The very short, not-so-bad Great Depression
posted at 6:45 pm on April 1, 2008 by Ed Morrissey
The Independent reported on the Great Depression sweeping the United States, spurred by 4.8% unemployment and a bit of statistical sleight of hand in reporting food-stamp numbers. Wall Street reacted to the news of impending doom and falling skies by rallying almost 400 points in trading. The increase of 3% comes as investors believe that the economy has performed better than analysts first predicted, and that the worst of the housing and lending crises has passed:
Wall Street began the second quarter with a big rally Tuesday as investors rushed back into stocks, optimistic that the worst of the credit crisis has passed and that the economy is faring better than expected. The Dow Jones industrials surged nearly 400 points, and all the major indexes were up more than 3 percent.
Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland’s UBS AG issued new shares to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from America’s credit struggles has been felt. Moreover, the banks’ moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos.
Investors left their shelters to start taking risks again. Treasury bonds fell, as did gold, as people re-entered the stock market. Financials rose across the board, even Bear Stearns, which went above its acquisition price.
No word was given on futures for The Independent.
Blowback
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The Independent’s wishful thinking…saw that yesterday and grinned. EU-nuchs (thanks profitsbeard for that – it’s brilliant).
Entelechy on April 1, 2008 at 6:49 PM
If it was in a newspaper, it must be true. So should I come in off the ledge, or not?
landshark on April 1, 2008 at 6:51 PM
Hey Ed, any news about gas prices going down?
Indy Conservative on April 1, 2008 at 6:53 PM
We aren’t even in a “Recession” by most definitions, and this stupid talk about a “Depression” pops up? This is just crazy.
I know that some people struggle, but give me a break. Economies are measured by certain objective factors, not personal impressions and anecdotes. And, when I saw the story about the “Depression,” I immediately thought of my deceased parents who lived through the real one. In Appalachia.
I still remember the stories they told me of that time, and remember how blessed I am whenever I face a financial challenge. Folks, believe it or not, we’ve got it good.
Depression. Meh.
cs89 on April 1, 2008 at 6:54 PM
The newspaper industry is spiraling down into oblivion, so that must mean the US economy is also.
Those fish aren’t going to wrap themselves you know.
pedestrian on April 1, 2008 at 6:56 PM
Don’t worry, if a dem gets elected, everything will be fine next year – just like the lack of homeless people between 92 and 2000.
JC in CA on April 1, 2008 at 7:02 PM
4.8% unemployment, and the media (including Glenn Beck) have conviced people were in a depression – or whatever. I hear it pretty often from people here and there: “…with the recession we’re in etc…”. Really? Says who? And what’s their angle?
The agendas are pretty obvious.
forest on April 1, 2008 at 7:02 PM
Its all about the Politics of Fear, and another power grab by the Federal Government…
Look at what BOTH sides want to do… more regulation, and taking the rules out of the STATES hands… and give more power to the Federal Reserve Board… an unelected entity.
All while we are not even in a recession, let alone a depression.
Romeo13 on April 1, 2008 at 7:04 PM
They used food stamps as an indicator of depression; but failed to note that in 2002, government went to expand usage of the program by making it more accessible to more people and by promoting it more as well.
lorien1973 on April 1, 2008 at 7:05 PM
I talked about that with a vendor of mine today. He agreed with me and said that everyone complaining about recession are the ones who always complain about how bad business is.
lorien1973 on April 1, 2008 at 7:06 PM
Hey, at least the time span for disasters is moving a little more quickly.
The New Ice Age that began in 1972 only lasted a few years and then Global Warming was actually over before we knew it ;-). Now The Great Depression comes and goes in less than a day.
Things are looking up!
INC on April 1, 2008 at 7:08 PM
I’ve started watching CNN and MSNBC from around 6pm to 9pm daily. I am actually appaled at what they are telling people throughout the day. Some of the biggest misnomers being passed by the talking heads at those two news nets:
-The housing bubble has nothing to do with people borrowing beyond their means.
-It’s George Bush’s administration’s fault that there was a housing bubble.
-The banks ripped everyone off (there’s only a slight truth to this, but its not everyone, and its not all banks).
-Pat Roberston now supports global warming theory(he doesn’t).
-The new proposed banking regulations actually deregulate the banking industry becuase there are “less departments.” This is perhaps the most grevious lie told by CNN.
-John McCain gets a free ride in the news. WHAT!?
Vincenzo on April 1, 2008 at 7:09 PM
Times are a tough in these here United States.
Dust bowl, Global Warming, Depression. . .We need another
war to make this here Econony work. : )
Texyank on April 1, 2008 at 7:12 PM
ED! Ed! I’ve got a hot tip for you. Ontario, Canada wants to buy Ely, MN. The Ely website has a petition to sign to keep Ely in the USA. Negotions are underway with the State of MN now. Expect deal to be done by the end of 2009.
Here is the link: http://www.ely.org/
cjs1943 on April 1, 2008 at 7:13 PM
And spell check to help me through it. . : )
Texyank on April 1, 2008 at 7:14 PM
It was Mark Steyn who came up with that.
aengus on April 1, 2008 at 7:16 PM
The Independent.
The first source of news I always would consult, if I owned a parakeet and needed cage flooring cover.
Lockstein13 on April 1, 2008 at 7:17 PM
Once I flipped a fourplex
Now it’s done
Brother, can you spare a dime?
ronsfi on April 1, 2008 at 7:21 PM
Texyank on April 1, 2008 at 7:12 PM
You’re right. Times are tough. After my weekly night at the casino and mailing my $300 campaign contribution to Obama, I can barely put food on the table.
