FIRE Economy Explosion Fallout -- Part I: Recession ends, depression begins - Eric Janszen

[Chris Coles]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

You cannot give ordinary average citizens 150k+ instant equity in a house in just two short years and then take it away from them leaving behind only debt that they can never pay back, especially in a severe and prolonged recession. The housing bubble is the worse thing that the FED could have blown. It would not surprise me right now if over 30 percent of the adult population is technically bankrupt.

The best thing they can do is indeed, go bankrupt. The faster the better for all of them. How long it takes for that lesson to sink in is another matter entirely. But that in turn bring on the worst times for all the systematic risks entailed by such actions. So the next couple of years will be made even harder caused by the steady collapse.

[jk]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

there has always been a wide distribution of abilities within society, but the inequality of the distribution of wealth has varied. thus, varying abilities is not an adequate explanation of wealth distribution.

there are both policies and social norms which feed into the wealth distribution. the recent skew is as large as that in 1929, iirc- what a coincidence! it is a product of the financialization of the american economy, on the one hand, and the global labor arbitrage, on the other.

[Chris Coles]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

Truthfully, Raz, I'm not sure how to resolve the uneven distribution of wealth "problem", but I don't think it's fair to characterize it as a liberal vs conservative issue, although it is a popular characterization.

More accurately, it is a "more capable" vs "less capable" issue. And by "capable" I mean it can take many forms, most obvious of which are intelligence, discipline, street-smarts, drive/ambition, opportunity and the like. If viewed from this perspective, the wealth will obviously flow to the "more capable" much like NBA championships flowed to Michael Jordan.

Additionally, your argument may be (hypocritically) fueling the flames of a class warfare debate when such debate is unfounded. The "rich" are not the stereotypical crooks of banking and Wall Street that are the poster boys of the "rich-bashing". In reality, the "rich", those of us that are causing and creating this uneven distribution of wealth, are you and me and our fellow iTulipers that are smarter than the average individual, or have better than average opportunity than some (I was born into a family business), or are more disciplined than most (conservative investing, not highly leveraged/in debt over our heads), more driven (investing hours and hours on iTulip and elsewhere). It is only natural that more wealth (which also includes less self-inflicted wealth destruction) flows our way. We don't do it to spite our less fortunate brethren, we don't do it out of shear greed, we don't try to hurt anyone else along the way (most of us do more direct good the more successful we become personally). No, the uneven wealth distribution just happens as a natural result of our capabilities and chosen actions versus those that are less capable and make bad decisions and possibly don't try as hard.

All that being said, I don't totally disagree that a severe uneven distribution of wealth may not be optimal for society, but I'm not sure.

I do strongly beleive that a rising tide does raise all boats. So from that perspective, what's good for us "rich" is also good for the "other half". With that in mind, I would have a great fear that any form of forced/excessive wealth redistrubution would directly harm the motivations of the more capable, more productive of us that are the wealth producers in this great Nation, which in turn, would be bad for all members of our society. You know, "Road to Serfdom" thinking. As an anology, we'd all have a more equal portion of the pie, but of a much smaller pie. I further feel that any forced wealth redistribution would only be a temporary unnatural state. As such, and with all due respect to EJ, I can't agree with his call for doing a better job of wealth equalization during boom times simply because that wealth will (eventually) find its way right back into the hands of the same wealthier (more capable) people from whence it came.

In summation, it is my opinion that uneven wealth distribution is a natural state that results from a free-market society, and that a free-market society is still the best structure/philosophy for maximizing the size of the pie (strength of an economy), even if it means some inequalities OF RESULT (of wealth) are a natural side affect. The greater pie size will offset the smaller portion of said pie for most citizens in my opinion.

All of this is easy for me to say because I am confident in my abilities and successful in my life thus far. On the other hand, I can understand why an individual who is less capable, less successful, and therefore has less wealth than average would scream for government assistance or any type of "break" or freebie or hand-out or "stick-it-to-the-rich" redistribution. Just because I can understand the thinking, however, doesn't make it right. Let's not try to fix what can't be fixed. Let's also not create class warfare where none should exist. We should idolize and emulate the typical entreprenuers, titans of industry, and all around capable, productive members of society that drive our economy, not chastize, belittle, and take from them.

