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Take a deep breathe. This won't hurt a bit.....
March 7, 2003 7:34 AM   Subscribe

DIVE! DIVE! DIVE! - Markets in free fall. Remember the heady DotCom bubble days, and innocuous scandals - Clinton & Monica,the cigar?! Then, WHAM: 9-11, Enron, Worldcom et. al, the push for invasion of Iraq, ballooning deficits, while a new US neocolonial American ideology of preemption suggests more invasions to come - with a worldwide surge in anti-American attitudes. "Irrational Exuberance" turned to terror, fear, worry, anger, rage. What possible train of events and U.S. government policies could more efficiently send world economic markets into free fall? Hold on: it was a two decade long ride up - the ride down has merely begun. Those among us with a few spare billion lying around will wait until the bottom, and buy on the cheap. For everyone else, it's bankruptcy, frugality, middle class decline, cans 'o beans and darned socks. But cheer up: play, joy, creativity, generosity, indeed love itself - and also the classic "recreation of the poor" are all free.
posted by troutfishing (79 comments total)

 
Most Contrived Post, I think we have another nomination.
posted by ednopantz at 7:36 AM on March 7, 2003


As Baron de Rothschild once said: "Buy when blood is running in the streets."
posted by alumshubby at 7:36 AM on March 7, 2003


Okay. Now I'm fucking depressed. And I'm lucky enough to be one of the employed.
posted by vito90 at 7:40 AM on March 7, 2003


[i] What possible train of events and U.S. government policies could more efficiently send world economic markets into free fall?[/i]
What the hell? Free fall? The world markets might not be growing at stellar pace and certain markets might be going through a recession, and yes, one or two have undergone a bit of a collapse (Argentina) but to just generally paint the world markets as spiralling downward (in bold letters to boot) is sensationalistic, and dishonest.
posted by PenDevil at 7:48 AM on March 7, 2003


Argh! Curse you non-standard message board markup!
posted by PenDevil at 7:49 AM on March 7, 2003


Actually, the markets soared back UP on news of the arrest of Saad Bin Laden.
posted by RobbieFal at 7:52 AM on March 7, 2003


When I saw this item on Metafilter, I promptly soiled myself and rushed to the financial sites to see if the market was crashing. It isn't a free fall; we're in a long, slow, dismal, maddening bust. Please be a little more cautious with the terminology of panic.
posted by rcade at 7:53 AM on March 7, 2003


troutfishing, in broad I agree with you about what we're in for. But it's not seemly to sound so gleeful about it. ; . )
posted by adamgreenfield at 7:56 AM on March 7, 2003


Argh! Curse you non-standard message board markup!

heh... must not break rule one.
posted by machaus at 7:59 AM on March 7, 2003


the first rule of metafilter is WE DO NOT TALK about standard board markup!! ;-)
posted by muppetboy at 8:04 AM on March 7, 2003


while a new US neocolonial American ideology of preemption suggests more invasions to come

Oh please. That's clueless, leftist groupthink.
posted by 111 at 8:05 AM on March 7, 2003


Adam: Peggy Noonan, in one of her typically loopy coumns this week, makes the same point about Democrats looking for a boost from hard times: "If George W. Bush suffers a post 9/11 disaster at home or abroad in the next few years it may -- may -- propel a Democrat into the White House. But who respects a party whose great hope is widespread pain?"
posted by rcade at 8:06 AM on March 7, 2003


Actually, the markets soared back UP on news of the arrest of Saad Bin Laden.

well, that's interesting, because as i sat in the dealership awaiting the completion of my $155 tailight repair (remember when you could just buy a bulb for 70 cents?) i saw this breaking news about bin laden's sons and wondered "so what? what are THEY wanted for? why should i give a shit about this? what did THEY do?" having never heard since 9/11 a single word about bin laden's sons complicity (or even that he HAD sons) this just stinks out loud of more bush/media sleight-of-hand. exactly WHEN DID we step through the looking glass into womderland, because i don' seem to remember it?

oh, and at metafilter we use standard HTML markup. it's a no-brainer.
posted by quonsar at 8:09 AM on March 7, 2003


while a new US neocolonial American ideology of preemption suggests more invasions to come

Oh please. That's clueless, leftist groupthink.

agree. neocolonialism is old hat by now...
posted by muppetboy at 8:09 AM on March 7, 2003


At least my retirement fund is fully invested in the ultra-secure Beanie Baby market.

troutfishing, your yellow words were good, but the white ones, ehhh... I think there is a paradigm shift happening right now, but the market was overdue for a correction.
posted by Frank Grimes at 8:10 AM on March 7, 2003


That's clueless, leftist groupthink.

It's also clueless neoconservative groupthink. There are a lot of hawks in and around the Bush administration who want Iraq to be the first domino among many.
posted by rcade at 8:10 AM on March 7, 2003


near-term i think the market may shoot up a bit. long term, i agree with prechter's general prognosis, although it's possible (and i hope!) it won't get as bad as he says.
posted by muppetboy at 8:11 AM on March 7, 2003


Then the markets sailed back down upon news that the job market tanked in January, and now they're bouncing up and down. The trend has been down for a while, regardless, so who cares about one-day excuses for "a party," as the cliched reporting usually goes?
posted by raysmj at 8:12 AM on March 7, 2003


i believe market volatility has increased because so many people are sitting on their hands. volume is low and there's a lot of activity in futures. exactly the kind of environment that makes things bounce around a lot. all the bouncing is just masking and slowing the grand selloff. people forget that short sellers serve an important function! by selling short, they have to buy later. this ensures that there IS a buyer in the future and makes it harder for the market to make huge downward moves all at once. instead you get eddie murphy's comedy bit about his mother falling down the stairs... "oh lawd help me i'm falling down the stairs! ... "
posted by muppetboy at 8:17 AM on March 7, 2003


thinks "no, I literally can't stand watching another second of that endless roiling propaganda about wars and economies which has completely taken over the television. Perhaps I'll just take a peek at metafilter to see if anyone discovered anything interesting on the web ..."
posted by walrus at 8:19 AM on March 7, 2003


Ah yes, 6.5% unemployment constitutes a crisis in this country, at least for the Bush haters.