Rhinoboy on April 1, 2008 at 7:24 PM
You have a lot of nerve posting such a positive article in the middle of the economic collapse of the USA. This kind of news is to be buried and never to be discussed again, well at least until a democrat is elected president.
Wade on April 1, 2008 at 7:26 PM
So. The consensus here is that the Fed’s $400 billion ‘rescue’ of the markets has made it all better? (Look. The market shot up today!) Massive economic structural problems are merely CNBC hype? Warren Buffett’s “financial weapons of mass distruction” also bunch of hype?
Okay then.
I guess it’s true that there’s always somebody else on the other side of every trade.
PD Quig on April 1, 2008 at 7:37 PM
So as long as someone is losing money, we are all in a depression?
So let me get this right: Lots of people speculated on the housing market. lots made money. the last round of people in lost money.
somehow that’s a frigging depression? and the US is responsible for it? If anything, I guess we’re responsible in that fact that we let humans make money.
Vincenzo on April 1, 2008 at 7:46 PM
Thanks for this post, Ed. I know very little about economic stuff and I was getting worried. When it comes to stuff like the stock market I can be manipulated by the media into worrying because I usually don’t have a clue what they’re going on about in the first place.
aengus on April 1, 2008 at 7:47 PM
First off, they have not fixed anything… yet…
Secondly, the best thing they could do is? NOTHING.
The Federal government has no business getting involved in already existing private contracts.
No money has been created, nor destroyed by this whole debacle… the Houses still exist, and the processes are already in place for when people, and COMPANIES, make poor choices.
The economic problems we are having are due to Food prices going up due to Ethanol (government stupid decision) and the price of Gas (ANWAR anyone?)…
Solve the ENERGY problem and housing will fix itself IMO.
Romeo13 on April 1, 2008 at 7:47 PM
PD Quig on April 1, 2008 at 7:37 PM
I for one don’t think the Fed “made it all better,” but I do think the “Depression” article is ridiculous. Objectively, more people are working at higher wages than traditional norms. Yes there are some financial stresses, but by most measures we are not in a recession, let alone a Depression.
I’m paying way too much for gas for my Suburban to haul my kids around, but it’s still a relatively small percentage of my weekly budget. If you bought a house here in NV 2 years ago & need to sell it today for what you paid, good luck with that. Those who have owned homes for 5-10 years are still sitting on some equity, if they didn’t cash it out.
When unemployment hits 10% or more, the prevailing wage is stagnant or decreasing, or similar economic woes hit us I’ll pay more attention to “the sky is falling!”
cs89 on April 1, 2008 at 7:49 PM
Then, thanks Mark Steyn. It’s still brilliant.
Entelechy on April 1, 2008 at 7:59 PM
No, the consensus here is that claims that we’re in the middle of another “Great Depression” are fatuous nonsense.
Major financial institutions recklessly gave out billions in bad loans. Until those loans are written off, the economy will be shaky. The bailouts are attempts to prevent a run on the banks and greater harm.
SteveMG on April 1, 2008 at 8:01 PM
I can’t speak for the Independent (or would even want to), but I do have the latest circulation figures for the accelerating decline of the New York Times, which also participated in the food stamp stat scam.
Playing stupid, easy-to-see-through games with statistics, such as ignoring the positive population growth of the U.S. in calculating the percentage of Americans who receive food stamps from year to year, isn’t going to help their bottom lines.
ironman on April 1, 2008 at 8:03 PM
What are you talking about?!?!?! People are dying in the streets!!! People are screaming and thowing themselves over the sides of buildings!!! The Republicans have done this to us!!!! The REEEEEEPPPUUUUUBLIICCCAAANNNSSSSSSSSSS!!!!!
…coming up next weather and sports, stay tuned.
revolution on April 1, 2008 at 8:10 PM
Gas prices are up because China and India have entered the equation of global energy in the last decade and BECAUSE LIBERALS LIKE YOU HAVE MADE IT TEN TIMES AS EXPENSIVE TO DRILL IN THE US WHICH WOULD CUT OUR ENERGY BILLS AND GAS BILLS BUY 70%.
Go back to KOS, little piggy!
revolution on April 1, 2008 at 8:14 PM
For the last three weeks there has been a ‘beginning of the week’ rally. Coincidence?
PresidenToor on April 1, 2008 at 8:14 PM
Personally, I find it amazing how quickly our Federal banking system has responded to strains on the economy in the last two quarters, and in 2000.
Our economists and bankers are smarter and more experienced than ever before. It will be next to impossible to ever experience a Great Depression again in America. Impossible.
Vincenzo on April 1, 2008 at 8:17 PM
I didn’t even know selling US property to a foreign country was legal.
Connie on April 1, 2008 at 8:18 PM
Look. Anybody who thinks we’re already in a depression is an economic nincompoop. Or an idiot ideologue with an agenda. Now, given the way that the official inflation numbers have been manipulated beginning about 25 years ago, we could well be in a mild recession right now–but that’s the extent of it.
On the other hand, there are risks in the financial system currently that amount to uncharted waters. The bailout to prevent a run on the banks may have stabilized the system short term, but it also has scary implications for an already challenged $USD. In fact, if you re-chart the S&P 500 using the USD-Euro exchange rate over the past 15 years, you will see that the great bull market has actually been a bear market. The dollar has lost ground against most world currencies, leaving the U.S. consumer (relatively) poorer than the holders of those other currencies.
