Is the US entering another depression?

[purveyor of truth]

I've read these definitions in a few places.

Recessions are caused by inflation, demand exceeding supply.

Depressions are caused by deflation, supply exceeding demand.

Ok so we have excess housing and falling home prices, inventories of durable goods not moving, falling oil prices. Sounds like a depression, problem is the experts dont agree on what caused the last great depression or even what one is for that matter. Are we really in a recession, or is it a depression?

[Archvile]

recession == no growth +/-0
depression == negative growth (shrinking)
.

[Sierim]

Gas and housing prices may be falling, but that doesn't tell one much about the market outside of those areas? Are the prices of other necessary goods (such as food and clothing) rising, falling, or stable? What about unnecessary goods (furnishings, delicacies, trinkets)?

As far as I know, prices are still rising (or stable) in all major areas other than gas, and as gas is something of a modern necessity, I doubt its falling price is a sign of depression (demand doesn't typically drop on necessities unless the population drops).

[edge walker]

Stagflation (http://en.wikipedia.org/wiki/Stagflation)

[Dark Razor]

Problem is that the official economic indicators (i.e. data like inflation rate, GDP, unemployment) are obtained via the use of creative statistics (http://www.shadowstats.com/section/primers) to make stuff look good. This means that the statistics released by the governement are largely worthless, and it also means that economic decisions based on this data are probably misguided.

It is kind of a vicious cycle, first we manipulate the numbers and then we base our future economic decisions on those flawed statistics, so that we no longer know what is actually going on.

[Chunes]

Has it not occured to us that positive growth (which if sustained is exponential) is unsustainable? There comes a point when we simply have enough doohickey 9000s. Why do we feel the need to prop up supply when there is no demand? Well, it's because people need jobs to survive. I posit that should not be the case and economic growth should not grow at the monstrous rate it has been.

This outmoded bubble-n'-burst economy is a failed experiment. It's time we recognized it as such and designed a stable economy.

[Lee]

A recession is defined as a period of two or more consecutive quarterly declines in gross domestic product, while a depression is defined as a prolonged period of recession usually lasting two or more years.

However, GDP can be increased to the detriment of long term economic prosperity, or in other words, recessions can sometimes be a good thing.

One way to increase GDP in the short term is to borrow. Suppose that we wish to measure your contribution to GDP. The major component of your contribution will be consumption, that is, the final price of all goods and services you purchase in your country of residence (distinguished from imports). If, therefore, your consumption can be increased without decreasing other spending then GDP will increase. But how can you spend more on consumption without spending less somewhere else? It's easy, take out a loan!

Loans redistribute money across time*. For example, suppose that your income this year will be $10,000, and further, your expected income over the next five years $250,000, or $50,000 per annum on average. Noting that your future self will have a far greater income than your present self, you decide that some income redistribution would be appropriate and decide to borrow $30,000. Your income this year jumps to $40,000, while your expected income only decreases to $220,000, or $44,000 per annum on average (we'll ignore interest rates to keep it simple). By redistributing your income across time you can gain access to it when it is needed most.

In the short term this loan can substantially increase your contribution to GDP by increasing consumption. It is, however, offset by lower contributions to GDP in successive years as the loan is paid off. Nonetheless, your contribution to GDP would have a positive, or at least neutral, trend. But suppose that you grossly overestimate your expected income. Instead of $250,000, you will actually have $150,000.

The $30,000 loan is sold on these false expectations, meanwhile, you begin to adjust your consumption to your new $40,000 income and $250,000 expected income. Your contribution to GDP soars---not only do you have more money now but expect to have even more in the future, and you spend accordingly.

Eventually, however, the 'next five years' begins and you discover that your expected income was overestimated. Instead of $50,000 per annum on average you have only $30,000, and you still have to pay back your loan! After the first year, your income actually declines from $40,000 to $24,000 and your contribution to GDP decreases. Unwilling to give up your $40,000 income lifestyle you decide to borrow $16,000. Another redistribution of wealth from an increasingly poor future to the present. You have, in effect, delayed a personal recession by borrowing. However, when the future once more becomes the present, you have an even lower income and even greater debts.

It is a cycle that cannot go on forever. Even if you wish it to, eventually lenders are going to wise up, look upon your impoverished future, and decline to loan you any more money. In fact, by not accepting the recession the first time the eventual depression is magnified. The bad decisions of the past needed to be paid for before progress could once again be made, and denial of this only deepended the eventual misery. Your contribution to GDP may go down to correct errors of the past, and trying to prop it up by borrowing and spending on consumption can at best delay, and at worst deepen, your eventual crash.

