Matt Yglesias

49 Responses to “By Request: Can I Foresee The Future?”

1. James Gary Says:
   December 24th, 2008 at 11:59 am

   I’m not really sure this hostile tone comes from. I’m also not really sure how I’m supposed to know how bad things will get.

   N.B.: Acknowledging one’s hecklers is bad enough. Getting defensive about their comments can only be ultimately fatal.

2. Benny Lava Says:
   December 24th, 2008 at 12:01 pm

   A lot of people have been comparing this recession to Japan’s lost decade. Many pundits have asserted that America’s situation is vastly different than Japans, and that we couldn’t possibly suffer as they did.

   I’ve read that, during the heyday of Japan’s bubble, the real estate value of Tokyo was roughly equivalent to all of the US. Certainly it had a long way to go, and the response of the LDP was fairly anemic. Remember that Japan cut interest rates to zero and that wasn’t effective.

   I’ve argued on angry bear that the Fed’s ability to control economic growth via interest rates isn’t very robust. You admit that you still haven’t unraveled Japan’s lost decade, but perhaps we could explore that one aspect for a moment?

3. G C Says:
   December 24th, 2008 at 12:06 pm

   When is it going to occur to you and most that the economic crisis is the most important story of their lives?

   Climate change and Peak Oil are both more important. In fact, the economic crisis will be most important in the way it facilitates and constrains rational policy response to the ecological crises that will be determinative both the next few decades of policy and the long-term prospects for the human race.

4. SFHawkguy Says:
   December 24th, 2008 at 12:07 pm

   I understand that the hostile tone may not be effective but I share some of Rapier’s anger. Myself, I try to not get “angry” during political discussions but I find that I can’t always control my emotions. This is especially true for me when discussing America’s foreign policy; real people are getting their bodies ripped to shreds and hundreds of thousands of lives have ended or been destroyed and the guilty go free and indeed are rewarded.

   The anger on the bailout may strike some as misplaced or odd but I too find myself getting angry because of the gross injustice that too few have recognized. I too share the belief that the bailout and the corporate control of Washington is highly immoral and will end up being almost as much of an injustice as the Iraq war It is also VERY FRUSTRATING for people like me (and Rapier it seems) that really believe this is incredibly unjust and will have very severe consequence to see our putative allies, like you, ignore and belittle our belief in the severe moral abomination we believe these economic policies to be. I’m not saying you personally have belittled those on our side of this debate (I haven’t followed you that closely) but our concerns have not been recognized in establishment Washington and it makes it even more infuriating to see one of the few places we can turn (liberal blogosphere) side with the forces of injustice. In fact, it appears some conservative Democrats are once again perpetuating the injustice by siding with the conservatives (they have for the last 15 years or so on economic matters) and using it as a political opportunity to smack those to the left of them. That’s where the anger comes from.

5. G C Says:
   December 24th, 2008 at 12:08 pm

   The missing “of” after “determinative” in my last comment is the biggest story yet.

6. Rarely Posts Says:
   December 24th, 2008 at 12:11 pm

   One thing has amazed me over the last few months. The complete absence of any real plan to regulate and transform the financial industry and banking community. It’s clearly in real trouble, it looks like the last twenty years of deregulation created or helped create this problem, and yet no one has come forward with a plan to address these failings with an eye to future. It’s shocking. As far as I can tell, there is no organized policy group or political movement to actually address the underlying problems.

   Although I am prepared to believe that we will see a transformation in social norms, we really do need a transformation in both financial and corporate policy in America. But, as far as I can see, we really don’t have anyone making any suggestions about how to transform the law. Everyone just keeps saying that we’ll worry about it later, but if we’re going to do anything, it probably should be soon.

   Am I just missing something?

7. thompsaj Says:
   December 24th, 2008 at 12:21 pm

   I agree – it’s not like there’s an objective but secret answer at this point to “how bad will it be?” hiding behind a door somewhere. Economy emerges through the choices individuals make, and the way these individuals view the choices before them influence which choices they make. And the choices are made in response to events in time which can’t be predicted.

