Financial Crisis

[flying]

http://www.cnbc.com/id/31706523

The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday.

"We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better."

The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.

[flying]

(BTW I do realize it would be a more interesting chart if it showed employment during the last depression - unfortunatley BLS stats only go back to 1948.)

Edited July 2, 2009 by flying

[Abrak]

(BTW I do realize it would be a more interesting chart if it showed employment during the last depression - unfortunatley BLS stats only go back to 1948.)

bloody hel_l Flying.... while that is a nice looking chart it is also very very confusing

You have two different 'Ys' neither of which obviously point to 2006-2009 numbers in that in 2006 I can guarantee that unemployment was at least double one line and at least half the next. And to the extent you can get unemployment up to 15% in 2009 you just have to assume it was 8% in 2006.

The grey area is the 2006-2009 data set because of the underlying trend and the number is so high compared to standard unemployed numbers because it has been adjusted for underemployed people to match 1930s data set.

IMHO the comparison is irrelevant as the 2006/2007 data when the economy was on a close to normal growth path. So why anyone would want to compare 2006/2007 to 1929/1930 I have no idea. As you can see unemployment remained flat.

So assuming if I am reading your chart correctly I can draw one rather scary conclusion. Unemployment increased 6 fold from 1929 to 1932 from 4% to 24%. If that was to happen again (and I agree it would be highly improbable) then unemployment might top out at about 50%.

We dont know how bias the data is relative to the 30s but if unemployment did increase 6 fold during the depression it is not unreasonable to see it increasing 3 fold during this recession which puts the unemployment rate up to 15% or more.

BTW there is also something misleading in your employment graph. 'Percent job losses versus the peak month' - to the extent that I read that data correctly it is wrong in that total employed has not fallen in every recession. Obviously they mean something else. 'Job losses' is essentially a fairly meaningless figure in that I dont believe anyone compiles the data.

Edited July 2, 2009 by Abrak

[Naam]

What you should realize is that deflation -10% prices as in 1932 is so value destructive to an overall wealth portfolio that despite its improbability you have to hedge against it.

Abrak, before i [not so] humbly beg to differ i ask for a definition and an explanation.

-define the components of an overall wealth portfolio.

-why should deflation be destructive?

[flying]

bloody hel_l Flying.... while that is a nice looking chart it is also very very confusing

So assuming if I am reading your chart correctly I can draw one rather scary conclusion. Unemployment increased 6 fold from 1929 to 1932 from 4% to 24%. If that was to happen again (and I agree it would be highly improbable) then unemployment might top out at about 50%.

I know & I agree it is confusing at best but the only one I saw with a compare.

As for your comment in bold above?? I have no idea either way.

I sure do not see it as impossible.Here is another you can play connect the dots with

[flying]

Oh boy this is another one of those........ HUH?? moments

California Government......

Isn't that the govt we refused to bail?

So now the bank we bailed with 20 billion will bail them?

Hmmm we are going to need a program or we will never keep this all straight.

Truly musical chairs isn't it?

http://www.marketwatch.com/story/bank-of-a...rnia-state-ious

Bank of America to accept California state IOUs

LOS ANGELES (MarketWatch) -- Bank of America Corp.said Wednesday it would accept warrants issued by the California government on a limited basis through July 10, which the state is using as a budget crisis freezes its spending. "Bank of America recognizes the State of California budget crisis will impact our clients and customers," it said. "To support our customers, while giving the state legislature additional time to pass a budget, we will accept California state-registered warrants -- or IOUs -- from existing customers and clients."

Edited July 2, 2009 by flying

[teletiger]

If the BoA can do this....presumably because of it's TARP funds....it begs the question...."Who is running the US government"?

If this is FED orchestrated, it's a real slap in the face to Obambi. Not another bloody conspiracy.

Regards.

[Abrak]

Here is another you can play connect the dots with

Actually I have been wondering how to 'connect the dots' with your previous graph which is shown in an updated version below.

(The reason to update it is to show that the current data set fits better.)

While the chart might be self-explanatory to some it is quite a different way of looking at employment/unemployment so it certainly confused me. It is however very interesting.

