Where is the best place to go for good advice about the stock market and the economy? The Wall Street Journal, Business Week, Fortune? If it is late 1999 and the stock market is soaring to record highs, the correct answer is In These Times. In December 1999, when the economic and political establishment was singing the praises of the “new… return to article
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Reader Comments (105)Page 1 of 1 pagesI thought the story was well thought out. However, I would have liked some positive advice as far as, 1. What to do with dollars which are set to devalue. (Buy gold? Exchange for Euros? Buy tents and foodstuffs?) 2. How to deceminate information without the “government” throwing us into jail without habeas corpus. 3. What country to live in that isn’t corrupt?
Posted by Emily Chadwick on May 11, 2003 at 2:30 PM A likely explanation, but it fails to take into account that the economy is emotionally-driven and its health is very much dependent not only on fiscal policy, but future outlook.
With the dawn of the failed Bush Administration, I think the nation sank into an emotional depression. Everyone I spoke to expressed a sense of dread and many suggested, early on, that we might not even survive this mess.
Indeed the attacks of September 11th, predicated primarily on Bush’s big mouth, underscored the dangers. The subsequent rise in unemployment, a further increase in an already well-entrenched trend, was not just a result of the attacks - it was a happening thing.
For historyís sake, one need only look at the first Failed Bush Administration, where unemployment rose as did the deficit. Perhaps many of us felt a little more at ease than we do now. It seems, in retrospect, that at least we had someone with a brain in charge, as opposed to the current joke.
I think stories and analysis of economic outlook should take into account the emotional health of the nation (and the world). This is critical in understanding how things became the way they are and, more importantly, where theyíre going.
Remember ñ Roosevelt did many good things for Americanís suffering during the depression ñ but one of the most important is often overlooked. He gave them hope.
Mark Richards
Boston
Posted by Mark Richards on May 12, 2003 at 12:59 AM A likely explanation, but it fails to take into account that the economy is emotionally-driven and its health is very much dependent not only on fiscal policy, but future outlook.
With the dawn of the failed Bush Administration, I think the nation sank into an emotional depression. Everyone I spoke to expressed a sense of dread and many suggested, early on, that we might not even survive this mess.
Indeed the attacks of September 11th, predicated primarily on Bush’s big mouth, underscored the dangers. The subsequent rise in unemployment, a further increase in an already well-entrenched trend, was not just a result of the attacks - it was a happening thing.
For historyís sake, one need only look at the first Failed Bush Administration, where unemployment rose as did the deficit. Perhaps many of us felt a little more at ease than we do now. It seems, in retrospect, that at least we had someone with a brain in charge, as opposed to the current joke.
I think stories and analysis of economic outlook should take into account the emotional health of the nation (and the world). This is critical in understanding how things became the way they are and, more importantly, where theyíre going.
Remember ñ Roosevelt did many good things for Americanís suffering during the depression ñ but one of the most important is often overlooked. He gave them hope.
Mark Richards
Boston
Posted by Mark Richards on May 12, 2003 at 12:59 AM Great article, but I would have liked to see more discussion of how we got to this point - and the fact that the policies that got us here are continuing. And what about a fourth bubble: debt?
“When a flood of new inventions gives opportunity to make more than the current rate of interest there is always a tendency to go into debt, in order to make money out of inventions, and to the ordinary investor this comes in the form of investing in common stocks. At such time, the rate of interest should be high, embracing as it does the opportunity to invest
for a high rate of return over cost. If there is a great discrepancy between the rate to be realised to the investor from his investment, and the rate of interest on which he can borrow, he will be inclined to borrow all the more.” Paul Warburg The Theory of Interest, New York 1930
Interest rates have been forced down, liquidity pushed up and people have “borrowed all the more”. First for stocks, now for real estate.
And the government is certainly leading by example. Look at these deficits! Debt, Debt and more debt.
Posted by Karin Deming on May 13, 2003 at 2:05 AM Baker’s article excellently describes the current economic turmoil we are facing the United States, and does an admirable job explaining how we got here. However, I think a more nuanced critique of dollar policy is needed.
The Globe and Mail reported yesterday that the Bush Administration has aggressivley pursued the decline int the dollar’s value, letting it slide 17% as it has a stimulative effect on the U.S economy, something especially important considering the slump we are in and considering that the fed has little room to move. While a strong dollar may be buoyant for particular segments of the econony, as Baker noted, it has devastated manufacturing, which continues to contract. Mind you this isn’t praise of the return to Voodoo Economics (absent James Baker’s obsessive quest for the strong dollar), nor any kind of defense of the Bush team’s economic vision. Instead, it really is a twofold query:
1) what would prompt the fed to raise rates at any time in the near future, except political suicide, especially as we near another presidential electoral cycle?
2) If the Fed at some point does feel constrained to slam on the brakes, raising rates while the dollar continues to lose value,
where will the economic solution come from that will keep the economy from suffering a total meltdown?
Posted by Geoff Miller on May 13, 2003 at 12:42 PM Here’s a high tech economic horror blog and some upcoming good news too.
Digitizing at the sensor and USB 2.0.
Posted by bill payne on May 13, 2003 at 1:22 PM While this article fearlessly exposes some of the imbalances that are threatening to collapse, it leaves out a lot. 1. The Global picture. In this globalized world, a single nation is not able to make economic policy that can protect its people, even the US. 2. A deeper historical picture. Did the problem start in the late 1990s? In the early 80s, European currencies collapses, in the late 80s, the Japanese currency, in the early 90s, Mexican currency, in the late 90s, many SE asian countries. Are all these not related? 3. The “big solution” can’t be a new deal, and so maybe that is why the author leaves out the issue of debt. Whereas after WWI and after WWII, the US held a majority of the world’s wealth, now it is the biggest debtor in the world. It cannot afford a policy of class conciliation.
I recommend, for a fuller picture, a 3 part series of articles published by the world socialist website:
Posted by Jon L on May 13, 2003 at 4:11 PM Dear Dean,
FINALLY some truth about the other 2 bubbles that are absolutely sure to pop in the near future and perhaps devestate the American consumer for years to come. In chapter II of a recent IMF report published in April entitled “When Bubbles Burst” it is clear that the Feds fear most the impending real estate bubble which historically is twice as devestating as an asset/currency implosion according to their research. Also these 2 bubbles often overlap (70’s and 80’s bubbles show this). The problem is that the severity of these remaining bubbles may be greater than in the past (at least since 1929) and it is clear that the Feds are caught between a “rock and a hard place”. I am extremely disappointed that The Feds (ala bubble Greenspan) have done nothing more to warn the public than mention in passing that their “may be a housing slowdown” (sounds like the “irrational exuberance” tepid warning of early 2000). And recently Greenspan’s statement that “bubbles cannot be foreseen” I found unconscionable as the IMF report I just mentioned has tracked the stock market, currency/asset, and housing bubbles for the past several decades and make it clear that the Feds are clearly concerned about the remaining 2 bubbles of this decade. But, as in the past, the naive spendaholic American consumer will get left “holding the bag” and the Feds, as always, will remind them that they were warned.
I wish your voice was heard and heralded in the mass media - but that, of course, would not suit the “party-line” media moguls who prey on the stupidity of the public.
My hats off to you anyway for an honest assessment of an obvious coming problem.
Neil RiCharde
Posted by Neil RiCharde on May 13, 2003 at 9:03 PM Can anarchy be prevented,not only in this country,but worldwide?
