Looming economic collapse

[Mountweazel]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.

Supporting evidence: http://money.cnn.com/2010/08/11/news/economy/economic_collapse_GDP_unemployment.fortune/

Please discuss.

[Twiler]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.

Supporting evidence: http://money.cnn.com/2010/08/11/news/economy/economic_collapse_GDP_unemployment.fortune/

Please discuss.

How much of that article do you agree with?

[paximperium]

What would you like to discuss?

[timhau]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.


Again? I thought it already happened in 2008 and 2009.

Doom peddlers are a dime a dozen. What's usually common among them is that they can cite correct predictions they've made in the past (the crash of 1987, the dot-com bubble, etc. etc.), yet curiously, they are not super-wealthy the way you'd expect reliably accurate market predictors to be. (My personal favorite is Robert Prechter, who foresaw everything yet managed to dispense trading advise that would have resulted in losing over 98% of the invested capital (http://www.erictyson.com/articles/20090616) in a 15-year period when the Wilshire 5000 index (http://en.wikipedia.org/wiki/Wilshire_5000) returned +850% and change.)

[Denver]

From the article:

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm..

The author, Keith R. McCullough is CEO of Hedgeye, which according to their web site, sells subscriptions for risk management advice.

And so, while I don't feel particularly qualified to comment on the meat of the article, it does concern me that there could be a conflict of interest in writing on risk issues in the economy, when you are selling products that address risk issues in the economy.

[Mountweazel]

How much of that article do you agree with?

None of it, I hope. As someone who is trying to build wealth, keep my job, and considering buying a house in the near future, the current state of the economy has me concerned. I try to stay informed, read a lot, and think through things on my own. However, the end result is that I have only become more confused with regards to the economy.

For example, I have listened to a lot of Alex Jones and the people he has on like Gerald Celente. In fact, the CT stuff is eventually what brought me here, which I'm grateful for. Clearly those guys have a product to sell, which is doom. Celente has been predicting collapse for like 15 years or something so I suppose you can just disregard everything he has to say on the subject.

What's more troubling than those guys however is something like the recent article Krugman wrote about his concern that we're on the edge of the next great depression. Here's a guy who won the Nobel prize in econ and he practically sounds like Celente. A little harder to disregard.

Something else which throws me off is the profusion of different takes on the subject from various 'experts'. Any day of the week you can check the op-ed pages of NY times, WSJ or whatever and find someone recommending austerity, someone else recommending increased govt spending, etc. Skeptics understand that you can't be an expert in everything. Hence when Joe Sixpack states that the WTC towers couldn't have been brought down by fire he is directed to the NIST report explaining the physics behind the collapse. I'm an electrical engineer, not an economist. Where is my NIST report on the economy? Who is the keeper of truth when it comes to explaining the recent financial collpase?

Even on this forum you see lively discussion and the butting of heads and ideas when it comes to economics because its not exactly a hard science. If I'm in my lab and I measure 5 volts on my multimeter, it would be silly for someone to argue with that unless the argument was that my instrument is broken or something. However I believe its possible that you could have lively disagreement between two intelligent, well intentioned people with PhD's in econ on the topic of whether or not the government should extend unemployment benefits. Which one am I to believe? Is economics a science at all, or is it just politics hiding behind numbers?

So, how much of this article do I believe? I don't want to believe any of it. I fear that it may be true. What I know is that the economy is still not doing well, e.g. unemployment is still high, a lot of people I work with have lost or are possibly going to lose their jobs. Japan has apparently been pursuing the same sorts of Keynsian policies that we are now, resulting in 20 years of stagnation.

I just want to get on with my life, work hard and build wealth. At least for now I have a good job, make pretty decent money, and want things to stay that way. I'm not emotionally invested in doom, in fact I would love nothing more than for the economy to 'get fixed' whatever that means exactly.

So, is the doom implied in the title of this article, namely that we will bear witness to an economic collapse this year, totally misguided? More broadly speaking, when it comes to the economy who are we to trust? Politicians? Conspiracy theorists? Nobel prize winners? JREF forum posters? Drkitty?

[ThermionicScott]

Again? I thought it already happened in 2008 and 2009.

Doom peddlers are a dime a dozen. What's usually common among them is that they can cite correct predictions they've made in the past (the crash of 1987, the dot-com bubble, etc. etc.), yet curiously, they are not super-wealthy the way you'd expect reliably accurate market predictors to be. (My personal favorite is Robert Prechter, who foresaw everything yet managed to dispense trading advise that would have resulted in losing over 98% of the invested capital (http://www.erictyson.com/articles/20090616) in a 15-year period when the Wilshire 5000 index (http://en.wikipedia.org/wiki/Wilshire_5000) returned +850% and change.)

This. Every recession is decried by some as the "end of capitalism/economy/world", but people's desire to exchange goods and services for money always wins out in the end. It just hurts a little sometimes.

- Scott

[Puppycow]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.

Supporting evidence: http://money.cnn.com/2010/08/11/news/economy/economic_collapse_GDP_unemployment.fortune/

Please discuss.

Can you offer any specifics? For example, if "economic collapse" is imminent, then you should be able to give a specific number for an economic indicator and a date. For example, unemployment will be greater than X% by date Y. Or, real GDP will be down Z% by next year. Or, the dollar will be down X% vs. gold (or whatever) by 6 months from now.

I find that article utterly unconvincing.

[YouAreDreaming]

I don't doubt that we have hit some hard times but from what I can still see people are still spending like crazy and it looks like we have a chance to still make an honest living.

[Zep]

What economic recession are they referring to? We happen to be motoring along here reasonably well. Then again, we don't listen to doom-peddlers...

[Skeptic Ginger]

I believe about 5 years after the Great Depression the stock market had recovered to pre-depression levels. Everything was pretty much back to normal by the 1940s. (http://en.wikipedia.org/wiki/Great_Depression) (That is if you consider a state of war to be normal. ;) )

When there is 10% unemployment, look around you, 90% of the country is still employed and buying stuff.

My house is paid off, business is booming, my son is doing fine in college, no loans yet. Perhaps my view of things is not typical, but I think the news media is the biggest problem. They make money selling the news if the outlook is sensationally gloomy and the masses seem somewhat suggestible.


Oh look, the guy who wrote the opinion piece is the CEO of a company peddling a related product (http://www.hedgeye.com/about/individuals/pages/1-about_the_company). :rolleyes:

Hedgeye Risk Management is a premier on-line financial media company and a leading independent provider of real-time investmentresearch Focused exclusively on generating and delivering actionable investment ideas, the firm combines quantitative, bottoms-up and macro analysis with an emphasis on timing. The Hedgeye team features some of the world’s most regarded research analysts – united around a vision of independent, un-compromised real-time investment research as a service.

[Malerin]

:rolleyes:I believe about 5 years after the Great Depression the stock market had recovered to pre-depression levels. Everything was pretty much back to normal by the 1940s. (http://en.wikipedia.org/wiki/Great_Depression) (That is if you consider a state of war to be normal. ;) )

When there is 10% unemployment, look around you, 90% of the country is still employed and buying stuff.

During the Great Depression, 75% of the country was employed and buying stuff.