First of all what does it actually show? It does not reflect unemployment in any manner - it reflects employed numbers. It shows the percentage of reduction in peak numbers employed as a percentage of peak numbers employed. So when the line crosses zero on the way back up, it means the economy will be employing more people than before the recession started. Unemployment will still be higher because there will have been growth in the total number of employees.

So here is where the chart looks interesting if a little depressing. If you look at the three longest 'employment recessions' since the war they have been the last three in direct order - 2001 being the longest, 1990 the second longest and 1980 the third longest. And consider 2001 for instance, it hardly registers on the map of significant recessions by virtually all measures. Not that many jobs were actually lost relative to peak employment but it took the economy nearly 4 years to get back to employing the same number of employees.

What I definitely think you can see from the chart is that the US economy has lost virtually all momentum in terms of employment growth.

Now clearly that red line we see in the current recession isnt going to go down forever. Let's sat it bottoms out at 7-8%. Well the last recession took nearly 4 years to recreate the job losses of 2%, so how long is it going to take this time. And in so far as you are relatively optimistic and say assume 7 or 8 years, remember that as the number of 'employees' grows every year - in that you have managed to get employment back to 2008 levels, you will still be left with an unemployment problem.

[Abrak]

Abrak, before i [not so] humbly beg to differ i ask for a definition and an explanation.

Jesus, Naam you expect people to make comments on the web AND justify them?

-define the components of an overall wealth portfolio.

Well by that I mean that people hold both financial assets and non-financial assets. I have for instance over a dozen properties of which, rather foolishly over half are in Thailand. There is no debt attached to them. So in that sort of light for instance you can see that if the world economy was all hunky dory and we returned to wealth, growth and prosperity, I might not feel too bad about a bunch of financial assets (that would probably be worth more) but were geared to a deflationary income scenario.

-why should deflation be destructive?

Now you are asking a difficult question. Before I answer please accept that you are bond bias to the same extent I am equity bias. So maybe to you inflation is more destructive 'generally' than deflation. I would however argue that if we set our biases apart, then deflation is destructive to overall net wealth.

First of all consider that we are effectively at ZIRP and a 2% inflation scenario.

Now think of equities which are based on earnings which in the long run are assumed to grow in line with 'nominal GDP' and whose value is determined by the discount factor. Reducing the P will reduce long term EPS while the whatever interest rate you use to discount earnings is unlikely to fall much given ZIRP. So deflation is destructive to equities.

House equity is a combination of asset price and debt. (I know there is a little simplification here.) But a general decline in P will leave us with the same amount of debt and a disproportionate decline in E.

To the extent that any given problem with an economy is indebtedness and the resolution of that problem incurs costs. A reduction of P v PQ while debt will be unchanged should exacerbate the underlying problem. More significantly perhaps resolution of economic problems usually require 'real' adjustments and as prices tend to be sticky on the downside, 'real' adjustments are best made at least cost in the shortest possible amount of time through inflation.

Finally the upside in deflation in that one didnt look at its absolute affects but in terms of transfer of value should come from the value of debt. You can easily argue that if we assume negative inflation over the next 5 years, the 10 year long bond UST goes to a 1% yield, you make huge nominal profits from the rise in UST and your real turns are even higher. You can even argue if you like that as we are dealing with the same bunch of assets at the end of the day inflation or deflation cannot be net destructive simply a reallocation of wealth.

The problem that I have with this argument is 1) to the extent that bond/debt prices are based on collateral what you actually find with deflation is that although the theoretical value of any given debt goes up, its actual value may well collapse as a result of default. 2) I would also argue that so much as there is simply a transfer of wealth in the whole exercise of a certain bunch of assets it is a transfer from a given buyer (who saw x amount of utility in an asset) to a lender (who clearly sees less than x amount of utility in that asset (or would have bought it himself)). So net, net there must have been a loss of value.

Now I expect that explanation is long enough that you will never ask me for an explanation again. I merely wish to state that I do not consider deflation by nature destructive simply because as P goes down on average your wealth will go down in nominal terms.

