On the Today show this morning, Jim Cramer of Mad Money urged investors who have stocks that they are going to have to liquidate in the next five years to pull their dough out right now, even if it meant a loss. He predicted a 20% drop in the stock market in the next few years.
Ebay just terminated 1,000 employees.
Stocks keep sliding.
How stressed are you?
Apt. 11d 
Based on Cramer’s advice, I’m tempted to say investors should “BUYBUYBUYBUYBUY!” (What, I have no idea…)
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We’re very calm. Plenty of savings, jobs about a secure as you can get without being a Pgh transit union member, and decades away from retirement.
If anything, I’m amused at all the hysterical stories about people who can’t get credit now. Isn’t the whole point behind this crisis that too much credit was extended to people and businesses that weren’t worthy of it? Yet now we’re upset that righting the economy means that, yes, fewer people will get credit and those that do will get smaller limits.
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On the bright side, the last time the Dow was below 10,000, I didn’t have any money to invest. No that I plan on investing right now.
Maybe things will pick-up soon. I heard that part of the problem is a drop in consumer spending. That drop may end on Saturday. I’ve put-off our quarterly “fill the supply closet” trip to Target as long as I can without having to use the LL Bean catalog for purposes far beyond those indented by its maker.
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I couldn’t find where Cramer predicted a 20% drop in the stock market in the next twenty years, and I would be astonished if he did say it. The linked article has this:
“The bank lending default crisis that put financial firms around the country on the brink of collapse could bring “as much as a 20 percent decrease in the stock market,” Cramer predicted.”
The market is already about 30% down from last October, and many are predicting a wild ride over the next year.
However, history tells us that long-term investors should stay in the market. I can’t find the citations now, but I’m almost certain there has never been a 20-year period in which stocks have declined. Not even a 10-year period. IIRC, there have been a handful of 5-year periods where stocks declined. There have been many 1-year periods where the market was down, and lots of 1-day declines.
However, as every prospectus says, “past performance is no guarantee of future performance”.
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The Today Show is also following that story with one on renting out parts of your home to make extra money. I feel like I’m living in the “Kit Kittredge” movie. Next there will talk of getting chickens for the egg money.
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Tex, Cramer did say 20% drop in the market on the Today Show this morning. I saw it too.
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Siobhan, the credit that people can’t get now isn’t the credit that people shouldn’t get. It’s routine kinds of small-business finance that have been a basic part of how those businesses operate for decades. It’s bridge loans for tough parts of the annual business cycle, or small loans for limited expansion of a business. Pretty soon it might be things like auto loans, even for people who are in completely reasonable shape to pay off such a loan.
Maybe you think that somehow the “right” way to do business or live life is to always pay for anything with cash on hand and to save methodically in order to have that cash, but that pretty much has not been how capitalism has functioned at any time in its existence as an economic system.
In any event, going cold turkey in the current situation, even for borrowers who are overextended, can be expected to look in economic and social terms just as it looks when a human being undergoes cold turkey, e.g., raw, unpleasant and full of suffering. Something rather like a Great Depression. I can’t imagine why anyone would prefer that to some kind of softer, slower, more careful adjustment.
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Well … I work at a health care consultancy, which is perceived as being more stable than some industries. Our family budget is not strained; we live well within our means and have almost no debt. I feel we have made very good financial decisions in the past. So I should feel fine.
But the heart of the matter is that our household, like so many households, is really only a few paychecks away from serious trouble if I lost my job. I’ve seen first-hand that white collar people — people with backgrounds similar to me — go for months and months before finding similar work when they’re thrown out of their gigs. It’s just not possible for us to save up 6 months worth of expenses, especially if we were forced to pay COBRA. And when I think of what else I could do, whether I could find some other fill-in work while I searched, I can’t help but think of all the empty storefronts currently appearing around Chicagoland.
Does anybody else out there have that spreadsheet, the one that shows “current expenses” and “bare bones”? The one that calculates how long you could keep the kids in parochial school if you lost your job?
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Tex is right: the linked article does refer to Cramer’s prediction of a 20% drop in the market, but nothing about a 20-year span for that trough. Aside from the market history Tex cites, if anyone feels comfortable making any kind of prediction about the stock market 20 years from now, that would in and of itself be a screaming indicator that you should ignore that person.
Besides, the way the market is going, we may get to the 20% decline this week…
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Timothy, until things stabilize, it’s very unclear who “in completely reasonable shape to pay off such a loan.” Small businesses need bridge loans, but given the inevitable slowdown, be it gentle or otherwise, unlike many journalists I don’t see it as a travesty that a bank wants to charge a Chevy dealership 20% APR on a loan that they charged 12% on last year.
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We’re still 30 years out from retirement, so we’re continuing to invest the 401(k) income as we always have — in a combination of index funds at Vanguard and Fidelity, some of them those targeted-retirement-date funds and some tracking the Wilshire 4000 (or whatever that broadbased one is) and one tracking “the bond market,” although I’ve lost track of what exactly that means. Since there’s only been one decade that saw the stock market fail to keep pace with inflation (that would be the 1970s), I feel pretty confident that we can weather this storm.
It may be that I don’t take the 401(k) money seriously enough, since we’ve never seen any of it except on paper. At some level, the dollar amounts there are all abstract — which is a mercy right now.
I’m trying to ramp up savings because I don’t know what food prices will do into the winter, but so far we’ve been able to adapt to the rising costs of some items by buying more of the stable-priced items instead. I am not sure if I’m scaling back upcoming holiday spending or not — we’re planning on buying fewer gifts for the kids, but they will probably be higher-ticket items (for which I’ve been budgeting all year).
I would feel a lot different about this whole situation if our primary source of income were not a tenured position at a private university. We’re not recession-proof, but we’re unlikely to be in serious crisis any time soon.
Which is good, because two of our parents may require significant financial help within the next 20 years. We’re trying to save accordingly.
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OK. Maybe I’m wrong about the 20 year trough, but I’m sure that I have the 20% right. I’m going to change the post.
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Oh — speaking of the credit crunch, two local school districts, both rated AAA, could not obtain anticipated loans from local banks two weeks ago. The banks themselves simply did not have access to the funds. This credit crisis is not only about changing who gets loans, and at what terms — right now, there is a liquidity crisis that is affecting all borrowers to some extent.
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I’m trying to ramp up savings because I don’t know what food prices will do into the winter, but so far we’ve been able to adapt to the rising costs of some items by buying more of the stable-priced items instead.
Ah, yes, that reminds me: the one concession to worry we made is to buy 200 lbs of rice from Costco before prices rise any more. That can last us our family for over a year while serving as the base for one meal/day. The sushi rice in particular is divine there.
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I’m more worried than Siobhan, but sitting in Pittsburgh makes it difficult to see why everyone is so close to panic. It is hard to panic over a bust when you didn’t really see the boom.
Local government has been so broke for so long that a credit crisis provoked municipal bankruptcy would probably be a good thing.
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Ok, until things stabilize, no credit should be given to anyone. Because who knows, a bank might need that money to cover itself.
That’s a pretty good way to ensure that “stability” will come in the form of economic collapse. In a way, the depths of the Great Depression were really quite stable: things are at rest when they hit a bottom and can’t go any further.
The people who really need a reality check are those who think that if they’re personally prudent, save carefully, and make smart and frugal decisions about household budgets, little of this will touch them. This is the equivalent of building a fallout shelter and thinking you can wait out a nuclear attack because heck! you’ve got lots of canned food in there.
Go take a look at the nearest strip mall, downtown street, what have you, where you get some of your necessities. Try to imagine half of it out of business. Try to imagine half the houses on your street vacant, or imagine your neighbors not being able to afford basic levels of maintenance for their homes, or if you live in a neighborhood like I do, imagine that they have to stop paying for garbage pickup and try to quietly dump in the woods nearby instead. Try to imagine what your community will look like if another 5 or 10 percent of the people you know lose their jobs. Try to imagine your school district starving of funds because property tax rolls are shrinking and bonds become impossible to issue. Try to imagine lots of state and municipal safety nets fraying or snapping. Try to imagine that the police and fire services in your area have to be seriously curtailed, and some libraries closed.
