The differences between 1929 and Today
 

All the chicken-little-OMFG-The-Sky-Is-Falling-We're-Already-In-The-Next-Great-Depression talk has be bothered to the point that I did a little review about the Great Depression.

Namely, I had an eye toward debate about the causes. There are some important differences that I think warrent discussion.

First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply. Regardless of the validity of this assertion, one must concede that there is no such contraction occuring today.

The Fed's Policy and Impact - In the early 1930's, the Fed as an entity did not have the experience nor the influence over the capital markets that it does today. It's best practices were not as refined. In short, successful organizations learn over time.

The Information Age - The world was not as connected then as it is today. It was harder to verify information and investors and money managers were not as savvy as today at detecting [censored] rumors.

Dollar as the world reserve currency - In the 1930's the Dollar WAS NOT the world reserve currency. Trillions of Dollars were not held overseas waiting for bargain shopping in America as soon as the stock market went down. Today, this serves as a feedback mechanism that will bring capital back into the capital markets.

Gold backed currencies - In the early 1930's, many world currencies were backed by gold, INCLUDING THE US DOLLAR. This put an artificial choke hold on the availability of cash that does not exist today. Today, the major players in the currency market are fiat or pegged in some way to the dollar. Regardless of the arguements in favor of gold backing, the world currency market is not restricted by gold today.

Trade - The world was not as interdependant in 1930 as it is today. Borders were far more important to business than they are today. Protectionism was a far more ready and feasible fall-back position in face of an economic crisis then. Today, we have no choice. The economy depends on trade. We must trade. Period. Not the case in 1930.

In closing - The world is a different place than in 1930. I submit that the fears concerning the collapse of the international monetary system are based on ideas concerning the causes of the Great Depression that have little or no significance to the modern reality. They are therefore irrational.

Discuss.

Re: The differences between 1929 and Today
 

I was one of the more skeptical posters on the recent "Depression" rhetoric and the general paranoia of many Misean theories. I have generally believed that we use sound monetary policy.

But different readings lately have convinced me that the US is going to fall into a recession, possibly a very deep one in 2008. I am also not confident in Americans' standard of living because the Fed seems very likely to capitulate AGAIN on interest rates as futures are already pricing in a rate cut which I have been convinced will lead to stagflation. There seems to be a formula for sound central monetary policy but it seems that political considerations will trump holding firm yet again. There was alot, perhaps unprecedented, mal-investment in housing.

I think I"ll expound more later in the evening.

Re: The differences between 1929 and Today
 

The AC'ers (and others) do have a point about fiat currency and its effects. Even though most of us do favor fractional reserve banking, it still matters what number is picked as the fraction. Unrestrained lending to people/companies with bad prospects has consequences, and ones that can ripple through the economy. When lenders and debtors can expect *absolutely no bailouts* by the gov't in *any form*, then the market can can operate better, if not perfectly. It seems to me that lenders, especially credit card companies and mortgage lenders, aren't incentivized to operate with more realistic standards because history teaches they and their debtors can cry to mommy gov't and get relieved of suffering much of the consequences of their own actions.

Re: The differences between 1929 and Today
 

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The AC'ers (and others) do have a point about fiat currency and its effects. Even though most of us do favor fractional reserve banking, it still matters what number is picked as the fraction. Unrestrained lending to people/companies with bad prospects has consequences, and ones that can ripple through the economy. When lenders and debtors can expect *absolutely no bailouts* by the gov't in *any form*, then the market can can operate better, if not perfectly. It seems to me that lenders, especially credit card companies and mortgage lenders, aren't incentivized to operate with more realisti c standards because history teaches they and their debtors can cry to mommy gov't and get relieved of suffering much of the consequences of their own actions.

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A lot of mortgage lenders have gone belly up. CFC is on the ropes but they seem to be trying to attract more deposit money in their banking arm. Citi and others have had a lot of losses reported. Not sure how the Fed is exactly bailing these folks out. You're making the moral hazard argument and the Fed has provided more short term liquidity because some normally credit worthy borrowers are having trouble finding funds to borrow short term. That's basically a credit crunch. I agree that ceeding government the power over the currency is ceeding government a lot of power. Not sure though that there's a "moral hazard" with the Fed cutting it's rates at this time. I do think the economic impact of this will be to reduce recession chances.


