>
And once again I am out of the office during NFP report. Consensus was for a -524,000 job loss, and Unemployment Rate going to 7.5%.
Use comments to dissect the NFP data.
>
In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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February 6th, 2009 at 8:37 am
Well now we just HAVE to pass the stimulus!!!! Notice the sarcastic ass tone!
February 6th, 2009 at 8:39 am
U-6 is only 13.9%!! Rally? Also, big revisions — 3 million jobs lost in 2008. Get out the rally caps!
-Mike J
February 6th, 2009 at 8:41 am
Feb. 6 (Bloomberg) — Unemployment in the U.S. climbed in January to the highest level since 1992 and payrolls dropped more than forecast as the recession showed no sign of abating. The jobless rate rose to 7.6 percent from 7.2 percent in December, the Labor Department said today in Washington. Payrolls fell by 598,000, the biggest monthly decline since December 1974, after dropping by 577,000 in the previous month.
February 6th, 2009 at 8:53 am
Can someone help decipher the b/d adjustment – it shows a -356k adjustment for Jan. Does this mean real job losses were only 240k or is this the once a year adjustment that they make to balance the number?
Separately, is anyone else tired of Pimpco talking their book on CNBC?
February 6th, 2009 at 8:54 am
We do need a stimulus rob. Where on earth do you expect demand to come from? Consumers? Exports? Investments? No. No. No.
Government is the only one that can increase aggregate demand at this point.
Stop treating economics as a morality play and treat is as the technical exercise that it is.
February 6th, 2009 at 8:57 am
Every month we have 600K fewer wage earners/tax payers/car buyers/mortgage payers etc…finding the silver lining in these monthly numbers is delusional.
If the Congress is choking on an 800-900B bailout that will be distributed widely what will be the reaction to a 2 trillion bailout for banks? DOA? DOA!
February 6th, 2009 at 9:01 am
@Machiavelli: a one-off stimulus does nothing. You can’t prime the pump when there is no water in the well. Consumption is dead and gone. All the jobs gone with it. The economy is one of service jobs in aid of other service jobs in aid of service jobs. Can’t work.
February 6th, 2009 at 9:07 am
rww,
Well, I work in engineering firm and we are building a factory right now, so I don’t know exactly what you mean. Are you implying we have no capacity to build roads and bridges? Because if that is what you are implying, you are dead wrong.
Although it is true that we have gutted our manufacturing sector these past few years, we are still like the #3 manufacturer in the world (behind Germany and China I think), so we do have the capacity to do whats necessary.
Maybe I’m not exactly understanding what you are saying. Clarify further?
February 6th, 2009 at 9:11 am
Grindstone: I don’t like it, but Bill Gross et al are worth listening to, since appearances suggest that they have been controling the bailouts, being on the right side of Fannie/Freddie, squeezing GM which made the bailout more necessary, etc. Or at least they know the pressure points of the government financial bureaucrats. Word is that they are stocking up on the toxic waste that the Treasury is going to guarantee.
February 6th, 2009 at 9:13 am
I need to go back to the drawing board apparently. Why are futures up? I seriously would like someone to explain it to me. Is it because things are “so bad this HAS to be the bottom?”
February 6th, 2009 at 9:15 am
@Machiavellie999
There is no thing as a free lunch. An engineering frim that is building a factory right now, lol, I think he is implying there is no money to build road and bridges. When you are the #1 consumer in the world and the number #3 manufacturer in the world that is a recipe for disaster. Most of the manufacturing in this country was based upon US consumers buying things on credit which they never could pay for. The only hope now for US manufacturers is to export to the rest of the world.
February 6th, 2009 at 9:16 am
@zebov
Futures are up because equities expect the banking sector will be granted free on monday money at the expense of our kids.
February 6th, 2009 at 9:17 am
Mach, you know as well as I how much of the economy is consumption. And all that consumption was predicated on debt. All of it maxed out. Now all we are doing is consolidating everyone’s debt onto a National Credit Card. The debt binge continues, solving nothing.
February 6th, 2009 at 9:27 am
We never hear much anymore about the underground economy who employs both legal and illegal workers. It is impossible to figure out how many workers the underground economy employs, much less how many of them have been laid off. I think that the numbers of laid off workers must be huge as many of them toil in the restaurant, landscaping, and construction industries.
Any thoughts?
February 6th, 2009 at 9:27 am
Ok, when you tally up all the revisions through 2008, there were an additional ~340k losses than what was reported.