   Regarding a remaking of the global political economy, it would seem almost inevitable at this point. When the leading lights of the washington consensus basically throw up their hands and say they found a “flaw” in their free-market ideology then it’s clear that, at least intellectually, the foundations of postwar American prosperity have never appeared more shaky. I’d be interested to hear more on Matt’s idea of a radical social shift being catalyzed. Which direction do you think it would swing? I could see there being enough disaffected people for real progressive institution building around transportation, energy, and the economy; on the other hand there’s no reason to think that the powerful players in industry and government would meaningfully change the system to their disadvantage unless everyone’s back was really against the wall. Which may be where we are. As Brandt says, “well, dude, we just don’t know.”

8. Christopher Colaninno Says:
   December 24th, 2008 at 12:22 pm

   Only guessing about the hostile tone, but personally I find a lot of analysis to be unduly shallow regarding the economic downturn.

   There’s real suffering, real questions about this being a fairly permanent state of affairs, parallel problems with energy and environment that some folks seem determined not to address, and you get a lot of people posting a chart saying something about past downturns like they’re talking about Tony Romo’s fantasy performances over the last few games played against the Giants.

9. Dan Kervick Says:
   December 24th, 2008 at 12:37 pm

   It sounds like Rapier has some very definite ideas about just how deep this recession is going to be, and believes that the gravity of the situation is being under-reported. If he cites some sources for his opinion, we can take a look at them and discuss them.

10. Becca Says:
    December 24th, 2008 at 12:47 pm

    These are revolutionary times in all senses. It’s the end of the world as we know it and i personally don’t feel fine about it.

    The scariest thing is the realization that world leadership has failed in so breathtaking a fashion. Government leaders, economic leaders, business leaders and religious leaders are one giganto failure in confronting global problems. When I say I could do a better job than any of them , I’m not bragging.

    This all seems to be willfully ignored, how historic all this is, and dangerous. Maybe it’s a natural defense mechanism for many, but that’s equally dangerous. Complacency is what got us here.

    On that note- Happy Holidays!

11. Don Williams Says:
    December 24th, 2008 at 12:48 pm

    Re Matthew’s comment “What I will say is that I have a hunch that on the other side of this we’re going to see a substantial transformation in the structure of the political and economic system.”
    ————
    hee hee hee. It may be more fucking “Tranformational” than you think.

    From a recent paper at the US Army’s War College:

    “As a community, the defense establishment swears to protect and defend the constitution against all enemies foreign and domestic. DoD’s role in combating “domestic enemies” has never been thoughtfully examined. Thus, there is perhaps no greater source of strategic shock for DoD than operationalizing that component of the oath of service in a widespread domestic emergency that entails rapid dissolution of public order in all or significant parts of the United States.
    While likely not an immediate prospect, this is clearly a “Black Swan” that merits some visibility inside DoD and the Department of Homeland Security. To the extent events like this involve organized violence against local, state, and national authorities and exceed the capacity of the former two to restore public order and protect vulnerable populations, DoD would be required to fill the gap. This is largely uncharted strategic territory.
    Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order
    and human security. Deliberate employment of weap-
    ons of mass destruction or other catastrophic capabilities,

    unforeseen economic collapse,

    loss of functioning political and legal order, purposeful domestic resistance or insurgency, pervasive public health emergencies, and catastrophic natural and human disasters are all paths to disruptive domestic shock.”
    ———–

    First they came for the hairy-assed Muslims. And I did nothing –for I was not a hairy-assed Muslim….

12. Don Williams Says:
    December 24th, 2008 at 12:51 pm

    Here is the War College paper from which the above quote was extracted:

    http://www.strategicstudiesinstitute.army.mil/pdffiles/PUB890.pdf

13. Dan Kervick Says:
    December 24th, 2008 at 12:55 pm

    The answer to that questions depends in part on what policymakers around the world decide to do, and I have no idea what they’ll do.

    One question we could ask here is just how extensive are the aggregate global losses, how much is still at risk, and how great is the combined power of the world’s government treasuries and central banks.

    And how stable is the global currency regime?

    One problem we often face during economic hard times is that the same people who are charged with analyzing, understanding and reporting on Economic Reality also have a large stake in economic health, and a substantial measure of influence on public opinion. They may then arrogate to themselves the paternal role of promoting confidence, and fail to report bad news so as not to create a panic. Whether or not this is a justified course of action, in contributes to public confusion, ignorance and frustration.

