United States Heading towards a Depression?

Two consecutive quarters of negative GDP growth. We're not in one yet because of the rapid creation of credit by the Federal Reserve.

GDP= consumption + gross investment + government spending + net exports

Thus if the US continues to issue more credit, GDP rises and recession is artificially kept at bay.

 

Inflation and unemployment will eventually break the 'bubblenomics' of Ben Bernanke. Employment is raising and there will be more forcolsures as people can not afford to pay,

Inflation is increasing and 2 members of the Fed are opposed to the current rate cuts.

It said 378,000 initial claims for jobless benefits were filed in the week ended March 15, up from 356,000 in the prior week. Economists had expected a rise to just 360,000.

The increase pushed the four-week moving average, a gauge of underlying job-market health, to 365,250, the highest since October 2005 in the aftermath of Hurricane Katrina.

http://news.yahoo.com/s/nm/20080320/bs_nm/usa_economy_dc;_ylt=AjTcF7nmg.gfpeCyIkOT9NXv5rEF


Two Fed's members — Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Richard Fisher, president of the Federal Reserve Bank of Dallas — on Tuesday opposed cutting a key interest rate by a hefty three-quarters point.

"Containing inflation is the purpose of the ship I crew for, and if a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient," Fisher said earlier this month.

http://news.yahoo.com/s/ap/20080320...uggling_act;_ylt=AmxyLvJacO9cXAOWP8r0_Unv5rEF

That's an incorrect definition of a recession. There does not have to be two consecutive quarters of negative GDP.

The National Bureau of Economic Research defines a recession as follows:


A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

http://www.nber.org/cycles/recessions.html

Good article form the New York Times, "Partying Like It’s 1929 ". The worst of the Great Depression were the Bank failures that occured in 1930 and 1931

http://www.nytimes.com/2008/03/21/opinion/21krugman.html?ref=todayspaper

 

Don't read too much Krugman. He's an idiot.

ARGH!

The problem wasn't that the banks were unregulated or unsupervised although the socialist Krugman just loves to say that about laissez-faire.

The problem is that the FED creates bubbles. It not only enables, but encourages the banks to become insolvent as they leverage themselves to oblivion, and then the inevitable bank runs collapse them.

Krugman would have us believe that if we could prevent bank runs, then insolvent banks would eventually return to solvency. Or that if the banks were not permitted to leverage, then they might never over-leverage.

But it's the FED that creates leverage by pumping the system full of bogus credit to create (fake) economic growth!

ARGH, I hate dislike Krugman so much! He's one of these @holes that thinks you can control the economy. That Human Action can be shaped by policy and supervision.

 

I agree with you that we have an insolvency crisis. There's plenty of credit but lenders are unable to afford the payments.

Wall Street is happy so lets party like it's 1929

 

Two names for you. Smoot & Hawley.

Krugman conveniently overlooks this when addressing the bank runs.

And the credit issue isn't on the lenders per se. The FED tried to pump liquidity into the system during the Depression as well. Lenders did not want it. They wanted to tighten up their portfolios and clean up their own books.

Sorta like how many people are saying they will use the government stimulus payments to reduce debt, rather than on consumer consumption.

 

This is very good, lots of insight to the PPT (Plunge Protection Team)

Paulson's Gift to His Bankster Buddies
Winding Up Bear
http://www.counterpunch.org/whitney03202008.html


.

 

I'm doing a lot of research into central banking for my next underground politics article. Clearly, the greatest volume of collapses occurred during the 1864 - 1913 period of chartered, regulated, and subsidized national banks.

The robber barons were able to set up their interlocking directorates in the subsidized national banking system, create runs on their competition, but here's the catch: They had to go to Congress for their handouts. In 1913 they fix this by setting up the Fed - just a subsidy window for the private national banks. It sure as heck doesn't stop the bubbles or the bank runs, but it does pump a lot of public money into private interests. It basically allows banks chartered during the robber baron period to become uncontested monopolies by financing their takeovers of competition.

The greatest period of growth was during the 'Wildcat' banking era between Jackson and Lincoln - competing, unregulated currency. It wasn't ended due to instability, it was ended because Lincoln needed to pay for his war.

 

Good stuff. I recommend you read Murray Rothbard's "America's Great Depression" and these other two as well.

the Panic of 1819 (Depressions used to be called Panics)
http://www.mises.org/books/panic1819.pdf

The Panic of 1837 and the Contraction of 1839-43
http://www.mises.org/journals/scholar/trask1.pdf

If Jackson knew his image was on a FRN today, he would spin in his grave.

 

I'm still trying to figure out why people are saying that we have deflation when M3 is increasing by 10% abd prices are going up?