Additionally, if you look at Total NFP numbers NSA (not seasonally adjusted) from Jan 2008 to Jan 2009, it looks like a loss of 5.7 something million jobs. Can someone explain the discrepancy between the 3 million SA numbers throughout 2008 and the almost 6 million NSA year-over-year? I’m confused . . .
-Mike J
February 6th, 2009 at 9:30 am
@Machiavellie999 I expect demand to come from people’s NEEDS! As a silly concept as that is compared to the last 10 years! Bullshit demand is just that… bullshit but yet we as taxpayers have to finance it. Listen if I lose my job tomorrow because it is no longer needed, well then I will find the next place that looks to have promising growth potential and I’ll do that! My job will be better secured because of it. BTW – I’m an engineer too! My wife also! No kids either! For nearly a decade, our friends that make half the money we do have lived three to four times more extravagant than we have. On DEBT! Now they are hurting because they can’t pay bills, mortgage, etc. Who’s fault is that? Yours? Mine? God forbid it be theirs! Why I should have my taxes distributed to them to help them get over this little hump is a foolish argument! They made stupid mistakes and draw the consequences from them. Their problem is NOT my problem! Grow up and realize that an easy life is a privilege and not a right! It also should come from hard work and not easy money! Consumption is dead and you don’t even see that the cure that is being offered is worse than the disease.
February 6th, 2009 at 9:32 am
“Separately, is anyone else tired of Pimpco talking their book on CNBC?”
Yes.
February 6th, 2009 at 9:34 am
“Stop treating economics as a morality play and treat is as the technical exercise that it is.”
LOL. That was a good one.
February 6th, 2009 at 9:43 am
@Machiavellie999
Stop treating economics as a morality play and treat is as the technical exercise that it is.
Great quote but unfortunately, Machiavellie999 you are deep in morality play country here. Rob gives us a particularly choice example. If we could find enough morally uplifting seamstresses it could be turned into a sampler, framed and hung on the wall.
February 6th, 2009 at 9:45 am
First of all, the US government debt is not that high. It stands at less than 50% of GDP right now and will rise to maybe 70% of GDP after all these bailouts and stimulus packages. In comparison, after WWII the US national debt was 120% of GDP! Great Britain’s was 200% of GDP! After the American Revolution, there are no precise figures, but the debt was so high in comparison to the size of the economy that it was widely assumed that US would default. In all 3 of those cases, the debts were paid down.
So, please stop exaggerating how horrible the debt problem is and look at some historical perspective.
Second of all, the economy doesn’t just turn around by itself. I agree with many of you that the consumption economy is dead. But unfortunately, individual investors don’t just realize this by themselves and begin to build for a production based economy. They need jolting by the government. If not, years if not decades will pass before this realization is made and the economy turns around. Oh, did I remind you that the rest of the world is in a deep recession as well? So, again its not like we can just start exporting things.
Finally, I want to stand up and make a case for the bank bailouts. rob, do you keep your money in a mattress or in a bank. I am going to assume a bank. So, do you think they keep your money in a little box with ‘rob’ written on it that you can take out whenever you would like? No, they take your money and lend it out. So, in effect you were the lender that lent out money to all these subprime borrowers. Oh, I know you didn’t do it directly, but if you put your money in a bank these past 8 years, you were basically letting the bank manage the money for you. Now, I am going to assume that pretty much everyone in this thread has put money into a bank in the last 8 years. So, this means that the bank bailout is actually a bailout of all of you. I don’t know why no one makes this connection?
February 6th, 2009 at 9:54 am
“If not, years if not decades will pass before this realization is made and the economy turns around. Oh, did I remind you that the rest of the world is in a deep recession as well? So, again its not like we can just start exporting things.”
All the Keynesian stimulus the universe could muster during the ’30’s did not juice aggregate demand enough to pull us out of the last Great Contraction. Only WWII was capable of that.
I wonder when we’ll have WWIII?
February 6th, 2009 at 9:58 am
@Mach – Take your debt to gross to 50% and walk into one of those fine banks you talk about and try to get a loan. Better yet, tell them you want 2% interest rate. Oh, and do it after you lose your job. After your butt stops bouncing across the street tell me what a fine position you (we) are in right now. You are right I have deposited my money in a fractional fiat money deposit holding bank over the last 8 years. (At your leisure feel free to look all that up and educate yourself some) These banks are sound because they did leverage themselves to the hilt! The ones being rescued made stupid busineness decisions and should die.
