Poll: Most probable outcome of massive government spending & bailouts?

Please vote in this poll using the sidebar.

Most probable outcome of massive government spending & bailouts?

  • Japan-style "lost decade" (47%, 85 Votes)
  • 2nd Great Depression (22%, 40 Votes)
  • Recovery in <5 years (20%, 37 Votes)
  • Other... (10%, 19 Votes)

Total Voters: 181

This poll will be active and displayed on the sidebar through 05.30.2009.

0.00 avg. rating (0% score) - 0 votes

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.


  1. 1
    BubbleBuyer says:

    Other… Living off the backs of our kids and grand kids. It’s the American way!

  2. 2
    One Eyed Man says:

    My guess is that the government programs moved us from a depression to a lost decade. But the real problem is the short sightedness of our “apple doll” economy. If you want to know what I mean by that you’ll have to read at least the 3rd paragraph of comment 62 to the weekend open thread. But don’t do it unless you’re bored cause it’s long and probably not that insightful.

  3. 3
    Racket says:

    I liked the 10 year old w/ a hard-on comment.

  4. 4
    Scotsman says:

    RE: Racket @ 3

    Yup. I’m gonna remember that. ;-)

  5. 5
    Scotsman says:

    We can watch California to get an idea of what’s coming for the nation. I voted for depression, mostly because I think the forced cutbacks in social spending (social security, Medicare/Medicaid, pensions, etc.) coupled with required increases in taxes will kill the golden goose. It would be a lost decade if we had savings and a manufacturing base… but we don’t. Boom!

  6. 6
    Scotsman says:

    Ooooh, this is fun!! Count along…..


  7. 7
    GeoCrackr says:

    I’m not sure I understand the poll — are you asking about the result of actual “massive government spending,” which might’ve been effective if it were really implemented; or about the existing limited and handicapped stimulus program coupled with the Wall St investor bailout, which is only going to guarantee the 2nd Great Depression?

  8. 8
    Softwarengineer says:


    Happy Memorial Day and its better to smile than cry; when faced with a seemingly impossible mountain.

    I think I’d vote for a depression, but I see it worse than that. At least during the Great Depression (GD), excluding the drought dust bowl that added to America’s woes; they had an industrial base, plenty of fish, trees and potable water for the country’s sustainable population level then. Althoughthe GD extended into 1947 from 1929, America’s debt to GDP were alarming/horrifying at the end of the GD….most progressive types point at this GD turn-around a result of horrifying debt. I say it was irrespective. My proof is FIXED RERSOURCES AND NO RECENT INVENTIONS:

    I’m a younger baby boomer, yet my dad’s and grandad’s generation invented all of the following:

    personal computers
    plasma TVs
    internal combustion engines
    the fastest jets in the world
    etc, etc, etc

    What has man invented since the 1950s through the 1970s? What has America invented since the 1950s through the 1970s?

    smaller reversed engineering of the past
    nanotechnology with no application yet

    Did I miss anything important? I hear PhDs aren’t publishing near as much in the last couple decades too.

    Nope, it clearly appears as the earth and America get more crowded; the hope, drive and time for imagination to invent new technology has gone down the toilet. Thank God for my dad’s/grandpa’s generation living in an America of 100-150 million citizens with land to stretch out on and dream.

    Do we depend on the rest of the earth now for inventions, now that America has made engineering/science an outsource/insource wage chopping block and/or a scary Frankenstein threatening the banksters’ old invention world economy? Ironically though, a dinky country like Denmark is #1 in technology innovation compared to America’s dropped down status to #7 [Japan, India and China are even more subpar and even worse than Mexico]. Europe has done much to control its population and this clearly appears to encourage technoloy growth and new inventiveness [Europe controls much of the Top 10 Slots], but God forbid we encourage low fertility rates stealing customers from the banksters. My world technology innovation status data is from 2007, the last year the banksters allow/dare publish it anymore? I can well imagine America’s technological innovation status has dropped even worse to date, especially with adequate math/science omitted from public high schools and getting far worse with uncontrolled growth and now, teacher layoffs due to lack of local government budget [tax base per student].

    Nope, I don’t see inventions in technology getting us out of this overpopulation mess and wage constriction economy we’re in; the recent actuals to date clearly prove my point. Hades, the space shuttle was invented in the 70s too and we act like its our invention today…LOL.

    The debt to GDP today is about 100%, compared to a max of about 120% at the end of the GD, see the proof:


    I see this recent massive GD peak type American debt increasing the import costs, with a clearly devalued dollar, quickly increasing home/borrowing interest rates with a concurrent shortage of investment money [my friend is in safe US treasury bonds and now gets negative interest rate, this can’t/won’t last].

