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Cnn Money: "great Depression Coming"

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"Core inflation ... is inflation that excludes food and energy. This is a problem when we say that's contained, because no-one in America buys stuff that excludes food and energy."

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My bro and sis in-laws just returned to the US and they say the TV is one story after another on the economy and crashing house prices. We have yet to feel the brunt here but I have a feeling its about to hit us this side of summer.

Carnage cometh better take cover.

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Never underestimate the capacity of politicians and bureaucrats to trap themselves into a pattern of denial. That's what Fed Chairman Greenspan did in the early 2000s, even while he was helping to create the greatest housing bubble of all time. Likewise, that's what President Bush and Chairman Bernanke did this past week even as Greenspan's bubble was crumbling all around them. Amidst a maelstrom of disastrous economic news, both men bravely straightened their ties ... put on sincere faces ... looked directly into the camera ... and delivered the biggest load of malarkey I've heard in years.

"I don't think we're headed into a recession," said President Bush. "I don't anticipate stagflation," said Chairman Bernanke. Everything is just fine, both men chimed.

Now ... Brace Yourself

For a Reality Check!

On the inflation front last week ...

Prices are skyrocketing: The U.S. Department of Labor reported that wholesale prices soared 1% in January. That was three times more than economists forecast. And it bumped the inflation rate for the preceding 12 months to 7.4% — the worst since the fall of 1981.

Oil prices are soaring: Oil topped $103 per barrel — up more than 1,000% since we first wrote that prices were set to skyrocket.

Gold is exploding higher: It hit still another all-time high of $976 per ounce in Hong Kong Friday morning — more than triple the price it was when we first began forecasting this new gold market ... and only a scant $24 away from the historic $1,000 mark.

Nearly all commodity prices are through the roof: The Reuters CRB Index, which tracks 17 key commodities prices, has soared a staggering 18% just since late January.

Plus, on the recession front ...

The home market is tanking. Home prices? Down by the most in recorded history! Home sales? Falling to the lowest levels ever recorded! Bank seizures of homes have nearly doubled: Up a shocking 90% from a year ago. Unemployment is soaring: The U.S. Labor Department announced that a staggering 2.81 million people are now receiving unemployment benefits — the highest level since the aftermath of Hurricane Katrina. Consumer confidence is falling off a cliff: The Conference Board reports it has fallen to its lowest point in five years; near the lowest in 15 years. And sure enough, on Friday, the Commerce Department reported that, after inflation, consumer spending virtually ground to a standstill in January.

But despite all this, there they were — our nation's two most trusted public officials — with the chutzpah to claim that neither inflation nor recession is a problem. All with a straight face.

My feeling: I wouldn't trade places with President Bush or Mr. Bernanke for all the tea in China because ... They're charged with keeping this economy from coming unglued in the face of the most devastating credit crisis in recent memory. Plus, at the same time ... They're responsible for defending the U.S. dollar and protecting its buying power from the ravages of inflation.

And when I say "responsible," I mean by law. The Federal Reserve Act of 1913 requires the Fed to promote the goal of stable prices.

Instead, with the economy crumbling, they have no choice but to do precisely the opposite, whilesteadfastly denying the true consequences of their actions. ndeed, the only way they can hope to fight this recession is by slashing interest rates and printing money like crazy — pouring nitroglycerine on an inflationary bonfire.

They're obviously convinced that the immediate nightmare scenario (millions of registered voters losing their jobs in an election year) is more frightening than the not-so-immediate nightmare scenario (out-of-control inflation).

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Hang on, listen to it again.

After the Economist says his first soundbite in which he mentions, separately, the words inflation and depression they cut to the anchor who makes a big thing of saying that the economist has just said that an "inflationary depression" is coming. No he didn't. He says a recession is coming.

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NO i can see the UK holding its fingers in their ears and saying we will be OK. No subprime in the UK etc. Strong employment, low IRs, we are in Europe. We're an island nation - how is the credit crisis comming to the UK? It can't take a ferry from the US to the UK can it?

No - we will be in denial all the way down. At least the yanks have their eyes open.

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Very very scary. How will this affect the UK if it comes to pass, and how quickly?

Without being an economic historian, this is what Wikipedia says about the Great Depression in the UK...

