Now I think I understand how GDII will rhyme with the Great Depression 1929

[c1ue]

1929:

All the liquidity in the world rushes to the American stock market to partake of margin interest.

Multiple years of underinvestment in low return industries results, similarly multiple years of overinvestment in certain new industries results in overcapacity.

Bursting of the bubble leads to rapid withdrawal (coupled with losses) of liquid capital leading to collapse in overinvested sectors; in turn the underinvested sectors suffer from liquidity crunch.

Overall economy is fatally wounded for a decade.

2007:

All the debt in the world rushes out of America to fulfill desire for risk-free interest return.

Multiple years of overinvestment in debt related industries (residential/commercial real estate, corporate finance/buyback shenanigans, M & A, hedge fund multipliers, etc), coupled with similar time frame underinvestment in US domestic low return sectors (manufacturing, production, 'day to day' services).

Bursting of the bubble leads to collapse of debt acceptance (i.e. end of lending).

Overinvested sectors collapse, underinvested sectors also suffer from lack of liquidity.
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Since 1929 was due to withdrawal of liquidity, deflation ensues as lack of liquidity forces prices down.

2007 also has a liquidity crunch, however, the underlying mechanism is different in that the liquidity was due to debt creation followed by securitization (vs. attracting hot money via paying margin interest). Thus bursting of this bubble has some deflationary tendencies from normal liquidity crunch, but ultimately the built up debt in the system forces inflation to allow the debt to be written off and/or repaid.

Yes, basically a rewording of Ka-Poom.

[medved]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Since 1929 was due to withdrawal of liquidity, deflation ensues as lack of liquidity forces prices down.

2007 also has a liquidity crunch, however, the underlying mechanism is different in that the liquidity was due to debt creation followed by securitization (vs. attracting hot money via paying margin interest). Thus bursting of this bubble has some deflationary tendencies from normal liquidity crunch, but ultimately the built up debt in the system forces inflation to allow the debt to be written off and/or repaid.

Rather, the excessive debt in the system puts pressure on TPTB to reinflate it, and they are, definitely, trying, as we post.

Deflationists argue, this effort will fail for whatever reason, and the gov't will lose control of the situation. They forget another important rhyme from 1929: whatever the gov't needs to stay in control, it *will* eventually get (remember FDR's gold confiscation?).

No matter the constitution and other little inconveniences, reforms will be made to give the gov't all powers to save "we the people" from themselves. I am sure, if we ask Mr. Kucinich about it, he already has the detailed list of action items for this occasion.

In a few years we will have not only financial system, but also big part of the economy controlled by the gov't and various international committees.

m.

[Guest]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Meanwhile, down in the commodities pits - (BTW - is this the cart or the horse, we are staring at?).

[c1ue]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Lukester,

You've commented before on my short term trading tendencies, but using a 5 year chart to govern your thoughts is no different a short term time scale.

A number of others are actually pointing out that outside of oil/gold/corn, commodities are actually on the verge of breaking down from their recent up pattern.

[Guest]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

C1ue -

My comment was offered as a straight question, not any kind of silly poke at your views, which I actually think are pretty astute.

I'll venture a guess however, that Jim Rogers will smile and roll up his sleeves to hear you refer to entire sectors of commodities breaking down soon. It's not just corn that's going to keep booming - the entire grains sector is just getting warmed up. Ditto Uranium, which is set to perk right back up again (that trend is virtually carved in granite for the next decade, and it's at a superb buy point to start building small initial positions right now). Plus others.

You run circles around me on the markets and economics. I've said it enough times that you are bored of hearing it.

However my layman's suggestion (and it's just plain old piggy-backing on the ideas of some smart people in commodities) is to throw the old cyclical ideas about several large sectors within commodities 'out the window' for the next five years. There are going to be some really startling anomalies in the commodities sector, as this cycle incorporates some issues that 'never existed before'. Oil is just for starters, although it could easily see a correction down to 70 in the next quarter before contiuing upwards from 95+.

Respectfully.