The unemployment rate is misleading. The underemployment rate is more telling. 16.5%.

[ThermionicScott]

I just invested more money in my Vanguard account. Keep me posted on how the whole "being scared" thing works out for you doom-and-gloomers. ;)

- Scott

[jimtron]

This has me wondering--what would a real looming economic collapse look like? Or would it happen overnight?

[kuroyume0161]

When there is 10% unemployment, look around you, 90% of the country is still employed and buying stuff.

I take offense to this!!!

10% of, let's say 200 million people, is 20 million people you are shucking off as irrelevant. That's rather heartless.

Sorry. Out of the people that I know (friends, family, acquaintances), most are hurting, some desperately. Only a few are not noticing the impact of this horrid economy. Prices are ridiculous and income is sparse. Not a good outlook for continued 'spending'. Spending is going to dry up once what is left of our incomes, if we have any, has evaporated paying bills and necessities.

And this unemployment figure doesn't include the underemployed (and that doesn't mean taking a 25% pay cut - sometimes it means taking a 95% pay cut), those who were not in the system (home business, self-employed, online business, etc. and so on). I'd put the under-un-and-unrecognized percentage at more like 15-20% (which is nearing 40 million human beings (and their wives, partners, children) that you don't care about).

Empathy? No wonder the world sucks balls.

[jayh]

I take offense to this!!!

10% of, let's say 200 million people, is 20 million people you are shucking off as irrelevant. That's rather heartless.
.....

There is always some level of unemployment, but it's not always the same people. It's part of the normal work cycle. Aside from the chronically unemployed (which has nothing to do with the economy) people move on.

[Mister Agenda]

Right, that's 10% unemployed right now, it will be a largely different group of unemployed folks in six months. It's tough to be out-of-work (I was unemployed for three months once, living in a one-bedroom trailer with Ramen making up a major part of my diet), but for most people it is not a long-term state of affairs.

[kuroyume0161]

There is always some level of unemployment, but it's not always the same people. It's part of the normal work cycle. Aside from the chronically unemployed (which has nothing to do with the economy) people move on.

Except that this is a high level of unemployment and the numbers hide those who have dropped off over the past couple of years or aren't part of the normal employment/unemployment system/accounting. This drop-out in 2008 hit small businesses the hardest - by the millions (including me, friends, family, relations). There are strip malls and supermarkets that are abandoned. In my entire life I've never seen so many businesses going away and empty buildings sitting for years empty (even when Rizzo ********** Philly in the 1970s it wasn't as bad). Of course, people still work and business goes on but the overall picture isn't rosy or pretty.

The estimate for finding employment, especially if you haven't been working long or for a while, is 30 months. That's nearly three years! I'm passing the 5 month point seeking employment and I'm no 'welcome, would you like fries with that' level of experience, skill, and intelligence. Where do you expect me to get money after what I have is gone? Printer? Bank with a mask? I'm too old to run around doing menial work for 20-somethings for menial pay. I'd rather die than humble myself like that for my many years of suffering and then hard, long, excessive work building a business. Welcome, I (and many, many others) deserve a break today (and tomorrow and the next 50 years) from being screwed by the rich mothers.

[Vic Vega]

Something else which throws me off is the profusion of different takes on the subject from various 'experts'. Any day of the week you can check the op-ed pages of NY times, WSJ or whatever and find someone recommending austerity, someone else recommending increased govt spending, etc. Skeptics understand that you can't be an expert in everything. Hence when Joe Sixpack states that the WTC towers couldn't have been brought down by fire he is directed to the NIST report explaining the physics behind the collapse. I'm an electrical engineer, not an economist. Where is my NIST report on the economy? Who is the keeper of truth when it comes to explaining the recent financial collpase?


Your post describes one of the things about the information age that I find most interesting. I call it the "I don't know and you don't either" syndrome.

Any day, on any subject from terrorism, to the economy, to the gulf oil spill, to global warming, to any number of topics, one can find opinions from truly qualified experts that are 180 degree opposites of each other. These opinions are all valid due to the expertise that went into formulating them even if some of them will end up being wrong. How is a lay person supposed to determine what is most likely to occur or what the end result of a major event is going to be?

The answer is that it is impossible. Ultimately, we all believe what we want to believe based on our own experiences, politics, and world view. I can tell you one thing for certain. I don't waste one second of my life worrying about something like the gloom and doom written about in the linked article. Why? Because I have no way of knowing whether what the author claims is likely or unlikely. If I'm going to waste my time on something, I'd rather have it be something enjoyable.

[The Central Scrutinizer]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.

Supporting evidence: http://money.cnn.com/2010/08/11/news/economy/economic_collapse_GDP_unemployment.fortune/

Please discuss.

Others disagree:

"Our country's future prosperity depends on an efficient and well-maintained rail system," said Buffett. "Conversely, America must grow and prosper for railroads to do well. Berkshire's $US 34 billion investment in BNSF is a huge bet on that company, CEO Mr Matt Rose and his team, and the rail industry. But, most important of all, it's an all-in wager on the economic future of the United States. I love these bets."

[drkitten]

Your post describes one of the things about the information age that I find most interesting. I call it the "I don't know and you don't either" syndrome.

Any day, on any subject from terrorism, to the economy, to the gulf oil spill, to global warming, to any number of topics, one can find opinions from truly qualified experts that are 180 degree opposites of each other. These opinions are all valid due to the expertise that went into formulating them even if some of them will end up being wrong. How is a lay person supposed to determine what is most likely to occur or what the end result of a major event is going to be?

The answer is that it is impossible.

Hogwash. I assume this also means that you buy everything advertised on late-night infomercials, because it's "impossible" to tell whether or not these hucksters are selling junk to gullible people in an attempt to make a quick buck?

Lying snake-oil salesmen are not a product of the information age. If you can't see the similarity between Dr. Magnifico's Marvelous Elixir and Hedgeye's Marvelous Risk Management Advice, look more closely.

[Vic Vega]

Hogwash. I assume this also means that you buy everything advertised on late-night infomercials, because it's "impossible" to tell whether or not these hucksters are selling junk to gullible people in an attempt to make a quick buck?

Lying snake-oil salesmen are not a product of the information age. If you can't see the similarity between Dr. Magnifico's Marvelous Elixir and Hedgeye's Marvelous Risk Management Advice, look more closely.


Apparently you were so eager to type "Hogwash" that you couldn't be bothered to read my post. I made it perfectly clear that I was talking about differing opinions by genuine experts on a particular subject.

Do you have a relevant comment to make or is this all you've got?

[drkitten]

Apparently you were so eager to type "Hogwash" that you couldn't be bothered to read my post. I made it perfectly clear that I was talking about differing opinions by genuine experts on a particular subject.

Do you have a relevant comment to make or is this all you've got?

Yes. I was commenting, relevantly, that your ability to spot "genuine experts" seems weak. Your ability to recognize that qualifications don't mean freedom from bias also seems weak.

E.g., "one can find opinions from truly qualified experts that are 180 degree opposites of each other. These opinions are all valid."

Having expertise is only one aspect of having a valid opinion. And in many cases it's the least relevant, because it's so easy to scrape a "qualified expert" off the bottom of someone's shoe if needed.