Kind of had a funny thought here. The bond rating agencies were apparently flat out wrong about rating the bonds derived from many CMOs. The bond rating agencies are unregulated as far as I know. Perhaps that should change.

Re: The differences between 1929 and Today
 

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the Fed has provided more short term liquidity because some normally credit worthy borrowers are having trouble finding funds to borrow short term. That's basically a credit crunch.

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Exactly. The Fed is helping with liquidity. Putting liquidity into a market does not equal a bailout.

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Kind of had a funny thought here. The bond rating agencies were apparently flat out wrong about rating the bonds derived from many CMOs. The bond rating agencies are unregulated as far as I know. Perhaps that should change.

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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.

Re: The differences between 1929 and Today
 

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There was alot, perhaps unprecedented, mal-investment in housing.



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Yes. The effect the rest of the economy (which is about to awash with investment as dollars come back into the economy) is going to have on the relative magnitude of that impact is yet to be seen.

I kind of suspect that after everything settles out, people's wealth is going to be shifting back to the stock market as opposed to real estate. Back in the 90's everyone was making a killing in stocks. Then we shifted to our houses. I think everything is going to swing back to stocks.

Re: The differences between 1929 and Today
 

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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.

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Re: The differences between 1929 and Today
 

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First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply. Regardless of the validity of this assertion, one must concede that there is no such contraction occuring today.


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If you are (and I think you are) talking about Austrian theory it is important to note a few points. The first is the distinction between the market crash of 1929 and the initial recession that followed. The depression that followed was caused by government intervention in the markets preventing corrections from taking place. Secondly the market crash and ensuing recession were not "caused by" a contraction in the money supply, they were caused by the expansion of the money supply. The contraction was a symptom of the weakness in the economy that existed in reality. When people started to run on the banks it was because they realized that there wasn't enough money going around like they thought, their realization didn't change the fact of the reality, it just acknowledged it. Likewise today we have an expansion of the money supply followed by the symptoms of a weakened economy, instead of a contraction we are experiencing the subprime issues, inflation and a weakening dollar because some of the other underlying issues are different, but they point to difficult times ahead.



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The Fed's Policy and Impact - In the early 1930's, the Fed as an entity did not have the experience nor the influence over the capital markets that it does today. It's best practices were not as refined. In short, successful organizations learn over time.

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This discussion has gone on for a long time, but short and sweet what makes you think the fed is a successful organization? Since its founding there has been the great depression, the stagflation of the 70s, the market crash of 87, the tech bubble burst and now the issues that are causing the concern in the here and now. The second questionable assumption is that the fed has the tools to actually fix these problems.

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Dollar as the world reserve currency - In the 1930's the Dollar WAS NOT the world reserve currency. Trillions of Dollars were not held overseas waiting for bargain shopping in America as soon as the stock market went down. Today, this serves as a feedback mechanism that will bring capital back into the capital markets.

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This won't provide any protection for the American consumer, this will be inflation in prices for them. This will also weaken the dollar further, people who used to save masses of dollars spending them will drive the value into the floor.

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Gold backed currencies - In the early 1930's, many world currencies were backed by gold, INCLUDING THE US DOLLAR. This put an artificial choke hold on the availability of cash that does not exist today. Today, the major players in the currency market are fiat or pegged in some way to the dollar. Regardless of the arguements in favor of gold backing, the world currency market is not restricted by gold today.

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.


Honestly the one main difference between your position and the Austrian one is the view of what causes what. For an Austrian the majority of the problems in major crashes like this can be traced back to expansionary monetary policies while you believe that those expansionary monetary policies are the solution to these problems.

Re: The differences between 1929 and Today
 

Well done OP... finally an interesting topic.

Re: The differences between 1929 and Today
 

Social Security!

