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The Age of Austerity
Old 10-10-2008, 09:04 PM   #1
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The Age of Austerity

What if, this time, it really is different?

I have been thinking about the long term societal consequences of the present global financial crisis. The stock market will rebound, but will large numbers of regular folks trust it again? Will the markets function? How will entrepreneurs raise capital? How will this affect the place of the US in the world?

One scenario might be as follows:

It is 2015. The global recession that began in 2008 is still ongoing. Global banking has been consolidated and is tightly regulated by the IMF. Interest rates are high. Global prime is 8%, but credit is almost impossible to get. The cost of capital is stifling growth. Markets are considered speculative. Securities regulation has dramatically increased. Unemployment is 15%. Poverty levels have soared. Those who are lucky enough to be working are saving 10% of income, mostly in cash or government bonds.

We are reducing, reusing and recycling as a matter of course, because we can't afford new stuff. Barter systems thrive. Wants are distinguished from needs. Consumption and spending have fallen in the West. The north American auto industry collaped in 2010 and most new vehicles are hybrids or hydrogen fuel cells. Oil consumption has flattened and middle eastern imports have dropped. Golf courses have been turned into community gardens where food is locally grown. Recreation is cheap and simple. Public libraries are the new Starbucks. People are walking more and the obesity epidemic is finally coming under control. The US pulled out of Iraq and Afghanistan in 2011, leaving the Taliban to work it out. Osama Bin Laden died of boredom. The US defense forces are now focusing on homeland security. Rising superpowers are be those countries in which people routinely hard work without luxuries. By 2025, China is poised to rule the world. India is the next engine of innovation.

Hey, it's not all bad!
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Old 10-10-2008, 09:06 PM   #2
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Figure out a way to survive like humanity has done for a long time. It could be worse. We could get hit by the plague or an asteroid. You are right. Its not all bad!
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Old 10-10-2008, 09:44 PM   #3
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In the 80's I like to read all those books about a few nukes going off and people revert to tribes - a lot of survivalism type things.

I think we'll get to what you are saying and in shorter than past empires. It is the nature of things - even without the stock market.
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Old 10-10-2008, 10:11 PM   #4
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The recession is still ongoing. Credit is almost impossible to get. Markets are considered speculative. Securities regulation has dramatically increased. Unemployment is 15%. Those who are lucky enough to be working are saving 10% of income, mostly in cash or government bonds. We are reducing, reusing and recycling as a matter of course, because we can't afford new stuff. Wants are distinguished from needs. Consumption and spending have fallen. Recreation is cheap and simple. Public libraries are the new Starbucks. People are walking more and the obesity epidemic is finally coming under control.
It kinda sounds like how Europe was 10 or 20 years ago (and still is in some parts)! I think that if that's the worse of it I could handle it!
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Old 10-10-2008, 10:59 PM   #5
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the new world order

Bill Moyers Journal . George Soros | PBS

how could there not be a paradign shift in world economics given the populations of china and india.

pretty sneaky of those socialists, huh, to beat the capitalists at their own game.

better luck next time.
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Old 10-11-2008, 07:55 AM   #6
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I don't get the dystopian visions. I live in the middle of a city. When I look around me the houses look roughly the same as they did before World War 1. The neighborhood looked like this through the Great Depression. If we truly enter another depression my neighbors and I would have to scale way back - no fancy toys, no expensive trips, forget eating out multiple time per week. But we would still wake up in the same bed with the same spouse. Still read the same books. Still ride the same bikes.