[teletiger]

First of all what does it actually show? It does not reflect unemployment in any manner - it reflects employed numbers. It shows the percentage of reduction in peak numbers employed as a percentage of peak numbers employed. So when the line crosses zero on the way back up, it means the economy will be employing more people than before the recession started. Unemployment will still be higher because there will have been growth in the total number of employees.

But wouldn't the number of retirees, to some extent, cancel out that employee growth number?

Regards.

[Abrak]

But wouldn't the number of retirees, to some extent, cancel out that employee growth number?

Regards.

Absolutely that is why the BLS has to make an adjustment based on what it calls 'births' and 'deaths'. In other words you have to take into account people entering the employee base at one end and leaving at another. The 'net' result is that the employee base is growing. Despite 10% unemployment there are about 10 million more Americans employed now than 10 years ago, so the employee base has risen even faster.

This is actually forecast to continue for the next 40 years or so. This might seem rather surprising given the US demographics whereby over 65+s will increase as a % of the population by 50% over the same 40 years. What one has to remember is that the US pop is getting older largely because everyone lives so dam_n long. They maybe dying from the employment pool but they refuse to actually die. So the number of employees is still expected to grow but the number of 65+s will grow faster.

[AlexLah]

Hi Abrak, I just have to say I like your postings.

This whole discussion started with the thread called: When is the end of crisis or something.

The financial sub segment was always a boring one, people bragging on how much money they made and posting Elliot wave theory and other charts, Technical traders they called themselves.

Why is it that when you talk about the economy, those financial "Experts" come in and try to convince you that they are above the sheep and know what to do with your money?

So when "The Crisis" hit in September I said it was staged and we were not being told the truth, and as it turned out we were not and I was ridiculed by some

In the old thread I started to post some pictures that were really questions that I asked myself but wanted to share and see the response from open minded people in order to have some kind of balanced view.

See my AV and stating: The one that knows. It comes from the movie": The Matrix, same like Naam saying he is a Klingon including Av.

Just tongue in cheek stuff.

So when I was ridiculed by some, stating that this financial crisis was staged, (Look at Paulson statement to invoke panic)

I thought it was time to sort of proof that it is.

Also to proof to myself to show that what I said was real.

I know the words written do not show the person so please have a bit of an open mind, I am really a nice guy and sure we could have a nice beer together.

So I made the posting that from Feb 9 would see a crash, about 4 months before and mentioned number 9. Dow did crash at that time about 2000 points. I PM some person about this and mixed this into the fictional story of Joe in the other thread. Went back up around March 9.

I was ridiculed again so I was thinking what if I could predict the day and the duration and so I did.

Again some vitriolic responses.

I know when the next crash is planned but see that people just not believe.Although I did 1 time before on the exact date and did a second time for a minor downturn and stated the duration and starting date.

Just try to explain some things, no bragging.

Take care all!

Alex

.

[BlackJack]

BEIJING -- China has taken another step toward internationalising its currency and reducing reliance on the US dollar with the announcement of new rules to allow select companies to invoice and settle trade transactions in renminbi.

The regulations released by the People's Bank of China, the country's central bank, will allow approved companies to settle transactions through financial institutions in Shanghai and other cities in southern China.

Offshore, the trial scheme will allow transactions to be settled in renminbi in Hong Kong and Macao, the two self-governing territories on China's southern borders, and later in a limited fashion in south-east Asia as well.

[teletiger]

Chin up there Alexlah. Are you familiar with the word anonymous? It means no one knows who you really are.

Just let these jibes run off you......like water off a ducks back.

You're doing a sterling job. Keep it up.

Was it Atilla the Hun who longed for the sound of "children crying and women wailing"?

These sorts of outbursts could have certain posters spitting port, or a half decent sherry, all over their favorite keyboards.

Regards.

[MJP]

I really had no idea the 'The Mash' wasn't real. It certainly seems to be the only paper that tells the truth or makes any sense.

I hope you wont take that as meaning I consider you a complete and utter moron.

Hey you great big nelly, of course not, you're one of my real internet pals. Shame us lot don't meet up really, but I guess we're all spread out over the continent.

