5 ms·

Sometimes I wonder if we're looking at another 1929 event. Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by easy credit and new inv

by Aloha 10y ago

Sometimes I wonder if we're looking at another 1929 event. Lets posit 1929 - in 1929 by most accounts the economy was booming, drive by easy credit and new inventions, a new consumer oriented society was driving buying on credit and speculation in the stock market. But the economy at its core was weak, specifically in the agricultural sector. Lets Posit today - Uneven recovery from last economic crisis, most of the economy has weak growth, boom of growth in certain markets, weak agricultural commodity pricing. I see parallels, enough parallels to be concerned really, but not enough to go hide in a hole until its all better. I'm concerned the current administration may not respond full-throatedly enough in the event of a real crisis however.

cm2187 10y ago
1929 will come when the debt crisis finally happen. Only a mad man can think that we can sustain our way of life by borrowing more indefinitely. I don't know if it's going to be at 150% debt to gdp or perhaps 200%. But one thing is certain, whether it is through hyper-inflation or defaults, lots of people are going to be wiped out.
- deelowe 10y ago
  Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselves." I don't know enough myself to counter this.
  - AlexCoventry 10y ago
    The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.
    - cm2187 10y ago
      I don't understand the tax argument compensating inflation. A large part of the US debt is held outside of the US. As soon as the US will be printing dollars to repay its debt these countries will find themselves holding more dollars/liberty dollars hence the value of the dollar will sink. You can't really tax them.
      - TheCoelacanth 10y ago
        The argument isn't that you can tax the people holding the debt. The argument is that you can tax someone who owns valuable assets or productive capacity of some kind. That person will then need to acquire dollars to pay the taxes, boosting demand for dollars.
  - jamez1 10y ago
    The trouble arises when 80% of your house is debt-funded, and everyone wants to realize the value of their debt. Turns out there will be a fair few other people who also think they own your house, and when this happens to a big chunk of the population you get in a lot of trouble.
Animats 10y ago
We're headed for some kind of correction, but it's not at all clear what form it will take. I've been expecting an interest rate spike for years, but that hasn't happened. If we get one, much activity that's been assuming low interest rates will be disrupted. There will be demands for high inflation to relieve debtors.
- ryanSrich 10y ago
  What are the repercussions for individuals? Loss of jobs? If so, why would higher interest rates hurt the job market?
  - bootload 10y ago
    "There will be demands for high inflation to relieve debtors." @ryanSrich: personal debt, reduced demand in a declining market . If you are in debt at a variable rate and have reduced or no income.
- nostrademons 10y ago
  Tech is already in a correction: VCs have pulled back on capital, unicorns are dying, and folks in this-is-a-terrible-idea startups are getting laid off. It's happening in slow motion because most of these companies are privately funded and they run out of runway at different points in time. I'm actually betting that in the broader economy, we get a bubble as Trump's tax plan & infrastructure spending kick in and Yellen doesn't pull back on interest rates hard enough, then a short 1-2 year period of absolute mania as SOX & Dodd-Frank are rolled back and ordinary people can invest in the stock market again, there'll be a massive wealth transfer from poor to rich, and then a very hard crash when they run out of suckers. Then the government will panic at the crash, dump money into the economy, and we'll get hyperinflation. Civil unrest follows, with mass protests, a government crackdown, and the eventual disintegration of the U.S. as a nation-state. Hard to predict the timing of such an involved sequence of events, though. The tax plan is under works right now, and maybe we'll get infrastructure spending in the first year of Trump's presidency. That'd indicate the bubble beginning around late 2018, reaching crescendo just after re-election in 2020, and popping around 2021.
ww520 10y ago
1929 was not so bad as a recession. We had plenty of those. 1929 was bad in term of how it was handled to exacerbate the problem. The Fed back then drained liquidity out of the economy as a policy. Since then we have learned the lesson. Witness how the Fed handled the 2008 recession by pumping massive liquidity into the economy with QE, which was unheard of before.