I know the article Ed referenced was dog crap. Just saying that there is also a lot of denial out there. An “All Clear” is premature–if not outright unwarranted.
PD Quig on April 1, 2008 at 8:23 PM
revolution on April 1, 2008 at 8:14 PM
If that is so…explain how we are at 15 year highs in supply and yet at all time price highs (or close in gasoline and oil)….the answer is what some calls speculation. the same reason housing and dot com stocks flew to the moon. the next bubble to break is gold and oil. We have plenty of supply add in ethonol which as a glut and you can not but think $80 oil is close.
Oil companies are using the environmentalists/china/india as straw men so that they can continue to justify the present increase in price. Oh I know that in coming years there will be supply issues but we are not there yet. Add into the fact that anytime oil starts to drop and we get saber rattling from Iran and chevas and you get the real reason oil and gas is high.
unseen on April 1, 2008 at 8:42 PM
My question was for Ed, not for you.
Thank you for your language anyway. I knew there are some dirty-mouth Republicans who are not only very bright, but unable to discern what they are reading.
On the other hand, you’re right when you wrote politely -in capital letters- about the cause of the high gas prices. I agree with you. But I don’t agree with “LIBERALS LIKE YOU.”
And I hoped that Ed would have included the reason why the prices are high.
But anyway, watch your mouth, err, your fingers.
You don’t give a good reputations for Republicans.
Thank God I’m not one anymore.
Conservatives are wiser and brighter. No offense intended.
Indy Conservative on April 1, 2008 at 8:46 PM
Personally, I find it amazing how quickly our Federal banking system has responded to strains on the economy in the last two quarters, and in 2000.
Our economists and bankers are smarter and more experienced than ever before. It will be next to impossible to ever experience a Great Depression again in America. Impossible.
Vincenzo on April 1, 2008 at 8:17 PM
I don’t think it’s immpossible. we came real close over the last several weeks of triping the wire and causing mass panic in the financial system. For all those that are screaming about “bailouts” and have the “let them eat cake” attitude or in other words “suck it up” remember that in 1929 we had a BOOMING economy. they did not call it the roaring 20′s for nothing. It was a credit crisis (i.E fear) much like today’s that caused a worldwide depression in a short amount of time after the 1929 stock market crash. the FEd and Bush admin saved the day with their saving of Bear Streans and they have primped the pump with the rebate checks and for those that don’t think $600 dollars means anything.
think about this: a good christmas is considered a 5% increase in sales. the avg person spends about $700 on christmas. thus the difference between a 5% (good christmas and a 1% bad christmas is $28. yes you got that right. If people would have spend $28 more last christmas it would have been considered a great christmas shopping season. So If people only spend half of the rebate checks you are looking at a very, very powerful economic move higher.
unseen on April 1, 2008 at 8:51 PM
Whatever the reasons, Indy, they’re high everywhere. Here, in Canuckistan, our prices are over $0.10/litre more than they were at this time last year. So that would be a hair above $0.40/gal. for those of you keeping score.
landshark on April 1, 2008 at 8:58 PM
know the article Ed referenced was dog crap. Just saying that there is also a lot of denial out there. An “All Clear” is premature–if not outright unwarranted.
PD Quig on April 1, 2008 at 8:23 PM
agreed…alot of uninformed people that do not know what they are talking about. shouting “suck it up” will not solve the problems we face. I have not had much good to say about Bush in the last several years but on this He and his admin get an A+. Now if they can only hold strong against the uneducated backlash that is forming and continue down the road of backstopping the credit mess that bad players caused we can get out of this bind with relativly little pain, fix the rules so this stuff doesn’t happen again and then after the mess is cleared up we can bring those responsible to face justice for their behavior. That includes those that lied on thier home loan applications all the way to those that invented CDO crap floating around.
unseen on April 1, 2008 at 8:58 PM
You have a point but it’s not the complete truth.
Liberal pressure groups, like the ‘Trees Huggers,’ prevented Congress from giving the OK for the oil companies to drill, and it is also true that there isn’t enough refineries, but tell me, who wants to build a refinery -even for the existing oil- in a hostile environment?
How can anyone, in his sane mind, can’t see that the only existing source -so far- of energy in America and the World is Oil?
These days, we can’t live without Oil.
Maybe next decade, next century we can get rid of Oil and find another source of energy. But now we need Oil and the crazy Liberals are hindering progress and day-to-day life in America.
Indy Conservative on April 1, 2008 at 8:58 PM
landshark on April 1, 2008 at 8:58 PM
Did the EU start their biofuel plan on schedule today?
unseen on April 1, 2008 at 9:00 PM
Indy Conservative on April 1, 2008 at 8:58 PM
from a business stand point why would the oil companies want to build more refineries? That would only increase supply which would drop prices and cause the oil companies to make less on ever barrel. No the oil companies are happy to use the environmentalist as their straw man to take the anger off of them. demand for gasoline has decreased the last 4 weeks in a row yet gasoline continues to go up. You have alot of speculation going on in a small market. thus the big money is pushing the prices up to make up for the loses in the stock market, and in real estate. the rich do not lose. they just make money some where else on something else.
while oil drilling and refineries environmental regulations due contribute to some of the price rise. It is the cartel of OPEC and the monoploy of the 5 American oil companies that are keeping oil prices high. add into the geoplotical events of Iran.Iraq, south AMerica and you have your reason for high prices. Bring back competition in America by breaking up the big oil companies and prices would come down some same as phone costs came down with the breakup of ATT
unseen on April 1, 2008 at 9:07 PM
Why give the Oil companies excuses not to drill?
