To paraphrase, when a lot of people are panicking it's the ideal time to find some fucking spine and not panic.

What is panicking going to accomplish? What will being afraid gain you? NOT A DAMN THING! What does not panicking get you? Ask the people who aren't. It gets you lots of money and opportunity. Many people have already made hundreds of thousands of dollars by shorting pretty much any stock possible. Many companies are waiting for their competition to start laying off tons of staff and making deep cuts to spending so they can speed ahead by making smart choices and spending money where it can put them ahead.

From: Economy is booming! Credit is free! Leverage everything! Next quarter will be awesome!

To: Economy is destroyed! Take all your money and put it under your pillow! Sell the house! Expect to be poor!

Just two different forms of compulsory reactions that have a complete lack of foresight.

The act of making good financial decisions has not changed. Minimizing both debt and overspending has always been the right thing to do. I have zero debt and as close to zero excess possessions as is possible without living in a log cabin in the woods. I'm not going to change a damn thing except possibly spend more money because stupid fear-mongering like this will create all sorts of opportunity for people who can see the forest for the trees.

Why something like a recession would inspire fear in anyone is a complete mystery to me. There's nothing you can do about it so stop being afraid and stop spreading fear as a viable option. Instead, sit down, take a deep breath, realize that this isn't the "end of the world as we know it," and move on with your life. Jesus, you people sound like a whining, crying broken fucking record. All this recession has caused me to "feel" is pissed off constantly.

This argument sounds like this, except not hilarious because you're serious: http://video.yahoo.com/watch/2184997/6808646

When my grandfather (an entrepreneur himself) asked what this meant for us I said, "We keep going. What else could we do? This will hurt our competitors more than us."

I'd love to see bloated tech companies start dropping like flies. It'd leave such huge holes in the market that just beg for someone to come in and fill them with a lean startup.

I've seen a lot of this attitude lately, so I want to coin a term: startupfreude!

Kind of loses its punch in German since that would only mean "startup joy".

I tried to think of a phrasing that would work for the idea, but nothing came to mind with a similar ring to it. In kind of faux German, Startupschadenfreude, being sure to pronouce "Startup" as "Schtartup" might be amusing. :-)

But I do see a fall in my income, so I am tightening my belt - by which I mean things like eating out less, stretching out that laptop for another few months, buying fewer non-essentials, less expensive vacations and so on. That is all I am advocating.

It is a rational, non-panicky response to some fairly dire economic circumstances ahead. If you question whether the economic circumstances will become dire, well, bookmark this thread, come back in 1 year, 2 years and 5 years.

Read your post. You said it's time to be fearful. That we should be really afraid. That a lot of people are panicking and maybe it's time to join them. I'm paraphrasing, but it's in black and white (well, gray and other gray).

Then you come back with this. Essentially, "I'm making less money, so I need to spend less money." So, either you don't believe your own words ("rational, non-panicky response" != "we should be really afraid") or you really believe that a slight decrease in your income warrants advocating dangerous responses like mass-fear and panic.

Presumably, you live in America. This means that by the mere fact of where you were birthed you have been given, free of charge, essentially all the opportunities that this life holds for a human being. I know first hand how horrible life can be for people not handed what we have been. Your inability to financially continue eating steak dinners every night is so far removed from the constant suffering and strife that you could be experiencing that your entire current view is laughable. If you were living on the streets you'd have it better than hundreds of millions of people in this world.

So, no, it's not time to panic. It's not time to be afraid. It's time to survey the landscape, take in the changes, and roll with them. It's time to stop talking about this bullshit. Weather the storm, take advantage of other peoples' fears, and come out on top. It's time to do the same thing any smart, rational, successful person with the right perspective would do.

And, no, I will not bookmark this thread. I don't want to be further reminded of just how much people like you take for granted and what you think we should do when life throws us a little curveball.

So I am already used to much worse circumstances than the worst that is likely ahead in America. Having said that, what lies ahead for America is going to be very painful economically, even more so because Americans by and large have no recent memory of such economic pain, so lack the "inoculation" that lesser societies have built up due to periodic crises. Deep structural changes are inevitable - and such changes in the economy end up having profound cultural and social impact, some of which is unpredictable.

