No Longer Possible To Pretend

[ERD50]

Quote:

Originally Posted by Oldbabe And, for retirees, this economic plan has got to work. We cannot fall into a deep depression.

Why does it "have to work"? Wishing can't make it work.

What we need is a plan that will work, not "hope" that the plan that we have will work.

That is miss-placed hope, IMO (and the markets). This plan does not instill confidence that it will work, and confidence is a big factor here.

-ERD50

[Zoocat]

Quote:

Originally Posted by ERD50 Why does it "have to work"? Wishing can't make it work. What we need is a plan that will work, not "hope" that the plan that we have will work. That is miss-placed hope, IMO (and the markets). This plan does not instill confidence that it will work, and confidence is a big factor here. -ERD50

Well, if you have any good suggestions for the Obama economic team, I suggest you email them and include your crystal ball too.

I don't think there has been any confidence since this meltdown began. Were there any great ideas put into practice by the Bush team? What does market "confidence" have to do with anything? The market just wants policy that is favorable to business and the FIRE economy so that we can ratchet up the debt ladder again.

We are done with that. The economy is downshifting now. That bubble was unsustainable and it's not coming back any time soon.

[ERD50]

Quote:

Originally Posted by Oldbabe Well, if you have any good suggestions for the Obama economic team, I suggest you email them and include your crystal ball too.

It does not take a crystal (or Magic-8) ball, and they wouldn't listen anyhow. What it takes is policies that address the problems.

Quote:

What does market "confidence" have to do with anything?

Everything. The market does not go up unless there is confidence that it will go up. People are afraid to spend because they are afraid of losing their jobs. Companies don't want to hire because they are afraid no one is buying.

Quote:

Were there any great ideas put into practice by the Bush team?

It's over. If you want to complain about Bush and the Democratic Congress (and there is plenty to complain about), go look over old posts in the soapbox. We are talking about what the current administration can do to fix things going forward.

-ERD50

[ziggy29]

Okay, okay, y'all -- speaking to no one in particular, I fear we may be headed toward Bush versus Obama "celebrity death matches" or drawn out partisan debates long on partisanism and ideology and short on substance of the relevant issues. This has been a good thread so far, and we've mostly stuck to the issues that are critical to money, investing, economics and the politics of FIRE. I'd like to present some thoughts for consideration.

Let me start with a hypothesis (which you're free to rebut): What we're seeing now is the final chapter, the denouement if you will, of a society which has tried to pretend that the post-WW2 economic bubble which has been deflating since the 1970s was actually sustainable. And to try to sustain it, we've been throwing more and more debt at it -- personal debt, corporate debt and government debt -- so the people currently expecting certain levels of largesse got it. Over time it took more and more debt and leverage to keep the prosperity train rolling along.

And then we hit the wall. It's ending with a sickening thud. I guess the only bright spot is that if we stayed in denial a few years longer, the sickening thud would have been worse.

Given that (or a rebuttal if you disagree), what now? Looking at the issues and the prudence of public policy that affects the economic future of every single one of us, how do we climb out of this mess? Yes, government has to play a role in something this massive, I think, but what role? The transition to a nation of better savers is a good thing, but the sudden and dramatic shift to it -- the almost unprecedented slowing of the velocity of money -- is brutally pummeling the industries and businesses that keep people employed. Many people (myself included) who currently have pretty good times going are pulling WAY back just in case they wind up with a pink slip; we want as much cash in the bank as we can muster "just in case." Multiply me by millions of folks who have good circumstances *now* but fear their own personal economic crash in the future, and you have a massive slowing in the velocity of money, combined with the Tragedy of the Commons: What good does it do me to live my life as I normally would unless I feel others in my position would do the same and make enough of a difference to boost the economy?

IMO, the heady days of the post-WW2 boom are over, and have mostly been since the '70s. We have to readjust to a new norm, one that doesn't rely on excess leverage. Grandma was right. How can we best make that economic transition (that has been needed for decades) and set a new baseline that doesn't occur so quickly and violently that it wrecks the economy?

Please feel free to disagree strongly and spiritedly with each other. But hopefully we can do it with civility and without straying from the core issues that affect those of us who are FIREd and those of us in the Quest for FIRE.

Thanks!

