What is the main problem in the world recession ?

yoshytoshy

Is there any clear cut answer as to why the recession is so bad ,the world over ?

The obvious answer is the mortgages in america ,but it can't be the only cause.
Is it possible that there are too many financial operations around the world ?

Why do we need so many banks ? ,surely one bank in each country would be enough and any money being made is put to good use.

nesf

Moved from Politics. It's better suited to here.


Short answer: It's a liquidity crisis.

yoshytoshy

I get the liquidity end of things ,but a lot of people have been paid billions off of an inflation that they caused themselves.

Banks lent to banks ,so that banks could charge more.

Économiste Monétaire

yoshytoshy wrote: »

Banks lent to banks ,so that banks could charge more.

What?

yoshytoshy

Économiste Monétaire wrote: »

What?

If we only had one bank ,the extent of things would not be so bad. When the money dried out it would be more apparent to everyone.

If you have too many financial and indirect service institutions around the world ,where is the money actually coming from ?

Économiste Monétaire

Banks lend to one another because that's how the system works. The central bank limits the amount of bank reserves in circulation to bring its target rate (what you see on RTÉ as 'the' interest rate) in line with money market rates, and thus what the average Joe borrows money at. One bank -> less competition. Just like one energy provider -> overpriced utility delivery. Let's not have a private monopoly on the allocation of credit.

I have no idea what you're talking about when you say, "the money dries up." Money "comes from" central banks and a concept called multiple deposit creation.

yoshytoshy

You've lost me ,that means that our banks are still worth what they were worth ,three years ago ?

Where did the value of the banks go ?

silverharp

nesf wrote: »

Short answer: It's a liquidity crisis.

I'd say its more of a solvency crises , a liquidity crises sounds more like a technical problem with the markets which a central bank could solve with short term measures. This aint that. In hindsight it will probably be viewed as a generational unwinding of a credit and leverage bubble that was decades in the making

Did Keynes ever write about a money divisor?

Économiste Monétaire

yoshytoshy wrote: »

You've lost me ,that means that our banks are still worth what they were worth ,three years ago ?

Where did the value of the banks go ?

What do you mean by 'worth'? The value of any equity stakes are obviously down. I never mentioned distressed assets, impaired loan books, stock prices, et cetera. I'm talking about the mechanism of how banks take "money" from a central bank and that translates into commercial money from the actions of agents in the economy.

yoshytoshy

I wasn't talking about the central bank though.

I'm talking about the current financial market around the world and how they operate.
I'm asking if there are too many companies indirectly working in financial sectors and taking their cut from market.
I genuinely wasn't sure of what I was asking ,so used the word bank.

And the same question was going towards ,indirect service industries around the world aswell.

Économiste Monétaire

When you talk about banks lending to one another, you are talking about central banks and how their actions are inter-connected; they're not mutually exclusive worlds. Central banks, generally, operate the transfer mechanisms by which banks do this. It's because of the actions of central banks that commercial banks, and such, are forced to transfer reserves. Some people say there were too many banks, either commercial or in shadow banking, chasing too few opportunities. A systematic focus on ever higher yield, leading to ever increasing risk and financial obfuscation. Seeking alpha without properly accounting for the risk.

silverharp

yoshytoshy wrote: »

And the same question was going towards ,indirect service industries around the world aswell.

I'd say so , the financial sector and service sector depend on the production side of the economy to generate the wealth , if the service side of the economy grows to fast ahead of production then at some point a retracement is required. An economy wouldnt work if it was just made up of civil servants estate agents and lawyers, plus it would be very dull.

yoshytoshy

Économiste Monétaire wrote: »

When you talk about banks lending to one another, you are talking about central banks and how their actions are inter-connected; they're not mutually exclusive worlds.

Thanks for that ,I hope I wasn't trying your patience too much there. I've never posted or read this forum before ,so I'm not familiar with the lingo as such.

Cheers.

yoshytoshy

silverharp wrote: »

I'd say so , the financial sector and service sector depend on the production side of the economy to generate the wealth , if the service side of the economy grows to fast ahead of production then at some point a retracement is required. An economy wouldnt work if it was just made up of civil servants estate agents and lawyers, plus it would be very dull.

An idea I had ,although I'm not sure its suited to this thread/forum ,was ireland entering the fashion/textile industry.

Very easy to import textiles and create jobs ,I'm sure there is a market for quality irish fashion products.

