

Crisis may make 1929 look a 'walk in the park' - chaostheory
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/12/23/cccrisis123.xml

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Fountainhead
Certainly there is a liquidity problem that bad lenders/investors are paying
for but I don't see this radically impacting the global growth rate. Too many
increases in production and technology are happening to see a full out
depression. We may see some large companies fail and a mild recession, but
beyond that it's not going to be much worse than earlier in the decade or
early 90s.

~~~
timr
Well, then. If _you_ say that it won't impact the global growth rate, then I
guess I won't worry!

This type of comment (along with the old "9 out of 5 recessions" saw that's
being thrown-around, below) is nothing but blind optimism. This article isn't
idly discussing economists' new year's predictions -- it is citing some highly
disturbing economic metrics.

This problem has nothing to do with production or technology. We're on the
tail-end of a debt-fueled asset bubble. If those borrowed assets continue to
deflate, millions of people will eventually go bankrupt, and bankrupt people
don't spend money on non-essential goods. Manufacturing supply isn't the
problem; gains in production efficiency won't help.

Moreover, if you've been following US consumer trends at even a casual level,
you know that a huge percentage of our spending has been financed by foreign
debt. This article is suggesting that the funding for this debt-spending is
about to go away. Again, _"increases in production and technology"_ don't help
you at all, when the problem is that people can't _buy_ things.

I don't know what's going to happen tomorrow. But I do know that it's short-
sighted to argue that the economy will be fine, just because "it's always been
fine before." That's basically what you're doing.

~~~
cglee
Well said. That's why it's important to work on things you care about; even in
downturns, you'll still be motivated to create.

~~~
kingkongrevenge
> it's important to work on things you care about; even in downturns

This does not mean it makes sense to naively proceed with plans based on the
status quo, which is a common sentiment on this board. Advertising and media
get slammed in real recessions (2001 wasn't one), which is rather disastrous
for Web2.0 as I understand it. Opportunity, or at least security, is largely
limited to the non-discretionary side of the economy.

I read PG saying you should ignore recessions because nobody can time them.
Well, that's just not true. People with solid macro-economic grounding have
always understood roughly where we are in the business cycle. If you rely on
the newspapers and NBER pronouncements for your understanding of the economy
you will have the impression that it's all guesswork, but that only reflects
on MSM incompetence and conflict of interest with advertisers.

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noonespecial
I think that the chance of a "world wide" depression like 1929 is remote at
this stage in human progress.

During that depression, there was very little wealth in the world, just a lot
of credit based on a jubilant realization that humans had learned a trick that
was geometrically generating wealth. It was a bit of over-excitement that led
to a temporary stall right at the base of the j-curve.

The most important issue was that nearly all of the factors of production
worldwide rested in one nation, the USA. Even those factors outside the USA
were still contained in "western" culture nations. America's problem became
everyone's problem.

The USA is no longer the center of the world. The factors of production are
now distributed all around the world and are contained in many cultures. In
addition to this, much of mankind's wealth is now intellectual as well as
physical.

The shenanigans of a few rich white men who shuffle paper money and don't
build anything no longer have the power to bankrupt the world.

Think of it this way; Even if every major financial market crashed
simultaneously worldwide, we still don't have to reinvent tetracycline, or
rebuild the Hoover dam.

Depressions and recessions might just be nature's way of slapping humans
upside the head and saying "quit diddling on little scraps of paper and go
build something useful."

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hhm
I think if we have a real energy crisis, _that_ would make 1929 look 'a walk
in the park'. What would happen to computers, for a start?

~~~
kingkongrevenge
I don't think it's a coincidence that the financial system peaked out at
roughly the same time global oil production peaked. We ARE in a real energy
crisis. A big fraction of humanity in the poorer parts can no longer afford
gasoline or heating oil. Oil has quintupled in recent years.

The 1929 crisis was of purely financial origins. It was rather basically a
cheap credit bubble. The bubble we're in now is both financial and a raw
materials/energy crisis. These dynamically related forces may together put us
in a very bad position. Oil, natural gas, fresh water, grains, fish, metals --
production of all these things are hitting physical limits and shooting up in
price, progressively constraining economic opportunity.

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trevelyan
Amusing to see Anna Schwartz cited echoing Keynes about the importance of
expectations.

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Darmani
Economists have predicted nine out of the last five recessions.

~~~
marvin
Indeed, except they picked the wrong nine and missed the correct five.

