Man oh man. What a couple of weeks for the market.
In my lifetime at least, I'm not sure we've seen this kind of pessimism. I've always read about the fear that can strike a market down but this is truly something. There are so many behavioral aspects to all this, and now international aspects to all this, that it's totally unpredictable. As Thomas put it to me in an IM earlier, it's not about finding the legitimate bottom -- it's about "finding the bottom of our fears." Sounds way more profound when I retype it, but yeah.. that's basically the situation.
I've had a few friends ask me about what I think the "other side of the coin" could be to the bailouts. Basically, I kept mentioning that its hard to know if it's a good idea or a bad idea when you have an incomplete picture of all possible scenarios. Government intervening is seen as bad not only because of the tax implications, but also because of inflation and the proverbial "moral hazard" (making people feel its okay to do something wrong, cause Unky Sam will save us if we screw it up.)
Well.. The "other side of the coin" for me is little to do with economics I guess. The fictitious wealth that's on the books has to come off. That's the way markets work. So, that part, no matter the bail out, is going to happen. I guess the other side of the coin has more to do with the social and geopolitical realities of the situation than anything. A bailout could mean a prolonged recession instead of a short, deep recession/depression. Who knows.
Look back to the 1920s though and the events leading up to the Great Depression. As an overly simplified summary, we were the nations largest creditor after WWI. We experienced "roaring" economic growth domestically and saw household debt levels more than triple in under a ten year period. When all the sudden sales couldn't meet growth demands (not enough people to buy the Ford's new car, for example) things started to get shaky. We started to call some of that debt, people started defaulting. Add in a crash here and there and we found ourselves in a depression (not our first, and likely not our last, when defined as a 10%+ decrease in GDP).
It wasn't just a depression here. It was a global depression, and as I understand it, at least partial reasoning behind things like the Marshall Plan post WWII. Our economies were then, and are even more so now, very much connected.
Much of the power that bad guys like Mussolini and Hitler found themselves with, came about because of the depressed economic realities their countries were faced with. Fascism promised a return to prominence and meaning. Look around at world affairs right now and assume the worst for our economy. Consider a global depression and the effects that it could have for people like Putin, Chavez, Ahmadinejad and others.
Consider that much of our political clout on the world stage, rightfully or not, has been lost over recent foreign policy.
Now, is a $850bn in tax payer money more expensive or cheaper than the potential World War that may come out of it, if history is, in fact, repeating? (big if, and yes, the Senate raised it to $850bn from $700bn but our media was too busy trying to make the stock market crash seem like 1927, which it was no where near, to talk about it, but I digress)
You have to make a couple really big if's to arrive at that. The great depression wasn't simply a bad time economically, it was a horrible time. Something our generation has zero concept of even remotely comprehending. It was a time when 1 out of 4 able bodied people were not able to find anything productive to do. That's likely a long, long ways off. But.. Again, without knowing if the doom and gloom is true or not, it's hard to know what is a good idea or a bad one.
Anyhow... I'm, I guess you could say, a cynical optimist. I don't think we're staring down the barrel of that (nor do most economists), but at this point I'm scared it'll become a self fulfilling prophecy. Hopefully countries will be smart enough not to start isolating themselves and putting up large trade tariffs and the like. We're way to interconnected, I'd think.
In my lifetime at least, I'm not sure we've seen this kind of pessimism. I've always read about the fear that can strike a market down but this is truly something. There are so many behavioral aspects to all this, and now international aspects to all this, that it's totally unpredictable. As Thomas put it to me in an IM earlier, it's not about finding the legitimate bottom -- it's about "finding the bottom of our fears." Sounds way more profound when I retype it, but yeah.. that's basically the situation.
I've had a few friends ask me about what I think the "other side of the coin" could be to the bailouts. Basically, I kept mentioning that its hard to know if it's a good idea or a bad idea when you have an incomplete picture of all possible scenarios. Government intervening is seen as bad not only because of the tax implications, but also because of inflation and the proverbial "moral hazard" (making people feel its okay to do something wrong, cause Unky Sam will save us if we screw it up.)
Well.. The "other side of the coin" for me is little to do with economics I guess. The fictitious wealth that's on the books has to come off. That's the way markets work. So, that part, no matter the bail out, is going to happen. I guess the other side of the coin has more to do with the social and geopolitical realities of the situation than anything. A bailout could mean a prolonged recession instead of a short, deep recession/depression. Who knows.
Look back to the 1920s though and the events leading up to the Great Depression. As an overly simplified summary, we were the nations largest creditor after WWI. We experienced "roaring" economic growth domestically and saw household debt levels more than triple in under a ten year period. When all the sudden sales couldn't meet growth demands (not enough people to buy the Ford's new car, for example) things started to get shaky. We started to call some of that debt, people started defaulting. Add in a crash here and there and we found ourselves in a depression (not our first, and likely not our last, when defined as a 10%+ decrease in GDP).
It wasn't just a depression here. It was a global depression, and as I understand it, at least partial reasoning behind things like the Marshall Plan post WWII. Our economies were then, and are even more so now, very much connected.
Much of the power that bad guys like Mussolini and Hitler found themselves with, came about because of the depressed economic realities their countries were faced with. Fascism promised a return to prominence and meaning. Look around at world affairs right now and assume the worst for our economy. Consider a global depression and the effects that it could have for people like Putin, Chavez, Ahmadinejad and others.
Consider that much of our political clout on the world stage, rightfully or not, has been lost over recent foreign policy.
Now, is a $850bn in tax payer money more expensive or cheaper than the potential World War that may come out of it, if history is, in fact, repeating? (big if, and yes, the Senate raised it to $850bn from $700bn but our media was too busy trying to make the stock market crash seem like 1927, which it was no where near, to talk about it, but I digress)
You have to make a couple really big if's to arrive at that. The great depression wasn't simply a bad time economically, it was a horrible time. Something our generation has zero concept of even remotely comprehending. It was a time when 1 out of 4 able bodied people were not able to find anything productive to do. That's likely a long, long ways off. But.. Again, without knowing if the doom and gloom is true or not, it's hard to know what is a good idea or a bad one.
Anyhow... I'm, I guess you could say, a cynical optimist. I don't think we're staring down the barrel of that (nor do most economists), but at this point I'm scared it'll become a self fulfilling prophecy. Hopefully countries will be smart enough not to start isolating themselves and putting up large trade tariffs and the like. We're way to interconnected, I'd think.
Jason Calacanis