Mind you, it still beats out every single European country (except the Netherlands, and that's largely due to technicalities).

Enron didn't screw virtually everyone overnight. Worldcom didn't lose 9 BILLION dollars over a weekend. The Iraqi situation has been in the making since 1991. While it's nice to stuff one's fingers in one's ears and blame Bush for everything, fact remains that he's largely on the receiving end of problems which started very quietly under Clinton's "watch" (and I use that term loosely).

This is not to say that the Bush administration is very competent, far from it. However Clinton's glory days and brouhaha over a cigar were merely a facade which let everyone ignore the real structural problems in development. Heck, no one's going to warn people of doom when things are going well. Oh wait, one person did, and he's a republican (Greenspan).
posted by clevershark at 8:20 AM on March 7, 2003


Mind you, it still beats out every single European country (except the Netherlands, and that's largely due to technicalities).

Yes, but the US reports unemployment differently... it cheats. It's hard to say who's in worse shape in real terms because the US government doesn't report the real figures.

Agree, clevershark, that the structural problems we now face developed under Clinton. But I'd place the Lion's share of the blame on Greenspan's incompetency. What he should have done in 1996 is raise rates and end the party early. He knew this, but couldn't bring himself to pull the trigger. Now it's going to cost us a severe recession if not another depression.
posted by muppetboy at 8:26 AM on March 7, 2003


"Avoiding a Mega Catastrophe"

Derivatives are financial weapons of mass destruction. The dangers are now latent--but they could be lethal

Sounds scary, too.
posted by samelborp at 8:27 AM on March 7, 2003


If I read the second article correctly, "the lowest levels since October" meant that the markets had dropped at most two thirds of a percentage point.

How does this affect anyone?
posted by elbie at 8:29 AM on March 7, 2003


Don't let sudden market fluctuations catch you by surprise. Use the Enron Memorial Real-Time Stock Monitor.
posted by Artifice_Eternity at 8:37 AM on March 7, 2003


This post needs a theme song and I nominate the one below. Now pardon me while I go brick up the doors and windows of my home and never come out. Does anybody have any good news?

It's The End Of The World As We Know It (And I Feel Fine)

Lyrics By REM

That's great, it starts with an earthquake, birds and
snakes, an aeroplane and Lenny Bruce is not afraid.
Eye of a hurricane, listen to yourself churn - world
serves its own needs, dummy serve your own needs. Feed
it off an aux speak, grunt, no, strength, Ladder
start to clatter with fear fight down height. Wire
in a fire, representing seven games, a government
for hire and a combat site. Left of west and coming in
a hurry with the furies breathing down your neck. Team
by team reporters baffled, trumped, tethered cropped.
Look at that low playing! Fine, then. Uh oh,
overflow, population, common food, but it'll do. Save
yourself, serve yourself. World serves its own needs,
listen to your heart bleed dummy with the rapture and
the revered and the right, right. You vitriolic,
patriotic, slam, fight, bright light, feeling pretty
psyched.

It's the end of the world as we know it.
It's the end of the world as we know it.
It's the end of the world as we know it and I feel fine.

posted by VelvetHellvis at 8:39 AM on March 7, 2003


Ever since troutfishing and muppetboy put me on the trail in this infamous thread and later in this more on-topic thread I've been reading as far down towards the bottom on these topics as I can go. What's been more interesting, though, has been to assume (not necessarily accept or even believe) that we're in for some very serious shit, then listen to the talk going on around me.

It's amazing what we have believed: the stock market will never go down in the long term; property values will never drop; don't bother with T-bills except as a bit of seasoning to your main meal of stocks, stocks, stocks. It's all but impossible to disagree with those statements without being treated like a crank, but neither God nor history guarantees them. (Just try to shift money in your 401k out of stocks -- you'll get all sorts of lectures at every step about how foolish you are.)

It has been a very heavily speculation-oriented time. One of the invest-like-an-adult books my parents bought for me when they thought I needed it includes the chapter: "Mutual Funds: Every Investor's Bedrock Buy." Bedrock?! The stock market? (Yes, there are money market funds, but no one means those.) My parents put most of their retirement money into just such a "bedrock" and it's crumbling. Now what?

I think that there is a siginificant possibility of a significant implosion in the market for many reasons: corporate debt, including the amount tied up in Enron-style ponzi schemes; the worsening crisis in municipal debt; overvaluation of stocks (which is still very high); banks investing their holdings at or past 100% and thus inviting liquidity crises; and the derivatives pyramid, which Warren Buffet has called "financial weapons of mass destruction" (read about it here).

Any one of those factors would be enough singly, but if their trigger each other things could get very nasty throughout the world.

It's all interesting -- a detective story in advance of the event. But -- and here's a gentle warning to troutfishing -- it is possible to get messianical about the whole thing in an I've-been-healed sort of way. That's not helpful.

It's helpful enough, even if none of the predictions come true, to be able to discover that our world is not carved out of marble, our economy is not a perpetual-motion machine, and the "bedrock" wisdoms of adults can be childish and sometimes damn near insane.
posted by argybarg at 8:41 AM on March 7, 2003


Japan's Nikkei average hits a 20-year low. That's a 20-freakin' year low! How sad is everyone in Japan who's invested in that market?
posted by gen at 8:43 AM on March 7, 2003


The new spin: Oh yes, things are indeed bad, but Clinton's mostly to blame for it. (Oh, and the jobs report had come out earlier. Now, you also have the Iraq report. But things were prolly going to be bouncy today regardless.) Or, wait, they're not that bad, the unemployment rate is lower than Europe's.