    I see horrifying American unemployment with no end, without inventions and a resurged industrial base [like we had in 1950]. What is a severe recession with inflation called? Stagflation, and this is far worse than the GD; at least we had deflation in food, energy and goods with unemployment back then. I also see horrifying goods inflation with massive home price deflation, as the investment interest rates on home loans sky-rocket in the future with collapsed uncontrolled growth wages. A horrifying mess for all of us indeed. Don’t blame Obama for it, even Bush wasn’t all to blame; this uncontrolled debt/growth mess has been growing worse and worse [linearly] since the 80s.

  9. 9
    GreatNothing says:

    Other – With so much debt already, taking on more debt will make our currency less desirable and will make us less able to deal with that. I am expecting America to end up with run away inflation and no base to support moving us out of it, meaning I am expecting us to be like Russia. Bread lines and all…

  10. 10
    One Eyed Man says:

    RE: Softwarengineer @ 8

    No inventions, what about Viagra, and don’t forget post-its. Americas can still get it up and stick it.

  11. 11
    98115_Renter says:

    Depression averted, the end.

    The majority of Economists believe massive stimulus was the correct course, but due to right-wing pressure it was probably too little.

    The rich in America have had a joy ride on the backs of the middle class for the past 30 years, time for them to pay up. If they don’t like it let them move to some third world country where there taxes “might” be lower, but in general we have the lowest income tax burden of developed countries, especially for the rich.

  12. 12
    jon says:

    All invention was done by 1980?

    personal computers – 1980 PC ‘s had what, 16K ram?
    plasma TVs – they were a curiosity back then. orange only right?
    ultrasound- nice, how about scanned tunneling microscopes to see atoms.
    microchips – today’s are thousands of times more powerful
    internal combustion engines – invented in 1807
    LCD – the little black and white displays back then. desktop LCDs didn’t become widespread until a few years ago
    the fastest jets in the world – replaced by satellites. Nova had a great show on the Soviet and US manned spy satellite programs.
    internet – In 1980 the ARPANET trunk capacity was 8M/sec I believe.

    If publishing is down, it is because vast amounts of material goes straight onto the web these days.

    I would guess that search engines are the most significant invention since 1980.

  13. 13
    Scott Weitz says:

    Not as bad as the Great Depression, but worse than the ‘lost decade’.

    The reality is that noone really knows, but the smart and unbias guys (Robert Schiller; Peter Schiff, David Faber) out there seem to unanimously agree that more pain is to come….Dollar will get killed, and the deleveraging in real estate has a ways to go.

    On a bright note, its a beautiful day in the NW! Off to Lake Washington.

  14. 14
    David Losh says:

    None of the above.

    We always forget that we, in the United States, are only a portion of the world’s population. On this memorial Day let’s remember the number of men, women, and children killed in foriegn, and domestic wars.

    Today there is more talk about North Korea as though they have some right to endanger the world with nuclear weapons. Global Warming may kill us, but the release of nuclear fall out, in a severly damaged, or depleted atmosphere, would surely kill more than the intended target.

    A good indication of the mess we’re in is Dick Cheney defending water boarding in his fight against terror. Let’s see, we terrorize the people who are terrorizing us to make us more safe from terror. It sounds more like escalation to me.

    To bottom line this for you, because I could go on and on, there is a peace dividend. Clinton used it. As a matter of fact the Clinton years are the only years that I can remember when we had anything close to world peace. Even then we were bombing the crap out of Kosovo, or whoever.

    In my opinion, in my life time, there will be a period of innovation that will address the problems of over population. You may not be aware of the idea that mass destruction, World War, at one time was considered a form a population control. I think those days are over.

    The world has real problems. Looking for Osama Bin Laden won’t fix them. The sooner any government stops throwing money at creating problems, or rewarding people who create problems, the sooner the funds will be available to solve the problems we have.

  15. 15
    Dave Lincoln says:

    I had to vote for “Other”, because I don’t see how we can have a “lost decade” (Japan 1990-present, so I guess that’s lost double-decade – why do I have to be the first to point these things out?) or a “Great Depression” (US from 1929 -1942 or so), without deflation. What I mean is, those 2 periods involved deflation of money, which I would be all for, though it has it’s problems.

    I just think our coming economic woes will involve a big amount of inflation. I don’t see how it can be avoided, though I know that there is one poster on here a lot ,with a blog or podcast (Sniglet or that other guy) who insists we will have deflation. I would like for he or someone to try to convince me of that, really. It would make me feel that I know what will happen at least, even if it’s still a bad scene. I guess it’s really off the scope of this blog in general – blog-creep, but maybe for this thread it would be a good discussion (by other’s not me – I would just ask questions).

    What I think could be on the way is a stagflation-type deal, but like nothing we’ve seen before, like some sort of 1970’s-on-Roids (no, not hemoroids, steroids).

    BTW, what is this crap? “or about the existing limited and handicapped stimulus program….” Haha, so it could have been bigger? Wow. I didn’t know it was possible to “Roosevelt” (aka screw up) the economy any faster than are FedGov is doing now. Ya learn somethin new every day, I guess.

  16. 16
    Colin says:

    Why was “Zombie Invasion from Mars” left off?