You cannot hide from a serious economic crisis just by counting your pennies and stocking up from Costco, no matter how secure your own job might be. Hopefully nothing even remotely as serious is about to happen, but if even a bit of this comes to pass, every single one of us except the ultrarich are going to feel the social consequences all around us, in all sorts of ways.
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Try to imagine half of it out of business. Try to imagine half the houses on your street vacant, or imagine your neighbors not being able to afford basic levels of maintenance for their homes, or if you live in a neighborhood like I do, imagine that they have to stop paying for garbage pickup and try to quietly dump in the woods nearby instead. Try to imagine what your community will look like if another 5 or 10 percent of the people you know lose their jobs. Try to imagine your school district starving of funds because property tax rolls are shrinking and bonds become impossible to issue. Try to imagine lots of state and municipal safety nets fraying or snapping. Try to imagine that the police and fire services in your area have to be seriously curtailed, and some libraries closed.
Try living in Pittsburgh. You do realize that not everyone currently lives in a leafy upper middle class neighborhood, right?
Timmy, you can fight with some cash-only-society! apparition all you want, but you’re not going to convince me that banks have some sort of patriotic obligation to make no adjustments to the current economic climate.
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Tim B. wrote:
“Go take a look at the nearest strip mall, downtown street, what have you, where you get some of your necessities. Try to imagine half of it out of business.”
That pretty much already happened over about 1/4 of this region, though not in my neighborhood. Which is why I live where I do.
“Try to imagine half the houses on your street vacant, or imagine your neighbors not being able to afford basic levels of maintenance for their homes…”
Again, not in my immediate neighborhood, but there are areas within walking distance of my house that have already seen that. In certain areas, the city is push-down houses and giving them to neighbors to use as a yard.
“Try to imagine your school district starving of funds because property tax rolls are shrinking and bonds become impossible to issue.”
Given that my school district spends $18k per year per pupil to get a 33% drop-out rate and a perennial seat on the state’s watch list, I don’t see how a little belt tightening could make things much worse.
“Try to imagine lots of state and municipal safety nets fraying or snapping. Try to imagine that the police and fire services in your area have to be seriously curtailed, and some libraries closed.”
That’s been happening here for quite some time. It is a huge pain, but not the end of the world.
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“Does anybody else out there have that spreadsheet, the one that shows “current expenses” and “bare bones”? The one that calculates how long you could keep the kids in parochial school if you lost your job? ”
Yes I have one, and I’ve been looking at it a lot lately. Everyone should have one of these.
I think Siobhan & MH’s sentiments are interesting to hear about. You guys seem to think that if you’re in a place where the boom hasn’t happened, and the readjustment is thought to have already occurred, that you will be able to ride it out more easily. But, I wonder if that’s true? In general, isn’t this going to hit the depressed areas the hardest, first? Hence the perceptions in Michigan? I guess Michigan is particular dependent on auto sales, but who will ride this out the most easily?
That question can be answered both individually, and generally. It does seem to me that tenured faculty are pretty well protected from job loss, which will mitigate the effects greatly for them. Government employees, too, will probably be pretty protected. I think others will be in for a wild ride.
And, which neighborhoods will ride out the most easily?
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BJ, I have no idea what will happen. I’m pretty nervous. It’s just that reading Tim B’s post made me think of that scene from Austin Powers where Dr. Evil is talking about all his evil plans from the 60’s and his henchmen are telling him those things already happened.
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Personally, we’re in pretty good shape. I work for a not-for-profit, and while our raises are definitely not keeping up with inflation, I know the director will do just about anything to avoid laying people off. We don’t have as much cash in the emergency fund as I’d like, but we’ve got at least 3 months worth of expenses — and family who would help us out.
The DC area is hurting from the housing downturn — especially in the outer suburbs — but there’s a lot of federal jobs and contractor jobs that aren’t going away.
The local budgets are going to be ugly, though — real estate tax revenues are way down, and sales tax revenue is likely to tank as well. My guess is that the parks bond referendum will fail in November.
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We’ll be ok. Our biggest worry (in my family) is my BIL, who works for Mercedes. Just today I was driving by one of the new McMansions in my town, and someone had a Mercedes out front with a For Sale sign on it.
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Dave S. has been pretty brutal on the subject of my Starbucks habit, but here are a few thoughts.
Siobhan says:
“If anything, I’m amused at all the hysterical stories about people who can’t get credit now. Isn’t the whole point behind this crisis that too much credit was extended to people and businesses that weren’t worthy of it? Yet now we’re upset that righting the economy means that, yes, fewer people will get credit and those that do will get smaller limits.”
Along with the amazing negative-amortizing mortgage, my least favorite credit product is the loan that allows buyers to take a vehicle they are currently underwater on, trade in, and add the left-over debt to the loan for the new vehicle. Repeat this procedure enough times, and your car will spontaneously sprout fins.
bj says:
“That question can be answered both individually, and generally. It does seem to me that tenured faculty are pretty well protected from job loss, which will mitigate the effects greatly for them. Government employees, too, will probably be pretty protected. I think others will be in for a wild ride.”
My husband is tenured, which is a great comfort. However, universities have been lately given to bloat (large building projects, etc.). Given easy credit, students and their parents were just as accepting of high tuition as of exploding real estate prices. Without easy credit, $40,000 a year college is going to be a harder sell. I think even tenured folk need to be prepared for university cutbacks, for instance in the form of trimming cost-of-living increases and allowing inflation to nibble away at salaries.
On the bright side, the recession seems to be keeping fuel prices down. Yesterday we saw $3.09 gas–a global economic meltdown will do that for you.
Timothy Burke says:
“Siobhan, the credit that people can’t get now isn’t the credit that people shouldn’t get. It’s routine kinds of small-business finance that have been a basic part of how those businesses operate for decades. It’s bridge loans for tough parts of the annual business cycle, or small loans for limited expansion of a business.”
A small business that needs to borrow to cover slow times during booms is in big trouble once the boom is over. Very often, credit helps business people deny reality in ways that are in the long-term very dangerous. I saw this with regard to a family business that started in the 90s and enjoyed the wild prosperity of the tech bubble, when people were buying stuff they didn’t need with money they didn’t have. The boom was great while it lasted. Starting in 2001, business dried up, but the owners were expecting things to turn around any minute, and they kept employees on much too long, making up the difference with credit. The business survived, but by the time cash-flow improved, there was a huge hole to be dug out of. The owners eventually wised up and started building cash reserves to deal with slow times, as well as working more hours themselves and hiring fewer employees. The owners were very lucky that it was a learning experience, rather than a bankruptcy experience.
I’d also like to add that a return to tighter credit standards isn’t a throwback to the Depression Era, but to the 80s. Even as a kid, I remember a relative talking about going to the bank to get a loan. It was a very big deal, and my relative said that to get the loan, you basically needed to prove you didn’t need the money. Nobody’s talking about that kind of lending standard yet.
“The people who really need a reality check are those who think that if they’re personally prudent, save carefully, and make smart and frugal decisions about household budgets, little of this will touch them.”
You can’t keep bad times from hitting you by doing that stuff, but you can reduce the impact. If you have no debt, your burn-rate is lower, and you have more money available to deal with today’s problems. When you have debt, you reduce your financial agility. The cash that could be applied to fixing your car goes to paying payments, and the money to fix the car has to be borrowed. And so the cycle continues: debt today, debt tomorrow, debt forever.
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imagine your neighbors not being able to afford basic levels of maintenance for their homes
This requires no imagination whatsoever. (I know I’m a bit odd on this board.)