    The possessors of information also sometimes have an interest in hushing up problems with the institutions handling their own personal or business investments, at least until they are able to cash out.

    Although one can’t say that the story has not been reported, my guess is that we are not getting the straight dope on the fallout of the Madoff debacle.

    I wonder how well we understand the scope of the global issues so far. Right now, the dominant story is that this is all a by-product of the real estate bubble, and the financial instruments that were created to profit from it. But there are systemic global economic interrelationships, interdependencies and vulnerabilities of which I don’t think we have yet achieved a clear view.

14. Khaled Says:
    December 24th, 2008 at 1:05 pm

    I don’t know if this is the right spot to offer further reader requests, but here goes:

    What are your thoughts on Michael Ignatieff, the new leader of the Liberal Party of Canada? Any funny Harvard stories about him you’d care to share?

15. Ethel-To-Tilly Says:
    December 24th, 2008 at 1:18 pm

    When is it going to occur to you and most that the economic crisis is the most important story of their lives?

    In Great Depression terms, this is still early 1930 – it took quite awhile longer before it occurred to the folks back then that the economic problems were .”the most important story of their lives”

16. serial catowner Says:
    December 24th, 2008 at 1:36 pm

    Since WW II the US has used a fantasy- laissez faire economics and capitalism- to explain our situational good luck and accretion of material goods. This, and the relentless attacks on government and unions, have left us relatively lacking in the elements of government.

    This was especially noticeable in the case of the Republicans this year. They simply didn’t have any good people. 8 years of Bush had created a felon class scuttling for the basement instead of a vigorous party with many leading lights.

    The good news would be that Americans have been flying around the globe like crazy, and seeing is believing. So we have a lot more visual proof that other countries exist and that other solutions can work.

    The economic shock is only to be expected when an entire society has invested in the concept that gasoline will always be cheap and abundant. Just imagine what would be missing from today’s landscape in an America of $5/gallon gas. That will be the shakeout for this convulsion of the economy.

    It will at least be interesting.

17. allbetsareoff Says:
    December 24th, 2008 at 1:53 pm

    This may be a heretical link for the blogocentric, but Tom Friedman has a good economic-social-cultural overview of where we are and where we might be in today’s NY Times:

    http://www.nytimes.com/2008/12/24/opinion/24friedman.html

18. rupert Says:
    December 24th, 2008 at 1:58 pm

    And we were just becoming convinced that the ‘57 Giants-Colts game was the biggest story of our lives….. well… those of us who were around then.

19. Persia Says:
    December 24th, 2008 at 2:01 pm

    For that matter, many people who lived through 1929-1945 might have thought the economic problems were still not ‘the most important story of their lives.’ A lot of things are going on.

20. Flo Says:
    December 24th, 2008 at 2:46 pm

    Only guessing about the hostile tone, but personally I find a lot of analysis to be unduly shallow regarding the economic downturn.
    So we can’t just blame it all on Barney Frank?
    Frankly, most of us have only a shallow understanding of the world economy, so if we hear something that sounds good, well that’s good enough.

21. pseudonymous in nc Says:
    December 24th, 2008 at 2:46 pm

    “When you lose your job, it’s sad. When I lose my job, it’s the end of the world.”

    Friedman’s piece is a wee bit globollocks, but there’s definitely a sense in which the US has a certain shabbiness about it that reminds me of how large parts of Dublin in the mid-90s looked a lot like they belonged in the 1970s, compared with five years later when the Celtic Tiger thing had kicked in.

22. Colin Laney Says:
    December 24th, 2008 at 3:03 pm

    The problem with all comparisons between the present situation and the Great Depression is that the US is going into this economic decline enormously wealthier than it was 70 years ago. The per capita income of the US the year before the Great Depression was lower than the per capita income of Mexico today.

    Accounts based on the lifestyles of the relatively well-off urban middle class miss this. Both of my parents were small children in 1929. Neither lived in a household with a telephone, refrigerator, or automobile. My father didn’t have electricity or running water. Millions of Americans lived that way in 1929; few do today.