I would personally do fine both because my personal balance sheet is in fine shape and because I have a lot of inoculation. Can you say that about the average American?

These are the things I said we should be afraid of.

(1) We have no idea how likely it is to happen (2) There's nothing we can do to stop something unpredictable (3) If something unpredictable does happen, deal with it then

Despite the fact that I disagree with your level of alarmism in general, I won't even argue the unlikelihood of these profound cultural and social impacts you suggest. I will just continue to stick with my original argument that there's nothing to gain by fear or panic and continue to be right.

"It is a rational, non-panicky response to some fairly dire economic circumstances ahead"

???

And this is the second time you've posted the same thing: http://news.ycombinator.com/item?id=330134

Almost all the stats & blanket statements you used are uncited, made up, misapplied or wrong. Maxklein is dead on. And if you are right, we get to see him eat his hat. Fun!

Bookmarked.

You can find the presentation, for example, at: http://www.slideshare.net/eldon/sequoia-capital-on-startups-...

A couple of common objections to my line of argument are:

a) debt to GDP is just an accounting number or paper ("we owe it to ourselves" - in a global sense) and we can adjust that without much consequence to the real world.

Response: Given that current incomes are not able to service the debt, the debt needs to be written down. As that debt gets written down (for example, if GM or Ford were to file for bankruptcy), there will be economic consequences like lay-offs. Those economic consequences are another way of saying that the projects that the debt financed were unviable and therefore have to be terminated.

Those layoffs will cause further debt erosion - those laid-off workers default on their credit card payments, for example. So there are real economic effects to that accounting fiction. Even the dot-com bubble needed several years to be worked out. This is a far bigger bubble.

b) The US savings rate is underestimated.

The savings rate underestimation argument actually used to cite rising asset values, particularly housing, not being counted in savings. Falling asset values kills that argument.

We live in an unprecendented era of peace and prosperity, and this 'problem' we are observing is just a matter of numbers being pushed from one person to the other. But there is still value being produced, there is still demand for that value.

You should become afraid when you see people withdrawing their savings from the banks, and when a major hostile economic block comes up. What we're observing is just economic readjustment, it's not critical.

If in a year this situation still exists, I'll eat my hat on a webcam. You can hold me to that.

The crash of the financial markets has not reduced the production capacity of any of these goods or services. There will still be enough of them, only the dollar values attached will be different.

In contrast, during the great depression, lots of actual physical wealth was destroyed. Various other policies reduced production capacity, most notably the NRA and Smoot Hawley.

http://en.wikipedia.org/wiki/Dust_Bowl

http://en.wikipedia.org/wiki/National_Recovery_Administratio...

These plans included actual inventories, lines of production, houses and other buildings, and actual people working at actual jobs to support all of these.

Those plans now have to be scrapped. That means inventories wasted, lines of production shut down, and people fired. We cannot just keep building more and more houses as if nothing has changed.

Shutting down production lines and firing people is a real destruction of wealth.

This destruction will have secondary and tertiary effects. We've already seen how the cascade works in the stock market. Over the next year (or more) you will see it in production and employment levels.

> The crash of the financial markets has not reduced the production capacity of any of these goods or services.

It has, because a considerable fraction of that productive capacity was allocated based on false assumptions.

We have to reallocate that productive capacity to new purposes. We don't yet know exactly what capital and labor needs repurposed, or to what new purposes. The way we find that out is by businesses contracting or going bankrupt and people being thrown out of work. Eventually, other businesses will expand, new ones will start up, and people will find new jobs. It will take a while, and in the meantime, it is going to hurt.

In material terms, we lose some half built houses because no one wants to live in them. I.e., we have more stuff than we need.

The depression was much worse. We lost production capacity in a time when people were going hungry. That is, we had less stuff than we needed.

Scarcity is far worse than surplus.

A whole lot of capital and labor needs to be repurposed, and it is going to hurt, even without the political system making things worse. History teaches us that the odds aren't very good on that front- it is not a Republican vs Democrat issue, nor for that matter a US vs Europe issue.

This economic correction will have an effect, but it will not be terrible - it only affects very tiny parts of the global trade, and most of what is affected is just U.S based and very local.

So, definitely somebody needs to start making 'em.