"In May 1929 a minority Labour government headed by Ramsay MacDonald came to office with Liberal support. This was only the second time a Labour government had been in office (they had briefly been in office in 1924), and few of the government's members had any deep knowledge of economics or experience of running the economy (This government has experience of running the economy, but their "deep knowledge of economics" seems non-existant)

MacDonald's Labour Party was not radical in economic thinking, and was wedded to the orthodoxy of Victorian classical economics, with its emphasis on maintaining a balanced budget at any cost.

In October 1929 the Stock Market Crash in New York heralded the Great Depression. The ensuing American economic collapse caused a tsunami effect across the world. World trade contracted, prices fell and governments faced financial crisis as the supply of American credit dried up. Many countries adopted an emergency response to the crisis by erecting trade barriers and tariffs, which worsened the crisis by further hindering global trade. Obama and Clinton are both talking about ripping up NAFTA heralding a new age of economic protectionism.

The effects on the industrial areas of Britain were immediate and devastating, as demand for British products collapsed. By the end of 1930 unemployment had more than doubled from 1 million to 2.5 million (20% of the insured workforce), and exports had fallen in value by 50%. Government revenues contracted as national income fell, while the cost of assisting the jobless rose. The industrial areas were hardest hit, along with the coal mining districts. London and the southeast were relatively less hurt. In 1933, 30% of Glaswegians were unemployed due to severe decline in the heavy industry.

Under pressure from its Liberal allies as well as the Conservative opposition, the Labour government appointed a committee to review the state of public finances. The May Report of July 1931 urged public-sector wage cuts and large cuts in public spending (notably in payments to the unemployed) to avoid incurring a budget deficit.

This proposal proved deeply unpopular within the Labour Party and among its main supporters, the trade unions, which along with several government ministers refused to support any such measures. The Chancellor of the Exchequer, Philip Snowden, insisted that the Report's recommendations must be adopted to avoid incurring a budget deficit. After ten years of getting fatter and fatter of the back of taxpayers, the reaction of the trades unions would surely be similar if NuLabour had the backbone to propose such a move.

In a memorandum in January 1930, one junior government minister, Oswald Mosley, proposed that the government should take control of banking and exports, as well as increase pensions to boost purchasing power. When his ideas were turned down, he resigned. He soon left Labour to form the New Party, and later the British Union of Fascists.

The approach of the British Labour Party to the economic crisis was in stark contrast to that adopted in Sweden by the Swedish Social Democratic Party, which took an approach similar to Keynesian economics, and initiated government-funded public works programmes to ease unemployment and boost the economy."

Very scary indeed if this repeats itself.

The only lesson we learn from history is that we never learn the lessons of history, as someone (whose name escapes me) once said.

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......

The effects on the industrial areas of Britain were immediate and devastating, as demand for British products collapsed. .....

Oh well, that isn't something we need worry about this time.

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few of the government's members had any deep knowledge of economics or experience of running the economy (This government has experience of running the economy, but their "deep knowledge of economics" seems non-existant)

Why is that scary? I've got a degree in economics but it doesn't scare me for two reasons.

First, the fact is economics is a long way from being a hard science. Paul Krugman (who is about a thousand times better an economist than I'll ever be) likened economics today as similar to medicine in Victorian times. A bit further advanced than bleeding patients with leeches, but still with only a fairly superficial ability to really effect cures.

Second, politicians need to make decisions about nuclear power without being physicists, or decisions about the health service without being surgeons. Good politicians can take advice from experts, weigh up that advice, and come to a conclusion. Bad politicians will screw up it up no matter what their academic training.

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Very very scary. How will this affect the UK if it comes to pass, and how quickly?

Without being an economic historian, this is what Wikipedia says about the Great Depression in the UK...

"In May 1929 a minority Labour government headed by Ramsay MacDonald came to office with Liberal support. This was only the second time a Labour government had been in office (they had briefly been in office in 1924), and few of the government's members had any deep knowledge of economics or experience of running the economy (This government has experience of running the economy, but their "deep knowledge of economics" seems non-existant)

MacDonald's Labour Party was not radical in economic thinking, and was wedded to the orthodoxy of Victorian classical economics, with its emphasis on maintaining a balanced budget at any cost.

In October 1929 the Stock Market Crash in New York heralded the Great Depression. The ensuing American economic collapse caused a tsunami effect across the world. World trade contracted, prices fell and governments faced financial crisis as the supply of American credit dried up. Many countries adopted an emergency response to the crisis by erecting trade barriers and tariffs, which worsened the crisis by further hindering global trade. Obama and Clinton are both talking about ripping up NAFTA heralding a new age of economic protectionism.