23. linus Says:
    December 24th, 2008 at 3:16 pm

    Inflation remains low, unemployment less than what it was in the last significant recession (the early 80s), and while a skeptical and critical distance is always required with politicians they seem to get the need to do something in a timely way.

24. soullite Says:
    December 24th, 2008 at 3:22 pm

    Whats amazed me is the complete lack of acknowledgment most pro-bailout bloggers that it didn’t work. People still can’t get loans. The changes that they swore up and down would keep the money from going into the banks coffers or executive pay didn’t do it at all, and those of us who opposed the bailout told them it wouldn’t. So they ignore us, and argue against strawmen that didn’t think the government should do anything. At all.

    For the Ezra Kleins/boomans/Kevin Drums of the world, they are behaving exactly like the Iraq war proponents, which most of them were, did. They were wrong, but for the right reasons, so they think it’s okay to lie about what the rest of us believe. Hell, they think it’s okay to disappear the whole incident down the memory hole, pretend that everything worked out fine, or appeal to the idea that they magically know that things would have been worse.

    The truth is, they were wrong. We told them at the time that they were wrong, but they think we’re just dirty hippies and that men of their class always knew right. Hell, I remember booman coming right out and saying that because we’re not wealthy investors ( we don’t ‘own anything’) our viewpoint didn’t matter.

    With so-called progressives like these, who actually needs plutocrats?

25. soullite Says:
    December 24th, 2008 at 3:29 pm

    Colin, you make a major mistake that a lot of people make. People view this sort of thing through a prism of comparative positions. Because most people are a lot richer now, it will actually take LESS hardship for them to start freaking out and becomming desperate. If you plopped a peasant from the middle ages into the middle of the great depression, they would immensely satisfied with their lot in life. That doesn’t prove that things were going great for people back then, it proves how shitty things were in the middle ages.

    To put it simply: there is no absolute value to this sort of thing. There is no set point at which things get scary and dicey. It’s all relative to the persons previous condition. If a society is used to starving, a bread riot won’t be a precursor to revolution. If people are used to eating steak every day, watch out if they suddenly have to subsist on potatoes.

26. wiley Says:
    December 24th, 2008 at 3:58 pm

    Remember that assessment of the banking crisis Yglesias or TP linked to a couple of months ago? It stressed the importance of a global approach to the crisis so that nations did not save themselves from the worst by leaving other countries holding the bag. I haven’t heard much about the global nature of the banking crisis and efforts to deal with it as such.

    I think the Great Depression itself may have been more global than is acknowledged. The Austrian banking system collapsed shortly before the b.s. in the U.S. did, but most analysis of the G.D. is presented as if our economy were hermetically sealed.

27. JonF Says:
    December 24th, 2008 at 4:10 pm

    Re: People still can’t get loans.

    Change that to “people with iffy credit still can’t get loans” and it will be correct. People with good credit can still get mortgages, car loans, credit cards etc. What we are seeing is the restoration of sensible standards in the credit market so that we are no longer handing out money to everyone with a pulse. In the long run that’s all to the better, though like a nasty hangover after a lengthy binge its going to hurt for a while.

    Re: it will actually take LESS hardship for them to start freaking out and becomming desperate.

    I’m not sure I agree. The number of supposed “necessities” we can do without in a pinch is fairly large. I was just saying today “How did we once upon a time live without cell phones or the internet?”. But of course we did live without those things, and I even recall doing so in the not all that distant past. Shutting off your cable may make you grouchy, but it hardly engenders the degree of desperation that being hungry or homeless would.

28. jmo Says:
    December 24th, 2008 at 5:09 pm

    soullite,

    Can you please elaborate on who can’t get loans? Thousands of mortgage brokers are working through the holidays to process the millions mortgage refi applications. Hundreds of thousands of applications are being improved every day.

29. jmo Says:
    December 24th, 2008 at 5:09 pm

    soullite,

    Can you please elaborate on who can’t get loans? Thousands of mortgage brokers are working through the holidays to process the millions mortgage refi applications. Hundreds of thousands of applications are being improved every day.

30. bob mcmanus Says:
    December 24th, 2008 at 6:47 pm

    on the other side of this we’re going to see a substantial transformation in the structure of the political and economic system.