Re: The differences between 1929 and Today
 

We aren't going to have a contraction of the moeny supply because Bernanke is going to print dollars like crazy and destroy the currency. Hyperfinlationary recession or deflationary recession, take your pick. The fed can't create any real wealth by fiddling with this stuff. Eventually we'll be at 0.2Euro/Dollar and gas will be 6$/gallon or worse. Inflation will be unfathomable.

The dollar is losing its place as world reserve currency. World banks are tired of trading ever greater amounts of real goods for a continually depreciating paper currency. China is experiencing ever higher inflation because we export it too them. Central banks around the world have announced thier intention to diversify out of (i.e. dump) the dollar. Our currency has lost astonishing value in the last five years and especially the last month. This will only continue as Helicopter Ben lowers rates.

The dollar as a reserve currency has allowed us to expand the money supply at astonishing levels without fully experiencing the resulting inflation. Those extra dollars have led to an astonishing and reckless expansion of personal, corporate, and mortgage debt as well as unfathomable malinvestment. Now all of that inflation is about to come back to us as they sell off these reserves.

Your right about the gold standard. Foolish foriegn central banks could try to devlaue in response to our devaluation, causing huge worldwide inflation. Luckily the ECB, BOC, BOE, BOJ, and others haven't been retarded like that. Thier countries will get by.

I'm not going to try and predict what kind of retarded trade policies the pols could come up with in a deep recession. Only that the power that they wield today is far far greater then FDR ever had.

Re: The differences between 1929 and Today
 

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contraction was a symptom of the weakness in the economy that existed in reality

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Correct me if I'm wrong, but I thought the position of the Austrians was that the contraction was a result of government intervention. I'll come back to this.

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symptoms of a weakened economy,

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Overall numbers on the economy are actually quite good, in spite of the problems you mention. link

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but they point to difficult times ahead.

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Conjecture.

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short and sweet what makes you think the fed is a successful organization?

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His name is Alan Greenspan.

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This won't provide any protection for the American consumer, this will be inflation in prices for them. This will also weaken the dollar further, people who used to save masses of dollars spending them will drive the value into the floor.


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The protection for the American consumer lies in continued employment, the availability of goods and continued economic activity in general. Wages will adjust.

Also, the holders or dollars do not have an incentive to deplete their own wealth. Does this statement make sense? "OMFG - The dollar is falling and we are having inflation....I know lets dump dollars and make our problems worse." No - The incentive is to create economic activity; i.e. INVEST dollars, not dump them.

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.


Honestly the one main difference between your position and the Austrian one is the view of what causes what. For an Austrian the majority of the problems in major crashes like this can be traced back to expansionary monetary policies while you believe that those expansionary monetary policies are the solution to these problems.

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We have a winner. You and I find ourselves in total agreement here. Economics is activity. Without the activity, the economy goes nowhere.

I think that intervention in the market by an organization like the fed is a means of encouraging and sustaining that activity. The non-interventionalists think that intervention undermines that activity. I submit that the interests of government and capital intersect in having a robust economy. I also assert a policy resulting in something that undermines that interest is highly unlikely, as self destruction is not the nature of government or business.

Government and business in the US complement each other, not work against each other. This is partly due to the aftermath of the depression and the effect of the Fed.

Re: The differences between 1929 and Today
 

Thank you, sir.

Re: The differences between 1929 and Today
 

+1. God bless our eternal friend and socialist (AHEM)uh, I mean savior, FDR.

Re: The differences between 1929 and Today
 

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We aren't going to have a contraction of the moeny supply because Bernanke is going to print dollars like crazy and destroy the currency. Hyperfinlationary recession or deflationary recession, take your pick. The fed can't create any real wealth by fiddling with this stuff. Eventually we'll be at 0.2Euro/Dollar and gas will be 6$/gallon or worse. Inflation will be unfathomable.

The dollar is losing its place as world reserve currency. World banks are tired of trading ever greater amounts of real goods for a continually depreciating paper currency. China is experiencing ever higher inflation because we export it too them. Central banks around the world have announced thier intention to diversify out of (i.e. dump) the dollar. Our currency has lost astonishing value in the last five years and especially the last month. This will only continue as Helicopter Ben lowers rates.


