Posted on 07/13/2008 12:31:36 AM PDT by TigerLikesRooster
The Psychology of Ben Bernanke:
The Great Depression was caused by the Federal Reserve. Was he Talking About the current Great Depression that is Sprouting Under his Watch?
Lessons From the Great Depression: Part XIII. The Federal Reserve.
Federal Reserve Chairman Ben Bernanke this week once again mentioned that the Federal Reserve was “strongly committed” to financial stability and is considering options like keeping the lending facilities open to primary dealers. In short, they are going to continue to bailout banks and Wall Street firms while Americans get the shaft. This is an important statement and the futures markets are now tenuous of any rate rises this year. After all, we are now firmly in a bear market with the three big index players, the DOW, S&P 500, and NASDAQ down 20+% from their recent peaks.
It is crucial to understand the psychology of Ben Bernanke in order to understand his motives in the current economic crisis. Bernanke is a student of the Great Depression and much of his belief is that the Federal Reserve was a main (if not primary) cause of exacerbating the problems at that time. He feels they didn’t react quickly and strongly to stem the economic collapse that soon followed. Yet many Americans aside from pop culture and what is the hot item at Wal-Mart don’t really have a sense of history. For example, many think that the Great Depression was purely caused by one bad month in October. That is not true, the bottom didn’t hit until years after. Also, many forget that we had a massive real estate bubble that occurred in the early to mid-1920s with Florida real estate looking similar to what is occurring again in the coastal states in particular, California and Florida.
(Excerpt) Read more at doctorhousingbubble.com ...
Ping!
Our trade imbalance is a danger to our country’s long-term prosperity and has global implications beyond economics. It is certain if we continue on this path there will be a worldwide meltdown. There has been no desire from any political party to reign in the manic spending of the American people. Somehow they thought that for a decade of trading paper back to one another, flipping houses, and taking money out of homes to add upgrades was the idea of a healthy economy. What we ended up doing is simply rearranging the deck chairs on the Titanic while the world built up stronger production capacity and has siphoned off a competitive advantage in many areas. Spending more than you make impacts the world more than you think. It is time to get serious about this and make it a national priority to get our books in order. Former Federal Reserve Chairman Paul Volcker knew this and jacked up the Fed Funds Rate into the double-digits to reign in inflation. People did not like this but in the end it made us more productive in the 80s and 90s. Who will be the next person to reign in spending before this bubble breaks the world?
People always scream about the Great Depression ... anybody remember OCT 87? That crash was supposed to bring on a Great Depression too, but it didn’t happen. We’re having a bit of a correction - not a depression.
Ya got that right. If anything, the political class is hell bent on fueling consumerism even more (witness our tax cut stimulatus). Of course, the paltry $600 per family was more/less wiped out by the higher inflation it stoked. And much of the money was spent of products made in China and Japan. Geeze....
” There has been no desire from any political party to reign in the manic spending of the American people.”
Could you please include a list of all the other freedoms you think the politicians should “reign in”?
” There has been no desire from any political party to reign in the manic spending OF CONGRESS....”
Fixed.
Incorrect.
What we're having is a massive debt party. The government keeps deferring problems to the future in hopes alchemy will have been perfected by then.
Technicaly, I suppose this isn’t a recession or a depression. However, I was here in 1987 and the conditions today are far more serious with continued energy price increases that cause increases across the board and are decimating businesses and jobs. Today, more people are older and now depending on their savings and investments, which are, for the most part, performing negatively.
I really don’t care what we call it. In 6 months, my business has fallen to 50% of its 23-year-average, our investments have fallen over 12% and as people cut back to essentials, my husband’s service business, while doing ok for now, may not survive. Meanwhile, our essential costs of living, after severe budget trimming, are rising almost as fast as we can cut them back. Our hard assets would probably not find buyers if we were forced to sell right now and if we found buyers, we know we would take a loss. We are too old to find replacement work. We know many professionals and self-employed in the same situation.
This is a slow bleed compared to 1987, it does not seem to have a chance to improve before millions are without jobs, without adequate savings and some may endure real physical threat this coming winter as energy and food costs rise even further and municipalities are forced to cut services and raise taxes just to keep infrastructure running at a reduced level. Neither government aid, individual charity or self-reliance appear capable of doing much about the situations of those who will find themselves in drastically reduced circumstances within six months, if this continues and escalates as it seems that it will.
There are numerous objects of blame and the way government and the investment industry are responding is seriously lacking, to understate the situation. As we fall into socialism, the problems are going to accelerate.
I would go back to 1987 in a heartbeat.
Boy! Did Phil Graham get it right or what?! Whiners, indeed. But it is even worse than that. It’s Chicken Little Whiners. No, by golly, it’s Chicken Little Whiners on steroids. I’ll concede to all that the not-so-creeping socialism is a real problem, and it will decrease productivity over time. But, folks, we have not had even one quarter of contraction, despite the so-called “housing problem.” Quit whining, thank God for your blessings, and work hard.
But didn’t the savings and loans get bailed out? Did that prevent a recession? Or was that later, I’m bad with dates.
