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| Recession Odds More Than 50% | |
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| Tweet Topic Started: Jan 7 2008, 08:16 AM (112 Views) | |
| Dandandat | Jan 7 2008, 08:16 AM Post #1 |
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Time to put something here
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| ds9074 | Jan 7 2008, 02:35 PM Post #2 |
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Admiral
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I've read a couple of articles now saying the seeds of the credit crisis were sown in the very low interest rates used to prevent recession after the dot-com bubble burst. Now in this article there are calls for lowering rates again to avoid recession. Surely if it acted to store up problems once it not a great idea to try it all over again. The last thing people need to do is be encouraged to pile on yet more debt at low rates which they then cant pay back when rates rise. |
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| Dandandat | Jan 7 2008, 03:21 PM Post #3 |
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Time to put something here
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The seeds for the current credit problem where sown in the 1980’s when bank regulations became less useful due to Banks changing their lending practices. You are correct though that the low rates at the turn of the millennium caused the current real-estate bubble. The ‘bursting’ of that bubble coupled with the new banking practices caused the current liquidity problem in the credit market. Those calling for lower interest rates are those who would directly benefit from it. They aren’t looking long term and so don’t care about what might happen 10 years from now. They want to avoided recession next year. They function on the school of thought that Federal Government ought to save them from recession and not let the free market run its course. The only tool the Federal Government has to do that (aside from mind games) is to lower interest rates. Its not interiorly wrong, and just because something similar happened 10 years ago does not mean the same thing will happen again. Key factors are different they would claim. “It’s different this time” is a popular saying. However what is not different is that the banking practices that have caused this problem in this first place are not being corrected by Federal decree and the Federal government is not even making a big deal about it. There for the most important Key factor is not being forced to correction. The argument can be made that the major Banks are correcting their lending practices on their own with out Federal intervention. Which may or may not be true, the nature of the system makes it difficult to know if the Banks are doing so and the current problem that they created makes if difficult to believe them. So things very well could be different this time or they might not be. The Federal Reserve is being a little more cautionary. The current chairmen Ben Bernanke doesn’t seem to want to lower rates as fast as the market want’s him to. He is not eager to make the same mistakes as his predecessor. He is in a dammed if you do dammed if you don’t position however. He will be blamed for letting the recession manifest itself if he does not cut rates and a recession ensues and he will be blamed if he creates another bubble by lowering the rates to low. What he needs to do is lower the rates just enough to save off recession but not create the next bubble, and that might be an impossible endeavor. I am of two minds on the issue, a recession might be just what the doctor ordered. It may have the effect of forcing the needed change that is required. On the other hand I stand to gain from inflation. |
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| Dandandat | Jan 7 2008, 03:31 PM Post #4 |
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Time to put something here
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What is interesting to note is that 50%+ chance of a recession is not a 50/50 as it sounds. As you credibly predict a recession percentage closer to 100% the more your prediction contributes to the recession occurring. It eventually becomes a self fulfilling prophecy. If for example their was a credible prediction of recession placed at 90%, then people would panic and go into a massive sell off that would create a recession. In this case a 99% prediction might as well be 100%. It is inevitable and unavoidable due to the nature of man. The same may be true for 95%, to a less sure degree or 90% or 85% or 80% and so on. There for a 50% prediction can’t always be weighed to the idea that 100% is the top of the scale. The top of the scale is some unknown percent between 50% and 100%. After that tipping point the recession is inevitable. |
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9:22 AM Jul 11