The effects on the industrial areas of Britain were immediate and devastating, as demand for British products collapsed. By the end of 1930 unemployment had more than doubled from 1 million to 2.5 million (20% of the insured workforce), and exports had fallen in value by 50%. Government revenues contracted as national income fell, while the cost of assisting the jobless rose. The industrial areas were hardest hit, along with the coal mining districts. London and the southeast were relatively less hurt. In 1933, 30% of Glaswegians were unemployed due to severe decline in the heavy industry.

Under pressure from its Liberal allies as well as the Conservative opposition, the Labour government appointed a committee to review the state of public finances. The May Report of July 1931 urged public-sector wage cuts and large cuts in public spending (notably in payments to the unemployed) to avoid incurring a budget deficit.

This proposal proved deeply unpopular within the Labour Party and among its main supporters, the trade unions, which along with several government ministers refused to support any such measures. The Chancellor of the Exchequer, Philip Snowden, insisted that the Report's recommendations must be adopted to avoid incurring a budget deficit. After ten years of getting fatter and fatter of the back of taxpayers, the reaction of the trades unions would surely be similar if NuLabour had the backbone to propose such a move.

In a memorandum in January 1930, one junior government minister, Oswald Mosley, proposed that the government should take control of banking and exports, as well as increase pensions to boost purchasing power. When his ideas were turned down, he resigned. He soon left Labour to form the New Party, and later the British Union of Fascists.

The approach of the British Labour Party to the economic crisis was in stark contrast to that adopted in Sweden by the Swedish Social Democratic Party, which took an approach similar to Keynesian economics, and initiated government-funded public works programmes to ease unemployment and boost the economy."

Very scary indeed if this repeats itself.

The only lesson we learn from history is that we never learn the lessons of history, as someone (whose name escapes me) once said.

bring it on!

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John Williams does a good job of restructuring monetary stats back to previous measures.

M3 data is an absolute disgrace.. Apparently the Fed are trying to cut even more data output which John was complaining about on last week's financial sense news hour.

http://www.shadowstats.com/alternate_data

Edited by narco

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Second, politicians need to make decisions about nuclear power without being physicists, or decisions about the health service without being surgeons. Good politicians can take advice from experts, weigh up that advice, and come to a conclusion. Bad politicians will screw up it up no matter what their academic training.

Your point is well made.

Perhaps the more pertinent question is how the government would react to such advice. For example, even if the argument presented by the economists was persuasive and historical precedent could be shown, would NuLabour be willing to take decisions that would directly affect its core electorate.

The BoE and the Treasury may be as likely to make mistakes as each other. Perhaps, the political inclinations of NuLabour (whatever they are this week) would push them down a road for narrow party interests rather than the electorate and the economy as a whole.

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NO i can see the UK holding its fingers in their ears and saying we will be OK. No subprime in the UK etc. Strong employment, low IRs, we are in Europe. We're an island nation - how is the credit crisis comming to the UK? It can't take a ferry from the US to the UK can it?

No - we will be in denial all the way down. At least the yanks have their eyes open.

I get this impression too. I think the Americans take a bit more interest in their economy, because if it goes down it affects them quickly and directly. In the UK, we are cushioned by the great behemoth of the State and the mentality that 'the government won't let it happen'. The Brits don't care - they just keep shopping, watching the footie and reading Heat magazine.

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I get this impression too. I think the Americans take a bit more interest in their economy, because if it goes down it affects them quickly and directly. In the UK, we are cushioned by the great behemoth of the State and the mentality that 'the government won't let it happen'. The Brits don't care - they just keep shopping, watching the footie and reading Heat magazine.

I agree and I also think that middle class americans probably invest more in the SM and look after their 401k pension funds, or at least take an interest in them.

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The doomlords appear to be in the ascendancy, here is Ambrose Evans Pritchard in todays telegraph....

"Ultimately the big guns have the means to stop descent into an economic Ice Age. But will they act in time?

"We are becoming increasingly concerned that the authorities in the world do not get it," said Bernard Connolly, global strategist at Banque AIG.

"The extent of de-leveraging involves a wholesale destruction of credit. The risk is that the 'shadow banking system' completely collapses," he said.