I absolutely concur with this statement and, in my own way am trying to seek out an acceptable solution to the problem of how we create more prosperity at all levels of society.

And to add to the above, may I suggest anyone interested read the history of the Russian farmers and the collectivisation of their agriculture.
http://www.piiblog.com/2008/08/russi...ent-kinds.html that in turn set back the Russian economy to this day.

The only way forward is to use capitalism, but with some redefinition of the way we use it to improve prosperity at the grass roots of society.

[we_are_toast]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

More accurately, it is a "more capable" vs "less capable" issue. And by "capable" I mean it can take many forms, most obvious of which are intelligence, discipline, street-smarts, drive/ambition, opportunity and the like. If viewed from this perspective, the wealth will obviously flow to the "more capable" much like NBA championships flowed to Michael Jordan.

In reality, the "rich", those of us that are causing and creating this uneven distribution of wealth, are you and me and our fellow iTulipers that are smarter than the average individual, or have better than average opportunity than some (I was born into a family business), or are more disciplined than most (conservative investing, not highly leveraged/in debt over our heads), more driven (investing hours and hours on iTulip and elsewhere). It is only natural that more wealth (which also includes less self-inflicted wealth destruction) flows our way. We don't do it to spite our less fortunate brethren, we don't do it out of shear greed, we don't try to hurt anyone else along the way (most of us do more direct good the more successful we become personally). No, the uneven wealth distribution just happens as a natural result of our capabilities and chosen actions versus those that are less capable and make bad decisions and possibly don't try as hard.

All that being said, I don't totally disagree that a severe uneven distribution of wealth may not be optimal for society, but I'm not sure.

I do strongly beleive that a rising tide does raise all boats. So from that perspective, what's good for us "rich" is also good for the "other half". With that in mind, I would have a great fear that any form of forced/excessive wealth redistrubution would directly harm the motivations of the more capable, more productive of us that are the wealth producers in this great Nation, which in turn, would be bad for all members of our society. You know, "Road to Serfdom" thinking. As an anology, we'd all have a more equal portion of the pie, but of a much smaller pie. I further feel that any forced wealth redistribution would only be a temporary unnatural state. As such, and with all due respect to EJ, I can't agree with his call for doing a better job of wealth equalization during boom times simply because that wealth will (eventually) find its way right back into the hands of the same wealthier (more capable) people from whence it came.

In summation, it is my opinion that uneven wealth distribution is a natural state that results from a free-market society, and that a free-market society is still the best structure/philosophy for maximizing the size of the pie (strength of an economy), even if it means some inequalities OF RESULT (of wealth) are a natural side affect. The greater pie size will offset the smaller portion of said pie for most citizens in my opinion.

All of this is easy for me to say because I am confident in my abilities and successful in my life thus far. On the other hand, I can understand why an individual who is less capable, less successful, and therefore has less wealth than average would scream for government assistance or any type of "break" or freebie or hand-out or "stick-it-to-the-rich" redistribution. Just because I can understand the thinking, however, doesn't make it right. Let's not try to fix what can't be fixed. Let's also not create class warfare where none should exist. We should idolize and emulate the typical entreprenuers, titans of industry, and all around capable, productive members of society that drive our economy, not chastize, belittle, and take from them.

Please tell me this is a letter to the Onion.

[flintlock]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

No. But it would take a miracle for U-3 to go from 10 to 20 in just nine months. For whatever it's worth, I believe that the FED is going to continue to extend benefits which will close the gap between U-3 and U-6. They have no other choice or we will encounter civil unrest episodes(Rodney King). To a certain extent, I agree with Gerald Celente("When people have nothing to lose, they lose it"). You cannot give ordinary average citizens 150k+ instant equity in a house in just two short years and then take it away from them leaving behind only debt that they can never pay back, especially in a severe and prolonged recession. The housing bubble is the worse thing that the FED could have blown. It would not surprise me right now if over 30 percent of the adult population is technically bankrupt.

Thanks for the link Snacky and the clarification of 20 percent as opposed to 25. I was just too lazy to look it up myself.

Oh I agree, continuing high unemployment is a real potential powder keg. Hard to say how things will go down, but I suspect it won't be pretty as limited savings people have been living on run out. Politicians will have their hands full figuring out just how fast they can lower the US standard of living before something explodes. There's a certain segment used to poverty. Then there's others who aren't so well prepared for it. 2010 should be an interesting year.

