NYT - Paul Krugman - 1928 and the Market Crash

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Here I am quoting from another article of mine that was published on "January 2003" on various newspapers and magazine. I wrote the article in December 2002, before the US forces invaded Iraq - article “Getting Ready for War.” I am quoting about half of that article as follows:


…The Coming Economic Depression

We are in the beginning of a deflationary cycle; that means that prices will decline. The economies of Japan and Germany are already suffering because of this deflationary spiral. Few years ago many economists claimed that they had tamed the economic cycle, and deep recessions and depressions were things of the past. When I read articles about that, I thought they were completely wrong.

The truth is the world is overdue for a new economic depression. Historically we had a depression in the world once every 55 to 60 years. The last world depression was over 60 years ago. A Russian economist, Nikolai Kondratieff, published a study in 1926 showing that a very long-term economic cycle existed. His major premise was that capitalist economies had a pattern of long wave cycles of boom and bust.

The bust cycle repeated itself approximately every 60 years. If you had read Kondratieff's paper in 1926, you would have known that an economic depression was around the corner.

Kondratieff identified four distinct phases the economy goes through during each cycle: 1) Inflationary growth, 2) Stagflation, 3) Deflationary growth, and finally 4) Depression—falling prices, falling stock prices, falling profits, debt collapse.

As the stock market is collapsing, a number of corporate scandals emerge such as Enron, WorldCom, Global Crossing, Adelphia Communications, Arthur Anderson and many others. As the debt load reaches new highs in the economy, the result is a record-breaking number of personal and corporate bankruptcies, as is the case in the US today.

There are many countries around the world whose economies are in a state of deep economic depression such as Argentina, Brazil, Bolivia, Colombia, Paraguay, Venezuela, Uruguay, and also most African countries. This is just a small list of countries in deep economic distress.

We can add to this list of economies in distress, not only the US economy with its $8 trillion dollars of cumulative government debt (and continuing to grow), but also the local economies of most states in the United States. The most important states in the US economy are California and New York, and their economies are in shambles. If California were an independent country, its economy would be collapsing today in the same manner as the Argentinean economy.

To put the states' mess in perspective, I quote from an article published by The New York Times on December 9, 2002, "Loss of Boom's Billions Sink California _ State With a France-Size Economy Now Has a Pacific-Size Deficit." The article said:

"State officials are proposing deep reductions in education, health services and other programs to deal with a budget shortfall that could total $25 billion in the next 18 months. "That's a hole so deep and so vast that even if we fired every single person on the state payroll—every park ranger, every college professor and every Highway Patrol officer—we would still be more than $ 6 billion short," said the Assembly speaker, Herb J. Wesson Jr., a Democrat."

In the past, a major war was the way out of an economic depression. Maybe that solution will be used by the US one more time to restart its economy—a major war contributes to ending the depression phase, and leads the economy to the first phase of the cycle once again. The big war has to be started somewhere—even in Iraq.


Economic War

It is very hard for any country to create good paying jobs for everyone, to build a solid middle class and in turn generate economic growth and prosperity. Each year that goes by, it becomes even harder to create new jobs in the economy.

In 1995, a book was published, "The End of Work" by Jeremy Rifkin, which described in detail the current and future trends in the job market. I recommend reading that book to anyone who wants to understand the current catastrophic job market.

I will quote the following from Jeremy Rifkin's mind-opening book. He wrote in the introduction: "Global unemployment has now reached its highest level since the great depression of the 1930's.

More than 800 million human beings are now unemployed or underemployed in the world. That figure is likely to rise sharply between now and the turn of the century as millions of new entrants into the workforce find themselves without jobs, many victims of a technology revolution that is fast replacing human beings with machines in virtually every sector and industry of the global economy.

"...In the past, when new technologies have replaced workers in a given sector, new sectors have always emerged to absorb the displaced laborers. Today, all three of the traditional sectors of the economy—agriculture, manufacturing, and services—are experiencing technological displacement, forcing millions onto the unemployment rolls.

The only new sector emerging is the knowledge sector, made up of a small elite of entrepreneurs, scientists, technicians, computer programmers, professional educators and consultants. While this sector is growing, it is not expected to absorb more than a fraction of the hundreds of millions who will be eliminated in the next several decades in the wake of revolutionary advances in the information and communications sciences.