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AmyP, maybe Starbucks could lower its prices by cutting its water bills:
http://www.thesun.co.uk/sol/homepage/news/article1771553.ece
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We should consider the impact of credit on health care, too. It’s the reason many doctors’ offices will take your insurance information and not make you pay on the spot. I don’t know about you guys, but about half our providers no longer wait for insurance payments; it’s give them a credit card number when you check in, or receive no treatment. Just imagine what *that* can do to a stretched family budget, particularly if it takes more than 30 days to be reimbursed by the insurance company.
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This episode illustrates a problem with the bailout approach. How do you get people frightened enough to do a bailout without making people frightened enough to act in ways that will product an economic collapse by themselves?
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Look, however your community looks now, imagine it significantly worse. The point is not that there is a specific scenario for your specific community. It is that you cannot protect yourself from the economic consequences of a major downturn simply by having a decent job and being personally responsible. It will touch you, and if it is a profound enough downturn, it will affect you in very serious ways, no matter how careful you’ve been or secure you are in your own circumstances. Whatever things look like now around you, they will be worse.
The notion that a downturn simply restores a previous default state of the economy is also wrong, if it’s serious enough. It doesn’t matter how credit was used in the 1970s: it was used in very different ways in the 1990s and 2000s. In some parts of the world, the Great Depression restored economic conditions that had been the norm only forty years earlier, but life had changed enormously in those intervening forty years and there was no way back. For example, in southern Africa, local metallurgical knowledge had already been lost–societies that had known how to forge simple implements like hoes had already become dependent upon industrially-produced hoes (which were superior in quality, durability and utility). You can’t just say, “Oh well, good, we’ll be living in 1978 again, when everything was more or less in good economic order”. It doesn’t work that way. (Not to mention that in 1978, everything wasn’t. Or in 1985. etc.)
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Like Siobahn, I am comfortable, with a good income, two secure jobs (one of which we don’t need the income from) and far more income in the future than in the past. Savings are certainly dropping, but I’m not on the ball enough to know when to pull out, and we have them diversely invested. And, the point of those savings is to buy services in the future (college for the kids, retirement care for us), the cost of which is highly sensitive to how much money is competing for them, and I figure that most of the people competing for access to those services are seeing their savings affected much as ours are. Presumably this will affect the cost of college (especially private college) tuition in the future. The issue for me is all about what the effect will be on unemployment in the longer run; unemployment really is a huge burden for those afflicted by it.
We don’t know what the next equilibrium will look like, but Siobahn is right that the easy credit in this past period has proved unsustainable (what a surprise), and a more restrained credit equilibrium is not necessarily any worse. Timothy is worrying about the transition which may, indeed, be painful for people who bear no responsibility for what has happened.
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Tim B,
I’m well aware that things can go from bad to worse as easily as they can go from good to bad. I guess a better way to make my point would be to note that in my experience people can, once it gets to the point where there is no choice in the matter, prosper while dealing with things that they had previously considered egregiously unbearable.
Also, while whatever is happening in the economy right now is likely to be painful even if you played things safe in your personal finances, that’s hardly the same as saying that the frugal and the thrifty will be in the same boat. As Harry B notes above, the cost of most things depends on the number of buyers and what resources those other buyer command. Or, as the old joke goes, “I don’t have to outrun the bear, just you.”
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We’re not in great shape, but not terrible shape either. Since moving into our present home–the first we’ve ever owned–we haven’t had any kind of savings, and our credit card debt has slowly but surely climbed. After two years of occasionally having to stretch just to make the minimum payments, we have a little over $8000 on the Visa. (Car accidents, dental work, and a few other major costs, and then a lot of little stuff, which we might have been able to avoid with more frugal living…or then again, maybe not.) This is serious concern of ours, because even as my salary goes up (Friends University is in pretty healthy shape financially, and I’m going up for promotion, which will be a much needed raise), we’re unable to save anything of significance.
On the upside, we have a fixed-rate mortgage, and while the house’s price isn’t skyrocketing, it isn’t losing value either. I’ve been very conservative with my TIAA-CREF plans, and so the retirement funds seem to be safe for now. And plus we have the garden, and I have my bike.
We’ve recognized for a while now that–assuming there isn’t a truly major downturn that affects the cost and availability of everything–that for us, it’s really just a matter of hanging on for a few more years, until my yearly cost-of-living increases really start adding up, and Melissa can re-enter the work force full time. Until then, we struggle between out admittedly somewhat elite cultural and class standards one the one hand (farmers market, piano lessons, pre-school for our four-year-old), and saving money by being one more cog in the Wal-Mart consumer economy on the other. (Not a new subject; in fact, to my surprise I discover that I was writing about the perplexities of being a lower-middle-class academic exactly four years ago today. Weird.)
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Well, wait and see. Let’s just say that I suspect most people alive today have underdeveloped imaginations when it comes to thinking about what a major downturn would be like for them and the society around them. Your experience almost certainly doesn’t cover such a thing, and neither does mine.
However, folks that I know in Zimbabwe have had everything in their lives upturned in the last decade, everything they’ve saved or strived for made valueless, regardless of how hard they worked, how careful or prudent they were. I’m sure in some sense one could say that once there is no choice people can deal with (though not prosper) with conditions that were previously unthinkable. This is not exactly much comfort under such circumstances, I suspect. Being overly sanguine about the possibility of collective disaster on the grounds of one’s own preparations may have made sense for Noah, but I don’t think it does much for most people.
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Yes, when it comes “worst case” scenario planning, I’m thinking of things like the Great Depression and not Zimbabwe’s recent experiences. I don’t think that is an irrational way to plan.
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“However, folks that I know in Zimbabwe have had everything in their lives upturned in the last decade, everything they’ve saved or strived for made valueless, regardless of how hard they worked, how careful or prudent they were. I’m sure in some sense one could say that once there is no choice people can deal with (though not prosper) with conditions that were previously unthinkable. This is not exactly much comfort under such circumstances, I suspect. Being overly sanguine about the possibility of collective disaster on the grounds of one’s own preparations may have made sense for Noah, but I don’t think it does much for most people.”
The US is not going to take Zimbabwe’s route to hell in a handbasket. Even a smidgen of inflation makes Americans yelp, and any president who tried that route out of indebtedness (or any of Mugabe’s other tricks) would be out on his ear in four years or less.
I first heard MH’s line about the bear and only needing to be faster than the other guy from my great-grandma in a different context. Unlike other branches of my family (for instance the Oklahoma side), my great-grandma and my great-grandfather had a pretty good Depression. They had contracts with FDR’s CCC in a National Park and she bought a lot of land during the Great Depression (for instance when the previous owners were unable to pay their taxes). At least as far as land is concerned, what some people lost, others gained. (Grandma had a modest standard of living, worked in a man’s job into her late 70s, and grew strawberries, potatoes, raspberries and currants for personal use and fattened steers up for market in her late 80s. As grandpa used to say, “Never buy anything, and always have something to sell.”)
I lived in provincial Russia from 1995-7, right after the darkest, hungriest time. When I was there, government workers (teachers, nurses, doctors, electric plant workers, etc.) would be paid their salaries (generally a couple hundred dollars a month) six months late. Nobody starved to death. They got by by borrowing from friends until their pay came in, stealing from work, and intensive weekend farming at their dachas and gardens, producing potatoes, jam, and pickles enough for an entire winter. Many of them had lost large savings during the hyperinflation of the early 90s. Anybody I knew who had extra money put it immediately into dollars, gold, or apartments. (I can’t really recommend those choices for contemporary Americans, but they weren’t bad choices for Russians at the time.)
There are better and worse places to be when entering an economic downturn. In poor conditions, debt-free with lots of ready cash is the way to go. In really bad conditions (like Russia in the mid-90s), add a large garden plot and a safe place to keep your potatoes.
