Gyroscopic Investing

Rickards says that 7 years of zero rates constitutes a depression. Is he right?

http://www.bloomberg.com/video/rickards ... CuLzg.html

Reub wrote: Rickards says that 7 years of zero rates constitutes a depression. Is he right?

http://www.bloomberg.com/video/rickards ... CuLzg.html

Yes.

The good news is that there probably won't be any serious inflation for a long time.

Japan looks more and more like where we are headed.

I think we are in a not-so-great depression. Recessions are just a simple slow down in sales. I think depressions are more about long run private sector debt bubbles and bursts. Check out this great chart from Steve Keen:


Isn't this chart so, depressing? A credit based capitalist system doesn't do well when everyone tries to pay down their debts simultaneously. Who knows when it will stop, but it is definitely possible for it to continue for another decade or so.

is your chart implying we're in the early innings?

Extrapolating from that chart, it could be another 10 years!

MediumTex wrote:The good news is that there probably won't be any serious inflation for a long time.

But but but... Berknanke!  Printing!  AHHH!   

murphy_p_t wrote: is your chart implying we're in the early innings?

The chart is compliments of Steve Keen. He is a really interesting guy. He has a lot of unique ideas about the role of debt in the economy. He has tons of videos on youtube which are interesting to watch.

Reub wrote: Extrapolating from that chart, it could be another 10 years!

Yeah who knows where it will stop. Our only other relevant data point on the graph is the bottom of the great depression. We could turn around before that level... hopefully 

melveyr wrote:

murphy_p_t wrote: is your chart implying we're in the early innings?

The chart is compliments of Steve Keen. He is a really interesting guy. He has a lot of unique ideas about the role of debt in the economy. He has tons of videos on youtube which are interesting to watch.

Reub wrote: Extrapolating from that chart, it could be another 10 years!

Yeah who knows where it will stop. Our only other relevant data point on the graph is the bottom of the great depression. We could turn around before that level... hopefully 

Picture a sinkhole that is gradually getting deeper and next to it is a piece of earth moving equipment being operated by a guy who looks like Bernanke frantically trying to fill it in as it continues to expand.

In the Great Depression there was no one dumping new money into the hole (other than the one-time devaluation of the dollar through the 1933 gold confiscation).  I think that this incompetent policy response is part of what made the Great Depression so punishing.  In the late 1930s Congress even got the bright idea that cutting spending and balancing the budget would pull the economy out of depression, which is sort of the fiscal policy equivalent of putting leeches on a sick person.

MediumTex wrote:
In the Great Depression there was no one dumping new money into the hole (other than the one-time devaluation of the dollar through the 1933 gold confiscation). 

I view the CCC, WPA, WWII as all efforts to dump $$$ into that hole.

All of them failed to fill that hole, btw.

murphy_p_t wrote: I view the CCC, WPA, WWII as all efforts to dump $$$ into that hole.

All of them failed to fill that hole, btw.

You don't think WW2 filled the hole?

The New Deal projects were a miniscule % of GDP (nothing compared to the Obama stimulus) so I agree with you that they had little effect.

However, WWII deficit spending was a massive % of GDP. Is it coincidence that it marked the end of the depression? WWII was a disgusting time for humanity no doubt, but I think the huge government deficits allowed the private sector to deleverage in a much less painful way. It didn't have to be a war, but that was the only way to politically get behind huge government deficits.

murphy_p_t wrote:

MediumTex wrote:
In the Great Depression there was no one dumping new money into the hole (other than the one-time devaluation of the dollar through the 1933 gold confiscation). 

I view the CCC, WPA, WWII as all efforts to dump $$$ into that hole.

All of them failed to fill that hole, btw.

Some of those efforts literally involved one agency digging holes and another agency filling them back up.

FDR is one of those baffling historical figures whose incompetence was overwhelming, and yet he is celebrated for solving the problems that he had a large role in creating.  In FDR's case, a decade-long economic depression was entirely avoidable, as was a second world war.  It was like at the end of each four year term he went back to the American people and said "Well, I have failed you once again, but if you elect me one more time I promise I will fix everything."  In 1940 his campaign slogan was "HE KEPT US OUT OF WAR."  We know how that turned out.

When it came to WWII, it didn't help that FDR had that little alcoholic war pig troll Churchill whispering in his ear the whole time.

If WW2 helped us get out of the Great Depression, then what do we do for an encore considering that we've already fought 2 wars over the past decade?

I was searching for it, to no success.

Rickards states that WWII did NOT end the Depression. Rather, he says that the return of soldiers & expansion of industry AFTER the war are what ended the depression.

Without him saying so, I consider some evidence to be the command-control economy in the US in WWII which led to shortages of basic commodities.

murphy_p_t wrote: Rickards states that WWII did NOT end the Depression. Rather, he says that the return of soldiers & expansion of industry AFTER the war are what ended the depression.

Six months after Pearl Harbor the unemployment rate was near 0%.  That doesn't look like a depression to me.

People don't think in these terms, but the Great Depression was really two recessions, one really bad one, and another less severe one.

The graph below shows that after bottoming out in 1933, GDP gradually improved through the rest of the 1930s, with the exception of the 1937-1938 recession. 

It's simply not true that the U.S. didn't emerge from the Great Depression until AFTER the end of the WWII.  The economy had been gradually improving for years prior to the U.S.'s involvement in WWII, though WWII accelerated the pace of recovery dramatically.