"...Now, for the first time, human labor is being systematically eliminated from the production process. ...Substituting software for employees...To begin with, more than 75 percent of the labor force in most industrial nations engage in work that is little more than simple repetitive tasks. Automated machinery, robots, and increasingly sophisticated computers can perform many if not most of these jobs. In the United States alone, that means that in the years ahead more than 90 million jobs in the labor force of 124 million are potentially vulnerable to replacement by machines. With current surveys showing that less than 5 percent of companies around the world have even begun to make the transition to the new machine culture, massive unemployment of the kind never before experienced seems all but inevitable in the coming decades.

"...A study was published in 1989 by the International Metalworkers Federation in Geneva forecasting that within thirty years (by the year 2019), as little as 2 percent of the world's current labor force will be needed to produce all the goods necessary for total demand." I want to remind you that it is 2 percent of today's world labor force and not 2 percent of the world labor force in 2019, which could have many more millions of people.


The Current Job Market

For the first time in US history, 50 percent of the people who are unemployed are well-educated people. Does it make any difference if the unemployed people are well educated or if they are blue color workers? You bet it does.

…Well-educated people can see that the people in Washington do not have a clue about economic policy.

…I believe that the Dow Jones will sink to the 5,000 to 6,000 level when the US corporations start expensing their real pension costs, plus the costs of stock options, and when they stop fudging their numbers. When many US corporations start reporting more realistic numbers to the public, their earnings will go down—and the stock prices will follow. It is well understood that when corporations such as General Motors, and Ford are in trouble at the same time—that means that the entire US economy is in trouble.

…The housing bubble is ready to burst.

…For the people who are unemployed, the economic depression is already here. For the people who still have jobs, they know that if they lose their jobs it will be almost impossible to find a new job. The difference between past recessions and the current job slump is that the people laid-off in the past would be rehired when the economy recovered. This time around most people's jobs have gone forever.

We are in the beginning stages of a worldwide depression. The Bush administration recognizes the reality—the best days of the American economy are long gone, and today the system is running on borrowed money. The federal government, the states, the companies and the public are all surviving on credit. How far can this situation keep going on before the house of cards collapses?

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After I posted my article about the “First Economic Depression of the New Millennium” on a Forum for politics and economics, I received a bunch of questions from a college professor and here is a copy of my reply to professor SirScud - that is the name that he uses in that forum as follows:


February 19, 2005

SirScud wrote: SouthAmerica....Your article is provocative and presents an interesting forecast of impending economic doom and gloom. Your reference to.....

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SouthAmerica: The last time that I predicted the market, the market collapsed soon after. I wrote an article saying that the market was going to collapse in October of 1999. The Dow Jones started going down 2 months later, and the Nasdaq took a little longer. But the Nasdaq also went down starting in March of 2000.

When I made my prediction in October of 1999, I received a lot of emails from people saying that I did not know what I was talking about, and I was full of doom and gloom. (A number of emails that I received then mentioned my doom and gloom.) The rest is history.

I wrote a number of articles about the decline of the US dollar since December of 2001. I wrote a letter to the president of the European Central Bank in early December 2001 Giving in detail why the US dollar was going to decline against the euro, and how gold price would increase in terms of US dollar. When I wrote the Letter to the European Central Bank (that letter was published in various Brazilian newspapers, and magazine at that time) the US dollar was trading at US$ 0.82 to Euro 1.00, and gold was trading at US$ 295.00

Today gold is trading at US$ 430.00, and the US dollar is trading at US$ 1.30 to Euro 1.00

I have a documented track record and they were published on my articles at the time when I made the predictions. I made the predictions before the events happened, and I got a lot of email from people giving me a hard time.

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Sir Scud: …is, to me, the most noteworthy current event that is indicative of the manipulation of global banking. The economic colonization, and subsequent looting, of vulnerable small nations by the combined efforts of the IMF and The World Bank is, as you probably know, at the root of the problem. I believe that the Euro is the currency of choice of this group of banking titans. If they drive the dollar low enough, and the United States' debt high enough, the creditors will be forced to convert dollars to euros in order to cut losses.

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SouthAmerica: The United States has a unique situation in the world because of the US dollar. If the US dollar did not have this unique position, the United States because of its massive budget, and trade deficits would be borrowing money from the IMF, and would be in worse shape than Argentina. Interest rates would be sky-high in the US, and the economy would be in shambles. (and worse than it is today)

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SirScud: Additionally, Iran, Russia, and other oil producers will have to convert to trading in euros. All of the major multi-nationals are positioned for this move.

