TraneWreck
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The fact that we have miniscule inflation--it would likely be deflation without controls--eliminates it as a necessary condition of a collapse.
What would economic collapse look like?
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The fact that we have miniscule inflation--it would likely be deflation without controls--eliminates it as a necessary condition of a collapse.
rjh01
Gentleman of leisure
No, I think you got that the wrong way round. If inflation is zero or negative then the economy is not close to collapse. It means that the government does not have to worry too much about inflation when it tries to get unemployment down.
The economy may be contracting, unemployment is high (but not too high) and inflation at a negative rate, but the numbers are nowhere near high enough for the economy to collapse.
Then it gets back to the question in the OP, "What is the definition of an economic collapse?" I like the answer in post 9. When the USA currency is not worth the paper it is written in then the economy has collapsed. Another word for this is hyperinflation.
Another sign is when you get large numbers of people going from one place to another looking for work. Even worse some of them starving to death.
Someone suggested getting short of resources, such as oil or water. This would produce an economic collapse. Like when you leave the car in the garage because there is no gas (petrol) in the car. Nor can you buy it. For water, what is in the taps is not drinking standard, or maybe not even present. There could be other resources run out or hard to obtain that could produce an economic collapse, but those are the obvious ones.
kuroyume0161
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This was Germany after WWI. In 1923, the Weimar Republic was issuing currency and stamps in the order of billions and trillions of Mark. Bread was purported at costs of 3 billion Mark per pound. After the Stock Market crash of 1929, Germany was bankrupt.
And we know that Germany rebounded with a kind, non-hostile democratic regime... ehem...
Puppycow
Penultimate Amazing
Well, for example, you might see existing home sales plunge 27%, a record, and then the next day new home sales plunge to a 47-year low, and the inventory of unsold homes skyrocket to over a year's worth of supply. You might see something like that.
Well, for example, you might see existing home sales plunge 27%, a record, and then the next day new home sales plunge to a 47-year low, and the inventory of unsold homes skyrocket to over a year's worth of supply. You might see something like that.
You might.
You might also see a black cat cross your path. There are all sorts of things that you might see just before a major economic collapse, but that aren't actually connected to the collapse.
One key thing to ask yourself regarding the housing data -- why aren't houses selling?
If they're not selling because no one will give them mortgages, that's one thing. But if they're not selling because people don't want to buy them, that's not really a sign of a collapse. Given that mortgage rates are also at a seven thousand year low, bankers seem to be doing their best to give houses away,.... but people simply don't want them.
JihadJane
not a camel
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No, we'll likely have it a long time before that.
And we will never use up all the oil.
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Well, since the bailouts demonstrably worked -- GM has filed the papers for the IPO, dontcha know? --- that's not really relevant to the real world.
On a broader scale, nearly 100 of the banks have paid their TARP funds back in full and the Treasury has made 8.5% on its money. More importantly, the credit crunch is well and truly broken; loans are not only available again, but at record-low rates. Cash for Clunkers raised the GDP for the relevant quarters something like 2%; I can look up the actual numbers if they seem relevant.
In the real world, the bailouts were a tremendous success.
But who would have thought that JJ's economic gibberish would turn out to be ill-founded and untrue? (Please, let's not always see the same hands!)
timhau
NWO Litter Technician
They probably don't, because they come from reality.
That's more or less my thought on the matter as well, which is why I hadn't done it.
COGrizzly
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Yep. Then the banks say you can get your money on X day (a day or two later) and that falls through. Hell breaks loose shortly after.
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Puppycow
Penultimate Amazing
To the person who wants to sell her house but can't, the "why" seems academic.
Ignorance on her part is hardly the basis for economic policy.
And, for that matter, it's rather stupid of her as well; if she wants to sell her house but can't, the first question she should ask is why, because if she can and should take steps to address the matter.
If it's a buyers-exist-but-financing-doesn't, she can fix that with seller financing.
If it's a financing-exists-but-buyers-don't, then she's priced herself out of the market and needs to drop her asking price.
We just sold our house less than two months ago. It was on the market for less than two months. Someone else in my department has had his house on the market for a year and a half. Which of the two of us didn't do our homework?
neutrino_cannon
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Taking Zimbabwe as an example:
-Electricity became an iffy proposition fairly early on in the Zimbabwe economic collapse, and downright rare later on.
-Gasoline became hard to get just a little bit after the electrical infrastructure became weak.
-While there was astronomic inflation, the Zimbabwe dollar became worthless enough by 2006ish that there were already reports of widespread barter.
-There was substantial egress from the country; more than 1 million people in a country with a population of less than 7 million to begin with.
-There were reports by 2007 that wildlife numbers were down in many areas because of poaching for bushmeat. This was very suggestive of food shortages even before the international media explicitly identified a food crisis.