The recent credit bubble, fuelled by decades of espansionary monetary policy by the fed (so-called 'easy money' policy which make loans more attractive) and the delusion that property prices could only go up, greatly inflated Americans' current income and expected income (e.g. home equity). Some proportion of the rise in GDP preceding these economic troubles was misleading, and a recession is desperately needed to pay for the mistakes it led people into.

The government is currently trying to prop up GDP by borrowing even more money from an increasingly impoverished future. Expansionary fiscal and monetary policy are both veiled forms of borrowing. They are trying to prop up GDP (or aggregate demand) and delay the inevitable, but this will only make the eventual crash worse. Moreover, once the lenders get wise to this pyramid scheme (because that's what it is), they'll stop giving the US, including its government, any loans. At that point they'll have to just print the money to fund their activities, and thereby, create massive inflation (they'll call all of this 'economic stimulus', of course).

Now lets hope that I am utterly wrong, or at the least, the impact of all this will not be so great.

* When the US Government pays for a public program with a loan which is not due to be repaid for ten or twenty years, future taxpayers have their incomes reduced. 'No taxation without representation' was a rallying call of the American Revolution. Today, however, those who are under the voting age are already being taxed.

[mancroft]

These links will help answer your question:

http://www.europac.net/

http://theinternationalforecaster.com/

[purveyor of truth]

A recession is defined as a period of two or more consecutive quarterly declines in gross domestic product, while a depression is defined as a prolonged period of recession usually lasting two or more years.

However, GDP can be increased to the detriment of long term economic prosperity, or in other words, recessions can sometimes be a good thing.

One way to increase GDP in the short term is to borrow. Suppose that we wish to measure your contribution to GDP. The major component of your contribution will be consumption, that is, the final price of all goods and services you purchase in your country of residence (distinguished from imports). If, therefore, your consumption can be increased without decreasing other spending then GDP will increase. But how can you spend more on consumption without spending less somewhere else? It's easy, take out a loan!

Loans redistribute money across time*. For example, suppose that your income this year will be $10,000, and further, your expected income over the next five years $250,000, or $50,000 per annum on average. Noting that your future self will have a far greater income than your present self, you decide that some income redistribution would be appropriate and decide to borrow $30,000. Your income this year jumps to $40,000, while your expected income only decreases to $220,000, or $44,000 per annum on average (we'll ignore interest rates to keep it simple). By redistributing your income across time you can gain access to it when it is needed most.

In the short term this loan can substantially increase your contribution to GDP by increasing consumption. It is, however, offset by lower contributions to GDP in successive years as the loan is paid off. Nonetheless, your contribution to GDP would have a positive, or at least neutral, trend. But suppose that you grossly overestimate your expected income. Instead of $250,000, you will actually have $150,000.

The $30,000 loan is sold on these false expectations, meanwhile, you begin to adjust your consumption to your new $40,000 income and $250,000 expected income. Your contribution to GDP soars---not only do you have more money now but expect to have even more in the future, and you spend accordingly.

Eventually, however, the 'next five years' begins and you discover that your expected income was overestimated. Instead of $50,000 per annum on average you have only $30,000, and you still have to pay back your loan! After the first year, your income actually declines from $40,000 to $24,000 and your contribution to GDP decreases. Unwilling to give up your $40,000 income lifestyle you decide to borrow $16,000. Another redistribution of wealth from an increasingly poor future to the present. You have, in effect, delayed a personal recession by borrowing. However, when the future once more becomes the present, you have an even lower income and even greater debts.

It is a cycle that cannot go on forever. Even if you wish it to, eventually lenders are going to wise up, look upon your impoverished future, and decline to loan you any more money. In fact, by not accepting the recession the first time the eventual depression is magnified. The bad decisions of the past needed to be paid for before progress could once again be made, and denial of this only deepended the eventual misery. Your contribution to GDP may go down to correct errors of the past, and trying to prop it up by borrowing and spending on consumption can at best delay, and at worst deepen, your eventual crash.

The recent credit bubble, fuelled by decades of espansionary monetary policy by the fed (so-called 'easy money' policy which make loans more attractive) and the delusion that property prices could only go up, greatly inflated Americans' current income and expected income (e.g. home equity). Some proportion of the rise in GDP preceding these economic troubles was misleading, and a recession is desperately needed to pay for the mistakes it led people into.