[dex]

Quote:

Originally Posted by ziggy29 Please feel free to disagree strongly and spiritedly with each other. But hopefully we can do it with civility and without straying from the core issues that affect those of us who are FIREd and those of us in the Quest for FIRE.

I can agree with you.
The party is over.
Elvis has left the building.
The fat lady is beginning to sing.
The Vandals are at the gate.
Romulus Augustus is in our not too distant future.

All we have left is hope - hope is not a good thing. Hope is what you hang onto after all you tried has failed and you do not have any new ideas.

Hoping that I have enough money to survive the market downturn and those mutual funds will have the same buying power as today.
Hoping that social security will be there for me at 62 and those dollars will have the same buying power as today.
Hoping that financially, everything holds together until I die.

All empires rise and then fall. That process has been speeding up.
Spanish
English
United States

A little down, I know, but if someone can see a how the USA is not on the downward slope please make your case. The historical parallels are there that we are in decline.

[REWahoo]

Geeze Louise. Dex, you need to see if Rich can prescribe you some antidepressants...

[HFWR]

Quote:

Originally Posted by REWahoo Geeze Louise. Dex, you need to see if Rich can prescribe you some antidepressants...

Or, lacking that, give me some...

I'm generally pretty skeptical - some would say cynical - but if we have 10% unemployment, it means we have 90% employed. Similarly, if 30% of kids don't finish high school, it means 70% did. Stocks are on sale!! Must've looked pretty bad during the darkest days of the Revolution, the Civil War, the Great Depression, etc., yet we stumbled out of them in spite of ourselves. So, we just might make it...

[ziggy29]

Quote:

Originally Posted by HFWR Must've looked pretty bad during the darkest days of the Revolution, the Civil War, the Great Depression, etc., yet we stumbled out of them in spite of ourselves. So, we just might make it...

Maybe. But perhaps "this time it's different" because in those prior national emergencies we didn't have CNBC, 24-hour cable news or the blogosphere to remind everyone 24/7/365 about how we're all doomed.

[REWahoo]

Quote:

Originally Posted by ziggy29 Maybe. But perhaps "this time it's different" because in those prior national emergencies we didn't have CNBC, 24-hour cable news or the blogosphere to remind everyone 24/7/365 about how we're all doomed.

OTOH, when the winds change and the inevitable next bubble begins to inflate, the same heralds of doom & gloom will trumpet "Dow 20,000". I see it as 'pump and dump' journalism on a global scale.

[ziggy29]

Quote:

Originally Posted by REWahoo OTOH, when the winds change and the inevitable next bubble begins to inflate, the same heralds of doom & gloom will trumpet "Dow 20,000". I see it as 'pump and dump' journalism on a global scale.

Boring, orderly markets that make investors sleep well at night don't get ratings.

[HFWR]

Quote:

Originally Posted by ziggy29 Boring, orderly markets that make investors sleep well at night don't get ratings.

Bingo!

Or is that DING-DING-DING? I can steal from CFB, now that he's gone...

[Purron]

IMHO, we can put much of the blame on the lack of effective regulators. This is not something we can pin on Republicans or Democrats. They have both contributed to the problem. Republicans have pushed an "anti-regulatory" agenda and made deregulation the catch phrase of the last decade. The Democrats let this go on in the name of helping those of "modest means" attain the dream of homeownership and further encouraged regulators to turn a blind eye to unacceptable levels of risk. Naturally, we are on the hook as our financial instituions are federally insured and many are “too big to fail”.

The end result was the perfect storm including the worst of both the right and left. Unbridled greed and quest for profits plus unrealistic social agendas. The subprime fiasco was supported by both sides of the aisle for different reasons. Who knew it would get this big and bad and take down the likes of Merrill, Lehman, and maybe even BofA and Citi? Dang, we can all share in the blame here. Total bummer.

[RAE]

Quote:

Originally Posted by ziggy29 IMO, the heady days of the post-WW2 boom are over, and have mostly been since the '70s. We have to readjust to a new norm, one that doesn't rely on excess leverage. Grandma was right. How can we best make that economic transition (that has been needed for decades) and set a new baseline that doesn't occur so quickly and violently that it wrecks the economy?