[Vic Vega]

Your ability to recognize that qualifications don't mean freedom from bias also seems weak.

My post addresses this, but since you didn't read it carefully or didn't understand it, I'm not surprised by this comment.

Yes. I was commenting, relevantly, that your ability to spot "genuine experts" seems weak. Your ability to recognize that qualifications don't mean freedom from bias also seems weak.

Fail.

Please show me a single thing in my post that would lead you to this conclusion? I haven't named any specific expert or even a specific subject. Unless you're a mind reader or you know this about me for some other reason, of course. You certainly couldn't determine this from what I actually wrote.

Maybe someone who is not a pedant with poor reading comprehension will have something interesting to add.

[drkitten]

My post addresses this, but since you didn't read it carefully or didn't understand it, I'm not surprised by this comment.

Evidently your own reading comprehension isn't up to the task.

Physician, heal thyself.




Fail.

Please show me a single thing in my post that would lead you to this conclusion?

Already done. Hint : it's the part between quotations marks, representing the fact that it's taken directly from your own post.

[lomiller]

My post addresses this, but since you didn't read it carefully or didn't understand it, I'm not surprised by this comment.



You seem to be missing the point that on this particular issue the genuine experts don’t disagree nearly so much as some “news” outlets would have you believe.

[Vic Vega]

You seem to be missing the point that on this particular issue the genuine experts don’t disagree nearly so much as some “news” outlets would have you believe.

I didn't say anything about about news outlets.

[Vic Vega]

drkitten, is it realy that hard? Apparently so.

Let's pretend for the sake of argument that we both agree that the experts being asked for their opinion are qualified experts.

[Vic Vega]

Evidently your own reading comprehension isn't up to the task.


This is what is in my first post:

"Ultimately, we all believe what we want to believe based on our own experiences, politics, and world view."

[drkitten]

Let's pretend for the sake of argument that we both agree that the experts being asked for their opinion are qualified experts.

I see no reason to engage in counterfactual pretence for the sake of soothing your ego.

[stilicho]

So, is the doom implied in the title of this article, namely that we will bear witness to an economic collapse this year, totally misguided? More broadly speaking, when it comes to the economy who are we to trust? Politicians? Conspiracy theorists? Nobel prize winners? JREF forum posters? Drkitty?

I'd recommend Nouriel Roubini if you're looking for an educated perspective from a cautious analyst.

[lomiller]

This is what is in my first post:

"Ultimately, we all believe what we want to believe based on our own experiences, politics, and world view."

Yes, and it’s that statement we are disputing. You can always find self proclaimed experts who dispute just about anything it turns into an excuse to believe whatever you want regardless of the facts.

What you need to be able to do is identify who’s a real expert and who is not. Sometimes experts mostly agree other times they don’t but you will never know unless you have some tools to figure out who is really an expert and who is spouting woo. The last thing you should be doing is simply ignoring expert consensus simply because there are people in the mass media who want to push something else.

[kuroyume0161]

From a somewhat recent DailyFinance article that I found Googling Roubini:

However, he's not alone in his recent analysis that foresees a second-half slowdown in U.S. GDP. Other economists are concerned that 10% unemployment makes a long-term recovery unlikely. Still others believe that bank lending is too low for small businesses to get the credit they need for hiring and expansion. Even the nonpartisan Congressional Budget Office doesn't think the 5.7% growth rate is sustainable. It recently said the expansion in the U.S. would remain between 2% and 3% for the balance of the year.
See full article from DailyFinance: http://www.dailyfinance.com/story/nouriel-dr-doom-roubini-now-sees-a-flagging-recovery/19339614/?icid=sphere_copyright

Sorry. The 'this is typical' stance is blind, naive, and counters facts and the evidence. The evidence is that the economy is flailing. If you need evidence for how frigging long such a thing can go on, just do some research on the so-called Japanese Lost Decade recession after the 80's financial bubble. It is still hurting the Japanese economy today to an extent.

Expect the worst 8 to 12 years of your lives (or hide your head in the sand, skeptics?) ...

[drkitten]

I'd recommend Nouriel Roubini if you're looking for an educated perspective from a cautious analyst.

What's the difference between "a cautious analyst" and "a one-note wingnut"?

One of my rules of thumb for distinguishing a genuine expert from a lunatic scraped off the bottom of someone's shoe is that a genuine expert offers different opinions and makes different recommendation in different circumstances. If a doctor, he doesn't offer the same diagnosis every time. If a music critic, he doesn't passionately hate every concert he's attended. If an economist, he doesn't always predict doom and gloom --- or happy singing flowers and bunnies, for that matter.

I've never read a positive statement about the economic future from Roubini.

[drkitten]

So, is the doom implied in the title of this article, namely that we will bear witness to an economic collapse this year, totally misguided?

That particular doom is almost certainly totally misguided, although I'm inclined to put some of the blame up to a bad headline writer, and part of it up to misquotation on your part.

The "final economic collapse"? "Economic End Times"? Get real.

I've not seen any serious suggestions that this particular blip -- harsh though it may be -- will end up being substantially worse than the Great Depression of the 1930s. And while the Depression sucked (as Grandma kept telling us, over and over and over again, until we finally put enough Jack Daniels in her coffee and she fell asleep), the fact remains that very few people starved, we didn't see mass food riots, Visigoths and Ostragoths didn't sack New York City and Chicago, etc. The United States managed to keep factories running, telephones and telegraphs connected, radio stations on the air, trains running, films in theaters,.... and had enough spare material lying around that it was able to pull His Majesty's bacon out of the fire during the early stages of WWII.

If you want to see what the economic End Times look like,... well, you won't see them from the window of a moving train, and you won't hear about them on commercial radio.

[Emperor_Gestahl]

So, is the doom implied in the title of this article, namely that we will bear witness to an economic collapse this year, totally misguided? More broadly speaking, when it comes to the economy who are we to trust? Politicians? Conspiracy theorists? Nobel prize winners? JREF forum posters? Drkitty?

Given those choices I'd say Drkitt(en)y. If "doom" does start happening he'll acknowledge it pretty quickly I think. He's not trying to sell you anything or get you to do something, nor does he work for someone that is (unless you're a high school senior near his college I suppose).

Really though trying to call timing on any geo-economic event is a fools' game.. The mere fact that anyone with a dollar can bet it on the same possible outcomes means that by the time you're right about something for any valid/supportable reason it will already be a crowded trade. In theory there's only one "truth", so betting money based on that would be a bit too easy wouldn't it?

Like drkitten said we're just guessing if we try and say what a modern "depression" would be like. This isn't the 30s, and technology or other factors could make a prolonged economic contraction a different animal altogether than previous such situations.

Is this all misguided? Well.. There are many valid reasons to be worried about the U.S. economy, even people who consider us to be in a recovery make a point of attaching the word "modest" to it any chance they get.. But even if we "double-dip" or whatever, how bad is that? How much worse than 2008? What if it's exactly 30% worse, what are the implications? Mad Max? Silent Running? 1980s inflation?

This is what happens when you talk about perpetually uncharted territory like economics or geopolitics, half the sentences in your paragraphs end in question marks and in the end none of it is going to make you any money.

