[tcaudilllg]

http://money.cnn.com/2009/06/05/news/economy/jobs_may/index.htm?iref=topnews

9.4%. Scary. And it looks like it's only going to get higher. At this point, I think we are all feeling it. Many people are doing work for two, or even three, individuals, which means reduced living quality overall.

As I see it, this problem began when people decided, en mass, to stop spending money. The credit crisis forced this on us.... Although it's talked of like a recession, we are really in a depression because we are not experiencing an inflated inventory issue like we did in 2001, but rather a vicious cycle of wealth destruction. Entire industries are going belly up because people are only spending on essentials: they are saving without spending on luxury items and thus, aren't putting money into the coffers of companies who make them. This money in turn is not paying them their wages! So without incoming money, the people who were saving money must spend their savings just to buy the essentials. Eventually they don't have ANY money left, and have to beg off of the government.

Nor can they find new jobs or even create new jobs, because there is no incoming capital. A huge amount of investment, at a huge scale, could create a "mass" of capital, which is what the government interventions at GM, etc. are attempting to facilitate. The government can spend with abandon without necessarily having to pay it back. This has worked before: the magic of the economic recovery of the 1940s was an effect of government spending financially unencumbered sums to buy war materials from private industries, which had thus a determined buyer who would buy everything produced. There was no possibility of loss with regard to the government market, and thus industry had pratically unlimited funds to grow. People were hired, their jobs secure. The government became the employer of a huge segment of the population, paying the enlisted a regular salary. When the war ended, Americans were in good financial shape and accustomed to spending with abandon. Industry was able to transition out of arms back to civilian goods, and was able to profit by producing goods consumers wanted. These goods could be purchased as soon as they were produced because pretty much everyone who was interested in them could purchase them, which in turn lead to profits and reliable paychecks.

If our economy is to recover, I think we are basically going to use the same methods as those which brought the economy out of recession in the WWII era. Part of this is already going on: surveys are being used, although I think the income range is being used to target for specific income brackets instead of interested groups, and that is pure destruction. I've noticed that the paid surveys I've taken online prioritize income brackets when screening their takers: interest is rarely a qualifier. Part of the problem is a fantasy of believing that people can become interested in something by their will; that is a fallacy. I believe it is indulged because the people at the top do not want to be accountable, and engaging in a fantastic philosophy gives them a cultural pretense for indulging themselves. (it's the ol' Wikipedia argument: "when I have the power, you must agree to disagree and let me have my way"). By creating surveys that screen for interest, not income, the genuine demand for the product can be gauged. What's needed then is to create buying power for these validated products by investing in them using a mix of government and private sources: people are employed to meet the immediate demand, which is bought by the same (massive) group: this group sustains its own wage by purchasing its own product.

[RampantCoyote]

There are a lot of little causes, but ultimately we were way, way, way overleveraged to begin with. When you can spend $1 to make back $2, and there's nearly unlimited borrowing ability, then everybody is borrowing money to make money.

So you had people buying houses for tiny down payments, borrowing half a million dollars with the expectation of making a quarter-million in profit. Banks were using "credit default swaps" as insurance against loss to allow them to lend far more than they should have been able to.

So the end result was that there was a whole bunch of borrowed or even "imaginary" money out there being thrown around to make real money. And when the real money quit coming in and the music stopped - well, now you have a whole lot of people who owe each other more than the entire money supply of their entire countries. Maybe several times more, we don't know.

It's basically the same situation we had in reverse. A loaned money to B to loan money to C to loan money to D to loan money to E to loan money back to A again. And then someone broke the chain. Llet's say "A" broke it... because it's waiting to be paid back by "B". Well, A is delinquent and can't pay back E, who then can't pay back D, who then can't pay back C, who then can't pay back B, who then can't pay back "A" --- full circle again. A will never get their money back because ultimately it was their money to begin with - but then there were all these intermediaries in-between who took their cut.

That's it in a nutshell. And in this case, "A" might be your employer, and "E" might mean... well, you, who works for hire for your company, and uses that money to pay the bills...
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Tales of the Rampant Coyote - Old-School Game Developer talks Indie Games, RPGs, and the Games Biz

[Rainer Deyke]

There are two ways of measuring the state of the economy: the personal level and the global level.