Posted by Burl Criner on May 14, 2003 at 12:07 AM An outstanding discussion of the major trends in the economy and the probable harsh consequences in the future. It’s not completely clear what principal actions one should take to prepare and protect oneself against this probable future. One action would be to sell over-priced property and/or housing; a difficult prospect. As for Gold, unlike real estate it would seem like a good choice against probable inflation because it is readily portable and tradeable as would be other precious metals. Another major precaution would be to check out one’s bank for its financial strength (or weakness) or possibly invest in Treasuries for safety.
Posted by BobC on May 14, 2003 at 3:15 AM I am reminded of “Very Great Popular Delusions & the Madness of Crowds”.
Posted by Gnomon Isanisland on May 14, 2003 at 3:57 AM I believe that in spite of how bullish the charts appear, the market is still grossly overvalued. The P/E, P/R, and Relative P/R ratios aren’t even at normal valuations, let alone bear market valuations. Plus we have not seen anything even remotely resembling capitulation and sentiment is super bullish right now. All of these factors make it very hard for me to believe that Oct. of last year was the bear market bottom. At true market bottoms, the market is undervalued, sentiment is very bearish, and capitulation takes place. All of these things were missing from the Oct. bottom. I believe that anyone who buys into this rally is completely brain dead and deserves to lose money.
Posted by alan rice on May 14, 2003 at 6:48 AM I read your article and you have my complete support, but one comment. I like to mention the name of great economist, philosopher and American Statesman “Lyndon H. laouche’s” name, he was the first economist who forecasted the stock market bubble, the twin tower terorist attacks in New york, and most of all that we are headed towards New Dark Ages Globaly, if policies remain the same under the present White House Administration. So visit his web site “www.larouchepub.com and please organise people on his adviced policies about “New Bretton Woods”. By the way he is FDR Democrat who is running for 2004 Presidential Elections as a Democrat. Thank You! Michael
Posted by Michael Dzagi on May 14, 2003 at 7:31 AM Great article but all the new deal produced was a great war!
Posted by mike on May 14, 2003 at 3:48 PM Thanks for the insights, depressing though they may be.
Posted by Sam Jones on May 14, 2003 at 5:18 PM You need to look farther back. The origonal reason for Greenspan to lower rates was to save the banks. This was just following the savings and loan crash and they were scared of a bigger situation. But the rate decrease came on at the same time as tech was getting popular. Thus the mad rush into phony stocks. The problem with Greenspan is he never stopped it. It was too juicy for the bankers and he’s a banking man. After stocks declined (still overpriced) people wanted tangible things like homes and land. But as pointed out, ability to support the debt after job loss is getting very thin. It will eventually happen. I figure flat at the very best to down 25% at worst. Some asked what to do??? Outside of an armed revolution there is not really any answer. I’m 72 and suggest——Have a drink, take a trip, make love and to hell with the war. Basically stop worrying. They’ll get theirs in the end.
Posted by David Hill on May 15, 2003 at 12:21 AM A good explanation. There are some other important issues which tie in to all the bubbles. First, in The Influentials, the authors describe how one in ten people influences others. These ten aren’t ‘typical’ in any way, except this: they think for themselves, been there, done that. The other 9 in a group ask them about everything. Well, when you find your influential friend, ask them this: “What do you know about the Disclosure Project?” Let them take it from there. When the economy is realized for the God it has become, then you can start to see how people are so eager to overlook little discrepencies in bookkeeping, scientific investigations, responsibility, performance, earnings ratios, and oh yes, government accountability and policies that make no logical sense at all, like income vs consumption taxing, environmental destruction, voter fraud, overblown secret budgets, and wars for oil we don’t really need.
Posted by Dan on May 15, 2003 at 3:32 AM One thing you neglect to mention (though this is a column on economics) is the “political bubble” which Pres. Bush and his regime are riding now. This virulent, swaggering, and bullying neo-con government cannot sustain itself for too much longer. The world will not permit it, and America’s citizens will learn to see through its facist rhetoric as they are directly confronted by its practices…..not the least of which will be the economic repercusisions of the Administration’s selfish and short-sighted policies. Keep you heads down, your pencils sharp, your rifles clean, and let’s all be ready to take America back from these fools and charlatains.
Posted by Ken Goode on May 15, 2003 at 1:43 PM Great article and great reader comments. I strongly suggest to folks to read as many of the intelligent reader responses.
The 3 (or 4 or 5) bubble principle was probably better known in the investment community in the late 1990’s than the article alludes to. Those “in the know” largely kept quiet for their own aims.
Also, the article assumes that the indicators of ignorance of the impending disaster came from honest and scrupulous individuals in finance. All one has to do is take a peek at the actions of analysts and VC’s during the last moments of the bubble to dispel such notions.
It’s clear now that these and other types in investment knew what was up, and it was in their best interests to keep up appearances, so they could clean up and get out in time.
To a large degree, the reality of the economy, the emotional confidence, was artifically propped up long after the PE ratios started looking bad. This could be considered “the bubble after the bubble”? Crap stocks stayed high long after it was clear they were junk. Yet the buying madness continued!
Who perpetrated this illusion? A little look at the actions of large investors during this time will plainly illustrate the answer.
Posted by Arn Johnson on May 15, 2003 at 8:55 PM It is already possible to see the other two bubbles bursting. The dollar is going down. And I always wondered how new home mortgages could continue to rise while major appliances fell, then it struck me. Banks and insurance companies were the buyers of those news home mortgages through all their holding companies. Let’s see if this government views them as being “too big to fail.”
Posted by W. Robertson on May 16, 2003 at 12:04 PM I have no doubt about your predictions. Having lived in Japan from the 1980’s until 2000, I experienced the same progression that we seem to be facing. Our property values went down by 50%. The earthquake took care of the other 50% (no earthquake insurance). Land values went down but taxes on the land didn’t. The only safe place to save money was under the futon…Let’s hope we’re both wrong.
Posted by P Kaneda on May 16, 2003 at 4:57 PM Last year, 02, a fair market value for the DOW would have been 7000, for the NAS. 1000. This year, with production and investment down some 20 to 30%, a fair value would be DOW 5500 and NAS. 950. If this government owes some 5 Trillion dollars, and I’m not sure of that figure, the above values may not hold when the curtin comes down.
It may be helpful to remember that during the Great Depression of 1929 the most precious thing to have in One’s posession was:
THE GREEN BACK DOLLAR
Posted by Mike Newman on May 16, 2003 at 5:38 PM Very interesting and scary analysis. It will effect my planning for the future. Thanks.
Posted by Jeffrey Schultz, M.D. on May 16, 2003 at 5:40 PM You have brought up various scenarios about our financial future, but I have a question. With more and more foreign ownership of businesses and property in the U.S., and our increasing debt to other countries with the imbalance of trade…...Aren’t our business leaders concerned? After all, they may be reaping profits from cheap imprted goods now, but when, eventually, foreign control of U.S. business assets exceeds that of American control, where will we be, with more money going out, than coming in? Is anyone looking to the future. We will surely lose our great way of life, and be lowered to the status of a second rate nation.
Posted by Dean Danos on May 16, 2003 at 5:44 PM Many of us have bought vacation homes to diversify from our tech losses. Princeton, Cape Cod, Washington, DC have tended to be impervious to bubbles. When do you expect Housing prices to drop? I hope to enough equity to hold on.