(Edit: If you're really just worried about "losing everything" you can hold a bunch of cash/treasuries with some unhedged gold mining companies or buy a ton of junk silver or something as a counterbalance in case of eventual inflation. Then forget you even did any of that because you will be bored to death for the foreseeable future if you pay attention to those investments in any way.)

(Edit 2: This is because the unforeseeable future is your big concern. But really not losing quite so bad sometimes = winning, take miners in 2008/2009 for example. I made some small-time profit by simply holding miners all the way down the drain, then when they bottomed first I had the intervening time as nothing but easy buying opportunities for things that had been hit even harder even later and hadn't even begun their recovery yet unlike the recently-pwned prices of the gold/miners.)

[Modified]

:rolleyes:

During the Great Depression, 75% of the country was employed and buying stuff.

The unemployment rate is misleading. The underemployment rate is more telling. 16.5%.

During the great depression, most families had only one wage earner. 25% unemployment then would be far more devastating than it would be now.

[ThermionicScott]

(Edit: If you're really just worried about "losing everything" you can hold a bunch of cash/treasuries with some unhedged gold mining companies or buy a ton of junk silver or something as a counterbalance in case of eventual inflation. Then forget you even did any of that because you will be bored to death for the foreseeable future if you pay attention to those investments in any way.)

What do you guys think of things like Harry Browne's "Permanent Portfolio"?

25% US stocks
25% US treasuries
25% cash/money market
25% precious metals (chiefly gold)

It's reasoned that the stocks are for prosperous times, the treasuries for prosperous or deflationary times, cash for flexibility, and gold as a hedge against inflation: http://www.getrichslowly.org/blog/2009/04/20/fail-safe-investing-harry-brownes-permanent-portfolio/

- Scott

[Emperor_Gestahl]

25% US stocks
25% US treasuries
25% cash/money market
25% precious metals (chiefly gold)


Keep in mind that "treasuries" and "cash" are allies.. If you're going to ally stocks and precious metals do so fully, include silver equally to gold as it is both industrial like equities but has intrinsic value like gold.

[ThermionicScott]

Keep in mind that "treasuries" and "cash" are allies.. If you're going to ally stocks and precious metals do so fully, include silver equally to gold as it is both industrial like equities but has intrinsic value like gold.

Yeah, I think the distinction is that the cash/MM earns less than the (long-term) treasuries, but is more liquid. At least on paper, the PP sounds like a good plan to protect against loss and beat inflation.

- Scott

[Emperor_Gestahl]

Yeah, I think the distinction is that the cash/MM earns less than the (long-term) treasuries, but is more liquid. At least on paper, the PP sounds like a good plan to protect against loss and beat inflation.

- Scott

Don't buy long-term treasuries that's just silly and over-predictive. Pick up cash and short-term treasuries then hedge that with gold and silver, it'll be a safe yet probably boring/lame thing IMO. As long as you have a solid plan for how to put a bunch of U.S. dollars in your hand if you NEED TO, and have something else if not then you're good.

[Emperor_Gestahl]

I'd say go 1/3 stocks 1/3 gold 1/3 silver for 50% if you're trying to cover all bases.. For half your position. Then cash and shorter treasuries for the other part. Prepare for boredom though it is incoming.

Remember the key is to be ready to beat inflation but have quick access to $USD if deflation emerges.

[The Central Scrutinizer]

What do you guys think of things like Harry Browne's "Permanent Portfolio"?

25% US stocks
25% US treasuries
25% cash/money market
25% precious metals (chiefly gold)

It's reasoned that the stocks are for prosperous times, the treasuries for prosperous or deflationary times, cash for flexibility, and gold as a hedge against inflation: http://www.getrichslowly.org/blog/2009/04/20/fail-safe-investing-harry-brownes-permanent-portfolio/

- Scott

I think it's stupid.

[drkitten]

I think it's stupid.

I'm afraid I have to agree. It's stupid.

The first two planks aren't bad; mixing your investment about equally between debt and equities is basic investment 101 advice. I tend to go more heavily into equities, but that's because I'm still fairly young and consider poverty to suck; if you're close to retirement and more worried about capital preservation, go with more debt. I also think that treasury debt is probably a worse choice than private debt unless you are playing silly tax games -- which, if you're taking investment advice from a web forum, you shouldn't be.

Keeping a fixed percentage of your money in cash or cash equivalent is stupid. Keep as much cash as you need; no more, no less. Cash is a lousy investment, and you get just as much safety from the treasury bills and better return.

And 25% in gold? That goes beyond stupid to "conspiracy-tard." I don't know where this idea that gold is an inflation hedge originated,.... but it's not. Just look at the numbers since 1970. It's also not a good store of value; it's way too volatile. And of course buying gold now, at the peak of one of the largest bubbles in gold's history, is a classic sign you don't know what you're doing.

But even aside from that, this particular portfolio is way too heavily weighted towards "Mad Max" avoidance, and it doesn't even do that particularly well. In anything short of a full-out Thunderdome scenario, treasuries are just as safe and give better (i.e. any) returns. And who's going to buy gold in Thunderdome? If you're worried about that, buy ammo and bottled water -- and you can trade the water for as much gold as you like when people learn that gold is notorious for its lack of thirst-quenching ability.

If you're worried about inflation, buy TIPS. If you're worried about deflation, buy conventional bonds. If you want to assure growth, buy equities.

[lomiller]

But it’s gold, it always retains it’s value, of course you have to take it in exchange for the last of your food!

[drkitten]

But it’s gold, it always retains it’s value,

Except, of course, it doesn't. Gold is one of the more volatile investments out there. The S&P 500 has a "volatility" (standard deviation of annual return) of about 16%; the DJIA has a similar number. Bond indicies are something about 10%, IIRC. Commodities generally are about 20%.

Gold, by contrast, varies by something like 40%.

[timhau]

And 25% in gold? That goes beyond stupid to "conspiracy-tard." I don't know where this idea that gold is an inflation hedge originated,.... but it's not. Just look at the numbers since 1970. It's also not a good store of value; it's way too volatile. And of course buying gold now, at the peak of one of the largest bubbles in gold's history, is a classic sign you don't know what you're doing.

I'll add one thing: Bying gold is not investing, but speculation. There's no way to judge whether it's over- or undervalued at any given time. Because its industrial use is minor, the price of gold is based solely on the popularity of owning gold. Buying stocks during a stock-market bubble is never a good idea, but if you do that you may still break even in the long haul -- if you picked a good company it may grow into the bubble valuation, and if they pay a dividend, you'll inch closer to being even after each distribution. But buy gold at the height of a gold bubble, and you'll never break even.

[drkitten]

I'll add one thing: Bying gold is not investing, but speculation. There's no way to judge whether it's over- or undervalued at any given time. Because its industrial use is minor, the price of gold is based solely on the popularity of owning gold. Buying stocks during a stock-market bubble is never a good idea, but if you do that you may still break even in the long haul -- if you picked a good company it may grow into the bubble valuation, and if they pay a dividend, you'll inch closer to being even after each distribution. But buy gold at the height of a gold bubble, and you'll never break even.