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I'm going to say again what I said to tolbiny. Holders of dollars have no interest in taking any action that would make themselves poorer. The problems you mention in China is precisely why they will not flood the market with dollars. It would compound their problems. Everyone who holds $ has an incentive and a stake in keeping the game going. They aren't going to crash it.

If anything, they will diversify into commodities. Even more likely, they will look to invest all those dollars to create more economy or more ownership.

Re: The differences between 1929 and Today
 

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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.

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one thing to add here is that the ratings agencies were suspect when yields on a AAA rated CDOs were higher than similarly rated securities. but the excess liquidity forced investment into these since it was so attractive and so cheap to borrow.

one thing that wasn't aken into acct by ratings agencies was liquidity premium and other trading type considerations. these certainly affect the yield on securities and the market saw things that ratings agencies didn't.

Barron

Re: The differences between 1929 and Today
 

It was the fed printing too much money to begin with. Yeah, there was a "gold standard", but the fed kept printing money anyway. The only reason we went off the gold standard in 1933 was too many people wanted to redeem their paper federal reserve notes for real gold. We went off the gold standard once that couldn't be achieved, because there wasn't enough real gold to back the worthless pieces of paper issued be the fed.

What that means, is we never really had a gold standard to begin with. If we did, we wouldn't have run out of gold, and be forced to confiscate everyone's gold to make up the difference, as FDR did.

Cheap credit caused people to over invest and over speculate, leading to bubbles, which eventually burst. The depression of 1929 may not happen in exactly the same way (what two recessions are exactly the same anyway?). But I fear the federal reserve has set us up for a big downturn in the coming years.

Re: The differences between 1929 and Today
 

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Correct me if I'm wrong, but I thought the position of the Austrians was that the contraction was a result of government intervention. I'll come back to this.

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The issue at hand here is what caused the depression and how are those factors working today. It was government intervention (from the Austrian perspective) trying to prevent the market correction that was the problem, not the specific mechanism they chose. If your driving 100 miles an hour and hit a patch of ice you screwed regardless of whether you hit the brakes or not, turn into the skid or not, the problem was driving far to fast.

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Overall numbers on the economy are actually quite good, in spite of the problems you mention. link


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Again there is a fundamental disagreement on what value these numbers hold. If you use the method of CPI calculation from 1980 to figure inflation then those numbers look far worse. From the Austrian perspective, the actions that produce short term "gains" like this in the third quarter will lead to long term losses. The fed rate cuts which appear to have boosted the economy have only done so by encouraging, enabling, or causing (depending on your view) higher inflation over the next X number of years.

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His name is Alan Greenspan.

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The funny thing about Alan Greenspan is the way his opinion on matters changes depending on his job title. Prior to his position at the fed he was in favor of the gold standard, with the fed he held rates at historic lows for long stretches, recently he's been talking about the likelihood of a recession, diversifying out of the dollar and risks of inflation. AG's position on the American economy going forward cannot be described as bullish for sure.

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Also, the holders or dollars do not have an incentive to deplete their own wealth. Does this statement make sense? "OMFG - The dollar is falling and we are having inflation....I know lets dump dollars and make our problems worse." No - The incentive is to create economic activity; i.e. INVEST dollars, not dump them.

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The Chinese, Saudis and other currency holders are not able to "create economic activity" simply with dollars, they can only look for good investment opportunities they cannot create them. If the fundamental problems exist in the economy pumping dollars into it won't help. China can't stop Bernake from printing more money by investing in the US, but they can limit their exposure to the fall by moving away from dollars. As long as you have more dollar sellers than dollar buyers you have a depreciating currency, for a country that imports far more than they export this bodes extremely badly for the US economy.



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I think that intervention in the market by an organization like the fed is a means of encouraging and sustaining that activity. The non-interventionalists think that intervention undermines that activity. I submit that the interests of government and capital intersect in having a robust economy. I also assert a policy resulting in something that undermines that interest is highly unlikely, as self destruction is not the nature of government or business.