-By 2009 the public water supply was getting iffy and there were cholera breakouts.
The order might be different in another country, but that's some of what I'd expect to see in a prolonged collapse.
-Electricity became an iffy proposition fairly early on in the Zimbabwe economic collapse, and downright rare later on.
-Gasoline became hard to get just a little bit after the electrical infrastructure became weak.
-While there was astronomic inflation, the Zimbabwe dollar became worthless enough by 2006ish that there were already reports of widespread barter.
-There was substantial egress from the country; more than 1 million people in a country with a population of less than 7 million to begin with.
-There were reports by 2007 that wildlife numbers were down in many areas because of poaching for bushmeat. This was very suggestive of food shortages even before the international media explicitly identified a food crisis.
-By 2009 the public water supply was getting iffy and there were cholera breakouts.
The order might be different in another country, but that's some of what I'd expect to see in a prolonged collapse.
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PixyMisa
Persnickety Insect
The financial market bailout almost certainly prevented a systemic crash. Given the enormity of the risk, and the prior failures of Bear Stearns and Lehman Brothers, it was definitely the right decision.
Cash for Clunkers though? I'd very much like to see those figures, and the figures for the following quarter. Programs like that are just borrowing against future sales, and never work well.
PixyMisa
Persnickety Insect
Yes, and no. "Borrowing against future sales" is exactly what CfC was designed to do, and it worked well. It prevented a very very bad quarter from causing businesses to close, which meant that they were able to take advantage of "future sales" from which to borrow. In other terms, it smoothed out the fluctuations in the cash flow enough to keep the businesses open.
If you're in a barely-profitable business (as most companies are), and you suffer a 75% drop in revenue in Q2, it doesn't really matter what your Q3 numbers are expected to be; the odds are very good that you won't be in business in Q3. (Obviously, this applies to non-cyclical businesses; if your business is renting Santa Claus suits or jet skis, things would be a bit different). Almost any businessman would rather have 1% Q2 growth followed by 1% Q3 growth rather than (-75%) Q2 growth (loss) followed by 500% Q3 growth. The negative quarter hurts more than the positive quarter helps.
We're seeing something like that now in the chip market (check the recent NYT article). Chip demand has been way down for the past year -- it's picking up now, slightly, but the chip manufacturers aren't able to keep up with the demand. More accurately, the chip manufacturers aren't willing to keep up with the demand, because they shut down a lot of their lines over the past year (to cut costs) and it's an expensive and time-consuming process to start them up again. So for the foreseeable future, chip production will be at only 50% or so of nominal capacity, because half the capacity is in mothballs and can't be quickly restored.
There's an argument to be made that what was needed was a Cash-for-Chips stimulus; artificially stimulate demand to the level that keeping all the lines running was profitable, so that we don't have the costs, delays, and shortages associated with re-starting lines. I don't think we need go that far -- after all, few if any of the chip manufacturers have actually closed or left the business. But the parts suppliers to the various auto manufacturers would have been in much the same situation, and many of them were expected to close (they were hit a lot harder than Intel by the slowdown).
So GM, as well, would rather borrow sales from Q4 into Q3 in order to make sure that it will still have a supplier of brake drums. If the brake drum company closes its business, GM not be able to make cars in Q4... and you can't sell what you can't make.
So, "programs like that are just borrowing against future sales, and never work well" isn't a very good representation of the actual effectiveness of the program.
Having said that, you can see the numbers here. Q3 2009 -- 1.6% GDP growth (first positive quarter in a year, revised downward from 3.5%) -- that's the relevant quarter. According to the BEA, CfC accounted for about 1.7% of the growth as a whole -- i.e., we were looking at another negative quarter without it.
Q4 2009, a whopping 5% GDP growth, so things were actually better for the economy as a whole, despite the fears of "borrowing sales." Things have dropped since then... not coincidentally, as the Republican obstructionism started to really take effect; Q3 2010 is probably going to put us in the toilet again due to the mess in June/July with unemployment payments, as consumer spending drops when people realize they can't spend income they no longer have.
I stand by my statement. CfC was a good idea and demonstrably worked.
pgwenthold
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I'd LOVE to buy a new house.
The only problem is that I can't afford the two mortgages that I'd be stuck with because no one will buy my current house at a price that will cover what I owe on it.
This is a wonderful time to buy a house. I have a friend who just bought a great place, and got financed at 3.5%. Then again, she has a good, reliable job, and it was previously renting. It was a perfect situation.
In other words, you've priced yourself out of the market. I'd love to sell my Citigroup stock at a price that will cover what I paid for it, too,.... and I'd love to buy a plane ticket to Prague for Labor Day weekend, as long as I can get it for under $50.
Just because what you want is out of line with what the market is willing to accept is hardly a sign of an economic collapse. (And if you want a new house that badly, rent the old one.)