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I’m very worried that we’re looking at a Tim Burke scenario, maybe not Zimbabwe, but lots of out of work people and struggling senior citizens. I think that we’re looking at more than buying in bulk at Costco.
I think it is going to affect the academic community. The first to go will be those on temporary, untenured tracks (gulp). Then there will be a huge loss of college students, since student loans are not going to come easily. Small colleges may be forced to close (gulp). State colleges will be decimated.
If trends continue the way they are heading, we may be looking at the first real economic hardships in our life time. Or it all could be another Y2K scare.
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Speaking of changes in quality of life, the manhole covers disappeared before I arrived in the Russian Far East. After my time, people started stealing telephone line for scrap.
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Tim, while you’re almost certainly right that buying rice in bulk isn’t going to prevent an economic meltdown from affecting us, what besides that can an individual family do?
I mean really — I could write my congressman, but don’t have enough of a handle on the situation to know what to say. The only thing I have much control over are personal finainces. Short of not panicking, I’m not sure what effect I can have.
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I’m just thinking that being sanguine about an economic crisis because it’s largely thought that it will affect the other guy is a small part of how we’ve come to this pass in the first place–an inability to really grasp the interconnectedness of the economy, or the degree to which you can’t opt out of social consequences even if you privatize everything you can and try to build high walls around your life. Panic won’t do any good, and doing everything sensible that you can do for yourself and your family is always wise. I just find the thought that it’s only some indebted other or some imprudent business over thataway who has to worry to be really misguided.
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More quality of life: In Vladivostok in the mid-90s, at any particular time, you would probably have an outage of one of the following: electricity, hot water, or cold water. (I lived in an itsy-bitsy town with a major electric plant, so I only heard about this stuff from colleagues or saw it on visits.) At night in Vladivostok, you could watch apartment buildings in different parts of the electric grid getting turned off and on.
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It’s highly unlikely that many who hang around here believe, as Glenn Reynolds puts it, that the MSM is “outright campaigning for Obama”. However, if you’re feeling optimistic about Obama’s chances for victory, you might find a little solace in this:
“Because once Obama wins, the MSM will no longer have an interest in shoving negative stories down our throats. And on the day he takes office, they’ll have an interest in playing up how well things are now going. . . .
The stock market, as well as the economy as a whole, is built on perception. If we think things are going well, things will indeed go well. And when we think things are going bad, just as night follows day, they go bad.”
http://thoughtsonline.blogspot.com/2008/10/stock-market-and-economy-will-be-in.html
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One anecdote, which baffled – still baffles – me: my wife’s mother, born 1922, made noises at dinner about the nice purifying effects of another depression. She lived through the Depression in New York City! And she still has this notion that only the wormy parts would be cut out of our national apple. Not to mention her own nice pension comes from TIAA-CREF, and is stock based, so if the market goes in the toilet, there it goes. Still baffles me, that anyone would think this way, particularly someone who was there.
Tim, your line “I just find the thought that it’s only some indebted other or some imprudent business over thataway who has to worry to be really misguided.” is a really good one. That said, I can’t think of a better guy to have at the Fed to clean up than Helicopter Ben, whose academic study has been panics and depressions.
How stressed am I? Probably not as stressed as I ought to be. I focus on our individual situation: the house is paid for, we have two years’ income in the bank (unless, of course, the currency blows up) we both have jobs, though my wife’s could become insecure if the demand for Swell Law Firms goes down. And how much good does this do us if there are a lot of home invasion robberies by guys who cannot get jobs? If our community decides to cut its spending on our now-splendid schools because we can no longer afford them? Not a lot. An ebbing tide lowers all boats?
And speaking of tides, how bout that Warren Buffet line: when the tide goes out, you can see who’s been swimming naked.
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In my neighborhood, people have already lost their jobs. There’s a house for sale on my street that I suspect won’t sell. My father has a house for sale even while he’s already purchased another house. What shape is he going to be in? Some administrators at our college said if things get bad, first raises will be capped or will be zero. There could be hiring freezes and layoffs. Programs may have to be cut. Seriously, they went there, to the worst case scenario.
Our struggling public schools who couldn’t get a 1% tax increase approved 2 years ago will never be able to get those increases now. Spanish has already been cut from the elementary schools. What else will they cut in the coming years? How many teachers will lose their jobs? How big will the classes be to accommodate the smaller staff?
There are a lot of scenarios I can imagine that are all quite unpleasant. As my husband said, you better go plant your cabbage, but stand out there with a gun to protect it. (He easily ends up in a kind of Mad Max scenario).
While we, too, are in good shape personally, I know that many of my neighbors aren’t. Many of them have charged their lives on their credit cards, bought cars they can’t afford, mortgaged their house to pay for college or vacations. What does that mean? Does that mean that they all foreclose on their houses and move to cheaper places? And then does my little working-middle-class neighborhood suddenly become lower class? I don’t know what to expect, but I can say I’m waiting for the other shoe to drop. I think there’s a lot more bad news to come.
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I am just tremendously annoyed at Timothy Burke doing his best to panic us all on the one hand, and then saying, “Panic does us no good” on the other.
If you want to make your point that this is serious, that’s fine. I believe many here have taken it seriously and are looking hard at their finances and their Plan Bs. But as Ben notes above, there’s not much else any of us can do about it anyway.
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This poll astonished me and made me understand this conversation better:
http://money.cnn.com/2008/10/06/news/economy/depression_poll/index.htm?postversion=2008100615
It says that 60 percent of Americans think a full-on depression — with unemployment over 20 percent — is very or somewhat likely.
So, yes, compared to that sort of hysteria, I’m on the “no big deal” side. But compared to anything I’ve seen in my lifetime, I’m expecting it to be very bad. Maybe only a little worse than the Reagan double-dip depression, but more spread out across the economy than that one (which hit blue collar workers far more than white collar workers).
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dave s said:
“One anecdote, which baffled – still baffles – me: my wife’s mother, born 1922, made noises at dinner about the nice purifying effects of another depression.”
I can top that. In Russia my principal was a card-carrying communist and would wax nostalgic about the Stalin era. (I don’t think she was actually old enough to remember much, but she would claim that back in the good old days, if you showed up to work drunk, you’d be sent to prison.) Lots of other old people were nostalgic for Stalin, too. The explanation a teacher gave me for this phenomenon was that back in Stalin’s time, they were young people, so life was good for them.
Laura says:
“Some administrators at our college said if things get bad, first raises will be capped or will be zero. There could be hiring freezes and layoffs. Programs may have to be cut. Seriously, they went there, to the worst case scenario.”
Very selfishly, if things slow down at my husband’s college, maybe they will delay the big building project and not bulldoze our rental house and our neighborhood.
“While we, too, are in good shape personally, I know that many of my neighbors aren’t. Many of them have charged their lives on their credit cards, bought cars they can’t afford, mortgaged their house to pay for college or vacations. What does that mean? Does that mean that they all foreclose on their houses and move to cheaper places? And then does my little working-middle-class neighborhood suddenly become lower class? I don’t know what to expect, but I can say I’m waiting for the other shoe to drop. I think there’s a lot more bad news to come.”
In the short term, I think a savvy distressed homeowner can put the lender off for quite a while. For one thing, a lot of lenders have misplaced the physical mortgage notes. If the lenders don’t have the note and the homeowner demands the note, the lender will probably move on to another case. I suggest you mention this to your distressed neighbors. The downside of this for you is that a homeowner who is squatting in their own home is unlikely to do much maintenance. In the long term, I wouldn’t be surprised if your neighbors could afford to rent in your neighborhood today, and to buy eventually (after prices fall some more and their credit improves).
