i revisited just yesterday an interesting view of the depression of the 1870s — which was notable for some similarity to our current situation, particularly the collapse of a land bubble. the massive trusts were born of this collapse, and did so by going in self-financed and sitting on massive cash piles. this cash was employed to maintain operations while the world was ending, and then to hoover up what remained of the credit-dependent competition.

The buyers of government bonds at today’s prices will lose big money. Equity and debt market investments at today’s prices will produce reasonable nominal returns but get whacked by inflation over the long-term. I think the best investment today is high-quality US farmland.

Speaking of autos, take Detroit. Didn’t we ‘invest’ trillions to ’save’ the cities so that they would become income generating workers paradises? Did someone forget Detroit? Newark, et. al.? Or did the much simpler, smaller than our national economy, Master Plan fail? Where was the accounting? Who was fired? Where were the lessons learned? Or, did we have a Government Policy memory hole out of a Orwell book?

So now, the same big tent of monetary button pushers, now out with slide-rules and in with econometrics are going to come through? They didn’t for Detroit and company.

It seems like the Big Three might go out of business. I can understand why Washington is reluctant to deliver 25 billion to the Big Three. But, why can not our economic masters in Washington, the Fed, supply the particular solutions to the Big Three. After all they are competent to run the country. Right? Hello? Bueller? Anyone? Not a endangers snail, nor child is left behind. Certainly turning around a auto company is small potatoes for these elites.

So, which is it? Is Washington the all seeing, plus or minus, or are then just a bunch of Jesuitical bunko artists, sucking up the hindmost out of the productive class?

If it is the latter, as I feel, then the Clown Posse, some more better than others, are driving the bus.

In fact, I went ahead and posted some of the main points from both posts to draw and compare…

http://financialphilosopher.typepad.com/thefinancialphilosopher/2008/11/depression-or-not.html

“Bad reasoning as well as good reasoning is possible; and this fact is the foundation of the practical side of logic.” ~ Charles Sanders Peirce

Another good point.

“I hear the “anti-depression” crowd suggest that the crisis will be contained to the financial sector.”

Speaking as just one member of the ‘anti-depression’ crowd, the crisis isn’t contained to the financial sector — it just won’t get as bad everywhere as it is getting in the financial sector, e.g., I don’t think United Technologies is going to be laying off a big percentage of its workforce as Citigroup is.

“Hussman talks about the Great Depression comparisons in this week’s commentary…”

John Hussman is one of the few fund managers coming out of this year looking like a champ. His AUM will surge, and deservedly so.

Hussman talks about the Great Depression comparisons in this week’s commentary, and when considering his views on the subject I think it is important to note that he was one of the few voices who correctly identified the risk in stocks in 2006 and 2007 while many were going through analytical contortions to argue stocks were undervalued

http://www.hussman.net/wmc/wmc081117.htm

“If we seriously need to talk about the Great Depression (I personally believe that it is an outrageously dire comparison)…”

I hear the “anti-depression” crowd suggest that the crisis will be contained to the financial sector. Hey, after all, commodity prices have plummeted, gas is cheap, things must be looking up. Then the “pro-depression” crowd points out that the collapse of the financial sector can’t possibly be contained because business models throughout every single sector in the economy have become tied to cheap credit.

And, it certainly looks like without massive government intervention to force banks to hand out credit cards and keep us all shopping, easy credit is going to be a fairy tale we tell our grandkids about.

But if cheap credit is gone (how much less credit overall I wonder)…what kind of an economy are we left with? Are we seeing the end of tech bubbles? Silicon Valley? If America doesn’t have that kind of engine of growth how on earth is it going to be able to meet its obligations?

All the basic questions in this mess still are a mystery to me:

How much of a credit crunch has their been, really?

How much less credit will be available in the future, to businesses, to consumers.

Is this credit destruction irreversible?

To what degree was the strange brew of hedge funds, investment banks, private equity and whatever else central to our economic growth in the past 20 years (i.e. are we really going to miss them that much?)

Can the taxpayer step in and provide the guarantee of safety necessary to keep credit flowing?

IF the credit really is gone, how long will it take to build consumer demand up again?

I think I’ll stop now,
Too many questions…

There are also a lot of companies outside of the financial sector that have lots of cash on their balance sheets that they can put to work. Everyone isn’t over-leveraged.

i would suggest that — while the financial crisis shares features with many financial crises, including 1907 — the economic features have unfortunately little in common with such sanguine views. the financial crisis was a trigger, a detonator, for something else.

mr merkel’s emphasis on total debt-to-GDP is essential in my view — that is the lodestone by which we’ll find our way out of this. and it is further essential to understand the consumer aspect of this crisis — economic historian david livingston recently wrote a must-read essay on the convergence of thirty years of declining real wages (and its converse, record profits) with unprecedented consumer debt loading via a scheme of securitization that amounted to a credit market version of the investment trust of the late 1920s.

that scheme has collapsed completely, and much as with the collapse of blue ridge and shenandoah in 1929 there is simply no going back — debt will now have to normalize now vis-a-vis incomes at tighter-than-normal underwriting standards as grossly inflated balance sheets are reduced, and that promises a very dark march ahead.

nothing of the kind was afoot in 1907 or 1987 or 1998. it is now. that must be understood to understand the economic fallout.

i still think it’s an open question as to whether government can find a way to transfer (through TARP and what will surely be its successors) enough private debt onto its own balance sheet to mitigate the most apocalyptic visions of liquidation — but early returns are obviously terrible, and there very probably isn’t enough balance sheet capacity to take on the entire pile which must be resolved. hopefully they don’t annihiliate the currency in so doing.