News Should a second Great Depression come, what will happen?

[Art]

A lot of this depends on what we mean by collapse, but I'll just go ahead and cede this since my claim that the entire market is not going to collapse does not depend on it. Okay? Nasdaq collapsed. Small, upstart exchanges like Nasdaq are volatile and consist largely of startups, so they're more succeptible to huge drops like that. The stock market itself is not.

So are you saying there are controls in place to protect some exchanges but not others? LYN the fact is no such controls exist for any exchange, period.

I already did. People these days are smart enough to diversify their portfolios. Not only will they not invest everything in stocks, but they certainly won't invest everything in the startups that failed on Nasdaq.

People being smart enough is an entirely different kettle of fish from "controls being put in place to prevent a stock market collapse"

I'm sure you can tell, Art, that my argument is that another collapse (this time I mean of the entire economy) like we saw in 1929 is almost certainly not going to happen again.

I have already said I am not arguing with your conclusion I am simply pointing out that the reasons you cited for reaching this conclusion are wrong.

Two reasons I cited are the greater stability of the stock market and the insurance of private bank accounts.

No what you actually said in relation to the stock markets (as there are many) was they could not collapse due to the controls put in place. I asked you what controls and you replied people are too sensible these days which I read as an admission there are no such controls.

I got one detail wrong: margin buying is still allowed. The fall of Nasdaq reflected a collapse of one sector - tech startups. One fledgling sector of the economy can certainly fail - the entire economy, however, will not. By the same token, one small exchange composed mostly of tech startups can drop 75% of its average share value over the span of five months, but we are not going to see the entire stock market do so. If you seriously want to argue my point about the entire market, at least use a better example, like maybe Black Monday from 1987.

I haven't argued your point about the "entire market" as you have only just made it, so are you saying I should seek a better argument than the non-existant one I didn't make in response to something you didn't say?

Analogy to what? If you have something more to say than what you have said, come out with it.

I think you've made another mistake Lyn. Read what I actually wrote before jumping on the defensive or should that be offensive.

No, it isn't. That's the average share value and its from Nasdaq's web site. Even Warren Buffett's stock isn't worth $56,000 a share.

The Nasdaq is an Index not a share. I suggest you check again as I think you are confusing the index with a tracker bond.

My point is LYN, that the approach I have just taken in disecting your mail to find errors and inconsistancies whilst ignoring the central theme is precisely the approach you often take in analysing other peoples' posts on this forum. As I am sure you are finding, it is irritating and serves no useful purpose other than to obfuscate the central idea you were promoting so perhaps we should all desist from this style of debate.

 

[russ_watters]

So are you saying there are controls in place to protect some exchanges but not others? LYN the fact is no such controls exist for any exchange, period.

I'm not sure exactly what you mean, but there have been changes made in the way the markets operate, including very specific, automatic "controls" (in parentheses because I'm not sure how you are using the word), that activate when a crash seems imminent. For example:

Since then[1987], the markets have put some restrictions in place to make sure the market doesn’t run away again. These are designed to let the market catch its breath and cool off if things seem to be getting out of control. For example:

-The market will halt trading for an hour if the Dow drops 10% before 2 pm.
-Trading will halt for two hours if there is a 20% drop in the Dow before 2 pm.
-If the Dow drops 30%, trading is halted for the day.
-Significant events, such as the tragedy of Sept. 11, 2001 may be cause for not opening the markets at all or closing them early to prevent a panic.

http://stocks.about.com/od/whatmovesthemarket/a/crash102904.htm

I call these "controls" because they interrupt the actual functioning of the market. Things like tighter restrictions on margin buying are, essentially, groundrules for the game. They aren't quite the same as controls, but they still affect the stability of the game.

 

[russ_watters]

And FYI, the Nasdaq peaked at 5,048 in March of 2000, dropped to about 3,500 (30%) in about a month, and 2,657 (47%) by Jan of '01. It bottomed out at about 1,400 (72%) in 2002.

http://www.house.gov/jec/press/2002/nasdaq.pdf

Part of the argument you guys are having is semantics: the difference between "the" market and "a" market. In 1929, the two were synonomous: The NYSE held the vast majority of the money and. "The Market" was the NYSE. Today, the NYSE is still the biggest, but the Nasdaq is another market unto itself and holds a considerable value. So while in 1929, you can say "the market" collapsed and mean both the NYSE and the entire stock market in general, today, "the market" would have to include, at the very least, both the Nasdaq and the NYSE. So it would be correct to say "The Nasdaq collapsed", but it would not be correct to say "The stock market collapsed" in 2000.

 

[Art]

And FYI, the Nasdaq peaked at 4,803 in March of 2000, dropped to about 3,500 (17%) in about a month, and 2,657 (45%) by Jan of '01. It bottomed out at about 1,200 (75%) in 2002.
http://www.house.gov/jec/press/2002/nasdaq.pdf

First of all it was Lyn thought the Nasdaq's all time high was ~56 and secondly your figures are wrong.

