The crash is not coming, it's just returning. The original one was never over. Its effects were just postponed by pouring money in it (aka bailouts and buy-outs).
The real reasons - ultra high debt of all players, errors in the system, for-profit players not controllable by the three political branches - were not remedied, in fact they might have been even worsened (the debt increased because of the bailouts).
A bunch of my friends are traders, and it seems that the consensus right now is that as far as the stock market is concerned, nobody knows where this is going (either way), and is scared to take any real position (that's why volatility has been up lately, volumes are down (and not just because it's August).
My take is that we're most likely headed for a period of Japan-like stagnation. There are huge structural employment issues in developed countries to take care of, properties are likely very much underwater for many homeowners that do still have jobs in the US, and governments are taking the knee-jerk reaction to the stimulus needed in 08/09 by introducing austerity measures, which will only serve to slow the economy further than it is at the moment. The debt levels in developed economies are still waaay too high, but there is a very real risk of taking the crutches away before the economy can walk again (hence Bernanke returning to easing measures: he sees the writing on the wall).
So, while governments worldwide go about trying to tackle the debt problem, growth will slow and there will be little job creation in many sectors. But the real change has to come from the people learning that, fundamentally, they can only spend what they earn, and that debt is not a bottomless pit.
I've been thinking the same thing. It's why I don't expect to be able to find my first job any time soon--I'm 26 with an AAS degree and no work experience in a terrible economy.
I've got an advantage since I have parents with a big house that's above water. My brother and his fiance are going to ride out some portion of it here with us (they both have good, stable jobs). I'm going to take this opportunity to explore the area around Atlanta (where I live) hoping to run in to some kind of opportunity.
I've also got the plan B of using this stable spot to consider cheap to create startups that don't make a lot of money, but do provide a small profit. With minimal (or no) expenses, a tiny profit can go a long way.
I think anyone who is in a relatively stable position needs to do what I'm doing and consider small entrepreneurial steps. It may put them in a better place, and it has the potential to take off and create economic activity, which could end the recession sooner.
Even if all you do is start a blog in your field of knowledge, you keep your skills sharp, improve them through interaction, and possibly give someone else the spark they needed to do something that will create jobs.
Have you considered going to any country where the employment situation is better than in the US? Germany for example will be searching many skilled employees due to an aging workforce. Plus you get state-financed retirement, 6 weeks of holidays per year, that you can even extend by doing overtime the rest of the time.
Don't know how hard it is to get a work visa though for US citizens.
Generally, probably harder than getting a job domestically. With rare exceptions, this is probably doubly true if you don't speak the native tongue. Many counties have fluency add 'points' for visa applications, some don't, and some merely require enrolling in language classes once there.
A lot of technology companies in various European countries are filled with people capable of speaking English (for obvious reasons) and some with many international hires (like Opera of Norway) claim to operate their business in English full time.
Still, some language capability would make it a lot easier to make sense of what the regulations are on immigration, read the job ads, etc, and higher education (like a masters degree) is helpful. Many of the programs in wealthier Europe require a demonstration that the skills sought are not easily found domestically. More education is not a perfect proxy, but is one thing which is often used (especially for the less experienced).
Right, european businesses may be requiring degrees for most IT jobs.
This is also a good point that education is less expensive on the other side of the Atlantic, so that could be a possibility. There are many state-financed languages courses out there by the way - and they're really not expensive as they are designed also from people coming from poorer countries than the US.
Also, it's Hacker News here, for advanced web companies using English is absolutely no problem (well probably less in Holland than in Spain, but you get my point...).
Finally I understand that going to a far country is not an easy step, so at the end your choice. I just wanted to show the possibility :)
"Many of the programs in wealthier Europe require a demonstration that the skills sought are not easily found domestically". Said 'demonstration' is a joke. If you're good, you'll have no problem to get in if the company knows how to use the loopholes.
It costs money to get there, and money to stay while looking for work. And this economy is so bad that even highly qualified people are out of work, so it's not likely I could get a company to fly me over there for an interview.
