Economic Depression – Precisely Why and Approximately When

Depression 2 TV ^ | November 09, 2004 | Russ Randall

[An Old Man]

A Blast from the Past!

A short excerpt to get you started.

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Graphically, What Does the Illusion Look Like?

Note: There are two key issues: One is asset overvaluation, and second is the overly optimistic expectation of annual asset value growth. The conditions combine to create a “double whammy” expectation of future wealth.

Assumptions:

“Expected” by the Average Investor:

• An expected “real” asset valuation growth of 5% annually; excluding inflation.

“Reality Based upon History”:

·
• A -21% current asset base adjustment to reflect historical asset-to-GDP ratios.
• A real productivity increase of 1.7% annually going forward
• An annual employment increase of 0.57% (1.0% increase in population less a 0.43% dependency ratio adjustment).
• An annual repayment of foreign investment and debt beginning in 2009 @ 2.0% of today’s outstanding net direct investment and debt.

What Conditions Were Necessary for Our Bubble?

There are three key conditions that were critical to be in place for the upcoming depression, which enabled our asset valuation illusion, and our extreme work activity misallocation into Market Unjustified businesses:

· Fiat money. It would be virtually impossible for a significant bubble to form, if money was based upon a commodity of value (e.g. gold, silver, etc.) without a fractional reserve system.

· Cooperative foreign central banks. As long as their countries are motivated to produce goods and services to satisfy an endless US demand for their products, and their citizenry is content to accept US "paper investments" with higher perceived yields and valuation increases than alternatives, then they will remain invested in US dollar based assets

· A baby boomer population profile. A substantial support base of working people supplying those not working enables a condition where a financial asset bubble may form without being tasked or tested for value. Once the ratio of dependency shifts, and the real goods and service production capability diminishes, then there will be a more realistic valuation placed upon assets based upon the actual profit increment of the stream of goods and services they produce.

When Will the Depression Start?
Why will the illusion discovery happen in 2008?

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[An Old Man]

More Cheerie News

This one is dredged up from the archives back in 2004. Did someone warn about what was soon to come?

[rabscuttle385]

*Ping!*

[outofsalt]

Ping

[screaminsunshine]

Why?...Income based tax + democracy. When...Now.

[unkus]

ping for home

[GiovannaNicoletta]

bookmark

[djsherin]

Ping

[Diana in Wisconsin]

BUMP! :(

[Cincinnatus.45-70]

Ping!

[djsherin]

Thanks for the post. Good read for sure.

[logician2u]

We'll be hearing "I told you so" from all kinds of investment advisers when this thing gets really bad. Most of them were still advising their clients to buy throughout the last decade, while prudent investors were shifting their assets into cash or precious metals. The few "gloom-and-doomers" you saw on the tube among all the shills for brokerages and banks were either perpetual bears or loonies brought on for comic relief.

Russ Randall takes a more objective approach -- combining engineering methods with Austrian economics -- in his macro analysis of the economy. Since he's not selling stocks and bonds or mutual funds like many who appear on business cable channels to offer advice, you have to believe his motives are pure.

Politicans in both parties will hope you stay away from his site: http://www.austrianenginomics.com/

The empire is nekked.

[An Old Man]

Politicians in both parties will hope you stay away from his site: http://www.austrianenginomics.com/

Good post! Great Link! Thanks