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I suppose my “Zimbabwe” plan would be to go back to Nebraska. My dad has 80 acres that include a small stream and that were sufficient to feed a family back before tractors and electricity. Except for the 7th Day Adventists, pretty much everybody is the township is related to me. And, with the Adventists, I could still hear people predicting the end of the world even if the internet is down.
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I will confess to taking some comfort in having so many Iowa farmers as relatives. Somehow I have this fixed in my mind as my worst-case scenario fallback … as if they’d have any patience for me, the city slicker cousin.
I’m a little more worried about something I perceive as more likely: my parents losing their retirement savings. My parents have always been my fallback. I felt that if things got really bad I could always ask them for parental welfare. But those days appear to be over. And what if there’s a complete role reversal and they truly lose everything? I shudder at the very thought of my parents moving in with us … but it could pretty easily happen. Of course it would be followed shortly by a murder or two, which would clean the house out again. 😉
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Back when the Flu Pandemic was eating up the Internet’s supply of World-Will-End panic, I went to work improving our garden beds so they could provide a backstop of fresh vegetables in the event of social collapse. I understand “we bought 200 pounds of rice” to fall into that same sort of warding-off-starvation mentality — not really enough, but the best we can do, in the absence of farm-based relatives.
This reminds me, back during the height of Y2K panic, I found myself idly wondering who would start garden plots on the medians and verges of our highway bypass, and how they would be policed.
Everyone loves a worst-case scenario, but given our economic and political situation, Zimbabwe probably falls into that category of “not likely enough to justify action,” given the immediate costs of the actions justified. Japan in the 1990s? The US in the 1970s? Those seem like more likely scenarios. And honestly, they’re worrisome enough.
[I want to point out that my evaluation of our household’s risks is based on my knowledge of history, my understanding of my community and my state’s current and immediate-future financial status, and my estimate of the federal government’s ability to act. Any one of those could be wrong, but to suggest that I’m not thinking about all of them is insulting.]
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I get Timothy’s point — it’s a philosophical one, that in this interconnected economy, no man is an island, and even someone who has been extremely prudent will nevertheless be buffeted by what’s happening. Further, the people who suffer the most won’t necessarily be the imprudent (since the most significant way all of this can impact you is if you loose your job, and that is not going to be directly related to your financial prudence, but that of others). The axe is going to fall very unevenly on people.
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Also, to address Mr. Burke’s point: I don’t fear starvation, homelessness, or an inability to clothe my children. To say that our household is in a decent position to ride out this storm (even if we lose all our retirement savings, which I considered no small concession to anxiety) is not to say that I fear no effects. Of course I do.
I’m just self-aware enough to realize that they are likely to hurt my household less.
Also, if my children lost the many wonderful benefits at their school — full-time classroom aides, foreign-language instruction, science resource staff, multiple media specialists — their classroom experience would not approach a Nuclear Winter. It would look like mine, in the 1970s. Families like Laura’s, obviously, have a great deal more to fear, because the 1970s was a disastrous era for the education of kids like Ian.
It may not be polite, but it’s not ignorant, to point out that those kinds of cuts won’t hurt us as much.
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I didn’t really put much thought into my plan. I just copied what my grandparents did in the 30s. They had five kids and everybody was well-fed, even if variety was lacking. But, if you eat the skin, you can be healthy if 80% of your diet is potatoes.
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Here’s one more thought on Laura’s neighbors:
Foreclosure doesn’t need to be looming for people to look at their mortgage, look at the current market value of their home, compare to rent for a similar home, and decide that they don’t want to spend the rest of their working lives paying off a $400k mortgage on a $200k house (or whatever the local prices are), especially if retirement is coming soon.
The wild card is the federal bailout. We don’t know what exactly the feds are going to do, and how homeowners will react.
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“Because once Obama wins, the MSM will no longer have an interest in shoving negative stories down our throats. And on the day he takes office, they’ll have an interest in playing up how well things are now going. . . .”
So, the way to fix the economy is to vote for Obama? And, not because he’ll do anything about it, but because the media will powerfully change the perception of the whole economy? I can get behind that. Go Obama!
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“So, the way to fix the economy is to vote for Obama? And, not because he’ll do anything about it, but because the media will powerfully change the perception of the whole economy? I can get behind that. Go Obama!”
Alternately, if McCain is elected, the media will put the bailout arrangements under the microscope. Given the amazing opportunities for fraud that the bailout is going to offer to the unscrupulous, I think that is a very good thing. If Obama is elected and given the traditional media honeymoon (which in his case would presumably be unusually long), a lot of mistakes won’t be caught as early as they would be under McCain.
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I saw Tex’s comment as I was running into class this morning and was really amazed. Glad that we’ve come back to it.
So, people are actually batting around the idea that the bad economy is just a product of MSM scare tactics to get their buddy elected? HA! I’m glad Tex passed on this info, because I don’t travel into those areas of the blogosphere. I just shared that theory with my husband. His response, “people are fucking stupid.” Look, there are some very smart conservative blogs out there. Please read the smart ones, if your political tendencies go that way. Avoid conspiracy theories, please.
I’m glad that you guys can ride out a depression with farm relatives and victory gardens. Most people won’t. I can’t predict what would happen to us; I think we’re scrappy enough to survive. Others won’t. I really want to avoid a situation where the quality of schools plummets, where people don’t receive adequate health care, where families live in their cars. I’m surprised by the weird glamorization of that sort of world. It’s really not a good place.
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Tex — your beef, then, is with Henry Paulson and George W Bush, who are mysteriously campaigning for Obama, not with the MSM.
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Schools can plummet just fine without a depression. The news today is that Pittsburgh Public School enrollment is down another 6% from last year to 27,000 students. In 1997, there were about 40,000 kids, so the drop is about 1/3 over ten years. And, just like the subprime thing, nobody responsible is going to get fired because they can make somebody else pay for it.
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I’m not trying to panic anyone. I am suggesting that there are some failures of imagination on display. Panic doesn’t do you any good, but neither does wrapping yourself up in a warm blanket of we’re-so-plucky goodness.
Moreover, as far as, “Well, it’ll just be like it was in the old days” goes. Nobody in 1820s America missed having a wide array of childhood diseases under control through vaccination. Nobody in 1952 missed having their Internet access. You can’t miss affordances and improvements to life that you’ve never had. How individuals and whole societies feel when they’re deprived of something to which they have adapted, become accustomed, made plans around, is radically different from how it feels to have never had any such thing in the first place. Moreover, if you want to look for those circumstances under which societies sometimes make drastic, wrenching and horrible changes to their political and social underpinnings, the experience of relative deprivation is a pretty good place to start. Maybe perhaps because some people underestimate the psychic consequences of having had and lost, mistaking them for never having had at all.
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Jody, I too sometimes get wrapped up in a worst case scenario panic and in general I agree it will not happen. The structure of our society is united in light of some recent catastrophes (9/11, Katrina, etc.)
We have a small garden that we use to grow all our summer vegetables. Realistically, unless we lived near a mountain spring somewhere like in Vermont, it is nearly impossible to survive on one’s own. The dying bee population scares me more than this Wall Street bailout. On some level, I feel food and the planet are more valuable than money (paper that burns or abstract digital numbers on a computer screen), but now I am venturing away from capitalism.
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Okay, I want to be EXTREMELY CLEAR: Laura asked us if we were stressed. She specifically mentioned investment strategies and a worst-case scenario she heard on TV. I therefore wrote that I was not changing my investment strategies. I wrote that I believe our family will be able to ride out the coming storm, for very specific reasons, all of which boil down to: When I think back on the worst financial crises in our country’s history, households like ours have managed to survive.
I did not suggest that a recession was not upon us, or that an economic downturn would not have costs — although in fairness, the local builders I know, the ones who chat with me on the sidelines of soccer games and whose livelihoods depend on this stuff, are still getting funding to build, there are new groundbreakings around here even as I type. This recession is going to hit different parts of the country in much different ways.