For the first time since this Greek tragedy began, I am now really frightened."

http://www.telegraph.co.uk/money/main.jhtm...3/ccview103.xml

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My bro and sis in-laws just returned to the US and they say the TV is one story after another on the economy and crashing house prices.

There's noticable, and noticably increasing references to it in this season's TV comedies/ dramas etc. Should help drive sentiment here, too.

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I get this impression too. I think the Americans take a bit more interest in their economy, because if it goes down it affects them quickly and directly. In the UK, we are cushioned by the great behemoth of the State and the mentality that 'the government won't let it happen'. The Brits don't care - they just keep shopping, watching the footie and reading Heat magazine.

As an American, I've got to say that Americans are, if anything, less interested in the economy than the British. It's just that the economic downturn in the US is a year or two ahead of where it is in the UK. Nothing like having family members and neighbors going into foreclosure to focus the mind on the state of the economy. Look back 12 months ago, and how many American economists and financial advisers (I'm not even talking about the average Joe Schmo American) would say that sub-prime mortgages and over-indebted homeowners represented a potential problem? 5%, maybe? Logically, as a small minority were saying, it was obvious that the situation was unsustainable and that the system was about to collapse, but the mainstream was happy to see Wall Street hitting new highs without a care in the world. Property investing in the US was all based on momentum -- recent price rises were assumed to represent an on-going, never ending trend, creating a positive feedback loop driving prices higher and higher. Then, the increases stopped and it all collapsed. The UK is now perched on that same precipice with price appreciation having come to a halt, but the cliff in the UK is now a whole lot higher than it was in the US.

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NO i can see the UK holding its fingers in their ears and saying we will be OK. No subprime in the UK etc. Strong employment, low IRs, we are in Europe. We're an island nation - how is the credit crisis comming to the UK? It can't take a ferry from the US to the UK can it?

No - we will be in denial all the way down. At least the yanks have their eyes open.

:P:P "No Sub-Prime in the UK" !!! :lol::P --- Yet - LIAR LOANS are ENDEMIC --- They are the key to getting yourself onto the World's Biggest Ever Pyramid Selling Scam -- the "housing market".... How else does anyone "afford" it?!? :lol:

Edited by eric pebble

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My bro and sis in-laws just returned to the US and they say the TV is one story after another on the economy and crashing house prices. We have yet to feel the brunt here but I have a feeling its about to hit us this side of summer.

Carnage cometh better take cover.

RB, What have you done with your stash of $, BTW?

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RB, What have you done with your stash of $, BTW?

RB not be doing great with his dollars.... but nor are those of us with pounds. Seems to me the pound has lost between 15 and 20% against most major currencies over the last year (have a look at the 12 month charts on the bbc currencies page). Bloody depressing.

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RB not be doing great with his dollars.... but nor are those of us with pounds. Seems to me the pound has lost between 15 and 20% against most major currencies over the last year (have a look at the 12 month charts on the bbc currencies page). Bloody depressing.

Its not that depressing if you want to use your pounds to buy a house in the UK in a year or so.

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Very scary indeed if this repeats itself.

The only lesson we learn from history is that we never learn the lessons of history, as someone (whose name escapes me) once said.

:lol::P SO true....

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After last week's bombardment of news reports, anyone who still thinks the U.S. economy is not sinking rapidly into recession is either trying to push a biased agenda or living on another planet. The dire reality:

This recession is undeniable, with a greater abundance of evidence at this early stage than any other economic downturn of modern times — plunging home sales and prices, falling consumer confidence and spending, surging unemployment and more.

This recession is unavoidable, with nothing the Federal Reserve, the Treasury, the White House or Congress can do quickly enough or forcefully enough to stop it.

Indeed, with inflation already surging and the dollar already plunging, it's now likely that their grab-bag of housing market bailouts, stimulus packages and interest-rate cuts are likely to accomplish little more than push the dollar over the brink, drive commodity prices through the roof, propel inflation beyond control and, ultimately, deepen the crisis.

This recession is incomparable, unlike anything you've seen in the past or are likely to see in the future.

For the first time since the early 1980s, we are witnessing the virtual shutdown of some of the nation's most important credit markets — for many kinds of mortgages, certain types of corporate bonds and, in the past few days, even municipal bonds.