I've been looking everywhere for work in the year since graduation with nothing more than an interview at Target (the other candidates had retail experience, so I didn't get it), so starting my own cheap to run web business is starting to seem like the only way I can build a resume.
Well Germany right now has no big unemployment problem. The statistics now are better than in 2005. I understand it's costly, and even more it's a hard step, but don't think everything is harder elsewhere. I think Americans in Europe can be pretty successful, I have seen a few ones making their way here. In every case good luck in your job search or startup creation!
Exactly! I think that there is a rather substantial silver lining to major change, in that it forces people that would otherwise not have to/not have the guts to, go out and do what they want, like start a company or follow a passion (hopefully not mutually exclusive). That is ultimately where growth is going to come from. Assuming relative stability, the cost of trying something new falls dramatically in bad times.
Not to mention, by making your own company you're getting work experience. There are no holes in my resume since my first day of work. Not one day. Anytime I'm without work I switch back to working for my own company.
Germany does well because China, India, South Korea and Brasilia are not that badly affected by the US crisis. They are still buying machines and cars.
It is not that the german government is doing anything better than others. We are just lucky that our economy is based on exporting cars.
Not only. It's not the "current government" action, but Germany has some law to finance shorter work time during crises. Thus companies can start over now that contracts are coming in with almost pre-crisis workforce and skills. America can't do that that way with all the layoffs.
Also, while the car industry is very important in Germany, a good part of the exports to China and other growing countries are made on big, complex machines and infrastructure-building products.
If you look at the statistics (the Economist ran some recently), America has fewer long term unemployed. Also it is relatively easily to become accepted as an American a few years after you come to America. At any rate, at least your kids will be considered American.
In Germany, even when they were here for a few generations, the, say, Turks are still considered Turks.
Well, so much for the "Too many people are too bullish" item. People are not bullish and all of this has been discussed for weeks now. That doesn't preclude another panic of course, but I think it would take a significant outside event to cause it. A slightly worsening macro picture is not going to do it considering bond yields are so low. People are going to seek returns in the stock market.
Nothing of any substance is stated here. Vague comments about "the players" and "the debt"--what players? Whose debt? To what extent an opinion can be extracted from this post, it's wrong. For example, I don't know who "the players" he refers to are, but my guess is they are supposed to be for profit.
Seriously, those who have studied this for a while pretty much know the situation. Sorry if it seems vague to you.
The players are large bank, investment houses, and the Federal government at the least. But even more, the entire housing market was temporarily re-inflated to sustain the massive over-valuations that built up over the last ten-twenty years. Of course, all the other bubbles; medical, student loans, etc depended on this inflating to keep going (and there's a Chinese property bubble too btw). Did you notice the auction rate bond market cease to exist around the time of the crisis? We are in a fragile respite from result of the unsustainable economy of 2001-2007 (or longer).
Seriously, in 2008, a boulder rolled half-way down a hill and massive world wide spending brought it to a halt.
Sorry if I can't give a single factual pointer to all this stuff. It's more a matter of the economy's "big picture".
I would recommend Doug Noland's Credit Bubble Bulletin.
I'd especially recommend the earlier issue, where he extend's Hyman Minksky's idea of Ponzi finance.
As for the indebtedness, I was speaking about the key layers of the economy - personal/household debt[1], corporate debt and public (government) debt[2].
We've grown accustomed to the debt as a regular part of our life, of how our households, businesses and whole countries work. This is very dangerous.
Regarding the unaccountability of the for-profit players, mind you, I'm pro-free-market as anyone here. But this piece of news[3] makes you rethink what happens at the highest level of the market, how the largest enterprises become uncontrollable institutions on their own.
