Fear-Mongers keep us in recession

[StrongTurd]

No, are correct we should all stop spending so your prophecy can become true.
BTW, you do realise that you can buy stuff with cash, right?

Frankly, if you want to spend your money like there's no tomorrow then be my guest. After all, Ben Bernake has just stated on BBC that we might start recovering from this recession during 2010. Let the good times roll!

I'm sure you'll excuse the vast majority of people from not joining you due to the fact that debt to GDP ratios in many countries are now at the highest levels they've ever been and the banks have stopped lending.

 

[PCW]

Now how does this prove the media is not fueling the recession? In fact I think it actually proof my point.

No it doesn't. What do you want the Independent to do , ignore a PwC report ?

 

[BBSA]

Frankly, if you want to spend your money like there's no tomorrow then be my guest.

Nobody is talking about "orgy of credit-based spending" or "spend your money like there's no tomorrow". We are in a recession and we should spend our money responsibly (nobody is disputing that).

If you think shouting doom and gloom at every change you have is going to get us out of this recession then you are making a big mistake.

 

[Xarog]

Nobody is talking about "orgy of credit-based spending" or "spend your money like there's no tomorrow". We are in a recession and we should spend our money responsibly (nobody is disputing that).

If you think shouting doom and gloom at every change you have is going to get us out of this recession then you are making a big mistake.

In an attempt to put it as simply as possible :

Debt has funded US economic growth for roughly the last decade.

Using creative bookeeping strategies, banks lied and claimed that the debts they had were "assets" and not "liabilities", and then sold these debts as securities. Because the whole thing was free from regulation, these fraudulent financial instruments got rated AAA and thus people bought into them and spent a boat load of money doing so.

It got to the point that 40% of all debt in the US was actually taken care of by selling it off as an asset. When the sub-prime bubble burst, loan capacity was instantly slashed to 60% of the old total; in other words it was nearly halved.

In other words, you can sing up the markets as much as you want, but the fact of the matter is that the economic gains that were made in the past few years through this debt bubble is going to unravel no matter what you attempt to do. (And if by some miracle they manage to pump enough monopoly money into the system so that people are fooled into think it's a viable system again, all that's going to happen is that the bubble is going to burst again at a later stage.)

Until such a time as the market becomes *fundamentally* sound again, no one should buy into such a bogus system. Imo, it should crash and burn until such a time as the market becomes something vaguely resembling 'honest' again.

 

[DJ...]

Debt has funded US economic growth for roughly the last decade.

Very true. But thank the Chinese for that. It wasn't domestic debt as you imply. China supplied the direct credit line to keep rates artificially low. Domestic borrowing rates remained low and fuelled spending which stimulated the economy. Buy cheap, sell high, borrow from the chinese reserves some more.

Using creative bookeeping strategies, banks lied and claimed that the debts they had were "assets" and not "liabilities", and then sold these debts as securities.

They didn't lie at all. They securitised the bonds and sold off the risk in the form of CBOs, a fixed income asset class. They originated the bonds themselves and sold off the risk to fixed income investors. It was never a lie.

Because the whole thing was free from regulation, these fraudulent financial instruments got rated AAA and thus people bought into them and spent a boat load of money doing so.

The credit rating agencies who are independent entities rated the deals. However there was no way for them to know that the underlying cash flows were at risk of defaulting. Yes, the banks cocked up big time there but they had the Chinese credit flow, so it was not a problem at the time. They also issued the debt in tranches with varying ratings - they most certainly weren't all AAA, that's for sure. Investors knew the risk they were taking with high yield debt investment.

No issue with the rest of your post. The entire derivatives market is a shambles as there is absolutely no fixed asset collateral if things go tits up. The issue is then further compounded by credit default swaps as well thanks to the insurers.

 

[Chicken Boo]

You really needed to start a thread on this after you got told in "The End" thread?