Crime is already up a lot in my area. I get calls daily now to install security lighting, CCTV systems, and timers.

Not my area, but recently an Atlanta City councilman was carjacked in his neighborhood. This after weeks earlier another was robbed in a home invasion.

http://www.ajc.com/news/atlanta/atla...pe=rss_atlanta

[flintlock]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

Another factor people forget is that the "Bar" is being raised ever higher in our society. The world becomes more complex and those who can't adapt get left behind. Unfortunately, this is going to continue as "manpower" loses out to "brainpower" in the world. My Dad used to jokingly say, "Well the world needs ditch diggers too!", implying I had done something stupid. Only now it doesn't need nearly as many ditch diggers as it used to. We should be wary of too much "progress" sometimes, lest it leave us with what amounts to a National day care service for the "not so bright". If we are not careful, that weight will become an anchor that drowns us all. Perhaps the answer is in simplifying things? People need to learn early on that their education is not a joke and that there will be consequences if they fail to learn. Right now, that message is not getting through. These days everybody gets an "A" for effort. A lot of the solution will start with our education system.

[goadam1]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

where? link. pls.

confused with...

Your loyalty is without fail. I found that the 20% claim made me queasy and panicky. This piece seems to back off from 20%. Why not admit it. I even asked them to confirm and they said 20%.

Originally Posted by goadam1
In various threads there are predictions for unemployment going to 10% or sometimes as high as 20%. What is the latest itulip best call on unemployment? Are the different predictions coming from u3 or u6 kinds of unemployment?
All of iTulip's unemployment forecasts are consistent and use the BLS's U-3 unemployment data:
In total we see the US economy losing between seven and 13 million jobs by the end of 2009 representing a 5% to 10% increase in unemployment. Our forecasts during this crisis have tended to be on the optimistic side; steeper job losses cannot be ruled out, especially if other feedback loops intensify. For example, rising unemployment will lead to a further 20% to 40% decline in real estate prices as households lose access to income to pay mortgage debt. A further tightening of credit as the pool of credit-worthy borrowers contracts means even deeper losses in Wholesale Trade, leading to more unemployment, and so on. - Unemployment by industry: Recession or depression? - Eric Janszen
July 2, 2008 in our state by state U.S. unemployment forecast Housing Bubble Correction Update: Fasten your seat belts, here comes the jobs crash we said, “The rate of growth in unemployment in some states may shock you...” In November 2008 we published our industry sector analysis of future unemployment Unemployment by industry: Brace for Impact that concluded, “In total we see the US economy losing between seven and 13 million jobs by the end of 2009 representing a 5% to 10% increase in unemployment.” Investors who got sucked into the early year rally (see Beware Relief Rallies Update 1: DJIA 7552 the Debt Deflation Bear Market bottom?) took a beating today when the two "surprising" unemployment reports shocked the market, producing a 245 point drop in the DJIA on the news. - Jobs crash arrives on schedule - Eric Janszen
Unemployment is forecast to go as high as 15% in 2009 and as high as 20% in 2010.

That's:
Peak 2009: 15%
Peak 2010: 20%
That said, with layoff notices some days this month coming in at a 20 million annual rate, we may have to revise our forecast upwards.
__________________

You can't get them all right.

And just say it, "stimulus works." The rest of the piece is about navigating the results. Right?
Still the best macro ideas. Still the best at calling bubbles. Still the best at seeing the big picture.

[goadam1]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

"In total we see the US economy losing between seven and 13 million jobs by the end of 2009 representing a 5% to 10% increase in unemployment."

Hey, they nailed it!

The thing about any predictive work is you course correct and you blow up the ones you get right.

[goadam1]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

This piece hints that dow 5000 isn't a fixed number, too. But I wouldn't bet against a 2:1 gold to dow ratio.

[goadam1]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

I had the same question. 9.5% is a far cry from 20%. I'm not sure why the major change in unemployment, but I disagree. I don't see the fall off in weekly claims that will level out unemployment. I'm still betting on low teens by the end of 2010.

Here is a different post on unemployment that is pretty spot on:

http://www.itulip.com/forums/showthread.php?t=7289

So why was there ever a 20% prediction?

[Mega]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

Thank You Eric
I enjoyed that, i re read it again when "at work" or sitting in my workshop in Liverpool with bugger all to do (almost).

