Economist Predicts Upcoming Crash to be Worse Than 2008

[ladyfreckles]

New Crash will be worse than 2008 says economist

Originally Posted by Article

Peter Schiff, the CEO of Euro Pacific Capital, says the stock market collapse we experienced in 2008 “wasn’t the real crash. The real crash is coming.”

He says that Federal stimulus, or quantitative easing, never works and that it just makes the economy sicker in the end. “The reason we are so screwed up is all this quantitative easing is toxic. I don’t doubt that we are going to pressure Germany into printing. We are like the kid who is trying to get a friend to ditch school with us to go to the beach. We are a bad influence on everybody.”

Schiff’s solution is to raise interest rates, but he acknowledges that it would bring a huge downside risk with it. “In America, the problem is that interest rates are too low. They have to go up. We can’t have an economy with interest rates at zero. If the Fed lets interest rates go up, we have to realize that we will have a deeper recession, we have to realize that banks are going to fail.”

He points out that today’s “safe haven” investments — the U.S. dollar and Treasurys — are anything but safe. “There are a lot of people who don’t understand what is going on. Look at how many people are buying the dollar. Look at people buying Treasurys. That makes no sense either. The risk lies in the dollar. The risk lies in Treasurys and other currencies being printed into oblivion.”

A noted economist agrees with Schiff that a much worse stock market crash is coming. And unlike Schiff, he has given very specific details about just how bad it will get.

“The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting in 2012.”

That catastrophic outlook comes from Robert Wiedemer, economist and author of The New York Times best-seller Aftershock. Before you dismiss Wiedemer’s claims, consider this: In 2006 he accurately predicted the collapse of the U.S. housing market, equity markets, and consumer spending that almost sank the United States.

Wondering what your thoughts on this are as I have very limited experience in economics. I have thought for awhile that we weren't out of the water yet, but I have no idea how exaggerated these scare stories are. I know many people around where I live still feel the economy is in shambles. Discuss.

[corianderstem]

I was reading a little bit about this over the weekend, and I spent longer than I care to admit sitting around being worried.

And then realized that it did not help me at all to sit around being worried. Not that I want to bury my head in the sand, but sometimes you just have to stop reading the scary shit and deal with it when it arises.

But yeah, I'd like to hear from people that can perhaps differentiate from what right now seems like a combination of fear-mongering and shaming the media for not talking about it. I certainly don't know that the media would focus well on it - I'm sure right now it would all be political blaming, rather than a reasonable discussion of facts and predictions, which is what I'd like to see.

[Danny Boy]

Seems like this guy is selling a book?

[purpleoscar]

Economics is about probabilities and there is a probability that another crash will happen but there's a probability that governments will actually try and get their shit together. Weak firms and individuals would fail with higher interest rates. Interest rates have been too low for too long but raising the interest rates when there is so much private, corporate, and government debt can cause overvaluation in the currency making it hard for people to sell products (unless everyone in the world does it). Increased interest rates has the benefit of damping down inflation (which is often ignored) and getting people to save more. So much depends on what happens with the Euro and the U.S. election. It's hard to predict what policies will ultimately be produced so predicting the future is usually leads to inaccurate guesses.

50% unemployment and 100% inflation is a pretty drastic prediction. I would be quite shocked if that happened.

[digitize]

This is more or less by the book Austrian School economics, and I'm not exactly a fan. Money-printing causes inflation, but it only becomes a serious problem when it is used to attempt to push economies past their structural capacity, which the US and Eurozone are far from at, or if done way too quickly and way too drastically. A reduction in asset quantity (which occurred to an extreme degree in 2008) causes recession, even if it shouldn't. It causes a reduction in output; it causes idle production and an economy that creates less than it could. Money creation can help spur demand which can help create real production, as it has in the US. In reality, government borrowing in the US is de facto money creation, because of how investors treat treasury bonds.

[PhilsFan]

As someone who is going to graduate college in ten months' time, let me just say that my country had laid a tremendous base for its incoming workers.

[INDY500]

Originally Posted by PhilsFan

As someone who is going to graduate college in ten months' time, let me just say that my country had laid a tremendous base for its incoming workers.

You truly have my sympathies. Astronomical college debts, a $16 trillion dollar tax burden, Obamacare mandates and a stagnate job market. The world couldn't be more different outside the gates of your college now than it was when I graduated in 1984.