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Businesses fail all the time, its not in the owners' interests to fail, but it happens. The market stays healthy through competition, government has no competition and government limits competition in the marketplace. Having a self interest is not enough, there needs to be a mechanism that correctly identifies good decisions and rewards them, and punishes bad decisions.

Re: The differences between 1929 and Today
 

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I'm going to say again what I said to tolbiny. Holders of dollars have no interest in taking any action that would make themselves poorer. The problems you mention in China is precisely why they will not flood the market with dollars. It would compound their problems. Everyone who holds $ has an incentive and a stake in keeping the game going. They aren't going to crash it.

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China has already made the mistake of holding US dollars, they have no "good" way out. Of course they won't "crash" the dollar, but they will move out of it. Take their sovereign wealth fund they recently announced, it will be funded with 200 billion from their reserves. Their reserves are $US. Then they announced they are diversifying their reserves, more dollars on the market. The Saudis didn't follow the latest rate cuts with their own, Kuwait unpegged from the dollar to the basket of currencies and agreed to sell oil to the Japanese in Yen. Who is adding dollars to their reserves to counteract these measures? Just because the sell off is orderly and controlled doesn't mean it isn't a sell off.

Re: The differences between 1929 and Today
 

Agreed. Your right that nobody wants a sudden crash. If they don't all panic and try to get out first they can do that. 10-20% yearly depreciation of the dollar, you bet.

You can only play a game of chicken for so long before Asians decide they have accumulated enough of our wealth ad they are going to focus on domestic demand.

Re: The differences between 1929 and Today
 

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Agreed. Your right that nobody wants a sudden crash. If they don't all panic and try to get out first they can do that. 10-20% yearly depreciation of the dollar, you bet.

You can only play a game of chicken for so long before Asians decide they have accumulated enough of our wealth ad they are going to focus on domestic demand.

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and the exact same things were being said in late 80s early 90s (ZOMG, the Japanese have bought Pebble Beach, they are going to own everything soon).

A much greater problem arises if the OPEC countries try to compensate for lost buying power by raising prices. Thanks to our retarded energy policies (thank you Greenies) we are even more vulnerable than we were during the oil embargo.

Re: The differences between 1929 and Today
 

so you're saying we're gonna have a 1933 style german depression instead of a 1933 US style?

Re: The differences between 1929 and Today
 

Someone elses words, but good.

MattTheSkywalker
Member Join Date: Nov 2005
Location: NY / Palm Beach
Posts: 5,303



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Quote:
Originally Posted by The Diabolical Biz Markie
FWIW,

We've been through this before, with people predicting gloom and doom for the US economy. The "Great Reckoning" which sounds like it might be MTS's favorite book, was written in the early 90s (maybe before...but I remember reading it in the early 90s).

never read it. Empire of Debt, that's a good book.



Quote:
Japan was going to own all the US, and we were all going to be broke.

If you think this is the same, you misunderstood conditions then and now.

Japan in the late 80s was even dumber than we were. Deflation at home killed them and they sold their trophy US assets at fire sale prices. Do you imagine the oil kingdoms experiencing deflation? Is world demand for oil ebbing? I wish....but no, it's not. So these people will still certainly invest in the US just not in the government debt, which is what we've counted on for so long.

The two largest shareholders in our largest bank are Arabs. Nothing to see here? maybe not. But when the board was ushering CEO Chuck Prince out, they had to brief Riyadh. At best, this is unusual. A sign? I don't know.

Two bailouts in less than 20 years tells me that something stinks. The US never went to the Japanese for a bailout. The Japanese were over-reaching, proud of their re-ascent, and they paid for their hubris. Arabs are not the late 80s Japanese, and oil wasn't $90+a barrel then either.

Nor was the dollar at its lowest ever value in the late 80s. Nor was a productive segment of our society retiring en masse. And our debt loads were a few trillion lighter.

Otherwise, it was exactly the same.