I'd agree that plenty of problems continued under Clinton, but the structural problems stretch back a lot further. The S&L scandals look like a warning shot, for instance, from the standpoint of 2003. (There was a little crash in there before '91 too, you know - in '87.) The '90s economic policies were a continuation of those of the '80s. Clinton just checked them a little bit. In any case, from '94 on, he was also having to work with a Republican Congress - a little fact I could go on and on about, if I were looking for spin, but I'm not. How we got to this point is only somewhat relevant from a purely political standpoint. What ideas does Bush have to get us out of it? Is he making the problems worse? I'd say yes.
posted by raysmj at 8:43 AM on March 7, 2003


i'm sure in some think tank in DC they're pondering a US pro-forma forward-looking unemployment rate as we speak.
posted by muppetboy at 8:50 AM on March 7, 2003


troutf:

> innocuous scandals - Clinton & Monica,the cigar?!

The idea of block-long breadlines full of people who thought the cigar was harmless gives me an overwhelming case of schadenfreude. Economic sluttiness a la Enron can't be separated from the cigar and everything it stands for. It's all one thing.


PenDevil:

> to just generally paint the world markets as spiralling
> downward (in bold letters to boot) is sensationalistic, and
> dishonest.

Sensationalistic it is; but dishonest only if you know this is not the big tree slowly starting to topple, and still try to claim that it is. And you'll know that only in hindsight. The world's greatest living capitalist (not Bill) foresees a fair likelihood of meltdown and free-fall due to sluttiness in the derivatives market.

A good ten-year depression might be a salutory reminder that virtue is just as important as freedom.


(On preview- samelborp beat me to the Buffett link. But it's worth underlining.)
posted by jfuller at 8:53 AM on March 7, 2003


Clinton didn't cause this mess. It was Greenspan and investor psychology (greed!). And my take is that NOBODY can "get us out of this". Just ask Japan! The US definitely takes a racist and condescending attitude towards all the other financial implosions going on (Argentina, Germany's stock market, Russia, Asia, etc...). This is going to be really ironic as we suffer through the mother of all financial meltdowns. Won't be too many people who want to hear our advice again after this is all over...
posted by muppetboy at 8:53 AM on March 7, 2003


The thing that amazes and saddens me is that humanity just can't seem to learn. Investment and central bankers behave like little children. "It just broke" or "It was HIS fault". You can't learn anything if you take their attitudes, if you REFUSE to look at history as relevant, etc... it's so sad because it was so avoidable. It's sadder still because even if we do have another depression (btw, it won't just be the second... there were depressions in the 18th and 19th century as well!) human nature almost guarantees that people in the future WON'T LEARN from our mistakes!
posted by muppetboy at 9:00 AM on March 7, 2003


Economic sluttiness a la Enron can't be separated from the cigar and everything it stands for. It's all one thing

How the heck do you figure?
posted by ook at 9:03 AM on March 7, 2003


muppetboy:

A few months ago I asked some (intelligent, open-minded, all that) friends if they thought the U.S. could ever wind up in Argentina's situation. They looked at me like I was sick.

That's not possible. Well, more people than just my friends must think it's impossible for America to be poor -- probably because of our Radiant Goodness or Stubborn Thrift or Bulwark of Strength. Surely some of those people have made policy decisions on the basis of that belief in America's impregnability. That scares me.
posted by argybarg at 9:04 AM on March 7, 2003


muppetboy:

> by selling short, they have to buy later.

Not necessarily. They could always default later instead.
posted by jfuller at 9:09 AM on March 7, 2003


ironic isn't it argy? this lesson is as old as history itself.

avoiding the inevitable outcome would require the ability to imagine, think reasonably and change our minds. i don't see a lot of that around.
posted by muppetboy at 9:10 AM on March 7, 2003


jfuller - you mean fail to cover and lose your investment?
posted by muppetboy at 9:11 AM on March 7, 2003


jfuller - "The cigar?!" - OK, fair enough. It was part of the same overall social phenomenon, I would agree: the behavioral irresponsibilities which accompanied the intoxification of the economic bubble-boom. Thanks for the Buffet link. I cited it below in this long "source material post". See below for reports also on Pension fund liabilities (200 billion underfunded in US!) and housing bubble instability. Linked stories are at the bottom of this fantastically long post of mine.

Argybarg - Sure, but I'm not really relying much on the (possibly insane) "bedrock wisdom of adults", but on numbers, stats, trends.....One thought, though - "War as distraction"?!

George Soros has been making fairly dire warnings lately, and gossip had it that the mood at the WEF was - well, bleak. Meanwhile, Warren Buffet's latest financial newsletter - due out in public soon - reportedly contains strong warnings of a possible collapse in world derivatives markets.

So: Debt everywhere - corporate, personal, federal, state. Bankruptcies at record levels, both corporate and private. Warnings from leading financial analysts and savants of bursting bubbles - housing, derivatives. Underfunded state and corporate liabilities (pension funds). Mainstay economic engine - middle class consumption - at risk as borrowing potential of shrinking, debt-laden US middle class becomes tapped out, and US white collar jobs rapidly migrate to the developing world (with subsequent loss of health care benefits, rise in personal bankruptcy, etc.)

"The world markets might not be growing at stellar pace" - PenDevil - Call the White House! You've got a knack for outrageous spin, and I hear Ari Fleischer is under siege lately.

OK, for those of you with too little time to sift through my copious links, here's the Cliff Notes version:

US corporate Bankruptcies - new all time records two years in a row.

US Personal Bankruptcies - At near record levels

US Household debt - At record levels. Boosted by record home equity borrowing.

US Federal Debt - Now also at record levels

Nikkei Average - Now at 20 year low.

DOW - Down from high of.....what was it? 13,000 or so? to 7600 and change?

NASDAQ - Need I say more?

U.S. Income inequality - at highest levels since 1947, rapidly worsening.

