What would cause a new depression?

[Javaman]

Back in the 20's, there was no SEC or FDIC. And because so many people were buying stocks on margin, it was bound to fall because of the various wealthy speculators driving up stock prices to way over valued amounts.

That was then.

Calling on the well informed and economically educated DUer's here, what would cause a modern depression?

Thanks in advance.

[BlueEyedSon]

1. Peak Oil. Get ready.

[Strelnikov_]

25. Agree. Peak Oil Is Primarily An Economic Event

Demand for a price inelastic commodity chasing too little, and eventually declining, supply. Price transients will wreak economic havoc similar to the 70' shocks. A persistent recession will ensue.

But it is the thermodynamic aspect of peak oil that will lead to the 2nd Great Depression. As the decline in conventional oil accelerates, EROEI (thermodynamics) will at a minimum severely depress, and possibly destroy, capitalist economies.

All of the post-peak supply mitigation options have net energy returns well below those of even today’s conventional oil. This means we will have to work hard just to replace the Quads of conventional oil energy lost. Growth in energy supply will not be possible, therefore economic growth will also not be possible.

Even with all the stresses on the economy mentioned in this thread, with sound leadership we could probably recover from these after a long/deep recession. The peaking of conventional oil appears to be the punch that could knock us over because the Fed and our political leadership do not seem to see it coming, as evidenced by their actions and ‘official’ estimates (EIA, USGS, etc.).

[meegbear]

2. An economic dipshit being president for 2 consecutive terms ...

passing inane tax cuts for the people who don't need it while robbing from the people who do.

That and an unnecessary war. But I don't think that could ever happen.

[Vincardog]

5. The demands of uncontrolled capital for higher returns

Capital is forcing wages down.

The Fed is helping it in the name of fighting inflation. The result is loss of demand cause we don't have the consumer demand.

Then capital moves jobs to slave wage countries to protect it's margin.

They they close down high wage jobs thus decreasing demand.

Then tax revenues decline and the Gov has to borrow more but they need to pay higher rates because capital wants a bigger piece of the pie.

So they raise taxes on income and more people loose their job and the beat goes on.

Uncontrolled demands of capital are going to ruin the US and world economy.

[sendero]

20. Or said more simply...

.. the overconcentration of wealth at the top.

Once the investor class has too much money, there is no way for them to make money off of investments without raping the lower classes.

Once the lower classes have been raped enough, the golden goose of consumption, which drives EVERYTHING, is dead.

We're getting damn close.

[phantom power]

3. various things might.

The world's economy is based on very cheap energy. The onset of peak oil might trigger a depression, particularly if it happens quickly.

America's economy is currently built on huge debt load, both at the level of individual citizens, and at the level of state and federal governments. It's not a stable situation, and a massive run on U.S. debt could cause a depression.

Also, SEC regs are being systematically weakened by the current government. So there may be less protection than people assume.

[thedevilinthedetails]

4. There is not such thing as a depression

They are really just "downturns" or "slowdowns" or something like that. Depressions don't exist anymore, Bush outlawed the use of the term. It was Executive Order #104578594 January 28th, 2001, signed by the President at 2:37AM.

[dcfirefighter]

6. Quite a few things

Shifting from an oil based economy to an alternative fuel based economy could, and should be a time of high employment, an economic boom.

What is going to hurt, is when US consumer spending, which is currently largely based on home equity, is curtailed due to a market correction in land prices, mostly on the coasts, but then again, the coasts are where most of the people and most of the land value is. A sharp spike in energy prices could be the needle that pops the bubble, but then so could inflation or rising interest rates.

Bottom line is that land prices have very little inherent value, or more specifically, their prices are entirely demand driven. There's no cost of production, nor is there any elasticity of supply. Land markets act like markets for collectibles, where a buying frenzy that pushes up prices is often followed by a collapse in prices.

There are four major things we're doing that are pushing us towards a recession or depression:
1) We are discouraging employment by taxing jobs and productivity
2) We are subsidizing oil use and inefficient land use
3) We are allowing a few special interests to benefit from money creation and credit manipulation, rather than having government-based stable money
4) We are spending gobs of money in places it doesn't belong.

Oh, and a fifth; in agriculture there's a term called monoculture. When you have vast fields of one particular crop, it's a monoculture. It has no biodiversity. When a stressor, say a fungus, or some kind of pest, attacks this crop, you lose the entire local ecosystem. The united states, with its' growing centralized government, and it's growing consolodation of corporations, is becoming an economic monoculture.

When you have a biodiverse ecosystem, such as would be found in the wilderness, or in carefully crafted agroforests or intercropped fields, the entire system is much more robust, and deals with pests and such without the use of pesticides or added fertilizers. Reducing the size and influence of the central government, and having many of the functions performed at as local a level as possible, would create economic diversity, and a more robust overall economy.