And to bring the discussion back to the questions of which experts to trust, a simple glance at Harry Browne's web site (http://www.harrybrowne.org/about.htm) shows him to be a classic snake-oil salesman who's trying to push his particular political and economic theories on you in order to sell you his investment advice.

[lomiller]

Except, of course, it doesn't. Gold is one of the more volatile investments out there. The S&P 500 has a "volatility" (standard deviation of annual return) of about 16%; the DJIA has a similar number. Bond indicies are something about 10%, IIRC. Commodities generally are about 20%.

Gold, by contrast, varies by something like 40%.

I agree but I still think my example of gold not holding it’s value was funnier.

[timhau]

It may lose value, but it'll never, ever lose its shine. Just go to Cairo, take a look at Tutankhamon's burial mask and tell me you don't want to take it home with you.

[megaresp]

Thesis statement: These are the economic End Times...(money.cnn.com)...Please discuss.

Looks to me like CNN is attempting to up its share of eyeballs (i.e. saps they can show ads to) by running scary stories.

[lomiller]

Apparently we about the have the “Greatest Depression”

http://finance.yahoo.com/tech-ticker/and-now-we're-headed-for-the-greatest-depression-says-gerald-celente-535350.html?tickers=%5Edji,%5Egspc,tlt,tbt,edv,udn ,tip&sec=topStories&pos=6&asset=&ccode=



:lol:

[Corsair 115]

In anything short of a full-out Thunderdome scenario, treasuries are just as safe and give better (i.e. any) returns.


Two investors enter! One investor leaves!

[Chaos]

It may lose value, but it'll never, ever lose its shine. Just go to Cairo, take a look at Tutankhamon's burial mask and tell me you don't want to take it home with you.

For its beauty, yes.

But for its value, you´re better off selling it and buying stocks and bonds instead.

[Juniversal]

Apparently we about the have the “Greatest Depression”

http://finance.yahoo.com/tech-ticker/and-now-we're-headed-for-the-greatest-depression-says-gerald-celente-535350.html?tickers=%5Edji,%5Egspc,tlt,tbt,edv,udn ,tip&sec=topStories&pos=6&asset=&ccode=



:lol:2012!!! The end times are amongst us. :boxedin:

[dudalb]

Apparently we about the have the “Greatest Depression”

http://finance.yahoo.com/tech-ticker/and-now-we're-headed-for-the-greatest-depression-says-gerald-celente-535350.html?tickers=%5Edji,%5Egspc,tlt,tbt,edv,udn ,tip&sec=topStories&pos=6&asset=&ccode=



:lol:

Don't know which is more pathetic: Calente or the Talk Backers.

[dudalb]

And Henry Blodgett,the guy who runs the above Yahoo page, sounds like a guy you can trust:
http://en.wikipedia.org/wiki/Henry_Blodget

Always go to people who plead guilty to fraud for finiancial advice.

[Mountweazel]

So drkitten (and whoever else want to weigh in) what do you think about real estate?

Specifically, I live in Southern California, make pretty decent money in a relatively stable industry, have some student loans to pay off but otherwise no debt and am thinking about buying a house - after all prices are cheap and interest rates are low. This would be my first house and furthermore I'm a veteran so I would qualify for the VA loan which I hear is pretty sweet.

My plan for the house is to maybe get a 3 bedroom, live in 1 room and rent out the other 2 (I'm not married so it would be workable). That way I could live pretty cheap and have other people pay my mortgage while I pay off my student loans and build up my savings. In the end I will have money in the bank, no debt (except for my mortgage which won't be a problem as long as the housing market comes back/I'm not underwater) and a house. Seems like a win-win-win. What do you think?

The only problems I see with this plan are a Mad Max type scenario/major collapse of the economy/deflation/prolonged collapse in the housing market/etc. - all of which are as far as I know unprecedented and which don't seem to have much credence on this forum. Otherwise, if the world continues to follow the same trajectory it seems to have up until this point, I think my plan is relatively solid.

Of course I won't try and stick the JREF forum with the mortgage payments in case it doesn't work out but what do y'all think?

[The Central Scrutinizer]

So drkitten (and whoever else want to weigh in) what do you think about real estate?

I'm in favor of it.

[ThermionicScott]

So drkitten (and whoever else want to weigh in) what do you think about real estate?
I'm in favor of it.

It has a certain tangibility that imaginary estate lacks. :D

- Scott

[timhau]

The only problems I see with this plan are a Mad Max type scenario/major collapse of the economy/deflation/prolonged collapse in the housing market/etc. - all of which are as far as I know unprecedented and which don't seem to have much credence on this forum. Otherwise, if the world continues to follow the same trajectory it seems to have up until this point, I think my plan is relatively solid.

I'm no expert, but I think one of the problems with Mad Max scenarios is that nobody really knows how to prepare for them. Guns, ammo, and canned food, sure, but you'll eventually run out of those (as well as water and fuel).

The other problem is that the probability of a Mad Max scenario is really small, and if it doesn't happen, you'll either eat Spam for breakfast, lunch, and dinner for a decade or watch your precious stockpile as it hits its 'best before' date in your basement. The famous investor Peter Lynch has been credited for saying "More money has been lost in preparing for bear markets than in the bear markets themselves"; for apocalyptic scenarios, that difference must be enormous.

[mikehh]

What do you guys think of things like Harry Browne's "Permanent Portfolio"?

25% US stocks
25% US treasuries
25% cash/money market
25% precious metals (chiefly gold)

It's reasoned that the stocks are for prosperous times, the treasuries for prosperous or deflationary times, cash for flexibility, and gold as a hedge against inflation: http://www.getrichslowly.org/blog/2009/04/20/fail-safe-investing-harry-brownes-permanent-portfolio/

- Scott



T-Bills and cash are Very connected and gold will get crushed when rates of t-bills inevitably increase

i would say nix gold for a commodities basket. If you want to stay conservative there is no problem with keeping lots of cash and bonds, if you want to educate yourself and be a more aggressive investor move the cash into the forex market

[drkitten]

So drkitten (and whoever else want to weigh in) what do you think about real estate?

Well, real estate certainly can be a reasonable investment -- unlike gold or lottery tickets or roulette chips or whatever the conspiracy theorists are selling you today.

I tend, however, to steer clear of it for a number of reasons.

* It's hard to diversify, and therefore risky. I'm not sure what would cause my stock holdings in CAT to go down to zero,.... but even in the face of that kind of global disaster, I'd still have my holdings in GOOG, BIG, and CNI to help me through. With real estate, I've got $300,000 tied up in a single building that's one earthquake, landslide, or wildfire away from zero.

* It generates negative money. There's an old Wall Street adage -- "Never invest in anything that eats or needs repairs." That $300k building will take $10k out of my pocket in maintenance and taxes even if I can't rent a foot of it. By contrast, CAT pays me something like 2% a year; GOOG doesn't pay me anything, but I also don't need to pay taxes on it.

* It's not divisible. If I need to come up with $20,000 for major medical bills, I can sell off a few hundred shares of my vast holdings of CAT. It's hard to sell one bedroom of a three-bedroom house.