Look MJP. In that you are calling me a 'big nelly' I am beginning to think that 'you thought, I thought' that your comment 'I really had no idea 'The Mash' wasnt real.' was a serious comment. In which case you must be wondering whether I am the complete moron or not - if for whatever reason you didnt think I wasnt taking the piss I will put in a few explanation marks next time for emphasis!!!!!!!!!!

Now I'm confused.

Do you like the Mash though, Abs?

[Abrak]

Alex,

To the extent you can predict market movements it is a rare and highly valuable talent. Any ridicule you are exposed yo will be nothing compared to the jealously of the same punter who see you in your brand new Azimut 70 surrounded by babes who 'love you long time' (and far too long in your opinion.) Those punters will at best be flicking through the brochure trying to justify buying a fractional share in one.

http://www.azimutyachts.com/com/en/

You have to feel sorry for those economists who are super smart and can see the future as clear as day but are still ridiculed by many and whose predictions, while accurate are worthless.

When Krugman said back in 2002 that the only way Greenspan was going to engender any growth out of the US economy was to recreate a bubble in the housing market (similar to that of the stockmarket) which when it burst would lead to ten Years of Japanese style lost growth and deflation...... that to me is a pretty accurate prediction but as 'Badge' would complain, not one you can make money off (and therefore I guess, in his opinion presumably, not a worthwhile prediction at all).

One prediction, I can fairly confidently make, is that without a major mid-life crisis, I dont see myself being in any position to own one of those boats for the foreseeable future.

[Datsun240Z]

It's very simple actually bring more work for people and reward them with a higher salary and lower taxes and all other prices. I know that everybody tends to get rich quick these days. But this is now going out of hand. Where is the pride of ownership? Where is the personal service?

It's nice that you people here come with all sort of analysis, but that aint gonna change a dam_n thing. Modern people tend to want everything at once, what happens? they start borrowing money, which they eventually can't pay back.

Now the common man is not so much the problem, it's are the owners of companies and the goverments, who feasted themselves, until now this is reaching it's climax.

The U.S.A is tend to care more about it's business and making war, than it's own goddamn country. Look how advanced cities like Tokyo, or Sjanghai are against L.A or New York.

The greed has to stop!!

Edited July 3, 2009 by Datsun240Z

[flying]

Here is another you can play connect the dots with

Actually I have been wondering how to 'connect the dots' with your previous graph which is shown in an updated version below.

(The reason to update it is to show that the current data set fits better.)

While the chart might be self-explanatory to some it is quite a different way of looking at employment/unemployment so it certainly confused me. It is however very interesting.

First of all what does it actually show? It does not reflect unemployment in any manner - it reflects employed numbers. It shows the percentage of reduction in peak numbers employed as a percentage of peak numbers employed. So when the line crosses zero on the way back up, it means the economy will be employing more people than before the recession started. Unemployment will still be higher because there will have been growth in the total number of employees.

Well of course I meant connect the dots with the chart that I posted with that comment.

http://www.thaivisa.com/forum/Financial-Cr...77#entry2846677

The reason being in your earlier post you said you could not find UE figures any further back that the 48.

As for this graph I will only say what the person who originally posted it said since it is not my work...

Employment

Here is a repeat of one of the graphs this morning:

This graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

The current recession is now the 2nd worst recession since WWII in percentage terms - and also in terms of the unemployment rate (only early '80s recession was worse).

I do agree for the most part with what you said about the graph & believe you are reading it correctly. It is not UE but job loss during *recessions* relative to a peak employment *month*?

That aside in the long run I think we will compare this time we are approaching to UE or job loss during the depression not to job losses during any post war recession. But we will see

Edit: Maybe like this?

Edited July 3, 2009 by flying

[Abrak]

Look how advanced cities like Tokyo, or Sjanghai are against L.A or New York.