That third source is the Rolling Stone article everyone has seen a thousand times, wherein many perfectly ordinary market maneuvers are presented mixed in with a few instances of meso-level shady-looking deals, spiced with inflammatory rhetoric to make everything look bad. Then the whole parade of anecdotes and claims is cast as a sinister, company-wide conspiracy to deliberately profit off ruining the American economy, putting Goldman on the same level as the mythical Illuminati. Of the sources you could have chose to cite, that one isn't the best.
I don't really understand the confusion surrounding how much debt is bad. Debt is good when it allows you to make more money in the future than your cost of capital. It is bad when your cost of capital is higher than the amount of additional income you derive from that capital. If your cost of capital was greater than the income derived, then you lost money over the long run by taking out that debt. There's only one good in play (money), it's completely fungible, and so this should be self-evident. If it's not, it's also covered in first-year econ.
Now, there's a lot of uncertainty as to whether a particular investment will yield returns greater than the cost of capital, and this is why CEOs and CFOs get paid big bucks. But the fundamentals themselves are not hard. Nor is it hard to look at $9T in federal debt, $2.5T in consumer credit, or $600K mortgages taken out by families with $30K in income and realize it's virtually impossible that the additional income generated by taking out that debt will pay for the interest on it.
Ask economists how much debt is bad and you will get vastly different answers. There is genuine reason for confusion.
See the arguments surrounding for example the bailout of Swedish (previously) and British banks (currently) - some consider it generically a bad idea to bailout for fear of debt generated but in the Swedish case it paid off and appears to be paying off in the British situation too.
This sort of debt was useful right?
But because it's a difficult question the easiest answer is to consider debt generically bad, and it is absurd at at least two levels.
Firstly, one shouldn't have to describe why lending and reciprocally debt is useful. You also have to ask what else could have been done and the "all debt is bad" brigade usually waffle.
Secondly, the cause of the financial crisis was "bad debts" in the form of incredibly risky securitisation schemes. Why the hell were risky loans repackaged as triple A securities. It's like making coins out of butter and bills out of sugar paper.
The wailing and gnashing of teeth of how it's our own greed caused this is just a smoke screen for the way the regulation system, capitalism and the chain of involved politians let everyone down.
Then people think a penance should be paid in terms of austerity - unfortunately that austerity is as likely to cause even more pain down the stretch.
Do you mean the collapse of the economy or the stock market crash? They are different. The article is about the stock market which is up close to 50% since the March 2009 lows.
I assume he means the real economy. Unemployment is down maybe 0.3% from its highs, foreclosures are up, consumer spending never really recovered. By most metrics other than the stock market, we never really left recession.
This just in: an uniformed writer has ten reasons not to invest. In other news, there's unrest in the Middle East.
Almost nobody in the world can predict stock trends profitably. You especially cannot predict stock trends from articles in the paper. In general, people smart enough to predict stock trends and understand the macro factors will be working in stocks, not writing second-rate personal finance pieces for the WSJ.
(Also, the article essentially begins with, "I don't make predictions... but here are 10 reasons I predict a crash might happen". How silly.)
In general, people smart enough to predict stock trends and understand the macro factors will be working in stocks, not writing second-rate personal finance pieces for the WSJ.
In general, a reputable paper like the WSJ will hire people that are smart enough to predict stock trend and understand the macro factors, people that may be working in stocks, to write finance pieces.
You provide no arguments to support your assertion that the writer is uninformed. The only argument is a single broad stroke that implies that nobody with enough understanding of the subject writes for any newspaper, which is easily refuted by all the articles written by exactly such people over the years.
In general, a reputable paper like the WSJ will hire people that are smart enough to predict stock trend and understand the macro factors
This is not true at all and I don't know where this is coming from. The signal to noise ratio in the mainstream media's personal finance pages is famously low. The WSJ is known for its reporting, not its investment advice. And had you bothered to look up the author on Wikipedia, you would have seen he doesn't work in equities, and apparently never has.
Sure, the author might turn out to be a genius who identified all the factors that will lead to the next big crash--if so, how come the genius reasoning is not evident in the article? Assertions like the second item--'the Fed is buying Treasuries, must mean they're nervous'--are presented in an unconvincing way. I assumed it was self-evident that these claims were unconvincing, but apparently it wasn't so.