  17. 17
    Dave Lincoln says:

    Click “Other”, Colin. That includes the Martian and possible Venusian invasions, both. Oh, and global cooling/oops-warming/oops “climate change” That’s what keeps me up at night.


  18. 18

    “If you want to know what I mean by that you’ll have to read at least the 3rd paragraph of comment 62 to the weekend open thread. But don’t do it unless you’re bored cause it’s long and probably not that insightful.”

    Maybe not but it was funny as hell.

  19. 19
    Dave Lincoln says:

    RE: 98115_Renter @ 11
    Uh, no, not even close on either of your statements. The middle class is starting to, can will continue to, get burned badly – not just taxes of every sort, but just what type of jobs are going to be out there, in a country that doesn’t make much anymore. We can’t all be lawyers – some of us still have a soul.

    The Chinese pay 15% income tax per year, and usually they take their salary in cash (Cash is King, over there, which is way cool). I don’t believe there is any sales tax there, but that may depend on the province or city. So, less tax in a Communist country than in the good old USA. I don’t know what we have left to brag about, besides our right to arms. Oh, and Russia’s got a flat tax of like, 10% or something; they’ve got other problems, of course, but I’m just sayin.

    Oh, and you ain’t seen “right-wing pressure” yet, Mr. 98115. No one else is going to get your freedoms back.

  20. 20
    Scotsman says:

    RE: jon @ 12 – Jon, I agree. In practical terms google, et al. are the most powerful new tool for the average guy in some time.

  21. 21
    Scotsman says:

    Click here:


    Scroll all the way to the bottom and look at the “liability per citizen.”

    That’s why we don’t get out of this alive.

  22. 22
    The Tim says:

    Personally, I’d love to hear someone who selected “Recovery in <5 years” make their case. I’ve yet to hear a compelling, believable argument for the case that massive additional deficit spending will result in a quick recovery from this mess.

  23. 23
    Ray Pepper says:

    Well you know my opinion of the next decade and the unrelenting increase in short sales and foreclosures but even more obvious will be the demise of the conventional Realtor and the MLS as we know it.


  24. 24
    jon says:

    RE: The Tim @ 22 – That debt mess is good news or bad news, depending on which side of the equation you are on. The money is not going into a vacuum. The money is going from one group of people to another. As the number of people nearing retirement grows, they want to own more debt to provide for their retirement. When they die, the bonds they own get taxed and inherited.

    The deal is that the older generation builds houses for the younger adults, and then the older generation retires on the proceeds from the mortgages.

    It has always been the case that a small minority owns the majority of assets. I haven’t read much about the GINI coefficient since the crash, but I suspect things have leveled out quite a bit.

    China has accumulated a lot of US debt, but it works out to about $1000 per Chinese person. They aren’t going to be rich from that.

  25. 25
    b says:

    By Dave Lincoln @ 19:

    The Chinese pay 15% income tax per year, and usually they take their salary in cash (Cash is King, over there, which is way cool). I don’t believe there is any sales tax there, but that may depend on the province or city. So, less tax in a Communist country than in the good old USA. I don’t know what we have left to brag about, besides our right to arms. Oh, and Russia’s got a flat tax of like, 10% or something; they’ve got other problems, of course, but I’m just sayin.

    It is pretty easy to have low taxes for the population if all of the major industry profits go to the government.

  26. 26
    deejayoh says:

    RE: b @ 25 – +1. But since we are moving toward the government owning all major industries in our country as well, perhaps we can lower taxes?

    Using China as an example of tax policy we should aspire to…. that’s a new one on me.

  27. 27
  28. 28
    Scotsman says:

    RE: jon @ 24
    The challenge is that the debt isn’t being paid, principal or interest. Defaulted debt IS the same as throwing money into a hole- gone forever. Ask the GM retirees who were depending on the interest from their GM bond holdings how that interest thing is going. How about collecting the principal? What is the effect on their consumption? Zip, nada, nothing. Much of the debt associated with corporate bonds, commercial real estate, and residential real estate is headed down the rabbit hole. The big question now is will municipal, state, and federal debt eventually follow?

    How do you pay any debt when you’re unemployed (U-6 is what, 17%?), that’s the problem.

    Even the left understands this:


  29. 29
    Racket says:

    “. Ask the GM retirees who were depending on the interest from their GM bond holdings how that interest thing is going.”

    Many of these are the same people that bled the company dry.

  30. 30
    Sniglet says:

    I’m going to have to go with the 2nd “depression” option. I believe the economic contraction has only barely even begun. However, unlike most other people on this blog, I believe we face a severe deflationary scenario, with asset prices (including real-estate) falling some 80% or more from peak.

    The jobs situation is only going to get worse, and all the government interventions have done nothing to deal with the underlying mal-investments, and rot, in the economy. If anything, policy makers are merely delaying the asset liquidation that is necessary. Instead of encouraging people who can’t afford their mortgages to walk away (which is in their own financial interest), all manner of programs are created to help people get loan modifications, and stay put.