At the personal level, economic conditions are "good" when the market value of what I have (capital and labor) is high and the market value of what I want (goods and services) is low. This is pretty much a zero sum system, because there are two sides to every transaction. There is always somebody who wants what I have and somebody who has what I want. If economic conditions are bad for me, economic conditions are good for the people who want to sell to me and for those who want to buy from me (or hire me). The worse they get for me, the better they become for those other people.

Then there's the global level: the overall efficiency of the system. This can go up or down due to various factors. However, as a general rule, this should actually improve during an economic slowdown, when people are more careful with their money.

Conclusion: somewhere, someone is getting really rich from the current economic situation.

The best way to understand the economy is to forget about money and focus on goods and labor - where they are being produced and where they are consumed. Money is just pieces of paper. Goods and labor have intrinsic value.

[tcaudilllg]

[Mattias Gustavsson]

The economy always goes up and down - noone really knows how or why, though academics in the field certainly have lots of theories.

This one will blow over as well. Or, maybe it won't, and it'll be the end of civlization as we know it - that's happened time and time again throughout history, so there's no reason to believe our take on it will last forever. Maybe there's a new Dark Ages around the corner? :D
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www.mattiasgustavsson.com - My blog
www.rivtind.com - My Fantasy world and isometric RPG engine
www.pixieuniversity.com - Software 2D Game Engine

[RampantCoyote]

Hey, I'm trying to make money on the economic downturn. Not doing really well at it, yet. But don't forget that an enormous number of millionaires were created in the Great Depression. There's opportunity in challenge.

Example: My father-in-law is helping to found a new bank right now. He's been a banker his entire career, and was pulled out of retirement to assist this one get started. What's happening? Well, the big banks are (deservedly) going toes-up, and aren't lending. People need a bank that is actually FUNCTIONAL. So... viola. Opportunity.

Incidentally, I jumped through hoops in a job interview for a hedge fund last summer, LG. One of the biggest worries by the hedge fund was to make sure we kept our volume well below the point at which it would influence prices. The problem is, we could never know where that point was, so the mandate was just to stay far away from that theoretical point. But I know for a fact there are traders out there who have a lot of money behind them who do manipulate the markets deliberately. The tricky part comes in realizing that every trade you make influences the prices in a small way. It's just knowing when you transition from being an insignificant to a significant influence.

[Nodtveidt]

Hey, can your father-in-law loan me a few thousand? :) My wife and I are trying to start up a business here in PR that will immediately turn plenty of profit (prepared food...one of three guaranteed moneymakers here in PR...the other two are alcohol and motels) but we lack the startup funds for it, and going through the "normal" process takes too long...we've been looking for loan sharks, private lenders, anyone we could find and are turning up nothing. We are looking for $2K-$5K before July 1st and every day that passes is one less day we have left to secure this plan or else we could end up losing our house as well as the opportunity of a lifetime. My wife has a very rich grandfather but he won't lend her a dime, not even with the promise of repayment at high interest. So we're looking for anything we can get right now, no matter how crazy as long as it's fast...

Yeah, this crisis of ours is a sign of the times too. :(
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If you play a Microsoft CD backwards you can hear demonic voices. The scary part is that if you play it forwards it installs Windows. - wallace

[RampantCoyote]

Ouch!

The timeframe sucks - that's not enough time to get anything done. But one place I would recommend checking out is LendingClub.com. I'm an investor over there, and it's a pretty cool idea. But it'll still take some time - there's no way you'd get funded in only one week. But that's the type of thing they handle all the time. The nice thing about Lending Club and a few others like it is that people can invest via notes with as little as $25 - so you can have a lot of people putting a little bit of risk into your venture (and spreading it among others).

The big banks aren't lending money right now, so it's been great to see individual investors and borrowers doing an end-run around 'em like that!
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Tales of the Rampant Coyote - Old-School Game Developer talks Indie Games, RPGs, and the Games Biz