- WalterBright 10y ago
  One problem in 1929 rarely mentioned is the Fed started inflating the money around 1917, but kept the fixed exchange rate with gold. By 1929, it amounted to a 40% off sale on gold at your local bank. Bank after bank collapsed under the onslaught and this persisted until the government repudiated gold sales and defaulted on the gold bonds. Fixed exchange rates never, ever work out. There's always a massive correction.
  - ww520 10y ago
    That's a very good point. The gold pegging definitely tied the hands of the Fed back then, as the Fed had to raise interest rate to defend the depletion of gold due to gold redemption.
    - jordanb 10y ago
      The Fed also had crazy gold requirements. They were required by law to hold a substantial reserve. But since this reserve was statutory it couldn't be used as a "real reserve," there had to be a reserve atop it. As a consequence the Fed felt it had to move extremely aggressively to protect its own balance sheet by tightening up the money supply very quickly.
- Aloha 10y ago
  What made 1929 a heart stopper was the waves of bank failures between 1929 and 1933, people lost faith in the economic system more than anything, that faith alone is what primes the pump of capitalism, without it very very grave and disastrous things happen.
nostrademons 10y ago
We've always been looking at another 1929 event, though. In 1987 there was a flash crash and people were worried that we were about to have another crash of '29. In '97 there was the Asian Financial Crisis and people were worried about another '29. In '00 the dot-com bubble was bursting and people were worried that it'd be another crash of '29. In 2007 people saw what was happening in the derivatives market and said "We're in for another crash of '29". Then when the crash actually hit in 2009, people were sure we were in for a double-dip and 2011 would be the new 1929.
- Aloha 10y ago
  I'm worried about another 1929 event, because of the strain of american politics coming to the forefront - the folks who believe in a coolidge-sized government - they could very well sit on their thumbs and dawdle in the event of a market-implosion-event. This is the thing that concerns me mostly.
shams93 10y ago
Well if this Syria thing becomes a WWIII then its going to get much worse than 1929.If we have a nuclear war with the level of weapons we have now we can damage the planet beyond the ability to sustain life of any kind. If this is a "Hollywood War" for show that is well coordinated then we may see startups spring up to take on these lucritive military contracts, but the economy will just shift. With a modern nuclear war the earth will be so damaged it will no longer be able to sustain life of any kind for at least 30 billion years or more. We have enough nukes to wipe out all life on earth many times over within only a 15 minute window.
krashidov 10y ago
It feels like the roaring 20's. All this cheap money is subsidizing a lifestyle of well paying jobs, high rent, and cheap Ubers. People want to live in cities where all the jobs are and where all the fun new development is happening so that they can Uber and Lyft to the newest restaurant. Personally, I love it, and I hope we're just in an era of profound economic growth. But every time I go out and see cranes in the skyline and I see that I just paid six dollars to be driven across town, I can't help but think that none of this is real. It's all just a temporary playground being propped up by cheap VC cash. I really hope I'm wrong.
- deleted 10y ago
  [deleted]
- jordanb 10y ago
  Well like 1929 the United States is immensely unequal and getting worse. I believe that what's happening now has to end somehow. And if it doesn't end with a financial crash it may just end with guillotines. We're already watching increasing political instability develop in this country and across the world.
- pembrook 10y ago
  VC cash only seems like it's having a large effect on the world because you read Hacker News and work in Tech. The total value of VC investment in 2015 (the most recent data I could find) was around 60 billion. The US GDP in 2015 was 18,036 Billion. I can assure you its influence on our economy as a whole is miniscule. You're not wrong about the temporary "propped up" nature of our economy however. Except the cause is not VC money, it's low interest rates courtesy of the Fed.
- Aloha 10y ago
  We need to inject money into rural areas to see a real recovery - most of that prosperity you saw in rural america from 1950-1970 was a result of the capital and resources injected by the New Deal.