    Worse, the government has now taken over the entire mortgage industry and has been blowing the sub-prime bubble 2.0. New FHA insured loans are defaulting at a faster rate than has ever been seen! So much for the government’s efforts of bringing greater prudence to lending. The largest group of mortgage recasts still lies ahead in 2010 and 2011.

    When you look at the train wreck of commercial mortgages that is coming down the track in the next couple years, it is clear that this depression has barely even begun.

    I actually think the US economy will do much better than most other nations. The emerging economies (e.g. Brazil, China, India, etc) are going to suffer far more intensely from the economic contraction. These economies are far more volatile than the developed ones, and they are going to experience declines that are just as (or more) dramatic than their meteoric economic expansions of recent decades.

    As regular readers of Seattlebubble know, I have outlined my thoughts on the case for deflation in a podcast.


  31. 31
    Herman says:

    Awesome – the topic itself is a troll. Love this blog.

    I think the net effect of the Bush years plus the Bailout = The Decline of the US as a Superpower. I think this will manifest as large scale inflation of the US Dollar, plus failures in geopolitical influence (e.g. Iraq), to such an extent that the global faith and trust in the US is severely undermined.

    With this we’ll see a run-up in US interest rates and an inability of the US to borrow to meet its consumption goals. The buying power of the US consumer will decline, and this will mean the US will lose its status as the World’s #1 Market. The fact that the US is the #1 consumer market in the world (by far) has been a tremendous advantage that we’ll soon miss… it leads to advantages in corporate ownership, white-collar employment, marketing, borrowing, and innovation — and even English as the common language of business!

    Ironically, our biggest contribution to the global economy are our consumers. We can’t afford to lose that “industry” but that’s exactly what’s going to happen.

    This is a feedback loop. It will compound itself. As the US consumer declines it will become all the more evident that the US has no proportionately real economic engine to supply to external markets that can replace the consumer. (One guy said we had a “massage economy” – i.e. that we all just give each other massages – brilliant!) The decline will be more severe as a result.

    There will be stagflation. The standard of living of every American will drop. With a near-majority of Americans now in an “entitlement” status they will put huge pressures on productive Americans to support them, since borrowing to pay for entitlements will no longer be viable. But they will suffer severely, and entitlements will start to be withheld from those on the margins. Life expectancies will drop. There will be more homeless and poor.

    Discretionary spend (on things like Parks, NASA, Green Initiatives, Military force projection, etc.) will decline and be seen as luxuries to a former Superpower. American influence around the globe will decline and we will not be able to mold world events to our advantage (such as access to cheap energy). Our lifestyle, which depends on so many global contributions, will be unaffordable and will have to change. Global skirmishes will rise as the US is no longer the stabilizing influence and a new world power structure is hammered out. Domestic skirmishes will rise as a result of the downward adjustment.

    But the US will become a cheap place for foreigners to visit! Industries will form to attract wealthy foreigners to spend on Americana, and American women will prostitute themselves for the pleasure of the rich Chinese/Arab/etc men.

    Or, something like that. I guess I’ll call that close enough to the lost decade to choose that one.

  32. 32
    waitingforseattletocool says:

    RE: Softwarengineer @ 8

    I went to a friends house for Memorial Day party.

    He had purchased an American toilet that automatically flushes, washes, and dries your behind for you.

    I am assuming this was invented this decade, so American innovation truly lives on.

  33. 33
    David Losh says:

    RE: The Tim @ 22

    When you read through the comments and look at the graph you posted the answer is obvious. The problem is debt and the solution is getting out of debt.

    The bail out money was to prevent the collapse of the financial markets. Creating debt to generate interest income works only if people pay. If people lose the ability to pay the debt becomes a liability, some one, or entity is out the money.

    Right now the focus is on the consumer who is losing a home. They are the ones walking away and some one or some entity is out the money. The person losing the home already spent the money. They gave the money to the seller.

    The money, the hard dollars are already out there in the system. What every one is concerned about is the people who lent the money and how they will be repaid.

    You are talking about debt. You’re worried about paying back the debt.

    So the way to get rid of debt is to negotiate it, or pay it back. I mentioned negotiate first because a lot of debt is unrealistic. Credit Cards charging 30% interest is a good example. If some one can’t or won’t pay how does raising the interest rate help anything?

    It’s the same with mortgages. The only way for prices to come down is to renegotiate across the board. In the foreclosure process it devalues all properties with further and further non performing loans. People buying today at foreclosure are buying a declining price asset.

    If the foreclosure process continues fewer and fewer buyers will be competing for a glut of supply.

    Banks need to resolve their debts with consumers. Banks need to figure out how to collect debt by helping consumers repay it. The banks gave the money away recklessly then counted it as assets to package and sell to investors. I think investors would want to know what the banks are doing for them.