The government is currently trying to prop up GDP by borrowing even more money from an increasingly impoverished future. Expansionary fiscal and monetary policy are both veiled forms of borrowing. They are trying to prop up GDP (or aggregate demand) and delay the inevitable, but this will only make the eventual crash worse. Moreover, once the lenders get wise to this pyramid scheme (because that's what it is), they'll stop giving the US, including its government, any loans. At that point they'll have to just print the money to fund their activities, and thereby, create massive inflation (they'll call all of this 'economic stimulus', of course).

Now lets hope that I am utterly wrong, or at the least, the impact of all this will not be so great.

* When the US Government pays for a public program with a loan which is not due to be repaid for ten or twenty years, future taxpayers have their incomes reduced. 'No taxation without representation' was a rallying call of the American Revolution. Today, however, those who are under the voting age are already being taxed.


Thats a beautiful explanation Lee, concise and easy to understand. Now where can I borrow some money...

[mancroft]

Read this:

http://theinternationalforecaster.com/International_Forecaster_Weekly/A_Ponzi_Scheme_Within_A_Ponzi_Schme

It'll make you miserable.


Based on all the above, all we can say is don't retire, and buy as much gold and silver as you can afford and lay your hands on after getting out of debt, buying freeze-dried food, purchasing a water filter and obtaining a weapon for self-defense. IS ANYONE AS OUTRAGED AS WE ARE ABOUT THIS SOCIAL SECURITY PONZI SCHEME?! Look at all the hubris about the Madoff scandal, and we have a Ponzi scheme greater by three orders of magnitude that is about to unravel while everyone goes ho-hum. It is nothing less than surreal.

[Anonymous]

I think we are, yes. To me, the obvious solution would be to merge the U.S., Canada, the U.K., Australia, and perhaps New Zealand and other promising developing nations with the EU, or a similar structure. This would allow for better and easier flow of resources and people to where they're needed. It worked for the EU, and it should work for us.

Now granted, we would still need to restructure everything to be sustainable, because really, the cultural patterns that we have built our foundation on require constant expansion to avoid stagnation and decline. This happened with Rome, then Europe (during their colonial days), and now it's happening with almost everyone, except that we don't have anywhere to expand anymore. So we have to expand into each other. But unfortunately, we can only do that so many times, and eventually we're going to be majorly fucked unless we change our culture.

[purveyor of truth]

Read this:

http://theinternationalforecaster.com/International_Forecaster_Weekly/A_Ponzi_Scheme_Within_A_Ponzi_Schme

It'll make you miserable.

Mostly accurate I'd say except I'm not entirely convinced of the conspiracy angle other than naked greed, is greed all that organized? I have my doubts.

[mancroft]

I think we are, yes. To me, the obvious solution would be to merge the U.S., Canada, the U.K., Australia, and perhaps New Zealand and other promising developing nations with the EU, or a similar structure.

That is what the New World Order is trying to do. It is going to be fucking awful.


This would allow for better and easier flow of resources and people to where they're needed. It worked for the EU, and it should work for us.


Bullshit. The EU is mired in a totally corrupt and inefficient bureaucracy. If the EU was a corporation, it would have gone bust years ago and the directors would still be in prison in 2030.


Now granted, we would still need to restructure

What the Yanks need to do is get rid of the Fed, have money based on a commodity like gold and allow fair market capitalism to take over from government control.

[mancroft]

Mostly accurate I'd say except I'm not entirely convinced of the conspiracy angle other than naked greed, is greed all that organized? I have my doubts.

Yes it is organised. By some very clever people who have managed to pull the wool over people's eyes for years.

Now that their plot has come to light, they are trying to accelerate the formation of a one world government.

[edge walker]

It worked for the EU
I’m not sure where you get this from.

[purveyor of truth]

Yes it is organised. By some very clever people who have managed to pull the wool over people's eyes for years.

Not trying to be smart, give us a list of names, show us the structure. And do this while refraining from citing nutjob organizations.

[mancroft]

Not trying to be smart, give us a list of names, show us the structure. And do this while refraining from citing nutjob organizations.

The New World Order does exist.

Unfortunately, they have not sent my an organisational structure diagram.

As well as the fake "conservatives" the Bushes, include people like Obama, the Trilateral Commission, the Council on Foreign Relations, Rockefellers, Rothschilds, etc.

Get the picture?