A nuclear war, the great sunami if La Palma falls into the sea, a giant asteroid collision -- those things could fundamentally change life as we know it. But I can buy a gun in DC now so I can deal with those eventuallities.
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Old 10-11-2008, 08:18 AM   #7
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Well let's see, I have enough suits to last at least 20 years so long as moth and dust do not corrupt them. I have enough jeans, t-shirts and lumberjack shirts to last probably 3-4 years. My cars are relatively new and in good shape, and they belong to me, not to the bank. My homes belong to me and although I would like to sell one of them, I could rent it out at a return that looks attractive based on what I could get out of it today IF it would sell at all. The home I will keep is solar powered. I have a few acres on which I planned to have a garden anyway. I may have to use the shovel more and the tractor less, but I would be OK with that. My two largest expenses would be healthcare and property tax. My cars would be driven less. I have no electric bill and my propane bill will be small as I can heat with wood and I'm building a solar shower. Also going to buy or make a solar oven. So, if it came to what you describe, I still think I would be able to live quite fine. It wouldn't necessarily be everything I had dreamt ER to be, but it could be done. For many, the picture is very bleak. But for those of us who know how to be frugal and have practiced it a while, its not so bad.

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Old 10-11-2008, 08:52 AM   #8
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We're going to tighten the belt, but its not like its going to feel like an austerity move. We dont really need anything.

The biggest thing we're going to cut down on is eating out. That frankly isnt going to be that much of a sacrifice. Seems like the maneuver most restaurants are taking with the high cost of food and energy and the bad economy is to cut the quality of the food, hire cheaper cooks and cheaper servers.

About 8 of out of the last 9 meals we've had out sucked, and the service was inept.
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Old 10-11-2008, 08:56 AM   #9
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It kinda sounds like how Europe was 10 or 20 years ago (and still is in some parts)! I think that if that's the worse of it I could handle it!
I'm from Europe. Maybe I'll go back!
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Old 10-11-2008, 09:53 AM   #10
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My crystal ball is cloudy. Neither Obama nor McBush seems willing or able to promote a vision of what a truly healthy, strong, and secure America would look like. If you can't even properly articulate the goal, then it's unlikely that you're ever going to reach it.

If the U.S. were willing to submit to a bankruptcy re-organization that results in a credible plan for returning to profitability (manifested first and foremost in substantial annual budget surpluses), my outlook would be more positive.

The great danger is that short-term, easy fixes to the financial 'crisis' may not only fail to address the underlying systemic problems that plague our economy, they may actually make these problems worse.

Another problem we have is that people are overly fixated on the capital markets as a measure of wealth. If you are considering purchasing a business, do you look solely at how much money it has in the bank? Of course not - this may actually be the least of your concerns. There are a huge number of other factors to consider. My overall outlook will remain unchanged regardless of whether world stock markets continue to fall or find an excuse to skyrocket.
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Old 10-11-2008, 10:23 AM   #11
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Originally Posted by Meadbh View Post
What if, this time, it really is different?

I have been thinking about the long term societal consequences of the present global financial crisis. The stock market will rebound, but will large numbers of regular folks trust it again? Will the markets function? How will entrepreneurs raise capital? How will this affect the place of the US in the world?

One scenario might be as follows:

It is 2015. The global recession that began in 2008 is still ongoing. Global banking has been consolidated and is tightly regulated by the IMF. Interest rates are high. Global prime is 8%, but credit is almost impossible to get. The cost of capital is stifling growth. Markets are considered speculative. Securities regulation has dramatically increased. Unemployment is 15%. Poverty levels have soared. Those who are lucky enough to be working are saving 10% of income, mostly in cash or government bonds.

We are reducing, reusing and recycling as a matter of course, because we can't afford new stuff. Barter systems thrive. Wants are distinguished from needs. Consumption and spending have fallen in the West. The north American auto industry collaped in 2010 and most new vehicles are hybrids or hydrogen fuel cells. Oil consumption has flattened and middle eastern imports have dropped. Golf courses have been turned into community gardens where food is locally grown. Recreation is cheap and simple. Public libraries are the new Starbucks. People are walking more and the obesity epidemic is finally coming under control. The US pulled out of Iraq and Afghanistan in 2011, leaving the Taliban to work it out. Osama Bin Laden died of boredom. The US defense forces are now focusing on homeland security. Rising superpowers are be those countries in which people routinely hard work without luxuries. By 2025, China is poised to rule the world. India is the next engine of innovation.

Hey, it's not all bad!
A few random thoughts on the above:

It is "all bad" if you ask me

- you second paragraphs seems to touts some kind of environmentalist, back to nature/simplicity, pacifist, anti-capitalist dream that celebrates the death of American capitalism. - but in your first you say "Unemployment is 15%. Poverty levels have soared".