* It's not liquid. If I need that $20,000, I can have it today -- or at worst by the end of the week. Even in a best-case scenario, it takes a month to get out of real estate, and it can take years. (There was just an article in the NYT about some mansion in Atlanta that had been on the market for 23 years....)

* It's hard to audit. I know quite a bit about the finances of CAT, and there are hundreds if not thousands of analysts happy to dig even deeper into it and tell me what they find. But to learn something about the house on the corner of Hell and Brimstone, I have to pay several hundred dollars to an inspector who still may not find the imp infestation or the unsafe and out-of-code wiring in the back wall.

* It's not transportable. If I get a phone call from Betty Windsor asking me to become Minister of Tea Kettles and Domestic Appliances, I can move to London and take my CAT stock with me. It's hard to pack a three-bedroom house and even harder to find a spot to unpack it.

With that said, you do need to have a place to live, so you're going to have to buy real estate at some point (with all the risks), and your plan doesn't have any superficial and obvious problems (aside from "where are you going to get the renters from?", which is always a problem with rental property). So if you're happy with real estate as part of your investment portfolio, go for it. Prices are good and you can get a lot of leverage, which means you will make lots of money -- or lose lots, but you're young enough and single enough that going broke isn't a real problem.

But I'd stress "part of" your investment portfolio, not all of it. Just as I didn't put everything I owned into CAT, despite the advantage I outlined, you probably still want to make sure you've got something in other investment categories. Just in case you need $20k and don't want to sell off one of your bedrooms.

[Mark6]

Thesis statement: These are the economic End Times. We are going to witness the final economic collapse of the US economy.

Supporting evidence: http://money.cnn.com/2010/08/11/news/economy/economic_collapse_GDP_unemployment.fortune/

Please discuss.
Even if I took it at face value (and for reasons people already explained in this thread, I don't), the answer should be obvious:

Move some place other than US.

[Mountweazel]

Well, real estate certainly can be a reasonable investment -- unlike gold or lottery tickets or roulette chips or whatever the conspiracy theorists are selling...

Thanks for the thoughtful reply! :)

[Mountweazel]

And to bring the discussion back to the questions of which experts to trust, a simple glance at Harry Browne's web site (http://www.harrybrowne.org/about.htm) shows him to be a classic snake-oil salesman who's trying to push his particular political and economic theories on you in order to sell you his investment advice.

Well then let me ask a question about which experts to trust. Take Japan - they've been in a prolonged economic slump for about 20 years. Assuming there is "the right thing to do" to get them out of this situation, and they have access to economic experts to advise them, why have they been unable to get out of it? Have they listened to the wrong experts? Do they for some reason want to maintain a low growth economy? Or maybe its because identifying an expert in a field like economics, which is not exactly a hard science in the way that chemistry or physics are, is rather difficult. If the worlds 2nd largest - oops make that 3rd largest! (Hello China)! - economy has trouble determining which expert advice to follow how is Joe Sixpack supposed to? As I asked in my earlier post, if I want to help a 911 truther to understand the WTC collapse I can direct him to the NIST report or any number of other science based explanations. Where is the layman in economics to turn for trustworthy expert advice on the economy? Or maybe my question is based on a fallacy and no such thing exists - actually I'm pretty sure it doesn't.

I realize there were some answers posted to this question, but it seems like the answer was that the layman needed to do some kind of analysis to tell the difference between a true expert and a snake oil salesman. But if the layman was capable of this level of discrimination then he's not exactly a layman. I think that skeptics understand that not everyone can be an expert in everything. In the case of peer reviewed science then we can say that's ok, just trust things that come from credible science journals and use some critical thinking skills and you'll be ok. Unfortunately, there really doesn't seem to be anything analogous when it comes to the economy.

The reason I think this is so important and I'm gnattering on about it is because our understanding of the economy affects our deepest life choices. Almost nothing matters more to you if you don't have a job or are about to get your house forclosed on. But since most people are layman and don't really know who to trust they end up trusting Sarah Palin or Ron Paul or Paul Krugman or their neighbor or whoever. Sure, Krugman has a Nobel Prize but he's not an infallible source of truth either, and he's so political that a lot of people are going to write him off immediately for his self avowed liberalism regardless of the merits of his arguments. So is our only way to understand the economy to become experts ourselves, and to gain "the right kind of expertise"? What I mean by this is that drkitten disregards Roubini as a 1 note hack. I can see kitten's point, but Roubini is a professor. If you were studying under him are you supposed to just disregard everything he's saying? How would you know what to disregard and what is "true"? And even if someone was able to do this, the vast majority of people are just going to go about their lives in a confused state getting their information from Fox News or whatever. Its simply not practical that everyone is going to personally develop expertise on the economy.

Thoughts?

[drkitten]

Well then let me ask a question about which experts to trust. Take Japan - they've been in a prolonged economic slump for about 20 years. Assuming there is "the right thing to do" to get them out of this situation, and they have access to economic experts to advise them, why have they been unable to get out of it?

Well, do you smoke? If so, is it because you don't have access to the right medical experts to tell you how unhealthy a habit it is, or is it because for whatever reason you can't or don't want to quit? Similarly, most Americans are at least slightly overweight; many are vastly so. That's not because they don't know that excess weight is unhealthy or they've been listening to the wrong experts; indeed, I don't know any "experts" who tell you that weighing 300+ pounds is a good idea.

But the obesity epidemic persists.

Japan is in something of a similar situation; they've tried doing "the right thing" as the experts recommend several times, and each time it ends up getting stopped for political reasons. Really, it's the same reason that the deficit hawks have been winning the stimulus debate recently in the states. Every economist knows they're wrong, but there are more people who aren't economists -- and they vote, too.

The Japanese are also in a rather special situation culturally and politically; they have a much bigger pensioner problem than the Americans have, and inflation is a much greater problem for pensioners and similar people on fixed incomes. (Note, for example, how hard the [US-based] AARP pushed for a "cost-of-living" increase last year despite the fact that costs of living actually decreased over the previous year. Multiply that by several times and you have the Japanese retirement lobby.)


I realize there were some answers posted to this question, but it seems like the answer was that the layman needed to do some kind of analysis to tell the difference between a true expert and a snake oil salesman. But if the layman was capable of this level of discrimination then he's not exactly a layman.

The hell he's not. Laymen aren't idiots. Most of the analysis doesn't involve figuring out who's right or who's wrong, but who's trustworthy and who isn't. You're being asked to do the same sort of analysis of an economist that you do of a mechanic -- or of a late-night TV pitchman. Post #5, for example, specifically points out that the column discussed in the OP is written by a guy hoping to make money off the people he scares. It's a late-night infomercial in print. You don't need to know exactly how he's wrong -- you just need to know that his advice is not unbiased, and discount it appropriately. Henry Blodgett was banned from the securities industry for fraud, and now runs a business information Web site. Again, you don't need to know how he's wrong to know that he's not trustworthy.


But since most people are layman and don't really know who to trust they end up trusting Sarah Palin or Ron Paul or Paul Krugman or their neighbor or whoever.

Well, let's look at them.

Sarah Palin is widely recognized as a total airhead whose multiple lies ("death panels," anyone) are well-documented.