George Bush New World Order

[johnjuan]

The New World Order does exist.

Unfortunately, they have not sent my an organisational structure diagram.

As well as the fake "conservatives" the Bushes, include people like Obama, the Trilateral Commission, the Council on Foreign Relations, Rockefellers, Rothschilds, etc.

Get the picture?

George Bush New World Order

There are tons of theories on this. One of the biggest advocates of this conspiracy theory is the same guy who believes all of the leaders of the world are descended from space lizards.

PROOF PLEASE

[Dman]

Is the US entering another depression? A more appropriate question would be is the US economic model sustainable? To which the answer is no.

The US can avoid a depression by creating more money out of thin air (which is precisely what the government is doing). Unfortunately the end results will be far worse than a "depression". We'll likely be wishing it had been a depression instead.

The Federal Reserve, fractional reserve banking, effectively bankrupt federal government...we're doomed. It's not a matter of if, but when, and how it will play out (violent social unrest; more foreign wars/invasions; slippery slope of socialism leading towards communism...)

[MacGuffin]

Is the US entering another depression? A more appropriate question would be is the US economic model sustainable? To which the answer is no.

The US can avoid a depression by creating more money out of thin air (which is precisely what the government is doing). Unfortunately the end results will be far worse than a "depression". We'll likely be wishing it had been a depression instead.

The Federal Reserve, fractional reserve banking, effectively bankrupt federal government...we're doomed. It's not a matter of if, but when, and how it will play out (violent social unrest; more foreign wars/invasions; slippery slope of socialism leading towards communism...)

What the...?

TWO YEARS AND YOU POP OUT OF THE WOODWORK NOW???

[Dtrickk]

That is what the New World Order is trying to do. It is going to be fucking awful.



Bullshit. The EU is mired in a totally corrupt and inefficient bureaucracy. If the EU was a corporation, it would have gone bust years ago and the directors would still be in prison in 2030.



What the Yanks need to do is get rid of the Fed, have money based on a commodity like gold and allow fair market capitalism to take over from government control.
Do you believe in the theories behind the North American Union?

["?"]

I've read these definitions in a few places.

Recessions are caused by inflation, demand exceeding supply.

Depressions are caused by deflation, supply exceeding demand.

Ok so we have excess housing and falling home prices, inventories of durable goods not moving, falling oil prices. Sounds like a depression, problem is the experts dont agree on what caused the last great depression or even what one is for that matter. Are we really in a recession, or is it a depression?When I wrote those statements, I was over simplifying. Economist (http://www.gusmorino.com/pag3/greatdepression/) know the reasons for the Great Depression. But like then and as usual, no one wants the economy to go into a panic. Maybe the first paragraph of this article sounds familiar:
Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade. The maldistribution of wealth in the 1920's existed on many levels. Money was distributed disparately between the rich and the middle-class, between industry and agriculture within the United States, and between the U.S. and Europe. This imbalance of wealth created an unstable economy. The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the maldistribution of wealth, caused the American economy to capsize.

[somnium]

To me, the obvious solution would be to merge the U.S., Canada, the U.K., Australia, and perhaps New Zealand and other promising developing nations with the EU, or a similar structure. This would allow for better and easier flow of resources and people to where they're needed. It worked for the EU, and it should work for us.

Aside from the wildness of the idea, I thought it worth drawing attention to the phrase in bold.

If Anonymous is still alive, I can only assume there aren't many Kiwis on the forum.

[nonperson]

Aside from the wildness of the idea, I thought it worth drawing attention to the phrase in bold.

If Anonymous is still alive, I can only assume there aren't many Kiwis on the forum.

Actually Anonymous's quote is the stupidest thing I have read here.

What evidence is there of the EU working..............?

[somnium]

Actually Anonymous's quote is the stupidest thing I have read here.

What evidence is there of the EU working..............?

Haha. As a relative pro-European I thought it best not to draw too much attention to that one.

(My own career tends to support the thesis that European integration has helped labour mobility, but I don't like to argue from instances.)

Edit: Actually, has Anonymous made any more posts since the one about "New Zealand and other developing nations"? Maybe some outraged Antipodean really has tracked him down and killed him.

Edit 2: It's alright, I just checked and he was still alive today at least.

[djm]

Actually Anonymous's quote is the stupidest thing I have read here.

What evidence is there of the EU working..............?

It works fine, it is on target to create a monolithic idiot state of blindly obedient consumer units which is precisely what it was always intended to be. I wish it was not working as well as it is.