Housing Bubble? - (The Economist) "Housing markets in several countries are looking decidedly bubbly" (cheeky Brits....)

Study Raises Estimate of the Nation's Uninsured

"March 4 — An estimated 75 million Americans were without health insurance at some point during the last two years, amounting to nearly a third of all Americans younger than 65, a study has found....The study suggests that being uninsured is far more common — and much more of a mainstream problem — than previously thought. ...The study...is sponsored by several health foundations and an array of national organizations, from the United States Chamber of Commerce and the Business Roundtable to the A.F.L.-C.I.O. and AARP."

U.S. Payrolls Fall Sharply as Jobless Rate Rises to 5.8%: (REUTERS) "The data sent the U.S. dollar spiraling to new four-year lows against the euro. Bond prices surged and stock futures skidded lower.....`Barring some fluke element to it, which does not seem apparent, the Fed is going to have think very seriously about cutting interest rates,'' Ellis added....`This kind of job loss translates into potential serious damage to consumer spending. A decline in consumer spending would put the economy into double-dip recession very quickly,'' he said.

WAR JITTERS GROWING

The grim report comes amid growing uncertainty about the economy's health at a time when many analysts believe uncertainty stemming from the threat of war with Iraq is leading to reluctance among employers to hire."


Deepest state deficits in 50 years
Christian Science Moniter, Dec. 27 2002:

"...These state deficits are the largest in more than 50 years, say budget-watchers. Already this year, states have grappled with nearly $50 billion in shortfalls and now face an additional $17.5 billion deficit before the fiscal year ends. In the next fiscal year, beginning July 1 in most states, the deficits will run between $60 billion and $85 billion - between 13 percent and 18 percent of state expenditures."

Companies fight shortfalls in pension funds(January 13, 2003, Mary Williams Walsh, New York Times):"After a three-year bear market, many major American companies are spending large amounts to shore up pension plans that have deteriorated, sometimes drastically. ...Many companies are also considering ways to reduce their pension obligations to workers, possibly undermining benefits for millions."

There are Problem with underfunded State pension funds too

And, indeed, the decline in pension fund value in the US is a looming disaster of it's own:

"As the stock market plunged during the past three years, the pension funds of companies in the Standard & Poor's 500 Index lost more than $200 billion in value, according to studies by actuaries and several
investment banks, including Credit Suisse First Boston and UBS Warburg LLC.....Because of the standards board's accounting rules, many of those losses weren't reported on balance sheets...."We're starting to see billions of dollars of shareholder equity vaporized because of pension under funding," says Marc Siegel, a senior analyst at the Center for Financial Research & Analysis, an accounting research firm in Rockville, Md. "It's much more pervasive than
anything Enron was doing."
"




The New Global Job Shift (Business Week Online, February 3, 2003) :
"The next round of globalization is sending upscale jobs offshore. They include basic research, chip design, engineering--even financial analysis. Can America lose these jobs and still prosper? Who wins? Who loses?"


More data on the sagging economy, gentlemen?

Nothing to see here. Move along now............

"I am fully prepared to capitalize on/flee from/worship our new depression era" said John Q. Speculatez...."it's all about attitude. Attitude and timing....oh yes - ready cash too."
posted by troutfishing at 9:23 AM on March 7, 2003


When things have been so incredibly good, it doesn't take much for doom and gloom. Most of us have no idea what bad times are, we live in a bubble isolated from the majority of humanity. Bad times in the USA, even the 1930s, are not so bad compared to most places.
posted by stbalbach at 9:30 AM on March 7, 2003


it may sound conspiratorial, but i think you're actually right about the war. there are other reasons, OF COURSE. but not only is it a distraction from much more real and serious problems facing us (which cannot be fixed)... it also have the happy side effect for this administration of creating handy scapegoats to blame when the shit finally does hit the fan.
posted by muppetboy at 9:30 AM on March 7, 2003


jfuller: what ook said. "Cigar" and gloabl financial collapse one and the same?!? They are so not of a mesh.

One is the Spectacle in full flush. The other is the unimpeachable face of everyday, lived misery on the part of hundreds of millions (pun intended).
posted by adamgreenfield at 9:41 AM on March 7, 2003


Hey muppetboy apparently there is a new book that suggest just that theory of the administration's desire to divert attention from serious economic and political problems at home. The ubiquitous Helen Thomas sums it up in her op-ed here.
posted by aaronscool at 9:43 AM on March 7, 2003


I know this. the more I hear, the more attention I pay to my 80-year-old grandmother's investment advice. Folks who were kids in the US Depression have a decidedly pragmatic (and refreshing) approach to money management.

Also, slightly off-topic (but related to muppetboy's conspiracy thoughts), I heard a report on NPR today about Hussein purchasing US and British uniforms so that he can commit atrocities against his people and blame the US. It's horrible ot say, but here goes: Does this sound like "pre-spin"/"pre cover your ass" to anyone else? I'm not trolling, but it sent my cynicsense to tingling.

And now, back to cowering under my desk trying to decide between hiding my money in my mattress or investing in that ostrich farm.
posted by chandy72 at 9:43 AM on March 7, 2003


muppetboy - 'mother falling down the stairs'.
In these troubled times it helps if we do our research and get our facts right ; )
I think you may be refering to the 'Summer barbeque - my father gets drunk' section of Delirious. Definately the best, most intense part of the show and a comic masterpeice. Which I shall now ruin for everyone.
'Then my Aunt Bunny would fall down the steps. You ever had a heavy set Aunt fall down the steps? Makes a whole lot of fuckin' noise. It's scary too, 'cause they be callin' Jesus on the way down. And Aunts don't like to fall straight down the steps like a kid, they try to break the fall and hold on and stop the shit. That just makes the fall take a half hour then; real loud. They'd be like...'
posted by asok at 9:47 AM on March 7, 2003


"Bad times in the USA, even the 1930s, are not so bad compared to most places." - stbalbach: Amen. That's why I tacked on that little bit at the end of my post:

"For everyone else, it's bankruptcy, frugality, middle class decline, cans 'o beans and darned socks. But cheer up: play, joy, creativity, generosity, indeed love itself - and also the classic "recreation of the poor" are all free."