Posted by Mary Ellen Marino on May 16, 2003 at 6:15 PM As a Realtor I value the prognostics on the Real Estate Bubble and the
problem with high equity mortgage refinancing..My daughter has been caught in this trap..both un-emplyed
techies now,,Very good article.It should be circulated by Real Estate professionals who care for more than making a commission!!
Posted by J. Fisher on May 16, 2003 at 6:35 PM This is my hypothesis ...................
U.S. & Global Economic Stability and Sovereignty
U.S. MANUFACTURING
Keeping U.S. Manufacturing here at home promotes our citizens the means to .... Travel .... to other countries…... that Retail and Service Sectors alone cannot provide but minimum wage jobs. When we buy imported goods (already) here within the U.S., we (un-create) the expansion of our own Manufacturing, Retail and Service jobs from within,
and the need to travel, visit, and buy those goods all around the world our individual selves. It promotes tourism and travel needed, in which, keeps the airlines in business and helps sustain other countries economies from within their infrastructures and keeps our internal economic infrastructure secure as well.Needed is to reinvest in our own Manufacturing infrastructure and make investment $ís easy to get a hold
of for Inventors of new ideas to start and produce their own Products AND take back the manufacturing weíve lost to other countries such as China, Mexico and Japan; such as TVís, Sewing Machines, we use to produce.The truth is Manufacturing is our driving force to our economic solvency and U.S. soverinty. There just
simply is not enough ìManufacturingî to sustain a Global Economy .............. PERIOD !!!!!!!!!!!!!We need to look at the Whole Picture Here…... ( 3 D). Weíre never going to be able to compete with cheap labor, unless you bring ourselves down to their economic levels….... PERIOD !!!!!!!!!!!!
We can put Warehouses and Distributors overseas, but ìNEVER, NEVERî your MANUFACTURING BASE. (this also has to be controlled too).
The COUNTRY with the Biggest Manufacturing Base WINS!!!!!!!!
U.S. MANUFACTURING
JUST TRY AND RUN IT WITHOUT IT!
OTHER WISE = GLOBAL ECONOMIC COLLAPSE!
Mary Anne Svadjian
San Diego, CA31 years in Manufacturing/Procurement,
owned a Retail Store,
and owned a Service Business.
Posted by Mary Anne Svadjian on May 16, 2003 at 6:48 PM I too saw the Stock Market bubble and their was much you could do to defend against it. I see the housing bubble also, here it is up 40% this year alone. At current prices there is little or no value left. How do you protect against loss of even a fair value in your home and most importantly if banks are to get into trouble, where do you put your cash, first for safety and next for a return? I agree with you for the most part but it helps to show your readers a way out and a time line. Thanks
Posted by Ron Hunts on May 16, 2003 at 6:49 PM Brilliant. Unfortunately. Please keep up the great work.
Posted by Paulette Lynch on May 16, 2003 at 6:57 PM Subject American Job?
Joe Smith started the day early having set his alarm clock
(MADE IN JAPAN) for 6 a.m.
While his coffeepot (MADE IN CHINA) was perking
He shaved with his electric razor (MADE IN HONG KONG).
He put on a dress shirt (MADE IN SRI LANKA),
Designer Jeans (MADE IN SINGAPORE)
and tennis shoes (MADE IN KOREA).
After cooking his breakfast in his new electric skillet
(MADE IN INDIA)
he sat down with his calculator (MADE IN MEXICO)
to see how much he could spend today.
After setting his watch (MADE IN TAIWAN)
to the radio (MADE IN INDIA)
he got in his car (MADE IN GERMANY)
and continued his search for a good paying
AMERICAN JOB.
At the end of yet another discouraging and fruitless day,
Joe decided to relax for a while.
He put on his sandals (MADE IN BRAZIL)
poured himself a glass of wine (MADE IN FRANCE)
and turned on his TV (MADE IN INDONESIA),
and then wondered why he couldnít find a good paying job in….......
A M E R I C A ............
Posted by Mary Anne Svadjian on May 16, 2003 at 7:06 PM I would like to hear your opinion on what the general public should do with the investments we have now. What will the new tax-cut mean to the average person? Sould we get rid of our dividend paying investments before we will have to pay taxes on them again?
I am retired and do not have many years to wait for my investments (mostly mutual funds like 500 Index, Balanced, some Growth, some Tech; some bonds, money market, etc. )
I am very angry that I might die poor (I was born poor and worked hard and saved most of my life while raising children). Will the crooked CEO’s have to return any money or be punished in any way?
Posted by Lola Boan on May 16, 2003 at 8:46 PM I totaly agree with you, that is the reason I only stream-lined my Home-Loan to a lower interest rate.
WHEN SOMETHING LOOKS TOO GOOD, ITS NOT GOOD.
Posted by ZIAD KHOURY on May 16, 2003 at 9:02 PM I’m afraid I’m not very knowledable about financial matters, but am trying to understand this. I do have a question for anyone who has a better grasp of history and finance: who profited from the Great Depression? (may seem cynical, but I’m assuming someone profited by it) I see a lot of greed, but I also see some very articulate people countering it.
Posted by Laura Nelson on May 16, 2003 at 9:53 PM Many here are asking for a timeline for the bursting of the real estate bubble. I believe that the real estate bubble that Mr. Baker refers to here is already starting to burst for owners of existing homes. In most areas of the states, new home prices continue to rise or remain as they were last year.
The bubble is starting to burst for existing home prices though.
For example, those trying to sell older existing homes, however, in the Silicon Valley neighborhood I recently moved out of, all had to substantially reduce their prices. Those who managed to sell took losses to do so. Those who did not saw their houses sit unsold for many many months. Granted, Silicon Valley housing prices suffer the worst effects of the bubble, but again, it appears to me that the bubble is already bursting. As we are probably all aware, nationwide, there are a record number of foreclosures and personal bankruptcies going on right now, and while most of those foreclosures are due to prolonged unemployment, it would be interesting to know how many are foreclosing simply to move on since they cannot find a buyer.I was also fascinated with the reader comment that spoke of the 4th bubble, “debt.” Mr. Baker partially addressed this in his article when he spoke about the refinancing frenzy going on right now as a result of super low interest rates, but he did not mention the willingness of so many individuals to go so far over their heads into debt via the old plastic demon, the credit card. This too is a frightening “bubble.”
Posted by Newby Bismark on May 16, 2003 at 10:03 PM Good descriptions of the three bubbles in the space alloted. There is much more to say about how the “strong dollar” was implimented and how/why the Fed is such a willing partner with the Gov’t and Wall Street to maintain these bubbles.
Posted by Morris Nelson on May 17, 2003 at 2:35 AM Economics is not a compelling subject, however this article is so straight forward, succinct and easy to follow I am VERY impressed. What a fabulous writer!
Posted by lynn di nino on May 17, 2003 at 5:06 AM Dean Baker’s article seems plausible enough. Hindsight w/r to the tanking stock market is pretty much a no-brainer, but only time will tell if the rest of his analysis proves accurate.
The $8 trillion paper loss in stock values represents real money lost by investors and gained by savvy financial speculators who were short the market on its way down. The market is a zero sum operation. The only way stocks could get so high is if someone, somewhere, was willing to pay real money to buy them at those ridiculous prices. That would be people like me who invested their hard-earned money in the market for retirement through mutual funds, 401k’s, and so on. The 8 trillion bucks that disappeared form their accounts was looted by a relative handful of market insiders; mostly within the banking and finance community, brokerage firms, and higher-echelon corporate hierarchy.When the real estate bubble bursts, more hard-earned money will “disappear” in much the same way. C’est la vie. Business as usual.