DadaKopf

yoshytoshy wrote: »

Is there any clear cut answer as to why the recession is so bad ,the world over ?

The obvious answer is the mortgages in america ,but it can't be the only cause.
Is it possible that there are too many financial operations around the world ?

Why do we need so many banks ? ,surely one bank in each country would be enough and any money being made is put to good use.

The first problem is expecting there to be one, single problem.

It's a conjuncture of interconnected events.

nesf

silverharp wrote: »

I'd say its more of a solvency crises , a liquidity crises sounds more like a technical problem with the markets which a central bank could solve with short term measures. This aint that. In hindsight it will probably be viewed as a generational unwinding of a credit and leverage bubble that was decades in the making

Ish, a liquidity crisis can only be solved by a central bank if the credit system is working, which it isn't. This is the core of the issue at hand, what we have is liquidity problems across the economy in businesses that would not be having problems if we didn't just have a major "structural" change in the credit markets.

Quantitative easing and other such expansion of central bank functions (i.e. the purchasing of corporate paper in the UK for instance) is an indication of how the technical problem with the markets isn't being solved by standard central bank short term approaches.

The core issue of this is that non-financial businesses are being forced to trim staff numbers and similar in order to try and suddenly reshape their cash flows to make up for a sudden drying up of credit which is a major factor in the driving of negative sentiment which is at the heart of the global recession.

yoshytoshy

DadaKopf wrote: »

The first problem is expecting there to be one, single problem.

It's a conjuncture of interconnected events.

I didn't realise the central bank had such a tight grip on things ,I always thought from john hurley's complaints ,that he had warned banks a long time ago.

nesf

yoshytoshy wrote: »

An idea I had ,although I'm not sure its suited to this thread/forum ,was ireland entering the fashion/textile industry.

Very easy to import textiles and create jobs ,I'm sure there is a market for quality irish fashion products.

We're a high wage economy, we'd only be able to be competitive at the higher cost end of the market and that market has shrunk enormously in the past six months. So a non-starter tbh.

yoshytoshy

nesf wrote: »

We're a high wage economy, we'd only be able to be competitive at the higher cost end of the market and that market has shrunk enormously in the past six months. So a non-starter tbh.

Never know ,when things pick up ,we might be exporting 100euro geansai's to the chinese for christmas

nesf

yoshytoshy wrote: »

Never know ,when things pick up ,we might be exporting 100euro gansai's to the chinese for christmas

Sure but that's not going to help us now nor is such a company likely to be able to get money to start up now given market and credit conditions.

silverharp

yoshytoshy wrote: »

An idea I had ,although I'm not sure its suited to this thread/forum ,was ireland entering the fashion/textile industry.

Very easy to import textiles and create jobs ,I'm sure there is a market for quality irish fashion products.

define what entering means? if companies can spot a new market no doubt they will chase it. however I doubt if it will be in manufacturing. Exports are falling off a cliff everywhere especially countries like Japan, and Ireland cant compete in low tech industies like textiles.

yoshytoshy

nesf wrote: »

Sure but that's not going to help us now nor is such a company likely to be able to get money to start up now given market and credit conditions.

We need to be changing things though ,it's obvious we can't go back to the way it was before.
I think we need to being innovative now and not be waiting for a new government to come up with the answers.

Fashion is a part of our education at the moment here in ireland ,theres nothing stopping graduates working here in ireland ,if we could all choose to promote ourselves that way.

yoshytoshy

silverharp wrote: »

define what entering means? if companies can spot a new market no doubt they will chase it. however I doubt if it will be in manufacturing. Exports are falling off a cliff everywhere especially countries like Japan, and Ireland cant compete in low tech industies like textiles.

We have the Ireland brand.

I know ireland would be expensive for clothing ,but if it was marketed properly ,surely there could be something there.

c4cat

yoshytoshy wrote: »

Is there any clear cut answer as to why the recession is so bad ,the world over ?

The obvious answer is the mortgages in america ,but it can't be the only cause.
Is it possible that there are too many financial operations around the world ?

Why do we need so many banks ? ,surely one bank in each country would be enough and any money being made is put to good use.