Ron Paul is well-recognized as one of the top members of the Libertarian movement, and a few seconds on Google will illustrate that they're not the sort of group you'd trust with a burnt-out match.

Krugman,....

Sure, Krugman has a Nobel Prize

... and several other major awards in economics; he's a tenured faculty member at one of the top econ departments in the world and a regular columnist at one of the major mainstream newspapers in the world.

I'd trust him more than I'd trust Palin or Paul.

but he's not an infallible source of truth either,

No one said he was "infallible." But if you need to pick between Krugman, Palin, and Paul, there's no choice.

and he's so political that a lot of people are going to write him off immediately for his self avowed liberalism regardless of the merits of his arguments.

All right, let's go a little deeper. Who are the economists who write him off immediately for his self-avowed liberalism?

We've already established that Palin and Paul don't know any economics. So their opinion to write Krugman off is no more valid or authoritative than Paul's support for the gold standard. Show me another major economist -- even better, show me a major group of economists -- who write him off. Just because he's "political" doesn't mean he's wrong. Just because he's "liberal" doesn't mean he's wrong. If you can find a single fact-based criticism of Krugman, we can look at the criticism and see how it adjusts our opinions.

I've given you a fact-based criticism of Palin. She tells lies, and is therefore untrustworthy. Show me a similar criticism of Krugman and I'll stop trusting him.

And even if someone was able to do this, the vast majority of people are just going to go about their lives in a confused state getting their information from Fox News or whatever.

Then people are dumb. They'll also go around smoking and eating too much. You can't force people to think critically if they believe that's too much work. But you also shouldn't pay attention to the opinions of people who can't be bothered to think critically.

[JihadJane]

This. Every recession is decried by some as the "end of capitalism/economy/world", but people's desire to exchange goods and services for money always wins out in the end. It just hurts a little sometimes.

- Scott

Depends how many more wealth-providing holes in the ground there are waiting to be exploited.

For some time, much US wealth has been illusory, with little to do with goods or services , but with making money out of nothing.




What economic recession are they referring to? We happen to be motoring along here reasonably well. Then again, we don't listen to doom-peddlers...

Which planet/country do you live on/in? Is there space for more people there?

[drkitten]

Which planet/country do you live on/in? Is there space for more people there?

Which planet? The real one.

There's lots of space for more people there, but you'd hate it because you'd find that the economic system actually worked and that people considered you a nutbar.

[pgwenthold]

I would add that, you MIGHT be able to find an economist or two, even in tenured positions in Econ departments of a pretty fair university, who will "write off" Krugman, for whatever reason. Then again, you might also find creationists among the science departments, too. In fact, the biggest problem we have is that when there ARE said beasts, they tend to make noises, at least in the media, that go way, way, way beyond their significance in the field.

Economists who mostly agree with Krugman are a dime-a-dozen, and unremarkable in the grand scheme (you have Krugman already, why bother publicizing concurrents?) In contrast, there is the Maverick who Bucks the Party Line, but because he says what certain political advocates want to hear, he gets blasted all over the place as if he has something useful to say.

I've made the same description of the anti-vaxxers. Any time you see some piece on the anti-vax movement, you get the same people showing up to spout the party line - JB Handley, Jenny McCarthy, Jay Gordon, etc. On the side of the vaccines is...a local pediatrician, who they call to comment. Why is that? Because you can find anyone to provide the consensus, but there are just a few who are able/willing to stick their neck out and try to buck it. It's not because they are exceptionally brave or insightful, but because hardly anyone agrees with them.

[drkitten]

I would add that, you MIGHT be able to find an economist or two, even in tenured positions in Econ departments of a pretty fair university, who will "write off" Krugman, for whatever reason.

Oh, I'm sure you can, but most of the people who want to dismiss Krugman can't even do that.

Precisely because tenured economists who disagree with Krugman are so thin on the ground.

That's the major point of Project Steve (against the creationists); there are, in fact, fewer scientists who doubt evolution than there are scientists who agree with evolution and are named Steve. And when you look at the lists and credentials of the "noted" creationists, Mike Behe is really the only one with actual experience in science.


I've made the same description of the anti-vaxxers. Any time you see some piece on the anti-vax movement, you get the same people showing up to spout the party line - JB Handley, Jenny McCarthy, Jay Gordon, etc. On the side of the vaccines is...a local pediatrician, who they call to comment. Why is that? Because you can find anyone to provide the consensus, but there are just a few who are able/willing to stick their neck out and try to buck it. It's not because they are exceptionally brave or insightful, but because hardly anyone agrees with them.

Yup.

It's hardly beyond a layman's capacity, when presented with an opinion, to ask "who is giving this?" "Who agrees with this?" and "why?"

Who agrees with Krugman? Damn near every professional economist out there. Why? Because they think he's correct.

Who disagrees with him? Faux News and the right-wing blogosphere. Why? At the weazel himself put it, because they think he's "liberal." A political, not an epistemological, disagreement.

So most of the world thinks he's right, and no one seem to think that he's wrong. Would that I could achieve such.

[pgwenthold]

Oh, I'm sure you can, but most of the people who want to dismiss Krugman can't even do that.

I would have to actually look around to do it, and it wouldn't be worth my time. The only reason I mentioned that, however, is that I got the impression from this thread that Roubini is an academic. You called him a quack, and it is pretty clear from the discussion what this is about, and the key is, it's a very common situation, one that is readily recognizable. The case of the well-publicized quack is pretty much ubiquitous in every field. So I figured he was an example of what I was talking about.

[drkitten]

I would have to actually look around to do it, and it wouldn't be worth my time. The only reason I mentioned that, however, is that I got the impression from this thread that Roubini is an academic.

Yes (NYU), but even Roubini doesn't really disagree with Krugman; they're both basically neo-Keynesians. Like Krugman, Roubini favored a much larger stimulus package (http://www.roubini.com/roubini-monitor/254189/roubini_says_us_needs_400_billion_stimulus_package ) and opposed austerity measures (http://www.huffingtonpost.com/2010/01/27/nouriel-roubini-stimulus_n_438734.html).


You called him a quack, and it is pretty clear from the discussion what this is about, and the key is, it's a very common situation, one that is readily recognizable.

I don't think I actually called him a quack; I do, however, think he's very close to the line that defines "quack," and he's definitely a one-trick pony who sees all glasses as half-empty regardless of their fullness. What may save him from full-on quackdom is precisely that he's very hard to catch in an actual mistake of fact. He's the sort of Eeyore character who sees a potential storm in every cloud and potential tornado in every storm, but I've never seen him actually imagine cloud that aren't there.

Which gets back to the point that actual fact-based criticisms of Krugman are really hard to find.

[Nerd]

Which gets back to the point that actual fact-based criticisms of Krugman are really hard to find.

Out of curiosity, whats your opinion on his statement that the USA is in the beginning stages of the Third Depression?

[drkitten]

Out of curiosity, whats your opinion on his statement that the USA is in the beginning stages of the Third Depression?

I don't think I have an opinion on that specific statement; I tend to trust his analysis generally (in case you can't tell), but I also recognize that his crystal ball isn't any better than anyone else. In context, his statement isn't as much a prediction as part of a jeremiad to the powers-that-be.

