[This turned out to be too long without really saying anything. But I'll just post anyway. Most likely not worth the effort though.]
"...It could be a long U-shaped bottom..."
Or, worse, it might be an L. But yes, I'm probably overly pessimistic. Certainly so for my level of training (i.e., I don't really know what I'm talking about, I've just been reading a lot recently.) I'm basing my extremely negative forecasts mostly on an intuition about the types of personalities who got us into this, and who have, strangely, also been charged with getting us out.
This is similar to my basis for opposing the Iraq war. If they could have done it, and actually made the life of Iraqis better, and had democracy spread like toppling dominoes across the entire region, then I probably could have overlooked the problematic international legal situation of attacking a sovereign nation. But I knew that wouldn't work because it was clear the people in charge of the decisions were either incredibly dumb (Bush) or focused exclusively on enriching themselves and friends in the defense industry (Cheney.) And it was clear that it would never work out for that reason.
Similarly, in terms of the economic situation, I think - ignoring the people in charge at the moment - that a global depression is very unlikely. I mean, come on, it hardly ever happens. But with Summers, Bernanke, Geithner, et. al. in charge (i.e., with Wall St. in charge,) do we really think any good decisions are going to be made? All decisions will be aimed at protecting their (or their friends) fuck ups and / or outright criminal activity that produced the problems in the first place.
How much fraud was there? That's the question the markets are waiting to have answered before they can restart. But no one knows. How far did, say, Cassano go? To me that's like asking "How evil is Dick Cheney?" There's no good answer here. I think the corporate culture on Wall St. allowed some of these people to go completely off the reservation. It's just a wild guess, but somehow I feel sure that we're only just beginning to understand the amounts involved. It's not a "couple of trillion dollars". I think it's *way* more. I think it's so much that these people have scared the shit out of Obama. No one can bring them to justice, and no one really wants to get at the root of the problem, because the answers are all "we're fucked." So they are just pumping more money in, trying to keep the shell game afloat because that might be the best answer at this point.
But I just don't think it's going to work. Eventually the fraud (or "toxic assets" if you like) will have to be brought to light.
China (and Japan) are what keeps us afloat now by buying our treasury bonds. Luckily (?) for us, they can't really stop buying them because where are they going to park their money? Europe is fucked too. Everyone is fucked. That's the strongest argument against a total meltdown at this point. But I don't buy it any more.
China doesn't have to stop buying. They just have to tell Ben "we're not going to buy at the next auction unless we get better interest rates." Ben can say "I don't believe you", but who's got the better negotiating position there? Ben is going to be forced to raise rates. The Fed does not control interest rates, the bond markets control interest rates. And once he raises those rates, all rates for borrowing money go up. And then the already seriously damaged economy really does grind to a halt. And once the U.S. economy goes down, the whole world follows.
I suppose there must be back channel negotiations going on with the Chinese, so who knows, maybe they'll work it out. The global economies are so interconnected that even strategic adversaries (like China and the U.S.) don't want to provoke each other to fail. But that's not to say that China isn't going to try to get everything they can out of us. And they're in a position to do it. If you were the Chinese would you trust Geithner? Would you think Wall St is acting in good faith? Would you think there is any transparency in the U.S. market? Without that you have no functioning market.
I think we're going to fall a lot further (say, pulling numbers out of my hat, something like: DOW at 4500, S&P at 500, unemployment at 17%.) Whether it's technically a global depression or not doesn't matter a whole lot. The question is, how long will we be down before we can recover. Forcing the bad debt out into the open (and prosecuting the fraud) will speed recovery by providing the assuredness of transparency (and fairness) that the financial markets need. This is our fastest path towards recovery. It can't stop the meltdown, but nothing can at this point. Leaving these jokers in charge, transferring trillions in tax payer money to cover up the bad debt (and not prosecuting the Cassanos of the world) is just delaying recovery while at the same time wasting the money that might be used to recover.
|
"...It could be a long U-shaped bottom..."