The intraday all time high for the Nasdaq occurred Mar 10th 2000 @ 5132.52 and it's all time highest closing figure was the same day @ 5048.62. It's lowest point after that was an intraday low just below 1400 in September 2001.

 

[russ_watters]

Not sure what is up with the page I linked - 5048 it is (no one looks at intraday peaks for that). Numbers fixed to reflect it...

In any case, you said:

...the Nasdaq lost 80% of it's value over a period of 3 weeks in 2000.

Big difference between 80% and 30%.

 

[Art]

Not sure what is up with the page I linked - 5048 it is (no one looks at intraday peaks for that). Numbers fixed to reflect it...
In any case, you said: Big difference between 80% and 30%.

Check back and you'll see I already conceded to LYN that I exagerated slightly about the time frame to make a point.

Moving on from the silly stuff it is interesting to note that there has been a major bear market in the US ~every 36 years since 1857.

 

[X-43D]

Fossil fuels will have replacements such as nuclear power and hydrogen. It's science and technology which drives the economy. Without advancements in technology, capitalism will collapse.

 

[loseyourname]

Sorry, I never saw this response.

No what you actually said in relation to the stock markets (as there are many) was they could not collapse due to the controls put in place. I asked you what controls and you replied people are too sensible these days which I read as an admission there are no such controls.

I never intended to say that the market will not collapse because investors today are more sensible (I apologize if that wasn't clear, but isn't clarification part of the point of using a dialogic method?). The key differences I was thinking of are government insurance of bank accounts, the differences in the way credit works today (namely, the extended payback time), and measures that are taken (Fed raising interest rates, for instance) to ensure that markets don't inflate too quickly. The sensibility was related to my other point - that widespread personal bankruptcy is not as likely to occur due to a shift in the economy.

I haven't argued your point about the "entire market" as you have only just made it, so are you saying I should seek a better argument than the non-existant one I didn't make in response to something you didn't say?

That was the point I was making from the beginning, and frankly, it should have been easy for you to tell based on the context of the thread. The first post asked what would happen were another great depression to occur, and I said that I didn't think it would, given the change in the operation of our market to prevent collapse, and the differences in our banking system to prevent personal bankruptcy and bank failure. Since I never specified a particular exchange, what made you think I was talking about one particular sector of the market when I said "the market."

The Nasdaq is an Index not a share. I suggest you check again as I think you are confusing the index with a tracker bond.

Nasdaq is an exchange, not an index. What I'm referring to are http://charting.nasdaq.com/ext/charts.dll?2-1-14-0-0-5120-03NA000000DELL-&SF:4%7C8%7C5-SH:8=60-WD=484-HT=395--XTBL-, which, as you can see, top out and bottom out where and when I said they did.

You're probably referring to the Nasdaq composite index, which is one of many indexes they employ.

My point is LYN, that the approach I have just taken in disecting your mail to find errors and inconsistancies whilst ignoring the central theme is precisely the approach you often take in analysing other peoples' posts on this forum. As I am sure you are finding, it is irritating and serves no useful purpose other than to obfuscate the central idea you were promoting so perhaps we should all desist from this style of debate.

By "mail," do you mean "post?" Is that what they call it in Ireland?

You started taking this route of mimicing me - and doing a rather poor job of it, might I add - after I critiqued a post of Alexandra's. She claimed that increasing capitalism had resulted in a decrease of prosperity, yet cited statistics that showed continued growth. I don't consider calling growth a decrease in prosperity to be a minor detail. It was her point.

Frankly, I don't find the critiquing of arguments to be irritating, and I do think serves quite a useful purpose. Perhaps if we cannot come up with any consistent arguments that are free from error to back up our conclusions, then those conclusions are wrong. How else are we to know if not by dissecting and critiquing the arguments and evidence presented? By sheer force of conviction?

 

[russ_watters]

You started taking this route of mimicing me - and doing a rather poor job of it, might I add - after I critiqued a post of Alexandra's. She claimed that increasing capitalism had resulted in a decrease of prosperity, yet cited statistics that showed continued growth. I don't consider calling growth a decrease in prosperity to be a minor detail. It was her point.

Boy, I'm sorry I missed that - I probably bailed on whatever that thread was before it came to that. Perhaps I give up too easily - a little more persistence and liberals/socialists/communists/anarchists start making self-contradictory arguments?

 

[X-43D]

You started taking this route of mimicing me - and doing a rather poor job of it, might I add - after I critiqued a post of Alexandra's. She claimed that increasing capitalism had resulted in a decrease of prosperity, yet cited statistics that showed continued growth. I don't consider calling growth a decrease in prosperity to be a minor detail. It was her point.

