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Date Posted: 12:43:42 07/22/09 Wed
Author: Paul Davis
Subject: Well, here's the thing
In reply to: Jeffman 's message, "Im a bit more optimistic than that" on 07:49:30 07/21/09 Tue


To cut to the chase, we had a whole lot of very greedy people create a ton of money. Then most of the money vanished, because it was all a bunch of ordered electrons anyhow, with no meaningful relationship to physical facts.

When that faux cash went away, we went into deflation, and you can see that if you bother to look. Most people don't understand that inflation and deflation have little to do with prices, and a lot to do with money and the velocity of money. But we've entered deflation, and that means money is tight and will get tighter.

Japan borrowed to the extent of a huge percentage of their GDP - look it up, you'll be shocked. And all that barely kept deflation down to something reasonable.

We will be deflating, and jobs are going to go to crap. I think if it stops at 15% unemployment across the USA, we'll have gotten by very well.
>Are things going to be tight for people for a while.
>Yep. But the economy is pretty elastic and tends to
>'repair' itself. Here is part of the problem. Everyone
>is comparing this years numbers to last years numbers
>to the year befores numbers. And then talking about
>how far sales are down or where the market is compared
>to last year. Well the market is not going to recover
>that quickly. Sales are not going back to last years
>numbers for a long while. The 'boom' was based on debt
>spending and its ran out. People have less room to
>borrow because they are borrowed out. So yes we are
>seeing a rollback to numbers more like 2000 than 2007.
>
>No I think that things will improve. I think that
>people will get used to living more within their
>means. Even in those charts you see examples of where
>people are saving more and paying more on their debts.
>There are millions of people out there that are
>getting out of debt and striving to live debt free! If
>you spend the time looking at it, right now its
>practically a movement. In the short term this is
>going to be painful for the economy. But in the long
>term our economies will be better because people will
>be spending money they have not money they havent got.
>That will enable them to better absorb these bad times
>and it will enable them to better prepare for eventual
>retirement.
>
>And then there is the matter of propping up
>institutions. Take GM for example. They are losing
>money while at the same time selling 10 million cars a
>year. Im sorry but if you sell 10 million of anything
>a year and cant make money then your business model
>sucks. And keep in mind that GM was losing money even
>when times were considered good. If I was Ford I would
>have been ticked off that the govt was propping up my
>competitor.
>
>Overall I think you are right and its going to take
>some time to recover. But I think this recovery
>(unlike the one in 2001 where everyone was told to
>spend spend spend to prop up the economy) the recovery
>will last longer and the next recession will take
>longer to return.

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