So here's why that claim, among others, was uninformed: the Fed's stated policy is actually to not change the size of their portfolio of securities held outright. The treasury purchases are offsetting principal payments of other debt. The neutrality of this policy does not suggest 'nervousness' at all. http://www.newyorkfed.org/markets/opolicy/operating_policy_1...
I assumed it was self-evident that these claims were unconvincing [..]
Then there's no need to comment. Comments in places like these add value when they contain information above and beyond what is already contained in the article. If your assumption is correct, your comment simply states what everyone already knows. If the assumption is incorrect, your comment doesn't provide any argument to convince others that your claim is correct and the article is wrong. In either case, your comment doesn't add anything. There's no need to point out the blatantly obvious, unless to explain why it is blatantly obvious to someone for whom it isn't blatantly obvious.
What threatens the signal-to-noise ratio of HN is that more and more people start making unsubstantiated claims concerning articles. They may be right, but I, as someone with only casual knowledge of a given subject, will never know. People responding only to state their opinion, without supporting it with possibly convincing arguments. I don't feel those kinds of comments are worthwhile.
And had you bothered to look up the author on Wikipedia
My point is that your argument was too broad and this individual author's credentials are inconsequential. Even if reporting in personal finance is awful in general, then after your comment, I still didn't know why this piece in particular is awful.
The motivation behind my post was to claim that the original article is not news and not valuable. On a website that calls itself "Hacker News", I think it's important to talk about stuff like this. Maybe pretentious, but not valueless.
I also don't like how the financial news seems to lead people to throw their money away to traders by investing randomly and panicking every time the stock market burps. Even though the writers are probably mostly well-meaning, the stuff they write isn't helpful.
cynicalkane's biased; he programs for the Chicago Mercantile Exchange. Of course he wants to persuade the lemmings to invest so that he still has a job. Logical? yes. Immoral? probably.
It's nice that you think the HN readership is a bunch of lemmings off whom I intend to directly profit, but the CME is a futures exchange and has almost nothing to do with personal investing.
I'm a little skeptical of claim #1. According to Reuters, the P/E of the S&P 500 is at 16.1 (see http://www.reuters.com/finance/stocks/financialHighlights?sy...; look in the "Valuation Ratios" section in the right-most column). If 16 is the average, then the market is fairly priced.
The Schiller figure he references might include all publicly traded companies. If so, it might suggest that less well-known companies (outside the 500 most popular) are over-priced. But since the 500 most popular drive the market, you can't conclude a crash from that.
Most large-cap companies I have been looking at are trading at 15 year lows for the P/E, and at close to 15 year highs for dividend ratios. They still might be over-priced in an absolute sense, but we haven't seen prices this good in 15 years.
I downloaded his Excel sheet (which has more recent numbers than Wikipedia). I'm not sure what he means by "real price" and "real earnings" (as opposed to "reported earnings"?). But if I add a column for "real P/E", it puts us at just under 20, which is on the historical high end. So, following the trend in his data, I would expect the P/E to gradually decline to 15 or so, maybe even down to 10. (Under 10, buy like mad.) However, his data show gradual rises and then declines over a period of 20 - 40 years or so. These are punctuated with sharp drops, but according to these data, I would expect the next correction to drop us down to maybe 18 at most.
From some cursory chart exploration on yahoo, it looks like large-caps might not follow the market moves as much. Mar 2009 was about 50% of the S&P 500's current level, but KO only differed by 30% and JNJ only varied by 10%. I'd say solid dividend companies are not necessarily overpriced.