Now this is the sort of argument I dont like. It sort of implies that a 'Chinese' or 'Japanese' form of capitalism will sort of take the place of the inherently badly structured US form of capitalism. I hope everyone can see that all those books written in the 1980s titled 'Japanese Capitalism - imminent takeover of the World' or 'Japanese Capitalism' - structuring growth away from short term profitability to long term' etc.. are no longer in the library in that most people who have one have already binned it. If they have ever sacrificed short term profitability for long term, it is certain that noone is going to be alive to see it. I am sure the books on China's global dominance are on the printing presses but to quote Dr Faber 'we will look back on the Chinese economic miracle as the sickest joke yet played on investors.'

So lets just face it, there are inherent fundamental flaws in capitalism and capitalist economics. Now to the extent I can see them and they are obvious - so is a cure for US economic problems which I have also made and explained on this thread. The fact that it wont happen doesnt bother me a bit. I would admit it would be nice if someone came up with an alternative economic theory that was more efficient than capitalism but the best brains have been at that for well over 100 years and have failed.

[Naam]

Abrak, before i [not so] humbly beg to differ i ask for a definition and an explanation.

Jesus, Naam you expect people to make comments on the web AND justify them?

:D

[Naam]

Abrak, before i [not so] humbly beg to differ i ask for a definition and an explanation.

Jesus, Naam you expect people to make comments on the web AND justify them?

-define the components of an overall wealth portfolio.

Well by that I mean that people hold both financial assets and non-financial assets. I have for instance over a dozen properties of which, rather foolishly over half are in Thailand. There is no debt attached to them. So in that sort of light for instance you can see that if the world economy was all hunky dory and we returned to wealth, growth and prosperity, I might not feel too bad about a bunch of financial assets (that would probably be worth more) but were geared to a deflationary income scenario.

-why should deflation be destructive?

Now you are asking a difficult question. Before I answer please accept that you are bond bias to the same extent I am equity bias. So maybe to you inflation is more destructive 'generally' than deflation. I would however argue that if we set our biases apart, then deflation is destructive to overall net wealth.

Now I expect that explanation is long enough that you will never ask me for an explanation again. I merely wish to state that I do not consider deflation by nature destructive simply because as P goes down on average your wealth will go down in nominal terms.

indeed!

[Abrak]

As for this graph I will only say what the person who originally posted it said since it is not my work...

I do agree for the most part with what you said about the graph & believe you are reading it correctly. It is not UE but job loss during *recessions* relative to a peak employment *month*?

That aside in the long run I think we will compare this time we are approaching to UE or job loss during the depression not to job losses during any post war recession. But we will see

Edit: Maybe like this?

Flying,

You really do come up with some cracking graphs. (I will say though, that just because the meaning of them is obvious to you, it doesnt mean it is obvious to us. I was left there scratching my head for a while especially as the current data set didnt make much sense until up dated.)

Again this chart is great in that my first thought was it would be interesting to see how this chart would look like if you included the depression. I dont know where the pre-war data came from but it wasnt the BLS that is for certain. There is one thing that I think is sadly missing from that chart - it is that the 1930s data is not projected forward long enough.

I believe (for various reasons) that the recovery from that period of massive unemployment would have been relatively fast. (I say that knowing that the unemployment rate in 1947 was about 4.0% (lower than it has been in the 2000s at any time and knowing that the number of employees would have risen by about 20%.)

In other words, if your data is correct I know that total employment increased 50% in the subsequent 14 years after 1933 when your data set ends. This equates to some very decent employment growth (on average which I do not see as conceivable today.) So to me if unemployment was to reach 1930s levels (as there is no chance of the same economic recovery, you might as well write-off US capitalism.) A normalised US economy is not showing the employment growth it was in the past, so if unemployment reached 1930s levels it would take decades to resolve.

The very high rates of unemployment in the 1930s are based on 3 factors (1) extremely misplaced and counter productive fiscal policy (2) extremely misplaced and counter productive monetary policy (you should remember at the time, Governments believed it was unethical and even fraudulent to debase one's currency and in some cases they werent even able to because of a gold peg.) (3) I dont believe the data is all from the same source - so I have a feeling that say 2009 figures are understated or 1933 figs are overstated due to definition.

[flying]

Again this chart is great in that my first thought was it would be interesting to see how this chart would look like if you included the depression. I dont know where the pre-war data came from but it wasnt the BLS that is for certain. There is one thing that I think is sadly missing from that chart - it is that the 1930s data is not projected forward long enough.