I think there were plenty of people who knew where this was all going as the market bloated during the 90’s. They just weren’t saying anything, or they were outright lying to investors to set them up for the kill. Follow the money. Somebody got rich while the rest of us went broke. The golden rule of market economics is caveat emptor: there ain’t no free lunch, unless you’re a member of the diners’ club at the top of the pyramid. The message for the rest of us is, “Get over it, and get back to work!”
Posted by Michael Manley on May 17, 2003 at 12:13 PM Thank you for submitting this excellent article.
Only such factual objectivity is useful in reviewing and evaluating the economy and our situation within it.
Posted by Barbara Carson on May 17, 2003 at 4:19 PM One aspect on the dollar that is not often discussed - what will the affect be - both here and globally - of the fact that many world currencies, most significantly China’s, are now pegged to the dollar. When the value of our currency goes down so do theirs. Will this prevent a major meltdown?
Posted by Jane on May 17, 2003 at 4:25 PM This is a good overview on the principles of economic “bubbles.” I can’t help but wondering, however, why authors such as Mr. Baker refuse to discuss the central weakness of the American and Global economies. What is it? It is the Federal Reserve System, the central banks in Europe, Asia, and elsewhere, their fiat paper, fractional reserve money system. Such a discussion will include the syphoning off of (primarily the middle classes’) wealth through expansions and contractions of curencies, the intentional squandering of billions of dollars of taxpayers’ monies in order to continue the printing of baseless (and worthless) paper money and its perpetual debt machine, and why we do not demand the end to all central banks (which are only private cartels making the powerful more powerful) and a return to a stable economy based on precious metal.
Time is running out for us. The Fed is lying about deflation (it is coming) as it has always lied about inflation. Why no in depth discussions about these critical issues?
They are the ONLY ones that matter.
Posted by Martin on May 17, 2003 at 6:36 PM Dear Mr. Baker,
Thank you very much for this insightful, enlightening and thorough article. In these sad times it is not only refreshing but absolutely critical to have access to and be informed of analysis done by view points other than the one done by corporate media. I appreciate your article and look forward to your future work.
With sincere regards,
Fariba Thomas.
Posted by Fariba Thomas on May 17, 2003 at 7:17 PM To Dean Baker:
I enjoyed this article. The foreword refers to your 1999 article After the Fall. I would like to read it; could it be sent to me via email?
Ross Millie
Stanford MBA ‘72
Posted by Ross Millie on May 18, 2003 at 1:07 AM Excellent, though depressing, article. But now what? No real ideas of how to go forward with this knowledge.
Posted by Joan on May 18, 2003 at 3:41 AM In the Seattle area the housing bubble has already burst for houses in the 450k and up range. Those houses can sit on the market for years or you can take a loss on them. Even people who bought ten years ago in the high ranges can expect to lose money.
A question that I would have is should a person sell their home, buy Canadian money, and buy the home back at a lower price later?
Or move to Canada?
I see coments on how important manufacturing is for the US. I don’t think the rest of the world wants to buy what we make right now. And it has nothing to do with how cheap it is. The rest of the world dosn’t LIKE us. You can thank the current management for that. That would fall under the political bubble(or lack there of) that someone mentioned.
Posted by Chris on May 18, 2003 at 6:33 AM Very intersting article. Higher interest rates to prevent inflation would upset alot of households and send house prices plumetting.
Posted by Matthew Montgomery on May 18, 2003 at 10:48 AM Congratulations again on having the guts to disregard the conventional wisdom in economics, and opt for 1st rate analysis solidly grounded in the data.
Okay, Dean is my brother, but the fact is, when you read his stuff 1-2 years after it was written, it stands up quite nicely. When do the same with the conventional economic pundits, you can only wonder, “what were they thinking?”
Posted by Randy Baker on May 18, 2003 at 6:11 PM I would call the 1990’s our “Roaring Twenties.” We were sassy because we thought we were rich… and we spent money with wild abandon. We all remember what happened after the Twenties….The Great Depression. The purpose of establishing the Federal Reserve Bank was to keep a watchful eye on just exactly this. Did Greenspan fall asleep in the 1990s or was he just having a good time, too?
Posted by Janie DeAngleo on May 19, 2003 at 2:54 AM I am an avid reader of Dean Baker’s articles & I read them more than once religously.
You can find his articles at www.cepr.net
Posted by SATHISH K GURRAM on May 19, 2003 at 4:33 AM A first rate piece and he is right. Exactly as right as Kurt Vonnegut was in your interview with him last January!! Keep up the good work.
Posted by Donald E Morse on May 19, 2003 at 2:44 PM This is a fine article and I thank you for it. I have a question which you might ( I hope) be able to answer with regard to the economies of ths country and the European nations.
I understand (and I might be wrong) that the European National Economies are growing at least as well or better than our own; how can this be?
how can the European economies achieve whatever success they achieve in growth and stability when they have little or no investment in military or defense spending?The US since WWII has been utterly dependent (according to Chomsky and others I’ve read) on the Pentagon’s corporate investment (not necessarily arms) to continue this country’s perceived growth.
I guess my question really is: How can Europe do it and we cannot?
If you have any answer please let me know;
Al Buono
Posted by Alfred J Buono on May 19, 2003 at 4:53 PM It seems to me that the present economy is somewhat like a car with the wrong driver, or a horse with a bad jockey. The ups’ and downs (i.e. “bubbles”) are normal occurrences. Several past administrations knew how to gauge the bursting bubbles, and how to reshuffle momentum back into the dynamics that exist between workers and management, consumer and supplier, and market forces vs manipulated markets such as energy supplies. The Bush administration has shown no interest in any ideas other than the well worn (and threadbare) mantra of trickle down. Make the rich richer, and somehow the milk of human kindness will spill over onto main street and the jobless, isolated suburbs.
The economy in recent years has favored investments over jobs and savings. While saving is admirable, most Americans live a little closer to the streets than their wealthier counterparts, and cannot invest or otherwise place much cash out of their reach. The “American Dream” has become only a dream for too many families whose income has not risen as fast as land values. The family home has become an investment, and investors have flooded the real estate market as a relatively low-risk alternative to a flatlined stock market. So, too much money is tied up in housing, leaving other sectors such as a retail scrambling for ways to boost sales in a credit-heavy market. More borrowing.
Finally, the means of production has been shipped out to foreign producers, leaving unemployment and poverty in its wake. Without jobs that pay real money there will be no real way to shake out the economic doldrums. Without real jobs held by real people who pay real taxes, and buy comsumer goods, the government will have no means of raising income, and the safety net will shrivel up even faster than conservative Congressional hackers can ink out aid for middle and low income victims of its own economic skulduggery. The Bush Administration cannot go on much longer feeding on its idealogy while ignoring the economic realities just a few blocks from the well-tended White House gardens. Voters, wake up before even this right is tied to the idealogical means-testing as the Bush camp seeks to reshape reality into its own clone of prosperity for the rich based upon sacrifices of the rest. Quick, somebody teach this Bush to drive, before it is too late! There may be a cure on the horizon, but it really is really later than we think!
Posted by Marianne Menter on May 20, 2003 at 1:11 PM Great article. Unfortunately, our political ;eaders are too blind and greedy to take any action.
Posted by emilio salis on May 21, 2003 at 1:23 AM Good to see the left is still squarely against Pres. Bush. This will only ensure a rather huge electoral victory in 2004, a rip roaring economy, and the opportunity to beat Hillary up bad in 2008. Keep on whining and saying how stupid Pres. Bush is…it just highlights the left’s ineptitude.
