For the most part we've had a really great board here: real civility and consideration again and again. Congratualtions to you all for making this happen.
We seem to be in the eye of the storm here with Prince Walid stepping up and maybe taking a bite out of Long Term Capital's corpse. Will this be tasty, or the bite that the prince regrets?
Trade deficit announced today: $60.125 billion for the quarter, and counting since these things are always revised. Brazil is about to step up to the plate and announce that the Emperor's clothes are in tatters.
And of course, Fleckenstine...
It is my feeling that contrary to Bill here, I'd point this out as a nota bene, that the depression here in the US really got cooking and humming when 33 1/3 % of the American banks collapsed in 1933. That certainly caused a credit contraction and dried up lending.
Thank god Al is on the job and he's helping us out....
(C)
"Greenspan remains optimistic that a depression is not in cards today. According to (Lawrence)Lindsey, Greenspan said that "policy makers are better informed than Fed officials were in the 1930s when they underestimated the magnitude of the problems America was facing." Well, I got news for Easy Al. Being informed ain't going to stop the problem of too much capacity and excess speculation.
Greenspan went on to tell Lindsey: "If actions in 1930 and '31 were taken differently, we might have had a fairly significant recession but we would not have the deep fall we know as the Depression." I disagree with that. The problem that got us the Depression was the excess speculation and excess capacity that was created in the '20s and the easy money environment that got us that. Now I think the Depression would not have been as bad had the policy makers not made mistakes, but the real trouble was going to be there no matter what. I think he's being rather optimistic on that score.
Lindsey himself appears to feel that we have created a bubble. "The Fed's more relaxed monetary policy in recent years has created a financial asset bubble," Lindsey said, adding that "Greenspan sits on the horns of a dilemma. The dilemma is not to let the bubble get out of hand and at the same time let the world go ahead." I've got some news for him. It's too late. The bubble is out of hand.
So basically now everybody knows we're having a bubble, and a lot of people understand that we've got excess capacity. And yet everyone thinks that we can party on, dude, because nothing will go wrong. This is just remarkable. In past manias, people denied there was a mania and therefore everything was OK. Now we have people openly acknowledging that we have a mania and still no one cares.
As I see it
I'd like to share some thoughts about George Soros' new book, "The Crisis of Global Capitalism." He just finished it in September so it's pretty fresh, and I can tell from recent news accounts that his opinions haven't changed too much from those he expressed in the book.
I focused on the section titled "Predicting the Future," and the chapter "The Global Financial Crisis." I'd like to share some particular quotes that I think illuminate his view of the problems.
"The disintegration of the global capitalist system will prevent a recovery, turning a recession into a depression," Soros notes. Later, he continues: "The public has learned that it pays to buy dips in an everlasting bull market, and it will take time before it discovers that the bull market does not last forever. Thus, it will take time for the three main negative forces to make their effect felt. But the false dawn will be followed by a prolonged bear market, just as in the '30s and in Asia currently. The public will stop buying dips and start moving into money market funds or Treasury Bills. The wealth effect will take its toll and consumer demand will decline.
"Investment demand will also decline for a number of reasons; profits are under pressure, imports are rising and exports are falling, and the supply of capital for the less-well-established enterprises and for real estate deals has dried up. Reduction in interest rates will cushion the market decline and the economy would eventually recover if the global capitalist system held together. But the chances of it falling apart have greatly increased. If and when the U.S. domestic economy slows down, the willingness to tolerate a large trade deficit will decrease and free trade may be endangered."
I find the following passage interesting because Soros expresses surprise about the interconnectivity of the banking system: "The Russian meltdown decided the issue. Just as in the case of Thailand, the impact of Russia was greater than most people expected, myself included. I took a cataclysmic-enough view of events in Russia but I did not understand the implication for swaps and derivatives of the interbank market until they actually occurred." This was something we had been warning about in the Rap ever since Thailand melted down.
He sums up the chapter by contradicting himself somewhat: "The breakdown of the global capitalist system could be prevented by the intervention of the international financial authorities at any time. The prospects are dim because the G7 has failed to intervene in Russia, but the consequence of that failure may serve as a wake-up call. Perhaps the Russian meltdown will turn out to be the moment of truth after all. There is an urgent need to rethink and reform the global capitalist system. As the Russian example has shown, the problems have become progressively more intractable the longer they are allowed to fester."
Soros seems to be very concerned, as I am, about where things are headed. In other parts of the chapter he talks about the excess capacity that's been created, something we've been harping on. We seem to agree about the nature of the problems and the severity of these issues, and about the ultimate resolution.
He appears to believe that the authorities may be able to prevent this if they get it just right, and that they are capable of making things work out. I think he is a bit of central planner at heart - at least that's what I took away from this. His bias is that all things can be fixed. I'm not sure that's necessarily true, but after all, he's George Soros and I'm not.
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