I saw a report on the news last night (I can see you're already jumping up and down) that mentioned over 40 houses a week are being repo'd by banks (locally this is). Do you think that's because the former homeowners were all too scared to pay their loans because of the media? If they could pay the bills they would but THEY DON'T HAVE THE MONEY. Do you not understand this simple fact? As we discussed in the other thread, economies do not run on sentiment and people's confidence, they run on MONEY. People can be bursting with confidence and have a shopping list from here to the moon, but with no MONEY they cannot buy diddley. Is it sinking in yet? Do you understand how economic bubbles occur and what the effects are?
The media are reporting the facts, the fact is the big smoke and mirrors house-of-cards game we call the world economy is falling down, show's over.

 

[BBSA]

If they could pay the bills they would but THEY DON'T HAVE THE MONEY. Do you not understand this simple fact? As we discussed in the other thread, economies do not run on sentiment and people's confidence, they run on MONEY.

You see this is exactly the problem. You have been brainwashed in believing that nobody have money, but the facts is that most people still have jobs and they get paid with MONEY. You concentrate on the negative and you believe that everybody is out of work and money.

To say sentiment and people's confidence is not important to a economy is just ludicrous.

 

[wrathex]

I'm sorry but I'm not buying any of that. You've got to question the sanity of anybody that looks at the cold, hard facts pertaining to the current state of the world economy and then go out and buy as much stuff as their credit card can bear figuring: "Hey, I've still got a job that pays well. None of this affects me directly. In fact, it is my patriotic duty to buy a big screen TV and a new BMW in order to stimulate the economy to get out of recession."

No, seriously, how can one look at any of the stats that are currently making headlines and then carry on as if everything if fine? Just a random example that I've just posted on the doomer thread:

It has just been calculated that the UK's debt to GDP ratio will reach 500 percent some time next year (if unfunded liabilities are added). This would be the highest it has ever been in the history of the United Kingdom. How could anyone not feel inclined to at least wait and see before indulging in another orgy of credit-based spending?

I agree with you, the US especially must realise that the cheerleading days have come and gone.

In the US most people might still have it good, but good grief man, I almost want to say, they're the exception.

It's a good strategy for people to tighten their belts and watch their consumerism, it's about time too.

IF one takes a longer longterm view, this 'fear' and tightening of belts can only be a good thing, making people aware that resources are finite and that
they heydays of uncontrolled consumerism is over for good.

 

[ASG]

Do you not understand this simple fact? As we discussed in the other thread, economies do not run on sentiment and people's confidence, they run on MONEY. People can be bursting with confidence and have a shopping list from here to the moon, but with no MONEY they cannot buy diddley. Is it sinking in yet? Do you understand how economic bubbles occur and what the effects are?
The media are reporting the facts, the fact is the big smoke and mirrors house-of-cards game we call the world economy is falling down, show's over.

Let me try explain this confidence thing for you in a very simple example.

Meet Bob, Harry and Sally.
Bob is a farmer and is doing pretty well for himself. Harry runs a farm machinery factory. Sally runs the local grocer.
Bob hears the news of a down turn in the economy and gets worried about his future, even though he is doing really well at the moment. Because is confidence is gone, he decides to cancel the order for those two new tractors from Harry.
Harry's business has been on the verge for trouble for a while but he has been hanging in there. The loss of that order pushes him over the edge and he has to close his business and lay off his 5 employees.
Sally has now just lost 6 customers in one blow as Harry and his 5 ex-employees can't afford to by groceries any more. Sally now has to reduce her orders from the local farmer Bob and faces losing her store because of lack of business. Bob will soon be in trouble too.

While Bob had the money, he did not have the confidence and that has had a direct effect on the economy.

I know this was a very basic and over simplified example, but multiply that by a few hundred times and you can see the effects.

*Edit*
While I strongly believe that confidence does play a role in the economy, I don't believe that it is to blame for the current problems and I don't think that wishing it away and boosting confidence alone with get us out of the mess.

 

[BBSA]

Let me try explain this confidence thing for you in a very simple example.

Meet Bob, Harry and Sally.
Bob is a farmer and is doing pretty well for himself. Harry runs a farm machinery factory. Sally runs the local grocer.
Bob hears the news of a down turn in the economy and gets worried about his future, even though he is doing really well at the moment. Because is confidence is gone, he decides to cancel the order for those two new tractors from Harry.
Harry's business has been on the verge for trouble for a while but he has been hanging in there. The loss of that order pushes him over the edge and he has to close his business and lay off his 5 employees.
Sally has now just lost 6 customers in one blow as Harry and his 5 ex-employees can't afford to by groceries any more. Sally now has to reduce her orders from the local farmer Bob and faces losing her store because of lack of business. Bob will soon be in trouble too.