Posted by Vin on May 21, 2003 at 1:20 PM Had to laugh when I saw the response of the looney posted 5/21. Glad to see they’re still with us. What would we do for entertainment without them?
Only comment about this article is that I think Dean Baker errs when he says the ‘corpoate accounting scandals were an outgrowth of the bubble.’ The corporate accounting scandals were a major cause of the bubble. Corporations inflated sales projections that were then sworn to by the big accounting firms and filed quarterly led to the false believe that the economy was nothing but rosy, hence the stock market swing into the stratosphere -the bubble. And then, the same false reports were used as a basis to reward CEOs for their fraud. Corporations and their henchmen were 100% implicated in the bubble, and criminally at that. They shouldn’t be given a free pass by someone that IN THESE TIMES refers to as a prescient economist.
Posted by S Jewell on May 22, 2003 at 6:12 PM The bubble was part and parcel of the immoral actions engaged in by Democrat Bill Clinton. The fish rots from the head. Everyone should buy gold, buy guns (oh I forgot you folks don’t do that!) head for the hills! The sky is falling! Lotsa luck, dollar falling is a good thing which will help US companies, lower the trade deficit, etc…. End of the war will boost confidence, and Bush will win overwhelmingly in 04, much to you lefties chagrin. If you want good “end of the world” stuff go to prudentbear.com. Baker has a point here, but he will be proved wrong.
Posted by loony vin on May 22, 2003 at 9:16 PM I read this article for a second time, and I must say I agree with most of the premises but not all. I do agree that the 90’s was a decade of excesses; we were never as wealthy as we thought. I also agree that the stock market bubble and the dollar bubble had to burst. The first one already did and the second is in the process of doing so. I went to Spain in March. I was buying Euros for about $1.05. Back in early 2000, I could have bought the Euro for $0.85. Today that figure approaches, $ 1.20.
However, I suspect the Real Estate market Bubble is a little bit more complicated. For one thing, both the Stock Market and the Dollar are national, while the Real Estate market is localized. If Mr. Baker means, that some Real Estate markets that are severely overpriced will burst, such as San Francisco, and Washington DC, I suspect he is right. I just saw statistics showing that the ratio HOUSE COST/INCOME for a house in San Francisco is twice that in Chicago. There appear to be some “severe” localized problems. At least it is safe to say, that if there is a correction, it will not be as severe in the Chicago area as it is in SF. I suspect that to make up for the fact that the Real Estate market has grown much faster than inflation for the last few years, it will grow at a rate much lower than inflation in the Chicago Area (where I reside) from now on. At the end it will all even out.
I do believe that we are for some tough times ahead. We have traveled to much, we have drank to much, we have eaten to much, we have consumed to much, etc., etc., etc. and we have done all of these with borrowed money. It is pay up time.
Posted by emilio salis on May 23, 2003 at 2:57 AM “I strongly suggest to folks to read as many of the intelligent reader responses.”
I would but they don’t seem to be posted here. Do we have a separate forum?
Posted by Nus on May 23, 2003 at 5:10 PM Dean, are you kidding me? I guess you forgot that the economy began falling in 1998, not 2001 like you said. In fact, many believe that the policy set in place by elder Bush set the economy on the rise. Republicans know what they’re doing economy-wise. Reagan had the highest peace-time economy in his eight years in our country’s history (yes, Baker lied).
Posted by Brad on May 23, 2003 at 7:50 PM I’m sorry to read liberal bashing, even if they are in the tiny minority of the readers comments. It appears that the mindset of “attack” is prevelent throughout the neo-conservative movement.
Dean, your record speaks for itself. What you have had concern about in the past has come to fruition and I trust that your expertise will prove itself again. Thank you for all of your insight into the reality of the economy. I look forward to any and all recommendations you might make concerning the dire condition we are currently in and the bleak future under this current administration.
Posted by Deborah on May 24, 2003 at 7:51 PM What does it mean that
“the United States is currently borrowing more than $550 billion a year from abroad” - who is borrowing? not the government. Private banks? Corporations? Why are they borrowing and not just buying with cash on hand?I’ve never understood this…
Posted by DMAX on May 25, 2003 at 1:43 AM Although I agree with Mr. Bakers article to some extent, I do have some doubt in what he writes. Last year I was in the process of purchasing a house till I read his article and stopped from purchasing a house because he expected prices to come down. Here is the Article he wrote last year. I don’t know if he is a bear or just lack good knowlodge on economy. Again here is the article. :
http://www.cepr.net/Housing_Bubble.htmCurrently I have been shorting the market again as early as Friday to hedge my self. I strongly recommend you don’t take a position of one side. Talk to a proffessional before putting up that for sale sign. Even though Mr. Baker was wrong last year on his forcast of the housing market I think he may finally be closing in…kind of reminds me of the CNBC talking heads who guess so many stocks finally get one right. As far as the Stock market top in 99, 90% knew it was top because of that 5 parabolic wave yet psychologically no one acted. This will be the same scenario…we all know the housing is about to peak any month now..but do u see people selling?? It all comes down to greed and fear. We shall see this cycle repeat itself again. So I ask Mr. Baker this. Has he sold all his properties?? Is he all cash? gold? I don’t think so..he is just doing his job, unless he can prove to me that he has sold all his properties. Good luck, always do your own research. These so called pros, they dont exist.
Posted by Martin Armstrong on May 25, 2003 at 8:53 AM Too bad we can’t manage a political alternative equal to the dynamics of left analyses.
Posted by John E. Chiaradia on May 25, 2003 at 5:46 PM How did we get here? When did this happen?
Well, it was in fact explained to you is a clear warning only 200 years ago. HAving trashed nearly every prcept the man held dear, people now wonder where the country he envisioned and loved has gone.“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” - Thomas Jefferson
Posted by Fred Coleman on May 26, 2003 at 7:06 PM For those interested in how we got here, I found this other article very interesting:
http://www.larouchepub.com/other/2002/2924fannie_mae.html
Posted by Joe on May 27, 2003 at 5:11 AM Now is the time to get into real wealth. With Gold being near 80-1 against Silver, has there ever been a better, cheaper, subsitute for money?
Get into reeal money…. or watch your assets deflate like a balloon.
Posted by Got Silver? on May 27, 2003 at 6:59 PM Makes sense to me. Has anyone figured out a way to time when these shifts will occur? These bubbles last a long time before they change direction.
Posted by Bill Dean on May 27, 2003 at 10:40 PM Very good article with lots of good explanations to our current economic situation.
However, it goes along with a trend I have been reading in many economics articles recently. The root cause of many problems are given to the Clinton administration and the current faults in not turning things around are handed to Greenspan. At what point does our current President Bush assume responsibilities? Will it only be when/if things turn around? What has he been doing that works? The American public is being set up from the financial right to absolve the Bush administration of its failed policies.
