The U.S. is heading towards a major depression

Dis · February 3, 2003, 03:15

OK so I've been listening to a lot of talk radio lately. Which is risky, because a lot of people on radio are whackos. So I really don't know if I can believe them. But this one piece of news struck me. And I believe it. I have been thinking about this over the last several months.

Now I'm not 100% sure about this. One reason for the uneasiness right now is because of imminent war. So this clouds the picture a bit. But even 6 months ago, the economy hasn't been doing good things.

In fact I think the economy is a pile of crap. But I always believe this would rebound in 2 years when we get a democratic president. Now I'm not so sure. The future doesn't look bright.

Anyways I've heard gold is a good thing to invest in a war or depression. And the price has been going up lately. I have been thinking about investing in gold.

but some advice that has been put out there is to consolidate and eliminate your debts. If you aren't in debt a depression will not be very hard to make it through. And invest in gold.

Again these aren't my views. But those of some radio talk show host.

I've always believed we are due for a depression, but I'm still not sure I believe this radio talk show host. Like I said, many of them are conservative whackos. I still think there is a decent chance we can bounce back after that horrible president Bush leaves office in less than 2 years now. But I'm not sure.

But who should I believe? Should I believe those wall street people that keep encouraging me to pour my life savings into the stock market? Should I believe president Bush? Like a tax cut is going to magically improve the economy.

CerberusIV · February 3, 2003, 05:47

There is a long history of US Presidents pushing foreign policy issues, often with military action, to divert attention from domestic economic problems. It doesn't necessarily mean a depression but it certainly doesn't look good.

If you have investment plans that are putting money into stocks for the long term (to pay off a property mortgage or for a pension) they should be OK as cheaper shares now should mean more payback in 20 years time (or it will all be so bad it won't matter). Short term investments are more risky.

I voted banana because I don't believe anyone knows for sure.

Tripledoc · February 3, 2003, 06:08

Quote:

Originally posted by Dissident
Anyways I've heard gold is a good thing to invest in a war or depression. And the price has been going up lately. I have been thinking about investing in gold.

but some advice that has been put out there is to consolidate and eliminate your debts. If you aren't in debt a depression will not be very hard to make it through. And invest in gold.

Again these aren't my views. But those of some radio talk show host.

Gold is a a good investment on paper because it is a finite resource, but bear in mind that the gold value can be artificially kept low by manipulating schemes - so don't be fooled again. The aim in this is to keep the dollar (not finite) value high - which according to many economists is overvalued.

Actually a low dollar might be good for US exports - and it is the lack of exports which is really hurting the US economy. But a low dollar will also mean substantial losses for those involved in high finance.

If you are not the patriotic type you might also consider investing in Euros.

Sarxis · February 3, 2003, 09:21

I'm already farily depressed in America. This country is great and all- still has a high standard of living even for its poor, but the 'American Dream' is a bulls*** story the upper echelon feeds the lower classes to keep them content. I mean, someones' got to flip the burgers. But burger-flipping or any like job makes you a non-entity in this country.

Spiffor · February 3, 2003, 09:38

War (at least preparation of war) had a positive impact on the American growth : Bush's deficit spending to buy as many weapons as possible helped the weapon industry considerably, like the corollary industries, which resulted in a very positive effect in the short term : Q1 2002, there was a 5.2% growth IIRC.

The developed world is currently in a downing phase of its economy, and almost all rich countries have a slowed down growth. Maybe in the near future, they'll have a negative growth as well, including the US.
We are going to an average depression worldwide (including the US) and the lack of international coordination makes sure it'll happen. For once, we Euros are at fault, since we didn't follow the US when it used massive deficit spending to counteract the coming depression.

In short : no major depression, but an average depression.

Solly · February 3, 2003, 09:47

Yep, the West over the next twenty years will not do well as a result of our policies ignoring the effects of the demographic dividend.

JohnT · February 3, 2003, 09:51

Demographic dividend? New one on me... could you please explain?

Spiffor · February 3, 2003, 09:53

Oh, and don't believe wall street experts when they say to put your life savings in the stock market. The system is extremely fragile, and will collapse if there is a significant external shock (like the oil shock Gulf War II could bring).
The system dearly needs more money from people and private investors to hold on : don't be fooled, when they invite you in the Stock-casino, they do so out of their interest, not yours.
Gold isn't great, as the general trend is to lowering the value (I speak on a decade-y trend). I'd rather suggest you to put your life savings in a reasonable Bank, which is a much safer place than the stock market. At least until we precisely know if we're on the verge of crisis or not.

Velociryx · February 3, 2003, 09:55

Disagree.

True, with the threat of war looming, the short term economic fallout might not be so pleasant, but the fact is that there are a lot of emerging nations in the early stages of industrialization/modernization (and I would include China in that category).

When we were in their shoes, we bootstrapped our way up by buying what we needed from the (then Industrial Giant) Great Britain.

The nations that are doing what we did 200 years ago need to buy what they need to get started from those who are already industrialized....the west.

Long term, we've got no shortage of customers.

-=Vel=-

Lancer · February 3, 2003, 09:58

Ta right. We're all doomed because we didn't elect Gore.

