The Economic Crisis: No, this will not be a Normal Cyclical Recovery

[Rajiv]

The Economic Crisis: No, this will not be a Normal Cyclical Recovery by Prof. John Kozy

The Congress, at the behest of corporate lobbyists, wrote into legislation the rules that permitted companies to offshore jobs, reduce real wages, and permit risky financial practices. Therein lies the root cause of this crisis.

Philip Tetlock, a professor at the University of California, Berkeley, spent two decades tracking 82,000 predictions made by 284 experts. His findings, reported in his book, “Expert Political Judgment,” are that, on average, the expert's predictions were only bit better than random guessing would have been. He writes, “It made virtually no difference whether participants had doctorates, whether they were economists, political scientists, journalists or historians, whether they had policy experience or access to classified information, or whether they had logged many or few years of experience.” The only consistent attribute was fame, and the relationship was inverse. The more famous experts made worse predictions than the unknown forecasters did. Dean Baker has often pointed out that the media, when reporting on a forecast made by a prominent economist, should (but never does) qualify the prediction with a list of previous predictions made by the expert that were wrong. But economists, even when their predictions are right, have a way of basing their predictions on sheer nonsense.

For instance, Roger Altman predicts that this will not be a normal cyclical recovery. Although it is likely that this is correct, his article is a mishmash of nonsense.
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[cjppjc]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

I disagree with the author. I think a lot of Americans did feel wealthier. They bought boats, cars. Vacationed well. The idea of paying for these things if they couldn't refinance their homes, wasn't something they spent a lot of time considering. Saving for a rainy day was another thing not discussed much. A small 401k would continue to grow. So no worry there. It's time to pay up.

[Rajiv]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

A small 401k would continue to grow.

I would disagree with that statement -- That 401K has a paper (fictional) value - that paper value may increase and decrease. However if a large number of people were to liquidate their 401k's it is extremely unlikely that they would get anywhere near that paper value.

In that sense, the 401k system is not much different from fractional reserve banking, or any of the other Ponzi schemes dreamed up by the FIRE economy

[cjppjc]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

I would disagree with that statement -- That 401K has a paper (fictional) value - that paper value may increase and decrease. However if a large number of people were to liquidate their 401k's it is extremely unlikely that they would get anywhere near that paper value.

In that sense, the 401k system is not much different from fractional reserve banking, or any of the other Ponzi schemes dreamed up by the FIRE economy

What I was saying in my post, was there was a lack of rational thinking. People thought home prices and 401k's would continue to grow. In this way no day of reckoning was comming. It is best phrased: Don't worry, be happy."

[Rajiv]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

Along these lines was Kozy's other article - Saving That Isn'T

You have all seen the ads. Buy this and save 20 percent. Buy that and save 40 percent. The more you buy the more you save.

Marketers either must have flunked grammar school English or are abettors of thieves.
The word save means "to accumulate money." The word spend means "to pay out or expend money." These words are antonyms. The logical word is contradictories. No one saves anything by spending!

Suze Orman gives consumers a lot of good advice, but not about investing. She claims that investing in the market is a good way of saving for retirement. But it isn't; it isn't even saving.
When one invests in the market, s/he is buying shares of stock, and buying a stock certificate is just like buying anything else. What is paid for those certificates is money spent. Shares are what a buyer owns, and shares are not money.
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Owning a share of stock is just like owning a piece of furniture, and just as a piece of furniture is not money, neither is a share of stock. What the future value of a share of stock is can never be known. Just like a piece of furniture, its value cannot be determined until one tries to sell it. And as anyone who has tried to sell used furniture has learned, its value may be zero.
Investing in the market is no more saving than buying soup is.

I would add to this that ever since companies stopped relying on dividends to compensate shareholders, and relied upon shareholders being compensated by increases in share prices -- this is even more the case.

The FIRE economy way of obtaining liquidity from a stock portfolio is simply to use the stock portfolio as collateral for a loan (the money for the loan is created out of thin air using the magic of leverage - and hence does not depress the value of the collateral.) The stock portfolio being valued at its "market value" -- not too different from using your house as the piggy bank.

Of course as the bubbles collapse, the "House of Cards" can come tumbling down very quickly.

[cjppjc]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

Along these lines was Kozy's other article - Saving That Isn'T



I would add to this that ever since companies stopped relying on dividends to compensate shareholders, and relied upon shareholders being compensated by increases in share prices -- this is even more the case.

The FIRE economy way of obtaining liquidity from a stock portfolio is simply to use the stock portfolio as collateral for a loan. The stock portfolio being valued at its "market value" -- not too different from using your house as the piggy bank.

Of course as the bubbles collapse, the "House of Cards" can come tumbling down very quickly.

Absolutely. The only point I was making, is that people tended to live the good life and not worry about any material changes to their expectations. I'm not a big fan of the idea that people shouldn't be responsible for their actions. That they were all victims. (Some were, no doubt.) That is why I said. It's time to pay up.

[Rajiv]

Re: The Economic Crisis: No, this will not be a Normal Cyclical Recovery

And of course - the money for the loan is created out of thin air using the magic of leverage - and hence does not depress the value of the collateral.