I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address. Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

[FIREd]

Quote:

Originally Posted by ziggy29 Okay, okay, y'all -- speaking to no one in particular, I fear we may be headed toward Bush versus Obama "celebrity death matches" or drawn out partisan debates long on partisanism and ideology and short on substance of the relevant issues. This has been a good thread so far, and we've mostly stuck to the issues that are critical to money, investing, economics and the politics of FIRE. I'd like to present some thoughts for consideration. Let me start with a hypothesis (which you're free to rebut): What we're seeing now is the final chapter, the denouement if you will, of a society which has tried to pretend that the post-WW2 economic bubble which has been deflating since the 1970s was actually sustainable. And to try to sustain it, we've been throwing more and more debt at it -- personal debt, corporate debt and government debt -- so the people currently expecting certain levels of largesse got it. Over time it took more and more debt and leverage to keep the prosperity train rolling along. And then we hit the wall. It's ending with a sickening thud. I guess the only bright spot is that if we stayed in denial a few years longer, the sickening thud would have been worse. Given that (or a rebuttal if you disagree), what now? Looking at the issues and the prudence of public policy that affects the economic future of every single one of us, how do we climb out of this mess? Yes, government has to play a role in something this massive, I think, but what role? The transition to a nation of better savers is a good thing, but the sudden and dramatic shift to it -- the almost unprecedented slowing of the velocity of money -- is brutally pummeling the industries and businesses that keep people employed. Many people (myself included) who currently have pretty good times going are pulling WAY back just in case they wind up with a pink slip; we want as much cash in the bank as we can muster "just in case." Multiply me by millions of folks who have good circumstances *now* but fear their own personal economic crash in the future, and you have a massive slowing in the velocity of money, combined with the Tragedy of the Commons: What good does it do me to live my life as I normally would unless I feel others in my position would do the same and make enough of a difference to boost the economy? IMO, the heady days of the post-WW2 boom are over, and have mostly been since the '70s. We have to readjust to a new norm, one that doesn't rely on excess leverage. Grandma was right. How can we best make that economic transition (that has been needed for decades) and set a new baseline that doesn't occur so quickly and violently that it wrecks the economy? Please feel free to disagree strongly and spiritedly with each other. But hopefully we can do it with civility and without straying from the core issues that affect those of us who are FIREd and those of us in the Quest for FIRE. Thanks!

Unfortunately I can't disagree with you. And if you are right, then it's not bullish at all for the stock market. If I understand this, we could only grow our economy at 3-5% per year by leveraging to death, so without leverage growth should be much, much slower, and it looks like we will start over from a much, much lower baseline. Not good! Perhaps, it's time to "Ziggytize" my portfolio (i.e. stop putting more money in stocks).

[ERD50]

Quote:

Originally Posted by ziggy29 Let me start with a hypothesis (which you're free to rebut):

Good synopsis ziggy, (and thanks for the gentle public reminder to keep things on track).

I generally agree with your analysis, now - what to do about it?

When I struggle with macro-economics, I sometimes try to bring it down to the personal level. If an individual kept living the high life by borrowing and borrowing, what would they do when they maxed out all their credit limits, and also "saw the light" that they can't do this forever?

I think the answer is pretty simple, and applies to the whole country. You stick to an LBYM budget, you start paying down debt. Maybe you take a second job. Eventually, you have the debt paid off, and you can start building up a portfolio.

Nothing about that is easy, and nothing changes overnight. It is a slow, drawn out, deliberate process. Some people on this forum have turned around from being deep in debt to approaching FIRE. The country can do it, I believe. But not w/o a plan.

While I think we do need some liquidity injected to soften the blow short term, I think we also need a real plan to get out of leverage, slowly, a step at a time. And the USA needs to hear the message that unless we can innovate beyond the rest of the world, we can't realistically expect to have a standard of living better than the rest of the world.

Ok, I just skimmed the entire address again, and I just don't see that message in there. I see "the govt is going to fix this all for us". The only mention of "sacrifice" I see is that the top 2% will pay more taxes.

I just don't believe that that's the message that needs to be told.

-ERD50

[ERD50]

Quote:

Originally Posted by RAE I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address.

RAE, maybe I'm missing something in the address that you see. Where is the President addressing the issues of the nation getting too far out on credit? I see that he wants to get credit flowing (probably needed in the short term), but....then what?

