2009 could be 1929??

[Galbally]

Originally Posted by QUINNSCOMMENTARY

We have gotten ourselves into a mess that is growing largely because of fear which is turning what should be an isolated problem into a broad based serious recession, but a recession while bad for many also presents opportunities.

The US election helped to fuel that fear as did the media. From a rational point of view if you have a job and did not get yourself into debt you cannot handle you should be fine, after all about 93% of Americans are working which is only a few percentage points less that three years ago. In addition, because of the recession inflation is under control and even oil is down which ripples to lower gasoline, food and other prices. Soon buying a house will present bargains.

However, because of the fear and very real problems in certain sectors, problems are growing like a snowball. People are not spending even if they can, credit is still tight and companies seeking to maintain earnings are doing things that are having wide consequences.

For example, my company which is in the Fortune 200 wants to meet its stated earning projections for 2009. This company is 104 years old and has been paying dividends for all that time. It is partially a utility so it is one of the most insulated from economic downturns. We have two billion in cash. So what's the problem?

Well, a growing number of customers cannot pay their bills and under the law we must continue to provide electricity and gas to them anyway. The price of natural gas is down and we make money when it is higher, we can't get financing for acquisitions even with our good liquidity. As a result, we are cutting budgets, stopping construction projects and freezing hiring even though we have hundreds of open good paying positions that until two weeks ago we were going to fill.

We stopped travel, cancelled memberships, not using consultants, cancelled Christmas gatherings and cut out programs of one kind or the other. In other words, the people we do business with from hotels and restaurants to major building construction firms are now feeling the consequences of our decisions and will for at least two years. That is the snowball effect. Now multiply that by virtually every company in the US to one degree or the other and you see the problem.

At some point, we will hit bottom, someone will start seeing a bargain in buying a house, or a cheap stock and the credit market will ease as the fear subsides. Once that happens companies will see a increase in demand, and begin to invest in new projects, buildings, etc.

Unfortunately, consumers not buying just fuels the problem by creating more problems for retail organizations. It is a pure Catch-22, people are afraid to spend in case they lose their job and when they don't spend someone else loses his job as a result.

Be prepared to hunker down throughout 2009 and if at all possible delay retirement or at least delay making withdrawals from your retirement savings as much as possible. The less you take from retirement savings today, the more you will have when things start to get better.

But here is the real rub, things in the US will never get back to where they were with people flying high on home equity and credit card debt.

If you want to survive the new economy, SAVE...as much and as soon as you can and if you want to help minimize future problems for America invest some of that savings in US Government debt instruments.

I think that certainly there are issues now about the media speculation about this recession, which is now fueling some of the drop in consumer spending, but its completely simplistic to say thats the heart of the problem.

The issue now is one of the supply of credit. Its no longer about the initial cause, the crazy money borrowed from abroad and then lent to people who could never pay it back, {with the risk then being packaged up and sold on across the global banking and insurance system}. Now its the normal everyday credit used to provide the working capital for companies for things like wages, goods, bills etc.

The credit crisis has made the banks paranoid about giving anyone anything, they simply don't trust one another because they all know what they were up to, so trust there is destroyed, that will take years to recover.

Now they are attempting to shore up their balance sheets and essentially save themselves by severely restricting the amount of credit they provide full stop, that is seriously hurting small businesses, large businesses, and other financial companies that operate things like credit cards, debit cards, store cards, insurance, etc.

This is very problematic for the economy, but the banks being private companies have no particular loyalty to the economy, only to themselves and their shareholders, which has always been the issue about allowing private companies to run the money distribution system (as its a nationally important system, in that if people can't physically access money, then the economy shuts down after a couple of days).

The current paranoid banking conditions mean that despite the fact that the government is pumping large amounts of capital into the economy, an awful lot of money is being withheld from the economy as well, or just isn't there to put into the economy, and therefore the economy is shrinking.

The grim truth is that until the banks know where the floor on the property bubble is, they are not going to risk further exposure to risks, unless the government forces them to lend, and thats also creates its own problems. Certainly in America I can't see the government being able to intervene in that manner because of the ideological nature of capitalism over there.

It may get to the stage where the Fed becomes the lender of last resort to corporate America in its entirity, or even the entire economy (which to anyone who understand free market economics seems like Alice in Wonderland, but thats where we may end up).

I don't think that the asset bubble is anywhere near hitting the floor yet and until that happens the economy of the US and other Western countries will endure restricted credit conditions, falling demand, falling prices, and falling production (unless someone wants to buy our exports).