America can have its own Oil market, its own low prices if we chose to same as in Saudi Arabia and the other large producers.
But we are idiots, at least those on the left who claim to work for the poor and yet they are impoverishing the American people.
Indy Conservative on April 1, 2008 at 9:15 PM
I will gladly support this proposed deal…if we throw in Al Franken :)
Bigfoot on April 1, 2008 at 9:16 PM
That’s a valid argument to a point. The problem is that all refineries are forced to operate at, or near, full-capacity all the time. Any interruption for maintenance, upgrades, etc. is hugely expensive.
The oil companies around here actually do want to build more refineries but the relevant environmental regs are so cumbersome that it makes more economic sense to divert oil into non-refined product streams.
landshark on April 1, 2008 at 9:28 PM
Cap’n:
I am so very sorry that you are wrong on this one.
The fundamentals have not changed – banks are still hiding their liabilities off their balance sheets – they are permitted to deceive investors. SOX is now meaningless – the Bear Stearns honcho was representing to the investing public that they were fine right up until the bailout. Why the heck isn’t he in jail right now?
Everyone is crying out for the Fed to prop up the housing market – which is a socialist way of thinking.
Capitalism only works if the market is free to cycle naturally. The longer it takes for home prices to correct, the more painful the recession will be.
Home prices are way out of whack – you may as well run out and buy tulips. Until the average American family can afford the average American home, prices haven’t corrected.
Hasn’t anyone noticed that the Fed is acting in a desperate manner to save banks from the consequences of their own heedless risks? Why is a Republican administration nationalizing the banking industry? It’s not a free market if you won’t let falls happen, folks.
And the sad thing is they are exhausting their resources trying to hold back an avalanche. Look for another bank, maybe JPMorgan, to fail and beg for a bailout before the end of the month.
The market is fundamentally irrational. There is no reason to feel optimistic just because the market hopes that the banks have finished coming clean.
Sorry, I have to cry BS on that.
olddeadmeat on April 1, 2008 at 9:31 PM
Don’t know. The Post had a story about how prices for certain cereals have risen sharply – could be related to demand for biofuels.
landshark on April 1, 2008 at 9:33 PM
The problem is that all refineries are forced to operate at, or near, full-capacity all the time. Any interruption for maintenance, upgrades, etc. is hugely expensive.
landshark on April 1, 2008 at 9:28 PM
Yes and it seems strange but every year a different refineriy has problems pushing gas prices up right before some big holiday or vacation time. It’s like clock work. but seriuosly why would oil companies build refineries when they can just increase prices at will? esp when the country is telling them that we want off oil. Would you spend billions on a project that may only have 10-15years of life in it. And spend that money knowing that it will cost you in the price you can charge at the pump. No business will voluntarily increase their product supply when the demand is going down. that is a sure way of going out of business.
unseen on April 1, 2008 at 9:44 PM
olddeadmeat on April 1, 2008 at 9:31 PM
http://www.bea.gov
We aren’t in a recession yet, much less a depression.
Those words have meaning you know.
VolMagic on April 1, 2008 at 9:49 PM
We aren’t in a recession yet, much less a depression.
Those words have meaning you know.
VolMagic on April 1, 2008 at 9:49 PM
yeah the difference is one big bank going insolvent.
unseen on April 1, 2008 at 9:55 PM
unseen on April 1, 2008 at 9:55 PM
Really? And I thought the AGW crowd had the market cornered on alarmism.
VolMagic on April 1, 2008 at 10:01 PM
unseen on April 1, 2008 at 9:44 PM
unseen on April 1, 2008 at 9:07 PM
Yikes. Step away from the “consumer advocate” literature. :)
VolMagic on April 1, 2008 at 10:05 PM
Dear God, you mean we are one large bank away from meltdown? I only wish someone had decided to diversify the U.S. economy when they had the chance.
Oh well I guess I better dust off the Model-T, pile a few trunks and a rocking chair on the roof and prepare to live in a lean-to somewhere.
Bishop on April 1, 2008 at 10:06 PM
We’re in a depression??? Huh?
It is the leftist’s way of making ppl paranoid. I like the line that the El Rushbo says about “If things are going good for me, it must be terrible for my neighbor, etc”.
For God’s sake! In my state (Louisana) our unemployment rate is so low, that the government head (Bobby Jindal) is on a crusade for a worker training program in order to fill positions needed to expand our economy.
Depression? Maybe in the emotional sense, but economically? I call BS!
lsutiger on April 1, 2008 at 10:10 PM
unseen and olddeadmeat are right.
It’s just a giant shell game.
RushBaby on April 1, 2008 at 10:37 PM
Gentlemen, I am not saying that we meet the technical definitions of either recession or depression (though I suspect the argument for the next six months will be when the recession officially begins).
However, have you noticed that all the major investments banks are scrambling for cash?
If you bought stock last year in Bear Stearns, or UBS, or Lehman Brothers, or the other major banks in the The S&P 500 Investment Banking & Brokerage category you have been steadily losing money since October.
For years, consumers have borrowed too much, and banks have foolishly enabled this behavior. Now the bill is due, and both consumers and banks have empty wallets.
Meantime, the cost of milk has climbed 58 cents a gallon in just one year. The price of grains are way up. So is the price of energy. But wages haven’t climbed.
So the stock market is optimistic despite the fact that the American consumer has to spend more this year than he did last year just to stay at the same standard of living.
And consumers are the vast majority of the economy. If they are pinched so is the economy.