While Bob had the money, he did not have the confidence and that has had a direct effect on the economy.

I know this was a very basic and over simplified example, but multiply that by a few hundred times and you can see the effects.

*Edit*
While I strongly believe that confidence does play a role in the economy, I don't believe that it is to blame for the current problems and I don't think that wishing it away and boosting confidence alone with get us out of the mess.

Nice explanation, thanks. I agree confidence was not the cause of the recession, but it is going to be very important to get the economy going again.

 

[Chicken Boo]

Let me try explain this confidence thing for you in a very simple example.

Meet Bob, Harry and Sally.
Bob is a farmer and is doing pretty well for himself. Harry runs a farm machinery factory. Sally runs the local grocer.
Bob hears the news of a down turn in the economy and gets worried about his future, even though he is doing really well at the moment. Because is confidence is gone, he decides to cancel the order for those two new tractors from Harry.
Harry's business has been on the verge for trouble for a while but he has been hanging in there. The loss of that order pushes him over the edge and he has to close his business and lay off his 5 employees.
Sally has now just lost 6 customers in one blow as Harry and his 5 ex-employees can't afford to by groceries any more. Sally now has to reduce her orders from the local farmer Bob and faces losing her store because of lack of business. Bob will soon be in trouble too.

While Bob had the money, he did not have the confidence and that has had a direct effect on the economy.

I know this was a very basic and over simplified example, but multiply that by a few hundred times and you can see the effects.

lovely example except it's not realistic or logical. Why would the farmer be doing fine when the chain upline is in such trouble? makes no sense. It starts at the bottom and works up, or top-down (in the case of companies losing value on the stockmarket and having to cut costs/employees), not middle outwards. There are hundreds of thousands of people around the world who had jobs and whose futures looked fine 6 months ago. Now they're unemployed and can't pay their essential bills, let alone go be good consumers and keep the magic ball rolling. Are their neighbours - us- supposed to turn a blind eye and say "Tough break, but it won't happen to me!"?

it is going to be very important to get the economy going again.

Right, let's all go running back to the system that just failed. Do you work for the IMF? People have been losing and will continue to lose retirement plans, savings, mortgages and more, and you want them to now spend what they have left in the hope that it can save a failed system? Get real.

Why don't you put your money where your mouth is and go spend your own savings. Go buy a new car, a Dodge or Chevrolet. I've been "brainwashed" into believing GM and Chrysler are in a bit of poo. Go help them. I'm tired of the utterly undignified ads on TV proclaiming the salesmen are earning less so you can get a better deal, so go help the poor salesmen.

IF one takes a longer longterm view, this 'fear' and tightening of belts can only be a good thing, making people aware that resources are finite and that
they heydays of uncontrolled consumerism is over for good.

100%. Which is why the tumble of the oil price will prove an unfortunate thing long-term...

 

[alloytoo]

Most of us have jobs; most of us are not behind on house payments. So what is keeping the economy from getting better? According to CBS it's people who constantly say how bad things are.

The media has a role in how quickly we recover from this recession. They can report the news, both sides without all the extreme adjectification of economic conditions or they can continue the type of reporting that’s adding fuel to the recessionary fire.

I'm inclined to agree, I personally think that many corporations are using "Recession" to clean house. Throwing every possible provision and write off in the current cycle, while they have an excuse.

Leads me to think that the recovery in some sectors will be a lot faster than antcipated.

 

[boramk]

Do you not understand this simple fact? As we discussed in the other thread, economies do not run on sentiment and people's confidence, they run on MONEY.

Wrong wrong wrong WRONG! The economy RUNS on confidence and that my boy, is FACT.