Once the floor is reached in equities, some parts of the finanicals will start to slowly recover and credit may ease up a little, but it will take some time after that before the actual economy starts to bottom out and find a level from where it can begin to grow again.

I think we are talking years, probably about 4 or 5 years at least because the governments at present seem intent on trying to boost access to money without allowing the asset bubble to deflate properly, (because the consequences for a lot of companies of that is going to be that they are going to go bankrupt, and not just financial companies, but big blue-ship companies that have "diversified" into property investment companies). Unfortunately avoiding that hard medicine is just going to prolong the period before a proper recovery can begin.

[QUINNSCOMMENTARY]

Originally Posted by Galbally

I think that certainly there are issues now about the speculation about the recession fueling some of the drop in consumer spending, but its completely simplistic to say thats the heart of the problem.

The issue now is one of the supply of credit, not the crazy money borrowed from abroad and then lent to people who could never pay it back, with the risk then being packaged up and sold on across the global banking and insurance system (which was the cause). Now its the normal everyday credit used to provide the working capital for companies for things like wages, goods, bills etc. The credit crisis has made the banks paranoid about giving anyone anything, they simply don't trust one another because they all know what they were up to, so trust there is destroyed, that will take years to recover.

Now they are attempting to shore up their balance sheets and essentially save themselves by severely restricting the amount of credit they provide full stop, that is seriously hurting small businesses, large businesses, and other financial companies that operate things like credit cards, debit cards, store cards, insurance, etc. This is very problematic for the economy, but the banks being private companies have no particular loyalty to the economy, only to themselves and their shareholders, which has always been the issue about allowing private companies to run the distribution system for money.

The current paranoid banking conditions mean that despite the fact that the government is pumping large amounts of capital into the economy, an awful lot of money is being withheld from the economy as well, or just isn't there to put into the economy, and therefore the economy is shrinking.

The grim truth is that until the banks know where the floor on the property bubble is, they are not going to risk further exposure to risks, unless the government forces them to lend, and thats also creates its own problems. Certainly in America I can't see the government being able to intervene in that manner because of the ideological nature of capitalism over there; it may get to the stage where the Fed becomes the lender of last resort to corporate America in its entirity, or even the entire economy (which to anyone who understand free market economics seems like Alice in Wonderland, but thats where we may end up).

I don't think that the asset bubble is anywhere near hitting the floor yet and until that happens the economy of the US and other Western countries will endure restricted credit conditions, falling demand, falling prices, and falling production (unless someone wants to buy our exports). Once the floor is reached in equities, some parts of the finanicals will start to slowly recover and credit may ease up a little, but it will take some time after that before the actual economy starts to bottom out and find a level from where it can begin to grow again.

I think we are talking years, probably about 4 or 5 years at least because the governments at present seem intent on trying to boost access to money without allowing the asset bubble to deflate properly, (because the consequences for a lot of companies of that is going to be that they are going to go bankrupt, and not just financial companies, but big blue-ship companies that have "diversified" into property investment companies). Unfortunately avoiding that hard medicine is just going to prolong the period before a proper recovery can begin.

You are right, and I think I did refer to the inability to get credit as well. I also agree that it would be far better to let the bubble burst fully and take the medicine and get it over with, but politicians can't take that. What is happening now is what helped prolong the great depression as well.

In the US the consumer accounts for 70% of GDP so their fear and as a result cutting back on buying is also having the impacts I mentioned.

By the way I am partially retired and have time to write all this stuff, what's your excuse?

[Galbally]

Originally Posted by QUINNSCOMMENTARY

You are right, and I think I did refer to the inability to get credit as well. I also agree that it would be far better to let the bubble burst fully and take the medicine and get it over with, but politicians can't take that. What is happening now is what helped prolong the great depression as well.

In the US the consumer accounts for 70% of GDP so their fear and as a result cutting back on buying is also having the impacts I mentioned.

By the way I am partially retired and have time to write all this stuff, what's your excuse?

I don't have one, I'm actually a working research scientist, so I do have to work in the day (or at least appear to work); but of course its late in the evening in Ireland now. In terms of this subject, I don't usually pay much attention to macro economics normally, but obviously since last year I've started to think about it more, and it is worrying because like everyone, I would like to think that I won't be queuing for cabbage soup in 2010.

Still, its not actually the end of the world, and this period is going to be difficult, but I think that given time we may end up better off in terms of our lifestyles being a bit more balanced and sustainable, and perhaps our nations may start taking a lot of things more seriously again; though maybe thats wishful thinking, still its good to try and take the good from things.

I do enjoy your posts generally I have to say, usually thought provoking, though I don't think we agree on some of the issues of the times, but thats normal enough, I know you aren't the kind to get too worried about differences of opinion.