So just what is the logical basis for optimism? Because Lehman Brothers this week successfully managed to dilute the value of their shareholders’ investments?
The MSM is utterly clueless on this – they pump and pump and pump the markets because if they didn’t no one would watch and they would be out of a job. MSM reporters are so clueless the National Association of Realtors gets its press releases printed as fact – sales are up and houses are a great investment and they never lose value.
Yeah, right. Dude, get on the bandwagon. Buy tulips now before the price goes up.
olddeadmeat on April 1, 2008 at 10:39 PM
The bite of the economic doom and gloom story is somewhat lessened by the contest to win free Apple products displayed on the same page of the newspaper.
viking999 on April 1, 2008 at 10:47 PM
Actually, Consumption is about 2/3 of GDP. If you wanna call that the vast majority, ok.
And guess why that is. Ethanol, anyone?
Can we say, “contraction period of the business cycle?”
I know the 90′s were suppoed to throw away those old outdated business cycles, but, unfortunatley, they didn’t.
And, fwiw, there is no down side to being a pessimist on the economy. If you’re right, you’re right. If you’re wrong, no one cares cause they’re so happy you were wrong.
Have some faith buddy.
VolMagic on April 1, 2008 at 10:47 PM
Be careful not to confuse gasoline with oil. Refined products such as gas are only one part of product spectrum.
Yes, that would be strange – are you stating shutdowns as fact, or perception? Remember that refineries are down-stream customers; their prices are based on anticipated future demand, rather than current demand. Put another way, if they buy stock cheap, and oil prices rise, they have to price their current product based on the higher oil price because that’s what they pay to replace their stock.
I’ll challenge your assertion that companies can simply increase prices at will. That could only happen with collusion which, even after countless investigations and inquiries, has never been demonstrated.
Looking at Shell Oil’s financial statements is interesting because it shows Oil Products (of which, gas is only one) accounting for almost 80% of revenue but only 33% of income – those are clearly cost-intensive product lines and not quite the big money-maker you seem to think they are.
landshark on April 1, 2008 at 10:50 PM
VolMagic:
Both the Bush and the Clinton administrations let these problems develop because it was politically convenient to do so.
What bugs the crap out of me is that this whole meltdown is fundamentally rooted in the triumph of greed over honesty.
Liar Loans; Fudged figures; Fantasy appraisals;
Fine print that’s so fine you need a microscope, an accountant, an attorney and a linguist just to understand what the lie you are being told actually is.
The banks did it, realtors did it, consumers did it, brokers did it and there were no cops on the beat. Everybody got their piece, but now the thrifty, the diligent and the honest are expected to share the burden. And Bernanke, Paulson and Bush are right up there with them, running up the tab our grandchildren will struggle to pay off.
olddeadmeat on April 1, 2008 at 10:58 PM
olddeadmeat on April 1, 2008 at 10:58 PM
I’m totally with you on the credit fiasco. I just don’t think it spells doom for our economy writ large.
But yes, I am mad as hell that the crooks and liars are gonna get outta this one realitvely unscathed while the tax-payer will pay. On that we are in total accord.
VolMagic on April 1, 2008 at 11:03 PM
Sorry, but our government has simply printed over $500 Billion. Paulson and the FED have made it clear they will print enough money to cover any real economic problem. I have to ask, $500 Billion thrown at any problem will produce an effect,the question is, has all this money done anything to fix the credit problem or the value of overpriced mortgages that caused the credit crisis in the first place?
I don’t know but I suspect not. What will the economy do in six months when all that nice new money is gone and folk realize inflation is 6-8%?
Have we fixed things or simply moved the problem down the road six months.
JIMV on April 1, 2008 at 11:47 PM
Considering how much the Democrats are counting on a surge of young voters, especially for Obama, to carry them to victory, you’d think they’d realize trying to demonize Republicans with Herbert Hoover comparisons is a tad outdated.
Ask most young people today about Hoover, and at best they might think you’re talking about the competitor to the Orick XL or the Dirt Devil. So Hoover is as much a part of ancient history to them as William McKinley was to voters during the Reagan-Carter election in 1980.
The youngest person who actually remembers the Great Depression today is a spry 75 years old, and that’s if they were born about the time Herb was leaving office. So non-stop caterwauling about another depression is at best only going to work for a limited time, unless things that actually did happen in the Depression, like 25 percent unemployment, deflationary pay rates and widespread soup kitchen lines, suddenly start dotting the landscape.
jon1979 on April 1, 2008 at 11:53 PM
Bishop on April 1, 2008 at 10:06 PM
Yeah imagine that all those bank mergers caused unintented consequences. hmm now you have maybe what 4-7 banks in the USA that are linchpins to the entire economy. Do you think OBL hit the world trade centers for fits and giggles? he knew what he was going after. It is a sad day when our enemies knows our weakness but our own people have no idea of them…
unseen on April 2, 2008 at 12:00 AM
Great Depression, my eye. Looks like barely adequate one to me.
Lily on April 2, 2008 at 12:01 AM
I’ll challenge your assertion that companies can simply increase prices at will. That could only happen with collusion which, even after countless investigations and inquiries, has never been demonstrated.
landshark on April 1, 2008 at 10:50 PM
To prove collusion in a court of law requires a very tight case. However why if a shell refinery goes up then all gasoline goes up? I could see when Kitrina shut down most of the refinerers etc but the impact of one refiner on the total gasoline in the country is very small. Does it impact supply? some but not enough to justify the major moves is gasoline. If the Exxon station raises its price and the shell station across the street raises theirs for the simple reason that exxon raised theirs is that not collusion?