Re: The differences between 1929 and Today
 

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First and foremost - Many on this board believe in the assertion that the Great Depression was caused by a contraction of the money supply. Regardless of the validity of this assertion, one must concede that there is no such contraction occuring today.

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This is an complete and utter fallacy. This is exactly what is happening today. What exactly do you think the term credit crunch means?

Not long ago the financial system was throwing credit at anyone with a pulse and inflating the money supply as a consequence. Now the banking system wont even lend money to each other because they are unsure of who is holding the toxic waste.

The fed and CBs might inject some liquidity, but so far this has had little positive effect on LIBOR and interbank rates which are at record highs and reflect the true cost of money. Indeed today the $one month libor jumped 40bp.

Also markets that deal in commercial debt have ground to an absolute standstill. Read this from yesterdays Telegraph (pro tory broadsheet)

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By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 7:18pm GMT 28/11/2007

Companies in Britain and Europe have failed to place a single high-yield bond since the credit crunch kicked off in August, and may now have to wait until next year before the credit market reopens for business.

Société Générale said the monthly volume of junk bond issues peaked at €6.5bn (£4.69bn) in June, falling to zero in August, September, October, and November as investor flight from the market forced up yield spreads to stringent levels.

Far from returning to normal, the credit markets appear to tightening even further into the Christmas season.

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The liquidity being injected by the fed et al is no where near enough to restore liquidity to normal levels it is just enough to keep the system ticking over without there being a catastrophic gridlock in liquidity.

It is also a tiny drop in the ocean compared to the amount of debt/money supply/ that was crated by the financial system over the last five years or so.

It is important that there has been no housing bubble in the USA or the UK (where house prices have increased even more rapidly than the US) there has been a credit bubble. House prices are going down simply because there is less money chasing the houses because the credit that bid them all up has disappeared. The idea that this bubble can pop, which it most certainly has in a big way without there being a contraction in the money supply is obviously nonsense.

To claim that there is no contraction in the money supply reveals that you have no understanding of the conditions that may lead to a 1929 esq scenario.

Re: The differences between 1929 and Today
 

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Its an easy trap to fall into, but overall markets are not driven by currencies, they are driven by production of goods and services.

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This may have been true once, but in recent times no longer applies. This can be easily proven by looking at recent movements in Equity markets.

In August subprime broke the surface the US housing market began to decline, and the credit crunch was underway. A few months later the DOW was hitting record highs. Why?

Because all the market cared about was the fact that the FED said it would increase the money supply which it went on to do by dropping interest rates by .5%. SO the markets didnt care about any downside to production or consumption, they only cared that the Fed was going to increase the money supply. The movement in the markets was purely driven by perceptions of currency manipulation by the central bank.

This has led to the bizare state that if the Fed says something along the lines of "There is danger of a downswing in growth in production, therefore we will cut interest rates" this is considered good news by the equity markets. Whatever the dangers are that are creating the possibility of retarded growth in production are seen as irrelevant all that matters is the growth in the money supply.

This can be clearly seen in the market movements over the last few day. Western CBs and major financial players have all issued increasingly bearish if not rabid bearish statements over the last week about the prospects for growth going forward, yet the Dow has has gone up over 200 points 3 days in a row. That is because the fed has indicated that given the negative outlook it will probably cut rates on 21st December. So again, in price movements, the actual negative data that leads to fears about growth and actual production etc, the real economy are seen as irrelevant and price movements have all been driven by the belief that an interest cut is due 21/12/07.

Thus it can be seen that price movements in the Dow and other Equity markets are driven allmost entirely by how those markets see currency manipulation occurring in the short to medium term. In short its all about the currency baby.

Re: The differences between 1929 and Today
 

Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

Re: The differences between 1929 and Today
 

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Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

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Yea but I am talking about price action.

Or are you suggesting that upward trends are a calculated attempts by markets to compensate for the loss of value in the dollar that any fed cut will cause?

Roughly estimating on the fly (I could look it up but I cant be far out)I would say the DJI has gained about 9% in the last year. Its gone from circa 12200 to 13300 reaching 14200+ on the way (after the credit crunch started) so dollars in the DJI will have retained value much better than dollars kept under the mattress or in a standard saving bank account. That 9% is also alot bigger than CPI (CPI LOL).