On the plus side though it just gave me 1.4m Euros for research :)

[nonperson]

On the plus side though it just gave me 1.4m Euros for research :)

So it will be a choice of chocolate digestives or Rich Tea the next time I drop into djm central laboratories then?

[nonperson]

Haha. As a relative pro-European [Union]



Says our man in Geneva.....;)

[djm]

So it will be a choice of chocolate digestives or Rich Tea the next time I drop into djm central laboratories then?

It's to help develop an nematicide that doesn't kill people. I am sure I could rustle up a fig roll though.

[mgb]

What the...?

TWO YEARS AND YOU POP OUT OF THE WOODWORK NOW???

It is kind of his fault, for liking big SUVs so much.

[Anonymous]

Aside from the wildness of the idea, I thought it worth drawing attention to the phrase in bold.

If Anonymous is still alive, I can only assume there aren't many Kiwis on the forum.

:lol: I was just trying to include viable options. Not saying that anyone should be swallowed against their will or anything like that.

In response to other people, it's mostly labor and goods mobility. Being able to move resources around more quickly and freely strengthens the economy. Restrictions weaken it. Obviously, caution needs to be taken when consolidating so much power into one organization, and that caution is what creates inefficient bureaucracy. Inefficient bureaucracies are simply necessary if you want to have large empires and try to keep rampant corruption under control, like everyone wants to. You may bemoan them for being big, corrupt, slow, and whatever else, but the fact is that we've reached a point where nations simply can't wing it on their own anymore. Well, most of Europe reached that point about 90 years ago, and suffered two crippling wars and horrible economic troubles until something was done about it. America is new on the scene, but we seem to have caught up with that point pretty quickly, so I'm kind of hoping that we don't have to learn the hard way.

The whole point in general of the EU, as far as I can tell, is a mutual cooperation in order to soften economic blows. As for economics, it seems that it's worked in that it helped most of Europe out of their substantial economic problems, and things have been pretty decent since the 60s.

[Evignus]

I predict the US will enter into a depression that will last from 2-3 years at least and the fact that president Nixon took the dollar off it's last links to the gold standard doesn't help because the Federal Reserve can print money hot off the presses that is not backed by any physical standard (which it is doing now frantically) and along with the practice of fractional reserve banking by the centralized banks only exacerbates the problem . I have to agree with Dman on several of these issues.

[Evignus]

If anyone is interested in why the financial crisis happened in just 10 concise points please visit this link :

http://mises.org/story/3263


__

[somnium]

In response to other people, it's mostly labor and goods mobility.

Yeah, fair enough, and without being an expert on the subject, I think it's reasonably widely accepted that the EU has been a success as a free-trade zone; the criticisms that I see of the EU mainly concern its activities as a non-democratic supra-national government (with some justification I fear).

[Dman]

If anyone is interested in why the financial crisis happened in just 10 concise points please visit this link :

http://mises.org/story/3263


__

Indeed.

An earlier poster noted "causes" of the Great Depression, yet did not actually go back to the root causes - The Fed's policies. That's what created the "speculative" environment that he/she mentions in the first place. You know, expansion of the money supply leading to a credit-driven boom? Sounds familiar, eh?


What the...?

TWO YEARS AND YOU POP OUT OF THE WOODWORK NOW???

I’ve spent a little time lately debating on several other forums and found that I just wasn’t getting the level of quality that I remembered from here (believe it or not). I was trying to reach a broader audience.

Of course, every forum has its share of morons, but even the best posters on the other forums seemed a bit…lacking. Research skills were pathetic, as was comprehension. I often came up with better arguments against my own cases than they could. Got tiresome. So I thought I’d drop back in here.


It is kind of his fault, for liking big SUVs so much.

I thoroughly enjoy my Ford Excursion. Yes, even when gas was $4/gallon. Don't care if it goes to double that price, quite frankly.

[MacGuffin]

I’ve spent a little time lately debating on several other forums and found that I just wasn’t getting the level of quality that I remembered from here (believe it or not). I was trying to reach a broader audience.

Of course, every forum has its share of morons, but even the best posters on the other forums seemed a bit…lacking. Research skills were pathetic, as was comprehension. I often came up with better arguments against my own cases than they could. Got tiresome. So I thought I’d drop back in here.
That is true anywhere. You should drop into TypeC and debate economics with Lee/Reason. He started an interesting thread.

Glad to hear you're coming around on the alogical though. :)