Interesting if depressing commentary. Not sure it matters if we call this a recession or not but we still have a stagnant stock market and few job prospects. I think we are back to can we fix some of this?
Should we tighten the reins on automated trading. I think this automation leads to wider swings in the market?
Should we tighten spending to lower deficits? This is a harder one since it may cause some short term increases in unemployment.
I've been looking for an explanation about why all types of assets seem so well correlated lately. Loose monetary policy is the best explanation I've heard. Since most of the price changes aren't caused by the underlying investments, but by the surplus of dollars flying around; this makes perfect sense. Wonder why I didn't think of it before.
Also agree that the recession is here or on the doorstep. And that the global debt devaluation, which Scott has explained here before, will be painful. Still, the question that ProfR asks is the right one - as individual investors, now that we know all this bad news; what do we do?
Lenore, I think common peoples are hearing and reading the same economic slowdowns from last couple of months. I think only the big corporate peoples, doesn’t heard about that news. Otherwise atleast they may done some precausition methods.
Not only isn't it pretty, but the old , conventional tools to fix it don't work very well. Until we decide to do something different ( or just wait it out), things will not show much improvement.
Waiting it out is not a good option.Primarily because you could end up waiting forever(Take the case of Japan for instance).
Everything is much-much more different than what it was during the Boom years.Entire Mass-pscychology changes as a result of which Growth tends to stagnate sharply.
One of the best ways to tackle this situation is forcing all the Banks to mark their assets to market value and writing the value of those assets/debts which will never be repaid.Consequently they should be allowed to raise capital too.
This should be done in an orderly manner.Which can be done if the Federal Reserve puts its mind to it.
I agree that mark to market is a good step. When I see a credit card statement that says my interest ( if I ever rolled over month to month) would be prime +14% and then the bank still can not make money- I get concerned. Not only about their assets, but how they do business in general. I think it is more about business than regulation.
But it needs a lot of courage (from Govt and regulators)to take that neccesary step.
What about all those entrenched interests which have firmly established themselves within the Govt and will do whatever it takes to maintain the status quo???
Tough one for sure;but definitely needs to be sorted out.
"When I see a credit card statement that says my interest ( if I ever rolled over month to month) would be prime +14% and then the bank still can not make money- I get concerned. "
As Scott very rightly pointed out here.This is a Balance sheet recession and the best way to deal with it is to make sure companies(and especially the Banks) take their losses and clean up their Balance sheets preferably by Marking Assets to Market Value and writing off Debt.
In the process if some of the weakest banks go bust,so be it.
This is the best and easiest way to let the Financial Ecosystem cleanse itself.
In the process some of the weakest links of the chain (especially the severely undercapitalized banks)will get wiped out;so be it.
But the Net result will be a much stronger and healthier Financial Ecosytem as against the current malaise which is present today.America today is looking more and more like Japan following its bust in the 1980s.
Is that even possible? Can we withstand losing another 2-300,000 jobs? Times are already invariably tough, so to have to make ends meet...this is too frustrating!
I agree we are heading into very uncertain economic times ahead and even the areas that should be performing in a recession are not—what are you prosing as the best plan to ride out the roller coaster ahead?
I have seen/read quite a bit of American Political History over the years and I seriously feel like people don't give Bill Clinton enough credit especially over his ability to work with the Opposition towards the aim of making the American economy stronger.
A lot of people say he got lucky or whatever.Somehow I don't buy any of those arguments.He was extremely smart but his best quality was to work with differing viewpoints towards a common good.He was by far one of the most practical/realistic presidents America has ever had.Seeing the records of Both Bush Junior and Obama since then;I am pretty sure a lot of people are clamouring to have Clinton back in the White House.
Can we change the constitution to make it happen???
If it can happen in Russia(Putin is very much back in charge) why not in America?
There is a real paucity of good leaders across the political spectrum in DC.
Clinton may have presided over the only Federal surplus budgets in decades. However, the world economy thrives on growth, not cash reserves. The wisdom of leveraging American productivity was recognized by the GOP, as stated by Dick Cheney, "Reagan proved that deficits don't matter."
However, growth is not necessarily compatible with high standards of living. At times when raw materials are harder to come by, workers must learn to pull in their belts. In these times, cash flow among the elite must be maintained and even enhanced.
It is people with wealth that are able to apply their resources toward bringing society into a new prosperity.
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Forget about business growth as long as the future of tax rates remains unclear, regulation continues to expand in unpredictable ways, and legislation keeps creating increasingly onerous burdens.
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