I did not celebrate my prudence. I did not suggest that I was plucky. I answered Laura’s questions, real and implied: no, I am not withdrawing my assets from stocks. Yes, I am stressed, but I believe that my family will be okay.
I consider myself LUCKY, not GOOD. I grew up in far, far, FAR worse financial circumstances than the ones I experience now, so I realize on a daily basis just how good I have it. Truly I cannot believe my good fortune. And I know that it is LUCK, not pluck, to which I owe my mostly-sanguine feelings about our immediate future.
And finally, I’m writing a dissertation about Plains life between 1870 and 1910. Most of my unpublished papers are about Plains life between 1910 and 1940. I would stake my ability to imagine a financial crisis against anyone’s out there. And I simply do not see the economic and political evidence to suggest that we face the sort of doomsday scenarios being bandied about.
[Laura: I mentioned the gardens in the context of past internet-fueled fears about impending social collapse, not because I believe we could ride out a national food crisis on the basis of our raised beds. Granted that growing our own tomatoes really did cut back on our grocery bill, I file that practice in the same semi-absurd category of “savings advice” as “stop going to Starbucks.” In other words — not tethered to real-world problems.
Would it be more acceptable for me to mention that I worry every single day about my father — who just marked the 4th anniversary of being unemployed — and how much longer he can make it on my step-mother’s crappy, downsized-three-times salary? That when I consider our household’s ability to ride the storm, I factor feeding and housing them into my equations? Did I just misunderstand what you were asking us to share?]
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So let me put it another way. I am not terribly stressed for myself in the immediate personal sense. We’re in good shape. I am stressed for my society. The more stressed I am about my society, the more that is another kind of stress about myself, because I don’t believe that what happens to others will not eventually affect me in ways I can and cannot foresee. I suppose I’m just puzzled by those who seem (to me) to write off that entire layer of concern.
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I understand, Jody. The conversation took on a life of its own as the thread continued. I’m sorry if you sorta got mowed down by the change in direction, but I was interested in how the conversation mutated. I don’t think that anyone meant to dis you in particular for being thrifty. Just all of us in general for thinking that we can isolate ourselves from the coming ice storm.
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“Granted that growing our own tomatoes really did cut back on our grocery bill”
Did they, really? Didn’t Laura post that hers were a money waster? I’ve never been able to economically grow food (or sew clothes, or build furniture, or any of those things). When I try to make something, it usually ends up costing more than what it would have to just buy the thing.
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“…but neither does wrapping yourself up in a warm blanket of we’re-so-plucky goodness.”
The government is transferring hundreds of billions to the people who screwed things up in the first place. This is happening under the supervision of the people who were supposed to prevent things from getting too screwed up. And much of the money for the bailout is being taken from people who, in trying to avoid risk, kept their money in accounts barely pay interest greater than inflation.
If you think “plucky” is an unhelpful response (at least compared to the other likely responses), I’m not the only one with a failure of imagination.
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I think it is going to affect the academic community. The first to go will be those on temporary, untenured tracks (gulp). Then there will be a huge loss of college students, since student loans are not going to come easily. Small colleges may be forced to close (gulp). State colleges will be decimated.
Tim’s already done some thinking about this, as has Patrick Deneen on his blog, but more needs to be done. Laura’s right–some truly bad times may be coming. Small colleges, particularly small state colleges (I’m thinking especially of smaller units in the SUNY system, the UC system, branch campuses of the University of Michigan and Texas, etc.), have to great extent locked themselves into financial plans where leveraged growth and the desperate luring of students (who then get hit with rising fees to cover basic yearly costs) are their only options. When the credit for them to build those promised new dorms go, then the promised collateral of new income goes, so all the other loans go south, and the institution as a whole may blow away. (I tend to think that many small private schools may be able to hang on through bad times, if only because they are more likely to have some sort of core mission or selling point that they can fall back on if a lot of the students disappear, to keep at least a few of them coming back. I just don’t see some of these satellite campuses, even comparatively large ones, being able to do that.)
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Here’s the thing that I think is the fundamental disconnct between my view and yours (Timothy Burke’s).
From my perspective, it’s gas prices that are the killer; my brother-in-law spends almost 20% of his income just getting to work. The rest of the turmoil does less harm. DOW 5000 and gas at $2 would be far better for them than DOW 15000 and gas at $5. So everyone is worrying now–but in my world, the last 2 years have been horrible, and while it will get worse, it won’t get that much worse, I don’t think.
I’m lucky; my family makes close to the family median income, and we have health insurance, and we have savings. But my brother lives in a 25 year old trailer, my wife’s sister in a house with holes in the floor; my first memories are of a house/shack with no insulation and no indoor plumbing.
And maybe it makes me a cruel person, but I’d really like to see government employees stop getting better off while everyone else gets worse off. I’d like to see public schools where they cost 5% of median income per child, rather than 20%. Seeing things move in that direction isn’t change that upsets me.
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“I consider myself LUCKY, not GOOD. I grew up in far, far, FAR worse financial circumstances than the ones I experience now, so I realize on a daily basis just how good I have it. Truly I cannot believe my good fortune.”
I second that.
I don’t think that we’re going to have an extended downturn (more than four years), as long as the new president keeps his cool and doesn’t do anything dramatically stupid (like trying to inflate the US out of its difficulties). However, it’s arguable that an extended downturn would improve teacher quality (particularly in the sciences), since the pool of prospective teachers would be larger (unemployed chemists, engineers, programmers, etc.). I remember reading (I think in Gilbert Highet’s “The Art of Teaching”) that the Depression made teaching a much more attractive profession.
I’m not panicked about the economy since my husband and I have at least thirty years until retirement age. Until very recently, we didn’t do anything about money management or retirement (I know, I know–but at least we haven’t lost much). We haven’t seen a financial advisor yet to fine tune our plans, but as I understand it, we’re going to need two million dollars in savings. That sounds arithmetically impossible, but we do have thirty years to work with, and I would eventually be able to contribute nearly all of whatever income I make to savings. There are issues with our parents’ retirement, but hopefully we can avoid living like the family in “Charlie and the Chocolate Factory”. Short term, I think I should be most concerned about my kids’ private school, which is a pretty new venture, and survives financially due to large sacrifices by the administrators and staff. If a large enough number of families are no longer able to afford the $400 a month per child, will the school have to close, or would it have to go back to being a co-op? I don’t know, but I will be watching the class rosters.
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“So everyone is worrying now–but in my world, the last 2 years have been horrible, and while it will get worse, it won’t get that much worse, I don’t think.”
See, I just don’t think this is true. I for one, have cut way back on my casual spending (was it Wendy who asked if it was our patriotic duty to spend?). When I don’t spend, lots of people aren’t going to work.
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I have to say as someone with a very strong inner-commie that I’m really appreciating all the anti-rich folk discourse and the calls for regulation. Who knew that that the right was going to push us more to the left?
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Laura, I have a very weak inner-commie, but if the banks and finance companies are too big to fail, what choice is there but regulation? I’m fairly certain that much of the regulation will be pointless or actually counterproductive, but that’s pretty much beside the point now.
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To bring things back to Laura’s first point in this post, the markets are about to close about halfway to Jim Cramer’s week-opening 20% decline prediction – and it’s only Tuesday! So things should be safe by the end of the week.
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“it’s gas prices that are the killer; my brother-in-law spends almost 20% of his income just getting to work. ”
Or maybe it’s his commute or his choice of cars that’s an issue. My husband bikes the 6 miles to work most days, and I can usually make it 2 weeks on a tank of gas in my Saturn. One of the problems with suburban/exurban sprawl is that it was based on artificially low gas prices, I think, as well as the housing bubble.
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It will touch you, and if it is a profound enough downturn, it will affect you in very serious ways, no matter how careful you’ve been or secure you are in your own circumstances. Whatever things look like now around you, they will be worse.
