Wednesday, October 08, 2008
Hope for the best, plan for the worst
How bad might things get? It is very hard to know. The last time the world experienced an economic mess of this magnitude, life was different, and the world was very very different. This is pointed out by some as a reason things will be different, and possibly not be as bad as they got in the 1930s. But it could also be a reason why things could be a lot worse. It is impossible to predict what might happen but we are much more interdependent, less self sufficient, and much more dependent upon institutions than folks were back then. 30% of Americans still lived on farms in 1929 and could sustain themselves. Its about 1% now. Should the "D" word actually come into play, a lot of people won't know what hit them, and everyone will be affected deeply.
4 Comments:
By 
Escort81, at
Wed Oct 08, 09:41:00 PM:
I think this is on the verge of becoming a "stock up on ammo" blog.
At the very least, it sounds like a good start-up business idea would be to put together a "backyard farmer in a box" kit: a manual tiller, organic fertilizer, seeds for various veggies and fruits, etc. Maybe GreenmanTim and I could put together a business plan. It's a shame, because I really like the produce at the local Whole Foods, which is only about a mile away (not many McCain voters there, however). I'll be sad if/when Whole Foods tanks or the distribution network breaks down so badly that fresh produce is no longer available. I do have actual experience running an old Ford 1500 tractor with a PTO at my grandparents' old place in Bucks County, PA back in the 1970s. There is nice fertile soil in that area.
Whatever comes our way economically over the next few years may indeed be tough medicine. We may see an attempted expansion of government that would make FDR blush. I think there are limits to that, however, based on tax revenues and deficits.
If the culture can learn some valuable lessons from economic calamity, perhaps we'll be better off in the long run -- a small silver lining, that.
By Counter Trey, at
Thu Oct 09, 01:30:00 AM:
This comment has been removed by the author.
By Counter Trey, at
Thu Oct 09, 01:31:00 AM:
In the 1930s the money supply contracted by close to 35% because the Federal Reserve was incompetent. Most point to that contraction as the cause of the Depression.
Do you really think that Bernanke--who is who he is because of his extensive study of the Depression and its causes--would let something like that happen again? He is already way out in front on this. The money is starting to slosh and money always reflates.
At this point the markets are plummeting because of irrational fear that is the inverse of Greenspan's irrational exuberance. These things happen to humans sometimes and, absent a socialist coup, the smart people get rich off of it.
Look at the $30 billion Buffett spent in the past few weeks; smart guy. "Aw shucks Lloyd, do you really want me to take $5 billion of Goldman with a 10% dividend yield and warrants that are already deep in the money? If you insist."
By Charlottesvillain, at
Thu Oct 09, 09:19:00 AM:
We'll see how that works out. Buffett is a smart guy, and put money into the firm most likely to survive. I'd be more impressed if he wrote a check like that to Citigroup, but I don't believe he will.
The financial system that emerges from this wreckage will be very different from the one we have known, but there is still no clear path to whatever is next. There are many many institutions that will still fail, or are propped up like the Japanese zombies. Securitization is likely dead for years. Rating agency credibility is gone, certainly for years and possibly forever.
The entire consmer credit apparatus is breaking down and needs to be rebuilt from scratch once the junk is cleared away. But that can't occur until the market clears. So in the meantime, mortgages, home equity loans, auto loans and leases, and consumer credit cards will be much harder to come by and much more expensive than they have been for many years.
As for Bernanke, he will certainly try to flood the market with liquidity, but these efforts must be financed by foreign investors, so it is not a question of Benanke "letting" or not letting something happen. We are in many respects at the mercy of others.