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SouthAmerica: I don’t know why the oil producing countries have not started as yet to make all their oil contracts in euros. (Most oil contracts used to be made in US dollars)

Warren Buffett, one of the smartest investors in the United States as of the end of 2004 had a position in euros of around US$ 25 billion. Here is a man who knows well what he is doing.

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SirScud: To me, the saddest and most disgraceful ingredient of the scheme is the disaster looming over the real estate equities market here in the US. I say this as an American, and do not in any way feel less sorrow for the people in other parts of the world that will suffer as a result of such evil greed and corruption. I firmly believe that the best way to fight back is to advocate for the localization of the banking structures of our towns and cities, and try to prevent the centralization of global economic power.

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SouthAmerica: When the coming collapse of the real estate becomes reality in the near future, that collapse will be a lot worse that the stock market collapse of 1987, and of 2000.

When the bubble burst in the real estate market in the US it will not be a pretty sight. Anyway we can write a book on this subject about the coming collapse of the real estate market in the USA – the handwriting is on the wall

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SirScud: It was implied by another member of this forum that you had taken offence at one of my earlier postings. I hope that is not the case. If so, then please accept my apology.

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SouthAmerical: No need for apologies, I am used to people’s reactions to my writings. I receive a lot of emails, some nice, and some from people giving me a hard time.

Last year the editor of the Brazilian newspaper in New York, told me that I am the most controversial writer he has in the newspaper. Usually he goes to all the functions they have in New York related to Brazil; parties, lectures, all kind of shows - he covers everything - and he knows everybody in the Brazilian community in New York. He told me that most of the time when people approached him at these functions and started talking about an article published on his newspaper usually was one of mine articles.

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SirScud: SouthAmerica, I am not sure how you came to the conclusion that I "want to believe in fairy tales", that I have theoretical misconceptions regarding the Federal Reserve System, that I live in the world of illusion, or that I have fooled myself into thinking that the US rules the world. None of these are positions that I have ever taken, much less advocated. They are indeed, fictions; and, I am not a believer in or a composer of fictions.

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SouthAmerica: Sorry, but I was not interested in getting into a discussion about the Federal Reserve System.

Two weeks ago an old friend of mine passed away – he was 89 years old. Over the years he wrote about 2 or 3 books about the Federal Reserve monetary policies.

About 3 years ago he asked me to do some research for him, regarding the Fed Funds rate. I had to do a lot of research for him because he wanted to understand everything in detail. I did spend hours talking to people inside the Federal Reserve System, and spoke with some experts on the subject; people who wrote entire books on that subject.

I had learned all that stuff in college, but the old man wanted more, and more detail about that subject. He drove me nuts at the time about these rates. Finally, he was happy with all the information that I gave him. This is a subject that does not interest me, but I had to learn in detail to give the information to my old friend; about trading desks, fed funds rate, prime rate, overnight rate, etc, etc….

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SirScud: This topic, originally began by you on one subject, has morfed into everything including the economic tyranny of Asia.

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SouthAmerica: The postings can get very messy, and get completely away from the subject at hand. But you will get used to that. All you need to do is go back to the main subject of that tread.

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SirScud: For what ever interest it is to you, my actual opinion regarding the United States Federal Reserve System is that it is an elaborate hoax; much in the same way that most Central Banking schemes are. They create fiat currencies and dupe people into trading products and services for them according to their own system of valuation. Alan Greenspan, of course, is responsible for implementing the decisions of the 12 "private" banks that make up the so-called Federal Reserve System.

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SouthAmerica: All the major Central Bankers play games and they don’t follow the usual mindset of making money. Central Bankers have other priorities.

The priority number one for the Central Bankers in Japan and in China is to keep their economy going and the population employed.

If the central bankers of China and Japan wanted to make money and protect the currency reserves of their countries, then they would have moved to euros and gold. And they would have stopped giving money away to the United States. But their priority is to keep their population employed and get as many jobs they can into China from the major industrial countries.

The idiots in Washington don’t understand how hard it is to create new jobs in the economy, and they should save all the jobs they can for your country. The more people are employed on your country the best it is for the entire economy. But the current administration can’t grasp this type of basic economics.

In the United States today, we don’t have a Labor Secretary (that Chinese woman is worthless), we have a buffoon as Treasury Secretary, and so on…….