While i agree on most i feel you missing a number points.

1. Americans HATE taxes!......Your got REAL "Tea party" situation "Brewing" out there......Ron Paul & Schiff etc all too ready to stir the pot!

2. Americans have had a taste of "honey"....Oh boy was it nice, able slip down the Vette dealership or even the Lambo..using "Home ATM"....They not be very keen to jump into a Chevy Curze or Volt!

3. Americans Love to "welch" on the deal.....From those 1st handskakes with the Red Indians, to selling the Rockafellow buildings to Japan & "Sacked" the Ports deal with the A-RABS...nothing gives an American more of a warm felling to know he shalfed the other guy.

4. Geo-political.....The American Empire is now in its death throws, sure its still a power but its more a paper tiger, am minded of the mindset of the British in the 1950,s & 60's that just couldn't understand "It was over".

Now Eric, lets mix everything together, China holds you debt, a debt which lets face it you have NO intention of paying...........So what to do?


DEVALUATION!

You must reduce the debt, you must also try to keep you Armed forces as strong as you can. Sure cut the F22 project, cut other things but LIKE HELL are you going to give up what you taken by force.......i don't think you have much succes in Afganistan, China & Russia WILL see to that.

So, seeing how its mainly China you going to crap on, well Ok. I suspect there be "Controled inflation" over a number of years as well...........No this debt MUST be removed....by what ever means required!

& i suspect it will start to happen by Q4 2009.
Mike

[leegs]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

All that being said, I don't totally disagree that a severe uneven distribution of wealth may not be optimal for society, but I'm not sure.

Of course an uneven distribution of wealth is normal in a society. I contribute to it a bit myself, although less since I quit the corporate world. However I wonder ( although of course I have no actual knowledge on this point) how material is your or my contribution to the overall skewed wealth distribution in the US. The top 1% owns 34%. I suspect that you are among the next 19% who own 50% of the wealth.
I would venture to say that many of those in the 19% came by their wealth via the means you describe, and could be said to 'deserve it'. Regardless, its impossible for me to see a situation whereby 80% of the people split up 8% (yes eight) is fair or healthy or sustainable.

[a warren]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

Thank You Eric
I enjoyed that, i re read it again when "at work" or sitting in my workshop in Liverpool with bugger all to do (almost).

While i agree on most i feel you missing a number points.

1. Americans HATE taxes!......Your got REAL "Tea party" situation "Brewing" out there......Ron Paul & Schiff etc all too ready to stir the pot!

2. Americans have had a taste of "honey"....Oh boy was it nice, able slip down the Vette dealership or even the Lambo..using "Home ATM"....They not be very keen to jump into a Chevy Curze or Volt!

3. Americans Love to "welch" on the deal.....From those 1st handskakes with the Red Indians, to selling the Rockafellow buildings to Japan & "Sacked" the Ports deal with the A-RABS...nothing gives an American more of a warm felling to know he shalfed the other guy.

4. Geo-political.....The American Empire is now in its death throws, sure its still a power but its more a paper tiger, am minded of the mindset of the British in the 1950,s & 60's that just couldn't understand "It was over".

Now Eric, lets mix everything together, China holds you debt, a debt which lets face it you have NO intention of paying...........So what to do?


DEVALUATION!

You must reduce the debt, you must also try to keep you Armed forces as strong as you can. Sure cut the F22 project, cut other things but LIKE HELL are you going to give up what you taken by force.......i don't think you have much succes in Afganistan, China & Russia WILL see to that.

So, seeing how its mainly China you going to crap on, well Ok. I suspect there be "Controled inflation" over a number of years as well...........No this debt MUST be removed....by what ever means required!

& i suspect it will start to happen by Q4 2009.
Mike

What a great post! I look forward to more mega-long posts

[Raz]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

Truthfully, Raz, I'm not sure how to resolve the uneven distribution of wealth "problem", but I don't think it's fair to characterize it as a liberal vs conservative issue, although it is a popular characterization.

More accurately, it is a "more capable" vs "less capable" issue. And by "capable" I mean it can take many forms, most obvious of which are intelligence, discipline, street-smarts, drive/ambition, opportunity and the like. If viewed from this perspective, the wealth will obviously flow to the "more capable" much like NBA championships flowed to Michael Jordan.