And why does not gasoline go down when oil retreats as rapidily as it goes up when oil goes up? Because then can get away with it.
I know the difference between oil and gasoline. the crack spread has even gone negative a couple times in the past weeks. which means it has actually cost refiners to make gasoline thus the raise in gasoline prices during a time when oil is falling. however, the fact remains that Exxon pumps their own oil. Theypump it refine it and sell it. they can make a profit on it at anything over (last time I checked) $20.00/bll. so if they can make a profit at $20.oo/bl why are they selling gas at $3.25/gal. Because they can. In a normal market one without monoploies Exxon would sell the gas at the cheapest they can to gain share and put their competiton out of business. this is not happening. there are no price wars within the oil industry, within the gas stations. this is due to several reasons including laws that say it is illegal to sell gas below a certain price set by the “market” so you have to ask yourself who controls the “market” Opec which is a cartel and artifically controls supply, the 5 major oil companies left in the US which are also monoplies and go along with OPEC, or the other Nation controlled oil companies like Gaspom in Russia. Oil is not a free market and the prices are not dictated by the law of supply and demand. Anyone that believes it is does not understand economics.
unseen on April 2, 2008 at 12:19 AM
And Bernanke, Paulson and Bush are right up there with them, running up the tab our grandchildren will struggle to pay off.
olddeadmeat on April 1, 2008 at 10:58 PM
Yet if they did nothing the price would be 10times, 100 times greater. All deposits in the USa are 100% secured by the federal government thru the FDIC. How much money do you think the government is on the hook for if there are runs on banks and they go insolvent. That price tag could easily be in the trillions.
Yes alot of bad actors, yes it is unfair, yes it is a shame, but at the end of the day, the government is saving all those thrify people but not letting the bad actions of a few push the entire economy into a 1930′s style depression.
unseen on April 2, 2008 at 12:25 AM
has all this money done anything to fix the credit problem or the value of overpriced mortgages that caused the credit crisis in the first place?
JIMV on April 1, 2008 at 11:47 PM
the credit crisis is simply a period of fear. banks do not know what problems other banks have, thus they would not lend to them, hedge funds could not borrow. etc. the FEd and other central banks steped in and said “we will make good if they can not” and they have. Most of that $500billion is in 28days loans. that means that it has to be paid back. think of a pay day advance check place. The fed is doing the same thing but at a lower interest rate. It is not new money.
as far as the over priced housing it will come down it alread has in many places. the problem is to keep it from falling to far to fast.
All the inlfation is due primarly to two things food inflation and oil inflation both are do to things the FEd has no control over. Like demand from China and ethonol. So the FED trying to fight inflation is useless. to actually have a chance of stopping inflation the FEd would have to put this country in a major recession which is what they were trying to do with the rate increases until the subprime crisis hit. To stop inflation we must grow more food and stop the speculation in the oil market’s.
unseen on April 2, 2008 at 12:34 AM
Just a bit of history, my grandfather was treasurer of his bank and had to take a train to Phillie in order to convince the Fed to let them open after FDR declared the bank holliday. The letter from the bank commending him for his actions still is in the boardroom.
Cap’n you are probably a tad premature on calling this crisis over. I do not condemn anyone for thinking such because what the Fed has done to this point is provide massive amounts of liquidity in the right place to stop the credit crisis from turning into a panic. We really were on the edge of oblivion over the weekend of March 15th.
I would hesitate to say this is the end because preventing a panic really depends on whether the people stop panicking. Kinda silly to put it this way but it is fundamental to understanding what is happening. The people who run our financial system have been steadily losing confidence in the system since at least last August. They were the ones who were panicking and they are the ones who would have caused the financial system to collapse. Look at old statistics on unemployment or GDP growth all you want. That would mean nothing if on Monday, March 17th the people who make markets in US treasuries, stocks, bonds, etc. had backed away from the markets. No market makers means no markets. Good luck finding a buyer when the bid/ask spread increase ten fold.
I was trading US treasuries during the LTCM crisis and for about three days there were no bids or offers on the Cantor, Fitzgerald treasury markets. When something like that happens you begin to realize how fragile our economic system can be.
This rally might be the end of the crisis but it is way too early to say. Personally I would get short when the Dow trades under 11,750 because the next move down, if it comes, is going to be an even bigger financial institution than BSC. Back to what is happening. We are experiencing a loss of confidence but it is made more serious by the fact that we have had two big bubbles in less than 10 years and the housing bubble will likely drag on for a couple of more years. All of that doesn’t mean that confidence has been restored but there is still way too much that could go wrong will housing prices continue to fall for at least another 9 months.
P.S. Watch home inventories to come down to 6 months which will signal an end to the housing crisis. Also, the dollar is stronger but the trend in against the Euro still points more downside. And higher short term interest rates would be a good sign.
Bill C on April 2, 2008 at 12:40 AM
Bill C on April 2, 2008 at 12:40 AM
The selloff of gold is a good sign. as is the retreat of oil prices. Both appeare to be in a bubble. Ag seems more a matter of supply and demand. the VIX coming in also is a good sign. I am more hopeful today than I was over the weekend of the 15th. It is nice to see others understand the problems we face. I just wish they taught this stuff in school so more people can understand the threat we face to our entire way of life.
unseen on April 2, 2008 at 12:52 AM
Never hurts to advertise……… right?
.
……. not that any bureaucrat needs to make sure he has a bloated budget for next year, or anything.
How many illegals are getting food stamps?