But... as President Obama tells us, "We can't go back to the failed policies of yesterday."

[Irvine511]

Well, we can't, right? It's 1984 that got us in this mess.

[ladyfreckles]

Originally Posted by corianderstem

I was reading a little bit about this over the weekend, and I spent longer than I care to admit sitting around being worried.

And then realized that it did not help me at all to sit around being worried. Not that I want to bury my head in the sand, but sometimes you just have to stop reading the scary shit and deal with it when it arises.

But yeah, I'd like to hear from people that can perhaps differentiate from what right now seems like a combination of fear-mongering and shaming the media for not talking about it. I certainly don't know that the media would focus well on it - I'm sure right now it would all be political blaming, rather than a reasonable discussion of facts and predictions, which is what I'd like to see.

I don't worry about it so much. I'm in a lucky situation where a crash wouldn't effect us too much because of the type of work we're in. What I have noticed is that around the time the government declared the recession over my first thought was "uh, no it's not". That's when I started looking up economist sites and found a bunch of economists also disagreeing with the government's announcement and saying we're not in the clear yet.

It's hard to find a balance between accurate information and fear mongering because economic crisis is a scary thing for many people and many news outlets like to be sensationalist about it. I'm sure if another crash, which has already been predicted by other economists a couple of years ago, happened then the media would probably just blame Obama instead of acknowledging what is actually going on.

I have very poor knowledge of economics since I am almost 100% self taught. But it seems to me like this downward spiral has been going on for a lot longer than a few years. I can hardly believe that we just had a crash overnight, this seems to be something that's been stirring for a few decades now and nobody paid enough attention.

Originally Posted by purpleoscar

Economics is about probabilities and there is a probability that another crash will happen but there's a probability that governments will actually try and get their shit together. Weak firms and individuals would fail with higher interest rates. Interest rates have been too low for too long but raising the interest rates when there is so much private, corporate, and government debt can cause overvaluation in the currency making it hard for people to sell products (unless everyone in the world does it). Increased interest rates has the benefit of damping down inflation (which is often ignored) and getting people to save more. So much depends on what happens with the Euro and the U.S. election. It's hard to predict what policies will ultimately be produced so predicting the future is usually leads to inaccurate guesses.

50% unemployment and 100% inflation is a pretty drastic prediction. I would be quite shocked if that happened.

That does sound a little extreme to me. I was always surprised with how low our interest rates are, especially after looking at what stuff costs in the country compared to the US. I heard a lot of people talking about how our recent inflation was going to make us starve etc but we still pay less for our things than many other countries out there. We pay more for houses, but less for things like food, gas, etc.

Isn't one of the problems with currency now how weak the US dollar is?

Originally Posted by digitize

This is more or less by the book Austrian School economics, and I'm not exactly a fan. Money-printing causes inflation, but it only becomes a serious problem when it is used to attempt to push economies past their structural capacity, which the US and Eurozone are far from at, or if done way too quickly and way too drastically. A reduction in asset quantity (which occurred to an extreme degree in 2008) causes recession, even if it shouldn't. It causes a reduction in output; it causes idle production and an economy that creates less than it could. Money creation can help spur demand which can help create real production, as it has in the US. In reality, government borrowing in the US is de facto money creation, because of how investors treat treasury bonds.

Hm... I'll have to look up Austrian school economics to understand it further. Couldn't excess money printing be responsible for lowering the value of the dollar and causing awful exchange rates? It seems to have gotten really bad in recent years.

Again forgive me, can't emphasis enough how poorly developed my knowledge of economics and how it works actually is.

Originally Posted by PhilsFan

As someone who is going to graduate college in ten months' time, let me just say that my country had laid a tremendous base for its incoming workers.

Ugh, yeah. That drives me insane! I have friends with a hundred grand in student debt graduating and then getting paid little more than minimum wage. I also have a few friends that are very successful out of college right now, but those are mostly scientists/people in very specific fields that did internships all throughout college anyway and had job offers before graduating. Hang in there . Try going to career events and stuff and apply a lot during your last semester. That seemed to work well for a lot of people I know.

[digitize]

Originally Posted by ladyfreckles

Hm... I'll have to look up Austrian school economics to understand it further. Couldn't excess money printing be responsible for lowering the value of the dollar and causing awful exchange rates? It seems to have gotten really bad in recent years.

