I cant resist coming back to this one as well. It was said about the great depression that the smart money was lost in 1930. As in, they jumped into the sucker rally after the October 1929 crash and got slaughtered on the next leg down. This bear market started in Oct 2007. So we’re in about a year or so. All recent data suggests at least another year. Especially since non of the govt stimulus seems to be doing anything except loading up banks balance sheets. The multiplier effect is not gaining it’s declining.Demand destruction is gaining as well, not declining.
But, by the govt allowing the banking system to survive and not mark to reality, this is looking a lot like Japan in 1990’s. And I agree that the govt needs to do this as that injecting reality in our banking system would be fatal. IMO. It’s that bad and systemic. But repairing this type of damage does not happen in a year or two. That’s why the delay tactic by our govt. They’re giving the banks time to syphon off the garbage and start to restore their solvency. But this is the hardest time to do this. If they pull it off, it will be a long time in coming.

To think that we can somehow magically get rid of these huge problems is rather short-sighted. This is not like the last few contractions we’ve experienced. It’s global and deep. Banks around the world are insolvent, auto industry sales down 30% or more, global housing values cratering, Stock market losses at $30T. And who knows exactly how bad the whole CDS,CDO’s etc really are. Even the guys that invented them cant say!!
I see no way that this is subsiding in 2009. And to think that the new administration can somehow change all this….well, rebuilding bridges and roads will not put Humpty back together again. Shovel jobs will not be an adequate replacement for the FIRE economy that we’re now losing.