I don't think of this (probably looming) economic catastrophy as an unmitigated bad thing, for I think people in the US need to: slow down, play more (not passive TV watching either), create more, love more, eat better (and less!), walk more, drive less, and "recreate" more. Think more....even rumenate a bit.....rumenate while peripatating, even!

Count pebbles on the beach. Watch birds. Grow food, fix and patch their own stuff - darn socks! Make wine. Make love. Stretch. Paint, draw, open their senses to the natural world..........

And send some of all this goddamned excess consumer junk and stuff cluttering up our lives to the developing world, where they might actually use and appreciate it.

muppetboy: you heard it here: "When the US invades Iraq I'm betting that retaliatory acts of terrorism, if they occur, will be tied -by the Bush Administration (and legitimately so)- to Iran and Syria (even, less legitimately, to North korea also). These ties will, of course, require US invasions of any or all of these nations: meanwhile....."
posted by troutfishing at 9:48 AM on March 7, 2003


i'm sorry asok, you're right. it was aunt bunny! ;-)
posted by muppetboy at 9:50 AM on March 7, 2003


"One is the Spectacle in full flush. The other is the unimpeachable face of everyday, lived misery on the part of hundreds of millions (pun intended)." - adamgreenfield: poetically put.

Aaronscool - yeah, hubris on my part. those dots are easily connected..........
posted by troutfishing at 9:52 AM on March 7, 2003


i have another prediction for you troutfishing... the people are smarter than that. i think after the fallout that's going to occur over the next couple years, GW doesn't stand a prayer of getting re-elected. history supports that. in every major recession in US history, the electorate have overturned the incumbent. doesn't seem to matter what party they are either. the people will get mad and scared and they'll want change. since presidents take credit for economies when they boom (wrongfully), they take blame for them when they fail. it doesn't seem to matter that there's not a lot of relation between the two. if you want to place blame, look at alan greenspan.
posted by muppetboy at 9:55 AM on March 7, 2003


Muppetboy - good to me. I'll take a dozen of those "pissed off electorate throws bums out on their asses", please, giftwrapped. what? you don't take credit cards, only cash? Well I never h........
posted by troutfishing at 10:18 AM on March 7, 2003


I don't know enough about the entirety of the markets to make the claims troutfishing does, but the forecasters my company uses estimate approximately $8T in venture capital sitting liquid in a holding pattern predicated by the possibility of impending war. If/when that occurs or is definitively backed away from, that capital is predicted to flow back into the market, with concomitant improvements in the Dow, Nasdaq and, by 3rd and 4th quarter, earnings and unemployment.

Also, Ibbotson charts show that stocks outperform bonds over the long term and the growth of stock value has invariably trended upward over time regardless of short term political chaos. Which is exactly what this is we are in now - short-term political chaos.

I'm buying stocks, based on the advice of people I trust and my risk tolerance. You all do what you want. *shrugs*
posted by UncleFes at 11:52 AM on March 7, 2003


Heck, no one's going to warn people of doom when things are going well. Oh wait, one person did, and he's a republican (Greenspan).

Hate to break it to you, but Greenspan has done jack to help this economy along, except transfer the pain of one bubble (equities) to another (housing). That he made a two-word admittance to over-speculation in frigging 1996 and watched values nearly triple over the next three years was not just misguided, it was negligent. But no, Uncle Alan was Wall Street's darling, and was compelled to sit back and watch the charade.

Nor is he above partisan politics, something the Fed Chairman should be oblivious to -- note that Clinton's deficits in the mid-90s were a subject of Alan's scorn, yet Bush's tax plan got a free pass and a clap on the back (gotta stop them surpluses from getting out of control!)... And, of course, now Greenspan's crystal ball is too cloudy from the war to own up to the fact that the economy's in the dumps and it was his policies that got it there: Of course geopolitical uncertainty is the cause of our economic troubles, it couldn't possibly be the result of poor economic or fiscal policy! These things aren't our fault; they couldn't possibly have been avoided!

I'm of the contention that Greenspan has done more harm than good in his term; sure, the late-90s wave was fun while it lasted, but there's no reason it should have gotten so big or gone on so long. Greenspan had the tools to stem the tide back when it was little more than a ripple in time, but he looked the other way. He gave his seal of approval to growing budget deficits in 2001, and now he's too embroiled in position, ego, and partisanship to admit that he was wrong and the madness should stop now that our endless surpluses have collapsed. To me, he's the worst kind of monetary monster; unable to see his mistakes and doomed to repeat them, Uncle Alan has done nothing but take credit for the good times and pass responsibility for the bad on to uncontrollable influences. It's really sick when you think about the fact that this man is still probably the most highly regarded economist in the nation.
posted by dogmatic at 1:26 PM on March 7, 2003


UncleFes:

I think you're misunderstanding. None of the doomsayers are talking about the war. Quite the opposite: All the reporting that the Market is staggering because of "war worries" is bunk -- or so goes the theory. We're talking about cyclical trends that wind and unwind over 20-30 years.

