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Some people think another economic crash is going to happen
Old 02-05-2015, 01:14 AM
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Default Some people think another economic crash is going to happen

From GAF, I saw this video on the guardian from some hack who doesn't understand much of anything. For instance, he says that politicians have been using quantitative easing when they haven't. QE has been used by central bankers - independent central banks who are not part of the political process. It's not money printing either - they do create money (electronic notes) to purchase assets (bonds, like Treasury securities and mortgage backed securities) but not to fund government deficits which is what money printing is. The reason why quantitative easing is not a big deal is because central banks increased the interest rate they paid on reserves. So our monetary base exploded without any huge changes in other monetary aggregates, M1 and M2. Meaning we'd never get hyperinflation or anything like that. It also meant slower economic growth.

Because the asset purchases are on such a large scale and because the yield on bonds are inversely proportional to prices, this decreased the interest paid on T-bills and MBS's. That gives financiers incentives to search for higher yields thus investing in something that gives them a higher return. It doesn't make the housing market explicitly more healthy - it's actually been on a very, very slow rebound in the US. Banks are not lending as they used to partly, like I said, because of the interest rate paid on reserves.

He says that the financial sector is the only to grow which is obviously false. NYU's business school has data on the growth of sectors in the past 5 years.

The UK has some minor issue with the housing market that the Bank of England, their central bank, is well aware of. But most likely nothing that can cause a global recession. Nothing they feel requires an interest rate hike and possibly causing a recession in the UK.

The global recession in 2008 was also not caused by the US housing crash. The financial crisis was related to debt but it's not household debt or debt from credit cards that's the problem. It was short-term liabilities on financial firms. Bear Stearns, Lehman's and AIG all had credit extended to them from money market instruments (repos, commercial paper, etc.). Once the creditors wanted their money back, it drained their cash reserves and they did not have liquid assets to sell - so they faced bankruptcy. Bear Stearns was bailed out from a deal between the Fed and JPMorgan. But even more creditors started to pull their money out when Lehman's fell which prompted the US Treasury into placing $3 trillion worth of insurance for money mutual funds so they could stop withdrawing their cash.

Mainstream economists ignore private debt because it is and was never a major problem. Even the housing crisis's problems weren't so much because of debt but more-so because of poor regulations on underwriting subprime loans and a bad understanding from the investors' parts on how to value MBS's (didn't know all the ways they could lose money, like through refinancing). And the vast majority of mainstream economists are not employed in the private sector either so I'm not sure where he's getting that from.

I'm not going to say that another '08 crisis could never happen. No government has been insuring the money market instruments so the mass withdrawals could still happen. The Financial Stability Board and the Fed are working so that even when the runs do happen, the firms will be able to manage it on their own. No way to know if that'll work until the next time there are mass withdrawals.
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Old 02-05-2015, 04:27 AM
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So, in your opinion, the economy is stable?

Are there ways to predict when/if a financial crisis will occur?

Looking back, it's a lot easier to see why/how crashes happened but hindsight is 20/20 and all that.
Old 02-05-2015, 04:59 AM
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I have nothing to contribute but this was interesting to read. Wish I understood economics better.
Old 02-05-2015, 05:05 AM
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Another downturn will happen eventually, just like how Nintendo will eventually cease to exist *sob*.

Added after 5 minutes:

nasic870-- Would you agree with Niall Ferguson's assessment on Obama: http://www.newsweek.com/niall-fergus...needs-go-64419?
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Old 02-05-2015, 05:54 AM
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Quote:
Originally Posted by Helicoprion View Post
nasic870-- Would you agree with Niall Ferguson's assessment on Obama: http://www.newsweek.com/niall-fergus...needs-go-64419?
What does Obama have to do with this topic?

Plus, that article is from 2012. He's been re-elected already.
Old 02-05-2015, 11:14 AM
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I'm no economics expert, but the way I get it, debt is part of the current economic system. Therefore there's always the chance of another crisis.

Huge crisis like these might be predictable, but how accurate can those predictions be? I'm no economics expert, but when dealing with a statistics problem that has so many variables you can never say for sure. And then people will usually deny such claims because they simply don't want to hear them.
Old 02-05-2015, 03:19 PM
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Quote:
Originally Posted by Kinvara View Post
So, in your opinion, the economy is stable?
The US economy, if the Federal Reserve gradually increases interest rates which they will, will be fine in the next few years.

There are two parts to economic growth - exogenous growth (Fed's monetary policy, Congress'/president's fiscal policy) and endogenous growth (level of education, technology progress, etc.). Because we have strong endogenous growth factors, the US will always be fine eventually. It will just take longer if our monetary and fiscal policies cause negative growth.

Quote:
Originally Posted by Kinvara View Post
Are there ways to predict when/if a financial crisis will occur?
Yeah, and the Fed is pretty good about these things. When Long-Term Capital Management fell in 1998, they worked together with bankers, investors, etc. to bail them out. To keep them alive long enough so that they could sell off their assets without causing a fire-sales in financial markets and so, a recession.

They also acted to keep the Asian currency crisis from causing a recession here. They even lowered interest rates to increase liquidity after 9/11.

The structural risk in the shadow banking sector which led to the runs is well known to economists. It's the same short-term liabilities, long-term assets issue that commercial banks have but commercial banks have insured liabilities (deposits) to help prevent runs. Prior to being called the shadow banking sector, it was known as the parallel banking system and some economists predicted decades ago that something like this would happen because the liabilities they used weren't insured.