Here’s a little something to chew on also, Sent to my Congressmen just last night:
Sir,
I strongly oppose the passing of any Stimulus package that is being touted as the solution to this country’s out-of-control spending spree! It is out-of-control spending that got us into this mess and we’re doing nothing but robbing from the future to offset the inevitable pain now. The Government did nothing to stop the previous orgy of spending and it should do nothing now to try and encourage it. The country returning to a point that people work hard for their money and put in an honest day’s work encourages innovation and entrepreneurial spirit! If three million jobs were lost last year, that is because there were three million more jobs than were needed! Efficiency is not always pretty, but it remains efficient. Creating jobs for the sake of creating jobs is meaningless if those jobs are not productive. My roads drive fine, my telephone rings, my internet downloads, my dinner cooks on the stove. I do not need my tax dollars being squandered for improvements of any of these items. I pay a profit hungry private industry my money to provide me with the best service for my money. If one can not provide me that, then I move to the next. The weak die out and the strong carry on! This is a concept that Congress needs to embrace for the good of the country! However what I have gotten so far with the “Government’s help” is a horrible negative return on any investment they have made on my behalf. We have seen the Treasury pour more money into Citi and BAC than both company’s market capitalization! We have paid more. MUCH more than the companies are even worth! For what purpose? If any company folds, another stronger company would swoop in to take over their assets. The Federal Reserve’s policies are an atrocity and they are meddling in nothing more than asset price support. As a specific example, by supporting housing prices the Fed is effectively creating indentured servants that much work for the next 22-25 years paying for an overly expensive house before they even breakeven! Again the Fed did nothing, if not encouraged, the orgy that has been the last 14 years through their policy of low interest rates and cheap money. Which ironically in retrospect is expensive compared to the easy money policy they have now! My point is that all efforts of Government intervention so far have resulted in the bastardization of the Average American’s savings, purchasing power, no transparency into how our tax money is being frivolously spent by the Treasury, and the list goes on! Even as big as this list could go, it pales in comparison to the enormous burden that we’re putting on the tax payer due to this spending glut that is being pushed through Congress! To be blunt Sir, I can not in interest to my country consider voting in the future for any individual that supports this measure. I hope you will stand to represent my view in the up coming vote.
Sincerely,
Rob
February 6th, 2009 at 10:00 am
Well, that’s the sad thing. FDR didn’t have the political courage to ramp up spending enough to get us out of the Great Depression. It was only when WWII started that he had the political cover to ramp up spending enough.
So, we must ramp up spending as if we were in WWIII now, so that we don’t actually have a WWIII because of the collapsing world economies.
February 6th, 2009 at 10:01 am
Instead of $2 trillion on the “stimulus” and Son of TARP, how about junking those ideas and simply making 2009 a tax free year? As in, no income taxes, no payroll taxes, no cap gains, no corp tax, etc. Cost would be similar, and would give the economy a much bigger jolt than the crap that is about to be foisted upon us. One can dream…
February 6th, 2009 at 10:03 am
Does anybody doubt that they shaved the Jan numbers down to finish below 600K? I guess they thought 599K would be too obvious. Dec was only revised up 25K but there is another revision for Dec next month.
We already have at least 1/2 trillion of outstanding guarantees to CITI,AIG and BAC, I wonder how these are priced, at or close to zero? Maybe a few trillion more on monday, use guarantees to avoid the hard numbers of Bad bank plan.
If there is as much resistance to a measly 800-900B bailout what will be the reaction to a multi trilllion bank welfare plan?
February 6th, 2009 at 10:07 am
600k new jobless, 7.6% unemployement, and the markets up 147+ like a rocket. I’m officially clueless. I’m not getting it. Is this simply a matter of “hey their payroll’s shrunk, that means they’ll be more profitable!” type of thinking? Who’s making these buys? Very confused…..
February 6th, 2009 at 10:11 am
@rob – Again, more moralizing and not seeing how the world works.
First of all, the demand for US Treasuries is the only demand that is actually increasing. Treasuries have become the preferred savings mechanism. Therefore to transfer savings into investment, government must spend! I think this by the way is one of the biggest repudiation of Austrian economics have been the events of the past few months. According to the Austrians, the dollar should have crashed, inflation gone sky high and Treasuries should have definitely been pummeled. Instead, the dollar spiked up, the risk of inflation is quickly turning into a very real risk of deflation and the price of treasury securities has risen astronomically. So, in conclusion, I do not think the US government will have any trouble financing the deficit and I would bet anyone on that.