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SirScud: Good luck with your writing.

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SouthAmerica: Thanks.

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“Running Out of Bubbles”
By PAUL KRUGMAN
Published: May 27, 2005

Remember the stock market bubble? With everything that's happened since 2000, it feels like ancient history. But a few pessimists, notably Stephen Roach of Morgan Stanley, argue that we have not yet paid the price for our past excesses.


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SouthAmerica: There are two economists that I respect their opinions, and in the above column one of them is mentioning the other one.

Regarding Paul Krugman’s column:

Years ago one of the top real estate economists in the US was Mr. Jack Lessinger.
I remember reading one of his books more than 12 years ago – “Penturbia.”

In that book he gives a full analysis of the real estate market in the entire country, county by county.

There is one thing that I remember that he mentioned on his book – that the real estate market in the New York Metropolitan area, and in the Los Angeles area were at least 50 percent above the price that was justified in economic terms. Rentals were inflated as well.

He said that the main reason for the real estate price inflation on these two markets was
Immigrants.

If wasn’t for the high volume of immigrants moving to these areas the rentals, and real estate prices would be 50 percent lower.

That is the only information that I remember after reading that book many years ago.


Today, Homeland Security rules make it very hard for a lot of people to come to the US.

In the domestic front, seems to me that when I watch CNN News - the US has started a war against its illegal immigrants.

Life is becoming miserable for the illegal immigrants, and very soon many of them will have no choice but return to where they come from.

States are making very hard for them to get a driving license. It is illegal for them to get a mortgage to buy a house. Employers will receive very heavy fines if they hire an illegal immigrant.

In some of these debates on television they estimate that there are close to 20 million illegal immigrants living in the US today.

The flow of new illegal immigration also is slowing down since it is well publicized in most countries when the US has deported the illegal immigrants that they catch.

This illegal immigration factor should affect in a negative way real estate prices at least in these two metropolitan areas.

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You lost me right after this statement. You can't be serious.

fan27

 

I still think SA smoked dope all semester, now his term paper is due and he needs ideas fast. I offered to write him a doozie in another thread but so far, nothing.

 

Hahahaha,

So true. Too much doom & gloom, way too much.

Follow the money and see who is getting rich. It's definitely not the average Joe Shmoe but it's even more definitely not everyone else but the US. Get on the right side and everything will be all right.

Also, wouldn't a crash be good for the traders? Volatility galore.

 

Former Enron advisor Paul Krugman is an absolute joke. James Taranto of the WSJ has documented some of his more egregious errors.

He hates Bush, and hates US foreign policy. But more than anything talks like a typical 1970s left wing Democrat; That is, a closet socialist.

 

I would like to know your real name. If you have written these articles, I would like to look them up personally. I don't see any reason for you to remain anonymous.

 

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SouthAmerica: Reply to drmarkan

You asked me: I would like to know your real name. If you have written these articles, I would like to look them up personally. I don't see any reason for you to remain anonymous.

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I have posted a number of times using my real name when I posted information related to some of my articles.

Ricardo C. Amaral

Here is my latest article. The original title is - Qatar and Brazil - A Perfect Partnership.

But each editor of a magazine and newspaper usually change the title that I submit for publishing.

The enclosed article has been sent for publishing on a number of newspapers and magazine, and the same article might end up with 3 or 4 different titles.

I did complain about it to some of the editors, but I was told that they know their market and they decide on the title of the article.


This particular editor after reading the article changed the name to:

While China Rises the US Falls in Brazil and Latin America
Written by: Ricardo C. Amaral
Thursday, 02 June 2005

http://www.brazzil.com/content/view/9296/76/



If you enjoy reading the above article then you also can check the following:

June 2003 - Should Brazil Adopt a New Currency?
http://www.brazzil.com/content/view/564/32/


Just in case I made a copy of some of the articles and you also can find them at:

http://thecrashingusdollar.blogspot.com/


What is your real name?


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May 20,2006

SouthAmerica: I agree with Paul Krugman’s column “Coming Down to Earth” Published on May 19, 2006 on The New York Times.

He said: “It seems that investors are suddenly feeling uneasy about the state of the economy. They should be; the puzzle is why they haven' t been uneasy all along….”

When the housing bubble burst – and the shit hits the fan – we will have a lot of economic problems in the US economy. Is not going to be a pretty sight.


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