JohnT · February 3, 2003, 10:06

Quote:

Originally posted by Spiffor
Oh, and don't believe wall street experts when they say to put your life savings in the stock market. The system is extremely fragile, and will collapse if there is a significant external shock (like the oil shock Gulf War II could bring).
The system dearly needs more money from people and private investors to hold on : don't be fooled, when they invite you in the Stock-casino, they do so out of their interest, not yours.
Gold isn't great, as the general trend is to lowering the value (I speak on a decade-y trend). I'd rather suggest you to put your life savings in a reasonable Bank, which is a much safer place than the stock market. At least until we precisely know if we're on the verge of crisis or not.

I don't even know where to begin. So I won't. I can't.

But, I just have to ask... No! Must... resist... temptation!

Fah. I've got too much to do today without getting involved in a discussion like this.

Tripledoc · February 3, 2003, 10:10

Quote:

Originally posted by Spiffor

In short : no major depression, but an average depression.

But a major depression is better if it is short, while an average 'Japan style' depression might go on for several decades.

I fail to see how deficit spending can save the day since quite frankly there is nothing really to spend money on, unless there is some revolution in renewable energy.

CerberusIV · February 3, 2003, 10:14

Quote:

Originally posted by Velociryx

When we were in their shoes, we bootstrapped our way up by buying what we needed from the (then Industrial Giant) Great Britain.

The nations that are doing what we did 200 years ago need to buy what they need to get started from those who are already industrialized....the west.

-=Vel=-

Not quite, I'm afraid. 200 years ago Britain generally encouraged investment in the agricultural and mining development of its colonies, not their industrialisation.

Now China buys machinery once and then produces the goods it requires, and exports any surplus. Western money finances it, uses the profits to finance more investment overseas and little comes back to the average joe in the US or Europe.

A lot of Chinese corporations do most of their own R&D and are increasingly less reliant on the West for anything much.

TheStinger · February 3, 2003, 10:17

Britain industrialised 1st and then sold the next lot of countires the equipment for their industrialisation.

They sold anything to anyone. especialy the USA.

Velociryx · February 3, 2003, 10:22

Really?

It seems to me (granted, I did only a cursory search here) that there have been DROVES of factories building everything from Airframes to Chipsets built all over Asia.

I would imagine that the expertise to build such facilities did not....*could not* have come from the local (largely peasant farmer) population, but rather, would had to have come from an already industrialized nation.

You can't build a modern sky scraper without modern expertise.

Likewise, you *could* attempt to develop every single industry you would need, in a bid for self-sufficiency, but to my knowledge, this has succeeded noplace on earth....so yep....like it or not, developing countries will have to buy from more developed ones.

And, as they develop...as their populations gain more affluence, they'll begin demanding luxury items and exotic imports......

It's precisely the way new markets develop, and to say we're runnin' out of potential customers is to say that the whole world is industrialized.

Anybody *really* care to make that argument?

Sava · February 3, 2003, 10:31

As much as I love ripping Bush and the Republican puds in this country, I don't think a major depression is on the horizon. The American people will wise up and vote Bush out in 2004 based on the economy just like his dad. We'll have a Democrat president who will balance the budget, the economy will recover and prosper like under Clinton; another Republican will get voted in during 2012, and the cycle will continue.

CerberusIV · February 3, 2003, 10:34

My point is that a lot of the countries that are industrializing now, or over the next couple of decades are well on the way and past needing much from USA/Europe/Japan. That means facing up to industrial restructuring in the West, already well advanced in many countries, developing high tech and luxury products and ensuring investment happens here, not elsewhere. That last point is the critical one and a recession isn't going to help.

Seneca · February 3, 2003, 10:35

What if everyone suddenly realises that apart from being shiny and quite scarce, gold isn't really all that more useful than any other metal?

Spiffor · February 3, 2003, 10:40

Quote:

Originally posted by Tripledoc
But a major depression is better if it is short, while an average 'Japan style' depression might go on for several decades.

An average depression is not necessarily as long as the deep Japanese depression (which is caused by the need of the Japanese economy to completely change its structures, now that the "catching back" phase is finished). It's a usual economical phenomenon, which is due to the lack of confidence in the economy, which in turn creates a lack of confidence in the economy, etc. and the phenomenon ends at some point, usually after 3-7 years.

Quote:

I fail to see how deficit spending can save the day since quite frankly there is nothing really to spend money on, unless there is some revolution in renewable energy.

There is no limit to the amount of money a hawkish administration can spend in the military. The huge raise of military funding was partly intended to instill money within the American economy.

Velociryx · February 3, 2003, 10:41

Conflict is good for the munitions business, but just about nothing else, so yes...if there's war, there'll prolly be recession.

Once the war ends, if we're smart, we'll seek out and create opportunities to keep the global economy expanding.

America has a lot of business expertise. One need only to look at the sheer size of the US economy to realize that if you're a little fish, trying to get bigger, help from the guys who are already there is probably a good thing. Even better, accepting such help doesn't even require that you LIKE the other guy much (which is fortunate for us, since pretty much everybody in the world wants to see the US reduced to cinders--and a good bit of that is our own fault, but that's another topic).