Additionally, your argument may be (hypocritically) fueling the flames of a class warfare debate when such debate is unfounded. The "rich" are not the stereotypical crooks of banking and Wall Street that are the poster boys of the "rich-bashing". In reality, the "rich", those of us that are causing and creating this uneven distribution of wealth, are you and me and our fellow iTulipers that are smarter than the average individual, or have better than average opportunity than some (I was born into a family business), or are more disciplined than most (conservative investing, not highly leveraged/in debt over our heads), more driven (investing hours and hours on iTulip and elsewhere). It is only natural that more wealth (which also includes less self-inflicted wealth destruction) flows our way. We don't do it to spite our less fortunate brethren, we don't do it out of shear greed, we don't try to hurt anyone else along the way (most of us do more direct good the more successful we become personally). No, the uneven wealth distribution just happens as a natural result of our capabilities and chosen actions versus those that are less capable and make bad decisions and possibly don't try as hard.

All that being said, I don't totally disagree that a severe uneven distribution of wealth may not be optimal for society, but I'm not sure.

I do strongly beleive that a rising tide does raise all boats. So from that perspective, what's good for us "rich" is also good for the "other half". With that in mind, I would have a great fear that any form of forced/excessive wealth redistrubution would directly harm the motivations of the more capable, more productive of us that are the wealth producers in this great Nation, which in turn, would be bad for all members of our society. You know, "Road to Serfdom" thinking. As an anology, we'd all have a more equal portion of the pie, but of a much smaller pie. I further feel that any forced wealth redistribution would only be a temporary unnatural state. As such, and with all due respect to EJ, I can't agree with his call for doing a better job of wealth equalization during boom times simply because that wealth will (eventually) find its way right back into the hands of the same wealthier (more capable) people from whence it came.

In summation, it is my opinion that uneven wealth distribution is a natural state that results from a free-market society, and that a free-market society is still the best structure/philosophy for maximizing the size of the pie (strength of an economy), even if it means some inequalities OF RESULT (of wealth) are a natural side affect. The greater pie size will offset the smaller portion of said pie for most citizens in my opinion.

All of this is easy for me to say because I am confident in my abilities and successful in my life thus far. On the other hand, I can understand why an individual who is less capable, less successful, and therefore has less wealth than average would scream for government assistance or any type of "break" or freebie or hand-out or "stick-it-to-the-rich" redistribution. Just because I can understand the thinking, however, doesn't make it right. Let's not try to fix what can't be fixed. Let's also not create class warfare where none should exist. We should idolize and emulate the typical entreprenuers, titans of industry, and all around capable, productive members of society that drive our economy, not chastize, belittle, and take from them.

I was only offering pithy comments on the sad reality of the human condition, and had no idea that I would set off a debate on class warfare! :eek:

Any success I've had in business has been due to a wonderful partnership with a fellow stockbroker ten years younger than I who I met in the mid-1980s. He provided the entrepreneural ingenuity and I provided the analytical management - he's a great idea man who looks for what works, while I'm the guy who could always see ahead of time what won't work. This melding provided profitable opportunity and also kept us out of any major trouble. (And 70 hour work weeks for about 10 years also helped!)

Let me say at the outset what won't work: Socialism. Less wealth is produced. And forced redistribution of wealth through heavy taxation is simply mob rule, and no more appetizing to me than the rule of financial oligarchs and banksters. And no, I don't live my life guilt-ridden over whatever success I've had - it was all earned honestly without screwing the men and women who worked for us.
But I do see a very dangerous period directly ahead for the United States.

We are living in an age of moral midgets. People who would have been shunned twenty+ years ago by society at large are now popular celebrities and political officeholders. And many wealthy people - some that I know - have no wish to even look at the disparity all around them, much less seek to help formulate a solution. Maybe there isn't one, but it should concern them. Our society is apathetic, dependant, coarser, greedier, overfed and overindulged, and I fear altogether unprepared for the hurricane that is likely bearing down on us. There is a spiritual quality to stable societies as well as a material one, and I fear we've lost it.

That's what I was thinking when I posted my brief comment.

[marvenger]

Re: FIRE Economy Fallout -- Part I: Recession ends, depression begins

einstein couldn't get promoted past patent clerk either. conforming to social norms is a large part of it, not just ability.