Real vs reported means that the real numbers have been adjusted for inflation from some base year (and looking at the CPI from his data, the base year is mid 1983). The problem with looking at such a huge data set (this goes back to the late 19th century, is that the companies, industries and the world that we live in shifts significantly over time. So the 'real' numbers are extremely important, but I'd have to do some more research to find out how his CPI calculations change from one era to another. This is important because (to the best of my knowledge) there is nothing that says that the P/E ratio of a major industrial company in the 30s (thinking like Rockefeller, etc.) is equivalent to that of a big tech company now. So as industries change, investment attitudes, etc. change, which will affect the overall P/E.
And as far as the market being expensive in relation to historics, again you have to compare apples with apples. There are more people investing now than 50 years ago, and there are more big companies. Both of these facts will drive up the price of the mainstream companies' shares.
(There were 3891 total companies when viewing the whole market.)
The distribution skews high though, so it's quite possible that the mean is about 20. OTOH, just what does a "mean" mean for P/E? Capitalization-weighted? Earnings-weighted?
If you look only at companies with a market cap > $1B, there are 1626 firms, and the median is again about 16. Same with $10B - this seems remarkably consistent.
"Most attempts to explain market failures seek to pinpoint triggering mechanisms that occur hours, days, or weeks before the collapse. Sornette proposes a radically different view: the underlying cause can be sought months and even years before the abrupt, catastrophic event in the build-up of cooperative speculation, into an accelerating rise of the market price, otherwise known as a "bubble." "
Sort of an OK article, but he misses the big point: the USA spends more money on their war department than the rest of the world combined, and we don't get any decent kind of return on that investment (although the defense industry and the congress members who they bribe do).
Sorry to sound cynical, but when talking about the economy, people tend to ignore the proverbial 800 pound gorilla in the room: 'defense' spending. This should be the center of conversation about the economy.
And defense spending is where billions are lost on side-projects which if made in the public sector, would lead to tons of innovation, but in the defense sector only lead to innovations on killing, which never helps the economy.
Almost all of the innovations that the post-war prosperity was built on were initially innovations in killing. Radar, sonar, microwave ovens, synthetic rubber, jet engines, antibiotics, atomic power, plastics, employer-provided health care, widespread automobile driving skills, rockets and space travel, satellite communications, computers, the Internet, and GPS all came out either WW2 or DARPA-funded research after the war.
I hate wasteful defense spending and the military-industrial complex as much as anyone, but saying that innovations in killing never help the economy is just patently false.
The other commenters basically have it right. Given similar funds, no, there are lots of other organizations that could have provided these innovations more effectively. And really, I'd love to see the government double down on peaceful basic scientific research.
The problem is that these organizations will never be given similar funds. People respond to fear; they don't respond to the Higgs Boson. The only way to get billions invested basic science is to say that without it, we're at risk of nuclear annihilation from the Russians/Iraqis/Afghans/Chinese.
You got the answer right there in your sentence: educate people. And then make sure the center of power lies with educated people. Only trouble is, that's not how this things called democracy is supposed to work
> Do you have any evidence that shows that, given similar funds only the military could have provided these innovations?
It doesn't much matter if something else "could". What matters is whether something else "will".
Past performance is no guarantee of future results, but it is a constructive argument.
I'd love to see other sources of innovation. (And there is one, but it's often military-associated.) However, it's dumb to rely on them until after they've produced.
Uh, this is a serious question. The parent seems to make the argument that military is not a bad investment because it brings lots of innovation. I don't think that follows. The US invests vastly more in military than anything else. Of course it's going to have lots of innovation.
I think the point is that the military is the easiest sell - sadly - for such levels of massive investment. Ensuring the survival of the American nation is something that Americans seem very willing to spend lots of money on.
If earth was for certain doomed in a short term astronomical sense, I'd wager that NASA would see all the funding and then some that the military complex sees.
The inventions listed are all beneficial spin offs of ones that were designed to further the military's main goal: killing. It is unlikely that something such as RADAR is invented when it is if one does not need to shoot down aircraft carrying thousands of pounds of bombs.
There are simpler and easier ways to accomplish everything else we use RADAR for.