    Let’s cap interest at eight per cent to be generous. Banks should set up programs to resolve their debt issues. No fee low interest pay back programs could be collecting debt today. Consumers would be out of debt within five years if allowed to be. Corporations could pay back huge amounts of debt with incentives of low interest no fee, pay back programs.

    The banks, after getting tax dollars should figure out how to get more money coming in by sound business practices. Selling more loan programs will only address a very small per cent age of non performing debt, if any.

    Yes the return to the investor is lower, maybe much lower, but it’s the banks that should pay them, or the investors need to be grateful for a return, if any, on lost capital.

    Resolving debt can turn things around in a matter of years.

  34. 34
    Lamont says:

    Other –

    We are going to have a few boom+bust cycles and make no ‘real’ (in terms of inflation-adjusted) progress in the broader economy. We’ll wind up poorer through corrosion of value. However, the hyperinflation and demise of the dollar is unlikely to occur. It will lose a lot of its status, but it won’t implode like Zimbabwe.

    At the end of it, the stock market and economy will have made no ‘real’ gains, salaries will have made no ‘real’ gains, but the debt overhang will get worked off through inflation. Interest rates will be higher, but that will be a good thing. The economy will then be in shape to expand again. Americans will have adjusted to a lower ‘real’ standard of earning, the excesses will have gotten burned off, and we’ll be able to expand in a healthy way again.

    The result isn’t going to really be a lost decade like Japan’s, but a decade of fairly violent swinging between deflation and inflation. The stock market will look more like the 70’s with a sawtooth pattern that is already pretty obvious. It is going to drag out a long time, but that is because instead of taking all the medicine at once like in the Great Depression, and tearing it all down and starting over, we’ll take our medicine every cyclical slowdown, but have (relatively anemic) inflationary expansion periods in between them. It’ll be more like a car firing on not enough cylinders, rather than a stalled out car drifting into oncoming traffic…

  35. 35
    Kary L. Krismer says:

    Odd that there’s not an inflation option, given how often that’s discussed here.

  36. 36
    Lake Hills Landlord says:

    RE: Dave Lincoln @ 15
    RE: Herman @ 31

    Attention pro inflation posters:

    Please provide a series of events that could possibly lead to inflation.

    As Sniglet, Scotsman, myself and others here have stated before, we are witnessing the destruction of trillions of dollars of debt. This destruction has only started and will continue for years. Wages are currently declining through pay cuts and layoffs. Both of these are highly deflationary.

    What is the argument for inflation? I would love to see a solid, logical argument for inflation, but have yet to see it.

    Some hints for forming your argument:

    1) If it doesn’t get money into the hands of people who can spend it, it won’t work.
    2) If it involves printing large amounts of new money, it won’t work since that will destroy our ability to borrow for deficit spending and plunge us into a hell much worse than GD 2.0. Ben is toying with this right now, but is losing control.

  37. 37
    Tyler says:

    The thread started out as an ugly Troll, and just got uglier. Unfortunately, I can see some truth in the uglier predictions.

    As a follow-on to the inventions in the current generation, the precursor to the search engine being one of the biggest inventions recently is the fact that information storage and retrieval has gotten incredibly cheap. It is now possible to store (large data bases), analyze relationships (Google-esque), retrieve (search engines), and display (mobile phones) so much information that it is mind boggling to earlier generations. A large workforce in previous generations were employed as the gate keepers of knowledge (publishers, attorneys, doctors, REALTORS), and with information now being more free we are effectively stripping away multiple intermediate layers in every industry that once was a middle-man or gatekeeper to some knowledge asset.

    The interesting thing will be to see how the common person uses this easily accessible information. The commoner who will really use this information is the extremely poor, although educated person in a different country who can now take a job that was once guarded by proximity or social connections.

    To bring it back to real estate, I certainly can’t see realtors continuing to take a huge cut of a sale when a large portion of their value is that they hold the keys to a closed database. Someday that will open up, and then a flood of cheap, enthusiastic labor will flood the real estate market, just like the current IT and engineering markets.

  38. 38
    truthtold says:

    “and American women will prostitute themselves…”

    o god no! Make plans to jump off something very high for avoidance of the inevitable American woman-terror at the mercy of rich (likely nasty) foreigners scene…better than scary zulus with no cash or credit?

    Amer. women most apt to be killed at home by old man with gun…don’t get too worked up. Killing the cowboy may benefit us all.

  39. 39
    fwiw says:

    waitingforseattletocool @32

    Nah … they had those in Japan back in the early 90s when I lived there.

  40. 40
    melonrightcoast says:

    I voted for Other. I think Japan’s relatively high household savings really helped them during the Lost Decade, and combined with decent social safety nets (especially healthcare), helped keep Japan from turning into a Depression. Now, the US has better safety nets than the 1930s, but we still have a very low savings rate, huge healthcare issues, and massive amounts of household debt.

    I think we are going to experience a very painful period of stagflation. Meaning, the cost of consumer goods will rise as the Fed keeps the printing presses working overtime and the value of the dollar plummets , and wages will continue to fall because of unemployment and lower revenues.