Yes. But the question that Laura asked, and I responded to, was “Are you stressed?” This is a different question from “Do you believe yourself to be completely immune to the effects of the economic slowdown?” I am ok with things being worse because I believe it’s better for both my family’s long-run economic health and the health of the country as a whole, including the people my lack of stress seems to have convinced you that I have a callous disregard for. (If anything, it would seem callous to fail to acknowledge that I’m better positioned to ride this out — like I’m trying to glom onto the drama of a situation that won’t affect me as severely.)
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(I didn’t notice that this thread had gone on for two pages, so in other words, what Jody said at 1:51 PM. I feel like this post has been subject to the same revisionism as the “Hoopla” one.)
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“I am ok with things being worse because I believe it’s better for both my family’s long-run economic health and the health of the country as a whole…”
Yep. The following adjustments have to be made:
1. Either US consumption needs to go down, or US production needs to go up.
2. Housing prices need to get back in line with US wages.
3. The US economy needs to move beyond petroleum.
The sooner we get to work on this the better.
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This is how stressed I am. The 1 year income safety net is gone, because of my husband’s lay off in 2007. That year lasted us 18 months, and just barely. He has a new job, but is really underemployed. He is barely making more than he did on unemployment. My job is in development, it’s not a great time to be asking people for money, so I really question the long-term security of it.
Our kid’s college funds lost 10% of their value last month alone. I have a smart kid that will go to college in 2010. Very worrisome.
I haven’t looked at our retirement because I’m scared. We have a very diversified, conservative portfolio, but still I’m scared. It’s always been our safety net in the back of my mind. My in-laws who would always save our bacon are going to be really impacted. My father is retired, and if things are bad enough, may end up with us. Our house is paid off, but we have some other consumer debt we are working on.
We drive vehicles with over 100K on them. We conserve. Our indulgences are small and infrequent, and they are being cut. We have no huge vacations. We visit family. We might stay in a hotel 3 or 4 nights a year. We used to eat out once a week, but we’re even cutting back on that.
I’m stressed. I wish the bad economy were a MSM conspiracy. I wish it was the Bird Flu Panic. But I think it’s real. I think most of us are in denial about how much our daily lives will be altered. Or the course of our children’s lives. My grandfather was in the CC’s, and couldn’t continue his education. I don’t want that to be the legacy my children are looking toward.
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I think the college tuition issue is looming for us and maybe my main stressor.
If my daughter thought that she could borrow the difference between whatever expensive school tells her we should be paying and what we’ll actually be able to afford (I’d say the difference will be between $10 – 15,000 a year more than the 10 – 15 we expect to pay), there just might not be loans for her to take.
One less student at an expensive school. Good thing she got into the U yesterday.
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I have to say as someone with a very strong inner-commie that I’m really appreciating all the anti-rich folk discourse and the calls for regulation. Who knew that that the right was going to push us more to the left?
I appreciate it too, Laura, but the problem is they’re not calling it what for it is…and so long as the right–and indeed, all of us who have recognized how fragile and rickety modern financial capitalism is, but who personally just don’t know how we’ll live without banks that’ll let us refinance our homes–don’t own up to what we’re all talking about, refusing to call socialist policies for what they are, then we’re unlikely to properly implement them, or recognize the proper limits and strengths of what we’re trying to do.
In short, we need to let our inner commies out of our closets, and call them by their proper names. Like it or not, Henry Paulson and the bailout bill has introduced an unprecedented amount of socialist policy-making into the political arena. So let’s work with it. The door is open to a good deal more practical redistribution and regulation than has ever been likely in our lifetimes…but only if we can be up front about it, as opposed to treating well-connected bankers to a little socialism for the rich by the backdoor, pretending out the front door that nothing has fundamentally changed.
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And Laura, as long as you’re enjoying the calls for more regulation, let me share two interesting pieces whose perspectives will hopefully be considered by those who will enact the upcoming regulation (no, I don’t expect it either):
Some thoughts on the current alleged environment of “deregulation” and what it means (and the first comment as well),
and some musings on risk management from the former general counsel of Long-Term Capital Management, who has (put mildly) some first-hand experience with what we’re seeing here.
(I read a good book on LTCM over the weekend to get into the right frame of mind.)
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i’m moderately stressed. personally, we’re probably in better shape than what i fear (because i worry that way). most of our investments at this point are in the form of commercial real estate which, while should be safer than the stock market in the short term, would certainly be affected if there is a massive depression and businesses fail all over the place. there won’t be anybody to rent tenant space in our buildings if there aren’t any businesses around.
still, my husband’s profession is such that he should always be able to earn enough to feed and clothe us, plus he’s a good hunter and gardener and there are lots of deer in the forest around here. my job? i don’t know how secure it will be – again probably better than i fear. but my profession is very heavily dependent on the vagaries of the market, so there’s that.
i’m kind of freakish about this because my parents were both very poor children during the first great depression – neither of them had running water, electricity, or enough food to eat. i grew up hearing their stories and was always terrified of another depression. they promised me i needn’t worry because the government had passed laws ensuring that banks couldn’t do the things they did to cause the first one.
::sigh::
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On “freecycle” (the free exchange email/bulletin board), I’m noticing a lot more “taken” and “wanted” and a lot fewer “offered” posts. I think there’s a massive reorganization of behavior going on right now.
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I’m noticing a lot more non-college students, non-yuppies (i.e. poor folk) riding bikes on the road.
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I’m moderately stressed. Both of us have reasonably secure jobs (as software goes), and low fixed expenses. We’ve been looking to add onto the house, however, and have seen home equity loan rates move from 5.3% to 6.9% in two weeks. At this point it almost seems prudent to wait for the credit market to settle down a bit and pay the initial construction expenses from cash savings. We may scale back/eliminate construction if things don’t improve a bit.
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Hey, anybody else here have a bank note with eleven zeros on it?
I’ve got one, and it’s not even twenty years old. I’m not sure I can put my hands on it, but it’s a hundred billion Yugoslav (Serbia and Montenegro, at that point) dinars from 1994.
Tim’s right that in those kinds of circumstances individual prudence with managing money doesn’t count for much. The main thing is sensible political leadership before things get that bad.
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How about just not printing the money? That’s all the “sensible political leadership” you need to avoid hyperinflation. (That said, I realize that deflation is worse than inflation.)
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On “freecycle” (the free exchange email/bulletin board), I’m noticing a lot more “taken” and “wanted” and a lot fewer “offered” posts. I think there’s a massive reorganization of behavior going on right now.
I can confirm that. My wife and I recently cleaned some old furniture out of our garage, listed it on Freecyle and we were overwhelmed by requests. Dozens of people begging for our babyseat, or old crib. We didn’t have to compete with anyone to give this stuff away.
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“Hey, anybody else here have a bank note with eleven zeros on it?”
Not unless you count the serial number.
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If the Dow goes below 9000, I think I’m going to actively start looking for a new political elite.
If they can’t keep the stock market from crashing or balance the budget or keep a functioning financial sector or shift the Supreme Court, what is the point of the Republicans? As for the Democrats, after five years in Pittsburgh, the only thing the Democrats have convinced me of is that the mob isn’t the worst thing that can happen to organized labor.
I thought about going into anti-elitism for a while and I just can’t make it work. I may not know the price of arugula at Whole Foods, but that’s only because I don’t see the point of looking at arugula when you have a few dozen cheeses to choose from.
I haven’t decided exactly what I’m looking for in an elite class. But, here’s the start of my criteria:
1. Instead of saying “There’s a crisis, we need to act now” it should be “There’s a crisis, lets slow down before we make it worse.” (Crises involving actual existing nuclear weapons excepted.)
2. No arguing for your point of view by saying this is how they do things in Europe. This is mainly a tactical point. First, that’s how Zamphir (master of the pan flute) was advertised. Second, I’m fairly certain that years of hearing this type of argument mostly just makes people dislike Europe.
