Is It Really This Bad?

[Brick]

I wasn't sure if this post belonged in another thread or what so I thought I'd just start a new one. My intent here is to kinda play "devil's advocate".

I take my position as a watchman really seriously. I feel it is our duty to warn people when things are gonna get really bad, but I also don't want to be a chicken little or a boy who cried wolf but I also don't want to give a warning when it's too late. I've already started warning friends and family to look after stuff like their 401k and stuff cause there was lots of money lost when the tech bubble popped and most of them are oblivious to financials now.

The big question. Is the economic outlook really as bad as we think it is? I've read a lot of convincing articles about the upcoming melt down. I've also seen some who believe that all the doom and gloom is an over reaction. I guess what I want to know is what makes current market conditions so different that the entire system is on the verge of collapse rather than just enter a 70's like recession. I guess I need to go research the 30's depression and the 70's recession.

FWIW. I was born in 71 so I know of the 70's recession, but don't remember details.

[Tall Timbers]

In my Master's thesis I predicted that the USA would be bankrupt by 2000. I don't think I hit that nail quite on the head but I likely had the right idea.

I would suggest that we are bankrupt (because we could never pay back our debts) but we just haven't defaulted yet. A large part of our taxes now goes to service debt payments, that is one reason why the our federal government can't afford to maintain our basic infrastructure, schools, military, etc.

Things are definitely bad out there, but are we any closer to doomsday than say, in 1970? Things were bad then too. We're just 30 something years closer to when our financial system will finally collapse, if it does. Our world has known much more difficult times than what we're going through today. Take the great depression, the two world wars, the dark ages.

The problems we face today are solvable, but won't be solved by the world's corrupt politicians. It will take the antichrist to appear to solve them, and Jesus to do away with them.

So, the way I see it, things are bad and there are all kinds of big problems that could collude to bring disaster, but about the best we can do is prepare for tomorrow's possibilities the best we can while we serve the Lord today.

[Brick]

I'm still asking questions. I work for a company that is involved in the financial industry, estate planning and the like. I was able to pester one of our CPA's and a Company Officer about the current economic situation. A couple of things I noticed and thought I'd share, granted it's only two peoples opinions, but they know their stuff so I figured their opinion mattered.

Both of them said that the outlook for the near future is not good. One said that there is always market fluxuation around an election year and this year that is compounded by the mortgage crunch. They both expect a recession if we're not already in one. Neither of them expect a 30's style depression. I asked about banks. Are they as solvent as they need to be? Is my money safe? They said that banks are required to have about 60% of their deposits covered and 40% insured through FDIC. They both have confidence that the FDIC is more than capable of covering the rest even if we have the mega banks fail. They are also confident that with current FED managemnt we won't have a repeat of the 30's.

I hit the Wikipedia about the Great Depression. I'm still going through it all, but two things I noticed that seemed to be contributing factors were massive debt/credit and deflation of the dollar. I found it interesting that in current times we also have massive debt, most likey overextended credit. I don't see a deflation of the dollar in our near future. With the Fed pumping lots of "green backs" into the market I wonder about the possibility of inflation in the future.

Someone once said that when the US Economy sneezes, the rest of the world catches cold.

I'm kinda torn. I look at our current situation with an eye on prophecy. We know the destination, just not the route that gets us there. I am curious. Are most of these economists and financial experts too close to the problem to see the coming disaster are they over confident in the works of man that they are gonna be surprised, or are we trying to read too much into the currents situation?

Just asking questions.

[Tall Timbers]

One of the really big triggers of the great depression was the financial market meltdown. During that period a huge percentage of the population was investing in the stock market. The market kept going up (like the recent tech bubble phenom) and mom and pops kept buying stock. The calamity though was that so many people were purchasing shares of stock on margin. So when the markets collapsed, they not only lost the investment, they had to pay off the margin calls, leaving them with less than zero. But for a few fortunate families, the wealth of the common man and many of the wealthy was completely zeroed out. There were no welfare programs to turn to and quickly no jobs to be had. Those were really bad times.

I make my living in the financial markets. Brokerages give me huge margin credit which I then ask to have taken away. I wouldn't want to own a single share of a company on margin. It is too dangerous, and anyone who lived through the great depression would likely agree with that.

Whenever there is a downturn like there is now one wonders if the market will bounce back like it always does. I figure it will until the time comes to make way for the antichrist... then things will get different. Parts of the world have seen apocalyptic problems, but the entire world at once never has. I would have thought that $3 per gallon gasoline would have sent us into recession... but we seem to be limping along like we always do. The stores are full of people buying and the products are there to purchase.

[keylan]

It depends on who you are. If your job is connected to the housing market or or connected to Wall Streets toxic paper, its horrible. If your one of those who has bought a home on an ARM with little or zero down its horrible, you cant refinance even if your credit is good because your house is worth less cant sell it either.

The pain of this mess is going to be unequal but effect a small percentage of the population IF the goverment stays out of the way.:preach Now if they continue to lower intrest rates to bail out the banks and hedge funds were all gonna pay with hyperinflation. That will result in the loss of more jobs too, but not on Wall Street. But very few will be buying the latest and greatest toy if they cant afford to heat their home or buy food for the week.

Now if we have a taxpayer bailout for the banks via the excuse of saving homeowners from foreclosure every working family that is struggleing with high inflation and slow to non existant wage growth will feel the pain in higher taxes and our currency will be worth even less, we cant keep borrowing money today hoping to pay it on Thurs [Wimpy on the Popeye cartoon economics].

[Bernardd]

During that period a huge percentage of the population was investing in the stock market.

I don't have any figures, but I don't think it was that big a percentage.

[Tall Timbers]

I don't have any figures, but I don't think it was that big a percentage.

From all the reading I've done on the great depression, small investoring was practically a national pastime.

[Bernardd]

From all the reading I've done on the great depression, small investoring was practically a national pastime.
Wow! I must have jumped to some poor conclusions. I would have been astonished to learn that 33% of the population actually invested in the markets back in 1929.

[dramama]

Don't forget that credit card defaults and car loan defaults are climbing and hardly anyone has savings (a paultry 6% of americans have savings if I remember right) it's not just the housing market, it's an across the board problem...yes so far people are spending money but it's borrowed money they are spending......I personally think the rosey state of the economy is a fraud that will soon come to light...JMHO

[Big Daddy]

From all the reading I've done on the great depression, small investoring was practically a national pastime.

And as you stated in your earlier post here, the big problem then was that one could borrow money at a low rate, and invest it in the stock market and enjoy a larger return. They were able to make money on borrowed money.

When the market crashed, they lost their investment, and STILL owed the money that they borrowed.

This is part of the mechanism of the subprime melt down. Also the hedge funds that are tanking now. Borrowed money being invested, on the hope that the market will continue to climb.