    You think this is what Larry Summers, Robert Rubin & Tim Geithner want? A “substantial transformation in the structure…?” You think Obama appointed them instead of Stiglitz or Galbraith because Obama wants a velvet revolution?

    You think you have hostile commenters yet?

31. Richard Steven Hack Says:
    December 24th, 2008 at 10:19 pm

    “N.B.: Acknowledging one’s hecklers is bad enough. Getting defensive about their comments can only be ultimately fatal.”

    You should have read Matt’s emails to me. He practically begged me not to give him a hard time.

    Like I said earlier – whiny ex-college student.

    Actually, though, there’s no reason to expect Matt to know how bad things could get. He’s generally ignorant about most subjects he blogs about, with the possible exception of transportation issues which appears to be his specialty.

    There are plenty of doom and gloomers around one could ask, who have a pretty good idea of just how bad things are.

    Illusory dollars for a real crisis
    http://www.atimes.com/atimes/Global_Economy/JL25Dj06.html

    If the financial system as a whole is working properly, if it has a mind to, the money dropped out of the Fed’s chopper can act like the seed corn for a bountiful new crop of economic activity – the banks will take it and multiply it many times over to meet the needs of a growing economy. But that hasn’t happened this year. Currently, a very large black hole has opened up beneath the chopper, swallowing up everything that Ben, and for that matter US Treasury Secretary Henry Paulson as well, drop into it. After that, it seems like the money is never seen or heard from again.

    When I was a young sprig taking economics classes – “Oh,no!” you must be thinking. Not another “when I was young” story! We’ll hear enough of those when we go to the grandparents for holiday dinner – the study of economics through the lens of the money supply and its fluctuations was called monetarism.

    It was not popular at the time; it was mostly confided to a small circle of Milton Friedman’s sniveling, groveling toadies at the University of Chicago. I don’t think that any of my professors ascribed to it; they were all dyed-in-the-wool Keynesians, true believers in John Maynard Keynes’ post-World War II theories that governments could modulate the ups and downs of economic activity through either increasing or decreasing spending and/or taxes.

    The US government ran a $400 billion deficit in the fiscal year that just concluded, and is on track to run a $1 trillion or more deficit in fiscal year 2009. Most other industrial countries, even including China (but with the notable exception of Germany) are busting through their budgetary restraints as well. Still, unemployment is rising, and will almost certainly continue to do so in the new year. To paraphrase Ricky Ricardo (Desi Arnez) admonishing his wife Lucy (Lucille Ball) when she got into a pickle on the old CBS TV situation comedy I Love Lucy, “Mr Keynes, you got some ’splainin’ to do.”

    Perhaps it is time to take a new look at monetarism, but, as I said above, what is going on currently is not a standard monetary event. The economy is not being starved for credit due to a tight Federal Reserve interest rate and/or money supply policy; short-term interest rates have hit zero, and the money supply is billowing. The Fed has opened a veritable fire-hose of liquidity onto the economy; still, the conflagration burns on.

    But what 2008 proves is the absolutely central importance of focusing on the financial system as the intermediary, the transfer mechanism, between the central banks and the economy. It is in the financial system cave where the deleveraging beast lurks.

    I’ve explained what is happening many times. Starting with loans on subprime mortgages, borrowers default. Banks take losses to their capital positions from the defaults. It is the value of the banks’ capital positions that determines how much in loans the bank can have outstanding – capital declines, so new loans don’t get made, old lines of credit and loans get cut and called. This further starves the economy of funds, more borrowers default, there are more hits to bank capital reserves, and down and down we go.

    On Capital Hill and in the media, elected blowhards and prettyboy blow-dried newsreaders squawk on and on about how little (or none ) of the hundreds of billions, by some measurements trillions, of recent government assistance is being used to make new loans. Of course it’s not; every penny the banks are now getting goes directly to fill the holes in their Tier 1 capital ratios, ratios that then get promptly blown out again when more loans go bad.

    On a recent conference call, Goldman Sachs suggested that up to 20% of corporate bonds may default in 2009. That would be an incredibly negative and unprecedented event; who knows, it actually may be so serious as to drive the saga of missing Florida toddler Caylee Anthony off the lead in the cable news shows.