Yes I agree it would be nice to see it projected but I wanted to also see Pre Sept 1929

I would have liked to see a year previous to the cliff.

One thing that crossed my mind when looking at this latest chart is something I think Naam? said before. It was in reference to Bernanke's work & how we would not have liked what would have been without the bailout.

Looking at this chart I see we are still pointed south more so than any recession but remains to be seen in relation to the depression where our bottom will be.

But....It is obvious we have a much flatter trajectory on the way down. At least for now & that is probably due to the work? of Bernanke & the Fed throwing $$ at the problem.

Interesting to watch as I have said before & we will see where it goes.

If nothing else I guess it gives us time to prepare. Tough to prepare for the unknown result though isn't it? Who knows how flat & how long this new graph line will travel. Is it anything more than time to prepare? Is it just delaying the bottom so in a sense delaying the start of recovery? Just wondering.......

Or are they just tossing it away? In which case making the inevitable worse as they devalue the currency faster than anything else would? Beats me but interesting to watch & wonder about.

[Abrak]

Tough to prepare for the unknown result though isn't it?

Yeah I think you have it. There are a lot smarter guys than me predicting inflation as the end result and a lot smarter guys than me predicting deflation as the end result. To me the average guy like myself should take this as the 'end result is unknown'. And <deleted> to the extent that your mates said it would end up in a deflationary spiral etc. to some extent I am simply going to think they got lucky rather than they are particularly clever when they are proved right.

[flying]

There are a lot smarter guys than me predicting inflation as the end result and a lot smarter guys than me predicting deflation as the end result.

Hey dont forget the others.....

Mr Stagflation

Mr Hyperinflation

&

Mr it all ends on 12/21/2012 so party hard till then

[flying]

India Joins Russia, China in Questioning U.S. Dollar Dominance

http://www.bloomberg.com/apps/news?pid=206...id=aSx4wlTQzexM

On another note very surprising to see 12 US banks go down in 4 business days.

Poor too little to succeed banks. Just does not seem fair at all.

http://www.fdic.gov/bank/individual/failed/banklist.html

You can open up to 150 entries on that page.

Look at how many banks failed per year pre 2008

[Datsun240Z]

Look how advanced cities like Tokyo, or Sjanghai are against L.A or New York.

Now this is the sort of argument I dont like. It sort of implies that a 'Chinese' or 'Japanese' form of capitalism will sort of take the place of the inherently badly structured US form of capitalism. I hope everyone can see that all those books written in the 1980s titled 'Japanese Capitalism - imminent takeover of the World' or 'Japanese Capitalism' - structuring growth away from short term profitability to long term' etc.. are no longer in the library in that most people who have one have already binned it. If they have ever sacrificed short term profitability for long term, it is certain that noone is going to be alive to see it. I am sure the books on China's global dominance are on the printing presses but to quote Dr Faber 'we will look back on the Chinese economic miracle as the sickest joke yet played on investors.'

So lets just face it, there are inherent fundamental flaws in capitalism and capitalist economics. Now to the extent I can see them and they are obvious - so is a cure for US economic problems which I have also made and explained on this thread. The fact that it wont happen doesnt bother me a bit. I would admit it would be nice if someone came up with an alternative economic theory that was more efficient than capitalism but the best brains have been at that for well over 100 years and have failed.

And so, my fellow Americans, ask not what your country can do for you; ask what you can do for your country.

John F. Kennedy

[Naam]

I know when the next crash is planned...

it goes without saying that "the one that [sic] knows" knows when the next crash is planned

p.s. i can understand why people make fun of themselves, i do that myself and it shows character as well as mental strength. what i don't understand is why people would ridicule themselves

[AlexLah]

Come on Naam it is weekend, have a bit of fun once in a while.

Life is boring enough at times, so here you can be a Klingon or say that you know when the next crash is, maybe I will crash at the bar tonight, ha ha ha!

[AlexLah]

Here the linky link for the dead mall site: http://www.deadmalls.com