Second, I found this very funny.
“You are right I have deposited my money in a fractional fiat money deposit holding bank over the last 8 years. (At your leisure feel free to look all that up and educate yourself some) These banks are sound because they did leverage themselves to the hilt! The ones being rescued made stupid busineness decisions and should die.”
This is another misconception of the Austrian economists. That people will act rationally at all times. In fact, if major financial institutions begin to fall, no one will care how sound your bank is and that it didn’t over leverage itself. They will panic and withdraw money despite whatever claims your bank makes, be they true or not. The banking system depends on trust in the system. Once the system loses this trust, you can say whatever you want and make whatever claims about your institution that you want, people won’t believe you and your bank will become insolvent just like every other bank.
February 6th, 2009 at 10:12 am
@Machiavelli999: So, I guess the fact that nobody is being held accountable at the banks in our so-called “free market capitalist” system doesn’t bother you at all? It doesn’t bother you that shareholders and bondholders are being bailed out for bad decisions? You don’t think there will be any unintended consequences of such actions by the feds? No disrespect intended, but I think you’re somewhat delusional if you think the feds can just step in and bail everyone out without any vast unintended consequences coming to the fore, possibly making things much worse in the end.
February 6th, 2009 at 10:22 am
@ Futile arguements! I give! I’ve simply reached the point of despondency with all this crap! (Be forewarned all you psyche followers, I’m always early because I’m too engaged.)
February 6th, 2009 at 10:27 am
WWIII is scheduled for 2012 according to the Mayan Calendar that is the end of the current cycle that we are in.
February 6th, 2009 at 10:28 am
@Machiavelli999
“First of all, the demand for US Treasuries is the only demand that is actually increasing.”
Part of the demand, money fleeing equities? How long does that sustain an increasing market for Treasuries?
Will China continue to buy Treasuries as they need to pour their yuan into their own domestic stimulus?
Just how much debt can the U.S. sell before there is no, or a much reduced, market for it?
Just asking….
February 6th, 2009 at 10:29 am
@Mannwich- There was an article recently that I read about the over exaggeration of “moral hazard”. Do you really honestly think that in the future any banker will want to put himself through what current banking CEOs are putting themselves through right now. As for the shareholders and bondholders, they have already gotten pummeled. If anything, I think the real problem is that bankers will be too cautious and too risk averse in the future.
Look at the situation right now. The government is basically telling bankers: make any loans you want and we will insure you against all losses and yet…the banks are still reducing lending.
February 6th, 2009 at 10:34 am
@Mach: And you believed that article no questions asked? C’mon, give me a break. You can’t be serious. I do agree that something needs to be done but there needs to be accountability for trust & confidence in our system to return. Without those two basic elements, we are nowhere. We can fake it for a while though and grab as much loot in the process.
February 6th, 2009 at 10:38 am
@Machiavelli999
The bankers can and will put them selves through it again. It takes about 20 years. All you need is everyone that is currently working to retire or come close to retirement. People who never went through this will start to be in charge, guess what. They think they are better than their predecessors and know how to take on risk, or have thought up some novel new way to make profits that no one has ever thought of before.
Then there will be comments about the orchestra playing on the titanic again. It is human nature, and that is the only constant in the equation.
February 6th, 2009 at 10:40 am
@ Machiavelli999:
I don’t believe the problem with moral hazard occurs at the present moment. It’s always after the present crisis ends and memories fade. LTCM occurred only a decade ago, yet it seems like ancient history. We had two giant bubbles in the interim that one could argue would have been mitigated to a large extent had the full consequences been able to play out.
It makes a lot of sense that moral hazard should be secondary, but if we ignore it all together, once we get through this, the survivors will eventually fall back into the same pattern of loaning to unqualified borrowers, leveraging up, and believing Gaussian statistic based models with full faith.
If we want to ’save the system,’ you protect the taxpayer and you protect counter parties. As an example, when Bear Sterns was falling into the abyss, the government should have merely guaranteed secure debt and aid in the clearance process of trades. Everything else should be wiped out in reverse order of risk. Shareholders => ZERO, Preferred shareholders => Kaput!, Unsecured debt => haircut (if lucky) or wiped out (if not). Yes, we should protect the system, but we should keep in mind that there is already a process in place for it; it’s called the capital structure!
Any private institution that is ‘too big to fail’ must be chopped into pieces….