Again forgive me, can't emphasis enough how poorly developed my knowledge of economics and how it works actually is.

It kind of depends on what currencies you look at, but lately, the USD has actually been doing fairly well. Inflation has been fairly low, except when oil prices spike up (for unrelated reasons). We've been hovering around 2% for quite awhile. Compared to the Euro and the Pound, the US Dollar has been doing extremely well in the crash, which is just largely a reflection of the economic performance of the US versus Europe. Versus the Canadian and Australian Dollars, the US Dollar has fallen considerably, though I'm inclined to think that the cause of it is mainly currency market speculation on the strength of Canada and Australia, coupled with the fact that they're both heavy natural resource exporters. Prices in Canada and Australia versus the US don't really reflect where the currencies are. Getting goods in the US is generally quite inexpensive for Canadians and Australians, which should push down the AUD and the CAD, but I think market speculation is preventing that.

Of course, the value of the US Dollar looks really pathetic compared to gold, but gold is in a bubble. Its price has increased far more quickly than the rate of inflation; investors are (pretty foolishly) dumping money into it as a safe-haven. If we had a gold standard, as the Austrians would like, inflation would be low, but not drastically lower as the present cost of gold indicate. Gold would cease to be the safe haven that people believe it is, and the bubble wouldn't be happening.

Regarding the Austrian School in general... it is basically Ron Paul or Ayn Rand in the form of academic economics. It's also not generally taken very seriously in academic economics, even by more right-wing thinkers. I honestly tend to lump it in with Marxism as an interesting economic thought exercise with points definitely worth considering (I tend to come closer to aligning with Austrians in non-recessionary times), but not something that holds an enormous amount of water in real life.

[Steved1998]

Everybody who knows what they're talking about always said (back in 2008-2009) that they could never truly prevent what was coming, only delay it.


By low, sell high!

[purpleoscar]

Originally Posted by ladyfreckles

Isn't one of the problems with currency now how weak the US dollar is?

It's easier to export with a lower currency. There are two sides to the coin though. A higher currency means a higher purchasing power but that could cause a trade inbalance.

[purpleoscar]

Originally Posted by ladyfreckles

Hm... I'll have to look up Austrian school economics to understand it further. Couldn't excess money printing be responsible for lowering the value of the dollar and causing awful exchange rates? It seems to have gotten really bad in recent years.

Again forgive me, can't emphasis enough how poorly developed my knowledge of economics and how it works actually is.

The main argument against Keynesianism from the Austrians is that if you keep interest rates low the economy tends to emphasize borrowing too much and when there is misinvestments it includes not just earned money but borrowed money as well so the economy gets off kilter because the public is borrowing more and saving less (due to low interest rates) and companies are producing to meet that demand but that demand can't last forever because wages can't keep up with the spending. Then you add the investing public also borrowing money to invest and you can see how the business cycle can get very wild with big booms and big busts. It's better to have a cycle with consistent growth instead of wild swings.

[U2DMfan]

I watched an excellent Frontline episode a while back that closed by commenting that 'the same thing that happened in 2008 could happen tomorrow'. Frontline is a very balanced and objective source. Particularly that (even though some like to accuse everything on PBS of being Leftist) they criticized Obama's big decision in 2009/10.

Specifically because Obama chose Geithner's view over Summers' view that we should have attached some strings to the bailout money and have punished those that fucked everything up. Geithner thought it would scare the market into freezing up. Obama agreed and so the banking industry got all that money and not a thing changed.

Granted, that was to do with the specifics of the banking industry and high risks and all of that...and this seems more about monetary policy? I wish I knew more about economics. But it doesn't take much to convince me that we're totally fucked.

[digitize]

Originally Posted by purpleoscar

The main argument against Keynesianism from the Austrians is that if you keep interest rates low the economy tends to emphasize borrowing too much and when there is misinvestments it includes not just earned money but borrowed money as well so the economy gets off kilter because the public is borrowing more and saving less (due to low interest rates) and companies are producing to meet that demand but that demand can't last forever because wages can't keep up with the spending. Then you add the investing public also borrowing money to invest and you can see how the business cycle can get very wild with big booms and big busts. It's better to have a cycle with consistent growth instead of wild swings.