Posted by Joe in MN on May 27, 2003 at 10:54 PM mr. baker you fail to point as long as the interest rate are going down the prices of the houses are going up remember god doesn’t create any new properties
Posted by pollak on May 27, 2003 at 11:57 PM In 1929 just before the stock market crash , capacity utilization was at 83% . In 2000 just before the stock market crash , capacity utilization was at 82.4 % . Coincidence ? you be the judge ! A look at the post crash era’s in 1929 and 2000 shows other similarities , especially in the drop year after year in capacity utilization . In 1930-66% 1931-53% and in 1932-42% , in 2003 capacity utilization has fallen to 72% . So far this era has not been to bad in comparison YET !!! In this era (2000 post crash) there were no universal bank failures (YET) , we have unemployment compensation (extended) , home equity , and 401K’s to cash in and a Federal Reserve that has been more that accommodative . Soon all those resourses will be gone (IMHO). The low interest rates that our savers have been earning on their savings , will begin to effect GDP in the negative , here and abroad . I am guessing here , but I would say that the real unemployment in the U.S. is probably around 12% , and growing , no different than Germany , France and Italy . Bush , along with the Fed are doing everything in their power to get this economy going before the next election , they have given the bond and stock market a free wheel . This is why the markets are improving now , but this is as artificial as it gets , when the stimulus is withdrawn , IMHO the whole thing will come crumbling down . The real problem facing the world now is excess capacity , until this is dealt with , there will be no real recovery . If and when the excess capacity is taken out , unemployment (U.S.) will explode , real unemployment could easily hit 20% ! So you see , that just like Japan we are in a trap , damned if we do , and damned if we don’t ! The Reaper !
Posted by joeblack on May 28, 2003 at 12:15 AM Here is the scoop on why Mr. Bush is in a jam!
Your comments?
w
Posted by Gene on May 28, 2003 at 3:40 AM Good luck to the USA reducing the trade deficit when the Chinese unfairly FIX their currency to the US$ at 8.22 to 1,,,in spite of the fact that the Chinese economy grew at nearly 10% in Q1…
Reducing the trade deficit in a meaningful way WILL ONLY COME from the Chinese changing from a fixed currency to a floating currency like the American trading partners.
Unfortunately, a removal of the ‘fix’ will hurt China more than the USA,, and would probably cause a huge crash in China..a meltdown…while the inflation we see on the import side of things will amount to something like 20% or even less. 20% increase…big whoop!
My home owner insurance has gone up 100% in 2 years.
My medical insurance has gone up 30% in two years.
PS
Meanwhile, the US markets seem to be on a mission!
The mission: to test and exceed Sept 10, 2001 levels. To test and exceed the closing levels of the day before 911 would be a symbolic move for the markets. A symbolism of recovery. Breaking those levels would be bullish!
The NASDAQ and the NAZ100 are not very far from those levels!
Posted by Dennis on May 28, 2003 at 4:59 AM Folks,
I lived in the US for a few years in the late 90’s. Great place. Social inequality bothered me a bit but you couldn’t argue with economic strength. It is so sad now reading articles like this one plus so many more on issues like homelessness, poverty, unemployment, bankruptcies, education disasters etc etc.
I visited the States again recently and was a bit shocked at how different it felt. How badly can things get?
It seems to me that a thin layer of ultra greedy and cruel folk have taken over your country and are destroying it. I mean the right wing ideologues. Their beliefs cannot result in a workable society.
In Europe there are economic problems but not the poverty in the streets that you have. Here in Australia we are fine, but we live off natural resources and have a much more equitable social structure. You can actually be poor in Oz yet still have good healthcare, good education, good accommodation and not have to live in a ghetto. Ok, you don’t get cable TV and a new car every few years but so what.
Where will it all end? I suspect the US will end up much like Brazil. Some rich people, some nice things about it, but also legions of poverty and despair.
Good luck my American friends. You gave the world so much but all things must pass. There will need to be a revolution before the big changes Baker alludes to can happen. And revolutions always end disastrously.
Posted by Dan on May 28, 2003 at 5:06 AM Forwarded by a friend and an excellent read.
Did have a genuinely serious problem reading it since changing the text size apparently does not work. I had to use a magnifying device to get through it.
Otherwise - Very interesting article. Reader comments are also valid but fail to realise the editing/length constraints possibly imposed on the writer who could not presumably be allowed a 40 page thesis.
Posted by Dominic Lovell on May 28, 2003 at 5:52 AM I think Baker is right about the three-bubble economy in general, and as for practical actions to take, this is the first of two articles after all.
In many ways I think the dollar bubble is the most dangerous of the three.
The high dollar made life feel good in the 90s—even people whose income was going down, or who saw other costs rising like people here have mentioned, felt they could do okay because most of the little stuff they bought was getting cheaper. Manufacturing overcapacity, mentioned here, was part of it, and so were dirt-cheap wages in dollar-tied countries like China, but the strong dollar was at the base of it. When stuff is cheap, people feel better. Happened in Britain too until recently.
But now that bubble is beginning to burst. Administration flacks have said a lower dollar is good for exports. What exports? Farm commodities? They’re cheap now already, and the rest of the world doesn’t want ours because of genetic modifications. Boeing aircraft? Not so much now. What else have we been exporting lately? We don’t make much here anymore.
Our trading partners, the G8, and the European Union all understand this. In its timing, the dollar decline (though needed) was begun for political reasons, to punish Bush. They all think he’s out of control and are using the most effective weapon they have. And we’re all going to pay a big price when the decline cycles through to raise prices on what we buy.
It was entirely foreseeable: the only sure casualty of the Iraq war was the US dollar.
Posted by Altoid on May 28, 2003 at 6:41 PM I hope the second part of the story will address the arguments of those economists who claim there is no housing bubble. In particular, a Harvard study group on housing in America contends that house prices will continue to rise (or at least hold steady) because of ever-expanding demand fueled by several factors, primarily new immigrants. I’ve not seen anyone address this study and its conclusions from a progressive perspective and hope the author will do so in part two. Otherwise, an interesting—and frightening—article.
Posted by Greg on May 28, 2003 at 8:22 PM The extent of the current financial mess is as the tip of the iceberg.
Posted by lenn on May 29, 2003 at 2:15 AM I agree. There are a few ways that housing will collapse. Either from increased interest rates (most likely, except for the Asian banks buying our debt we would have already seen this. Interest is suppose to reflect risk, which it currently does not!) or secondly is the possibility that foreclosures will finally overtake demand and swamp the market with supply. The foreclosure system is atrocious and very mismanaged. Because banks carry few mortgages on their books, sell most, there is a huge distance between the owner of the mortgage and the payee. Can take over a year from the time the first payment is missed until the property is back on the market. At this time that is an advantage to the note holder due to increased house prices… at some point it will be an incredible disadvantage.
Best Regards
Doug StohlmanI will look forward to reading your next work
Posted by Doug Stohlman on May 29, 2003 at 11:45 PM Coming from a Austrian Economics point of view, this is the best non Austrian view of the current mess that I have seen. He captures almost all of the problems our country and the world for that matter are facing. The only thing I absolutly don’t get is the last sentence about the New Deal. If anything the entire article is about how governmetal Interference is at the root of this mess. If anything the New Deal multiplied the suffering of the 30’s for many more years and has laid an unbearable burden on us 70 years later(ie the Baby Boomers). So, I give him an “A” right up to the last sentence which i give him a “?”(don’t know what the hell he was thinking).
Posted by Robert on May 30, 2003 at 7:16 PM Exactumundo! But the “dollar bubble” started in the 1970’s, I would say. Or even earlier, with the Bretton Woods accords.
And not only does the U.S. face a “triple bubble” - but, for the first time since the late 1920’s, the major economies of the world are engaging in beggar-thy-neighbor strategies to compete for export market share, at the same time that the major economies face recession and disinflation. Another trinity spelling failure in the global capitalist economy.