    It’s a vicious cycle.

  41. 41
    jon says:

    RE: Lake Hills Landlord @ 36 – Your number 2 is the answer to your question. Sniglet and you argue that monetization won’t cause inflation because it would cause too much inflation, so it won’t happen. But they are monetizing already. So far the falling asset values are canceling out the newly printed money. If politicians were able to stop the printing as soon as the bottom in asset values are reached, then there wouldn’t be inflation. But we all know that Pandora’s box has been opened, and there are elections that need to be won.

    Monetization without inflation would not bother debt holders. As long as they get paid back, and the dollars they are paid back have the expected purchasing power, then they are happy. What is happening is that the purchasing power of home owners and equity holders is evaporating, and for the time being that offsets the inflationary effect of the monetization. Eventually the asset values will hit bottom, and the bank reserves that are left will re-enter the economy as new loans, and that is what will kick off inflation. Then all the pension funds that are underwater will not be able to keep up, and Medicare and SS also, and Obama will kindly solve that problem by bailing everyone out with more printed money even after the neutralizing effect of falling asset values is over.

  42. 42
    c says:

    Other. Approximately 0% real growth for the foreseeable future.

    I’m buying a house now. I don’t know what the future holds, but I’d prefer to live my life as if the future is going to be better than the present. If we go into a 2nd depression it is going to suck, and I’ll look back on today as the good days. If we don’t go into a 2nd depression, I’ll look back on today as good days because I didn’t act like it had already happened.

    The problem, as I see it, is the decline of the English theory mentality, and the rise of the Spanish theory as the dominate mindset in our leadership. No politician in recent memory has talked about building the economy as the way to provide additional services to the populace. The rhetoric seems to be around raising the % of taxes, taking money from one group and giving it to another, or declaring that some amount is “too much” and some amount is “too little” and acting accordingly to bring the two in line what some preset (fixed) expectation as in the AMT. All of these assume a finite (fixed) bag of wealth that never grows. Our leaders will do whatever is necessary to maintain that bag of wealth. And nothing more.

  43. 43
    jon says:

    RE: Scotsman @ 28 – The defaulting debt is merely a reflection of the underlying fall in asset values. That sucks for the owners of that debt, but that doesn’t affect my original point that the overall growing amount of debt reflects the retirement needs of our aging population. We are going through a correction now, but Tim’s chart doesn’t even make the correction visible.

  44. 44
    Lake Hills Landlord says:

    RE: jon @ 41

    To be clear, I am arguing that printing new money will not happen because if it does happen, our lenders will walk away. China, Japan, and others are already shortening their debt terms (from long term to short term) in an attempt to not be caught holding the bag in the event that we are unable to make good on our debts. Serious printing by our government will reduce the value of their debt and result in termination of the ability to issue new debt.

    What will the impact of a 2/3 cut to federal spending be on our economy? Think 50% cuts to military and social services. We will have to make due with actual (currently falling) tax receipts. Printing money will do far more damage than deflation ever could. I suspect our leaders and planners know this and will back off the current plans for quantitative easing once they realize the bond markets are about to implode. Once they give up, expect interest rates to go through the roof and assets to continue their decline relative to the dollar (99 cent gas again?).

    Regarding the resumption of borrowing once assets hit bottom, the issue isn’t with availability of money to borrow. It is a lack of demand for credit. We (at all levels of our economy) are over leveraged. That fact is sinking in, hence the lack of demand for new debt. Additionally, ‘bank reserves’ are mostly fiction at this point. Citi, BAC, and the rest fabricated profits to fake their way through the ‘stress tests’. Continued asset declines will finish killing these beasts.

    The one area that will look like inflation will be when resources become more scarce several (3-5) years from now. All these deflationary forces will eventually result in a drop in production of core resources. That combined with actual dwindling resources compared to population growth will result in price inflation on commodities. However, without rising incomes to support it, we will not see a rise in prices on existing assets such as equities or real estate. The only outcome of these price increases will be a further decline in the standard of living, not an escape from debt slavery.

    Part of me hopes the above scenario is wrong. The only problem is that I cannot come up with a counter argument that holds water. That is why I am asking for someone more informed or smarter than me to provide it.

    On the other hand, at least we will be forced to live in a more sustainable way and will live in a much more local (reduced globalism) and much less densely populated world.

  45. 45
    Flying Ape says:

    ah, i think this is a trick question. The true answer is combination of A and D. With all this stimulus the economy will recover in less than 5 years BUT Once the Fed starts removing stimulus (i.e. Quantitative easing) to combat inflation, the economy will tank since the recovery was “artificial.” You have to remember Japan experimented with quantitative easing about 10 years after their bubble popped and it ended with “normalization” of interest rates to a whopping .25% before the financial crisis hit so they never did get out of that deflationary spiral. High household savings only exacerbated the situation with no one purchasing goods so i doubt we will follow their example. Since the Fed is so deterimened in preventing a deflationary spiral, and with the US consumer being vigilant, stagflation should be the biggest concern. If the government wasn’t involved i truly believe we would be dealing with Japanese style deflation but with Helicopter Ben at the helm Stagflation should be the consequence. Healthy recovery a possibility but highly unlikely.