So....even if a developing nation has a mind to go it alone, if we're smart (and in business, we surely are), we'll seek them out. We won't wait for them to come to us, we'll go to them....wherever they are, and we'll do a deal. We'll make the business happen.
Recession will be a bump in the road, but I do not predict anything close to the global depression the doomsayers always seem to trot out when there's the least little trouble on the horizon.

Seems like they watched the movie "rollover" and took it as gospel....

-=Vel=-

Imran Siddiqui · February 3, 2003, 10:53

It may go into recession, but all I see is just modest growth. That isn't bad seeing the state the rest of the 1st world is in. As long as it doesn't go too south, it'll be alright.

Ogie Oglethorpe · February 3, 2003, 11:19

Firstly I don't know the answer, but there are some drivers that may lend themsleves to a contraction of US economy.

The current set of distractions aside.

From a strictly US market, one can expect as the current projected demographic, the US will soon see a large glut of its population moving from productive and large time consumer ages of mid40's+ (baby boomers) into retirement withio the next 10+ years.

This means a large segment of our population will be marginal consumers, no extravagant expenditures for latest and greatest electronics, toys, pleasure items etc. There may be a slight impact in second houses in the southern regions for retirment homes etc. But by and large the big time consumers of 20-40 age groups wherein new cars, first time home buyers, etc. is going to be a shrinking market segment.

While I agree the world is the total market, one also need consider strength of US dollar, foreign policy (and the negatives we've garnered there of late), strength of local competition etc.

In short I don't know but I would agree that there is more than enough reason to be concerned.

OTOH I wouldn't invest in gold regardless but thats just my opinion.

Imran Siddiqui · February 3, 2003, 11:23

Yeah, Ogie, but the baby boomers are all materialists

.

Ogie Oglethorpe · February 3, 2003, 11:27

I can see it now. Nursing homes all filled with the latest big screen TV's. 2 per room.

Solly · February 3, 2003, 11:27

JohnT,

Nations with a high proportion of young or old dependents tend to devote a relatively high proportion of resources to these groups, often limiting economic growth. By contrast, nations in which a relatively large share of the population has reached the prime ages for working and saving may enjoy a boost to income growth stemming from the higher share of the population that is working (see Western nations 1960 - 2005), from the accelerated accumulation of capital, and from reduced spending on dependents. This phenomenon is known as the "demographic dividend." The combined effect of this "dividend" and effective policies in other areas can stimulate economic growth.

Tripledoc · February 3, 2003, 12:05

Quote:

Originally posted by Spiffor
There is no limit to the amount of money a hawkish administration can spend in the military. The huge raise of military funding was partly intended to instill money within the American economy.

Surely there must be some upper limit. Military might must be paid for - the largest post being wages. Deficit financing does not add anything of value to the economy if it is just wages. It must be used to invest in productive or wealth generating enterprises.
A large well paid army might boost consumption. However armies are not paid to consume are they?
The army is not a welfare institution.

If the scheme is to instill money solely within the US economy as you stated then surely investment in foreign countries will suffer as the dollar depreciates and nothing will be done to correct the fundamental imbalance in the world economy - trade deficit wise.

I simply can't understand all this talk of how the level of consumption is an indicator of economic growth when the financial base for futher increases in consumption is not there and seemingly the demand is not there either.

monolith94 · February 3, 2003, 12:07

My pofessor of geopolitics invested in silver and made approximately $200,000 and lost the vast majority of it in one day.

Velociryx · February 3, 2003, 12:14

You're right...armies are not paid to consume, but it is a natural byproduct of paying them.

Soldier gets money....soldier and his wife go buy stuff....food, new refridgerator, TV for the kids....stuff.

Soldier gets called to the gulf....but the wife and kids are still home....money still comes in, they still go buy stuff.

Don't totally ignore what the doomsayers are pushing, but also, don't put too much faith in it.

It was the doomsayers who kept saying that the American stock exchange would never rise above 2000....uh huh.....

-=Vel=-

DuncanK · February 3, 2003, 12:15

"In the long run we're all dead."-John Maynard Keynes

I voted bananas because you didn't specify when the depression will occur.

There will be one last Great Big Long Depression. The leaders of the world will do everything they can to get people to spend and invest like they used too, including war. They will go bankrupt in the process and riots will break out. The people will demand direct state planning in the economy to put the people back to work and to get neccessities to those who need them.

I'm a supply side theorist when it comes to the boom bust cycle. In the expansion stage some businesses start a new industry. Since its new they have little competition and they make big profit. Then other businesses move into the industry until they glut the market and profits fall. Then businesses lay off workers and that causes economic colapse. If the economy recovers its because a new industry emerges. Well, you can stimulate the economy, but eventually a new industry must emerge.

Is is time for the last depression? Will a new market emerge and prolong it? No one will be able to tell you that. Maybe Vel is right and China will keep growing keeping our economy going temporarily. Or maybe China's economy will collapse too and they will fall into disaray.

DuncanK · February 3, 2003, 12:21

The war will probably do little to the economy either way, because it should be a cheap war.