The thing about our current situation is that it's not something that caught anyone who was paying any sort of attention by surprise. The Federal Government has been making/encouraging bad loans from the moment they had the power to do so. What started out as federal housing assistance during the Great Depression has become Fannie and Freddie and our current crisis. The ideas of easy money and credit extend as far back into human history as we can go; at the very least they played a hand in the economic collapse of the USSR, Germany, Russia. We even suspect they played a large role in destroying one of the only ancient empires we know much about, Rome.

All of that to say, I know the politicians are running for office and thus have to frame things within the lifetimes of their constituents, but can't we, as intelligent people, construct a slightly wider historical lens for this discussion?

2. See number 1.

3. The saving rate statistics are misleading because they don't include 401k and IRAs, which were not nearly as popular 10-20 years ago as they are today.

Debt is found on a balance sheet. GDP is found on a cash flow statement. A much more appropriate comparison would be debt to the value of the entire nation's assets. According to this site (http://pajamasmedia.com/blog/how_bad_is_the_national_debt_r/), the per capita debt is $162k but our per capita WEALTH is $300k.

We're going to be fine.

Income is what is used to service debt. Conventional mortgage rules limit you to 3x mortgage debt to annual income. So debt to GDP ratio is entirely appropriate.

The wealth figure you quote itself is bloated by debt - think of how houses increased in value due to all those easy loans they were handing out. Debt is a mathematical fact, unless discharged in some kind of bankruptcy, while the "wealth" is an accounting opinion, and valuations change. So as the debt comes due, more of it gets impaired, which means people who owned that debt have to write their assets down, which causes asset values to fall everywhere, ... classic debt-deflation. We are witnessing it right now.

The only meaningful end is when debt gets vastly reduced. By then asset valuations would be a lot lower too.

http://en.wikipedia.org/wiki/United_States_public_debt

I'm extremely concerned not just by the responses on this forum, but also because the person who wrote this article has a legitimate concern. He's worried about how much we've grown to love debt as a nation, and I for one agree.

edit: excuse me, 35% of gov budget. Just like a household.

1) Naked short selling: selling stocks you don't own or haven't even borrowed.

2) SEC not releasing information concerning hedge funds when they should have under the FOI act, because that may have revealed funds' "proprietary trading strategies", which may have been illegal due to their naked shorting.

3) The failure of large derivatives broker Refco in 2005, where in its failure, a significant amount of stock was scattered through the market that wasn't actually capitalizable due to naked shorting.

Since the failure of Lehman, the domino effect has been caused by a lack of trust in the positions of would-be lenders and borrowers: no one believes or can accurately determine another party's viability for a transaction to occur: a lack of commercial grease.

With the US being a central pillar in the global economy, other countries have failed too partly due to their connection to it.

Solutions: greater transparency, perhaps a business organization that companies can join if they reveal more about their actual balance sheets. Members can opt-in to view one another's positions before doing business: like befriending someone on Facebook or Friendfeed.

Also, perhaps from this pillar of transparency, it may be possible to cancel net debt positions computationally rather than let markets gradually build again. Many people may lose out, but others should be held accountable and people can move on.

Fractional reserve banking - Hey, let's give out invisible money ten fold (more today) than actually exists! Usury? Yeah, let's add more invisible money to it in the form of interest. We are geniuses!

Debt often makes sense.

Certainly, if credit is too cheap, asset prices will rise as borrowers outbid one another to pay more. Greenspan has to shoulder a lot of the blame for the recent boom.

Here in the U.K., our great leader, Gordon Brown, proclaimed "an end to boom and bust" when he became chancellor in 1997. He was right. Instead we had boom-boom-boom lasting ten years and are now going to have a bust to mirror it.

The way I see it, the overall setup looks like this:

[capital] <--> [financial system] <--> [projects]

So basically the role of the financial system is to (i) allocate capital and (ii) manage risk. I think it is totally clear that the financial system failed with the latter, but where is the evidence that it failed with the former? With the "subprime loans" were the houses that were built shoddy? It's not like as a world or nation we went out and built some giant white elephant that is now useless. By and large the projects funded remain sound. The problem is that the financial system has seized up.