[zoog]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

C1ue -

My comment was offered as a straight question, not any kind of silly poke at your views, which I actually think are pretty astute.

I'll venture a guess however, that Jim Rogers will smile and roll up his sleeves to hear you refer to entire sectors of commodities breaking down soon. It's not just corn that's going to keep booming - the entire grains sector is just getting warmed up. Ditto Uranium, which is set to perk right back up again (that trend is virtually carved in granite for the next decade, and it's at a superb buy point to start building small initial positions right now). Plus others.

You run circles around me on the markets and economics. I've said it enough times that you are bored of hearing it.

However my layman's suggestion (and it's just plain old piggy-backing on the ideas of some smart people in commodities) is to throw the old cyclical ideas about several large sectors within commodities 'out the window' for the next five years. There are going to be some really startling anomalies in the commodities sector, as this cycle incorporates some issues that 'never existed before'. Oil is just for starters.

Respectfully.

That sounds an awful lot like "it's different this time." Be careful.

[Guest]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Zoogster -

Based upon my acquaintance with C1ue of the past few months posting here, he's entirely his own boss. C1ue will position himself as he sees fit regardless of what I represent or suggest. I also thought of including some comment as to 'it's different this time' in my original reply, but then decided C1ue would prefer the 'short version' of any comment I might have.

[c1ue]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Lukester,

I reiterate my view on the demographic impact of BRIC on commodities:

1) The implicit bargain is that by working hard and saving, the BRIC countries can attain US/Japan/Europe level per capita consumption.

2) This is inherently impossible - for just China alone there simply are not enough resources on Earth for this to be possible.

3) Certainly there will be some (short) period where the demographic demand will cause nominal commodity prices to shoot up.

4) However, neither the rich nor BRIC countries can afford a long term situation where commodity prices are high.

So then what?

My view is that the BRIC countries will further reduce their consumption through internal demand suppression. In turn this action will cause consumption levels in US/Japan/Europe to reduce - although Japan and Europe have already done a lot.

As Japan and Europe have demonstrated, high taxes on commodities such as gasoline - especially combined with subsidies for alternates - can significantly moderate demand.

BRIC countries plus the major oil producers, on the other hand, are presently doing the opposite: subsidizing many if not all commodities.

If this does not happen either because 2 or more of the BRIC and/or the US refuse to do so, then consumption will wind up being reduced via the other major historical method: warfare.

Less people = less consumption.

[GRG55]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Lukester,

I reiterate my view on the demographic impact of BRIC on commodities:

1) The implicit bargain is that by working hard and saving, the BRIC countries can attain US/Japan/Europe level per capita consumption.

2) This is inherently impossible - for just China alone there simply are not enough resources on Earth for this to be possible.

3) Certainly there will be some (short) period where the demographic demand will cause nominal commodity prices to shoot up.

4) However, neither the rich nor BRIC countries can afford a long term situation where commodity prices are high.

So then what?

My view is that the BRIC countries will further reduce their consumption through internal demand suppression. In turn this action will cause consumption levels in US/Japan/Europe to reduce - although Japan and Europe have already done a lot.

As Japan and Europe have demonstrated, high taxes on commodities such as gasoline - especially combined with subsidies for alternates - can significantly moderate demand.

BRIC countries plus the major oil producers, on the other hand, are presently doing the opposite: subsidizing many if not all commodities.

If this does not happen either because 2 or more of the BRIC and/or the US refuse to do so, then consumption will wind up being reduced via the other major historical method: warfare.

Less people = less consumption.

That isn't how it worked in the 20th century. The wars themselves contributed to major commodity consumption, and the aftermath of the biggest war of all, WWII, kicked off the longest commodity consumption cycle in modern history as Europe rebuilt and North America retooled.

[jk]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Lukester,

I reiterate my view on the demographic impact of BRIC on commodities:

1) The implicit bargain is that by working hard and saving, the BRIC countries can attain US/Japan/Europe level per capita consumption.

2) This is inherently impossible - for just China alone there simply are not enough resources on Earth for this to be possible.

