The Worst Is Yet to Come

[4dsc]

Five economists whose prophetic warnings went unheeded preview the next stage of the global financial crisis.

“Because the United States is such a huge part of the global economy, there’s real reason to worry that an American financial virus could mark the beginning of a global economic contagion.” – Nouriel Roubini, March 2008

Last year’s worst-case scenarios came true. The global financial pandemic that I and others had warned about is now upon us. But we are still only in the early stages of this crisis. My predictions for the coming year, unfortunately, are even more dire: The bubbles, and there were many, have only begun to burst.

The prevailing conventional wisdom holds that prices of many risky financial assets have fallen so much that we are at the bottom. Although it’s true that these assets have fallen sharply from their peaks of late 2007, they will likely fall further still. In the next few months, the macroeconomic news in the United States and around the world will be much worse than most expect. Corporate earnings reports will shock any equity analysts who are still deluding themselves that the economic contraction will be mild and short.

Severe vulnerabilities remain in financial markets: a credit crunch that will get worse before it gets any better; deleveraging that continues as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, thus leading to cascading falls in asset prices, margin calls, and further deleveraging; other financial institutions going bust; a few emerging-market economies entering a full-blown financial crisis, and some at risk of defaulting on their sovereign debt.

Certainly, the United States will experience its worst recession in decades. The formerly mainstream notion that the U.S. contraction would be short and shallow—a V-shaped recession with a quick recovery like the ones in 1990–91 and 2001—is out the window. Instead, the U.S. contraction will be U-shaped: long, deep, and lasting about 24 months. It could end up being even longer, an L-shaped, multiyear stagnation, like the one Japan suffered in the 1990s.

http://www.foreignpolicy.com/story/cms.php?story_id=4591

[Mike 03]

1. Agreed. But that highlighted paragraph puzzles me, because I don't know anybody

who believes the "contraction (will) be short and shallow."

[Warpy]

2. He might be referring to the chirpy people on the teevee

who are paid to happy talk the rubes into spending money they don't have for crap they don't need.

As for the overall shape between a "U" and an "L," it all depends on how long it takes them to address the demand side. This isn't Japan in the 1990s. This is the USA, where the demand side has been strangled for the past 40 years while the industry that used to support it was exported.

[Mike 03]

6. True, you are right. Especially some of those idiots on CNBC. Thanks for reminding me.

Since I switched over the Bloomberg, I hardly ever hear those morons anymore.

[unlawflcombatnt]

12. It could take over 10 years to come all the way back,

like in the Great Depression.

It took 11 years for GDP to return to its 1929 levels, and that's not adjusted for inflation. Below is a graphic showing GDP from 1929 to 1938.



There's nothing on the horizon that will bring our economy out of the Depression we are entering, unless we place Tariffs on foreign imports, and re-gain the aggregate demand lost to imports from our -$700 billion trade deficit.

[CoffeeCat]

24. I'm so tired of the hot chicks on...

...CNBC and MSNBC telling us that, "Like...ohmygosh...it's like, such a great time to BUY!"

They're actually selling the notion that the worst is behind us and that we should be buying
more stock, more things and borrowing more money.

It's like....so awesome!!

:eyes:

[Common Sense Party]

28. Then there's the hot chick Warren Buffett.

I don't think the worst is behind us, but I believe it is a great time to buy good companies, and will be so for a while.

Borrowing more money? I don't think so.

[blue_onyx]

3. Of course the recession will last at least 24 months

It's already been 12 months since the national recession started (although it wasn't acknowledged until the end of 2008) and it's still getting worse. It will be a while before things get better.

[Citizen Number 9]

4. What will it look like when it "gets better"?

Will we return to our credit addiction and overconsumption?

[rhett o rick]

7. "Gets better" is a huge assumption. In the past we could get better because we

had a great workforce, loads of natural resources, and American corporations. Today we have none of that. Our workforce can be replaced with cheaper workers in most areas. Our natural resources are diminishing, and many corporations are now international and have little ties to America.

There is no reason i can see that will keep us from becoming a third world country.

[truedelphi]

9. I wish I could think of a dozen reasons to explain how your thoughts are

Baloney or worse, but I cannot even think of one.

The people in this country will remember these days as being the good times, maybe the end of the good times, but today is much better than what is to come. The food is on the table (in most households) stores still are selling bread and meat and twenty types of condiments.

I fear for this country of mine.

[Citizen Number 9]

11. Do you know what a "Third World Country" is?

We have one of the highest standards of living in the world.

[unlawflcombatnt]

13. Yes

And that's right where we're heading, just like "rhett o rick" said.

[Citizen Number 9]

14. I'm almost afraid to ask

who's going to come live in all our 3000 SF homes, drive our many vehicles and play baseball on all our sports fields.

[DemReadingDU]

19. Who knows? People are not going to have much cash

So prices will need to come down, or all those homes and vehicles will fall into disarray from lack of maintenance.

[Citizen Number 9]

22. Do you mean they are going to have to

earn their money again by...working?

