Second Great Depression

[Bob G]

Interesting Article – Hard Times ahead? Americans have been living high off of borrowed money, (from overseas) for years. Is the party over?
http://www.informationclearinghouse.info/article17145.htm?ref=patrick.net

[hipmatt]

Great link and I think pretty accurate. What a bunch of idiots we are. The world must be shaking their heads when they see our lifestyles and spending.

[PD]

I take issue with the claim that Greenspan PLANNED to ruin the economy. They make good points but lose credibility when they make these claims about Greenspan.

[LookoutBelow]

How else would you characterize the actions of Greenspan then ?…..He is much too smart to get tripped up by incompetence, he is much too shrewd to NOT see the repercussions of his actions/inactions…..So it opens the door to a "planned" meltdown then doesnt it ?

I think if you look at his education and positions he's held in his past you'd see he's no fool….So why did he allow this to happen ??

As usual, they is SO much more than we will ever know……But idiocy on his part is NOT the case… 

 

[4plexowner]

Greenspan was a confirmed “gold bug” until he sold out to the elitists.

Greenspan wrote a paper in 1967 saying:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.”

http://www.usagold.com/gildedopinion/Greenspan.html

[(former)FormerSanDiegan]

I’ve heard of the “Second Great Depression coming” about every 5-7 years since the mid 70’s. First it was going to be caused by spiking oil and runaway inflation, then it was going to be caused by fiscal overtightening, then it was going to be caused by the Japanese eating our lunch and overtaking the US, then it was going to be caused by the massive amounts of wealth destroyed in the dot-com bubble bust and now it is going to happen because of excessive-liquidity fueled housing boom.

All these things in the past caused recessions, and the economy suffered, as I think it will this time. But predictions of a once-per-century calamity happen way too often. Eventually this will be right, but from my perspective, the prediction has been repeated the past 30 years and will eventually be right.

[kewp]

I’m a recently-recovered doom & gloomer.

While there will definitely be folks hit hard in the coming years, especially folks with overly dependent on the RE industry, I doubt its going to hit a full-blown depression.

I base this largely on personal experience, the vast majority of people I know (including myself) here in SD are either renters or pre-bubble owners (that re-fi’ed to lock in low interest rates). Only a few are in businesses that are even partially affiliated with real estate.

The one person I know that had one of these ARM-bombs just had a short-sale on his home and is going to rent until the market stabalizes.

I personally have no equity tied up in RE, only a little debt that I’m paying off steadily and guaranteed stable employment, depression or otherwise. Heck, a depression would be a win for me (assuming I don’t get murdered by an ex-flipper looking to steal my shoes); as goods, services and RE would be dirt cheap.

Maybe I just have smart friends (well, I know I do), but I really wonder what percentage of the US population is really as over-extended as everyone here claims.

My impression of the great depression is that it was caused by a clear majority of the lower-middle classes overextending themselves on credit combined with a excessive stock market speculation. The story of the shoe-shine boy becoming a paper millionaire in a few months, for example.

Not to say there aren’t parallels with the current state of affairs, its just the scope of thing isn’t anywhere near the same scale.

I would like someone more informed then I back this up with some data, though.

[Anonymous]

The depression is coming. Get into gold now while there is easy money to be made.

I’m moving from UNWPX and VGPMX to a gold ETF (GLD). I believe that the broad U.S. stock market will take a hit this year, and history shows that when the market takes a hit, gold mining companies sometimes take a hit (yes in Oct. ’87, no on 9/11/01), but gold itself does not:

[img_assist|nid=2696|title=|desc=|link=node|align=left|width=466|height=311]

[img_assist|nid=2697|title=|desc=|link=node|align=left|width=466|height=311]

Once the broad market corrects, I’ll get back 100% into UNWPX and VGPMX, which amplify returns to gold (and will remain 100% in UNWPX and VGPMX until the threat of gold confiscation rears its ugly head in a few years, when I’ll switch to gold buillion, stored in Switzerland).

Rent, repent, arm, and save.

[poorgradstudent]

Where have all the Moderates gone?

Economies cycle. It’s normal. We’re moving from a boom period to a slowdown. A recession is on the horizon, although the exact timing of such things is nearly impossible. Things will be tough for a while, but hardly doomsday.

jg: I recently bought a small position in GLD (around 3% of my admittedly small total potfolio). I think gold has good long term prospects, but a lot of short term risk.

[Anonymous]

Good move, pgs, on getting into GLD. You’ll be very happy with its performance over these next few years.

Short-term risk? Only if you need to pull the money. Lots of ups and downs? You bet, but mostly ups, it will be.

[Chris Scoreboard Johnston]

Chris Johnston

Gold has not always held up during stock market declines, you might want to check 1987 and a couple of other periods. Gold began a huge decline shortly after the Oct 87 meltdown in stocks.

Inflation drives the price of gold.

[superfly19]

Does inflation really drive the price of gold? A lot of people think it does, however, Michael Shedlock (Mish) does a pretty good analysis of it on his blog and he doesn’t come to the same conclusion.

http://globaleconomicanalysis.blogspot.com/2007/02/is-gold-inflation-hedge.html

Here’s his conclusion at the end of the article:

Final Thoughts

Gold in many timeframes is not much of an inflation hedge.
In terms of real price, gold is a better deflation hedge than an inflation hedge. The reasons…

Gold is money. Proof of that statement can be found in the market behavior of gold. The markets treat gold as if it was money (not only now but on a historical basis). On that basis gold must be considered money regardless what the central banks say.
Money is worth more in terms of other goods and services during periods of deflation. During periods of disinflation “cash is trash” and that helps explain why gold dropped from over 800 to 250 even though we had a positive (although falling) rate of inflation for much of that timeframe.

Gold is stateless and has no liabilities attached to it. It is the only money that won’t be touched by whatever measures the authorities decide to take to combat deflation.
In addition to being a deflation hedge, gold may also play a role in a panic flight to safety scenario. For example: If the US dollar were to suddenly collapse and/or if fiat currencies were totally repudiated in general, gold would be a huge beneficiary.

Given the current underlying conditions, with increasing chances of a deflationary credit implosion related to housing, along with some chances of a collapse in the dollar, Yen, or fiat currencies in general, the incentive to store wealth in the form of gold is massive.

[barnaby33]

I think Mish just covered this, gold actually does better in deflationary periods than inflationary ones.

Josh

[kewp]

I would *love* to buy gold, but unfortunately I’m tied up in a debt consolidation for at least the next two years. After that its going right into investments. I assume its still considered best practices to be debt-free before investing?

I’m not too upset about this as I feel the next year or so is going to be fairly volatile in the markets and I would rather get in at the bottom, rather than during a period of high churn.

Looking forward, wouldn’t a general precious-metals index fund be something to consider? Is there even such a thing?

[Chris Scoreboard Johnston]

Chris Johnston

Not by my research Josh, just go look at a CPI graph overlayed on a continuous price chart of Gold and you will see what I am talking about. I have run many tests on other ways of correlating this and they all come out the same.

Has this Mish guy ever made any money trading or is he an economist? I hear his name alot but do not know his background or much about him.

[Author]

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