    Now, the situation is like one of those alien invasion movies. The world’s conventional military forces have had their keisters kicked from Alaska to Zambia, so the planet’s only hope then seems to be with the US Air Force dropping The Big One on the baddies. Currently, The Big One is represented by the huge, $1 trillion or more (probably more, considering the pork add-ons Congress will most likely apply to the endeavor) fiscal stimulus package Barack Obama hopes to get passed in January.

    But never let it be said that I’m leaving you all dejected and depressed for the holidays, for I do have this one bit of holiday cheer. As the government bailouts and new central bank lending facilities piled up this autumn like brightly colored leaves, by one estimate, over $7 trillion in new government spending and Federal Reserve lending commitments just this year, some observers looked at the huge amounts being thrown at the problem, without a whole lot of seeming success, wondered what better use could the funds have been tasked to do.

    Global poverty could have been fought, the worldwide scourge of HIV could have been addressed. Americans could have been provided with healthcare or college educations or the latest in fuel efficient cars; in Texas, some really extraordinary secondary-school American football stadiums could have been built. After all, by some estimates, the “cost” of waging financial war in 2007 and 2008 has exceeded, in real dollars, the amount the United States spent to fight World War II, the Marshall Plan that rebuilt Europe after it, Vietnam, and the Apollo moon program – combined.

    No, it hasn’t – not really. In reality, almost none of that supposed $7 trillion has been real dollars. The Marshall Plan and the Apollo program were examples of real spending; they were spent on rebuilding railroads and bridges in Europe, and on pocket protectors in Houston. In contrast, when the government or Federal Reserve “spends” money on bailouts, all that happens is that some buttons are pushed on trading desks, government accounts are debited, and the Tier 1 capital accounts at some bank are credited. None of it’s real; that’s why those who say that all this government spending on financial bailouts will soon breed hyperinflation have it so spectacularly wrong.

    In the meantime, I’d say jobless claims being the highest in 26 years is pretty much an indicator that things aren’t normal. And anybody who thinks that isn’t going to get bigger over the next year is a fool. Even if Obama plows a huge stimulus bill through, the reality is that it will take a year to have any significant effect. And if other things go wrong, the entire effect of the first stimulus could be wiped out, requiring another one.

    Linus: “unemployment less than what it was in the last significant recession (the early 80s)”

    Check yourself, homes. It’s now up to the largest in 26 years, according to UPI and The Washington Post:

    Jobless claims hit 26-year high
    http://www.upi.com/Business_News/2008/12/24/Jobless_claims_hit_26-year_high/UPI-74251230158703/

    First-time claims for U.S. unemployment insurance jumped by 30,000, reaching a 26-year high during the week, the U.S. Department of Labor reported Wednesday.

    So, as I said, now things are where they were in 1982 – and next year they will be worse, because nothing is solved yet.

32. Jake in Milwaukee Says:
    December 24th, 2008 at 10:56 pm

    I do wish people would stop comparing this to Japan. This situation is nothing like Japan. Like, at all.

33. Cyrus Says:
    December 25th, 2008 at 12:13 am

    I’m going to be contrarian and predict that this actually won’t be that big a deal. Bigger than the 1982 recession and maybe the Great Depression in terms of numbers, maybe, who knows. But I really doubt it would cause any “substantial transformation” for society.

    This recession won’t debunk laissez-faire capitalism or de-federalize the American economic system, because the first Great Depression already accomplished both of those. Something like 80 percent of Americans agree that at least some meaningful degree of regulation and centralization are necessary, and the only points of debate are how much and for whose benefit. As for the remaining 20 percent, you can get more than 20 percent of the country to agree to anything, whether laissez-faire capitalism or feudalism or believing that the moon landing was a hoax. Unanimity isn’t going to happen. This recession won’t destroy the mentality that we can live on credit, either. It may diminish that way of thinking a bit, but the biggest cause of it was the advent of credit card technology, and the cat’s out of the bag on that one. Will less money force people to be more interdependent, with closer family and neighborhood bonds and stuff? Maybe, it’s very hard to say.

    As far as societal change goes, I think the best we can expect or hope for is the discrediting of the individuals and organizations that are now promoting Hooverite policies. Which would certainly be nice, but nowhere near the transformation you seem to expect.

