Thursday, September 18, 2008

Make plans for surviving the next 18 months.

Nobel Prize Winning Economist: Crisis As Bad As Great Depression Or Worse

Two time Nobel-prize winner and former chief economist of the World Bank, Joseph Stiglitz has warned that the current financial crisis will continue for at least another eighteen months and in many ways represents a worse situation than the one faced by Americans during the great depression of the 1930s. This is an article to accompany the interview with Alex; radio interview.

Posted by planning4acrash @ 12:38 AM (1524 views)
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13 thoughts on “Make plans for surviving the next 18 months.

  • Quote from the Alex Jones interview: “we have a fire and nobody has a blueprint of the building”

    A nice/nasty analogy for the state of our financial system.

    I agreed with everything that Joseph Stiglitz said but let’s be honest – it was rather bland and at least most of it has been said here before. Will it matter or change anything? I say unlikely.

    P4C, I hope you’ll forgive me for my next irreverent comment but perhaps we would be better off preaching at the grass roots level to work our way up rather than asking the opinion of a double (!) Nobel prize winner.

    WARNING: not for the easily offended and maybe not the best idea at work either.

    http://bastardoldholborn.blogspot.com/2008/09/hair-shirt-anyone.html

    It’s crude but I cannot help feeling this is a useful starting point.

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  • planning4acrash says:

    Oh cripes. This isn’t where I’ve begun. You go up, down, round and about. Many here get it, but the average Joe spent this evening enjoying the new football season, rolling around laughing and giggling, whilst itchy trigger finger nicker’s from the central bank went n stole their pension, house, job and liberties. Truth is, mention those who say this crash is by design, even to those who know that central banks can create money, booms and recessions/depressions, but they still go Oh, its a conspiracy theory. Because, a conspiracy, two people coniving to do something illegal, is now unpolitically correct, because the TV Box told you so. FOOLS!

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  • Forgive me for pointing out your obvious projection. You are the one that believes the complete crap you read and you are the fool. Just because you behave like that doesn’t mean others do.

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  • “Because, a conspiracy, two people coniving to do something illegal, is now unpolitically correct” – Not true. Do you mean “conspiracy theories are politically incorrect”? I would agree with that statement.

    But a “conspiracy” and a “conspiracy theory” are different beasts. “Conspiracy” still has, to most people at least, it’s basic meaning, i.e. “two [or more] people conniving”, which as far as I and the law of this land are concerned is politically fine. However, “Conspiracy theory” means more than the sum of it’s parts. It’s not just an unproven idea about people conniving. This is an “unpolitically correct” term that also automatically makes people think of water powered cars, faking moon landings and Tom and Katie’s baby not being their own. So to call something a conspiracy theory automatically discredits the theory. The question is: is this why lots of theories that you subscribe to are branded as such?

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  • Talk of 1929 is very misleading, because what happened then had more in common with the boom that we saw at the end of the nineties than what we are seeing now.

    The FTSE’s highest ever level was on Dec 31st 1999 – nearly nine years ago now. Today, it is 30% lower than that, and the PE ratios show that most equities are very modestly priced.

    Yes, there are serious problems in the banking sector, but those problems have been greatly amplified by the uncertainty surrounding some foolishly contrived and opaque mortgage debt instruments.

    There will be some big losses; but any estimate of the actual number of home repo’s, and the actual amount that will be lost as a result of those homes being sold for less than the mortgage value, results in a figure that is very painful, but – importantly – manageable.

    Besides that, there is then the problem of global re-balancing, to iron out the unsustainable trade deficits that have arisen. While this will have the effect of creating inflation and recession, it will also (unlike the 1930’s) create employment, as we start to make stuff again that we have previously been buying from the far east.

    The nett result will be a huge upset, but more akin to a revolution than a depression, with the previously better paid (but less constructively employed) members of society being the biggest losers.

    But don’t think this will all blow over in eighteen months and be back to before – this upset is ultimately tectonic – the end of one era, and the dawn of the next.

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  • p.p.s. – I have not read the article and my comments are not on that.

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  • quiet guy @ 01.57AM

    nice link!

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  • Joseph Stiglitz is an independent voice and a very intelligent economist. If you’ve read any of his work you’ll know he’s not some market cheerleader. In terms of foresight and independence I think he ranks even higher than Soros, who I also greatly admire. When all the vested interests (politicians, government officials) are crowing about how the banks are fundamentally sound, just imagine it’s Stuart Law of Assetz talking instead of Henry Paulson of the US Treasury.

    Stiglitz never said there was a conspiracy; to me this whole episode looks more like herd behaviour gone wrong rather than conspiracy.

    @uncle tom,

    The P/E ratios are misleading, firstly because they are based on past earnings (high) and not expected future earnings (low); and secondly because the new risk-aversion means investors are demanding higher returns which requires lower P/Es. Basically the P/E might look modest for now, but it will need to fall further before investors are tempted in again. The FTSE 100 did peak around 6,900 back in 1999; but it also fell as low as 3,650 in February 2003. Today it’s hovering around 5,000 (we’ll see a short-term boost from this morning’s coordinated central bank liquidity actions); but I see plenty of reasons why it could drop below the 4,000 mark within the next 12 months.

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  • Drewster,

    I take your point, but if this was equity bubble bursting (as per 1929) we would be seeing the FTSE coming off a high of around 10,000. The equity based financial implosion that occurred 80 years ago is not therefore on the agenda – this is very different. Some earnings will take a beating, without doubt; but not all.

    As governments wrestle to sort out the mess and keep the banking system alive, they will have to create huge amounts of new money in the form of debt. This makes government stock, especially long dated paper, a really lousy investment. I therefore expect that when things settle a little, we will see a flight from bonds into equities, resulting in an equity market rally, and rapid increases in bond yields – as happened in the mid seventies, when the stock market took off despite the economy being in very poor order.

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  • UT said:
    “I therefore expect that when things settle a little, we will see a flight from bonds into equities, resulting in an equity market rally, and rapid increases in bond yields – as happened in the mid seventies”

    UT, have you got a time-frame in mind for when you think that may occur? Or are things simply too unpredicatable at present.

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  • @ quiet guy

    fantastic link sir!

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  • “UT, have you got a time-frame in mind for when you think that may occur? Or are things simply too unpredicatable at present.”

    The devil, as always, is in the timing; but once it starts, it will gather momentum. Watch and wait, and keep an eye on gilt yields.

    When they get to about 5.5%, there will probably be a rush for the exit door. It would not surprise me if gilt yields top 10% before the rout subsides.

    In the very short term, yields might fall a little before the penny drops, and the realisation takes hold that western governments are going to be borrowing as never before, while their economies contract; and that that borrowing will therefore seriously devalue their respective currencies.

    I would be surprised if we get to the end of next year before this happens.

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