[DemReadingDU]

23. yeh, at less salary

:(

Try to watch the Martenson Crash Course videos that I posted below
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=53179&mesg_id=53226


Martenson gives the best all-around perspective of all things facing us in the economy, energy, environment. Plus more. And excellent charts and graphs too.

[rhett o rick]

25. Do you even know what hyper inflation is? Our government just got thru

printing a trillion dollars and gave it to the banks. What this does is devalue our existing money. It won't happen immediately but sooner than later that one trillion dollars is going to be competing with your dollars driving the prices up. It has absolutely nothing to do with "earning" money. You will still get the same pay but the price of bread will go up to $20 or $50 a loaf. Inflation is the nastiest way to tax.

[rhett o rick]

26. And I find you implication that people are not working as a choice to be terribly naive and

insulting. I know college graduates that can not find jobs. And the pay at McDonalds isn't a living wage. I dare say that your comment sounds like something Butthead O'Reilly or Shithead Hannity would say.

[Citizen Number 9]

30. I'm not fascinated by the talking heads.

I draw my own conclusions. Don't need to have people make them for me.

People have forgotten what work is. Get them an Internet connection on their desk and they think surfing allaboutparishilton.com qualifies as work.

Maybe what you mean to say is that jobs are more competitive now. That's like getting admission to an Ivy League School. It's more competitive. Woe to the students who can't get admitted.


Some college graduates ARE finding jobs, and good ones. While the numbers may be different, my graduating class was similar. Some of us were immediately offered jobs. Others spent money they didn't have traveling. Others went home to Mom.

One young (obviously) fellow that was part of my circle of friends took a writing job on the lowest rung of a newspaper. Minimum wage, no bennies. Several people, (including some of those who went home to Mom) called him a tool for taking such a job. Of course, he's a major journalist now.

What's naive is putting your rationalization regarding McDonalds jobs and "People are not working as a choice" in the same post.

[rhett o rick]

32. Me naive? An you the one that thinks the cure for unemployment is to "get a job".

Tell me the truth. Are you a republican? You sure sound like it. I bet your income is in the six digits.

You must be living under a rock not to see the numbers of unemployed. And those that get jobs are finding they are temps with little or no benefits. Even Boeing machinists have sold out their brothers. They sign contracts that give the new machinists wages that are only slightly higher than the min wage. And that's not enough to support a family. And then Boeing "lays off" the older employees that are making a decent wage in favor of the new employees that earn peanuts.

The numbers showing up a food banks is out of site and so is the number living in tents. These people aren't playing on the internet.

We are in the second Great Republican Depression and your in denial.

[Citizen Number 9]

34. Actually, that's your assumption, not what I have asserted

I've been a Democrat all my life. I have a large number of friends and associates for which the same is true. We probably all have 6 figure incomes or greater, but that doesn't make any of us Republicans. That is a constraint you must labor under. I suspect it helps you support your beliefs.

It's very likely that I am much more aware of the realities of the economy than you are. I make jobs.

If you are a high earner who can't move to another similar wage, then I would say that is proof positive that your previous high wage was "unsustainable". No one "owes" you a job your entire life. If you don't like the ups and downs of being an employee, i would recommend making yourself more valuable or go out and start your own business so you have more control over your future earnings.

The great majority of workers are still employed and productive. Thanks for the "explanation", but I have relatives who earn high wages at Boeing. When their production line slows, the company looks for another place to reassign them because they are valuable to the company.

The reason we have a downturn right now is that credit has been curtailed. There will be an adjustment period.

Are you looking for someone to blame?

[rhett o rick]

16. Recent events have proven how fast our standard of living can crash. How many trillions of dollars

can our economy bleed? Where will all the money come from? The middle class. China is using their advantage in the balance of trade to literally buy up America. I think our current "high standard of living" is a mirage. When the piper comes to get paid, I see only one way and that is hyperinflation. You can still live in your 3000 sq ft house, you just won't be able to afford food. The current trends are seeing manufacturing jobs leaving this country fast. We can not survive selling stock back and forth to each other or sell hamburgers to each other. Wealth come mostly from manufacturing. We are losing or have lost our technological edge. IMHO it was just a matter of time until our high standard of living evened out with the rest of the world.

I see nothing to get this country back on top. All empires die. Read "The End of America".