For the first time since the Great Depression, the value of residential real estate is plunging nationwide.

For the first time in U.S. history, countless middle-class Americans — even many with good credit — are defaulting on their mortgages, abandoning their homes, sending a whole new set of shockwaves through the banking system.

And for the first time ever, trillions of dollars in derivatives — debts and bets that did not even exist in recessions or panics of yesteryear — are now blowing up.

This recession is also eminently escapable! Unlike during any prior crisis, you now have multiple opportunities to protect your family from the declining value of your real estate ... create a solid defense against the falling dollar ... hedge your portfolio against a falling stock market ... and even turn each of these situations into life-changing profit opportunities.

Most stock investors, however, are frozen in limbo. They're continually waiting for the government to swoop down with the next big rescue. They don't yet recognize the severity of the storm. They don't yet understand how quickly it can destroy their portfolios.

If you — or someone you care for — is among them, join me now in a brief guided tour of last week's events. And at each stop along the way, let me share with you my thoughts regarding what I see coming next and what you can do right now to escape the dangers.

First, take a long, hard look at the home price decline.

The recession has barely begun — and the decline in residential real estate values is already the worst since modern records were kept.

The S&P/Schiller Home Price Index, which not long ago was soaring by more than 30%, just plunged 9.1% in December.

Worse, the median price of new homes sold has tanked 15.1% from January of last year, the biggest drop in any month since at least 1964, when they first began tracking this measure.

Is this decline as deep as what our parents or grandparents experienced in the Great Depression? Probably not. But ...

In the Depression, the cost of living was going down, helping to ease the burden for many homeowners. Today, it's going up.

In the Depression, a much smaller percentage of families borrowed money to buy a home. Today, it's the purchase of a home without debt that's the rarity.

If you walked into a bank in the 1930s, it's absolutely certain that the mere mention of mortgages with no down payments, no documented income or no principal payments would have been universally greeted with ridicule. Today, these wacky new loans have been created by over 10,000 banks, thrifts and mortgage lenders in 3,000 counties and 25,000 towns across the U.S.

From everything we know, it's quite certain that adjustable-rate mortgages (ARMs) did not exist. Today, so many ARMs are resetting at higher rates, they are threatening to help trigger up to two million foreclosures.

Back then, very few home owners were upside-down — with more debt than home value — and it was unheard of for Americans to abandon their homes for that reason alone. Today, this situation is so widespread, a half dozen government agencies and thousands of lending institutions are desperately scrambling to find ways to reverse the trend.

What's next:

The political forces for an unprecedented, national bailout are now mounting by the day. So expect massive government efforts to forestall an equally massive wave of foreclosures. But while the likely success of these efforts is doubtful, the unintended consequences are obvious ...

Bigger losses for lenders when they delay seizing homes and wind up selling them at lower prices.

A bigger burden on taxpayers as the government spends money it does not have.

A bust in commercial real estate sales and prices. This is beginning right now, following a pattern very similar to the bust in housing. It's still a few steps behind. But it's likely to catch up quickly.

Severe damage to the U.S. dollar and a superboom in commodities. (More on these in a moment.)

Your escape:

If you're selling your home, price it aggressively.

If you're pondering what to do with commercial properties, stop guessing and start acting: Sell!

If you're looking for a new place to live, don't buy. Rent.

If you're seeking bargains, don't rush. Wait. It's far too soon. And for the truly great bargains that will come later, be ready to pay cash or a very substantial down payment.

Second, look how this situation is starting to impact consumers.

With home prices plunging and the cost of living soaring, consumer confidence is getting hit hard.

Just in the last few months, it has fallen from some of the highest levels on record to the lowest level in five years.

The best evidence: The Conference Board just reported that its confidence index fell to 75 in February. That's far below the 83 reading that analysts had forecast. And it's down to the lowest level since February 2003, a time when Americans were intensely fearful of a new war that was about to begin.

What's next:

Consumer spending, already slowing to a standstill, will shrink rapidly. With just a few exceptional items that they must buy no matter what, Americans will snap their wallets shut, slashing their purchase of high-priced luxuries and bargain-basement discounts, big-ticket items and everyday tidbits.

Corporate profits will plunge. In already-blighted industries, don't be surprised to see floods of red ink and a string of bankruptcies.

Layoffs and unemployment will surge.

Edited by Bardon

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  • 294 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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