United States Heading towards a Depression?

Figures...

I stopped using my credit with them when they jacked my apr from 8 to 28% for no reason.

Penalized for paying my bills.. Sucks.

 

One experienced business writer's perspective on current bailouts;

from Steven Pearlstein of the Washington Post.

 

Steven Pearlstein is full of it.

Yeah, they lost their jobs and reps, and got multi-million dollar severance packages. Not to mention, within 5 years, most of them will be back working within the industry.

For managers, there is little downside to being very aggressive with other people's money. Same thing with politicians. It's easy come, easy go. Especially when you have a golden parachute if the SHTF.

 

Gold is at around 14~15 :1 versus the Dow. I seem to recall that at it's 2008 high, it was at 12.5 or 13 to 1.

I'm still looking for Gold to go 10:1 or 8:1 versus the Dow. It's been 1:1 as recently as 1980, and we're in similar (but worse) circumstances.

Gold is a financial savior if there is hyperinflation and paper becomes worthless.

You'll be happy to own some Double Eagles if/when that happens. It might help you keep your family fed.

 

cited by Guerilla:

Guerilla: I acknowledge that within Pearlstein's article the sentences reflecting the cost of penalty on the chief's of the institutions that failed is at the least a very trivial statement. The costs attributed to the heads and employees of a business or govt entity that goes belly up are miniscule relative to the overall costs.

In a sense it is an indictment against the current structure of American business that provides huge rewards to a very few at the top. It provides golden parachutes, endless benefits etc. It makes a mockery of the term..."accountability".

On other aspects the article is very realistic and appropriate. The question he poses is excellent. What are the costs of a bailout versus doing nothing.

Pearlstein amasses some of the costs associated with not performing a bailout. They are enormous.

Pearlstein references some bailouts where the govt. actually made more money or came out equal after the bailout. Good deals in retrospect. There have been other bailouts where it cost the government and taxpayers enormous sums. In the 1980's and 1990's the govt. to a large degree and the financial system to a far lessor degree bailed out the American financial system to the tune of about $150 billion. The govt. through in about $125 billion. The industry through in about $25 billion. That cost taxpayers about $125 billion. That was a cost to the American taxpayer.

On the otherhand the bailout secured the deposits of investors in federally insured banks and S&L's which had failed. During that period about 1,000 financial institutions failed. Either you had very primarily American citizens losing easy bank held liquidity to the tune of $150 billion in total right then during that 10 year period ending in the mid 1990's or you supported the losses with debt ultimately paid for by tax payers of course over a long period of time.

Take your poison. Either way it hurts.

 

We may see another weekend deal on either LEH or WH. This is bad. LEH is the 4th largest investment bank and WH is the largest Thrift bank in the US.

LEH is down $2.76 today to $4.49 and WH is down to $1.93.

 

Well now that BSC is out of the way and LEH is on its way out, MER is "on deck".

 

Bond, commodity, and FX markets are signaling a rate cut may be coming soon.

 

The FED may have decided to try to inflate their way out of the banking crisis. People would start buying houses as a hedge against inflation. The market should stabilize when an equilibruim is reached between wages and home prices.

However, should we encounter 1970's style stagflation with high unemployment. Housing will crash as people wouldn't have jobs to afford to pay their mortgages. The result in this case is a 1982 style recession with both double digit unemployment and interest rates. The 1982 recession was the worse since the GREAT DEPRESSION.

Most people don't realize that the GREAT DEPRESSION was an era and not an event. Basically the FED took what should have been a recession in 1927 and created a depression over the course of the next years.

 

Bless you. Another traveller who understands.

 

Housing prices are great in Miami!

 

Bogart, I think you will appreciate this piece. Thornton is one of my favorite authors at Mises.

http://mises.org/story/3103

How to Avoid Another Depression
Daily Article by Mark Thornton | Posted on 9/10/2008

Intro

 

Lehman may not make it through the weekend.

Germany's Finance Minister Peer Steinbrueck warns, "the news that is coming out of the U.S. is bad."

Emergency meeting on Lehman rescue resumes
http://news.yahoo.com/s/ap/20080913/ap_on_bi_ge/lehman_brothers

 

I am ready for the news to start talking about this.

 

Wall Street privatises US government: be very afraid
By Charles Dumas - London Telegraph

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/09/14/ccdumas114.xml

Checkout the graph. Amazing.

Tagline on page 3 is priceless.

 

How dare they attack Palin!

 

Total US home mortgages total $10.5 trillion. Subprime is about $1.5 trillion of the total and "Alt-A" another $0.5 trillion.

Home prices are still at bubble levels and in most areas are still at '2005 price levels'

A decline in home prices to to even 2003 levels will trigger a crisis in prime loans. Prices could decline to '2001 levels' but with inflation we will never see the prices at the start of the bubble in 1998.

It appears that a LEH deal is not going to get done this weekend. BOA is in merger talks with Merril Lynch.

 

No more Merril Lynch, No more Lehman Brothers.

Tomorrow should be a bloodbath on the equities markets but I practically expect another "rally" on the faith of future federal backing.

 

Hey man, this is just a correction!

 

AIG a DOW 30 component has lost 40 billion over the last 3 quarters and could be next.

DJ futures are -330. Doesn't seem to be too much of impact of Lehman. However, the exposure of other financials to Lehman isn't really know. Trades involving Lehman may total as much as 1 trillion.