If you believe - as many do - that our "defense" agenda is much of what protects the dollar's continued status as a nearly universal reserve currency, our defense budget is an amazing investment (notwithstanding the terrible, non-monetary costs that accompany defense spending).
Wait, so you're saying that the dollar stays relevant because the US is using violence to ensure it stays so? And you're calling such activity an "investment"?
That's trying to pin a bit of an exaggerated worst interpretation on me, isn't it? We don't have to endorse or approve of things to see them for what they are.
Moreover, defense spending doesn't necessarily equate to violence. Look at the trillions spent during the cold war, paradoxically spent to avoid violence.
>That's trying to pin a bit of an exaggerated worst interpretation on me, isn't it?
No, I'm trying to get you to look at what you just said. Spending money on killing people isn't an "investment" no matter what you find out in doing so.
>Look at the trillions spent during the cold war, paradoxically spent to avoid violence.
I think if you look into it you'll find that that money was indeed spent on violence. Just by violence by proxy.
If defense spending keeps the dollar strong, it is the definition of an investment. What word would you prefer used to describe the US' empire building/maintaining, and why?
Even today, during two active wars, if you look through the appropriations bills you'll find that a surprisingly large amount of US defense spending is not spent on violence. Back in the cold war, the proportion spent on maintaining that detente was even greater.
Is investing in McDonald's or BP not an investment? Both wreck lives too. Like I said before, acknowledging things for what they are doesn't mean that we also endorse or approve of those things. I certainly don't approve of the US' actions overseas, personally.
We seem to be on a subjective, slippery slope here. What would you call it, if not an investment? You skipped that part.
I should really avoid reading pieces like this. Tempts me to pull out of the market again even though I intended to hold my investments for decades anyway -- I only buy big ol' corporations that pay good dividends.
There's a strong self-fulfilling prophecy effect caused by mob decisions. If enough people think the stock market will go up, there's a surge in demand to buy stocks and so stock prices go up. If enough people think it will go down, they sell, and prices go down. Funny that.
So the real money may be in being the minority better, especially if you had some way of predicting what the masses will do next so you can take a position that will be profitable for you once the masses start betting. Thus, there's incentive to do a sort of front-running operation but on a huge scale. And to do it you need a media operation of some sort, and possibly some propaganda organs. Any guesses as to whether these theoretical entities already exist?
And with the economy, perception can become reality. If a player has a large enough bullhorn they can spew forth Messages that, if enough people believe them or act on them, can nudge economic reality in whatever direction they'd like. The WSJ is one such bullhorn.
Yeah, all they did was interrupt the correction, not stop it. And they're using the same unsound policies that created the bubble, trading our longterm economic health to get short term consumption-driven phony growth.
Wow, a top 10 list article the the WSJ. I totally expect the US market to go down again for the simple reason that right now, the US looks like a failing empire that can't pay its bills on all levels from consumers to government.
Indeed, but remember that there as long as the collectors don't come knocking, whether or not you can pay at any one moment is irrelevant. In this case, it would take China calling in its US loans to adversely affect the States' ability to maintain, and even extend their levels of debt. For various reasons (the least of which is not that the US is the largest importer of goods from China) this isn't likely to happen. At worst China just moves away from holding US Dollars and more reasonably distributes its holdings worldwide. This will likely move the dollar lower, but is unlike to cause any long-term distress.
I agree that the economy is quite uncertain right now. However, waving the flag of doom isn't really productive at this point. Particularly when you're cherry picking data to arrive at what appears to be a foregone conclusion. I don't know if it's a fascination with disaster or (I suspect) more politically motivated.
We aren't talking ourselves into a crash, we're spending ourselves into a crash by allocating the funds for rebuilding the economy to those that destroyed it and hoping that they don't decide to make the same mistakes again.
Wishful thinking can't save an economy, but it can create a bubble.
More than doomsday, they play to fears. Back in 2005 it was about DOW 30k and how what a gem real estate was. The fear then was to being "priced out forever". Buy now or lose out, because your puny income won't compare with how much a 100 square foot shack costs in 10 years.
