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Post by redwolf on Jan 23, 2008 10:15:55 GMT -6
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Post by unlawflcombatnt on Jan 26, 2008 15:36:18 GMT -6
Excellent article. There are many important reasons why this recession will be much worse than anything we've had since the 1930's. The simplest of the reasons is that the nation is in so much debt already—that borrowing our way out will be almost impossible.
Most proposed long-term solutions are just schemes to prop up banks and capital markets, simply perpetuating the confidence game that's become the cornerstone of the American economy. Various plans are being proposed to bail out banks, financiers, and housing speculators. All are designed to maintain current overvaluations of assets—mainly homes, along with the securites backed by the equity in these homes.
The current financier-bailout proposals have a perfect parallel in the field of Medicine. They mirror how NOT to treat a patient with emphysema—by pumping more air into an already-overexpanded lung. More air worsens an overexpanded lung. Though it may help temporarily, continual pumping ALWAYS has catastrophic long-term effects. Pumping in more air increases pressure inside the lung, worsens the emphysema, and eventually ruptures part of the lung. This causes air to leak out of the lung, but remain in the enclosed chest cavity (pneumothorax). Pumping more air in causes more air to leak out of the lung, while remaining inside the enclosed chest cavity. Eventually it compresses the lung into collapse. Left untreated, this collapse can kill the patient.
The correct treatment for a pneumothorax is to drain the air out with a chest tube—not pump more in. The correct treatment for the housing bubble is to drain the hot air out of the bubble—not pump more in. Pumping more in may keep it expanded temporarily. But as the bubble expands further, it will eventually burst. ALWAYS. And the bursting is much worse than it would have been, had no additional air been forced in.
The current bubble needs to be drained of its excess—not expanded even further.
A slow leak now beats a huge explosion later. By a lot.
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Post by jeffolie on Jan 26, 2008 17:10:21 GMT -6
While Soros is not one of my favorites, he has it right when he recently stated that this is going to be the worst recession since the Great Depression. Soros mentioned how the counterparties in the derivatives would not be able to come up with the money to pay off the derivatives. This is the same as an insurance policy not being able to pay for your house that burned to the ground except the leverage is huge in the case of derivatives.
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