[screembloodymurder]

35. Firefighter, you should have been an economist.

I like your analysis. Why subsidize the use of a declining resource? It seems to me this administration promotes waste and that's inexcusably stupid or criminal.

[On the Road]

7. Depression = A Crash with No Rebound

There have been lots of recessions in the last century or two, but most of them were relatively quick. The Great Depression was the only long-term one.

One reason is that the stupid Federal Reserve kept tightening the money supply -- it dropped by over 30% after the crash. There was so much oversupply that no one wanted to invest, and many of those that did had been wiped out in the stock market. Confidence in the future was badly shaken, especially when the economy refused to snap back.


Personally, I think that economic policy is much better today and the same mistakes would not be repeated. Under normal conditions, a crash would be followed by a recovery. But inflation of basic commodities are a threat, now that China and India are in the game big time.

[sendero]

21. I used to think that...

.... but after watching the Fed print money like a madman for 4 years to basically no effect (our economy is pretty much stagnant the last 4 years) I no longer believe that monetary tweaking can solve much.

The the consumer is tapped out, there is no stimulus in the world that will rescue the economy. Had Bush** given those tax cuts to the poor and middle class, we'd probably be doing reasonably well right now.

[paula777]

8. I was wondering the same thing and I found this article .... it explains

exactly what is happening and why there is almost no way to stop it. (It's actually not an article but a thread on a message board)

http://www.libertyforum.org/printthread.php?Cat=&Board=news_business&main=293421472&type=thread

[Warpy]

9. A lot of ingredients for a depression are in place.

Instead of buying stocks on margin, people have floated their lives on easy credit and are now drowning in credit card debt, car payments, and mortgages on hyperinflated housing.

Wages are starting to decline in terms of purchasing power.

Jobs are disappearing.

Lower wages and lost jobs translate into lower demand for goods and services, which in turn translates into more jobs being lost.

Two thirds of the US economy is consumer driven. Bushco has protected the investor economy but completely neglected the consumer economy, and this is where the next depression is coming from. The investors will likely skate through it, although they won't be making any more money for a very long time. The other 95% of us are going to have a very tough time unless we can manage to rid the entire government of supply siders overnight.

[Vincardog]

10. Right you are Warpy. We have to get control of the Capital markets

They are forcing us to eat our young. Their demands for slave wage labor and no environmental consideration are ruining the world and can only end in the biggest crash of all time.

[dcfirefighter]

11. I think a bigger problem

Is the fact that every new dollar (or Euro,...) comes with a debt, forwhich a new dollar must be made to pay the interest, for which more debt is created.

That is why we are chasing our tails.

[Vincardog]

14. That is the same problem. Who do you think the debt is payable to?

[Name removed]

12. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Zynx]

13. It would have to be a combination of factors coming together at once.

Severe overcapacity in manufacturing and technological sectors that would cause massive declines in production, orders, employment, and prices combined with asset deflation in housing and equities and contractionary monetary policy. The odds of all those things coming together are quite low. I think any "depression" would have to be precipitated by a period of high inflation in the modern era.

[earth mom]

15. Great topic-nominated! eom

[flygal]

16. The messed up housing market

When interest rates go up there will be a ton of people up-side down on their loans. They won't be able to afford heating and taxes and when they sell will owe money. It'll be a boon to the new "housing barons" who swoop in and grab up the foreclosures for nickles on the dollars.

nominated topic.

[tedzbear]

17. Debt and property speculation imploding...

...higher oil prices is the kicker (can you blame oil producers for demanding more of Greenspan's easy money?) followed by the inevitable climbing short term interest rates. Once the higher interest rates make it impossible for people to buy more homes or refi at current prices, the bottom will fall out of that market.
The rest is ugly and I really hope we don't go there, although it would be nice to see the chimp and Greenspan getting burned at the stake by the MILLIONS of financially ruined middle Americans.

My prediction: the house of cards begins to collapse around July and August when the fed funds rate is increased to 3.25% or higher. The stock market is really going to take a dive too.

[Swamp Rat]

18. Dick Cheney jumping off a trampoline.

:D

After all, he's got most of our national treasury in his back pocket.

[Poppyseedman]

19. The dollar to be seriously devalued

which would cause credit to be more expensive and harder to obtain. Higher borrowing costs would drive inflation up which drives the CPI up.

Prices go up, wages are stagnant, consumer buying slows, people loss jobs. Cycle continues until we move past recession to depression.

All this is unlikely to happen because foreign investors make up most of our Treasury notes and capital dollars. They would need to pull their money out and move it somewhere else to invest (like china) to destabilize our economy.

Since we are the goose that lays the golden egg, they aren't going anywhere. Yet

[sendero]

22. Quick summary...

tapped-out consumer with little or no wage/employment growth

dollar in free fall

energy prices in free rise, competition with China/India for product

housing bubble potential

[tinanator]

23. putting Bushcorp in charge

we will see.