    What were those differences in “mores and social norms” between pre- and post-Depression America, anyway? Great frugality in the children of the Depression, sure. And it hastened existing trends in population shifts, with the whole “grapes of wrath” thing.

34. rapier Says:
    December 25th, 2008 at 7:01 am

    The hostile tone was an exasperated one, as Glen Greenwald’s is to torture.

    It isn’t that Matt nor any mainstream observer should foretell the future it’s that they have no clue about the actual foundation of the present economic moment. A foundation set entirely upon credit. A towering mountain of credit the likes of which the world has never seen. Orders of magnitude beyond the imaginings of anyone 40 or 400 years ago.

    The credit bubble is our culture. Culture being all those thousands or millions of little things we don’t understand so much as just accept as givens.

    Our credit, our money, are complex abstractions. No more solid than clouds. Based upon rules which have now all been cast aside in order to save the ones who inflated them to towering heights, for their own profit.

    Peak oil and human forced global warming are the results of our age of economics. Our age of endless unlimited credit and consumption. Credit expanded at a blistering pace in the final blow off phase which one might date from 1980 or 1992 or 2001. The slope of each going more vertical. The final final phase was pure Ponzi. New credits demanded to pay off the old, as the ability to pay the debt off from earnings and profits became impossible. That is what this ‘credit crunch’ is all about.

    The system cannot be put together again. Certainly not with more credit, provided by desperate governmental and quasi governmental authorities. Those being the Treasury and the Federal Reserve. Well so I say, some schmuck on the internet. How it will devolve cannot be predicted. Just as the tipping point of the credit bubble, which turned out to be sub prime mortgages, could not be predicted.

    The tell might be the bankruptcy of the US Treasury. When the Treasury can no longer borrow the money to fund itself. Specifically to fund the Obama stimulus package. Or the one after that. Or the renunciation of our external debt. When no more help is coming for the sick, the homeless, the hungry. When the most visible sign of government is troops in the streets. OK, admittedly, that is over the top, maybe. However know this. The next generation will be far poorer than this.

    For scenes from the devolution I recommend this.

    http://theautomaticearth.blogspot.com/

35. JonF Says:
    December 25th, 2008 at 8:10 pm

    Re: The tell might be the bankruptcy of the US Treasury.

    Treasuries of powerful nations do not go bankrupt. If worst comes to worst they have the resources to extort the money. France in the 1790s was monetarily quite bankrupt. Napoleon and several millions Frenchmen shrugged that right off and proceeded to go grab what they needed. In today’s world of course we wouldn’t need anything as crass as an actual war and invasion. A little discrete saber-rattling of the nculear arsenal would bring the funds waltzing in the door.(By the way, even with the projected debt from the suggested stimulus package we are still a long way from being the world’s leading debtor, as a percentage of GDP, and for that matter we won’t be anywhere near our own historical record for debt levels, back in the 1940s.)

36. rapier Says:
    December 26th, 2008 at 9:18 am

    Does the outcome really depend upon what policy makers do? Are the Treasuries and Feds and the governments policies correct now? Was not it their policies which brought on the mess? Can Matt, using him as a surrogate for all commentators, can Matt say how policies were wrong in the past or why the ones now are correct? Or suggest what the right ones are now? Or do we just have to await the outcome? Take it on faith the the right policies will save us, somehow?

    On hundreds or thousands of trends, events, policies or theories of same it’s easy enough to come up with coherent discussions of their underlying causes and prescriptions for future actions and response. On matters financial and monetary however there is just a black hole. The world worked fairly well in the past so some kind of tweaks will come out of the black hole and things will be set right again.

    Matt can not say what policy makers will do and in this instance he can’t say what they should do. In even broad outline. Doesn’t this in itself suggest a problem? The fact is that nobody knows WTF to do. Nobody. Ad hoc, a trillion has been spent and another 7 or so guaranteed. For the most part nobody, even congress can find out who or where the money has gone. Tell us what it has done. Has it mitigated the financial crisis or made it worse?

    The biggest economic dislocation in 80 years, the entire modern era, and nobody has a clue. Well except throw more money at it. Borrowed or printed? Does that matter?

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