EDIT: There's an article somewhere (I forgot where) saying that if the US consumers stopped saving as much as they are now, and actually started spending their money, the world would be pushed out of recession

EDIT2: Think of those home owners who couldn't pay back the banks because they have no money because of the same situations has Harry, Sally etc in the example by BBSA

 

[Xarog]

Very true. But thank the Chinese for that. It wasn't domestic debt as you imply. China supplied the direct credit line to keep rates artificially low. Domestic borrowing rates remained low and fuelled spending which stimulated the economy. Buy cheap, sell high, borrow from the chinese reserves some more.

You are referring to the trade deficit, but the credit given to consumers was supplied by american entities. Chinese bought the debt up, yes, but they did not issue the debt directly.

They didn't lie at all. They securitised the bonds and sold off the risk in the form of CBOs, a fixed income asset class. They originated the bonds themselves and sold off the risk to fixed income investors. It was never a lie.

Call me crazy, but I believe CBOs refer to collections of company bonds, which is not the same as CDOs/CMOs (the former being a collection of assets, the latter being debts sold as assets).

The credit rating agencies who are independent entities rated the deals. However there was no way for them to know that the underlying cash flows were at risk of defaulting.

WTF is the point of a rating agency that has no way of knowing what the underlying cash flows are like? To claim that something is reliable when you have no way of knowing whether or not it is, is called lying. Selling a lie as a service is called fraud.

Yes, the banks cocked up big time there but they had the Chinese credit flow, so it was not a problem at the time. They also issued the debt in tranches with varying ratings - they most certainly weren't all AAA, that's for sure. Investors knew the risk they were taking with high yield debt investment.

Caveat emptor, eh?

Call me crazy again, but if a bunch of people get another bunch of people to rate their "product" (I use that term loosely since they were peddling the equivalent of what my dogs leave on the lawn from time to time), I damn well expect the rating to be trustworthy. Saying, "sorry, your fault for believing us" doesn't exactly strike me as an reasonable attitude.

No issue with the rest of your post. The entire derivatives market is a shambles as there is absolutely no fixed asset collateral if things go tits up. The issue is then further compounded by credit default swaps as well thanks to the insurers.

 

[d0b33]

The media has a role in how quickly we recover from this recession. They can report the news, both sides without all the extreme adjectification of economic conditions or they can continue the type of reporting that’s adding fuel to the recessionary fire.

Actually the Media tried being positive since last year especially financial channels like CNBC (watch the Jon Stewart Kramer clip) the media was fully aware that by spreading fear people will be pulling their money out.

The truth is that the US is in debt. Big Time.

Would you have faith in someone riddled with debt? I don't think so.

 

[DJ...]

You are referring to the trade deficit, but the credit given to consumers was supplied by american entities. Chinese bought the debt up, yes, but they did not issue the debt directly.

The only reason they were able to provide the debt in the first place was because the chinese enabled them to by artificially keeping rates low. This is more like a correction in my book than a crisis. But I see what you were getting at though.

Call me crazy, but I believe CBOs refer to collections of company bonds, which is not the same as CDOs/CMOs (the former being a collection of assets, the latter being debts sold as assets).

Apologies. I meant CDOs. Yeah CBOs are just securitised high yield corporate debt...

WTF is the point of a rating agency that has no way of knowing what the underlying cash flows are like? To claim that something is reliable when you have no way of knowing whether or not it is, is called lying. Selling a lie as a service is called fraud.

They rated according to market conditions. They had no idea of a pending housing crash - in fact that was thought impossible to happen, therefore they rated accordingly. Wasn't a lie at all - they sell a valuable service - it's not the actual rating that's important - it's how they derive the rating that is, and that's what's important to both the buy and sell side. The rating agencies also make absolutely no buy/sell/hold recommendations - they merely assess the risk and rate accordingly. They often get them wrong for whatever reasons though. In this case, how did you expect them to forecast a housing market crash? They didn't. And the market is reactive, so in future they will factor this crisis into their risk models. Reminds me a bit of the Long Term Capital Management fiasco.

Call me crazy again, but if a bunch of people get another bunch of people to rate their "product" (I use that term loosely since they were peddling the equivalent of what my dogs leave on the lawn from time to time), I damn well expect the rating to be trustworthy. Saying, "sorry, your fault for believing us" doesn't exactly strike me as an reasonable attitude.