  46. 46
    Dave Lincoln says:

    RE: b @ 25
    Not true, nowadays. Economically, the Chinese are freer than we are in the US (at least in the south of China). There are 4 reasons that I can think of right now:

    1) The government gets out of the way instead of hindering business (there are still state-owned companies left by they are getting creamed by the competition now and going down).
    2) No trial lawyer infestation such as we have in the US.
    3) Low pay (they can always get more cheap labor from people moving from the country, where there is like, NO pay.
    4) Hardworking people (not saying we don’t have that, but I think everyone there who is employed knows how to work)

  47. 47
    Dave Lincoln says:

    RE: Lake Hills Landlord @ 36
    Dudes, I am still trying to figure it out. But, your #2 is pretty much what I’m talking about. I don’t get what you mean by “it won’t work”. Of course it won’t work as a means of fixing the economy. So, do you mean that “printing the money” won’t work. I realize it’s really all just bits on computers, but how can it not work? They’ll be a lot of money out there, so why would it not be worth less compared to, say, gold or silver?

    I really want a good explanation, I am not arguing just to argue (I mean Sniglet too). How about some examples? I learn better with some examples. Gimme some.

  48. 48
    Lake Hills Landlord says:

    RE: Dave Lincoln @ 47

    To be more specific, it (printing money) will work. To a limited degree. We are doing it today in order to buy our own debt (paying our Visa with our Mastercard).

    It won’t work beyond some undefined limit. This limit is determined by our lenders. Our deficit spending depends on our lenders believing in our government and economy. If they start to think they won’t be repaid, they will stop lending (i.e. our treasury bond sales will fail – UK had this happen last month). When that happens, there will be an immediate cut in government services. Think California, but at the federal level. The impact of a loss of around $2 trillion in government spending will rock our economy at the foundations. Social unrest will rear its ugly head.

    So why would our lenders stop buying treasuries?

    1) They think they will be scammed outright. This is why the current policies (and previous) of allowing unchecked corruption and theft (by bankers and others) is risky and must be stopped before we will see a recovery. Why risk investing somewhere when you are worried your money will be stolen? Currently the government is damaging the credibility of private markets as well by invalidating creditor priority (e.g. Chrysler and GM preferred shareholders, etc.). There is very little need for new regulation, but existing law should be enforced and those who violate it (Geitner and BenB included) should be punished.

    2) They think they will be paid back in dollars that are worth less. What good is a 1% guaranteed return when so many new dollars were printed that you can only buy 80% of what you could buy at the start of the bond?

    #2 is the big risk of trying to print money. If you print enough to actually trigger inflation, or even reduce deflation in this case, people will stop buying your debt. Hard stop.

    Is that explanation better? I doubt I am the best person to be trying to explain this, as my understanding feels shaky sometimes. There are sources that do a better job, although they are not from MSM. Even Calculated Risk seems a bit on the rosy side these days.

  49. 49
    Dave Lincoln says:

    RE: Lake Hills Landlord @ 48
    First, thanks for replying so quickly.

    As to the end of your post, I agree the LSM doesn’t contain many reporters who can calculate a percentage, much less understand economics. I have read Calculated Risk before – I used to think the guy was very sharp, but he can’t seem to see the forest for the trees. Additionally, most of the commenters are downright Commies, so I quit reading the comments.

    Anyhoo, the example of the credit cards is a start. I thought Visa and MC have been the same company for a long time (correct me if I’m wrong). I’m not trying to ruin your example, so let’s just say I used my American Express card to pay off my Visa bill. So, the Visa company (say, some Treasury Bond casher-inners) are happy, as they got their money back. They will also be glad to loan me more, since, as far as they know, I am an upstanding, debt-honoring individual (i.ie. Some Chinese investors will buy more bonds).

    In the meantime, American Express (who do they represent, BTW by analogy?) is not at all pleased with my performance in honoring their debt. So, I (being the US federal government in this analogy, of course) find a way to hack into my bank’s computer and add a few zeros to my balance any time I want. Keep in mind, I (the US government) am, like, 1/2 of the whole economy at this point in terms of spending. I add enough money to my account to enable me to pay off the American Express Bill now, or at least my minimum balance due. However, it just doesn’t seem like this money is worth what it was when I used to pay it, so these companies realize they are still not getting their REAL money back from lending me money. Neither one wants to lend me any more cash, but then, I’m the only game left in town, because ……

    OK, I want to continue this example later. Let’s get a handle on this – it ain’t rocket science. I’m gonna think about it overnight.

  50. 50
    David Losh says:

    RE: Dave Lincoln @ 49

    No, don’t think about it, that’s absolutely right.

