for the next six weeks (possibly with some sharp three to eight day rallies but in a continuing down channel)."
Krugman is just looking for publicity and that's all.
I agree that the economy is going to be bumpy for the next few years but everybody knows that. It is true that the best way to stimulate the economy is by encouraging spending, and Obama is not exactly encouraging that via his policies.
The economic landscape is changing and will go through growing pains, but it will sort itself out.
A few thoughts and opinions on the topic you started. They may be worth what you paid for them, but at least consider the following.
If you desire to understand the underlying difficulties we face, a great book to read is "The Web of Debt" by Ellen Hodgson Brown. It gives a history of monetary systems that have been used since the middle ages, including our current Fed Rsv System. It also explains the weakness of our current monetary system, and, if you understand the system it is clear what is happening.
Krugman is wrong on his hypothesis that public spending will help in the long term, it simply delays the inevitable.
The trouble in the developed countries is the debt created by individuals, corporations and the governments. Recessions/depressions eliminate debt and allow the economy to "start over". Our governments are trying to prevent the elimination of debt, and, in fact encourages the citizens to increase their debt loads-- cash for clunkers (old vehicles traded in for new vehicles causing debt creation, first time home buyer credits-- encourages first time buyers to leverage about 90% or more to buy houses, etc.
Once the population's aggregate incomes can't sustain the constant drain of debt service, the economy begins to contract-- government counters that by increasing incentives to borrow-- low interest rates-- or borrows itself. This process continues until countries like Greece can't service their debt and "austerity" begins to reduce debt levels.
Compare the debt levels in the developed countries to the debt levels in the developing countries, and, then compare their economic activity.
Also, debt service (interest and principal repayments for private debt, and taxes for public debt)is imbedded in the cost of goods and services provided in the U.S., so as debt levels increase so do the costs for the goods and services. Prices must go up to provide the additional revenue to pay the higher debt service. As prices increase competitiveness decreased versus those without debt service, resulting in fewer employed citizens. Eventually, the debt pyramid is liquidated with the resultant decrease in costs (lower debt service on smaller debt).
The U.S. is exporting jobs, because our cost structure is not competitive with the rest of the world. Started with the fall of communist states resulting in about 2 billion new workers who became capitalists and willing to work for much less than we are, since they started without any debt.
The collapse of the housing debt bubble was clearly visible to anyone who understands the weakness of our monetary system (fractional reserve banking).
All the developed countries are currently fighting debt liquidation in the private sector(deflation), and too much debt in the government sector, but history has shown that markets and economic forces in the end are always "bigger than governments". As a person once said "no one wins against compound interest", if you continue to increase your debt levels, in the end you will lose.
Just a few things off the top of my head-- short on time to write this-- to get you started thinking about the "big picture", and, that the difficulties we face might be inherent in our monetary system, and, thus recognizable for those who know how it really works.
I am very impressed with your insight and erudition.
As I read your posts, it occurred to me that you were describing a system (fractional reserve) that seemed systemically doomed to failure; experience and practice over time would increase the length of time between failures, but eventually the house of cards falls.
So, whats the solution beyond prodding and probing the current system along its path?
Is there something out there that provides the benefits of fractional reserve without the recurring collapses?
Krugman feels we are entering a long depression, and he states that the key action should be more spending, rather that fiscal responsibility. He states that the orthodox budget-cutting response to depression is not logical and should not be followed; and that the burden will be on the poor and unemployed.
I find that the poor and unemployed I see have no plans for improving their own lot; they are just waiting for something to happen for them. In the meanwhile they continue to live the same lives they always did, and expect their income (medicaid, unemployment, debt enhancement) to simply continue. They make no attempts to learn anything useful, to stop bad habits, and have no interest in being productive. This may be overly stated but is not necessarily incorrect.
Krugman is of the belief that public dollars should be infused for the SHORT term, to keep stablity, etc. I agree with that position. Where I differ from nearly everyone is my willingness to say that the only sure way out of this mess, albeit painful, it to tax our way out and be the wiser for it.
I read his recent article and I didn't see anything saying it would be worse than the great depression. What I did see was his view that we would have high unemployment for many years to come. That is possible. However here are a few things to keep in mind.
1. There are millions of job openings out there. The bulk of the U.S. unemployed are simply not qualified for these jobs. If the best you can do is a low skill job that takes a day or two of on the job training, you're toast...forever. We need better education before we can ever reduce unemployment fully. For people with skills, their jobs WILL eventually come back.
2. During the GREAT Depression the U.S. was hightly dependent on exports (I remember a particular article that described this perfectly, but I can't find it now). When the world economy tanked, lack of exports trashed our economy. Now as we buy less, we send less money overseas. That eases the pain somewhat.
3. EVERYBODY is worried about now becoming a depression. The fact that we have history and are worried about repeating it gives us an advantage that the guys in the 1930s didn't have. A lot of people are prepared or preparing, which makes the likelihood of such an event that much less.
"1. There are millions of job openings out there. The bulk of the U.S. unemployed are simply not qualified for these jobs. If the best you can do is a low skill job that takes a day or two of on the job training, you're toast...forever. We need better education before we can ever reduce unemployment fully. For people with skills, their jobs WILL eventually come back."
I think that statement is BS. For many reasons.
Unemployment is not showing meaningful gains.
Thus underlying that those millions of jobs are not really there. I am not about to believe all of those unemployed are uneducated.
2. I also know of many highly educated people that are working for a lot less than they used to many 50% less at least in the aviation field such as airline pilots mechanics flight attendents, ticket agents. This is the bigger problem that gets no press time. The underemployed are seeing lower wages which also reduce inflation. In many cases these people are working 2 jobs and still are making less than they used to with 1 job. And they are taking another job that used to go to someone else.
No I do not see millions of jobs no matter what the qualifications are. And many jobs that had been lost will never come back. Or more correctly when many do they will be overseas filled jobs for a fraction of what the US base pay was. Even many high tech jobs are being filled in Isreal or Russia for a whole lot less.
Well I am looking for inflation and I am not seeing it. Inflation is too many dollars chasing too few goods. Inflation can be adjusted either on the money side or the goods side. However with free trade and china over suppling the goods side we lose control of the supply side. So the government is trying to flood the market with cheap money to induce inflation. It is not enough.
So at what point does deflation begin?
I am not entirely buying his idea of depression. But I do see a lot of headwinds facing the US markets yet. Until we get past them say late 2012 into 2013 depression is a possibility. Lots can happen and the fed will fight it just as hard as they fight inflation.
So until then I would not be a buy long and hold guy for stocks unless I could get them on a huge sale like 10 cents on the dollar sale.
Like RSO was at $1.50/share.
If you are buying RSO recently at prices above $5 I think you will have to be a trader and be ready to trade out to save capital. Unless you can hold for 4+ years by then the markets should be moving upward at a regular pace again.