by Aloha 10y ago

cm2187 10y ago

1929 will come when the debt crisis finally happen. Only a mad man can think that we can sustain our way of life by borrowing more indefinitely. I don't know if it's going to be at 150% debt to gdp or perhaps 200%. But one thing is certain, whether it is through hyper-inflation or defaults, lots of people are going to be wiped out.

deelowe 10y ago
Every time I bring this up, someone corrects me and says that things aren't the same these days with fiat currency and the way national debt is owed to "ourselves." I don't know enough myself to counter this.
- AlexCoventry 10y ago
  The key idea behind the argument is that money is created by the government as a soft policy-enforcement tool, and it can and does create as much money as it needs to induce its policy choices (by funding them), while raising demand for the currency by raising taxes. (Even if you were paid entirely in "Liberty Dollars" or whatever last year, and have no other need for US dollars, in the US the IRS is going to tax you on the fair market value of your income - and the bill will be due in US dollars. This is a demand-side advantage which no other currency can match, unless it's also backed by a credible military/ police force.) This means that any debt which comes due and is denominated in the national currency could theoretically be repaid by simply creating more of the currency. Therefore, when a government raises debt denominated in its own currency, it's not trading on the credibility of its currency- denominated national income. That's the key difference from the financing of a typical household or business, which can typically raise debt according to its perceived ability to bring in disposable income. National debt is instead trading on the nation's commitment to refrain from printing money which it can't credibly raise demand for by raising taxes.
  - cm2187 10y ago
    I don't understand the tax argument compensating inflation. A large part of the US debt is held outside of the US. As soon as the US will be printing dollars to repay its debt these countries will find themselves holding more dollars/liberty dollars hence the value of the dollar will sink. You can't really tax them.
    - TheCoelacanth 10y ago
      The argument isn't that you can tax the people holding the debt. The argument is that you can tax someone who owns valuable assets or productive capacity of some kind. That person will then need to acquire dollars to pay the taxes, boosting demand for dollars.
- jamez1 10y ago
  The trouble arises when 80% of your house is debt-funded, and everyone wants to realize the value of their debt. Turns out there will be a fair few other people who also think they own your house, and when this happens to a big chunk of the population you get in a lot of trouble.

Animats 10y ago

We're headed for some kind of correction, but it's not at all clear what form it will take. I've been expecting an interest rate spike for years, but that hasn't happened. If we get one, much activity that's been assuming low interest rates will be disrupted. There will be demands for high inflation to relieve debtors.

ryanSrich 10y ago
What are the repercussions for individuals? Loss of jobs? If so, why would higher interest rates hurt the job market?
- bootload 10y ago
  "There will be demands for high inflation to relieve debtors." @ryanSrich: personal debt, reduced demand in a declining market . If you are in debt at a variable rate and have reduced or no income.
nostrademons 10y ago
Tech is already in a correction: VCs have pulled back on capital, unicorns are dying, and folks in this-is-a-terrible-idea startups are getting laid off. It's happening in slow motion because most of these companies are privately funded and they run out of runway at different points in time. I'm actually betting that in the broader economy, we get a bubble as Trump's tax plan & infrastructure spending kick in and Yellen doesn't pull back on interest rates hard enough, then a short 1-2 year period of absolute mania as SOX & Dodd-Frank are rolled back and ordinary people can invest in the stock market again, there'll be a massive wealth transfer from poor to rich, and then a very hard crash when they run out of suckers. Then the government will panic at the crash, dump money into the economy, and we'll get hyperinflation. Civil unrest follows, with mass protests, a government crackdown, and the eventual disintegration of the U.S. as a nation-state. Hard to predict the timing of such an involved sequence of events, though. The tax plan is under works right now, and maybe we'll get infrastructure spending in the first year of Trump's presidency. That'd indicate the bubble beginning around late 2018, reaching crescendo just after re-election in 2020, and popping around 2021.

ww520 10y ago

1929 was not so bad as a recession. We had plenty of those. 1929 was bad in term of how it was handled to exacerbate the problem. The Fed back then drained liquidity out of the economy as a policy. Since then we have learned the lesson. Witness how the Fed handled the 2008 recession by pumping massive liquidity into the economy with QE, which was unheard of before.