[DemReadingDU]

20. Martenson Crash Course videos are excellent

The Crash Course, What is it?
The Crash Course seeks to provide you with a baseline understanding of the economy, energy, environment so that you can better appreciate the risks that we all face. This is a series of 20 video chapters, each video is between 3 and 18 minutes in length, meaning that all 20 chapters should take about 3 hours, but they need not be watched all at the same time. Try an hour a day for 3 days.
http://www.chrismartenson.com/crashcourse


About Chris Martenson, PhD.
Executive summary: Father of three young children; author; obsessive financial observer; trained as a scientist; experienced in business; has made profound changes in his lifestyle because of what he sees coming.
In his bio, Martenson goes into detail how he arrived at his conclusions and opinions, and why he's dedicated to communicating them via this excellent series of videos and additional articles.
Please click the link to read the rest of his bio...
http://www.chrismartenson.com/about


P.S.
Martenson has developed a great website that is full of additional helpful information. Browse thru the public resources page...
http://www.chrismartenson.com/resource-listings

There is some great information in the Essential Articles section. Everything is organized by subject category.
http://www.chrismartenson.com/EssentialArticles


home page link
http://www.chrismartenson.com /

[2Design]

21. agreed n/y

[GliderGuider]

5. Hallelujah, Roubini may finally be getting it.

In the November article "From Despair to Hope" I slagged off Roubini along with Krugman as being out of touch with the true severity of the unfolding crisis:

Nobel laureate economist Paul Krugman doesn't get it. Not even Nouriel Roubini, the doomer's doomer of economists, truly comprehends what's about to happen to the global economy.

Even in the midst of financial collapse, the economic discussion utterly fails to take into account the effects of the rapidly worsening global energy situation (aka Peak Oil) and the consequences that the draining of the financial capital pool will have for our ability to bring oil alternatives on-line in time.

Then there's the global food situation that is being exacerbated by climate change (which is causing worsening droughts and floods), the rising cost of fertilizer and the depletion of irrigation water.

All these factors will work together over the next two to five years, and the interaction has the potential of creating a level of global distress that is an order of magnitude worse than a simple recession, no matter whether it looks like a V, a U, a W or an L. I don't think we're going to see significant inflation, and that scares the crap out of me. Instead, I'm convinced we're going to see a massive global deflationary event, starting with a debt shock within the next two years and spiraling into a deflationary depression as debt and credit (the modern electronic version of money) evaporates.

What I've read over the last four years has led me to the conclusion that by the end of 2010 we'll probably be in the first year of a global depression, one that could last several decades due to worsening energy shortages and the rising relative cost of raw materials. In fact it's entirely possible that the situation by 2020 could be the new normal -- the words "recession" and "depression" imply recovery, which in my opinion is not at all guaranteed in this situation.

It looks like Roubini and Krugman ("Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression")are both waking up to the true state of affairs.

In retrospect, even I didn't realize how fast it was all unfolding. We'll definitely be into a depression before this year is out, never mind 2010. Is it possible to be pessimistic enough these days?

[Danascot]

8. I'm generally a fan of Dr. Doom

but there's one thing I disagree with:

"Unless governments move with more alacrity to recapitalize banks and other financial institutions, the credit crunch will become even more severe. Losses will mount faster than companies can replenish their balance sheets."

These are the guys who got us into all this. Instead of being bailed out they should be fired, the banks allowed to fail, any assets sold off, creditors paid off and the shareholders get whatever is left. Depositors should be made whole, loans transferred to healthy banks. In some cases, failing banks could be taken over by banks in sounder financial condition. ... alternatively they could be nationalized for a few years until things settle down. But recapitalize these bums? No thanks.

[truedelphi]

10. Is Dr Doom the guy on Charlie Rose who made rose go "thud"?

When he said that it would be worse than Roubini??

[DemReadingDU]

18. Dr Doom is Roubini, n/t

[truedelphi]

27. I was thinking about Nassim Taleb (Or maybe it's Taleb Nassim)

He has this interesting theory called the "Balck Swan" theory. Have you heard about it??

[DemReadingDU]

29. Ah yes. Could be. Apparently there are many Dr Dooms

1/8/09 Another Dr. Doom: Peter Schiff
Thus Peter Schiff appears to have indeed laid claim to the alias Dr. Doom, in addition to Nouriel Roubini, Marc Faber, Stephen Roach, and Henry Kaufman.

more...
http://seekingalpha.com/article/113832-another-dr-doom-peter-schiff


Nassim Nicholas Taleb's Home Page
http://www.fooledbyrandomness.com/

[truedelphi]

31. Thanks for those links. n/t

[DemReadingDU]

33. more doomers

ilargi and stoneleigh at the Automatic Earth have the best perspective to foresee the impending doom, and how to prepare
http://theautomaticearth.blogspot.com/

On the upper right section, are some primers that stoneleigh has written. Very excellent reading.


Also try to watch the excellent Martenson Crash Course videos that I mentioned elsewhere in this thread
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=53179&mesg_id=53226

[unlawflcombatnt]

15. I agree

We should let the bad banks fail. The bailouts are doing nothing but keeping rich bankers and investors from suffering the losses they deserve.

Instead, the Treasury and Fed are forcing taxpayers to pay for bank and investment broker chicanery.

[.... callchet ....]

17. " T=m+f " by un-credentialed political economist callchet.

The overall equation still balances out. " T=m+f " Where T = total wealth of the world. m = total wealth of the many, f = total wealth of the few.

The equation by definition is balanced. The problem ( only because some people suffer ) is that the components of one side are not equal . What does

it take to quit dancing around this equation that is balanced, and look at one side that is made up of inequalities.