"Wes" wrote in message
...
"Ed Huntress" wrote:


Of course, they then have no depositors. This is a kind of equilibrium,
because they don't have many borrowers, either. g In Japan in the early
'90s, banks dropped their loan rates to 0% interest (with some government
help, of course) and they still couldn't give out loans. There was no
growth
in the economy and nobody wanted their stinking money.


Now iirc, Japan was suffering from overstated property values. IOW, they
had the same
bubble we are in currently. I hope you are not telling me that if there
is an unreality
in the market we need to keep that unreality going.

Haha! That's another good point. There are some really good economists
around who are saying that our economy is now dependent upon bubbles, that
the whole house of cards depends upon irrationally inflated valuations, and
that we're lurching from one bubble to the next.

But they were saying that six months to a year ago. Their assumption was
that it would take an economic collapse to wring the inflated value out of
assets (securities, not physical assets), and they didn't see that kind of
collapse coming. Now, maybe they'll re-calculate and say that it's possible
for us to have a real economy again, after we shuck off another trillion or
two in inflated values.

I don't have any idea, but they make a good case.


I see what is happening as a correction. Yes, it may not be pretty but we
can't keep a
sham going forever and our chickens have come home to roost.

I think you made a good case that we are screwed and that is the framework
I'm working
with. Hunker down, reduce expenses, smile at the bosses and hang on to
the job as long as
I can. If I loose the job, start immediately looking for a new one
because 52 weeks of
unemployment isn't going to last as long as the downturn.

This all makes sense. A point made frequently in the popular economic
literature is that we're in uncharted territory. Undergraduate economics
(which is all that most of us here know) is the economics of slowly
changing systems, in which irrational behavior can only depart a certain
distance from the realities of an economy before there's a sharp and sudden
correction, and the correction is subject only to limited interventions.

This is a huge correction, and the interventions are extreme. The people in
charge of keeping things from imploding -- Treasury and the Fed -- are now
operating in territory in which the irrational components themselves are
what they're trying to correct. The underlying fundamentals are so out of
whack that they aren't the ones driving the economy. And there is little
experience in economics of dealing (successfully, at least) with such huge
departures from fundamental realities.

Normal corrections now, says the govenment, would cause the economy to
implode. Ten years from now the conservative economists will say that it was
the government intervention itself that caused all the trouble. They'll
probably be wrong, as they were when they said such things about the Great
Depression, but they can live in a fantasy world of economic models that
never have to be tried out in reality.

Sorry if that sounds airy-fairy and abstract, but, given where we are, I
think you can see things from that perspective. The "corrections" you're
talking about will happen; the question is whether anyone can effect a soft
landing.


Recently my plant laid off permanently 16 people, that is something that
the plant has
never done, corporate management is sure that for the foreseeable future
those jobs are
gone and a temporary layoff would have given those people false hope.

Getting back to my original point, the growth model isn't working. This
isn't an empty
country with huge resources to exploit. The export market isn't as big as
it once was. We
need to figure out how to live within the reality that the growth model is
getting just as
tapped out as the oil patch.

There are non-growth models of economics, untested and hotly debated, that
are promoted by the green/sustainable/leftish crowd. There are fundamental
issues with such models that upend some of the precepts of capitalism
itself. If I were a student now I'd be interested in studying them.

But back for a moment to deflation -- do you follow the basic idea? Growth
models or not, that's the way the system works now. Slowdowns can be
handled. Declining prices are not necessarily bad. But put the two together,
and pass a tipping point of low interest rates with negative growth, and
you're in a deflationary spiral. And those scare economists far more than
inflationary spirals do.

--
Ed Huntress