3) Certainly there will be some (short) period where the demographic demand will cause nominal commodity prices to shoot up.

4) However, neither the rich nor BRIC countries can afford a long term situation where commodity prices are high.

there is demographic pressure on the limited supply of commodities of all types. at the same time consumption is evolving in "commodity-lite" directions: silicon is abundant and cheap, for example, and the material inputs to high tech are less significant than the design inputs.

this kind of analysis applies to basic materials only, however. we are left with issues with energy and food. even with huge gains in efficiency, we can [over time] expect the cost of energy to rise unless significant new technologies emerge. and food supply seems constrained as well because of modern agriculture's reliance on energy inputs both directly and via fertilizers. as developing countries afford increasing meat consumption there is a multiplier effect in which the demand for grain rockets.

this conclusion may seem odd, and to my knowledge hasn't been mentioned on this board, but long term we need lower meat consumption to address issues of energy [and greenhouse gases].

[c1ue]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

The wars themselves contributed to major commodity consumption, and the aftermath of the biggest war of all, WWII, kicked off the longest commodity consumption cycle in modern history as Europe rebuilt and North America retooled.

GRG,

True, but I'll note 2 items:

1) The 2 world wars were about sovereignty, not resources
2) The resource usage profile for various regions changed considerably.

The comparison is also made difficult because of the Communist movement - this distorted both production and consumption.

But no one was looking at Peak oil then, nor was worldwide food affordability an issue.

I actually look to an earlier era: the 100 years' war.

The recent ethnic conflicts - Somalia and Rwanda - are also good examples.

Another good example is putting 10 rats, 2 gallons of water and 4 pounds of food in a 50 gallon aquarium and returning in 2 months...

[metalman]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

Another good example is putting 10 rats, 2 gallons of water and 4 pounds of food in a 50 gallon aquarium and returning in 2 months...

i read this utopia guy once. he had this neato idea about how scarcity is all in our heads. that there's plenty for everyone. we need to learn how to share the wealth and the fruits of innovation etc.

guess where he grew up? yep, california during the biggest boom in history. he ought to spend a few days on the street, even in ca, to learn what sharing is about. sharing is what the weak do for the strong.

we need to start an itulip religion. part hippy movement, part punk, part green and back to the earth and all that shit, maybe a chunk of survivalist thrown in for good measure. it'll be a thing for people to join so they don't feel so bad about getting made poor as... hippies.

[c1ue]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

i read this utopia guy once. he had this neato idea about how scarcity is all in our heads. that there's plenty for everyone. we need to learn how to share the wealth and the fruits of innovation etc.

Was he named "Lebowski, aka the 'Dude' " ? :p

[jk]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

we need to start an itulip religion. part hippy movement, part punk, part green and back to the earth and all that shit, maybe a chunk of survivalist thrown in for good measure. it'll be a thing for people to join so they don't feel so bad about getting made poor as... hippies.

i love it.

[GRG55]

Re: Now I think I understand how GDII will rhyme with the Great Depression 1929

...However, neither the rich nor BRIC countries can afford a long term situation where commodity prices are high.

As Japan and Europe have demonstrated, high taxes on commodities such as gasoline - especially combined with subsidies for alternates - can significantly moderate demand.

BRIC countries plus the major oil producers, on the other hand, are presently doing the opposite: subsidizing many if not all commodities...

I don't think Brazil or Russia can afford LOW commodity prices.

High taxes and subsidies may suppress demand, but the biggest effect is to shift demand. In most cases total consumption just keeps going up as population increases. Is energy demand in England less today, with $8.00 petrol, than it was 10 years ago? I doubt it.

GRG,

True, but I'll note 2 items:

1) The 2 world wars were about sovereignty, not resources
2) The resource usage profile for various regions changed considerably.
...

Well Hitler sold the German people on the idea that they needed room (land) to grow, and it was their right and destiny to annex Germany's neighbours to secure that land resource.

And I believe some historians make an argument that Japan's far flung efforts in the Pacific Theatre were motivated, at least in part, to secure raw materials and resources, including oil, for the homeland.