February 6th, 2009 at 10:41 am
The article makes serious arguments. Sometimes we just like to make assumptions because at first glance they make sense. It is easy to make the assumption: “Oh, we are bailing out everyone right now and this will cause bankers to be irresponsible in the future.”
But frankly, I don’t think there is any evidence for this. If I gave you free fire insurance on your house, would you run around the house with a blow torch?
I do not think that any bankers feel they have been bailed out. Whether its lost jobs, lost profits, pummeled share prices and now restricted bonuses, believe me the bankers have felt the pain and they will never want to go through this again. Which is why again I say, far from running the risk of careless bankers in the future, the real risk is bankers who are too conservative in the future after having gone through this.
February 6th, 2009 at 10:45 am
This statement from Mach makes me crazy:
“First of all, the US government debt is not that high. It stands at less than 50% of GDP right now and will rise to maybe 70% of GDP after all these bailouts and stimulus packages. ”
I don’t believe this for one second. We HAVE to be over 100% GDP at a min! Does your debt figure include the debt the gov owes Soc Sec. I bet it’s not included. How about the 5 trillion of Fannie/Freddie debt we’re on the hook for??? And I almost forgot about the $8 trillion of the Fed’s balance sheet that we are also accountable for? Does anyone know the TRUE US gov debt that includes all of the awesome off balance sheet vehicles we have??? Seriously, the published US debt is a farce.
February 6th, 2009 at 10:48 am
Machiavelli999 Says:
February 6th, 2009 at 9:45 am
First of all, the US government debt is not that high. It stands at less than 50% of GDP right now and will rise to maybe 70% of GDP after all these bailouts and stimulus packages. In comparison, after WWII the US national debt was 120% of GDP!
Not so fast, Mack ole buddy….
http://blogs.reuters.com/great-debate/2009/01/20/us-and-uk-on-brink-of-debt-disaster/
This September, when Bernanke and Paulson were on the tube begging, it was thought that the government debt/gdp ratio was already just under 70%…but now, even though the figures are hard to follow with our massive government spending stimulus plans, all one needs to do is see h0w often the national debt ceiling has been raised….
http://blogs.reuters.com/great-debate/2009/01/20/us-and-uk-on-brink-of-debt-disaster/
Our gdp is roughly 13 trillion dollars, and the government debt is 10.6 trillion…that is now 81% and rising fast…
Please hold on with the 50% number…it is patently false.
February 6th, 2009 at 10:49 am
> If I gave you free fire insurance on your house, would you run around the house with a blow torch?
Under, normal conditions, NO…
If I were up to my eyeballs in negative equity and desperate, YES…
Therein is the essence of moral hazard.
HCF
February 6th, 2009 at 10:53 am
http://www.brillig.com/debt_clock/
Sorry, this is the debt clock.
February 6th, 2009 at 11:00 am
@machiavelli999
“believe me the bankers have felt the pain”
huh? wha?
with bazillion dollar bonus incomes, I think not
and as others have said, it won’t be these guys that ever will want to go through this again, they’ll be out to pasture in the Hamptons, it will be a whole new crop of whiz guys for whom it will be different next time.
February 6th, 2009 at 11:15 am
This market rally is a show! Whew- everyone buying the rumor and selling the news (on Monday)??? What think ye?
February 6th, 2009 at 11:19 am
Machiavelli999 Says:
I told you you were deep in “Cancel my subscription immediately” country. Bruce in TN is correct about debt as a percentage of GDP, it’s around 70%, but it doesn’t invalidate your basic argument about the need to augment aggregate demand and the likely cost of doing so. Providing there are those willing to keep on lending it’s actually quite cheap to do so at present. Consumer spending is around 70% of GDP, if it falls precipitously the gap has at least partially to be made up by govt spending which will bolster overall GDP and the badly weakened financial system. Of course we can follow Rob’s and Mannwich’s advice and let aggregate demand fall precipitously in a self reinforcing cycle until such time as half the banking system has failed, the money changers have been stripped of their wealth, unemployment is at around depression levels of 25%, that’s about 40 million people unemployed in today’s workforce, but never mind some will will feel confirmed in their rectitude. Somehow I don’t see this scenario having huge appeal for the rest of us.
February 6th, 2009 at 11:26 am
I love all the economic banter- but where is everyone on a trade- financials to continue to rally on Monday? Reversal?
February 6th, 2009 at 11:27 am
@mach: I don’t think you could find an Austrian who believes humans make economic decisions rationally – just the opposite. If everyone acted rationally, I submit, the world would be one large socialist economy controlled by central planning.
