Heh, it probably should. :) But then again this is talking about a guys predictions of how/whether the economy will rebound and how it differs from his company's official stand.

So all this is speculation on why he's thinking L-shaped versus U shaped. And I happen to think he's more right than wrong.

I'd have to disagree with increasing debt being a better long term solution in trying to avoid another great depression scenario. Even if in the short term it increases consumer spending. It's still a phantom increase and only prolongs and increases the pain as their debt gets larger and their future spending is squeezed even further.

Although superficially many things are similar to the great depression it's not quite the same. The presence of an increasing number of "day traders" for example is similar to how many people prior to the depression tried to play the market (buy low sell high in relatively short periods of time) rather than actually investing in a company over the long term. Then when things started to go bad, trying to dump everything in an attempt to recover even a little bit sent the whole thing tumbling down in a viscious cycle.

However, while stock trading has more oversight now to prevent things getting that bad, we have something else compounding that problem at the moment. Which is the whole credit/debt heavy purchasing power that many American's use.

It's the whole buying beyond your means and the ease with which people that can't afford to have credit (see the housing bust due to high risk credit loans) can get credit and thus go into debt that's gotten us where we are. At some point the bubble had to burst, and it just happened to be last fall.

While decreasing debt will certainly hurt the economy overall in the short term, it should lead to a faster recovery than adding more debt. As people will slowly regain purchasing power based on what they earn rather than on how far into debt they can get themselves.

Unfortunate side effect is that companies that didn't plan for possible hard economic times and thus went "all out" in expansion while keeping minimal cash reservers will likely go out of business or if they are lucky be bought out by those companies with a stronger business foundation.

TSMC saying they predict a U shaped recovery are just as likely trying to foster the illusion that things will get better to get people to loosen up on their wallets and spend again.

Maybe I'm being overly pessimistic about the state of affairs (I like to think I'm being pragmatic), but I honestly don't see things improving for at least 1-2 years and quite likely only a slow recovery (if any) over 4-6 years.

And that's only assuming people stop relying on credit to buy things their current job can't afford. Like houses that are far to high priced for their current income and luxury items.

I still find it absurd to see stories where a school bus driver is asking for help from the government to pay for her 800k house. Really? In what bizarro world does a school bus driver's salary qualify for credit for an 800k house? [leaving comment out so this doesn't go into politics] And how did they expect to pay for that over the long term? And why are they expecting government help?

Anyway, I don't see many possibilites for a quick U shaped recovery for the economy. You can make credit easier to get which just leads to more problems in the future. Although it may keep some of the less financially sound companies in business longer. You can print more money which would just devalue the dollar which makes things worse in the future.

The most important thing though is the government can get out of dictating how or to whom money should be leant, other than dictating interest rates for the federal reserve. We'd still have a credit/debt crisis if they had been keeping their hands off the past decade or so, but it'd be far less than what it is now. But banks would have been far less inclined to give out loans to high risk segments of the population if the government hadn't given them incentives to do just that.

Regards,
SB

C'mon, I don't bite [small]too hard[/small] :)

Professor Reisman addressed your point (http://mises.org/story/3353) earlier today, and explains why repairing balance sheets (among other things) is necessary. RPSC for the rest...

I have a feeling a lot of netbook purchases have been luxury goods. I.e. second computers.

There are quite a few problems with that essay. One thing that struck me straight away that was really wrong Milton Friedman(the figurehead of the Chicago school of economics) quote about everyone being Keynesians now. The actual quote was from Richard Nixon in the seventies and coincided pretty much with the end of the Keynesian movement which was largely replaced by the Chicago school in public policy making.

The Chicago school had lasted well until recently but may be on its way out now as it is largely blamed for the current mess we are now in. Keynesian is obviously trying for a resurrection but as with any resurrection that has a fair chance of getting ugly (http://www.tudou.com/programs/view/5sZioo-j0JA/) :wink:

Also the credit expansion producing money out of thin air showed complete ignorance of the carry trade (http://goldnews.bullionvault.com/yen_carry_trade_101620084) was quite egregious. The savers were there, they just largely resided in asia.

Did not make it to the end :sad:

It's not so outlandish (http://www.google.com/search?hl=en&safe=off&client=opera&rls=en&hs=oda&q=Milton+Friedman+we%27re+all+keynesians+now+time+magazine&btnG=Search). The quote is actually in-context in the article: The Chicago school has similar deficits on capital theory than Keynesism.

FWIW, Nixon only claimed the same phrase 6 years later.

Monetary expansion in Asia does not constitute savings, neither here nor there.

Correct. In modern banking, savers are not necessary for lending.

It is outlandish, i cant find the original interview but one of the links above gave the fuller quote as:
"in one sense, we are all Keynesians now; in another, no one is a Keynesian any longer."
further elaborated by:
"We all use the Keynesian language and apparatus; none of us any longer accepts the initial Keynesian conclusions"

This was at the height of the popularity of Keynesism as a economic philosphy, it's understandable Mr Friedman would try to subvert the then dominant way of thinking to his ideas.

Will give you that Nixon was subsequent and misquoted.

Mr Friedmans ideas(ie Chicago School/Monetarism) have been dominant as long as i have been alive. It overlaps a reasonable amount with the Rand Institute/Libertarian stuff Prof Resimann expounds, i am having really trouble why you are trying to tear Mr Friedman down wouldn't it be better to stick together when your philosophies are under assault?

The monetary expansion that has happened recently is just government money trying to replace the money that private investors previously provided(ie the yen is returning home). Unfortunately there does not appear to be nearly enough government funds to keep things going at the same level.

Or are you talking about something else?

We have enough threads on the Credit Apocalypse in the RPSC forums, so I'll try not to add one here. But anyway, I'll just clarify one thing:
I'm talking about Japan's Zero Interest Rate Policy (and others like it) instored in the 90s and inevitable results thereof, and about China's dollar peg (achieved by perpetual devaluation).

government money == a fantasy product out of thin air. Not existing in reality, that's basically where the inflation and "national debt" comes from.

I'm not an economist, but isn't all money basically a fantasy product out of thin air? Government money is really the only money there is! But obviously by printing more of it while representative value (BNP, national assets, etc.) remains the same or goes down, decreases its relative value, both nationally and internationally (though not necessarily equally).