?? Seth Glickenhaus comments that a depression is around the corner.
First, I had to go back to my economic texts to find out just what a depression is. There was the Great Depression, but most everything since then has been called a recession. The uniuqe characteristic of the Great Depression versus recesssions that followed was banking failures, it wasn't just a market investment cycle. The smoothe flow of money through the system went into cardiac arrest as funds got clotted at teller windows, banking panic.. thus prompting the creation of new banking safeguards.
So I'm wondering what the term depression means in Glickenhaus's context. Is it an extended market equity price depression, a contraction of business activity, or a failure in the flow of funds somewhere in the system that causes a crisis of confidence? If so, then what is he suggesting it would be, or what could it be.. and what's the workout. Or is he just blowing attention getting smoke.
The reaction to corporate accounting suspicions has been to quickly depress the value of any company's stock, not to mention shorters jumping on their bonds as well. It seems clear to me that putting an extra polish on accounting transparency will be a priority of management... and there's probably a huge background effort going on right now to recalculate and present that data. Investor caution will be high until two quarters of books passes the gauntlet.
The other thing is the dollar. While Bush complains that tax cuts didn't cause the current market angst, its obvious the dollar's strength relies on whether the Government debt is growing or shrinking. Through the 90's the dollar's gains were connected to meeting debt obligations culminating in a surplus. This is also what supported the markets strength because it compounded foreign investment opportunity to benefit from currency and stock appreciation together. That's been a critical course change.. foreign investors are selling.
With government debt piling up, the dollar is weakened, foreign capital is leaving the markets.. the rug is being pulled out.. and it does have a connection to tax cuts.. taxes offset government spending (duh). Wait until state budgets find themselves without capital gains inflows.. Its worth remembering how only a short time ago we were arguing the presidential election on how to spend the surplus.
In order to have a recovery, something.. an idea, a goal, an enemy, or a technology.. has to put people back to work. Loose money encourages some of this through easing the risk of borrowing. The government took the lead during the depression rebuiling infrastructure.
We are coming off a technology buildout high.. the infamous bubble. We are coming off a political high.. the collapse of the Coummunist regimes. What new concept will drive enterprize into the year 2010?
Jim |