Frankly, my local library sucks. It's downtown & filled with alcoholic drug-addicted bums looking at porn on the internet (thanks to liberal social-justice conscious judges). Not a place to take my kid - though supported by my tax dollars..

I happen to like scuba diving & boats (not "cheap & simple" recreational activities) & I don't think there's anything wrong with that. If I have to transition to natural gas in the future - so be it. But to suggest we should all just go to the library & toil in a community garden for our recreation - uh, uh - no thanks. I'm not giving up my lifestyle without a fight.

As to hybrid cars - well, at the moment I suspect their carbon footprint is quite a bit more than what I drive now.

And I like being employed & being surrounded by a sizeable middle class. that helps to ensure my safety and financial security.

& we're going to leave the opium trade to the Taliban? I'm sure that'll help things (if you're an addict)

I could rant on about several other things, but suffice it to say: yes, your scenario is "all bad" in my book.
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Old 10-11-2008, 11:54 AM   #12
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I'm from Europe. Maybe I'll go back!
I grew up in Europe too (mostly in the 80's and 90's). I am familiar with the kind of austerity you are describing:

It felt like the economy was always limping from one recession to the next.
Unemployment permanently hovered around 10-12%.
Credit cards? What's that? You could only spend what you had in your account (Even today, credit cards are not universally accepted in Europe).
It was already hard enough to borrow money to buy a home... And back then you had to have some serious down payment in order to borrow money from a bank.
Few people invested in the stock market because it was considered too speculative (it was also expensive). People preferred pouring their money into their home (pay off the mortgage ASAP, often in 10 years or less) and government-backed savings accounts. And by the way, today I still know many Europeans, old and young, who subscribe to those ideas. Like me they remember the austere times and they understand that there is nothing more important than owning your home outright and having plenty of money in savings to come out of economic crises relatively unscathed. That may explain why Europe's savings rates are generally much higher than ours.
I remember when wants were distinguishable from needs. I suspect most people do too because the line between the two started blurring only a decade or two ago.

After the excesses of the past few years, I think it is hard for most people now to imagine living like that. Yet we did and it didn't seem like we were suffering all that much at the time. It is important to point out however that in Europe there were safeguards to prevent some of the ills you envision: people had access to free or cheap subsidized healthcare, jobs were more stable (unions, job market regulations, etc...) and unemployment benefits more generous. That may be why I have no recollection of soaring poverty or the kind of widespread misery that you describe.

Don't get me wrong, I like my life today and and I do not long for the "good ol' days". But the economy has always gone through cycles of booms and busts and people always managed to adapt and survive. We will too.

P.S.: I love British Comedy and to me the sitcom "Are you being served?" perfectly embodies the austere years of my childhood...
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Old 10-11-2008, 12:18 PM   #13
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I'm from Europe. Maybe I'll go back!
Currently in Germany, have been here off and on for 20-plus years. Nowhere near your future world description. It was an enjoyable read/journey, though.
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Old 10-11-2008, 12:35 PM   #14
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I have been LBYM for most of my adult life. I will continue to do this. For those folks who have not ever tried it, this may be an excellent time to cut your expenses to bare bones and eliminate all of your personal debt and wait out the storm.

Bogle recently said that he predicts that the economy will not snap back for 12-18 months. I don't know if he is correct or not, but I do know that LBYM will continue to work for many more years.
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Old 10-11-2008, 12:45 PM   #15
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I don't get the dystopian visions...The neighborhood looked like this through the Great Depression. If we truly enter another depression my neighbors and I would have to scale way back - no fancy toys, no expensive trips, forget eating out multiple time per week. But we would still wake up in the same bed with the same spouse...A nuclear war, the great sunami if La Palma falls into the sea, a giant asteroid collision -- those things could fundamentally change life as we know it. But I can buy a gun in DC now so I can deal with those eventuallities.
love the dystopian word, never heard it before. i can see it applied, but i wouldn't to the world according to meadbh's scenerio. it sounds to me, even on a second reading, more like a moment of a cycle that shifts direction. not a spiral down, but like the enterprise orbiting close to the sun and ricocheting for a new trajectory. given an abundance of good will, a safety net afforded in the security installed by such a high savings rates, poverty might not mean starvation or even all that much high crime. what could be less dystopian, more utopian, than not owning a car, wearing just a loin cloth a spearing fish for dinner on a tropical island in the south pacific. from a wall street point of view that might look like poverty. perhaps we could learn to measure wealth differently.