Basically banks lent money on assets they themselves over valued ie punter a had a property which was valued at say 100,000 then punter a sold to punter b who had a bank that valued the property at 120,000 punter a pumped 20,000 into the economy which punter be is in hock to his bank for. now punter b finds punter c to buy his property for 150,000 punter c gets a loan cos his bank agrees to a valuation of 150,000 and now punter b pumps another 30,000 into the economy. This goes on like a pass the parcel game. The problem is that many people have to drop out of the game eventually they can not service the interest on the debt and none can find anyone to take on the parcel cos the banks stop lending money they need to borrow to keep the game going. Money borrowed becomes more then the value of the assets and therefor the banks have to write down the value of the assets used as security for loans advanced, thus becoming toxic loans, thus banks have less cash to lend and cash flow dries up, IE NO CREDIT. There is now no money on profits from rising property values going into the economy. People can not borrow to buy furniture, white goods or cars. retailers and manufacturer start to closeup and go bankrupt making people unemployed starting a downward spiral, Borrowed money on stockmarket assets has to be pulled out of the stock markets causing share prices to deflate. So untill all the BORROWED money thats been inflating assets is taken out of the financial system we will not see a recovery and if Japan is anything to go by that will take bloody years!!!!

silverharp

nesf wrote: »

The core issue of this is that non-financial businesses are being forced to trim staff numbers and similar in order to try and suddenly reshape their cash flows to make up for a sudden drying up of credit which is a major factor in the driving of negative sentiment which is at the heart of the global recession.

I agree that is what is happening. but if globally there is too much production capacity in place for instance the "100 DVD factories" in china which has collapsed pricing or too much auto production , or millions of sq feet of office/retail space, then trying to repair the credit markets wont help these companies.

If you look at it from say a service company here , they have no idea why their business grew over the last few years, they cant measure their receipts and say its bankers bonuses , estate agents commissions, be careful, business took advantage of a self feeding credit boom. The fact that it is going into reverse creates the situation we see now.

I am not sure about the negetive sentiment argument being at the core of this, this implies that if you could put enough happy drugs in the water supply you could solve the problem. The problem has to centre around the mal investment that led up to this.

yoshytoshy

c4cat wrote: »

Basically banks lent money on assets they themselves over valued ie punter a had a property which was valued at say 100,000 then punter a sold to punter b who had a bank that valued the property at 120,000 punter a pumped 20,000 into the economy which punter be is in hock to his bank for. now punter b finds punter c to buy his property for 150,000 punter c gets a loan cos his bank agrees to a valuation of 150,000 and now punter b pumps another 30,000 into the economy. This goes on like a pass the parcel game. The problem is that many people have to drop out of the game eventually they can not service the interest on the debt and none can find anyone to take on the parcel cos the banks stop lending money they need to borrow to keep the game going. Money borrowed becomes more then the value of the assets and therefor the banks have to write down the value of the assets used as security for loans advanced, thus becoming toxic loans, thus banks have less cash to lend and cash flow dries up, IE NO CREDIT. There is now no money on profits from rising property values going into the economy. People can not borrow to buy furniture, white goods or cars. retailers and manufacturer start to closeup and go bankrupt making people unemployed starting a downward spiral, Borrowed money on stockmarket assets has to be pulled out of the stock markets causing share prices to deflate. So untill all the BORROWED money thats been inflating assets is taken out of the financial system we will not see a recovery and if Japan is anything to go by that will take bloody years!!!!

Thats always been clear in my mind ,wage increases and low income tax ,pushed the prices up more though than anything else.(over confidence in the future.)
No one would get a mortgage of 500K ,if their net income wouldn't allow it.

I was suggesting/asking was there too many financial companies in business ,living lifestyles on profits that they generated purely through speculation.
For every financial/indirect service ,there is a number of people who are living a lifestyle off of thin air.

Say for every country ,the central bank was the peak of the pyramid. It seems like the pyramids at the moment are very flat ,with everyone getting rich very quickly.

Whats stopping a global decision ,that all monies from banks is channeled through a government run authority ,that pays the banks their monies.

c4cat

yoshytoshy wrote: »

Thats always been clear in my mind ,wage increases and low income tax ,pushed the prices up more though than anything else.(over confidence in the future.)
No one would get a mortgage of 500K ,if their net income wouldn't allow it.

I was suggesting/asking was there too many financial companies in business ,living lifestyles on profits that they generated purely through speculation.
For every financial/indirect service ,there is a number of people who are living a lifestyle off of thin air.

Say for every country ,the central bank was the peak of the pyramid. It seems like the pyramids at the moment are very flat ,with everyone getting rich very quickly.

