17 Jul 2008

Bear Baiting and Bull Riding

As the markets have sunk further and further over the past few weeks, predictions of where we’re headed, either as a nation or the entire world, whether rosy or Mad-Maxian, have flourished. I admit to having a slightly more-than-academic interest in all this – after all, I live here, too – but rather than take my own shot in the dark, I thought it would be more useful to try and round up a few of the most interesting predictions or forward-looking statements made by others.

The diversity of opinion on where we’re headed really can’t be overstated. Although I think the overall outlook is getting bearish, there’s still room for disagreement (or at least there appears, to my eye, to be room for disagreement) as to how bad things are going to get, how quickly they’re going to go, and how long they’re going to take to recover – if they ever will.

Time will just have to tell which were in retrospect prescient and which were following in the great tradition of being somewhat less so.

(Macroeconomic predictions are by their nature almost always incorrect in one respect or another, so this is purely for entertainment, and shouldn’t be used to judge any of the people involved, now or in the future.)

Russ Winter: Super-Bear

Russ Winter, of the Wall Street Examiner’s “Winter Watch” blog, paints a grim picture: corrupt Washington insiders looting the U.S. economy for everything it’s worth, fleecing consumers and taxpayers in order to ensure they’ll live like kings in the coming economic downturn.

This isn’t just a recent bandwagon he’s hopped on, either; he’s been saying it pretty consistently for several years now. Back in 2006 he correctly called BS when Alan Greenspan predicted that the worst of the housing bubble “may well be over.” (The foreclosure rate has only continued to climb since then.) I haven’t looked back much further in his archives, but he’s been writing online since late 2005.

Select Predictions and Statements:

Metafilter’s Own: Malor

Malor, a well-known contributor on MetaFilter, also has a less-than-rosy outlook.

Rather than putting words into his mouth, I’ll quote him directly. The following is excerpted from this post:

[T]he financial system [has become disconnected] from any kind of on-the-ground reality. Stock and house prices have gone far into ridiculous territory, driven there by a combination of stupidly low interest rates and a massive oversupply of what looked like available capital. It also has caused an enormous, gigantic, unbelievable trade imbalance and debt position on the part of the consumer. […]

There is no good outcome here. None. We’ve backed ourselves into a corner from a series of incredibly bad decisions. If the Fed screws up, or if it miraculously realizes that we’re doomed if it doesn’t, we will have a massive deflationary crash, the Second Great Depression. As the debt we’ve taken on goes bad, it will cause deflation, the deflation that has been hidden from us by the monetary games. This is the best possible outcome.

A deflationary crash is one possibility; hyperinflation another (from this post:

If the Fed can keep us on the tracks, [hyperinflation is] inevitably where we’re going to end up. We have too much debt, and to try to hide that fact, the Fed is causing more and more debt to be issued.

This is, he continues, fundamentally flawed:

The US government is doing the same thing Zimbabwe is doing; trying to extract more value out of the economy than the economy can support. We’re already over fifty trillion dollars in debt, in today’s dollars. […] We can’t pay those debts. We can’t pay off our personal debts. And we can’t service the enormous position that other countries have in our currency, which is another, hidden form of debt.

The bottom line:

It’s a house of cards. It has to collapse. Which way it will collapse, I don’t know, but it has to go into either deflation or hyperinflation.

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