Seven Percent Solution on April 2, 2008 at 12:55 AM
No word on whether illegal immigrants have had any effect on food stamp numbers. All the facts fit to print!
Seixon on April 2, 2008 at 5:01 AM
Seixon on April 2, 2008 at 5:01 AM
It is just a coincidence that the states with the highest subprime failure rates also have large illegal immigration problems. Pay no mind to the man behind the curtain…
unseen on April 2, 2008 at 9:11 AM
Another reason is that hedge funds have pulled their money from real estate and placed it on commodities (oil, steel, etc). This additional speculative demand is pushing up the prices. Exxon only produces half of the oil they sell as gasoline – the other half is purchased. Margins are tight even among the majors right now.
Think_b4_speaking on April 2, 2008 at 10:05 AM
If you understand economics, why do you say that the 5 major oil companies in the US are a monopoly? By its very nature, a monopoly is ONE company – perhaps you meant to say oligopoly. Next, Exxon et al DO sell their gasoline at the lowest possible price – do you not recall the months after Katrina, when the price at the pump fell daily? The laws that speak of ‘market price’ are set by Federal and State governments, so you can’t complain about the lack of ferocity in gas wars when our own government limits them. Lastly, Gazprom is a primarily a natural gas company, not an oil company, perhaps you meant Rosneft?
Think_b4_speaking on April 2, 2008 at 10:14 AM
C’mon – the average citizen does not give a flying fig about how Wall Street is doing. It’s the bread and butter economic issues that sway voters. Are Republicans going to ignore this simple lesson again?
corona on April 2, 2008 at 11:29 AM
Think_b4_speaking on April 2, 2008 at 10:14 AM
No I meant Russia. Just used Gazprom as I example of RUSSIAN controled natural resources/oil. yes you are correct with the oligopoly definition instead of the monopoly term however they act the same to control prices and most people understand the term monopoly better than oligopoly. And no you are wrong with Exxon et all selling their gasoline/oil at the lowest possible price. they sell their gas/oil at the “market price” not at their lowest price. the difference between their price and the “market price” is their profit. If you believe the smoke and mirrors that they have set up for the “market price.” those laws that limit the gas wars were not passed in a vacuum. The oil companies paid good money for those laws. when you have an extra $10billion every three months you can afford to buy off the lawmakers. so we have a fixed market controlled by a very few players with legal protection bought and paid for. Yes the hedge funds do push prices up but then again you have to look where those hedge funds are getting their money to invest in the oil market in the first place.
And while margins are “tight” Exxon still gets about $10billion in profits per qrt and refuses to put most of the the windfall back to work finding and drilling for more oil. Instead they use the money for div and share buybacks increasing shareholder vaule while facing a steady decline in production which further limits supply which pushes gas prices up which gives them more profit for every barrel pumped. Why look for more supply when you can control the price of the product? the recent finds in the gulf, in south america, in Asia, in Norway all point to the fact that large finds are still out there to find.
Now I am not opposed to oil companies making money, I am not in favor of price controls. I am simply in favor of the people understanding why they are paying what they are paying. the game is fixed. the government is a willing party to the fix and everyone is happy. the problem is that greed is starting to infect the oil industry. a little greed is good, unrestrained greed will cause problems like those found in real estate, the dot.com bubble. there is no one minding the store and the kids are robbing the American people blind.
unseen on April 2, 2008 at 11:37 AM
C’mon – the average citizen does not give a flying fig about how Wall Street is doing. It’s the bread and butter economic issues that sway voters. Are Republicans going to ignore this simple lesson again?
corona on April 2, 2008 at 11:29 AM
Just because they do not care does not mean it does not effect them.
unseen on April 2, 2008 at 11:38 AM
First, even a monopolist still faces a demand curve, and can only profitably operate on one portion of it, so let’s not go wild here.
Second, as was pointed out, oligopoly is fundamentally different from monopoly. It’s a difference of type, not degree. Example — no such thing as a “Cournot monopoly.” The game theory alone shows they’re totally different.
The industrial organization of the oil industry varies widely from the wellhead to the gas station. Let’s all make sure we’re being precise in our terminology.
DrSteve on April 2, 2008 at 11:58 AM
Think_b4_speaking on April 2, 2008 at 12:00 PM
Well, I spoke too soon, there is a “Cournot monopoly.” Damn you Cournot, you prolific bastard!
DrSteve on April 2, 2008 at 12:06 PM
Next, if you have proof the majors are fixing prices, you should present it to the FTC, who could fine them to a greater extent than the current attempt to revoke their tax credits
Think_b4_speaking on April 2, 2008 at 12:00 PM
LOL…yeah hey I got this bridge onsale.
unseen on April 2, 2008 at 1:38 PM
Let’s all make sure we’re being precise in our terminology.
DrSteve on April 2, 2008 at 11:58 AM
the precise term is CARTEL. as in OPEC. Opec fixes the supply. the majors use OPEC to fix prices within a narrow band, they then use the government that they paid for to limit competition of price wars.
unseen on April 2, 2008 at 1:51 PM
If you want to understand that, it helps to listen in to ExxonMobil’s (XOM) presentation to analysts in New York City in early March. Halfway through the three-hour meeting, Exxon management flashed a chart that showed the company’s worldwide oil production staying flat through 2012.
The Calculus of “Acceptable Investment Return”
Ponder that for a minute. Texas-based Exxon is the largest publicly traded company in the energy business. In fact, it’s the most profitable company in the history of capitalism, earning a record $40.6 billion on sales of $404 billion last year. Yet even with prices at the pump near all-time highs, Exxon isn’t planning on producing any more oil four years from now than it did last year. That means the company’s oil output won’t even keep pace with its own projections of worldwide oil demand growth of 1.2% a year.