Good quote from the article:

"It seems the present Fed is not only NOT taking the punch bowl away -- they are spiking it with alcohol. I am not looking forward to the hangover that's to follow . ."

The Plunge Protection Team, "Sucker rallies" and "bubbleconomics" will not stop the eventual market correction.

"The rate at which financial institutions are deleveraging and destroying capital will inevitably trigger an economic crisis equal to the Great Depression."

 

The condo, I think I mentioned earlier in this thread, are now for sale for 80k

and prices are still falling in Miami

 

What's does a 80k condo rent for?

 

good question

when the GF sold hers for 154k they rented for around 900-1100 , looking at the newspaper it appears the rents are around the same now

its actually starting to reach prices where buying a place and renting it out makes sense, at least in Miami. Of course the condo fee which has now jumped to like $250 a month, and the taxes which will add somewhere in the neighborhood of another $100 on cheap unit kind of kill it.

But the prices keep falling , those units where 80k pre-construction they have reached the point where even the people who bought them before they were built can't sell them at a profit. Also there is another new condo complex going up right across the street so another 500 or so units will soon be there to compete.

then there is this condo in Miami Beach with a boat slip for 319k

http://cgi.ebay.com/Miami-Beach-Wat...9500003QQihZ011QQcategoryZ12605QQcmdZViewItem

lol, they were probably trying to get at least 500k for that a year or so ago

 

M0 (Physical deposited cash) and M1, the first level of deposit-based derivatives, are actually shrinking despite the massive boom in M3 and MZM. So what we're seeing is a disconnect between the physical money and the digital money. Every time physical money is used to back loans, digital money is created...So less physical money is backing more digital money. Its some sort of weird "welcome back to the gold standard problems" phenomenon that isn't exactly the same as anything that's ever happened in America's economic history.

This is, I think, M3 and MZM catching up to the recent contraction in M0 and contraction of housing values (the other asset a lot of this digital money was based on). I actually think the deleveraging is a good thing - a necessary thing for the realities of the monetary derivatives to reach more sustainable ratios.

If the contraction of M3 and MZM was forced by a panic or series of bank runs, that would be catastrophic. And it could happen right now if the psychology of the depositors was just right. The Fed has done quite a bit to shore up investor confidence, but they or a few other key banks could also undermine that confidence just as easily.

 

M3 is pretty useless since it contains credit transactions. It was as always a worthless statistic, especially when dealing with printing money.

 

The prices have really come down.

But I think that the prices will drop further. Forclosures are increasing due to the higher cost of living caused by both inflation and the weak dollar. According to Merrill Lynch, 36 percent of consumers' disposable income went to food, energy and medical care, a bigger chunk of income than at any time since records were first kept in 1960.

The 750 billion dollar trade deficit is pumping cash out of the US.

billions in USD
China $ 1590 (1.5 trillon)
Japan $ 1008 (1 trillion)
Eurozone $ 557
Russia $ 502
India $ 306
Taiwan(ROC) $ 278
South Korea $ 262
Brazil $ 196
Singapore $ 172
Hong Kong $ 160
Germany $ 147

 

It's good they are pumping cash out, or domestic inflation would be through the roof. The problem is going to be when all of that cash comes running home.

Right now, we export inflation. You could say it's our biggest export.

 

Signs that the correction is underway, as existing home sales rose this month. Modest rise, but a rise none the less, mainly spurred by sellers coming to the realization that they were asking too much for their homes in the past. Has home prices drop to reasonable levels again, more homes will sell.

The correction is well underway.

 

The WSJ reported today that institutions holding foreclosed properties were beginning to drop prices dramatically in some cases, expediting sales of some properties.

If this trend should continue, institutions will get on the bandwagon and start being dramatically more aggressive in trying to sell foreclosed properties with significantly lower prices.

Here is something that can work to take advantage of the situation.

If you have access to a University area where prices dropped significantly and you are liquid with good credit, look for a house that can work for student rentals.

1. If you buy, make every effort to rent to grad students. They are more responsible.

2. Rent by the room. It can add up to a better rental rate than to a family.
3. Manage intensely at the beginning so they know they can't trash the house.
4. Over time turn over some management to the most responsible student to lessen your time/management responsibility.
5. Whenever you have turnover work that house like there is no tomorrow to get replacement students. Give your current renters an incentive to bring in a replacement student.

If you manage a property like this well, and keep it from being driven down by student tenants you can get good cash flow.

If you keep the property up for resale in a few years you can ride a return on housing prices.

Its a management intensive investment, even if you get someone to be responsible for the house.

If you've done your homework though it can work very well.

 

The only way we head into a depression is if the government raises taxes. Put more money in the economy by not taking more from the people.