An out of control car with a drunk driver swerves against the Jersey barricade on the freeway, fishtails, almost rolls, and by pure dumb luck regains control.
The lesson? Open up another bottle of whiskey, and sell the steering wheel and brakes. We're invincible! We're America! Nothing can ever wreck our economy! YeeHah!
My husband and I work a lot harder than any one in a cubicle ever did. It is real physical work and I am over 65. We bless God daily and whatever He has been faithful enough to provide is appreciated. However, what I posted is true, is happening and is being exacerbated by government inaction and wrongheaded policies. It may never happen to you, anyone you know or anyone they know and for that, I am sure you are all thankful.
I do not for one moment believe that the inflation and production numbers that appear in the headlines represent the reality that I can document by personal experience and bolster with the personal experiences of folks around the country. It is anecdotal, to be sure, but the weight of anecdote at the very least can cast a bit of doubt on the official numbers. I recall executives stating loudly that the Janesville, WI auto plant would stand for 100 years just months before it was closed. We do not heat our homes with electronic gadgets and we cannot eat clothing made in Central America. We cannot pay property taxes with firewood, garden produce or venison. Profits of multinationals earned outside the CONUS do not increase the buying power of the Americans who are our clients and customers. While I have always believed in free trade and have a lay understanding of macroeconomics,I read the foreign financial press and it does seem as though we are losing the confidence of the rest of the world, the ones we have depended upon for goods at a low price and assumption of our debts.Commercial real estate and productive businesses are being purchased from Americans at low prices by foreigners. I have been told that some of these regard American workers as just another low-wage benefit to their own rising business prosperity.
We live in an area that has had 2 severe floods in 10 months. Yesterday, we traveled through some of the hardest hit areas. It has been a month since the floods and we have had heavy rains 2-3 times since. There are what look like lakes in the middle of corn, bean and hay fields.(Think food and feed prices) Homes are still up to their foundations in water. (think loss of equity and also of property taxes)Propane tanks and septic fields are in standing water.(think homelessness) Cow pastures look as though they are bisected by rivers where no rivers exist.(think rising meat and dairy prices) Commercial buildings are abandoned. Sandbags still surround some properties. Many more late model RVs, SUVs, vans and even trucks than usual are parked by the side of the road with For Sale signs. In several communities, the businesses still in operation had homemade posters in the windows advertising local benefits for the flood victims. FEMA and insurance settlements have still not been made for many for the August 2007 floods. Large acerages of good, flat, fertile farmland is posted for sale despite the record crop prices. Some crops have been plowed under and some commercial areas had earthmoving equipment in operation trying to effect some drainage.
In affluent areas of Middleton, WI, which has seen huge property tax increases, we were amazed at the number of for sale/for rent signs. Long-established retail and service businesses that existed 4 months ago are gone and prestigious shopping areas were really slow for a Saturday. I stopped counting the number of front-yard vegetable gardens when it appeared that they are ubiquitous in areas that usually shop at Whole Foods and Trader Joe's and rarely planted anything beyond some flowers.Numerous multi-family garage sales were filled with young parents apparently shopping for kids clothing.
We stayed the course in 1987 and I was a booster of the economy who pitied those who sold at the bottom. But, we were in our late 30s/mid-40s then. Our businesses were doing well. A 15% hit in the stock market was recouped over the next few years. Just a few years later, the AMT decimated our primary markets (galleries/shops owned by the wives of wealthy professionals) by Congress and a POTUS who allowed himself to be rolled on taxes. We saw our markets, and consequently, our sales, decline by 10% a year for 3 consecutive years after a 10-year successful run with a line that was selling coast-to-coast, in Hawaii and Caribbean resorts. We went back to school and changed careers, keeping one line of merchandise so as not to have all our eggs in one basket. We have done all right in the past 15 years, as we had done in the previous 15. We were not even personally touched by the recession years under Carter. We were young, successful and affluent. Our present debt consists of a tiny home construction loan and a high mpg 2-year-old vehicle and both are affordable and will be paid off in about 30 months.We have equity, some investments and hard assets. But, this time the problems are endemic and appear to be global. Even if Congress gets the message and begins to enact policies to counter the present economic situation, we foresee another 5 years ahead that will marginalize what remains of the middle class and affects most Western countries. That is us and our customers. There is a time to be realistic and, IMO, this is such a time.
Multi-millionaires like Phil Graham are not touched by the economic realities that affect the middle classes. It is not whining nor catastrophism when Americans are responding to this present situation with every tactic available. I devoutly hope that he is correct and that your optimism is justified. I could obviously use some optimism myself about now. For the interim, we will do what we can to get through this technically-not-a-recession/slowdown. But neither Graham nor you should discount the possibility that you are simply presently on high ground while the flood waters continue to rise and that it will eventually engulf many of us. Not everyone is either slowdown, recession nor depression-proof. At any time, any industry can find their markets gone, their costs escalating and the political climate totally unhelpful to their income stream. The difference this time, IMO, is the widespread fundamental nature of the problems and the subsequent lack of safe havens for those who cannot afford the losses nor replace the income.
