Elephants in the Living Room

11/24/2004 | Coryoth

[q_an_a]

new member posts ideas that belong on DU. go figure. RATS think interns are play things and the balanced budget was their idea. Send this guy home.

[Coryoth]

It's rare that a large group of people, forming independent decisions, all arrive at the same conclusion on the same day. This fact imposes intrinsic limits on the behavior of the markets, so an out and out catastrophe is rare.

I do agree that it will take a significant chain of events, and that disaster is actually unlikely - that doesn't mean we shouldn't at least be concerned with these issues.

As to synchronicity - it need not be a day, it can be a month, or six. And yes, the market is a mass of independent minds all moving in millions of different directions, but it does also have a herd mentality and is prone to occasional panic: Consider the collapse of the Asian tiger economies in late 1997, or the abysmal state Argentina found itself in.

Yes, the US is not Indonesia, nor Argentina, and certainly more significant factors would be required to actually get the herd to move. Once moving however, those examples show that investment can and will depart en masse in a matter of months, and currency depreciation can and will occur with dramatic speed should panic spread through the market.

As to your contention that the current state of affairs is not worthy of concern - I would point you to this speech by Alan Greenspan. He is typically cautious and measured (to be expected given how much the markets hang on his every word), but he quite clearly outlines that there is cause to be concerned with regard to the US current account deficit, and the US Dollar. I would think that if Alan Greenspan is ready to remark on cause for cautious concern, that one can reasonably say that we shouldn't dismiss the possibilities.

[KDD]

"Of course ideally such a collapse would be halted by the closing current account deficit as the price of imports skyrockets, and US exports become ever more attractive."

Hold that thought.

That and inflation are self correcting mechanisms.

In the event of a collapse however, the importation of immigrant labor would become a major issue. Protectionism would be vindicated to a degree. Free Trade could use some fine tuning possibly.

Welcome to Free Republic.
Perception drives reality. Think positive.

[palmer]

The problem with your three elephant analogy is that two of them (debt and dollar) are glued together so if there is rampage (dollar depreciation) they both fall into a heap before they can destroy the living room.

Basically we will get through the debt/dollar problem with a combination of depreciation/inflation and economic growth. I agree it's tricky mainly because much of the flow of credit comes from sources that aren't under anyone's control like home equity. But world economic growth (thanks to years of our pushing trade liberalization) will help us also.

[Dont_Tread_On_Me_888]

Thanks for the ping.

The most serious problem I see was not mentioned in the article.

The ever increasing percent of total expenses in the U.S. budget on social welfare is the greatest danger to our national security.

In other words, the greatest threat to our survival are Republicans who are ruling like Marxists when it comes to social welfare spending. The biggest surges in social welfare spending are yet to come as the baby boomers retire and the illegal aliens here start breeding baby illegal aliens (who would then be citizens).

When Bill Clinton first entered office in 1993, we spent roughly 57 cents of every dollar of total spending on social welfare. Today, it is pushing 70 cents of every dollar.

As the percent spent on social welfare increases, the only place it can be gouged from is Defense spending, as it is the only other category with sufficient dollars to do that.

Don't let dollars fool you. In percent, we are spending LESS on Defense today than in 1993. As the world gets gravely dangerous with nuclear proliferation et al, we are spending less on Defense than we were in 1993 because of the superhot growth of spending on social welfare.

I agree with the points the author made. However, the two most serious threats to our survival as a nation (as we know it) are:

1] Republicans acting like radical liberals when it comes to spending

2] Lawmakers focusing on social welfare--both domestically AND globally--at the expense of our own national security.

[Travis McGee]

Very good essay.

Expect to get slammed by the Ostrich League and the Rose Colored Glasses Society as a "doom and gloomer."

[Travis McGee]

A third to a half of US houses are now held under adjustable rate mortgages. If and when the dollar implodes and interest rates explode, tens of millions of Americans are going to find their monthly mortgage payments exploding at the same time that they are laid off from work.

Could be a recipe for "Great Depression Two."

Only this time, our decayed social structure will probably come apart at the seams. The urbanites aren't going to quietly starve in the dark when the gas and food deliveries are interrupted.

[Texas Songwriter]

Dear Coryoth, I know you are not a Democrat. This is really not a democrat/republican issue. You stated this case eloquently and with measured temperment. Sorry you are being criticized for simply trying to educate us. YOu said it better than I could, but you said what I have been trying to say. The one thing you mentioned which I did mention is the probability that America will likely come out of this intact. I agree. I do worry that there will be substantial mysery inflicted upon the unsuspecting and the unprepared. You and I cannot fix this problem. But we can prevent ourselves from falling victim to it, and ring the warning bell for those who will hear. Thank you for your astute analysis and concern. I will study this article.

[Texas Songwriter]

We agree they are self correcting, but at what price. Much mysery, loss of jobs, loss of real income and purchacing power, and more.

[r9etb]

How many elephants can you fit into a living room? All I know is that you can fit 5 of them into a VW bug: two in front, two in back, and one in the glove box.

[etcetera]

Thanks for posting, although most of this kind of stuff makes my eyes glaze over. I try to understand because I know it's important. Glad to know there are some people around (like you) who have a grasp of this stuff.

And welcome to FR!