MT...I don't disagree w/ you...I'd like to learn more about Rickards unconventional view on marking the end the the Depression.

I hope our "leaders" don't follow the mainstream thinking that this is how you end a depression, however....as I know you agree.

maybe the spending on inaguration will jump-start the economy?

http://www.weeklystandard.com/blogs/pub ... 65135.html

murphy_p_t wrote: MT...I don't disagree w/ you...I'd like to learn more about Rickards unconventional view on marking the end the the Depression.

I hope our "leaders" don't follow the mainstream thinking that this is how you end a depression, however....as I know you agree.

I think that Rickards just had to write something and probably didn't think about it very deeply.  If he did he would have seen that his position RE WWII and the Great Depression makes no sense.

His larger point about us currently being in a depression is IMHO very sound.  We don't see it because we are in it, and it probably is a lot milder than the 1930s because of the more appropriate policy response this time around.

When it comes to war, I think that unfortunately we have traded big dramatic wars like WWII that have defined beginning and end dates for never-ending low intensity conflicts like the Cold War and the War on Terrorism.  Since the new type of war has no beginning and no end it never really experiences a spending surge that would help the economy so much as it provides a baseline of perpetual government spending that provides constant but unremarkable stimulus to the economy.  Rather than providing a shot in the arm like WWII did, today's war provides stimulus more along the lines of public education or health care for the elderly.

MediumTex wrote:

murphy_p_t wrote: MT...I don't disagree w/ you...I'd like to learn more about Rickards unconventional view on marking the end the the Depression.

I hope our "leaders" don't follow the mainstream thinking that this is how you end a depression, however....as I know you agree.

I think that Rickards just had to write something and probably didn't think about it very deeply.  If he did he would have seen that his position RE WWII and the Great Depression makes no sense.

Doug Casey may have the same issue then...

"And it led to the Great Depression of 1929-’46, which lasted so long entirely because of the unmitigated disaster of the New Deal"

http://dailyreckoning.com/the-united-po ... f-america/

he states this in passing w/out further explanation.

I'm not saying I disagree w/ you...in HS I chose a paper on the Great Depression...what ended it...FDR policies or WWII...and my conclusion w/ WWII.

I expect to hear more from the people who peg the end of Depression as 1946.

murphy_p_t wrote:

MediumTex wrote:

murphy_p_t wrote: MT...I don't disagree w/ you...I'd like to learn more about Rickards unconventional view on marking the end the the Depression.

I hope our "leaders" don't follow the mainstream thinking that this is how you end a depression, however....as I know you agree.

I think that Rickards just had to write something and probably didn't think about it very deeply.  If he did he would have seen that his position RE WWII and the Great Depression makes no sense.

Doug Casey may have the same issue then...

"And it led to the Great Depression of 1929-’46, which lasted so long entirely because of the unmitigated disaster of the New Deal"

http://dailyreckoning.com/the-united-po ... f-america/

he states this in passing w/out further explanation.

I'm not saying I disagree w/ you...in HS I chose a paper on the Great Depression...what ended it...FDR policies or WWII...and my conclusion w/ WWII.

I expect to hear more from the people who peg the end of Depression as 1946.

I guess it depends on how you define the term "depression."

If unemployment is low and GDP is increasing at a rapid pace, it's hard to argue that the economy is in depression.

OTOH, if you hate FDR and his policies you might think that the economy MUST have been in a depression the whole time he was in office.

good points.

Casey opposes Roosevelt

Just because the economy is being used for something you don't agree with (war) doesn't mean that it is depressed. It could actually be a highly stimulated death machine.

When I look at history I see the highly stimulated death machine story.

melveyr wrote: Just because the economy is being used for something you don't agree with (war) doesn't mean that it is depressed. It could actually be a highly stimulated death machine.

When I look at history I see the highly stimulated death machine story.

This is a great point. There's more to the economy than simply unemployment and GDP growth. The government could pay everyone to enact Keynes' favorite hypothetical of digging ditches and building bridges over them, and while technically that would reduce unemployment to zero, that wouldn't really be a model for a healthy economy.

This is one of the major points made by the Austrians that IMHO is still relevant today.

Pointedstick wrote:

melveyr wrote: Just because the economy is being used for something you don't agree with (war) doesn't mean that it is depressed. It could actually be a highly stimulated death machine.

When I look at history I see the highly stimulated death machine story.

This is a great point. There's more to the economy than simply unemployment and GDP growth. The government could pay everyone to enact Keynes' favorite hypothetical of digging ditches and building bridges over them, and while technically that would reduce unemployment to zero, that wouldn't really be a model for a healthy economy.

This is one of the major points made by the Austrians that IMHO is still relevant today.

WWII was also an innovation machine.

A lot of the healthy post-war economic expansion involved leveraging technology that had been developed under the urgent conditions of war.

You're right, MT. Ironically, I think the government usually innovates best when it's in war mode. When at war, there are actual, often dire consequences to failure at all levels, and great rewards to success. These incentives spur innovation (as they do constantly in the private sector). By contrast, when the war's over, the government reverts to its usual state of waste and total non-innovation because there are practically no real consequences to its stagnation and sloth.

Within only a few years of entering WWII, government scientists had invented programmable computers. But nearly 60 years after building the interstate highway system, roads look largely the same.