The Great Fiscal Stimulus Package ... Of 1929

[MiningMajor]

Lately, whenever the market has a bad day,
the reflex among financial-news editors is to compare our current situation with
1987 and wonder if a "Black Monday"-style crash is on the horizon.

But some observers draw a darker metaphor, noting that much of what we are
seeing now also took place in 1929. As we know, that meltdown -- unlike the 1987 crash --
was not followed by a happy ending, but rather by a decade of poverty, shantytowns and sporadic famine.

Read more: InsideGold.com - The Great Fiscal Stimulus Package ... Of 1929

 

[HFWR]

Well, they have to say/write something; it's in their job descriptions...

 

[donheff]

Well, if we get the depression kind of stimulus package, at least the bridges may get rebuilt. And any of us with art skills may get funded. How about sidewalks in the suburbs?

 

[haha]

We have only 2 big deflations in the entire 20th Century, worldwide. The 30s in the countries that were victorious in WW1, and Japan during the last decade of the 20th Century. (This one is still struggling)

Yet we are terrified of deflation. Frankly, I think it is a conjurer’s trick to distract us from the massively inflationary steps that are being taken- that are always taken- so that we can't dilute their effectiveness by taking steps to protect ourselves.

We have it from the horse's mouth that he will not stand by while we slip into a deflationary recession. Now generally this might mean that we are about to get one. But in this case his actions as well as political expediency as well as his entire intellectual history tell us that it is safe to believe him.

Furthermore, all the old time fiscally conservative Goldwater Republicans are dead. Those who are not yet dead are like Ron Paul, interesting but not even able to win the Republican nomination, let alone the election.

If deflation gets going we will see an incredible infusion of money into the banking system. And if the banks sit on it, or use it to repair balance sheets, consumers will get handouts. Money will be flying everywhere, and pretty soon even the densest will figure out that there is a lot more money than goods, so better get to buying. And hoarding.

Deflation vanquished.

Ha

 

[al_bundy]

Uncle Ben once wrote a nice paper on the Depression. He said that things weren't that bad until around 1932. Before that it was just a recession and the stock market gained most of it's value back.

in 1932 there was a run on some no name bank and it went under. this was followed by other bank runs until a lot of people lost their savings.

Today we have the FDIC so if a bank goes under, people don't lose all their savings and this is one reason why there probably won't be the kind of deflation we saw in the 1930's.

 

[beowulf]

Al makes a great point. Most of the systemic banking problems and risks of insolvency that existed before the Depression have been fixed in one manner or another. The stock market may fall by 50% (like in 2000), but banks will not fail, the currency will remain intact, even if lower in value and people will not lose their savings (unless they were in the stock market). Inflation is a far more dangerous enemy of retirees of any age than a recession. Even 3% a year will eventually destory fixed pensions or fixed income streams. And last year it was a tad over 4%.

 

[al_bundy]

check out the last few Podcasts from bloomberg on the economy. The Black Swan and Phil Gramm were very interesting

in the former, the author of the Black Swan talks about how there is more risk in the banking system today because there are fewer larger banks and they are interconnected to each other by loans and derivatives. if one gets in trouble and stops paying, it can be like a domino

 

[RockOn]

CDX Index History
Historical ABX Graphs

The first set of graphs shows the junk spread, the second set has quotes on subprime slime. I check them daily, they tend to show whether the current news is really affecting the credit mess.

enjoy

ps: the subprime slime charts show valuation in "cents on the dollar", you can see AAA through BB grades

Edit: I'm sorry this was posted in the wrong thread

 

[Retire Soon]

CDX Index History
Historical ABX Graphs

The first set of graphs shows the junk spread, the second set has quotes on subprime slime. I check them daily, they tend to show whether the current news is really affecting the credit mess.

enjoy

ps: the subprime slime charts show valuation in "cents on the dollar", you can see AAA through BB grades

Edit: I'm sorry this was posted in the wrong thread

I realize that this was posted in the wrong thread, but found it interesting. While looking at the "Historical ABX Graphs", I noticed that the AAA and the BBB had two lines, one was red and the other black. Does anyone know what the different colors indicate?

 

[RockOn]

If you are looking at the top graph, one is the AAA and the other is the AA

 

[Retire Soon]

If you are looking at the top graph, one is the AAA and the other is the AA

Thanks for the clarification. It looks like when subprime securities are downgraded from AAA to AA that a lot of money is lost. I'm still not clear on the bottom graph. As all I see, is BBB written twice on the bottom. Could you please help me with that one too?

Thanks,

RS

 

[RockOn]

I'm not an expert on this but I don't think you are quite getting it. The AAA securities are trading at about 70cents on the dollar, the AA are trading at about 40cents. As I understand it, these graphs are indexes of mortgage backed securities. There was not a downgrade done on these, these rating are what they were rated when they were sold.

The bottom graph is a little confusing, they both say BB, I think one might actually be B. In any case they are both about 20cents on the dollar.

What is really interesting to me is that the cuts by the Fed, the jawboning, the stock market rally, the stimulus package, etc etc, have not really helped these at all. It's looking like many of these will need to be written off as total losses.

If you want to know when the credit "problem" is ending, I believe you may see it here first. So far, no end in sight.

I have heard that some of these these indexes may go away soon (I do not know why) so I'm not sure how long we can watch this.

I'm sorry for hijacking this thread!

 

[Retire Soon]

Thank you, RockOn, it was the bottom graph that did not make sense. Evidently, the red line must be BB (17.5 cents) and the black line BBB (19 cents). That's a lot of money to lose for an investor! I read where there may be further downgrades in the future.

 

[RockOn]

RS, I think you are correct, BBB and BB. If you want to watch these I think they are updated twice a day, possibly only once. I usually look at them in the evening.

My rant.....anything BB and above is investment grade. That includes all of them. Ya sure. Buyer beware! They will sell you anything.