[wildhorses]

Originally Posted by Galbally

I don't have one, I'm actually a working research scientist, so I do have to work in the day (or at least appear to work); but of course its late in the evening in Ireland now. In terms of this subject, I don't usually pay much attention to macro economics normally, but obviously since last year I've started to think about it more, and it is worrying because like everyone, I would like to think that I won't be queuing for cabbage soup in 2010.

Still, its not actually the end of the world, and this period is going to be difficult, but I think that given time we may end up better off in terms of our lifestyles being a bit more balanced and sustainable, and perhaps our nations may start taking a lot of things more seriously again; though maybe thats wishful thinking, still its good to try and take the good from things.

I do enjoy your posts generally I have to say, usually thought provoking, though I don't think we agree on some of the issues of the times, but thats normal enough, I know you aren't the kind to get too worried about differences of opinion.

Funny you should say that. I have also given that some thought. I planted some potatoes and beans. I cant make it only on cabbage.

[Galbally]

Originally Posted by wildhorses

Funny you should say that. I have also given that some thought. I planted some potatoes and beans. I cant make it only on cabbage.

Yes, funnily enough I live in an apartment in a town, so I don't have access to a garden, but I have been growing some herbs and some cherry tomatoes in my window boxes, now obviously thats not going to last long if the food supply runs out, but is should do me a couple of days.

[QUINNSCOMMENTARY]

Originally Posted by Galbally

I don't have one, I'm actually a working research scientist, so I do have to work in the day (or at least appear to work); but of course its late in the evening in Ireland now. In terms of this subject, I don't usually pay much attention to macro economics normally, but obviously since last year I've started to think about it more, and it is worrying because like everyone, I would like to think that I won't be queuing for cabbage soup in 2010.

Still, its not actually the end of the world, and this period is going to be difficult, but I think that given time we may end up better off in terms of our lifestyles being a bit more balanced and sustainable, and perhaps our nations may start taking a lot of things more seriously again; though maybe thats wishful thinking, still its good to try and take the good from things.

I do enjoy your posts generally I have to say, usually thought provoking, though I don't think we agree on some of the issues of the times, but thats normal enough, I know you aren't the kind to get too worried about differences of opinion.

I don't typically fit into the crowd with many of my views, I become very frustrated dealing with people who are so focused on the trees they can't see the forest or the mountain over the hill, this makes for interesting times on the job.

I am often surprised by your and others knowledge of what is going on in the US, the world is certainly getting smaller.

On an unrelated note, I have been to western Ireland, but never Dublin where I would like to go next year, but I have people telling me its not worth the trip to spend a few days in Dublin as it is just another city. What is your view?

[spot]

Originally Posted by QUINNSCOMMENTARY

On an unrelated note, I have been to western Ireland, but never Dublin where I would like to go next year, but I have people telling me its not worth the trip to spend a few days in Dublin as it is just another city. What is your view?

Allow an unbiased opinion as well: the city is easily as exciting a visit as Krakow or Prague and more so than Warsaw. Rent a car at the airport and you'll be able to see the surrounding archaeology too.

[wildhorses]

Originally Posted by Galbally

Yes, funnily enough I live in an apartment in a town, so I don't have access to a garden, but I have been growing some herbs and some cherry tomatoes in my window boxes, now obviously thats not going to last long if the food supply runs out, but is should do me a couple of days.

Do you have a fire escape? You can grow them on a fire escape. That is what I am doing. I live in a small apartment so that is the only place. I do have a couple plants in the kitchen. But most are outside. I use 4 gallon containers. I fertilize them every two weeks, water once a day....and they are all happy plants. I am getting ready to plant some squash too. I would never be able to make it just on those plants if there was a food shortage. But it would still be better than cabbage soup. I bought a 25 pound sack of rice and also beans....just in case. I figure it would be just my luck that all my plants would do great until a food shortage hit, and then they would die right when I need them most. LOL. So a backup of rice and beans was in order.

[Galbally]

Originally Posted by QUINNSCOMMENTARY

I don't typically fit into the crowd with many of my views, I become very frustrated dealing with people who are so focused on the trees they can't see the forest or the mountain over the hill, this makes for interesting times on the job.

I am often surprised by your and others knowledge of what is going on in the US, the world is certainly getting smaller.

On an unrelated note, I have been to western Ireland, but never Dublin where I would like to go next year, but I have people telling me its not worth the trip to spend a few days in Dublin as it is just another city. What is your view?

Nah, Dublin is just another modern boring city, that happens to have Irish people shopping in it, as opposed to Americans or English. Avoid it.