as to all the nukes, hasn't that been the unspoken conversation. what happens when international banks don't trust each other, when debts go unpaid. will knee caps be shattered? personally, i wouldn't bother buying a gun. i wouldn't care to live in that world.

your depression era housing is spot on. here's one nicer than my house and i'm not in poverty (yet)...


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Old 10-11-2008, 04:11 PM   #16
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personally, i wouldn't bother buying a gun. i wouldn't care to live in that world.
That is what I meant about having a gun in a post nuke world - not using it on someone else
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Old 10-11-2008, 05:23 PM   #17
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I am reading an intersting bok titled Farewell to Alms. It is an histroical examination of the economics of everyday life prior to the industrail revolution.

It revolves around what the author calls the Malthusian Paradox- in pre-industrial times, whatever lessens the birthrate, or increases the deathrate improves the economic lot of the living. Whatever increases birthrate or decreases the deathrate makes standards of living go down.

This is based on the observable fact in those times that increased productivity (better weather, fewer illnesses, etc.) would lead to a jump in births, more than large enough to cancel out and actually reverse on a per capita basis whatever good fortune had come along.

So war was good; plagues were good; warm weather and bountiful harvests were bad. It also meant that social conditions were of necessity cyclical. There really was nothing corresponding to the modern idea of social and economic progress.

I feel that is we do not make adequate response to the invitable peaking of crude oil production we too may approach Malthusian conditions. The modern world is based on cheap energy.

Ha
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Old 10-11-2008, 06:08 PM   #18
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Ha,
I have to agree.
Maybe it is time to watch "Soylent Green" again.
Soylent Green - Wikipedia, the free encyclopedia
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Old 10-11-2008, 06:19 PM   #19
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Quote:
Originally Posted by haha View Post
I am reading an intersting bok titled Farewell to Alms. It is an histroical examination of the economics of everyday life prior to the industrail revolution.

It revolves around what the author calls the Malthusian Paradox- in pre-industrial times, whatever lessens the birthrate, or increases the deathrate improves the economic lot of the living. Whatever increases birthrate or decreases the deathrate makes standards of living go down.

This is based on the observable fact in those times that increased productivity (better weather, fewer illnesses, etc.) would lead to a jump in births, more than large enough to cancel out and actually reverse on a per capita basis whatever good fortune had come along.

So war was good; plagues were good; warm weather and bountiful harvests were bad. It also meant that social conditions were of necessity cyclical. There really was nothing corresponding to the modern idea of social and economic progress.

I feel that is we do not make adequate response to the invitable peaking of crude oil production we too may approach Malthusian conditions. The modern world is based on cheap energy.

Ha

7 billion people + peak oil = interesting times.
------------------------------------
The Age of Austerity

Wasn't this supposed to be "The Age of Aquarius" ?

When the moon is in the Seventh House
And Jupiter aligns with Mars
Then peace will guide the planets
And love will steer the stars

This is the dawning of the age of Aquarius
The age of Aquarius
Aquarius!
Aquarius!

Harmony and understanding
Sympathy and trust abounding
No more falsehoods or derisions
Golding living dreams of visions
Mystic crystal revalation
And the mind's true liberation
Aquarius!
Aquarius!
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Old 10-11-2008, 09:38 PM   #20
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My crystal ball is cloudy. Neither Obama nor McBush seems willing or able to promote a vision of what a truly healthy, strong, and secure America would look like. If you can't even properly articulate the goal, then it's unlikely that you're ever going to reach it.
If you refuse to admit that you've been part of the problem, you can't articulate a way to fix it.
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