Comments on: How Low Can We Go? http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html Stock market and investing blog published by Chad Brand, Founder/President of Peridot Capital Sun, 05 Feb 2012 15:45:30 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Chad Brand http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html/comment-page-1#comment-1054 Chad Brand Tue, 14 Oct 2008 12:38:00 +0000 http://www.peridotcapitalist.com/?p=653#comment-1054 I agree with you on the debt, and because of our unlimited printing press, the dollar is toast. I agree with you on the debt, and because of our unlimited printing press, the dollar is toast.

]]> By: Anonymous http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html/comment-page-1#comment-1053 Anonymous Tue, 14 Oct 2008 03:17:00 +0000 http://www.peridotcapitalist.com/?p=653#comment-1053 Chad,<br/><br/>Since Bernanke is so familiar with the past depression, no I wouldn't expect things to happen exactly the way they did then. The money supply is not going to drop 30%. It is not like the EXACT set of conditions that created the depression are needed for another one.<br/><br/>The fact of the matter is the US government hasn't gone out and bough equity in functioning US banks since the great depression. Actually I am not even sure if they did that then. US debt as a % of GDP is now much higher than the depression so if we do hit a serious slump there will be limited options to stimulate things. While the technical definition of unemployment is 6.1%, if you used the same metrics as the 30's it would be closer to 14% so we are already part of the way there.<br/><br/>I think my fundamental argument and worry is the debt. American debt (including federal,state,municipal, corporate, domestic) is over 300% of GDP. This is completely unprecedented, even after world war 2. I simply do not see how the US can get out of this without massive negative effects on their economy. Chad,

Since Bernanke is so familiar with the past depression, no I wouldn’t expect things to happen exactly the way they did then. The money supply is not going to drop 30%. It is not like the EXACT set of conditions that created the depression are needed for another one.

The fact of the matter is the US government hasn’t gone out and bough equity in functioning US banks since the great depression. Actually I am not even sure if they did that then. US debt as a % of GDP is now much higher than the depression so if we do hit a serious slump there will be limited options to stimulate things. While the technical definition of unemployment is 6.1%, if you used the same metrics as the 30′s it would be closer to 14% so we are already part of the way there.

I think my fundamental argument and worry is the debt. American debt (including federal,state,municipal, corporate, domestic) is over 300% of GDP. This is completely unprecedented, even after world war 2. I simply do not see how the US can get out of this without massive negative effects on their economy.

]]> By: Chad Brand http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html/comment-page-1#comment-1052 Chad Brand Mon, 13 Oct 2008 20:42:00 +0000 http://www.peridotcapitalist.com/?p=653#comment-1052 What about the Great Depression is remotely comparable to what is going on now in the U.S. economy? Lack of government intervention was one of the causes of the depression. Hoover thought the government should stay out of the market's business. The reason why the government is flooding the markets with cash is to avoid what happened in the depression (money supply dropped by 30% so business grinded to a halt).<br/><br/>During the Depression we had 25% unemployment, wages down 40%, money supply down by 30%, and GDP down by 30% in a few years' time. <br/>Does that really sound like what is going to happen today? <br/><br/>You are right that a depression is the bottom end of the range of possibilities, but when you are looking for good comparisons you have to consider the facts of the current situation versus past recessions. What about the Great Depression is remotely comparable to what is going on now in the U.S. economy? Lack of government intervention was one of the causes of the depression. Hoover thought the government should stay out of the market’s business. The reason why the government is flooding the markets with cash is to avoid what happened in the depression (money supply dropped by 30% so business grinded to a halt).

During the Depression we had 25% unemployment, wages down 40%, money supply down by 30%, and GDP down by 30% in a few years’ time.
Does that really sound like what is going to happen today?

You are right that a depression is the bottom end of the range of possibilities, but when you are looking for good comparisons you have to consider the facts of the current situation versus past recessions.

]]> By: Anonymous http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html/comment-page-1#comment-1051 Anonymous Mon, 13 Oct 2008 20:23:00 +0000 http://www.peridotcapitalist.com/?p=653#comment-1051 I never predicted a depression, I just used one as a comparsion so that people can undertstand the range of possible values. As I said before, the government intervention right now, is unprecedented since the great depression. Your argument is basically that you don't think there is going to be a depression because you don't want there to be a depression. That is irresponsible if you ask me.<br/><br/>Professor Shiller (from the shiller home price index) has some good data on relative PE ratio's over the past century. That would also be a good comparison if you are looking for "how long can we go". To summarize the results, at friday's close we were at a level that was fairly average over the past century. Just type irrational exuberance into google and you will find his site. I never predicted a depression, I just used one as a comparsion so that people can undertstand the range of possible values. As I said before, the government intervention right now, is unprecedented since the great depression. Your argument is basically that you don’t think there is going to be a depression because you don’t want there to be a depression. That is irresponsible if you ask me.

Professor Shiller (from the shiller home price index) has some good data on relative PE ratio’s over the past century. That would also be a good comparison if you are looking for “how long can we go”. To summarize the results, at friday’s close we were at a level that was fairly average over the past century. Just type irrational exuberance into google and you will find his site.

]]> By: Chad Brand http://www.peridotcapitalist.com/2008/10/how-low-can-we-go.html/comment-page-1#comment-1049 Chad Brand Mon, 13 Oct 2008 14:09:00 +0000 http://www.peridotcapitalist.com/?p=653#comment-1049 I don't think the Great Depression would be the best comparable period unless one thinks we are truly headed for a depression. If you look at what happened back in the 20's and 30's, there is little reason to use that as a comparison. Unemployment, for instance, peaked at 25% back then. If we get there, we're in serious trouble. Predicting a depression and a Dow drop to 2,000, while not impossible, seems irresponsible to me, personally. I don’t think the Great Depression would be the best comparable period unless one thinks we are truly headed for a depression. If you look at what happened back in the 20′s and 30′s, there is little reason to use that as a comparison. Unemployment, for instance, peaked at 25% back then. If we get there, we’re in serious trouble. Predicting a depression and a Dow drop to 2,000, while not impossible, seems irresponsible to me, personally.

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