Thursday, October 9, 2008

Crisis

The Japanese stock market has dropped 11% so far in Friday trading.

Friday stands to be a crazy day. I'm reduced to hoping it isn't a historical day.

Rationally, it shouldn't. The physical capital, the technology, the infrastructure, the innovation, and the productivity of the US and global work forces are intact. There was an interesting report on PBS News Hour tonight about Silicon Valley and how many entrepreneurs here are optimistic about the potential for new startup companies in the tech sector. There has been no violence to the people or machines that drive economic growth. Unfortunately this has the potential to be beyond rational, and the worst case scenario is on the table, and that's really, really bad.

The next time a student whines that social studies are not relevant to their daily lives I think I might have a complete meltdown. It is nearly impossible to imagine people retiring at 65 as planned with people's savings worth 30% less, and that's just counting the situation as of the close of business Thursday -- basically, it looks like we all just got sentenced to thousands of hours of extra work. That isn't relevant? The baby boomer generation just got whacked and will want to be sticking around in the labor market for much longer than expected. That will either produce greater competition for jobs, or, if they get replaced, put an unforeseen burden on younger generations to take care of their elders.

In 1987 a speculative bubble burst, with housing and bad banking in the mix, and the market tanked 20% in a day. The next day, it bounced back, and people who bought at the bottom made huge gains for more than a decade. That probably won't happen this time for all sorts of macroeconomic reasons. I'm just trying to find a silver lining, hoping that we've reached bottom. If not... yeah... I'm basically down to hoping that we make it through tomorrow, the next week, the next month, and if we do, we'll get away with "only" a bad recession. Whoop. De. Doo.

4 comments:

Anonymous said...

Government regulation: Let's keep expanding the money supply and allowing the federal reserve to cut interest rates.

Scott Bade said...

One word: inflation.

Ben Geva said...

This whole thing makes me wish we were taking economics right now. I wonder how this is going to affect us as we go into collage next year. Will the same financial aid options be available? Will state collages be accepting the same number of students?

What I find ridiculous is the fact that a trust-based market could possible falter. If investors believe the market will climb, they buy and it does climb. Call me naive, but why don't people buy stocks? They may lose some money in the short term, but if enough people bought in hopes of a turnaround the market would turn around! Its a self-fulfilling prediction!

Jeff Yeh said...

I agree with Ben in that I wish we were in an economics class right now. But then again there's a presidential election happening too so it's hard to decide. Deeper coverage on the crisis or the election...? Maybe I'd go for the election now that I think about it. I also agree with Ben that conceptually it would seem to make sense... As long as people had faith in the market, would this have happened? If people just keep buying stocks now rather then selling, wouldn't this crisis, in theory, be turned around? as Ben put it, a "self fulling prediction" really seems like what it would be...?

"It is nearly impossible to imagine people retiring at 65 as planned with people's savings worth 30% less"
I think that at the rate our economy is plummeting, this may actually be possible... Our college savings/funds/etc for instance... I know they've dropped and are still dropping. Almost back to a little more than what we'd initially invested.. technically not much gain nor loss but still... that's a long investment that went nowhere >_<..
But hey, at least it's not quite all bad...is it? I can't imagine what kind of insanely huge burden this would be to retired seniors or struggling families...

Social Studies is Definitely relevant to our daily lives.
This economic crisis, accompanied with such an important election, is definitely already written in the annals of history...

Crisis = badbadbad. but who knows, maybe the silver lining is just hiding... for a long time...