WalterBright 10y ago
One problem in 1929 rarely mentioned is the Fed started inflating the money around 1917, but kept the fixed exchange rate with gold. By 1929, it amounted to a 40% off sale on gold at your local bank. Bank after bank collapsed under the onslaught and this persisted until the government repudiated gold sales and defaulted on the gold bonds. Fixed exchange rates never, ever work out. There's always a massive correction.
- ww520 10y ago
  That's a very good point. The gold pegging definitely tied the hands of the Fed back then, as the Fed had to raise interest rate to defend the depletion of gold due to gold redemption.
  - jordanb 10y ago
    The Fed also had crazy gold requirements. They were required by law to hold a substantial reserve. But since this reserve was statutory it couldn't be used as a "real reserve," there had to be a reserve atop it. As a consequence the Fed felt it had to move extremely aggressively to protect its own balance sheet by tightening up the money supply very quickly.
Aloha 10y ago
What made 1929 a heart stopper was the waves of bank failures between 1929 and 1933, people lost faith in the economic system more than anything, that faith alone is what primes the pump of capitalism, without it very very grave and disastrous things happen.

nostrademons 10y ago

We've always been looking at another 1929 event, though. In 1987 there was a flash crash and people were worried that we were about to have another crash of '29. In '97 there was the Asian Financial Crisis and people were worried about another '29. In '00 the dot-com bubble was bursting and people were worried that it'd be another crash of '29. In 2007 people saw what was happening in the derivatives market and said "We're in for another crash of '29". Then when the crash actually hit in 2009, people were sure we were in for a double-dip and 2011 would be the new 1929.

Aloha 10y ago
I'm worried about another 1929 event, because of the strain of american politics coming to the forefront - the folks who believe in a coolidge-sized government - they could very well sit on their thumbs and dawdle in the event of a market-implosion-event. This is the thing that concerns me mostly.

shams93 10y ago

Well if this Syria thing becomes a WWIII then its going to get much worse than 1929.If we have a nuclear war with the level of weapons we have now we can damage the planet beyond the ability to sustain life of any kind. If this is a "Hollywood War" for show that is well coordinated then we may see startups spring up to take on these lucritive military contracts, but the economy will just shift. With a modern nuclear war the earth will be so damaged it will no longer be able to sustain life of any kind for at least 30 billion years or more. We have enough nukes to wipe out all life on earth many times over within only a 15 minute window.

krashidov 10y ago

It feels like the roaring 20's. All this cheap money is subsidizing a lifestyle of well paying jobs, high rent, and cheap Ubers. People want to live in cities where all the jobs are and where all the fun new development is happening so that they can Uber and Lyft to the newest restaurant. Personally, I love it, and I hope we're just in an era of profound economic growth. But every time I go out and see cranes in the skyline and I see that I just paid six dollars to be driven across town, I can't help but think that none of this is real. It's all just a temporary playground being propped up by cheap VC cash. I really hope I'm wrong.

deleted 10y ago
[deleted]
jordanb 10y ago
Well like 1929 the United States is immensely unequal and getting worse. I believe that what's happening now has to end somehow. And if it doesn't end with a financial crash it may just end with guillotines. We're already watching increasing political instability develop in this country and across the world.
pembrook 10y ago
VC cash only seems like it's having a large effect on the world because you read Hacker News and work in Tech. The total value of VC investment in 2015 (the most recent data I could find) was around 60 billion. The US GDP in 2015 was 18,036 Billion. I can assure you its influence on our economy as a whole is miniscule. You're not wrong about the temporary "propped up" nature of our economy however. Except the cause is not VC money, it's low interest rates courtesy of the Fed.
Aloha 10y ago
We need to inject money into rural areas to see a real recovery - most of that prosperity you saw in rural america from 1950-1970 was a result of the capital and resources injected by the New Deal.