YMMV.
I think you are whistling past the graveyard.
Why? America cannot continue to eat out her own substance and survive except as a shell of her former self - and we have doing that headlong for years.
For example, our monthly trade deficit is around $50 billion per month. How long can this bleeding continue, especially as the dollar depreciates quickly against other currencies and inflation in core areas is rising just as quickly? That $50b sum equals about what our oil imports cost (and that price is rising quickly). Yet, our feckless "leaders" continue to ho-hum with business as usual, spending like drunken sailors on expanding government and subsidies at all levels, and insist this is somehow "our" fault for not having more solar power and windmills. There is little thought of doing the "right" things on almost every one of the host of issues we face. Instead we continue headlong with the politically correct but asinine things which have gotten us to the place we now are.
This house of cards is coming down, hard. As if the deficits and balance of payments aren't already killing us, wait until the full impact of the evaporation of trillions of dollars in mortgage and debt wealth hits. We are just at the beginning of this with the latest crash of the IndyMac Bank and the evaporation of Bear Sterns - not to mention the write-down of billions in "solvent" banks' wealth almost monthly. Oh, and of course, the government is assuming responsibility for this worthless paper by printing increasingly scores of billions in wildly inflationary paper and exchanging it for the even more worthless assets of paper held by the huge banks and investment companies.
I suppose this will all stop when we run out of ink?
Anecdotal evidence? I see it all around me. I won't bore you with details. Look around yourself and see if these are mirrors of other recessions we've had. They aren't.
For one thing, when the heating oil season hits hard this November, you will see personal economic contraction and pain like we haven't seen in 70 years. And all this is on top of falling jobs and increasing gas prices. Oh, and did I say "increasing taxes" as government continues to eat an even larger part of the pie? And this doesn't even begin to address the moral rot and it's consequences which has taken place in huge segments of our culture since the '60s. And don't forget we are also in a long and expensive war which we cannot abandon in the hopes our enemies will somehow go away.
The economic chickens of poor public and personal policy at all levels are coming home to roost, and it is not going to be pretty. We can only hope somebody doesn't try and take a nuke or two to us and make matters even worse.
I'm right there with you. The bottom fell out of my small business at the beginning of the year, very little new business since, slow pay like I've never seen on work that was billed months ago ... I've had to take a job with a customer to tide myself over; thankful for the pay and benefits, but it's less than half of what I made even last year. I shut down the office, moved the computers and such into my house, and sold equipment that I couldn't bring home, contracting that work out (not that there's very much of it). I'm handling what business I have left during evenings and weekends. Sold my company vehicle, a GMC Acadia that I really loved, early enough to have gotten a decent trade in on it, now driving a Corolla, for the gas mileage. It's averaging close to 40 mpg on my now 30 mile, one way commute, thank goodness. I'm holding my own for now, cut my debt down to just a mortgage. It does keep me up at night, worrying about just what the future holds.
Is there a 3rd book any time soon?
Mine stopped dead in April at the wholesale level. Retail continued quite well until June, which is normal for my industry. My small retailers are totally MIA. Contacts at the retail level tell me that business is *quiet*. Two major distributors merged and the top three (by size) distributors have ordered at half the volume and twice the interval. At least two orders were due to getting in at the last possible moment before an announced June price rise. Two smaller accounts that sell retail at trade shows open to the public, are also MIA. I am pretty sure gas prices and associated costs have kept those retail shows down on volume and traffic.
Luckily, I have had no slow pays. In fact, the collection agency I use called to troll for past due accounts and I didn’t have any.
Third Q will tell the tale, as I usually pick up considerably by the middle of August. Peak season for my industry is September-May.
I have no opportunity to take a job...too old, too far out in the boonies, skill sets not needed by employers locally. DH has one employer he could apply to if worse comes to worse. They would love to have him, but not if he continues in private practice.
Like you, we have cut debt to the bone and we can provide some essentials for ourselves, hopefully enough to make a difference.
My county road is as quiet as it was 35 years ago after 20 years of regular traffic. I had to shoo the dog off the yellow line last week, where he had decided it was as good a place as any for a nap. He’s an old guy and knows about cars, but there simply haven’t been many. Lots of motorcycles, though.
As Gritty said, it will be pain like we haven’t seen in this generation come heating season. I don’t even see a lot of firewood for sale, for the first time in decades. I think people are providing for themselves and their best customers and not advertising. I worry , too, what our enemies will decide to do to us when they see us weakened and in disarray.
I went to the beach in Fla last week and our condo building had 45 condos. 15 were for sale and had lockboxes. Out of the entire building, a popular upscale one, only about six were rented. The parking lot and beach were comparatively empty.
And the drive to and from, usually a nightmare of stopped bumper to bumper traffic, was the fastest we have ever done.
We went to a popular restaurant Fri nite at 730 and there was no wait. Last year it was wall to wall people waiting.
There is a substantial slow down in vacation taking in my opinion.
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