Financial Crisis

[Roy G Biv]

All I know is... my mortgage rate is ridiculously low.... deals are EVERYWHERE (clothes are insanely cheap... along with electronics and everything else I go looking for), and gas prices are so low I feel almost criminal paying so little.

Combine that with my regular salary increases every year, and all I can say is, these are damn good times. I see very little to complain about.

Of course I'm sure some people are gonna say I'm living in a bubble here... but literally everyone I know is in the same situation... I don't know a single person complaining.

2008 was mostly about the collapse of the financial market, notably the practice of Investment Banking. If you didn't have major investments, or work in a bank, you probably weren't really affected.

In 2009, we'll see other sectors go down, much of it due to a rise in the global savings rate. Exporters will be hit, and jobs will be lost. Loans will be defaulted on, and retail banks will start feeling the hurt.

Main street lags the financial market.

 

[urbandreamer]

Does Toronto's Main St lag Bay St?

Anyhow, stock market looks like it's set to rally soon (basing this prediction on the 50/100/200ma on the $INDU, could see a double bottom@7500, then a gradual move up through Q1/2 09), which surely will result in some positive real estate transactions....

On the flipside, the poor will get poorer....

 

[Prometheus The Supremo]

Deflation is the negative of inflation. Deflation creates a value in money...

now if only the same could be said for shrinkage, costanza wouldn't have had those issues on that weekend getaway.

 

[jks]

Deflation is the negative of inflation. Deflation creates a value in money as the price of goods and services drop. If you have lots of cash, you're better off than those who don't. If deflation continues to take place, it would bring about greater unemployment which would further erode the economy - and bring about further price deflation. You would not see wages increase. Over time, they would decrease.

Um, yeah, your income WOULD decrease, but the price of everything will also decrease!! So, It's not a bad thing. I mean, If the price of everything goes down, it would take some time for wages to follow, and in that period there would be great deals on everything. Also, how would it erode the economy?? In the end, it will stay the same. I mean if my dollar can buy a loaf of bread today, and my income is 2000$/month, and the next year that loaf of bread consts 50 cents, but my salary is only 1000$/month, the ratio is the same! It would do nothing to the economy.

 

[Prometheus The Supremo]

just when they were talking about getting rid of the penny. now they might have to bring back the half penny.

 

[Hydrogen]

Um, yeah, your income WOULD decrease, but the price of everything will also decrease!! So, It's not a bad thing. I mean, If the price of everything goes down, it would take some time for wages to follow, and in that period there would be great deals on everything.

The whole economy would shrink. The last major bout of deflation was called the Great Depression. Take note that it was a "bad thing" for many people.

 

[jks]

The whole economy would shrink. The last major bout of deflation was called the Great Depression. Take note that it was a "bad thing" for many people.

What?? During the Depression the problem was INflation. In Germany, the mark lost so much value people burned money instead of wood, as it was so worthless. In Serbia, when the Serbian Dinar Hyperinflated, the economy was in the crapper, and 200g of coffee cost 80 000 dinars. And one paid 7 billion for a sofa.

 

[Prometheus The Supremo]

What?? During the Depression the problem was INflation. In Germany, the mark lost so much value people burned money instead of wood, as it was so worthless. In Serbia, when the Serbian Dinar Hyperinflated, the economy was in the crapper, and 200g of coffee cost 80 000 dinars. And one paid 7 billion for a sofa.

didn't that happen in the 20's?

 

[Hydrogen]

Yup. The worst of it being around 1923.

 

[Prometheus The Supremo]

it doesn't sound like deflation is that great either: http://en.wikipedia.org/wiki/Deflation

 

[afransen]

Stable prices are generally best, and seeing as inflation is slightly less bad than deflation, most central banks aim to have low inflation rather than completely stable prices. Deflation is bad for anyone with a lot of debt, as the debt grows relative to their ability to pay it (think about how that might impact our current situation). Inflation is bad because it hurts people with cash, and tends to accelerate (price-wage spiral) if it gets out of hand.

But it is worth noting that the reaction to the threat of deflation may cause problematic inflation down the road, particularly because no one seems to know how much stimulus is required.

 

[Roy G Biv]

Deflation scares the shit out of everyone because it's historically associated with The Great Depression.

I'd say it provides a good opportunity to cut rates and print money like it's nobody's business.

 

[Prometheus The Supremo]

Deflation scares the shit out of everyone because it's historically associated with The Great Depression.

I'd say it provides a good opportunity to cut rates and print money like it's nobody's business.

would it be that easy? offset monetary deflation by printing more money causing monetary inflation?

 

[Hydrogen]

Yup, that's what afransen was alluding to. Managing deflation has its own set of unique problems that could result in a relatively quick pendulum swing to inflation. Stimulus has to be well-managed.

 

[jks]

Yes, inflation is all WONDERFUL!! Come on, the prices of avarything have been shooting up, while out salaries have not. if it continues, we won't be able to pay anything!