As for inflation, just wait. Certainly you’ve seen the adjusted monetary base numbers. Right now all that money is sitting as reserves with the Fed because banks are reluctant to loan it. When they start loaning it out, look out. As someone else pointed out, Weimar Republic bonds were the last asset class to fall during their experiment with printing money.
And US gov’t debt is but a small piece of the puzzle. Look at total debt and the picture is a lot more worrisome.
February 6th, 2009 at 11:27 am
batmando Says:
February 6th, 2009 at 11:00 am
huh? wha?
with bazillion dollar bonus incomes, I think not
The financial industry in NYC employs hundreds of thousands of people including some members of my immediate and wider family. There are tens of thousands of these people being laid off but then I suppose you’re not going to be satisfied unless at least 100 a day are jumping out of windows. Like I said Machiavelli you are deep in morality country…not economic knowledge or even commonsense country…just morality country. Bring on the Tumbrils.
February 6th, 2009 at 11:37 am
@ottovbvs: You’re presenting a false argument. I never said that I wanted to “let everyone and everything fail” but there needs to be a modicum of accountability (which breeds trust & confidence) in our system for it to ultimately WORK. That’s my premise. It’s not borne out of some “morality play”, it’s borne out of pragmatism and common sense, something this country has lacked for too many years now. For too long bankers (maybe even people in your family, no wonder you’re defending the industry, the truth comes out) have promoted a system that promotes short term gain for the financial and corporate elite that’s caused a loss of jobs (and ruined lives) for OTHER PEOPLE and your friends & family were not only fine with that, they were none too happy to fill their pockets in the process. Now that the tables are turned they don’t like the adage that “failing companies should be left to fail so that other strong ones can replace them and thrive” for the good of our system and country. They don’t like someone telling them, “oh, you lost your job, just go re-train yourself and take a fraction of pay that you were previously making”, or, this one: “just go start your own business” and “pull yourself up by your bootstraps”. Gotta love the blatant hypocrisy. NOT. That’s just rich, ottovbvs. Really, give it a rest. Let the banks (and their sharehoders and bondholders) that deserve to fail, fail, and the feds can clean up the mess and better banks will take their place, just like every other business (save the autos and airlines) and industry in this country.
February 6th, 2009 at 11:56 am
@Mannwich
Again, you are making assumptions that are just flat wrong. For example, this statement:
“failing companies should be left to fail so that other strong ones can replace them and thrive”
In normal times, when the economy is growing this statement is true. Here is a rough example. Lets say there is an annual demand for 1,000,000 cars and there are two companies, Company A and Company B which produce the cars and lets say each has 50% of the market. Lets say time passes, economy grows, demand continues to grow for cars, but Company A suddenly starts making horrible cars because its management is bad. Suddenly, Company B takes up more and more of the market share because it makes better products. Eventually, Company A is facing bankruptcy. The question is should we let it fail? Yes, I believe we should. In a normal economy, all that would happen is Company B would take up the rest of the demand and become stronger and the world keeps on spinning. Plus your statement is correct of company should be allowed to fail and stronger one replaces it.
But now, lets take a look the current environment. In the current environment, only half your statement will happen. Yes, companies will fail. No, no one will come in and replace them and thrive. Because demand across the board is falling. Consumers don’t care whether the car you make is good or not, they are just not buying it. Oh and its not as if they are opting for some other form of transportation. They are JUST NOT BUYING IT! ALL car manufacturers are in the red. Not just the American ones.
In the current environment, it doesn’t matter how good your management is or how good your product is, your sales will fall. Think of your favorite company in America, the one you think makes the best products. Check its earnings. I bet you they are way down. This is not because it started making bad products. It is simply because aggregate demand is falling and people are refusing to spend out of fear and uncertainty.
This kind of goes along with the bank example I wrote to you about earlier. In times like this, people become irrational. They don’t even care if they have a job that is secure, they will cut spending just out of fear. Just like people will pull out money from your supposedly “well-capitalised” bank in times of financial collapse.
February 6th, 2009 at 12:02 pm
OK Mach: Fair points but my feeling is the feds are going to make it worse. At this point, I have no confidence that they will ultimately do the right things (and I supported, gave money to, and voted for O). Just be sure to check back in 6-12 months to see how the feds fared in this battle to date. I’ll be more than willing to admit I’m wrong if it ultimately turns out that I am (and happily so if it means that mine and my wife’s situation have improved as well as a result).
