So it begins...

[altivo]

Click-clickety-ticka-tick-click...

Off and running, but behind the field.More tomorrow about that.

Gas prices here hit $2.44 today. First time ever that I can remember us being at or near the national average. But then, the national average of $2.43 was what I heard yesterday afternoon. At the rate it's been dropping, the average is probably even lower. According to my records, the last time I paid this low a price for gasoline was in February of 2007.

I've heard a lot of hushed mention of the word "deflation" when they interview economists and market "experts" lately. Certainly this could possibly be in the offing the way things are going. If the prices of other goods and services start dropping the way fuel and stock prices have done in the last month, it would be a sign of serious recession or even depression. However, at the supermarket this morning I did not notice any deflation in food prices. They continue to rise at an alarming rate. I haven't been out shopping for clothing, medicines, or home furnishings in quite a while, so I can't say what is happening with that sort of thing. They say that a serious deflation trend would cause more stagnation and unemployment. That may well be true. I think it might also be a sign that the US economy has been pushing in the wrong direction and needs to rethink and retrench. Interest rate cuts are supposed to prevent deflation, but... Japan had serious deflation in the mid-90s even after the central bank's interest rate was dropped to zero. That's right, zero percent interest. I'm inclined to agree with the pundit at marketwatch.com who said this week: "Banks are like roach motels. The rate cuts go in, but nothing comes out." Actually, in the case of the so-called "financial banks" I expect we will be able to say "The bailout cash goes in, but nothing comes out." Yet another stupid move by a government that just doesn't seem to be able to learn that Reaganomics didn't work in the 1980s, it doesn't work now, and it never has worked. It seems to help in the short term, but when followed assiduously for years it disconnects the wealth from the means of production so completely that a collapse follows. That's what happened in the 1930s in the US, and dragged much of the world down with it. We may be about to see it happen once again.

Comments

[corelog.livejournal.com]

NaNoGo! :)

[altivo.livejournal.com]

Hee. This year I'm taking Fennec and Argos back 30 years into their past. Takes some careful juggling to make sure I don't mess up anything that was told or hinted in last year's story.

[animist.livejournal.com]

The big banks are going to use the government money to buy small banks. Such much for free enterprise.

[altivo.livejournal.com]

Well, I'd say "free" enterprise in the sense of "unregulated" is what made this god-awful mess. Unfortunately, I'm not at all convinced that the federal government owning large shares of the banks will help that much. The entire system is broken because greed and short term thinking have been allowed to shape it.

[goldenstallion.livejournal.com]

Whinnyhi.

I would love to hear more about Fennec and Argos, who are fast becoming favorite characters. Of course more about Jake and Chrysios would be fun, too.

Gas is dropping below $2.20 here already.

That is about the only good thing about the late economy.

Steed

[altivo.livejournal.com]

There will be more about Jake and Chrysios too, I promise.

Fennec and Argos are much more complicated characters, though, because they are intended for an adult audience. I'm fascinated with them and though I think I understand them pretty well, I find it difficult to explain them. Argos contains a lot of myself, of course, or at least who I wish I were. Fennec has no analog in real life at least as far as I'm aware. In light of the current economic mess, though, I'm realizing that these stories are much more political than I thought they were.

On gas prices, after reading the Wisconsin farm paper yesterday, I've imagined a new bad scenario that could come of this. Farmers have now invested heavily in producing corn for the ethanol scam. I say it's a scam for lots of reasons but still, it exists. Plummeting oil prices are very likely to slow development of ethanol plants and reduce the demand for ethanol.

At the moment corn prices are artificially high due to the ethanol thing. That's one of the factors that has been raising food prices. A collapse in the corn futures market, though, while it would eventually lower food prices, will cause defaults and bankruptcies in the farm economy. I don't think this looks good at all. And while most of the farm states are traditionally red voters, McCain's first suggestion for cutting the federal deficit was to stop all farm subsidies and supports. He has voted against farm bills in the past and recently too. Obama favors assistance to farmers, but opposes ethanol investment (wisely in my opinion) so the farmers aren't sure they like him either.

[alaskawolf.livejournal.com]

gas finally dropped to $3.25 here and heating oil is under $3

[schnee.livejournal.com]

Yeah, fuel prices are dropping here, too - we're hovering around 1.269 EUR or so per litre (~6.12 USD / US gallon).

[altivo.livejournal.com]

I read somewhere that prices in the UK were falling back below the 99 pence mark too. While I really do think everything has been overpriced in the last year or so, the implications of a sudden price deflation overall are not good either.

We're seeing some interesting effects here in the US. The airline corporations thought they were being clever by committing to buy fuel at a fixed price for months into the future. In June it looked like a bargain, assuming prices stayed the same or continued to rise. Now that prices have collapsed, though, they are committed to pay MORE than the going market rate for fuel. It seems to me that they were planning on this expense and should just live with it until the contracts run out, but no, they are screaming for fare increases and government aid so that their own bad decisions don't cut into their profit margin.

[schnee.livejournal.com]

*noddles* Not surprising, I dare say... after all, they saw it work for the banks. And if the country can't do without banks, necessitating an official intervention, surely it can't do without airlines, either...

[cabcat.livejournal.com]

The deflation in Japan was due to the housing bubble bursting in a really big way. Interest rates are still very low 0.1% or something.

[dakhun.livejournal.com]

I think it would be a big mistake to put too much stock (pardon the pun) into making analogues with previous market cycles without putting a lot of thought behind it. There was deflation in the years following the crash of 1929, but this crash we just had was nothing at all like the one that happened in 1929. Stocks were fantastically overvalued before the 1929 crash, but in 2007/2008 they were never particularly overvalued - they just weakened for a year and then imploded. I think the closest similarity is actually with the 1974 crash, but even then there are big differences. Following the 1974 crash were the second-highest rates of inflation of my life so far, but who knows what will happen this time...

Personally, I think too many people have 1929 on their brain right now, including fed chairman Bernanke. People need to study more of history than "The Great Crash" to put current events into perspective. But putting them into perspective does not mean following along event for event of your favourite market crash of the past.

[altivo.livejournal.com]

I'm not the only one who disagrees with you about stocks having been overvalued in the past year. I've heard several economists and market experts say that in the past month.

More important though is the fact that the attitudes toward holding and trading stock have shifted in the last 30 years until they came to resemble those that were common in the 1920s. The notion that the stock market (and real estate values) would always go up and therefore was always a good place to invest money, even borrowed money had once again become widespread. People were willing to buy overpriced stocks or overpriced houses, and that's where the fatal flaw originated. Now they find themselves holding real estate or stock certificates that are worth less than what they paid, and in many cases, they owe money on those deflated assets.

The crash of 1929 actually took about three years to play itself out in full. I don't believe we've seen all the consequences of this one either. I'm particularly concerned that government policy makers don't seem to grasp the overall picture, and are still trying to stick bandaids on it. Very expensive bandaids, of a sort that have been demonstrated in past incidents to be quite ineffective.

[dakhun.livejournal.com]

I think you are still confusing one stock market bubble with another. Not all stock market crashes or bear markets are the result of overvalued stocks. You need to understand that to get a handle on what is going on right now. The average P/E of the S&P500 last year was just over the historic norm of 14-15. Not very overvalued. The ratio is now 9.8 to 10.4 (depending on which 'E' you choose) - very undervalued.

[dakhun.livejournal.com]

Also, economists have been known to be wrong. :-P
Economists have predicted 9 out of the past 5 recessions.
Name an economist that has made more money timing the markets than an actual stock trader, and I'll show you someone who actually knows something about financial forecasting.
Grains of salt all around.