Catastrophism 101

[socca]

If the 'economic system' is really heading for collapse as the pro-bailout fear-mongers suggest, what are the next dominoes to fall?

Here's one view:

washingtonpost.com

Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.

There are two ideas here. The first is 'slow or no growth'. Maybe this wouldn't be a tragedy at all, but a great blessing. We would get some breathing room to work on some of the pressing problems of our day. The second is a vague Armageddon threat - I'll ignore this.

They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households, governments, businesses and investment funds adjust to living in a world with less debt and more inflation.

Less debt? Wonderful! More inflation? How does a slow- or no-growth economy result in inflation? There are some dominoes missing here - can anyone fill them in?

And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.

There are some dominoes missing here, too. Can anyone fill them in?

I'm more than willing to be terrified, if necessary, but I'd like my terror to have a rational basis if possible.

 

[FinanceDude]

If the 'economic system' is really heading for collapse as the pro-bailout fear-mongers suggest, what are the next dominoes to fall?

Here's one view:

washingtonpost.com



There are two ideas here. The first is 'slow or no growth'. Maybe this wouldn't be a tragedy at all, but a great blessing. We would get some breathing room to work on some of the pressing problems of our day. The second is a vague Armageddon threat - I'll ignore this.



Less debt? Wonderful! More inflation? How does a slow- or no-growth economy result in inflation? There are some dominoes missing here - can anyone fill them in?



There are some dominoes missing here, too. Can anyone fill them in?

I'm more than willing to be terrified, if necessary, but I'd like my terror to have a rational basis if possible.

Per usual, the media overblows everything because it makes good news. I fail to see how this is as bad as double digit inflation, 10% unemployment, and other ills of the late 70's and early 80's...........

The one BIG problem we have is we passed the toxic debt over to all our foreign investor friends, and if we stick them with the debt and no recompense, they won't be happy. That could cause a real problem.......

 

[Animorph]

#1 More financial company failures because of bad debt
#2 More non-financial company failures because they can't borrow
#3 Rising unemployment, recession because of companies going out of business

Pretty much just more of what we have already seen, but it doesn't stop.

This is not something you can prove with an equation, so we'll just have to see, if that's the path we end up taking.

 

[FinanceDude]

#1 More financial company failures because of bad debt
#2 More non-financial company failures because they can't borrow
#3 Rising unemployment, recession because of companies going out of business

Pretty much just more of what we have already seen, but it doesn't stop.

This is not something you can prove with an equation, so we'll just have to see, if that's the path we end up taking.

So, this is worse than 1980? I'm not buying that.......

 

[Khan]

So, this is worse than 1980? I'm not buying that.......

You could throw Peak Oil into your prognostications.

 

[Gone4Good]

So, this is worse than 1980? I'm not buying that.......

It's not yet.

 

[CaseInPoint]

Less debt? Wonderful!

Exactly. The real crisis is the belief that no one has to be able to actually afford to pay for what they buy, so long as they can borrow more and more.

If more people would insist on living within their means, prices would fall across the board and everything would be more affordable.

Meanwhile, this weekend, the malls are crowded beyond belief, the stores packed and shoppers continue to wheel out shopping carts full of merchandise.