Despite considerable economic growth in many regions, inequality is still growing. The world has a gini index of 66.

http://news.bbc.co.uk/2/hi/americas/4185458.stm

 

[ray b]

If all of those things happened at once, it would be pretty bad. I'm not surre massive spending is a reliable way to pull out of a depression, though: it really didn't work in the '30s, it required the motivation of winning WWII to pull us out. Absent that, I'm not sure how we could pull out.
Either way, we need to work at keeping out of a depression to avoid the necessity of getting out of one.

what massive spending was there BEFORE WW2??
WPA? that was a drop in bucket
other public works a few more drops
it was the massive spending first by Europe rearming and then by our government doing the same
that ended the great depression coupled with drain on man power of the armed service needs that restored the economy that the REPUBLICANS distroyed with their trade protection laws and other conservative BS ideas in the 1920s

 

[Smurf]

a little more persistence and liberals/socialists/communists/anarchists start making self-contradictory arguments?

Because... you know.. it's not like we make different arguments or anything. We're all pretty much all the same in the end.

 

[russ_watters]

Despite considerable economic growth in many regions, inequality is still growing. The world has a gini index of 66.
http://news.bbc.co.uk/2/hi/americas/4185458.stm

That post doesn't mention prosperity...

 

[X-43D]

Capitalism created wealth for some people but the majority in the world are still poor. More than 3 billion people survive on less than 2 dollars a day.

 

[Skyhunter]

Capitalism created wealth for some people but the majority in the world are still poor. More than 3 billion people survive on less than 2 dollars a day.

Well if people can survive on 2 dollars a day, then the minimum wage is to high!

 

[Rafiki Yangu]

One of the inherent problems with the capitalistic “free market” is born from the “free”. When something is “free” the connotation is that the something is not subject to direct control as in government regulation or manipulation. Of course, we all know that the free market is a relative and not absolute in practice, but nevertheless, but its relative freedom means that an entity loses relative control over its fate. In other words, the free market is free enough to work to your advantage…..and disadvantage.

The world has entered a new area and milestone in which the “free market” will work to the disadvantage of 95% of Americans. In the past the free market benefited Americans because this nation had comparative advantage. In truth, WWII directly destroyed the economies of all the major economic powers of the time, except the United States. This period of no competition and need of American products and Loans in the rebuilding of Europe and Japans economies is what propelled this nation to such a high standard of living. Now….60 years post the war…..that ARTIFICIAL rise is fatiguing in the time of peace as other nations can now produce nearly EVERTYTHING (with the exception of certain types of weapons) with just as high a quality, if not greater, and at a much cheaper cost.

America’s success has really priced itself out of the free market bidding for what nation workers will get to produce certain goods and services. The cost of doing business in America is just too high because of the wage and salary cost that rose to astronomical heights when no one else in the world could make what we make and wanted what we made. All that has radically changed and hence the benefit of the free market has shifted to developing nations who have the know how and cheap labor to do everything that we do…but cheaper. So there is no way out of the Depression scenario….the only question is whether it will be a “Crash” or gradual decline of the economy and standard of living of Americans. My hypothesis is that it will be a “crash” due to politicians and political parties not willing or wanting to be the ones that force sacrifices upon the people.

What will happen is that the economy will be propped up by fiscal and monetary polices until the pressures get so great it will just explode. Politicians will/have in effect put a cover over a boiling pot instead of letting the energy escape gradually instead of cataclysmically. My guess is that that after the mid term elections of next year and after the Retail holiday season ends, the first few quarters of 2007 is when energy will start to be released from the pot and the economy starts doing much worse. At that point, pressure will really be building up the only question is whether or not the party in charge will try to keep the lid on until after the next presidential election. They know full well that if they start releasing the energy from the pot that the economic decline will doom their chances for winning the presidential election of 2008. Therefore, due to politics and tricks, I don’t think this nation will decline gradually….but abruptly….at which point a war needs to be underway to take public attention away from domestic problems and get young unemployed men off to war instead of starting a revolution in the nation.

 

[Polly]

Mr. Yangu, kindly indulge me here but do you see the housing bubble as the first sign of a run-away inflation?

 

[Rafiki Yangu]

Mr. Yangu, kindly indulge me here but do you see the housing bubble as the first sign of a run-away inflation?

No. I see Asset appreciation to be the result of low interest rates which has allowed people to afford to borrow more money and that extra money chasing limited housing pushed up the price of homes. Also, home prices were pushed up as people took money out of the stock market and started speculating on real estate.

I think that the real inflation threat is born from resource (oil cost) reverberated commodity price increases and more insidiously a weak dollar in the currency market. If foreign banks start dumping/selling their dollar reserves the dollar could crash making the dollar worth less…which obviously means inflation because it will take more dollars to buy the same thing.

 

[Smurf]

“free market” will work to the disadvantage of 95% of Americans.

I don't think it's that high. Maybe like 80%