    We pay debt to get more credit.

    We have the FICO score, and credit ratings to get a better interest rate.

    Governments want other governments to buy debt.

    Consumer spending means consumer debt.

  51. 51
    Lamont says:


    “Attention pro inflation posters:

    Please provide a series of events that could possibly lead to inflation.”

    I’ll give it a shot…

    2010: housing finds a bottom in markets like SD, GDP finds a bottom, job losses find a bottom. Bank loan standards relax as they can better assess the credit worthiness of borrowers. At that point the monetary transmission mechanism begins to work again and fractional reserve banking begins to work again, which leads to the money multiplier effect creating more money from what the federal reserve has printed during this crisis. During the next recovery from 2010->2014 or so we also see a renewed spike in oil and commodity prices as more dollars and more players (US, Europe and BRIC) chase after fewer resources, and the return of $4+/gal of gas. Eventually that leads to another inflationary pile-up similar to 2007 as commodity/oil/energy prices burst the inflationary bubble. Then it unwinds again in deflation.

    I expect in the next 3-6 months, though, that we’ll still have deflation and I’m looking for the stock market to unwind again and commodity prices to unwind again, after the recent rally/dead cat bounce.

    Most inflationists are just calling it early, and they’ve got the broken-clock-always-right-twice-a-day problem, although as time goes on it begins to make more sense to listen to some of them…

    Most deflationists have that problem as well… They’ve just been right recently, and we can start to look forward to times when those broken clocks will start to be wrong again…

  52. 52
    Lake Hills Landlord says:

    RE: Lamont @ 51

    I think you have described a very likely outcome. I would hesitate to call it inflation though. I don’t think consumers will see increased wages in the time frame you indicate (combination of lost jobs / part time only / pay cuts), so true inflation won’t be a possible outcome. But some resources and commodities will bounce up and down during that period due to supply problems (shortages). This will only make the standard of living decreases worse.

  53. 53
    98115_Renter says:

    RE: The Tim @ 22


    “About 74 percent of the forecasters expect the recession — which started in December 2007 and is the longest since World War II — to end in the third quarter. Another 19 percent predict the turning point will come in the final three months of this year, and the remaining 7 percent believe the recession will end in the first quarter of 2010.”

  54. 54
    The Tim says:

    RE: 98115_Renter @ 53 – Rhetorical question… Would these be the same economists that didn’t foresee the recession to begin with, and/or the ones that were certain that subprime was “contained”?

    And unfortunately, that doesn’t really answer my question. At all. As far as I can tell, the only reasoning offered in the linked article as to why the recession might end this year is the following:

    President Barack Obama’s $787 billion stimulus package of increased government spending and tax cuts, near-zero interest rates ordered by the Fed and government programs to get banks to lend more freely again all factor into the expected economic revival.

    How compelling.

    Also, I suppose we should define terms. When I say “recovery,” I mean a return to growth. when people talk about the recession ending, doesn’t that just mean the end of declines, and therefore not necessarily the return of real growth? I see a likely scenario today as hitting a “bottom” sometime in the next few years, then just rolling along that bottom for some time.

  55. 55
    98115_Renter says:

    RE: The Tim @ 54

    I guess time will tell.

    I don’t have a particular ideological persuasion regarding this topic, but even if lots of individual economists (and the Fed) were wrong in predicting the recession, this particular article points to a survey (no number of respondants given) which might be presumably more reliable.

    I don’t think the economy will be healthy (I don’t think it truly has been for a long time), but that doesn’t mean that the recession won’t end. The article states that the “recovery” is likely to be slow and/or meagher, but a non-declining GDP coupled with flat or declining unemployment numbers (obviously not happening right now) means an end to the current recession.

    Is the end of the recession the same as recovery? Well I suppose we would need precise criteria do define “recovery”, but if it simply means the end of recession then perhaps reovery will be at hand in the medium term.

    I know many (including you, obviously) hope that the government spending and bailouts fail, but what if they don’t? What if they actually are working? Open you eyes to that possibility, if only for a few minutes.

  56. 56
    The Tim says:

    By 98115_Renter @ 55:

    I know many (including you, obviously) hope that the government spending and bailouts fail, but what if they don’t? What if they actually are working? Open you eyes to that possibility, if only for a few minutes.

    Who says I (or anyone else) want the bailouts to fail? I have never said nor implied that. I just expect them to fail. Big difference.

  57. 57
    98115_Renter says:

    RE: The Tim @ 56

    Maybe you’re wrong.

  58. 58
    The Tim says:

    RE: 98115_Renter @ 57 – It’s entirely possible. That very real possibility is exactly the reason I asked for someone to actually make the case @ 22 above. I want to hear the reasoning behind the idea that says massive deficit spending will solve all our woes.

    It’s very difficult to realistically consider the possibility when the only logical arguments I have seen addressing all the facts all point to these actions not solving the problem. So by all means, please tell me why I’m wrong!

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