Hopefully, this Next Great Depression will end with wealth being distributed to India and China and other non-First World nations. Not to mention a 1930’s-esque renaissance of sensible economics in this country and Europe.
Thank you, Dean Baker!
Posted by Mitch on Jun 2, 2003 at 7:20 PM This article was most interesting and well presented. I am a REALTOR in SO. CA, and think the lossie-goosie lending policies are going to come back to haunt us. Also, some of the blame on the housing market bubble, and the risking high mortgages, is the Realtor Associations propaganda articles in papers. Hyperbole is going to create a lot of poor baby boomers in the years to come. Debt Ratios are out of whack, and home prices, are just too high, while salary deflation is alive and well. Being financially conservative, I caution people to save for the rainy day, but the lenders tell people that their equity is their cash cow.
One more thing, my husband was laid off of a $165K hi-tech job, and his last application was 1 of 643. Jobs are gone forever, and something is going to give. Housing will regardless of how low the rates are. Lots of folks are worried about their jobs, are in debt up to their necks, and have no or little cash reserves.
Its amazing how the good times weren’t saving vehicles for the times that have arrived. Yeah, we bought the big house, expensive furniture, etc… but our cars are paid off, we “paid ourselves” with 30-50% of our financial revenue bubble” and lived way below our means. Now the bad times are here. Wish the lessons of the Great Depressions were still passed down by generation.
Dean Baker, you are one smart cookie.
Thanks.
Realtor @ Large
Posted by Realtor @ Large on Jun 7, 2003 at 7:03 AM I hope it is true because in the long run it may proove better for the poor of the world. Dan
Posted by daniel klokov on Jun 7, 2003 at 1:47 PM Here is my solution. Stay one half in hard assets and one half in paper. These are in balance at opposite ends of the see-saw. When one asset goes down, the other goes up. For example, due to low rates, I get no income from my cash now but the value of my real estate has gone up because of the low rates. I think if you stick with this and don’t panic as the see-saw moves———-it will balance out.
Posted by David Hill on Jun 9, 2003 at 4:52 PM Outstanding article and, taken with Mary Anne Svadjian’s response below, clearly explains the US’s situation. The economy can only be far more negatively affected by the ever-increasing offshoring of American jobs by both American and transnational corporations.
There is only a finite number of jobs - and now we are in a sad spiral of cascading unemployment which bodes ill for the future of our country. The offshoring of American jobs in non-partisan - it is strongly supported by corrupt Democratic, Republican and Green politicians who wish for the demise of America.
Posted by James Woolley on Jun 13, 2003 at 3:50 PM Sound and informative. Worthy of high praise!
Posted by Richard & Roberta Baldwin on Jun 16, 2003 at 10:59 AM Good article with solid reasoning…
LaRouche has been saying the same thing for years but has anyone been listening?! No, just con’t BS and slander.
Posted by Bob Fritts on Jun 18, 2003 at 8:02 PM 1. housing taking longer to sell here already=first sign of the peak
2. recent articles say Freddie Mac and Fannie May the private-semi government supported orgs that buy most home mortgages are possibly cooking books. their failure would be bigger than saving and loans
3.Ravi Batra - “the crash of 1989” spoke of the fact that there must be a middle class for the economy to proper and that to little taxes on the welathest promote no middle class - onlty the poor and very rich so lifstyles - even for the rich- become worse as soceity andinfrastructure become less apealing.
4. no has mentioned yet that we have moved form an agricultural to an industrial to a nn physical ggods based economy - the majority of the products “consumed ” now (by value) are non physical ( software, videos, music) and with the internet city infrastructure is not needed .
“value” depends on trade but when people can exist in all but food and water in complete isolation and stilll get the majority of goods and services ( tv , knowledge - communication) without cities adn trade then the whole counting systme for society is devalued. It’s now possivble for someone to make only $200/month live int he desert with satelites links and have the same life it took $2-4000 / month to do because you usd to need to live in high prices areas -hence living standards seem to fall as does trade but quality of life remians hihg but in isolation. this cuases apparent drops in equity of all types and since so much of equity is the basis for promises of the future thrugh pensions and debt payoffs those reliant on promises of the future still living in high prices areas will be unable to afford it.Best invest now is to move to a low priced housing area with paid for systems.
Posted by George Watson on Jun 23, 2003 at 7:59 AM The article is shockingly true. To all who love democrats, yall are the ones who bring the problems to our country. Tis not the fialed Bush Administration, it is Bush taking the fall for mistakes the Democrats, Clinton, made.—————How do you like that???
Posted by Sean on Jun 25, 2003 at 6:55 PM Dear Mr Baker: Thank you for your clear and concise explanation why the economy will go down the drain. It makes more sense than any of the “Jobs and Growth” cheerleading statements coming from the White House or the Treasury Department.
I am not an economist and I do not have reams of data available to me; however, I have noticed some trends in the economy that greatly worry me.When I read a study done by the Congressional Budget Office on effective tax rates, I realized that for about 60% of the tax filing individuals disposable income had not risen appreciably over the course of almost twenty years (1979- 1998). Moreover, the share of the national income going to the highest income groups increased dramatically. In 1998, the top 20% of tax reporters collected more than one-half of the national income!
I presume the trend toward concentration of disposable income (and wealth) at the top has continued and perhaps excellerated since then.
It has also been reported that compared to past recessions, the recovery we are now experiencing is fueled by increased consumer spending rather than increased investment. The consumer has been playing a larger role in keeping the economy going than in past recessions. Investment has been lagging.
So here is the problem: if 80% of the population is now collecting less of the national income, and is likely to collect even less in the near future when the Bush tax cuts fully kick in, how will consummer spending be able to maintain economic growth?
One possible short term answer is to create more consummer credit backed by draconian bankrupcy laws. This is not a nice solution.
If I am not mistaken (I am not a trained economist). Thorstein Veblen believed that one cause (or the cause) of economic depressions was the concentration of wealth at the top.
Again, let me say that I am not a trained economist, I do not have reams of data and explanatory theory at my command, and I do not have a crystal ball; however, my gut feeling is that should Bush be re-elected and should he pursue his stated (and unstated) economic policies, the United States will experience its largest recession ( formerly called a depression) in the post WWII era.
I am not sure whether I am a pessimist or an optimist. Normally, an pessimist sees a pitcher or glass as half empty. But when I look at politics and economics of the Bush administraion, I see an ass full of it.
Posted by Loyal Nelson on Jul 22, 2003 at 11:17 AM i came to some of the same conclusions about the stock bubble in the late 90’s(at that time)... it is nice to know when you are correct. i am very appreciative of the analysis presented on this web site (CEPR). my hope is that more consumers and policy makers will use it to help with true growth in the economy and improve the standard of living for the entire U.S.
i would like to say i would like for analysis presented to be objective
and non-partisan for the benefit of all US citizens. ( i consider myself a moderate)THANKS! KEVIN MILLS
Posted by kevin mills on Jul 22, 2003 at 3:02 PM Imthink your comments are quite good.
I would welcome your comments
and comparison of President Bush
and President Reagan. I think President Reagan hurt our country much more than most realize.