February 6th, 2009 at 12:10 pm
Mannwich Says:
February 6th, 2009 at 11:37 am
@ottovbvs: You’re presenting a false argument. I never said that I wanted to “let everyone and
everything fail”
…..you could have fooled me….and now for another bulletin from the Committee of Public Safety…
For too long bankers (maybe even people in your family, no wonder you’re defending the industry, the truth comes out) have promoted a system that promotes short term gain for the financial and corporate elite that’s caused a loss of jobs (and ruined lives) for OTHER PEOPLE and your friends & family were not only fine with that, they were none too happy to fill their pockets in the process.
That’s just rich, ottovbvs. Really, give it a rest. Let the banks (and their sharehoders and bondholders) that deserve to fail, fail, and the feds can clean up the mess and better banks will take their place, just like every other business (save the autos and airlines) and industry in this country.
To the Conciergerie with all enemies of the people………
February 6th, 2009 at 12:12 pm
@ottovbvs
Yo seem to be equating the “tens of thousands of these people being laid off” with the “bankers (who) have felt the pain”
The tens of thousands laid off are the victims of “the bankers” who will never go through this again because they’ll be out to pasture in the Hamptons.
It will be a whole new crop of Masters of the Universe for whom it will be “different next time”.
February 6th, 2009 at 12:21 pm
@ottovbs: Let me repeat, since you seem to want to parse the parts that you think make your point:
“but there needs to be a modicum of accountability (which breeds trust & confidence) in our system for it to ultimately WORK. That’s my premise.”
Please be sure to check back again in the coming months. I’d be delighted to get your take on things.
February 6th, 2009 at 12:43 pm
batmando Says:
February 6th, 2009 at 12:12 pm
@ottovbvs
Yo seem to be equating the “tens of thousands of these people being laid off” with the “bankers (who) have felt the pain”
Depends how you define bankers, there are plenty of guys who I’m sure by your and Mannwich’s standards are bloated capitalists earning 250k to say 1million. They are lawyers, traders, investment bankers, bond salesmen, accountants, compliance folk. These people are losing jobs in droves. They don’t have mansions in he Hamptons but they are clearly in the top 5% of income earners.
Mannwich Says:
February 6th, 2009 at 12:21 pm
@ottovbs: Let me repeat, since you seem to want to parse the parts that you think make your point:
I just quoted you buddy. Read your own comments which have a distinct whiff of the scaffold.
………That’s the problem when when you start mixing morality with economic science, the baby get chucked out with the bathwater.
February 6th, 2009 at 12:48 pm
@ottovbs: Fair point but I don’t think I was wrong. Next time I won’t mix my messages that are a combination of pragmatism AND moralizing (will give you that). You may disagree with my point but then again it’s always somehow “different” when it happens to you or you family (which YOU yourself mentioned so I brought them up), meaning you can always justify any actions by the feds when it truly hits YOUR home.
February 6th, 2009 at 1:19 pm
Mannwich Says:
February 6th, 2009 at 12:48 pm
You may disagree with my point but then again it’s always somehow “different” when it happens to you or you family (which YOU yourself mentioned so I brought them up),
I don’t remember suggesting that the members of my family had been, what was your phrase “lining their pockets” etc.
As it happens so far all of them have avoided the grim reaper but they know plenty of hardworking men and women most of whom spent years in graduate and post graduate education at no small expense to themselves or their parents who have not been so lucky. I’m as outraged as anyone about egregious abuses committed by top management in banks and a lot of companies who are basically robbing the shareholders with these huge payouts. However, I always try to avoid drawing over broad conclusions from small pieces of evidence.
February 6th, 2009 at 1:39 pm
@ottovbvs: Fair enough. How about his little tidbit from Mish’s site? Does this make you more confident or less the feds will fix this or do even more harm and/or that many of these firms on Wall Street deserve to fail? I DO think we need some sort of stimulus bill but am far less confident on the bailout plan for the banks largely because of issues like this and the fact that part 1 of TARP has been an unmitigated disaster to date.
Fed Overwhelmed, Calls Emergency Consultants To Untangle AIG
AIG is just one piece of the derivatives mess. Nonetheless AIG alone is so complex no one can figure it out. In response, the Fed Calls Emergency Consultants To Untangle AIG.
February 6th, 2009 at 2:02 pm
Barry:
What would your high school teachers say about “concensus was for a -524,000 job loss..”? You are telling us there was a gain as a loss of a negative number is actually a positive one?