Now its about DOW 1k and losing everything you own.
I never understood how anyone could believe the priced out forever argument. A friend tried to argue it to me, but could never explain if everyone is priced out then who is left to buy? It just never made any sense to me even at the high point of the bubble.
I was successful at keeping 2 of my friends from making horrible financial decisions, but a third went ahead anyway. Now she's stuck owning a crappy apartment with an upward adjusting mortgage.
Here we are again, trying to convince ourselves that the boat is still sinking. I really don't understand the lower galley's fascination with drowning.
For every item on the list you can point to trends that are positive for the exact same metric. The boat is still afloat.
I agree that the availability of fine wine is quite uncertain right now. However, waving the flag of doom isn't really productive at this point.
Either way, it makes you no better than that Jack Dawson guy.
I'm really beginning to hate that argument form more than Affirming the Consequent. What exactly do you think you've demonstrated? What valuable point have you established?
Crashes can always come. Efficient markets have already priced in all these well known reasons for one.
This article makes the classic mistake of exaggerating the known risks.
Actually the crash is just as likely to be caused by something unknown. Maybe the US market will crash because the introduction an old age pension in China means they don't need to invest as much, and they just use the money buy Sushi instead.
I think this paper does help put bounds on the upper limits to creating efficiency through some mechanisms. Using those bounds you can think about the limits to which reasons for crashes are not reflected, based on size of the time series of crashes.
I always think of efficient markets as an idea like a frictionless surface, an invalid, simplifying model to make the mathematics tractable. So the question would be is the market close enough to efficient that well understood crashes are reasonably well reflected in it, most of the time: implying you should be thinking about something else.
I guess I should not believe in efficient markets since I work for a large active fund manager.
Our definition of "weakly efficient" is different that the paper you site. Our definition is "close enough to efficient to make exploitation infeasible". And I can't simultaneously believe in that, and believe in our products.
I totally lost any trust to the author of that article after I've read this:
> 9. We're looking at gridlock in Washington.
Gridlock in Washington is a good thing for economy.
Government is not capable to interfere with business and spends less -- the result -- boom in the economy which we observed in ~1994-2000 ("Clinton with Republican Congress" era).
Beware the blanket assumption of 'gridlock is good". Gridlock in DC is good when it meant the rate of damage done is scaled back. It's not good when it means hard choices (spending reductions) aren't made. I read 'gridlock' as more of the same: kicking the can down the road, more pork, etc.
But, I'm kidding myself to think that DC would make the hard choices.
All the unemployed could, and probably should, be put to work building/restoring public infrastructure. None are now because that would be "socialism".
Well, I suppose that came out sounding a bit communist, and OT. Fwiw, the point was that, if there's gridlock, then there's no hope of seeing any of the needed job-and-value-creating investment in public infrastructure development.
Insightful piece. However I feel it is not correct to measure deflation by housing prices, since they are never factored in inflation index firstplace.
But the debt behind the houses will default, resulting in deflation. You're talking about the CPI, which always only measured owner equivalent rent (so they could hide the inflation).
But is there any widely used inflation index that takes house prices into account? It is bound to show tremendous inflation, yet we never see that kind of figures.
The Shiller index was one of the best metrics for prices themselves but didn't relate to relative inflation that I know of, the math would be easy enough.
Only if this article represented the conventional wisdom, rather than a pseudo-contrarian view in itself.
Actually it's a difficult time for contrarian investors, since I'm not sure there is a conventional wisdom. But if I had spare money I'd be sticking it all into "socially irresponsible" companies: alcohol, gambling and oil.
Actually, the pink elephant in the room is the huge corporate debt - total domestic debts at 7.2 Trillions.
"American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.
Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%."
The real reasons - ultra high debt of all players, errors in the system, for-profit players not controllable by the three political branches - were not remedied, in fact they might have been even worsened (the debt increased because of the bailouts).