Or, worse, it might be an L. But yes, I'm probably overly pessimistic. Certainly so for my level of training (i.e., I don't really know what I'm talking about, I've just been reading a lot recently.) I'm basing my extremely negative forecasts mostly on an intuition about the types of personalities who got us into this, and who have, strangely, also been charged with getting us out.
This is similar to my basis for opposing the Iraq war. If they could have done it, and actually made the life of Iraqis better, and had democracy spread like toppling dominoes across the entire region, then I probably could have overlooked the problematic international legal situation of attacking a sovereign nation. But I knew that wouldn't work because it was clear the people in charge of the decisions were either incredibly dumb (Bush) or focused exclusively on enriching themselves and friends in the defense industry (Cheney.) And it was clear that it would never work out for that reason.
Similarly, in terms of the economic situation, I think - ignoring the people in charge at the moment - that a global depression is very unlikely. I mean, come on, it hardly ever happens. But with Summers, Bernanke, Geithner, et. al. in charge (i.e., with Wall St. in charge,) do we really think any good decisions are going to be made? All decisions will be aimed at protecting their (or their friends) fuck ups and / or outright criminal activity that produced the problems in the first place.
How much fraud was there? That's the question the markets are waiting to have answered before they can restart. But no one knows. How far did, say, Cassano go? To me that's like asking "How evil is Dick Cheney?" There's no good answer here. I think the corporate culture on Wall St. allowed some of these people to go completely off the reservation. It's just a wild guess, but somehow I feel sure that we're only just beginning to understand the amounts involved. It's not a "couple of trillion dollars". I think it's *way* more. I think it's so much that these people have scared the shit out of Obama. No one can bring them to justice, and no one really wants to get at the root of the problem, because the answers are all "we're fucked." So they are just pumping more money in, trying to keep the shell game afloat because that might be the best answer at this point.
But I just don't think it's going to work. Eventually the fraud (or "toxic assets" if you like) will have to be brought to light.
China (and Japan) are what keeps us afloat now by buying our treasury bonds. Luckily (?) for us, they can't really stop buying them because where are they going to park their money? Europe is fucked too. Everyone is fucked. That's the strongest argument against a total meltdown at this point. But I don't buy it any more.
China doesn't have to stop buying. They just have to tell Ben "we're not going to buy at the next auction unless we get better interest rates." Ben can say "I don't believe you", but who's got the better negotiating position there? Ben is going to be forced to raise rates. The Fed does not control interest rates, the bond markets control interest rates. And once he raises those rates, all rates for borrowing money go up. And then the already seriously damaged economy really does grind to a halt. And once the U.S. economy goes down, the whole world follows.
I suppose there must be back channel negotiations going on with the Chinese, so who knows, maybe they'll work it out. The global economies are so interconnected that even strategic adversaries (like China and the U.S.) don't want to provoke each other to fail. But that's not to say that China isn't going to try to get everything they can out of us. And they're in a position to do it. If you were the Chinese would you trust Geithner? Would you think Wall St is acting in good faith? Would you think there is any transparency in the U.S. market? Without that you have no functioning market.
I think we're going to fall a lot further (say, pulling numbers out of my hat, something like: DOW at 4500, S&P at 500, unemployment at 17%.) Whether it's technically a global depression or not doesn't matter a whole lot. The question is, how long will we be down before we can recover. Forcing the bad debt out into the open (and prosecuting the fraud) will speed recovery by providing the assuredness of transparency (and fairness) that the financial markets need. This is our fastest path towards recovery. It can't stop the meltdown, but nothing can at this point. Leaving these jokers in charge, transferring trillions in tax payer money to cover up the bad debt (and not prosecuting the Cassanos of the world) is just delaying recovery while at the same time wasting the money that might be used to recover.
- jim 4-04-2009 6:31 pm