There are suddenly celebrity economists running around most of whom just joined the celebrity economist club because they predicted and warned of the present financial collapse starting with the home real estate bubble. The question then might be is if these guys actually made any money by putting their own money on their predictions ahead of the actual fall out? There would have been no better way of becoming an instant billionaire faster than having advance knowledge that the entire world financial market would fall to pieces? There is Krugman, Shiller, Roubini and others who one might expect should have become extremely rich taking advantage of their prophecy of doom before the actual realization. It seems that publication fees and lectures is where these guys are probably making their big bucks now ?
That raises questions about just how much they actually believed their predictions were coming true. Most prediction makers will temper and hedge their bets just like any good fortune teller. The idea of saying sooner or later the markets will crash is a really easy general statement anyone can make. The interesting thing is how many years the real estate / leverage bubbles grew and grew before collapsing. Why should it necessarily end in ten years or twenty? Going back and looking at many years of predictions for the current economist hero’s it appears they one the bet for one or two years but lost the bet in other periods of time much more frequently. If stock prices are down 40 percent for the last ten years that does not mean that some can’t still be up over 3000 percent or more over the past 60 years. There are different ways to judge stock market progress because some one holding the same stocks held for longer term cap gains and receiving fairly stable dividends is not the same as a short term speculator. Speculation is where the real money would have been with real advance knowledge of a coming collapse.
THE MAIN POINT IS: ANY ONE WHO REALLY PREDICTED THE FINANCIAL PANIC AND THE PSYCHOLOGICAL IMPLICATIONS LEADING TO THE SUBSEQUENT SEVERE ECONOMIC CONTRACTION SHOULD HAVE MADE A FORTUNE FOR HIM OR HER SELF. SHOW ME THE MONEY.
The victors in the great depression snapped up assets on the cheap. One story that illustrates the power of short sellers then is how virtually new state of the art buildings became owned by those that profited from the market collapse and depression. The Chicago Merchandise Mart, then the largest building on earth, was purchased by the Kennedy Family I believe from the more financially stressed Field Family.
No one can expect the psychology of fear to make much sense except to say that it does become clear that people fear possible unrecoverable losses much more than they are likely to be able to get the deal of a life time by being greedy. The psychology feeds on itself until the entire financial system is decimated by a panic to get out at any cost. It may still not be the optimal time to buy but every sale of share or bond does have a corresponding buyer. What is most interesting and overlooked about the end of 2008 is how stocks decided gernally around 30-40 percent. Selling appreciated assets before the panic and crash would have cut into net gains by a smaller percentage or at least 15 %. So paper losses were not as bad as they might otherwise have been.
There are complicated tax issues in calculating net from trading the market that can cost a lot of one’s financial gains shorting the markets. The big geniuses who did predict the market panic and crash should emerge as the new class of American Billionaires as the complexities that stop everyone else from achieving that status should be something true genius can cause to work out in their own favor.
We go back in history to the beginning of the financial crisis and the beginning was sub-prime nonsense. Less than ten percent of the total mortgage market. Around the same time a commodity bubble is still rising . Some people making lots of predictions who seemed right about the housing bubble were leading their flocks to invest in red hot commodities at that time. Every one has a short memory there. Then out of the blue that bubble pops and strangely it is not exactly the normal post war depression since it seems the war is still ongoing though maybe scaled back a bit, Then there are the prophets predicting that the whole banking system is doomed because of credit swap derivatives and somehow they got proven to be correct, sort of, as the major banks then start to fail. Then out of the blue the US Dollar becomes the world currency of safe harbor, more than even gold does and then a lot of prophets get taken out to the back of the barn and shot because their predictions did not exactly make the mark. The big failed prediction so far was that the Japanese and Chinese would completely break the US treasury by cashing out all their treasury notes and taking the money home. That turned out to be nonsense, though it is still possible.
The Yen and the Yuan both look like they need government devaluation to keep their manufactured goods trades dollar surplus balance of payments going. It is like trying to predict all the feedbacks in the weather and somehow model the earth’s weather system to find it is suffering from global warming or cooling on average.
A few economists and traders seemed to get it right. Then there is George Soros who seems to have ended up with a mixed back result and not a cut and dry win like he has been famous for in the past.
The point is that forget what everyone is saying about the market in the financial media and find out who is actually making money , not just treading water as the real indicator of who is the great prophet and predator of the financial future.
I am not about to predict any particular outcome except more much more of the unexpected. That also includes the weather.
I attempted to go to my old economic history books to see what might really be likely to happen and here are some possibilities that would seem likely:
Most of the world will continue to suffer from financial declines in unison and the highest rate growth countries will probably be the last to slip into the decline mode with the rest.
All sorts of charlatans will emerge to take power and voters will sheepishly give it to them because they feel their financial future is threatened or ruined. The charlatans are really only interested in their own financial well being as the trade off to the community for their valuable services. Governments will pretend that their failed solutions really worked when they do the opposite.
A major world war will result if the economics circumstances continue to decline.
Strange new investment successes will emerge, as will new major banks and new investment houses.
The US Government will end up as broke as California and will realize it has to sell real asset and not just print dollars for a change. These assets include drilling rights, national parks, public land, water rights, Toll road rights of way and maybe even NASA.
The people who most want a new era of national socialism and green Eco-socialism will be the most sorry for getting the country into the mess they do. Discredited and impoverished , academic tenure lost when their global warming climate hoax is exposed as pre biased junk science. US history is full of academic nonsense that self destructs given enough time for it to do so. This greenhouse gas warming nonsense will be the most costly absurd chapter ever in the history of junk science because of legislation soon promised to be in compliance with idiotic international conventions designed to shut down the industrial world. Hitler’s Eugenics science was probably the last time something as idiotic as global warming became a legal issue.
Those predicting the failed US economy should have made their first fortune now that they correctly predicted the panic and crash and their second fortune awaits as they should be first to profit from saving the earth with alternative energy resource development and then they should be the first out at the top because they correctly predicted that their theory today is a scam tomorrow.
Already a lot of their hopes are dashed with the price of crude oil falling the way it has. Alternative energy resources make much more sense and are economically feasible only when petroleum is scarce and expensive. Add to the monetary inflation we are already seeing as some jobs are being lost but wages are not really declining any more than grocery prices are and then the anti monetarists will still be pretending that inflation has to do with market price levels and not the money supply.
That leads to some new religion being founded every time in history. This time the environmental anti monetarist religion will probably be replaced with something no one but a paranoid schizophrenic can predict when he is tripping on LSD. Al Gore is making a fortune on carbon offset credits. Will he have to return the money once people realize that carbon causes no global warming and no harm?
Nope, the rich get richer even when they are just trying to save the rest of us.
The country will re-emerge as the economic powerhouse it is destined to remain.