And yes, the stock market does rise over the span of a century. But what would you tell an investor at the beginning of 1929 if you could talk to him?
posted by argybarg at 1:50 PM on March 7, 2003


You forgot to rudely upbraid SUV owners, or complain about the "greenhouse effect".
posted by hama7 at 4:00 PM on March 7, 2003


I'll keep my comments short (tons to respond to, I'm an economist, after all, but it's also Friday...) but there are a few things that absolutely must be said. (1) Record household debt in itself is not necessarily a bad thing. For one, financial management is becoming more efficient and accessible. People are holding more debt now partly because old barriers are falling. Home ownership rates, particularly among minorities, are rising, which translates almost automatically into increased debt to income ratios. (2) One should expect to see deficits expand precisely when it's cheapest for them to do so—namely, when interest rates are low. If the government can borrow on the cheap, why shouldn't they? Sure, it has consequences for future interest rates, debt servicing in the budget, the integrity of the Social Security lockbox, etc., but increasing deficits are not themselves symptomatic of economic decline. What is more troublesome by far is the way in which those borrowed dollars are being squandered. (3) Greenspan lent limited support to the original Bush tax plan, but checked his support more recently. dogmatic, to what housing bubble are you referring? Some of the people who have most to lose if a bubble bursts are fairly confident that there is no serious threat of any bubble bursting... Okay, sorry, gotta go (I always get to these threads late).
posted by dilettanti at 4:05 PM on March 7, 2003


hama, who are you talking to?
posted by argybarg at 4:07 PM on March 7, 2003


Doom? Really?

According to economic historians, the "business cycle" has been around since just about the beginning of business itself. Bush or Clinton? Sorry - makes very little difference whether its Bush or Clinton, Republican or Democrat, or for that matter, 21st Century American President or ancient Egyptian Pharoh. Economies have been booming and busting since before the word "economics" was even coined by the old Greeks. Though every conceivable social, economic, or political system in virtually any human era has theorized about economic systems, and most have tried, in some way or another, to manipulate them, not a single one has ever stopped the expansion/contraction cycle.

Modern central bankers, who have access to information that is better than any time in history, can at best mitigate the cycles and stop the peaks and valleys from being too extreme - but there isn't a single one that really believes the cycle itself will ever go away.

And as down markets go, this one is relatively mild. (Some of the old farts on this board probably remember the "stagflation" of the late 70's ... unemployment much higher than it is now, but on top of that, inflation rates running at 10% or 11% ... instead of the .4% or .5% we have now).

Yelling at Greenspan is probably fruitless too - the Fed has tools that are - at best - exceedingly blunt. It can pump a bit of liquidity into the capital markets, or drain a bit out. Jawbone a few attitudes into changing. But the Fed's tools are actually becoming less and less effective over time.

It probably should be mentioned that the one thing that is also as constant as as expansions and contractions is ... doomsayers. Every expansion of any magnitude will invariably have people talking about the Dutch tulip crisis in ominous tones. Every recession, no matter how mild, will generate people comparing conditions to those just prior to the Great Depression (it's sort of a Godwin's Law translated into economics circles) - and quoting whole reams of (carefully selected) statistics to prove their case.

Also, "greed" will be blamed.

Probably is a good idea to "take a deep breath".
posted by MidasMulligan at 5:03 PM on March 7, 2003



Also, "greed" will be blamed.


Not to take issue with the rest of your post, which is a well-taken counterpoint, but isn't greed in fact part of the problem?

Not so much that I think that eliminating greed would completely flatten boom-bust cycles, or that I think eliminating greed is strictly possible. I'd just hate to see another excuse floated around for the idea that greed is just fine (after all, boom/bust will happen anyway).
posted by namespan at 5:19 PM on March 7, 2003


But Clinton and Monica....err....um..., I mean that damn Hillary .....err.....Kennedy? Yeah, Teddy is the ....err....

Face it, 3 of the last 4 presidents have been right wing wackos, and this is what we get.
posted by CrazyJub at 6:37 PM on March 7, 2003


And yes, the stock market does rise over the span of a century. But what would you tell an investor at the beginning of 1929 if you could talk to him?

Depends on when he wanted his returns. I remember seeing a presentation in college arguing that someone who bought a variety of stocks the day before the crash and held them for 20 years would've still beat most other investments available at the time.
posted by straight at 6:44 PM on March 7, 2003


Yes, but if he'd dumped before the crash then bought in, say, 1936 he's be doing much better (and probably spare himself a lot of misery along the way by having cash during the leanest times).
posted by argybarg at 7:31 PM on March 7, 2003


straight - this analysis you present forgets that all debt contracts - agreements about repayment of debt - are social constructions: agreements/contracts and, as such, always open for renegotiation. A 20 year setback in the value of one's 401(k) is one thing - what about renegotiation over the value of the 401(k) itself? What about payback on the 401(k) which amounts to pennies on the dollar?
posted by troutfishing at 7:49 PM on March 7, 2003


And as down markets go, this one is relatively mild.

So far. I guess we'll see what it's like in a year.

Yes, but if he'd dumped before the crash then bought in, say, 1936 he's be doing much better (and probably spare himself a lot of misery along the way by having cash during the leanest times).

What if he had invested many years before, put all of his retirement funds into the market, and then retired in 1929 just as the market tanked? Wouldn't he be completely screwed? And isn't this the idea behind what the Cato institute calls Social Security Choice?

Forgive my naivete, but I know little about such matters.
posted by moonbiter at 9:21 PM on March 7, 2003


namespan...Economist Mariono Grondona argues that greedy cultures are the *only* ones that can have strong economic growth. "Greed" is functionally similar to capital accumulation (that is, you keep working even though you have nothing immediate to spend the money on). That capital accumulation = higher investment = higher tech progress = higher growth using Solow's Growth Accounting Formula (which is universally accepted by economists).

In any case, the reason that people think you're nuts if you compare the US to Japan or Argentina is because you are. Our economy is in *far* better shape than any of those nations. In fact, most economists would tell you the problems with stocks and low hiring right now are related to uncertainty about the Iraq situation. Once that's cleaned up, the recovery should be back in order.

Sure, there are some problems. But the US economy is 11 trillion dollars. An Enron collapse is a drop in the bucket. A derivative collapse is bigger, but not critical.