Keynesianism actually concurs with this. Keynesians draw a distinction between economic boom times and bust times. In boom times, Keynesians seek to increase interest rates and slow the economy down. They just seek to reduce them and stimulate the economy during recessions and slow recoveries. The difference is that Austrians seek to keep interest rates high even during busts. Of course, in theory, under Austrian and Keynesian thought, busts should be preventable by appropriate tightening of monetary and fiscal policy during boom times. Sadly, this doesn't really happen very often for obvious political reasons, which I find to be the biggest flaw in Keynesianism.

Monetarists, although associated with conservatism (which they are in the since that they disavow fiscal stimulus), sometimes have problems with the tightening of credit that both Keynesians and Austrians promote during boom times. Milton Friedman, for instance, linked the great depression to tightening monetary policy. Keynesians would link it to the business cycle, and Austrians to overly *loose* monetary policy, although both of the latter two would have called for some sort of tightening in the roaring twenties.

Of course, overly loose monetary policy to many Austrians is anything less than a gold standard and a ban of fractional reserve banking. How the latter fits with the free market ideology that they tend to support is something I don't understand.

[digitize]

Originally Posted by U2DMfan

I watched an excellent Frontline episode a while back that closed by commenting that 'the same thing that happened in 2008 could happen tomorrow'. Frontline is a very balanced and objective source. Particularly that (even though some like to accuse everything on PBS of being Leftist) they criticized Obama's big decision in 2009/10.

Specifically because Obama chose Geithner's view over Summers' view that we should have attached some strings to the bailout money and have punished those that fucked everything up. Geithner thought it would scare the market into freezing up. Obama agreed and so the banking industry got all that money and not a thing changed.

Granted, that was to do with the specifics of the banking industry and high risks and all of that...and this seems more about monetary policy? I wish I knew more about economics. But it doesn't take much to convince me that we're totally fucked.

Geithner had a very reasonable point... one that was applicable in 2009. In 2016, if things are more normal, then we could pay for that. Different policies are best for different time periods.

[purpleoscar]

Originally Posted by digitize

Of course, overly loose monetary policy to many Austrians is anything less than a gold standard and a ban of fractional reserve banking. How the latter fits with the free market ideology that they tend to support is something I don't understand.

That's why Austrians are still around because they don't trust the government will actually do what they are supposed to do. A loose monetary policy makes sense in bad economic times and a tighter policy that addresses REAL inflation in boom times but as you point out politics gets in the way. Friedman wanted the constitution to include what is to be done at the reserve so there would be less political influence and many Austrians are skeptical of having a federal reserve system at all.

I think Neo-Keynesianism is the appropriate term for economists today because they seem to like loose monetary policy all the time. The problem I have with that is the lack of savings in the general public and that is often the reason why the middle class is diminishing. If the middle class has mostly debt and little equity it changes the situation from prior decades.

[Salome]

for quite some time now we've had one "bubble" after another on the stock exchange (and property markets)
our stock market has become such an intricate gambling system (based more & more on positive & negative predictions instead of being based on actual data) that it would be a fair statement that we can't judge how much of our economy is just "bubble"
this wouldn't even be a huge problem if stocks hadn't become an intricate part of loans, pension plans etc

I do think the world economy right now might still be slightly overvalued
so more problems for financial institutions and (as a result for) governments, leading to higher unemployment and some inflationm, wouldn't surprise me

I can't say it worried me too much though

I'm 36 now
I'm sure before I can retire the economy will go up & down a number of times
value of property will rise and fall
and the job market will ebb & flow along with it all

what I do worry about is whether, by the time I retire, the demography of our country has become so dysfunctional (less and less people working to pay for more and more pensioners) that our social security system will be more or less non-existant

[digitize]

Originally Posted by Salome

what I do worry about is whether, by the time I retire, the demography of our country has become so dysfunctional (less and less people working to pay for more and more pensioners) that our social security system will be more or less non-existant

The demographic issues faced by the US are going to be huge, and not just for SocSec's coffers. A large amount of immigration and a system that allows more class mobility than we currently have seems like the best way out of it to me, but I'm not sure it's achievable.

[BVS]

Originally Posted by purpleoscar

50% unemployment and 100% inflation is a pretty drastic prediction. I would be quite shocked if that happened.

Not only drastic, but is it even sustainable? At a certain percentage the structure collapses and most would agree that happens before it reaches 50%.