Imagine a chief executive of another growth company making a similar announcement to Wall Street as Exxon Chairman Rex Tillerson. What if Steve Jobs said Apple (AAPL) wasn’t going to sell any more iPhones than it did in 2007? What if Howard Schultz said Starbucks’ (SBUX) latte production would stagnate, at least until the next U.S. president embarked on his or her reelection campaign? Shares of both companies would plummet.
After the management presentations, Tillerson took questions from the audience. The first hand that shot up was that of Deutsche Bank (DB) oil analyst Paul Sankey, who wanted to know why the company wasn’t showing any volume growth. “We don’t start with a volume target and then work backwards,” Tillerson explained. Instead, he said, his team examines the available investment opportunities, figures out what prices they’ll likely get for that output down the road, and places their bets accordingly. “It really goes back to what is an acceptable investment return for us,” Tillerson said. In other words, producing incremental barrels just to ease prices for consumers is not part of the company’s calculations. Last year, ExxonMobil led the industry with a return on capital of 32%.
…
Could Exxon spend more and generate more growth? Probably. Even with its increased capital spending, the company still spent 70% more on dividends and stock buybacks last year ($36 billion) than it did reinvesting in its business. Tillerson noted that share buybacks over the past have boosted the average stockholder’s share of the company’s oil production by 20% over the past five years.
In other words. even though the company’s volumes haven’t grown, fewer shares outstanding mean more barrels per share for each remaining shareholder. Lysle Brinker, who follows Exxon for the research firm John S. Herold, figures that given the company’s current capital outlays, Tillerson can keep replacing the oil and natural gas he sells. That way the company won’t shrink, even if it doesn’t grow.
Big oil companies can continually miss their targets or even target no growth and still shine on Wall Street due to the peculiar nature of commodity businesses. Less supply of a commodity means higher prices. Higher oil prices mean more profits for the oil companies. Exxon shares have risen 21% in the past year—and even closed a bit higher on Mar. 5, the day of its analysts meeting.
http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080319_269345_page_2.htm
notice that Exxon did not mention environmental wacho’s for the reason they are not increasing supply? It is not good business to increase supply, reduce price and lose profits. the oil companies like high prices and will do whatever it takes to keep the price high. The market is fixed before the opening bell there is no reason to collude or fix prices. the fix was in before the SEC and all other government agencies get involved. OPEC does the same thing.
unseen on April 2, 2008 at 2:02 PM
Tillerson is right. You don’t invest in a target, unless you anticipate a decent return. He is in business to provide a return on investment, not to produce as much oil as possible. As an investor, I am in it for the return on capital as well. Given that NOCs own the rights to 60% of the known reserves in the world, there is no reason to try and outflank them. The rise in oil prices is due to war premium and speculation, as I noted earlier – the increased consumption by India and China is not the main culprit – therefore Exxon does not need to massively increase output.
Think_b4_speaking on April 2, 2008 at 3:03 PM
Well, I have already shown that they do not control the price of the product, since there is no monopoly. Beyond that, there is no sense in increasing the supply to any significant extent, since refinery space is limited by government intervention and NIMBY attitudes. If everyone increased production, you would have onshore and offshore tankers full of crude, waiting for their turn to offload into the cramped refining network – what good would that do?
Think_b4_speaking on April 2, 2008 at 3:19 PM
Think_b4_speaking on April 2, 2008 at 3:19 PM
You have not shown that they do not control the price. They set the rules by which the game is played. those that make the rules control the outcome even if the game is played fair from the start to the finish. they set the rules on supply. the rest is window dressing.
Talking in a circle will not solve the problem or lower your gasoline bill. the reason there is not enough refiners is the same as the reason there is not enough oil. companies do not want to increase supply. It is not in their best interest to increase supply. the companies blame regulations/environmental whacko’s for the problem but the truth is they have no incentive to increase production capacity. the increase in demand is being met by builing on to refiners already built.
When you can control supply you in effect control price. Price is simply a function of demand and supply. You can increase price by decraseing supply or increasing demand while keeping the other stable.
the end result is the same. If you want to decrease gasoline prices you must force oil companies to do what is not in their interest to do. the only way you do that is be taxing those habits that you do not want. (i.e make it more expensive for them not to drill/ breaking them up so they have less control over the marketplace/increase compitition etc). Increase tax breaks for drilling, building refiners etc. If everyone increased production prices would fall. the glut of the earlier 90′s showed that. Sure you would have bottlenecks but those bottlenecks would be filled by a market system. The oil companies would get less per barrel and would have to make up the profit on volume sales.
He is in business to provide a return on investment, not to produce as much oil as possible. As an investor, I am in it for the return on capital as well
and there you have conflict with the avg voter. the avg voter is in it to lower his/her cost at the pump. since the avg voter is many times the majority of the Exxon shareholder in the long run the exxon shareholder will lose. By setting themselves in direct opposition to the AMerican voter Exxon is walking a tightrope that they can not win. unrestricted greed will destroy all vaule for the shyareholder as the dems takeover the oil companies or tax them to death. Noone will pay $5.00 a gallon for long while XOM continues to rake in $3 billion a month. It is not in the best interest of the voters thus it is not in the best interest of politicians.
Too bad too because XOM had a good thing going.
unseen on April 2, 2008 at 3:59 PM