Argentina *printed money* to pay debts for decades, had a history of military coups, paid social services that they couldn't nearly afford and have tax evasion on a massive scale, plus little cap. accumulation. Japan has a tremendously poor segmented labor market, a historical distaste toward free trade (plus huge tariffs from their neighbors such as Korea), a lack of natural resources and terrible monetary policy (they screwed the inflation rate to protect jobs, basically).

The sky is not falling. We're worried because of a 6% unemployment rate and .5% inflation? What world do you guys live in? This is considered prosperity is most nations in the world.

And stocks, btw, are a good deal, even in 1929. If you bought the equivalent of a Dow index fund in '29, you'd be beating inflation profit-wise by '45 and be in fantastic shape to retire by 1970. Stocks are the best long-term buy in the world, period. Every investment manager will tell you to start moving to bonds and safer investments as you near the time when you need the money (say college or retirement).

No need to panic.
posted by Kevs at 10:03 PM on March 7, 2003


So: Debt everywhere - corporate, personal, federal, state. Bankruptcies at record levels, both corporate and private. Warnings from leading financial analysts and savants of bursting bubbles - housing, derivatives. Underfunded state and corporate liabilities (pension funds). Mainstay economic engine - middle class consumption - at risk as borrowing potential of shrinking, debt-laden US middle class becomes tapped out, and US white collar jobs rapidly migrate to the developing world (with subsequent loss of health care benefits, rise in personal bankruptcy, etc.)

"The world markets might not be growing at stellar pace" - PenDevil

Hmmm - panic always leaves one trampled at the bottom of a pile of bodies at the exit door...but prudence perhaps?
posted by troutfishing at 10:35 PM on March 7, 2003


Kevs:

Of course I hope you're right. I don't see any particular glamor in panic myself.

I will point out that you're relying on two assumptions that may not be correct: One, that economies of enormous scale are inherently stable; and two, that economic crises are precipitated by government malfeasance and/or collective character flaws.

The first assumption doesn't really make much sense in the long run -- else why did the enormous healthy U.S. economy of the 20s fall so hard? Small-scale economies may be in constant flux, granted, but I don't see why the size of an economy precludes systemic failures.

And as for the second assumption, I think that's how we like to think of economic busts -- that they're someone's fault (just as we like to believe that all illnesses have a moral dimension, which they usually don't). They can be, but they don't have to be. I think it's just as likely that markets have turbulent cycles; that they arrange societies and governments and not the other way around. Happens to the best and shiniest nations.

(By the way, the collapse of the derivatives market would most certainly be critical -- especially because the borders between plain-old-debt and the derivatives pyramid are so shapeless. And "most economists" can tell me the current slump is all war-derived if they like, but I don't believe them.)

Like I said, I hope you're right. Let's check back in five years and if you're right, the drink's on me.
posted by argybarg at 12:01 AM on March 8, 2003


Kevs:

namespan...Economist Mariono Grondona argues that greedy cultures are the *only* ones that can have strong economic growth. "Greed" is functionally similar to capital accumulation (that is, you keep working even though you have nothing immediate to spend the money on).

I buy it fully if we're talking about that kind of greed.... your summary of Grondona's statement makes sense. But I'd argue that may not be the connotation most people attribute to the word. What I'm talking about is the kind of greed where you gain money by screwing people over. :) I realize that is not a terrible technical economic term. Perhaps it's when you attempt to engage in a transaction and use either a priviliged position of might or superior knowledge to push price well beyond a "fair" margin of profit above the costs of service and/or production. I know, I know: whatever the market will bear... just doesn't seem right.
posted by namespan at 12:23 AM on March 8, 2003


This 'neocolonialism' thing sounded a little suspicious, so I got these definitions from Bartelby and OED, respectively:

A policy whereby a major power uses economic and political means to perpetuate or extend its influence over underdeveloped nations or areas.

The acquisition or retention of influence over other countries, esp. one's former colonies, often by economic or political measures.

posted by shoos at 2:47 AM on March 8, 2003


"Sure, there are some problems. But the US economy is 11 trillion dollars. An Enron collapse is a drop in the bucket. A derivative collapse is bigger, but not critical."

JP Morgan *alone* holds derivatives with a notional value approaching 2 1/2 times the size of the US economy ($26T). Personally, I'm not THAT confident in *anyone's* risk assessment model. If something happens way out on the bell curve of probabilities (see LTCM 1998!)... I shudder to think...
posted by muppetboy at 7:04 AM on March 8, 2003


I haven't read his work, but I suspect Grondona is smoking the same crack bowl they've been passing around on wall street for the past 20 years or so. The word he's looking for is "industrious" or "productive"... not greedy. Simple greed (pursuit of value at all costs and for selfish purposes) is highly damaging to both Capitalism and to the Capitalists that engage in it in the end because it creates attachment and myopia. In the marketplace, nothing kills faster than greed (except perhaps fear). Just look at Enron, the "buy and hold" crowd over the past 3 years or the poor saps with Pets.com stock certificates.
posted by muppetboy at 7:17 AM on March 8, 2003


btw, kevs, i agree there's no need to panic. even in the quite likely event of a severe recession or depression, the US is on solid footing (although the DOW belongs somewhere between 700 and 3000). but in the end, investor psychology is unstable because greed and fear are unstable. it overshoots on the way up (greed) and throughout history overshoots on the way down (fear). anyone who understands this is in a position to control their on greed and fear. anyone who is able to do that has a shot at success in speculation/investment.
posted by muppetboy at 7:22 AM on March 8, 2003


clarification: i take reasonable value on the DOW to be in the 3000 neighborhood. the 700 figure is the bottom of where it might go as a result of the all-too-likely panic/fear.
posted by muppetboy at 7:25 AM on March 8, 2003


For decades - especially the last two - international investors have looked to the stability and historically high returns of US markets. I imagine that a lot of them - the ones who haven't yet pulled out already - are now reconsidering, thinking: "These Americans...they've got many, many good ideas, but so many of them have been swallowed up by their own PR to the point where they can't distinguish between true value creation and Ponzi schemes....then there are then oneswho know they're running Ponzi schemes..."