February 6th, 2009 at 2:08 pm
The government debt/gdp is now 81% and as the disc jockeys used to saying “rising with a bullet”..
WE will equal Italy’s 1/1 government debt/gdp by the end of 2009.
February 6th, 2009 at 2:58 pm
“because of issues like this and the fact that part 1 of TARP has been an unmitigated disaster to date.”
…Well Mannwich that’s where we disagree. It has not been an unmitigated disaster because it’s achieved it’s goal which was to stabilize the banking system. If it hadn’t the Dow wouldn’t be at 8250 or thereabouts believe me. I’m not saying there were no mistakes, they should never have let Lehman go down but for a moment they succumbed to the arguments of the hazard moralists like yourself and it producece an unmitigated disaster. These are all enormously complex legal and financial problems with a global dimension in many cases as several people involved have told me. It doesn’t surprise me one bit that they have called in outsiders for help. This is not how we want it to be it is how it is!
…many of these firms on Wall Street deserve to fail?
….It’s not a matter of if they “deserve to fail” for godsake. It’s a matter of the collateral damage that will ensue if they do. Much of this is uncharted territory, these guys are doing their best to fix the problem. Will they get it all perfect? Probably not. Would you, would Rob, would Bruce who seems excited by the fact we’ll have public debt/gdp parity soon. It’s a f@#$%& mess that is the consequence of incorrect policy choices over the past eight years (well 2000 to 2007 really). It’s like Iraq, invading was one of the dumbest things we’ve done in a long while but once there you had to try and get the situation under control.
February 6th, 2009 at 3:01 pm
Ah, so I see you’re clinging to the “because they allowed Lehman to fail” camp. Do you have any proof this is the case? Let’s just agree to disagree here and move on please.
February 6th, 2009 at 3:03 pm
…at least we agree on Iraq (when I said as much to friends and family before the invasion, I was waved off as not knowing what I’m talking about, but I digress), ottovbvs. That’s one thing anyway.
February 6th, 2009 at 3:22 pm
I think the parallel with Iraq is dead on. It was a stupid mistake, but now that we are in the mess we have to deal with it.
MSNBC reporting stimulus deal imminent. Perhaps there is hope yet.
February 6th, 2009 at 4:37 pm
Mannwich Says:
February 6th, 2009 at 3:01 pm
Ah, so I see you’re clinging to the “because they allowed Lehman to fail” camp. Do you have any proof this is the case? Let’s just agree to disagree here and move on please.
I’m not “clinging” to anything. Most commentators agree Paulson allowed Lehman to fail because he or more probably the white house was suffering a bit of moral hazard remorse. It’s clearly the biggest single mistake in the whole process so far and that’s why it’s never going to happen again. What do I need proof of?
Machiavelli999 Says:
February 6th, 2009 at 3:22 pm
I think the parallel with Iraq is dead on. It was a stupid mistake, but now that we are in the mess we have to deal with it.
…Unfortunately Machiavelli the nihilists amongst us are unfamiliar with the Chinese proverb:
It is better to light a candle than to curse the dark.
Moralizing is not going to butter any parsnips but it sure make them feel good about themselves.
February 6th, 2009 at 5:34 pm
@ottovbvs: You said: “Most commentators agree Paulson allowed Lehman to fail because he or more probably the white house was suffering a bit of moral hazard remorse. It’s clearly the biggest single mistake in the whole process so far and that’s why it’s never going to happen again. What do I need proof of?”
“Most commentators?” Who exactly are you talking about and what are their credentials? “Most commentators” also didn’t see this crisis coming even when it was right under their noses, so, no, that doesn’t have heft with me. So are you saying we wouldn’t be where we are without the Lehman failure? It would all be rainbows, hackey-sacks and frisbees in the markets and economy? Wow. I don’t even know what to say. Are you really Dennis Kneale?
Remember, morals are a big part of our society, especially a free market system. If they break down completely, we’ve got nothing, nada, zip, zilch, no matter what the feds do.
And why are you resorting to petty name-calling those who disagree with you – calling me and others “nihilists” because we don’t agree with your opinions and don’t agree with (and care about) what the feds are doing to “solve” this mess? That’s a laugh riot. That’s just over the top. Again, please let’s move on.
February 6th, 2009 at 5:35 pm
@ottovbs: I think I figured it out – you’re really Ben Stein. Have a good evening and weekend.