Posted by Ralph Kitchens,Sr. on Jul 25, 2003 at 7:28 PM Good article but too phenomenological lacking theory basis. All the kind of bubbles are due to excess of valuable assets such as stocks, bonds, equities and so on, so called virtual assests. In the case of normal balanced economy these assets are bound to facilitate real industries, i.e. manufacturing, agricultural, transport, power, utility. When the real economy, enterprise, manufacturing slows down (or sails away to Asia) these assets are getting unlinked from real industries and begin to live their own lives. Mainly it is also due to the fact that the large social groups are relying on them, i.e. investment bankers, stock and bond speculators. They all need their living space. But the investment bankers do not bake bread nor stock analitics tailor coats. So making no useful job they just consume real assets and means of living. And all the nation goes down. The job of investment bankers is to redistribute capitals between corporations and industries from less profitable to more profitable. This job is great enough when economy is in the boost because it facilitates development. But when the economy slows down the investment banker turns from investor into speculator and does nothing good for the real industries. Suppose you produce some product. Then it is getting hard to sell it and your employer cuts production, workforce and lays you off. But such a thing is never happened to the investment banker. That’s the point! The Fed and the goverment supports these folks and their business issuing money and lowering interest rate. And in the end of the game the cost of that policy will be paid by all the nation.
Posted by Stan Samolenkov on Aug 1, 2003 at 1:21 PM Loony Vin, they make some fine anti-psychosis medications these days.
Posted by neil on Sep 2, 2003 at 1:34 PM Richard Duncan’s new book “The Dollar Crisis: Causes, Consequences, and Cures” has an excellent discussion recent bubbles and their origins.
Posted by Jim B. on Oct 1, 2003 at 9:48 PM Where is the housing bubble Mr. Baker? Its been two years now almost since you been calling housing bubble and economy going from good to bad. You still believe this?? You had me going for a bit but im begining to think that the dollar collaps is rather good news to us and for others. So far non of this has worked out the way you put it!!! Perhaps you should try another field. I missed good opportunity for buying a house 2 years ago. Thanks a lot dip weed!!
Posted by Dr Shwartz on Oct 7, 2003 at 9:43 AM Hey this guy really knew what he was talking about. Not. Record growth in the third quarter along with quite a rise in the stock market leaves this asshole a void in the prediction. What a joke.
Posted by Brian Timm on Nov 4, 2003 at 1:49 AM I really enjoyed the article and it just so happen I am in an economics class studying the Federal Reserve. I was trying to find a paper that would help me resolve one the questions asked by my profesor. How explicitly does the Fed go about raising and lowering rates and why?
Posted by Linda Curtis on Nov 16, 2003 at 6:09 PM The price of gold has gone up from $250/oz in 1999 to a recent high of $414/oz. China has now opened the gold window by allowing Chinese citizens to participate in purchasing gold, demand will explode from all corners. Mr. Greenscum, who must continue to financing President Bush and his out of control budget, will continue running the printing presses red hot. All the while Mr. Greenscum is doing that, foreign demand for the US dollars is dwindling. The $500 billion trade deficit is filling the bank vaults of the US trading partners with billions of fiat dollars. They are no longer recycling these dollars to invest it in the US stock market, or buy US Government treasury bonds to finance the US debt. This has become evident at the capital inflows to the US in August. 2004 will be the year foreign central banks try and decide what to do with the mass of US fiat. It is also evident the US fiat dollar is losing its broad based appeal as a global currency. In order to eventually protect the falling dollar Mr. Greenscum will have no option but to start raising interest rates, seriously raising them to stem the collapsing dollar. Heíll certainly do all he can within his power to raising interest rates before the election. You cannot run 1 trillion dollars in budget and trade deficits without having consequences in the real economy.
The media is keeping the lid on some of the most important economic events, like the story a last year, other than the collapsing dollar of course, is the recent comments by OPEC to change the pricing of oil from US dollars. The mainstream economic coverage is bullshit. The day OPEC starts pricing oil in Euros, is the day the dollar collapses. The only reason the fiat dollar game has gone on so long is only because it is the global reserve currency, but looks like those days are numbered.Buy Gold
Posted by Ian Ochnik on Dec 26, 2003 at 10:04 PM What on earth are you talking about? Baby boomers are benefiting from housing market as well as stock market. Market back where it was 2 years ago and housing is at record high. Your 250k home 5 years ago is worth 600k now. You need to get your facts right mister. Stock market may not be at record high but housing market has had double digit gains for last 5 years. I think you seriously do need to get another job, because this is really not panning out the way you planned it. I just hope you didn’t sell your family home in anticipation of housing bubble you been calling for years. Always a joker economist in the works…this one really screwed it up!!!
Posted by Dr Brown on Jan 9, 2004 at 1:18 PM Kudos to Dean for pointing out the
white elephant so many are keen to overlook. I rent a $800k home for
$1700/month. And there are plenty
around of similar rent/own ratios.
Its obvious there is a bit of puffery going on. Additionally, isn’t strange that nobody (other than Dean apparently) is incented to tell the truth about the market? Ask your neighborhood Real Estate Agent, loan officer, current homeowner, contractor, even financial advisor, and not a one will acknowledge the white elephant.One truth, MOST folks who have this conversation own homes. They are loathe to put their money where their mouth is, sell their home, take their bubble level profits and wait a few years to re-invest. Dean, as a matter of full-disclosure, do you rent or own?
But the real question is…how does one hedge against an overheated real estate market (other than renting)?
Please send any and all comments my way. My friends think I’ve become a bit of a Cassandra on this topic, and your comments could help me round-out my argument.
Cheers all.
Posted by Kevin Imm on Jan 19, 2004 at 11:09 AM Talk to anyone over the age of 75 and you will hear it put very simply in words like: “one does not spend their way to prosperity”, “live within your means”, “the rich do not buy consumer products”, and “what will a big new house do that this one will not?”. These sayings sound trite but so does a Warren Buffet with comments like “nobody ever went broke making money” and “we are ushering in the new millenia with investments in bricks, paint and building supplies - try to contain your excitement”. Ask yourself why Warren and Co. were buying into building supplies in 2000 (maybe he anticipated a bubble?). The French also put it very well in an old saying that translates more or less “the more things change the more they stay the same”.
Anyway, this is not a recanting of cliches but merely to illustrate the point that we are not as unique as we think we are. Economies expand and economies contract, capital is formed and capital is squandered, people get rich and people go bankrupt. Also, empires rise and empires fall.
From my perspective the run-up in housing prices is a symptom of a prevailing social attitude. Getting rich the old fashioned way of working, saving and investing to earn a return on ones capital with a clear focus on the preservation of capital. This approach is outside the comprehension of a culture bred on the opium of easy cash, easy credit and instant thrills.
I would characterize the North American economy (yes Canada increasingly so also) as largely a service and entertainment based economy. I disagree with the comment that the US does not export anything - the US exports entertainment and fast food franchises - which is a little unsettling to any thinking person given the volume of sport, violent themed music, film and video games and extensive propaganda that almost disguises itself as business journalism.
It has been documented by many economic historians that the last time North American society had this look and feel to it was in the 1920’s. When I see most twenty somethings I meet with a mortgage 2-3 times their annual income and a $50,000 car on lease and credit card bills with the most recent trip to mexico etc I see carnage in the near future.
The inevitable is coming. Anybody who is looking for guidance on the timing is asking for the impossible. As one of the readers commented, the drinking has been fun but the tab is waiting.
Posted by M Bernard on Feb 5, 2004 at 6:33 AM Lyndon H. LaRouche Jr. has a better explanation on why the world is facing economic collapse as a result of the speculative Bubble. In a nutshell, LaRouche says that the problem of economy is the system itself, that is the floating exchange system. We need more people like LaRouche who expalins economy.
Posted by marlou mumar on Apr 26, 2004 at 5:56 PM Page 1 of 1 pages -
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