The US went from being a net creditor nation to being a net debtor nation somewhere around 1968-70 when, in as an economic but, more importantly symbolic decision (some assert) the U.S. chose to finance the Vietnam War without suppressing consumer spending. Guns AND butter AND shiny new autos too.....wealthy investors round the world have financed U.S. consumption ever since, and the U.S./world trade deficit grows every year.

It was in the same 1968-70 period that the GINI index began it's historic upward climb, towards greater and greater income inequality in the U.S.

Shoos - you can parse definitions as much as you like. Colonialism. Neocolonialism. Imperialism. Neo-Imperialism. 'Pax Americana' (the Bush Administration's chosen term). - the rest of the world sees it - whatever you choose to call it - for what it is: the use of economic, political, and now especially military force to further U.S. interests, - or the interests of the very richest Americans, the top 1% - around the globe........

George Bush Sr., Brent Scowcroft and the rest of the Bush one old guard (not currently working for GW) are holding their tongues but rolling their eyes, thinking:

"Hmmm....the Balls..... just declare a 'Pax Americana', then go out and create it.... Just clean out the whole region, cow the world. Wolfy and Cheney, maybe Rummy too were always talking this way. Rummy and his little "tactics of empire" studies..... Holy crap, they're doing it...Rummy's a little slow on the uptake sometimes for somebody so fucking smart...hegemony Don. hegemony - getting others to do your dirty work...he mouthed the words, yeah. Then he'd turn around and say "all these pissant fucking rinky dink allies. Give me red meat boys. The 82nd, the 101st. If you want to get a job done..." then somebody would drag out that Sun Tsu quote and Rummy would just roll his eyes and fire off "China is our new great power rival. Don't fucking patronize me with Sun Tsu!!" It's like a herd of rogue elephants on angel dust trampling 5 decades of international relations work... Idiots. No subtlety. They think that pissing on all existing international institutions and going it alone will work? This is fucking brilliant - US garrisons in Iraq, Iran, North Korea, Pakistan....what the hell. rah rah fucking "Democacy" - snap your fingers, make it so... They think this will work?.......They do. Oh well. Maybe they're right. Or maybe it blows up in their faces. These boys aren't backing down. It's going to be interesting"

Shit...I have to call my broker, arrange the defensive investment spread, bet on that sharp downturn...that's the word with the smarter GW boys. Down down. down. Bet on it, they say....you won't lose. Pricks. Oh well. It's their ball game."

posted by troutfishing at 7:43 AM on March 8, 2003


We're worried because of a 6% unemployment rate...

Ah, the phrase real unemployment rate comes to mind... Maybe an official "unemployment rate" of 6% masks one twice that size---

Lester Thurow from 1995:

The Real Unemployment Rate

In the fall of 1995, America's official unemployment rate was hovering around 5.7 percent. But like an iceberg that is mostly invisible below the waterline, officially unemployed workers are just a small part of the total number of workers looking for more work.

If we combine the 7.5 to 8 million officially unemployed workers, the 5 to 6 million people who are not working but who do not meet any of the tests for being active in the workforce and are therefore not considered unemployed, and the 4.5 million part-time workers who would like full-time work, there are 17 to 18.5 million Americans looking for more work. This brings the real unemployment rate to almost 14 percent.

Slow growth has also generated an enormous contingent workforce of underemployed people. There are 8.1 million American workers in temporary jobs, 2 million who work "on call," and 8.3 million self-employed "independent contractors" (many of whom are downsized professionals who have very few clients but call themselves self-employed consultants because they are too proud to admit that they are unemployed). Most of these more than 18 million people are also looking for more work and better jobs. Together these contingent workers account for another 14 percent of the workforce. In the words of Fortune magazine, "Upward pressure on wages is nil because so many of the employed are these `contingent' workers who have no bargaining power with employers, and payroll workers realize they must swim in the same Darwinian ocean." Like the unemployed, these contingent workers generate downward wage pressures.

In addition there are 5.8 million missing males (another 4 percent of the workforce) 25 to 60 years of age. They exist in our census statistics but not in our labor statistics. They have no obvious means of economic support. They are the right age to be in the workforce, were once in the workforce, are not in school, and are not old enough to have retired. They show up in neither employment nor unemployment statistics. They have either been dropped from, or have dropped out of, the normal working economy. Some we know as the homeless; others have disappeared into the underground illegal economy.

Put these three groups together and in the aggregate about one-third of the American workforce is potentially looking for more work than they now have. Add in another 11 million immigrants (legal and illegal) who entered the United States from 1980 to 1993 to search for more work and higher wages, and one has a sea of unemployed workers, underemployed workers, and newcomers looking for work...

posted by y2karl at 7:46 AM on March 8, 2003


Greenspan is the one who spoke of "irrational exhuberance" and caught no end of flak for it, 'cause it just wasn't fashionable at the time to admit that the bubble was going to burst at some point or other.
posted by clevershark at 2:07 PM on March 8, 2003


y2karl - 4 pecent of all working age males are either homeless or in the "underground economy" .. excellent.
posted by stbalbach at 4:37 PM on March 8, 2003


Troutfishing: so leave it at "colonialism" then. No need to dress and muddle your words.
posted by shoos at 6:33 PM on March 8, 2003


shoos - OK, but then "colonialism" would need to be redefined - to be no longer about the actual seizure of territory. That's why I tacked on the "neo". "Colonialism", in the classic sense (as in the case of British colonial India), is dead. "Neocolonialism" attempts the same project through proxies. There is a difference.
posted by troutfishing at 9:55 PM on March 8, 2003


I still have a job and a 9.2% APR credit card. Where's the fire?

[/sarcasm]
posted by cinematique at 11:08 AM on March 11, 2003


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