Whats stopping a global decision ,that all monies from banks is channeled through a government run authority ,that pays the banks their monies.

Its happening, its called Nationalization of the banks that are too weak, and who is footing the bill for the next 30=50 years? the tax payer

yoshytoshy

c4cat wrote: »

Its happening, its called Nationalization of the banks that are too weak, and who is footing the bill for the next 30=50 years? the tax payer

But there should be more jobs created because of it ,the wages at the top should be cut drastically. Put in people in the middle to watch things etc.
Banks should have staff that are not paid by the bank directly and who answer to an authority.

nesf

silverharp wrote: »

I agree that is what is happening. but if globally there is too much production capacity in place for instance the "100 DVD factories" in china which has collapsed pricing or too much auto production , or millions of sq feet of office/retail space, then trying to repair the credit markets wont help these companies.

If you look at it from say a service company here , they have no idea why their business grew over the last few years, they cant measure their receipts and say its bankers bonuses , estate agents commissions, be careful, business took advantage of a self feeding credit boom. The fact that it is going into reverse creates the situation we see now.

I am not sure about the negetive sentiment argument being at the core of this, this implies that if you could put enough happy drugs in the water supply you could solve the problem. The problem has to centre around the mal investment that led up to this.

The sentiment argument depends on which way you want to look at it in my opinion. Malinvestment and an over-abundance of credit were the direct causal factors in the present mess. Sentiment is what's making people unaffected as of yet by job losses etc to stop spending. It's the Keynesian problem of an oversupply of labour and oversupply of goods for sale. People have hugely trimmed back on their expenditure because they fear job losses will widen and they might lose their job and this is a self-fulfilling prophesy since the lack of spending will create more job losses. In all depressions sentiment is the bitch, until the population becomes positive again and starts spending again business can't recover.

Sentiment didn't create this mess but it's what's going to prolong it.

silverharp

nesf wrote: »

In all depressions sentiment is the bitch, until the population becomes positive again and starts spending again business can't recover.

Sentiment didn't create this mess but it's what's going to prolong it.

That it true but can you force an early turn? or does sentiment change when business sees an opportunity for instance if yields on commercial property becoming attractive, or the fact that that the consumers have rebuilt their balance sheets, or buying a house becomes cheaper then renting.

If someone came to me looking for financial advise today I'd say pay down debt and the only investments worth considering are US/German gov. bonds cash and gold, I'd change my mind if I saw asset prices at bargin prices

nesf

silverharp wrote: »

That it true but can you force an early turn? or does sentiment change when business sees an opportunity for instance if yields on commercial property becoming attractive, or the fact that that the consumers have rebuilt their balance sheets, or buying a house becomes cheaper then renting.

If someone came to me looking for financial advise today I'd say pay down debt and the only investments worth considering are US/German gov. bonds cash and gold, I'd change my mind if I saw asset prices at bargin prices

Well, honestly I think it's an open question whether you can force an early turn or not. Personally I'd lean towards it being extremely difficult to control sentiment be it in terms of bubbles or recessions and I'd view it as just a part of human nature rather than something purely "technical".

Something worth pondering though, I haven't made up my mind yet and it's something I'd like to take a look at in more detail.

thebman

yoshytoshy wrote: »

But there should be more jobs created because of it ,the wages at the top should be cut drastically. Put in people in the middle to watch things etc.
Banks should have staff that are not paid by the bank directly and who answer to an authority.

Isn't that the regulator?

As pointed out the problem is Ireland is too small a country and it all gets too friendly.

We can't just outsource the regulation because they'd have an invested interest in destroying our economy for their own countries benefit.

The problem is who polices the police?

yoshytoshy

thebman wrote: »

Isn't that the regulator?

As pointed out the problem is Ireland is too small a country and it all gets too friendly.

We can't just outsource the regulation because they'd have an invested interest in destroying our economy for their own countries benefit.

The problem is who polices the police?

An authority I was suggesting would be a government one ,employees of the state who work in the bank.
They would be accountants/auditors who cross check the books on an ongoing basis.

They would answer to the government/central bank and would be responsible for any wrong doings by the bank.

I don't see how the current system can work ,if no one is actually working in the banks and sees the cashflow all the time.