I.e., when my sweetie tells me "honey, we're going to run out of gas before too long," that's not really a prediction. I'm being told, subtly -- or not so subtly -- to pull over at the next gas station and fill the damn thing up. Of course, if I'm a total gas gauge-denier, I might believe that sweetie is making that statement for political reasons ("don't be ridiculous; we've got lots of gas. Let me guess, you just want to pee, right?"). But I don't think either of us actually expect the car to sputter to a halt at the side of I-666.

And that's part of what Krugman seems to be finding so frustrating, I think. I don't think he really believes that the current group of Washington suits -- hell, Bernanke was the chairman at Princeton who hired him; Krugman's on a first-name basis with the head of the Fed -- are really going to allow the Third Depression to happen. But he's pointing out that if they want to avoid that, they're going to have to do something -- and to look at the damn gas gauge.

[wastepanel]

out of curiosity, where were the experts before the financial meltdown? i`m more likely to trust an expert to get us out the mess if they warned me it was coming beforehand. i know the argument is that you can`t deal with a crisis until it happens, but i will default to somebody that saw the warning signs, properly diagnosed them, and was realistic to the limitations that were/are available to fix said problems.

[JihadJane]

Tomorrow might be interesting.

[pgwenthold]

out of curiosity, where were the experts before the financial meltdown? i`m more likely to trust an expert to get us out the mess if they warned me it was coming beforehand. i know the argument is that you can`t deal with a crisis until it happens, but i will default to somebody that saw the warning signs, properly diagnosed them, and was realistic to the limitations that were/are available to fix said problems.

Well, John McCain is out...

[drkitten]

Tomorrow might be interesting.

So might September 14, or July 8, 2013. The future is notoriously hard to predict. Any particular reason why you expect something interesting on that particular day? Is that when you expect the Rapture?

[drkitten]

out of curiosity, where were the experts before the financial meltdown?

All over the place, including in most of the economic departments world-wide (should I dig up the Krugman 2005 interview?). For that matter, both Bernanke and Greenspan recognized it (Greenspan's now-infamous 2005 comment about "apparent froth" in the housing market), but failed do to anything substantive about it.

There are several reasons for that. The most important is simply that economists don't run the world, or even the government. The people who were running things had carefully placed laissez-faire economists in all the positions of power, which is basically akin to saying "here's the switch that controls the economy -- and under no circumstances whatsoever are you allowed to touch it."

Greenspan is an instructive example. He correctly spotted the bubble in 2005, but failed to do anything about it. He's pretty much a free-market absolutist and expected that the market would act in its own long-term self-interest by regulating itself, and therefore it was not only not necessary to act, but not appropriate for him to act. It's difficult to improve on the words of this reporter (http://www.associatedcontent.com/article/1142034/greenspan_flawed_ideology_deregulation.html):


Greenspan noted that he had made a mistake in believing that banks would be rationally compelled, through self-interest, to protect their institutions and shareholders. This belief is a key foundation of free-market capitalist ideology -- that individuals will act rationally to pursue their own self interest and that financial institutions would magnify this rational thought to result in long-term economic growth and increasing general prosperity. What ended up happening, instead, is that both individuals and institutions ignored severe risk in order to pursue massive short-term gains. In this sense, rational self interest rapidly turned into irrational greed. While a few individuals who had gained access and control of key institutions were enriching themselves, the rest of the economic system was isolated, neglected, and suffered increasingly severe strains and failurelooked to the self-interest of lending institutions to protect shareholder’s equitys. Furthermore, private-backed predatory lending exploited the vehicle of sub-prime mortgages and rapidly toxified a massive segment of the international financial system. Greenspan described these failures as resulting from "a flaw in the model... that defines how the world works."


His testimony is very clear (http://clipsandcomment.com/wp-content/uploads/2008/10/greenspan-testimony-20081023.pdf):

* He acknowledges (page 1) having predicted the financial crisis ("underpricing of risk ... would have dire consequences").
* He expected that the banks would take care of this themselves (page 2) ("looked to the self-interest of lending institutions to protect shareholder’s equity") and were in "shocked disbelief" that it didn't happen the way his free-market theories expected. (Of course, at the same time, Krugman and the Keynesians who had been systematically excluded from positions of power were saying that no one, banks included, could be expected to act against the incentives placed to maximize their short-term interests.)

[carlvs]

2012!!! The end times are amongst us. :boxedin:

In that case, forget stocks, bonds, or even gold!

Your best investment would likely be in large, heavily armoured super ships - and a few engineers to check for any possible design "flaws" like, say, engines that can't start without all the extetior doors being shut ...:D

(sorry ...couldn't resist)

[stilicho]

What's the difference between "a cautious analyst" and "a one-note wingnut"?

One of my rules of thumb for distinguishing a genuine expert from a lunatic scraped off the bottom of someone's shoe is that a genuine expert offers different opinions and makes different recommendation in different circumstances. If a doctor, he doesn't offer the same diagnosis every time. If a music critic, he doesn't passionately hate every concert he's attended. If an economist, he doesn't always predict doom and gloom --- or happy singing flowers and bunnies, for that matter.

I've never read a positive statement about the economic future from Roubini.

I saw Roubini speak live and he's rather different in person than in his brief articles. He concentrated on the statistics from which he'd derived his analyses and quite frankly explained that there were always margins of error. I went there with a friend of mine who's an analyst at our company and a member of a professional association geared towards planning and analysis.

He tends to overuse superlatives but the content is pretty solid.

[stilicho]

And 25% in gold? That goes beyond stupid to "conspiracy-tard." I don't know where this idea that gold is an inflation hedge originated,.... but it's not. Just look at the numbers since 1970. It's also not a good store of value; it's way too volatile. And of course buying gold now, at the peak of one of the largest bubbles in gold's history, is a classic sign you don't know what you're doing.

I wonder if any of these people have considered what the economic consequences of having every investor placing a quarter of their investment into gold and gold derivatives. Tulip-bulb-mania comes to mind.

[timhau]

Those evil commie lackeys at CNN (http://money.cnn.com/galleries/2010/fortune/1008/gallery.five_investing_bubbles.fortune/6.html) are doing their best to dissuade people from buying GOLD.

[drkitten]

Those evil commie lackeys at CNN (http://money.cnn.com/galleries/2010/fortune/1008/gallery.five_investing_bubbles.fortune/6.html) are doing their best to dissuade people from buying GOLD.

Not just a bubble, but "a major bubble." Clearly part of the reality-based disinfo movement.

[lomiller]

out of curiosity, where were the experts before the financial meltdown? i`m more likely to trust an expert to get us out the mess if they warned me it was coming beforehand. i know the argument is that you can`t deal with a crisis until it happens, but i will default to somebody that saw the warning signs, properly diagnosed them, and was realistic to the limitations that were/are available to fix said problems.

Pretty much everyone saw at least some warning signs, but there are always warning signs that could lead to bad things if not handled correctly. Right up until Lehmans collapsed it still seemed possible to navigate though the crisis and end up with a fairly normal recession. Given that this is normally what happens to a potential crisis I think the people betting on that may have been justified in their views.