I see entirely the point you are making, but it is not relevant to my arguement. I am rejecting the point that Equity markets react via price action to events in the real economy by stating that the price action (in recent history) is mostly motivated by events in currency manipulation.

Re: The differences between 1929 and Today
 

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Perhaps you should think in real terms nominal terms. Sure the market went up on the 50bp, but the dollars it was price in lost a huge amount of value. Nominal, not real, gain.

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Yea but I am talking about price action.

Or are you suggesting that upward trends are a calculated attempts by markets to compensate for the loss of value in the dollar that any fed cut will cause?

Roughly estimating on the fly (I could look it up but I cant be far out)I would say the DJI has gained about 9% in the last year. Its gone from circa 12200 to 13300 reaching 14200+ on the way (after the credit crunch started) so dollars in the DJI will have retained value much better than dollars kept under the mattress or in a standard saving bank account. That 9% is also alot bigger than CPI (CPI LOL).

I see entirely the point you are making, but it is not relevant to my arguement. I am rejecting the point that Equity markets react via price action to events in the real economy by stating that the price action (in recent history) is mostly motivated by events in currency manipulation.

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So the decline in oil prices, the confidence in the dollar shown by Abu Dhabi's investment in CitiCorp, robust retail sales are all minor effects compared to a discount rate cut that could have been anticipated and priced into the market after the last Fed meeting (and I believe was)?

The realization that there was an over-reaction in the markets to the sub-prime problem had nothing to do with the recovery it was all the Fed?

Things are much more complex and robust then you are willing to admit, because of your political agenda.

Back in August I said that the Fed should shock the system back into equilibrium with a 50 bp reduction in the discount rate, and was disappointed it was only 25. I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order. If they were correct, the subsequent actions of the Fed are nowhere near fully priced into the market (unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

Re: The differences between 1929 and Today
 

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so you're saying we're gonna have a 1933 style german depression instead of a 1933 US style?

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Germany in 1933 was not the world's richest nation, nor did it have the largest economy on earth and it was not facing a currency market where most currencies were pegged to the Mark, nor did it have foriegn governments that hoarded trillions of marks waiting to invest in its economy.

Re: The differences between 1929 and Today
 

Is it me or did you say in one post that there was contraction of the money supply underway due to the credit crunch and then refute your own arguement by stating it wasn't the case and asserting its all about the currency?

Come on, man. You can't have it both ways.

Re: The differences between 1929 and Today
 

[ QUOTE ]
Quote:
so you're saying we're gonna have a 1933 style german depression instead of a 1933 US style?



Germany in 1933 was not the world's richest nation, nor did it have the largest economy on earth and it was not facing a currency market where most currencies were pegged to the Mark, nor did it have foriegn governments that hoarded trillions of marks waiting to invest in its economy.

[/ QUOTE ]

well no credit crunch is what I meant.

Re: The differences between 1929 and Today
 

There is no political agenda here. I can simply go to the source and actually think about it.

http://www.federalreserve.gov/releases/h6/hist/

Re: The differences between 1929 and Today
 

[ QUOTE ]
There is no political agenda here. I can simply go to the source and actually think about it.

http://www.federalreserve.gov/releases/h6/hist/

[/ QUOTE ]

what is this supposed to be a repsonse to?

Re: The differences between 1929 and Today
 

[ QUOTE ]
Is it me or did you say in one post that there was contraction of the money supply underway due to the credit crunch and then refute your own arguement by stating it wasn't the case and asserting its all about the currency?

Come on, man. You can't have it both ways.

[/ QUOTE ]

Huh? Two completly different things. I am saying that there is a contraction in the money supply due to the credit crunch and I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

Re: The differences between 1929 and Today
 

[ QUOTE ]

Things are much more complex and robust then you are willing to admit, because of your political agenda.

[/ QUOTE ]

I dont have any agenda, Im not American and I am not an Acists, Im just calling it as I see it.