3. You have to be able to use the word “penultimate” correctly or not at all.
4. Any resemblance to Theodore Roosevelt is appreciated.
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If the Dow goes back above 10? Do the political elite get a reprieve?
Also, it’ not fair to judge all Democrats by the Democrats in Pittsburgh.
I know my opinion will be seen as biased, but I do, honestly, feel like Obama is the man to manage this crisis. I think he is measured, careful, smart, and cool. I think this crisis is a complex one, for which simple solutions aren’t going to work, and that he’s the one to spearhead them. I chose Obama as my candidate in different times, but I’m not worried about the choice now.
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this is completely off-topic, but jody, if you’re still reading, my grandparents homesteaded in the great plains in 1910. i have a book made from tapes that they made (during the 1970’s) wherein they talked about their experiences and lifestyle. let me know if you’d like to email me about it. it may have information that would be helpful to you in your scholarship.
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“2. No arguing for your point of view by saying this is how they do things in Europe.”
Not least because the European stuff is going to be very selectively chosen, by whichever side. Soccer hooligans, state churches, nuclear power, school choice, and citizenship by ancestry rather than place of birth are all European phenomena.
Oh, and mark me down as very displeased with McCain’s plan of buying up bad mortgages. No check for you, Maverick.
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In the original post, Laura mentions layoffs at ebay. We are in for at least a recession, but I’m not sure that I would use ebay as my poster child, since ebay has been annoying its customers lately.
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Oh, and mark me down as very displeased with McCain’s plan of buying up bad mortgages. No check for you, Maverick.
No kidding, Amy. Give me a break! Defender of some kind of quasi-populism/socialism I may be, but allowing the federal government to decide on its own the value of your home and reconfigure your monthly mortgage payment accordingly is the very definition of a moral hazard. (Our next-door neighbor—the one who hasn’t mowed her lawn since July—would love it.) I wanted a more honest and aggressive response to the crisis myself, but even with my Swedish-route dreams, the focus would be on making the government’s economic involvement more democratic and direct (i.e., government as your new banker or, in this case, mortgagee). The goal is still introducing some sense and accountability into the mortgage market. But rather than dealing in mortgage-backed securities, McCain’s proposal would go after the mortgages themselves. I can’t begin to imagine what kind of bureaucracy would have to be created (and funded) to buy, refinance, and service millions of loans. It’s madness.
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In related housing news, I was chatting last night with two other renters in our faculty neighborhood, which is supposed to be destroyed in the next couple years so that the college can build stuff. Both were former homeowners (one had recently done a short sale up North), and both said that they were going to stay in their current rentals until they get kicked out.
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“Not least because the European stuff is going to be very selectively chosen, by whichever side.”
Hey, Amy & I agree on something. I think we should look to the European’s for examples, but I think there’s a pretty terrible tendency to pick the parts we want, and not the parts we don’t (and I’ll admit, it’s my liberal cohort that I see this more clearly about). Yes to family leave, but no to nuclear power being a good example. Things are not better ’cause the European’s do them that way.
But, seeing that we may have something to learn from the way others do things is a good value, not a bad one.
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“But, seeing that we may have something to learn from the way others do things is a good value, not a bad one.”
Off topic, my nephew is spending this fall of his third grade year in a small town German school, and it sounds like he’s learning a lot more than he did at his crummy (a 3 on greatschools.net) small town school in Washington State. From my point of view, the Germans are on the right track pedagogically (although they can keep their fountain-pens-for-elementary-kids stuff to themselves), but it’s bittersweet being right, since it means that my nephew and his parents may eventually stay in Germany for good.
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“Also, it’ not fair to judge all Democrats by the Democrats in Pittsburgh.”
I have other problems with the non-local Dems, but the local ones are always on my mind. Right now, they’re playing chicken over the public transit system.
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I was just looking at Jonah Goldberg’s Liberal Fascism blog, and he has a piece from four years back about some UCLA economists calculating that FDR’s efforts in artificially raising wages and prices made the Depression last 7 years longer than it would have otherwise. That’s something for our political leadership to bear in mind when trying to steer through recession and avoid depression.
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx?RelNum=5409
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Amy’s on a quest to leave no far-right one-paragraph talking point from some half-baked pundit uncirculated. The argument about the effects of the New Deal on the Great Depression is, oh, only about a zillion monographs wide and maybe just as many deep. Before just dropping all round the Intertubes based on having read it via Jonah Goldberg’s funhouse-mirror cartoon-strip clownshow vision of history, you might want to look it up a bit more.
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In these troubled times, it seem worthwhile to mention that artificially supporting prices and wages is an economically dangerous move, even if the wrong person is making the point. (Of course, this may only apply to a deflationary environment.)
You’re welcome to make the argument that artificially supporting wages and prices was a good move, or that that’s not what FDR and Hoover were up to. But you have to make the argument.
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DOW < 8600.
I'm off to start my quest for a new political elite. I'm either going to buy Douthat's new book or go to RAF's blog and read one of the posts clear to the end.
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Amy, the issue you raise is one that is almost the most heavily studied in economic history, and while there is considerable debate, the view you cite is far from the common or orthodox one. Saying that you can drop an ill-digested link obtained from a historically illiterate source and say that this is somehow a novel venture into untrodden territory to which everyone else is obligated to respond with a fully fleshed out argument is, if we’re going by dinner-party rules, rude. If I’m at a dinner party and I meet up with a physicist and I say to him, “Hey, I’ve saw on some website somewhere that the Big Bang theory is almost certainly wrong…the ball’s in your court, isn’t it, until you can prove otherwise to me”, I’m being kind of a dick.
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Tim, I’m interested in your comment. I kind of think of Jonah Goldberg as somewhere between Barbara Tuchman and David Irving, that is as a spectrum of not-quite-respectable and a little bit resented by ‘real’ historians shading to full-blown loony tendentious apologist-for-evil. Or think about Doris Kearns Goodwin, swooping into territory which Lincolnists thought was their own and capturing huge attention.
Another guy who was no respecter of turf was Isaac Asimov, writing his best-seller guide to Shakespeare, damn him!
Getting people engaged in thinking about history and what it can do for us is generally a good thing, I think. I took a very interesting course once called Uses of History, by May and Neustadt, the profs suggested that we can get in a lot of trouble by using inappropriate historical analogies. Haven’t read Goldberg, but I’m inclined to think it’s swell when someone makes history part of current discourse, and (from reading a lot of his old columns) he seems closer to Tuchman than Irving. Your mileage may differ, but I’d like to know why in some more specific way than ‘funhouse-mirror’
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Well, look at this thread at my own site, http://weblogs.swarthmore.edu/burke/?p=471. Or many other even more detailed responses by scholars to Goldberg’s book Liberal Fascism. As I say in the comments at my own blog, there are certainly variations of Goldberg’s argument that could work as reasonable historical argument–I think James Scott’s Seeing Like a State makes an argument about high modernist state planning and cosmpolitan elites that you could see as vaguely resembling Goldberg. But Goldberg’s book is honestly just bad and stupid–eventually even one of my very far-right commenters, who I have a lot of respect for and who clearly agrees in broad outline with Goldberg’s views, had to agree after reading the book that it is really just a bad piece of work.
I especially don’t see him as anything like Tuchman, and I’m frankly vaguely peeved to have that particular stunt pulled on me. One of the basic thrusts of my own blogging as a historian and scholar is to argue that scholars need to write in a much broader, more communicative way far more often, and that someone like Tuchman is a great model. Tuchman has an eye for complexity as well as simplicity, particularly moral complexity. She just writes about it clearly. She’s not cutting off history’s limbs in order to make it fit some kind of narrowly partisan bed, and not willfully ignoring what we actually know about the past in order to deliver some just-in-time bit of political hackery.
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