I know of two things that pointed to the timing of the crisis. The first is the increase in haircuts on bilateral repos. Haircuts are the difference between the value of the collateral and the value of the loan. So the loans were overcollateralized because creditors were losing confidence in the borrowers' ability to pay. The other thing is the runs in the asset-backed commercial paper market. The ABCP market suffered a $350 billion dollar contraction in the latter half of 2007.

Added after 57 minutes:

Quote:
Originally Posted by Helicoprion View Post
nasic870-- Would you agree with Niall Ferguson's assessment on Obama: http://www.newsweek.com/niall-fergus...needs-go-64419?
I'll respond to what I can.

First thing, Niall Ferguson's not a real economic historian even though he likes to claim he is. Economic historians are econ PhDs because they need to understand economic analysis to apply it to history.

Second, what the president can and cannot do is limited. The growth we have been seeing recently can't be attributed to him but he can't be blamed for everything either.

Just about every politician has been a mixed bag. Fiscal policy (using taxes, subsidies, expenditures to affect economic growth), which is on Congress and the President, has been very poor since the original stimulus package. Even the stimulus package had some contractionary policies, like Cash for Clunkers.

So when it comes to job growth, fiscal policy hasn't been great these past few years. But it's not all on Obama either. Congress has been tripping over itself (like with the partial shutdown in 2013). Infrastructure spending has not been happening but it's about funding and what's deemed a budget priority. We used to pay with gas taxes but revenues from that isn't high enough. I like taxing vehicles for the damage they do to the roads - eighteen-wheelers do much more damage than other cars. I don't know if any level of government is pursuing that.

I don't know much about the healthcare market either. The effect on GDP from Obamacare should be small, though, if positive or negative. There are some concerns about the harms from the taxes in it outweighing the benefits. We're already seeing employers try to work around providing healthcare benefits which was expected. And I think it increased the amount of paperwork on doctors too. But there are good aspects to it. Mainly a smaller financial burden on many Americans.

I have problems with the educational curriculum at elementary and high school levels but I'm pretty sure that's more of a state's rights issue. I think the easy credit when it comes to student loans is driving up college tuition rates. But you can't pin that on Obama alone.

Social security costs are an issue which haven't been tackled. Some want to increase payroll taxes. Right now we only tax the first $100,000 people make. They'll end up pushing the minimum age to receive benefits eventually, though.

Dodd-Frank does nothing to address the risk of another financial crisis and I'd say it's actively harmful because of the limits it placed on the Fed's emergency lending abilities. Again, not all on the president given the recoil there would have been if he vetoed it.

China's GDP already surpassed our's but no one noticed. To compare GDPs internationally, you need to put countries on equal footing. Since goods and services have different costs in different nations, a GDP adjusted for purchasing power parity is needed (but there could be measurement errors). Using the International Monetary Fund's PPP exchange rate, China's GDP is higher. But it's not a big deal. Be happy that their living standards are increasing.
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Last edited by nasic870; 02-05-2015 at 03:30 PM.
Old 02-06-2015, 06:46 AM
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@ Nasic870-- Thanks for your comprehensive response. I thought it would be worth mentioning due to Ferguson's being an advisor to both John McCain and Mitt Romney during the last two presidential elections (respectively) as well as his stressing the importance of debt to revenue to the economic wellbeing of a state (and how Obama appears to have dropped the ball in that regard). Indeed, the president can only do so much to improve the economy. I suppose Mr. Ferguson wanted Obama to be more decisive and quicker to act when it came to them.

Unfortunately, I am not an expert on economics but have a mild interest in the field. Right now I would be most concerned about Europe and its ongoing Eurocrisis (with Greece's Syriza Party in charge of Greece and all that). Let us hope that can be sorted out in time.
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Old 02-06-2015, 04:02 PM
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There are some posts you might want to follow if you're interested in macroeconomics (GDP, inflation, public debt, macro policies, etc.) like the New York Fed's Blog,Mainly Macro, Ed Dolan's posts on Economonitor, Jared Bernstein's Blog and Mohamed El-Erian's Bloomberg articles. Project Syndicate's economics section is also a good place to hear opinions.

But the vast majority of research in economics has nothing to do with the economy. NBER is a good place to look at quality working papers.

EDIT: Today is jobs day, when the Bureau of Labor Statistics releases reports on the labor market. So quite a few news sites will be talking about that.

I should add that Justin Wolfers' twitter feed is a good place to touch on a variety of economics too. He writes pieces for the NY Times but they're not politically motivated like Paul Krugman's.

And also Voxeu (not vox.com).
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Old 02-06-2015, 04:50 PM
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if the economy is so great at the moment than why is it so damn hard for me to find a job i work hard and everything and i cant find one, and im not really a picky guy either
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Old 02-06-2015, 05:49 PM
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Quote:
Originally Posted by Trustedflipper8 View Post
if the economy is so great at the moment than why is it so damn hard for me to find a job i work hard and everything and i cant find one, and im not really a picky guy either
What job are you looking for? What's your degree level? If you have an advanced degree, what's it in? Where are you located?
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Old 02-08-2015, 10:28 AM
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I don't really understand economics that well. Hell, I thought that since gas prices are way low the economy is stable.

After reading this though, I have to say the chances of a crash is quite probable.
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Old 02-08-2015, 08:59 PM
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https://ca.finance.yahoo.com/blogs/i...180709483.html
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