[ QUOTE ]
(unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

[/ QUOTE ]

Your agenda is plain to see.

[ QUOTE ]
I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order.

[/ QUOTE ]

Thanks for making my arguement for me.

Re: The differences between 1929 and Today
 

[ QUOTE ]
I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

[/ QUOTE ]

could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

Re: The differences between 1929 and Today
 

[ QUOTE ]
[ QUOTE ]
I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

[/ QUOTE ]

could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

[/ QUOTE ]

i think he means rate cuts, but perhaps more including things like the presidential financial working group.

tobliny has been doing a great job in this thread and i want to see exsub keep trying to respond until he concedes.

Re: The differences between 1929 and Today
 

[ QUOTE ]
[ QUOTE ]

Things are much more complex and robust then you are willing to admit, because of your political agenda.

[/ QUOTE ]

I dont have any agenda, Im not American and I am not an Acists, Im just calling it as I see it.

[ QUOTE ]
(unless they have already been offset by the Hillary effect, which I don't believe to be the case). There is a lot of upside to go before the Dems drag things down, imo.

[/ QUOTE ]

Your agenda is plain to see.

[ QUOTE ]
I also reported the belief of one of the major investment firms itn the country that an immediate 50bp cut would be sufficient to drive the Dow up to 15,000 in short order.

[/ QUOTE ]

Thanks for making my arguement for me.

[/ QUOTE ]

I didnt make your argument for you.

Fed action --> increases liquidity from an artifical contraction ----> allows fundamental strength of the economy to be reflected in prices

NOT

Fed action ---->artificial liquidity---->market increases due to perception of liquidity

Re: The differences between 1929 and Today
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I am saying that price action in equity markets is due to perceptions about currency manipulation not perceptions about economic fundamentals.

[/ QUOTE ]

could you define what you mean by currency manipulation and provide evidence for your price action claim?

thanks,
Barron

[/ QUOTE ]

i think he means rate cuts, but perhaps more including things like the presidential financial working group.



[/ QUOTE ]

now i don't want to wake the borodog beast here but i do think that calling rate cuts "currency manipulation" is bad taste.

"currency manipulation" is what china is doing to the yuan. the entire purpose of their open market operations is SOLELY to devalue their currency in order to expand export growth.

in the US, the fed's aim is not SOLELY to devalue the US dollar. it is to increase consumptive demand and reduce borrowing costs and smooth out the money markets. the effect on the currency is ancillary and certainly not the main thrust of the policy.

in fact, i'd say the currency situation is the lever that keeps the fed in check right now since ben can't lower rates too much otherwise inflationary pressures would simply be too much.

to call the fed's rate cuts "currency manipulation" imo is just poor taste. the reason is that "currency manipulation" has a very specific meaning too it which is not the case at this point.

in the 1980s while the USD was moving too high (and then too low) there was definite "currency manipulation" with the stated goal of having the dollar reach a certain point. there is no such goal here and the purpose of the fed's actions is clearly to spur the US economy, not reduce the value of the dollar.

as i've mentioned before, a 50% increase in exports means less to GDP growth than a 10% increase in domestic consumption.

Barron

Re: The differences between 1929 and Today
 

[ QUOTE ]
in the US, the fed's aim is not SOLELY to devalue the US dollar. it is to increase consumptive demand and reduce borrowing costs and smooth out the money markets. the effect on the currency is ancillary and certainly not the main thrust of the policy.

[/ QUOTE ]

the means of them achieving any of those goals cannot occur without the currency effects. its not unreasonable to say the currency is manipulated so these goals can be achieved.

[ QUOTE ]

in fact, i'd say the currency situation is the lever that keeps the fed in check right now since ben can't lower rates too much otherwise inflationary pressures would simply be too much.

[/ QUOTE ]

this is the joke of keynesian theory. They can't do one without the other so the idea of the fed having a duel mandate is ridiculous. Its like telling someone to turn left and right at the exact same time.

stagflation again, unfortunately, will need to reveal the ineffectiveness of this non-sense.