A few folks have suggested that rather than pumping several trillion of new capital to save the existing disfunctional financial system, we should just pick 20 banks out of bankruptcy, capitalize them and basically replace the existing financial system with a new one (and then distribute the shares in these banks to all citizens so it's not a government run thing).

Bottom line, the financial system is broken, but I'm not sure the fundamental underlying "projects" are themselves broken.

In your diagram, you need to complete the loop, to more accurately reflect reality:

[capital] <--> [financial system] <--> [projects] <--> [capital]

It is worth remembering how the financial system itself started breaking - it started with all those massively overvalued housing "projects" for which they lent money started going bad, which then spread to other credit classes like autos, commercial real estate and so on.

Ultimately, the financial system is choking on debt that became uncollectable, because the underlying projects that the debt financed proved economically unviable. In micro terms, household income could not service the debt on the house. None of the bailout schemes so far address that income issue. If they started mailing out checks to homeowners to help them pay their mortgages, they can stop house prices from falling, but at the cost of hyper-inflation. In chess terms, we are at an economic checkmate scenario - all options are bad. The least bad option may not be politically viable, so we have to consider really bad scenarios too. At this point it is unpredictable which of the bad choices will be made.

Here is a nightmare scenario: start to really worry if trade sanctions on China or outsourcing ban on India become a possibility. Such beggar-they-neighbor policies begot the Great Depression. We are not there yet, but how confident are you it won't happen once the US Congress gets "serious"?

[capital] <--> [financial system] <--> [projects]

better reflects reality in that inflows/outflows of capital to/from projects are funneled through the financial system. For example, investors (capital) are trying to take get capital out of hedge funds (who are in-turn invested in companies) and they can't b/c the financial system is "constipated."

Ok, allegories are fun but back to business:

we had some serious issues prior to great depression with stock market - people didn't know how to be moderate. With some education and regulation we got over that (e.g. dot com was not that bad). So now we have a similar problem with leverage - people failed to excersize moderation. They will learn and credit and leverage will assume their natural place as instruments of funds management.

Having said that, I think there are more shoes to drop yet. While there might be a short-term rally, there will be even more drops after that. The size of downturn should be equal to size of run-up (minus the productivity gains over the last decade).

But, yeah, the whole "hyper-inflation leading to a massively devalued currency, rampant unemployment and poverty, enormous waves of foreclosures, bankruptcies, and bank failures" thing is going to rather suck for a great many people.

Just remember, paradigm shifts = opportunity.

So, how much gold/silver have you actually purchased? Put your money where your mouth is...

Dummies(t) = 5At + 90

Which means that average people see reality either better or worse than what it is and they're always late to the game.

Should be Dummies(t) = 5A(t + 90)

This error woke me up in the middle of the night.

Oh yes. Just in case it gets ugly. Attend some MMA classes and load up on ammo.

After the biggest profits ever in the oil industry I can hardly see this as a recession.

Where is that money now?

60 years is well chosen - it avoids WWII.

The US started the Korean war? The US started the uprising against France in Vietnam? The US started whatever it was that consumed Eritria/Ethiopia in the 70s/80s? The US started all of the Saharan and sub Saharan"skirmishes"? The US started Darfur? The US started Bosnia?

The US did manage to win the cold war, no thanks to the beneficiaries. Yes, I'm talking about Europe. Now that they don't have anyone threatening them, they're talking smack. When that changes, they'll tell us how they've always been our BFFs. (Which will it be? Russia? China? Their Islamic friends?)

It's well past time for the EU to take responsibility for things instead of telling the US how it should be done. Surely there are some problems that are within their capabilities. And, speaking of capabilities, shouldn't they have significant capabilities? After all, they have 500M people and a greater GDP than the US.

However, the author is correct. The US should let the rest of the world alone. Whether the result is better or worse, they'll get what they want and deserve.

Sadly, people can be persuaded to allow all manner of things, if they're led to believe that their way of life is under threat.

Thomas Jefferson put it better than I ever could: “He who trades liberty for security deserves neither and will lose both.”

"You have biggest number of homeless in the world, even children and so we can continue whole day... but I still hope there are some people there who understand this and can do something with that."

is patently false. If America minded it's own fucking business, things would be much better.

http://www.informationclearinghouse.info/article20992.htm

http://www.youtube.com/watch?v=rnLWSC5p1XE Q&A...