Quote:

Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

Sorry, I just can't be that cavalier with so much at stake. The plan needs to be something that stands up to critique as having a reasonable chance of success. I don't think a spending and tax the top 2% plan does it. Neither does the market. So no, I don't think we should just "give it a chance" until it meets some acceptance.

No question that he inherited the mess, that's obvious. But we are looking forward, so whether he inherited it, or somehow he was magically 100% responsible for it, the action moving forward would be the same. This is Friday, Feb 27th, 2009. I'm looking forward, not backward (other than to learn from history).

-ERD50

[laurence]

Do people really think this is worse than 1979-82? Gas lines and crazy inflation and deep recession etc.? I keep hearing from the news whores, "WORST DOWNTURN IN OVER A QUARTER CENTURY!" where they could say, "not as bad as '81. I've been hearing the "country in decline" talk, comparing us to the Roman Empire (which is totally invalid since if you combine the republic years and take the traditional end of ~450 AD it was around 3 times longer than us) and it just doesn't seem legit to me. It's like my coworkers who are convinced it's the end times next month, the rapture if you will. I think it must be tempting in some way (vanity) to imagine oneself living in interesting times, to be a witness to something, even a global car wreck. What is an ending even mean, anyway? Japan had two cities nuked, it's cities ravaged, millions of servicemen killed and ultimately occupied by a foriegn army at the end of WWII. 35 years later they were the scary economic powerhouse of the globe. What is decline mean? The British Empire has certainly declined over the last 100-200 years, but it's still a lot nicer living in England than most other places in the world. If it means I have to put away my big foam "#1" hand for a while, I think I can live with that.

[haha]

Quote:

Originally Posted by ziggy29 IMO, the heady days of the post-WW2 boom are over, been and have mostly since the '70s.

I can't say whether you are right or wrong as to the future, though if you go back and read what people were writing in the 30s this is what they said then. In other words, this is how people think in bear markets.

But your idea that the economy has been getting worse since the 70s is hard to understand. Have a look at real GDP during whatever year of the 70s you would like to choose, and compare it to what came after. Taken as a whole, the roughly 30 years from 1975 to 2007 were years of huge growth.

Let's see, since 1970 we have created or seen come into wide usage -personal computers, cell phones, DVD players, videogames, military drones, the world-wide web, browsers, GPS, joint replacements, huge advancements in medical imaging, and last but not least-Giselle Bundchen. Though she may be Brasilian, she is based here in the USA.


You guys don't need to listen to CNBC to get depressed; just tune in to E_R.org.


Ha

[Bikerdude]

Quote:

Originally Posted by RAE I agree with you completely, Ziggy. And that is exactly the problem that our president is trying to address. Whether you agree with his approach or not, I do think we should give it a chance. He inherited this mess, after all.

You are correct that Obama inherited the financial mess we are currently in. But he ran on a platform that said he was the one to correct it. He marketed himself to the American people as the person that could fix our problems. That's why he was elected. Now he has to produce and not keep saying it was not his fault. You wanted it buddy , now you got it.

[laurence]

Quote:

Originally Posted by Bikerdude You are correct that Obama inherited the financial mess we are currently in. But he ran on a platform that said he was the one to correct it. He marketed himself to the American people as the person that could fix our problems. That's why he was elected. Now he has to produce and not keep saying it was not his fault. You wanted it buddy , now you got it.

You say this as if to add, "Put this in your pipe and smoke it!", well, o.k., so he's been in office less than two months and already taken a lot of action (whether you agree with the action I can't say) but considering the mantra for 7.5 years was "how dare you criticize the President when troops are in harms way?!" at least the new one could get 7.5 months. :P

Selective memory is a wonderful thing sometimes, I saw another comment about "W and the democrat congress messing things up"....never mind it was a Repub congress for most of his Presidency.

I'm don't agree with all the moves he's making, but I'm not ready to throw him under the bus either. Reagan presided over most of the last truly awful recession, but no one thinks it was his fault, he inherited that mess. He turned out o.k. And certainly no one is willing to give Clinton an ounce of credit for the 90's. It seems the equation is bad times + your party in control = inherited problems, bad times + other party in control for more than 3 minutes = all their fault I don't remember anything else that happened before. I know everybody does it, but we expect better logic on the creme de la creme ER.org board.