Investors didn't buy because of the ratings. If you think so then you're mistaken. A fixed income portfolio manager is not looking at a rating and then purchasing. The rating is but one small part in an investment decision. More importantly one needs to factor in risk from the prospectus and therefore calculate your own projected cash flows based on data from the prospectus for example - ever been through a complete fixed income prospectus (not a programme)? The wording of a single paragraph in the events of default clause for example could determine whether one invest or not. They build their own risk models and the rating is but one factor. This isn't the rating agency's fault. They can only assess risk based on the data available to them - if a bank chooses their service, they do so knowing this full well. Their ratings are often off though and there are some arbitrage opportunities when this happens - the market doesn't base it's decisions on their data though. The fact that there are entire departments dedicated to high yield/junk bond investments is testament to that. The rating agencies would tell you to steer clear of those, however their appetite for risk is higher...

 

[smokey]

Wrong wrong wrong WRONG! The economy RUNS on confidence and that my boy, is FACT.

EDIT: There's an article somewhere (I forgot where) saying that if the US consumers stopped saving as much as they are now, and actually started spending their money, the world would be pushed out of recession

EDIT2: Think of those home owners who couldn't pay back the banks because they have no money because of the same situations has Harry, Sally etc in the example by BBSA

Stupid spending got us here in the first place. There are savings and investments. The American people did not save, they spent. The money from the spending seeped through to China/et al and they massively bought American debt because their financial markets were/are not large/sophisticated enough to absorb it all. This lead to more spending and less being put into investments.

Fast forward etc etc etc...

We land up in a big pile of dog ****.


** - I will post figures and a more detailed explanation tomorrow, really have a huge headache and was not up to writing in too much depth.


------

ERGO: Spending will fsck us up even more. Cheap debt will fsck us up in the long term. Consumer confidence has piss all to do with the economy relative to the confidence of stock brokers and financial analysts, CEO's and CFO's - and these people do not get their bloody information from The Sun. I mean really people...

 

[d0b33]

Stupid spending got us here in the first place. There are savings and investments. The American people did not save, they spent. The money from the spending seeped through to China/et al and they massively bought American debt because their financial markets were/are not large/sophisticated enough to absorb it all. This lead to more spending and less being put into investments.

Exactly, people are confusing themselves unnecessarily, we were warned for some time that the spending and debt will bite us hard.

Even Ron Paul saw it coming and people thought he was crazy.

 

[Generix]

Britain is showing signs of sliding towards a 1930s-style depression, the Bank of England says today for the first time.

The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.

The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s.

The Bank is using its Quarterly Bulletin to highlight the threat posed to the economy by deflation – where prices fall each year rather than rise.

Although inflation is currently in positive territory, it is expected to become negative in the coming months.

The Bank is worried that this may combine with high levels of indebtedness to squeeze families further.

It says that families with high debts could fall prey to the debt deflation trap. This means that the cost of their debts, which are fixed, would rise compared to average prices throughout the economy. While inflation erodes debts, deflation makes them relatively higher.

The Bank’s paper suggests that Britain is particularly at risk because there is a high proportion of families with significant levels of debt, and many of them are on fixed mortgage rate, which means they will not benefit from rate cuts.

Britons’ total personal debt – the amount owed on mortgages, loans and credit cards – is, at £1.46 trillion, more than the value of what the country produces in a year.

http://www.telegraph.co.uk/finance/...towards-1930s-style-depression-says-Bank.html

Eish, not much to be confident about...

 

[ASG]

Stupid spending got us here in the first place. There are savings and investments. The American people did not save, they spent.

Wrong but partly right. It was not stupid spending that go us here, it was stupid debt . Spending actual physical cash like people have tucked away in the mattress or in a savings did not and will not get us in this mess. (Yes there are dangers of not having savings and spending your savings and all that but that's a whole other subject) It was people spending recklessly in debt, i.e. buying cars/ houses / credit cards when they don't have the cash pay for it. I read a number of stories of people without any income getting huge home loans - that's the kind of thing that got us here.

People showing confidence and actually spending money that have (not debt based) is what we need and what the articles are talking about when they say the Americans need to spend.

No-one in their right mind would suggest or want to go back to the system that got us here.