[Pharaoh]

24. attacking Iran will start it

they will take out what ships we have in the persian gulf, but their ace in the hole will be to wipe out the saudi oil fields and loading facilities, those knuckle draggers with their suburbans will be paying 300 dollars to fill there tanks, and that will be the beginning of WWIII...............

[nashville_brook]

26. china and japan

selling dollars

[leesa]

27. What BushCo is doing.

[Kansas Wyatt]

28. Or BushCo stealing a second term. It's coming!

If that doesn't work, Bush will claim that they were only appointed the first time, so it doesn't count, leaving Bush eligible for one more term.

[bush_is_wacko]

29. The existence of these entities has the effect of covering up

an economy that is impossible to sustain growth in the job market. Take a look around the areas in your state that are considered hag-outs for the homeless and you can CLEARLY see the "depression" is already here. I recently went to this area of my state and was "overwhelmed" at how many homeless there were. They often attempt to hide during daylight hours because the police tend to roust them out of public parks so that the "regular" employed and surviving people don't notice how large their numbers have become. I ALSO noticed these homeless definitely aren't just the schizophrenics, PTSD sufferers, and winos. Some of them have created tent cities that look very much like regular homes, with "Mirrors" and washing basins hanging on trees or sitting on boxes.

I live in the 'burbs" and I see homeless people EVERY SINGLE DAY here! I recognize their faces. I even know where they will be at what time of day. We have a cop that is kicking them out of our suburban parks too! I can identify at least three of them by site. Their clothes and demeanor tell me they are ALSO not the stereotypical homeless.

I also work in the school system and the increased number of children on free and reduced lunches is ASTOUNDING, even in the predominately middle class areas. Many children are living in some sort shelter, EVEN kids in the suburbs!

The "depression" has already begun. American's are just too lazy or too wrapped up in life, or too warped, to recognize it!



WE are IN a modern depression. Media and propaganda have kept many from noticing it.

[teryang]

33. I agree with you. I see these unfortunates every day.

...and work with them as well. Their numbers are increasing and their conditions are deplorable.

Repuke response- who cares? Let's cut some more social programs. Let's drown babies in the bathtub.

[bush_is_wacko]

36. I am appalled at the growing number of these people.

Public schools are becoming overwhelmed. They have a very limited way to deal with this problem. These kids are coming to school hungry EVERY day. Luckily they can get a free bowl of cereal and lunch, but it appears to me that THOSE are the ONLY meals they are able to get. Food banks and shelters are overwhelmed as well. There is a literal blizzard going on outside my warm home right now and all I can think about is whether or not these people have found shelter for the duration.

bu$h said he was giving tax deductions to churches so they could help people like this. Why then, are their numbers increasing? The churches aren't doing what they are required to do with their tax breaks and I find that lack of caring despicable!

What would Jesus do? He would take care of the many that have been left out in the cold today without food! I wonder how many church volunteers are going to leave home today to attend services. Do you think any of them will worry about these people while driving to church in their heated, gas guzzling Hummers, Range Rovers, and other heavy-duty four wheel drive vehicles?

[Just Me]

37. I agree. We ARE in a modern depression.

The only thing missing is the panic due to intentional manipulation of information.

[0007]

30. 'Tis here all ready baby! It's just taking time to slow this glib talking

big time government down. No big train can stop on a dime, it takes many thousands of feet before it come to a complete stop.

[freestyle]

31. When few have "disposable income" or access to credit

And that time is very close. We are very quickly approaching a time when there will be huge numbers of people who are forced to use most of their income for debt service and really struggle to meet basic needs. Our economy is built on consumption and has been propped lately by easy credit and home equity borrowing. When all of that adjustable interest adjusts up, the problems will be huge. Many will lose their homes. The spending will come to an end, because it is unsustainable, and our overconsumption economy is unsustainable, so it must fall. The unknown is how fast or when. It could be anywhere from a few months to a few years. I would lean towards a few years because that is when many of the mortgages start of adjust.

The elephant in the room is what happens when the baby boomers begin drawing down what's left of their 401k's. That will be a massive outflow from the capital markets and who knows what, if anything, will fill the gap.

[teryang]

32. When the central bankers decide to let the dollar go

The reluctance of foreign central banks to undermine their own massive dollar holdings has propped up the dollar for some time although the dam has been showing leaks lately.

As central banks diversify, the pressure on the US to go to war to secure the all important Iranian energy markets will increase.

The repatriation of American corporate capital by tax reductions is propping up the dollar now in the financial markets. The prospect of SS privatization is the next wave. It's one stop gap scheme after another. They are truly desperate. After that we're toast. The bottom will fall out.

As one commentator pointed out, the longer the correction (of the dollar downward) is postponed, the more extreme it will be.

[lostinacause]

34. The only thing that I believe would cause such a problem is the deficit.

Job market problems would mean the wages would fall but so would the price of food, housing and other necessities.

High oil prices would cause an inconvenience but if this happens people will choose to consume less stabilizing the price. (Gasoline is only elastic for so long.)