It's the banks/financial institutions that got us into this mess.
I don't see why it won't happen again ,if we allow them to carry on as they did.
Your always going to get greedy people working in the banks ,if they have no one to answer to.

silverharp

nesf wrote: »

Sentiment is what's making people unaffected as of yet by job losses etc to stop spending. It's the Keynesian problem of an oversupply of labour and oversupply of goods for sale. People have hugely trimmed back on their expenditure because they fear job losses will widen and they might lose their job and this is a self-fulfilling prophesy since the lack of spending will create more job losses.

just a thought on this, one thing that came to mind was that just about everyone with assets is poorer then thought they were only a last year. They might have their job but they have had their pension pot halved , the fear of higher taxes and their houses in their mind may have gone from the asset category to the liability category.
These are real assessments of the future and people have quite rightly started to build up real savings or pay down debt. Its just as correct to say that this is a normalisation process and that the last decade was the distortion of false expectations.

nesf

silverharp wrote: »

just a thought on this, one thing that came to mind was that just about everyone with assets is poorer then thought they were only a last year. They might have their job but they have had their pension pot halved , the fear of higher taxes and their houses in their mind may have gone from the asset category to the liability category.
These are real assessments of the future and people have quite rightly started to build up real savings or pay down debt. Its just as correct to say that this is a normalisation process and that the last decade was the distortion of false expectations.

I'd argue that markets and people tend to overshoot on both ends of the scale. Normalisation is still some way off, people's exceptions need to "bottom out" before that's possible.

TomRooney

yoshytoshy wrote: »

Is there any clear cut answer as to why the recession is so bad ,the world over ?

The obvious answer is the mortgages in america ,but it can't be the only cause.
Is it possible that there are too many financial operations around the world ?

Why do we need so many banks ? ,surely one bank in each country would be enough and any money being made is put to good use.

go to google video, search for the film ZIETGIEST in the search bar and all your questions about this failed system will be answered.

it is a real eye opener.

The_Minister

TomRooney wrote: »

go to google video, search for the film ZIETGIEST in the search bar and all your questions about this failed system will be answered.

it is a real eye opener.

~If that is what I think it is, then I must remind you that baseless conspiracy theories have their own forum on boards.

book smarts

Basically an army of deluded "experts" convinced the world to gamble their futures in a giant casino/pyramid scheme and put it all on red.

Time Magazine

book smarts wrote: »

Basically an army of deluded "experts" convinced the world to gamble their futures in a giant casino/pyramid scheme and put it all on red.

Aside from the evidence Zeitgeist provides that "experts" can convince large numbers of people things that aren't true, would you like to back up your statement?

Or are you going to rely entirely on bland cynicism?

yoshytoshy

After looking at the most of the zeitgeist series on youtube ,I can't really get behind the logic of a non monetary system.

Criminals have always existed ,murderers ,thieves and con artists. How could you keep a balance of reward for people like this in a non monetary system.

Elderly people are naturally less productive than younger people ,how do they fit into a non monetary system ?

thebman

yoshytoshy wrote: »

After looking at the most of the zeitgeist series on youtube ,I can't really get behind the logic of a non monetary system.

Criminals have always existed ,murderers ,thieves and con artists. How could you keep a balance of reward for people like this in a non monetary system.

Elderly people are naturally less productive than younger people ,how do they fit into a non monetary system ?

The whole point of the non-monetary system is that you don't have to work to get goods at all.

They want to automate all the work people don't want to do and people will do the other work because they want to because they are interested in it.

Nobody would rob because there is no need when you can just go get whatever you want without paying anyway. The only reason you'd rob is if you were too lazy to walk to where ever it is your supposed to go to get one of the items you were robbing.

It basically boils down to, would people work because they want to and not because they have to? Some people wouldn't and what this system says is leave them to do nothing because there will be enough people willing to work anyway just because they like doing it.

yoshytoshy

thebman wrote: »

The whole point of the non-monetary system is that you don't have to work to get goods at all.

They want to automate all the work people don't want to do and people will do the other work because they want to because they are interested in it.

Nobody would rob because there is no need when you can just go get whatever you want without paying anyway. The only reason you'd rob is if you were too lazy to walk to where ever it is your supposed to go to get one of the items you were robbing.

It basically boils down to, would people work because they want to and not because they have to? Some people wouldn't and what this system says is leave them to do nothing because there will be enough people willing to work anyway just because they like doing it.

I don't agree with the current markets and how they work ,but if we where to introduce a non monetary system. Wouldn't we be essentially halving the global workforce instantly ?
No money sustaining elderly people ,no money sustaining the young population ,no money to sustain the disabled people in the world.