Economic Mournings

[Gator]

Ok... regarding the Monkey Explanation on page one, it is interesting but misses the organics of what is really happening.  What is the fundamental intrinsic value of the monkey to the "users"....do they eat the monkey...do they keep the monkey as a pet....do they make clothing from the monkey....does the monkey work picking apples at a lowwer cost than people....
 
In other words...monkeys and cars and everything has a "realtive utility value"....which changes based on the interactions of all host of alternatives to monkeys (fueled by human emotions of greed vs fear amongst the users and providers).

There are huge corrective issues being applied by the market today.  It is a cold bath from the drunken perspective of bubble wealth.

Regarding the future, I will go out on a limb and suggest that we will see HUGE government intervention to make a significant recession less traumatic for the most amount of people. Thus making it longer, and leaving behind an greater governmental presence in "private markets."

I think it will be very interesting to see how the LEGACY of "America" will play out both in the US; but more around the world.  How will countries respond to the downturns?  Many of these countries are infants to the free market (or some variation thereof), these young free market leaning states will become tested.

These are interesting - and perhaps dangerous - times.

Good post.  As you wrote, it was a "house of cards," and with its collapse I fear it will usher in a liberal president supported by a large majority in Congress who will do whatever liberal minds think best.

[Gator]

It is my belief that one of the fallacies prevalent in government regulators thinking is that bigger is better and brings benefits to consumers.

Companies and governments lose efficiency as they get bigger.  There is a point of diminishing returns that is reached early in the growth curve.  Companies who reach that point begin to buy out smaller competitors.  This practice should be stopped.

As to government, the American people need to insist on a balanced budget amendment to the constitution.

Agree with you Ronnie, but it ain't gonna happen with the newly elected mob.  Cross your fingers. 

It is sad that McCain could not effectively demonstrate the severe problems of Obama's promises.

[ScottinCrimea]

I'm curious to know how people think Ukraine will suffer more than we will in the US, particularly the average Ukrainian.  They don't as a rule have mortgages, so they aren't in danger of losing their houses, even if they might lose their jobs. The average person deals on a cash level and is not accustomed to having credit so this isn't much of a change for them.  They don't invest in the stock market and whether it goes up or down doesn't affect their portfolios.  Many, like my wife's family, have a dacha where they grow and preserve their own food.  Their everyday economy is really more local that international or even national.  Of course there is the issue of decreased value of the grivna raising the prices of imports and some basic commodities, and the increased potential for job loss without the safety net of unemployment insurance, but they are quite used to dealing with shortages and subsisting on a bare minimum, so it would seem like just another cycle to them.

As far as government services and benefits being cut, there isn't that much in the first place, so nothing really changes there.

Of course the wealthy, the banks and those involved in international business and commerce will be hit, but I'm not sure I see that trickling down to the common man so much.

I'd be interested in hearing others' views on this.

[Ronnie]

I agree with you on every point Scott.  Ukraine has been through far worse and the average Ukrainian will get along somehow.  Worse thing that can happen is they lose a job that didn't pay much in the first place.  Those who have savings probably had it in dollars hidden in a jar or can in the kitchen so they actually are making money right now.

Modern economies, I agree, are somewhat of a house of cards in that they can easily collapse if confidence in the future is lost.  That's why, as I posted earlier, the American economy has a history of being the strongest in the world.  It's our dog-goned optimism that keeps it from falling over! 

The dark cloud in this is our misguided and thick skulled elected leaders and those who are running.  Not since Reagan have I been able to vote FOR a presidential candidate.  I find myself voting against some a-hole and this year I really am going to have to hold my nose to vote. 

I understand the Democrat party chosing Obama.  The core of that party are closet Marxists and he's just what they've been working and waiting for.  I think he even said as much, didn't he?  Gotta love that ACORN group - showing it's still possible in 2008 to rig an election.  What did Alinsky say?, The ends justify the means?

What I don't understand is the the GOP.  How in the world, after taking a beating over GWB being unintelligent, did they chose someone like McCain over Romney?  McCain makes GWB look like an erudite.  The contrast in intellect and good sense couldn't have been more stark.. 

McCain: Not only stubborn, obstinate and profane, but barely graduated at the bottom 1% academically at Annapolis. How do you manage to be in the bottom 1% if you have even an ounce of intelligence?

Romney: Young, energetic, squeaky clean, articulate valedictorian at BYU then dual MBA and JD at Harvard. 

How the hell did that happen?  What were the Republicans thinking?

When the crisis is over and the economy returns to normal, some idiot in the White House is going take credit.  I'll have my barf bag ready.

[BC]

How the hell did that happen?  What were the Republicans thinking?

That's why Palin is their VP choice or??  Heck Condi would have been a more credible candidate.

[wxman]

I'm curious to know how people think Ukraine will suffer more than we will in the US, particularly the average Ukrainian.  They don't as a rule have mortgages, so they aren't in danger of losing their houses, even if they might lose their jobs. The average person deals on a cash level and is not accustomed to having credit so this isn't much of a change for them.  They don't invest in the stock market and whether it goes up or down doesn't affect their portfolios.  Many, like my wife's family, have a dacha where they grow and preserve their own food.  Their everyday economy is really more local that international or even national.  Of course there is the issue of decreased value of the grivna raising the prices of imports and some basic commodities, and the increased potential for job loss without the safety net of unemployment insurance, but they are quite used to dealing with shortages and subsisting on a bare minimum, so it would seem like just another cycle to them.

As far as government services and benefits being cut, there isn't that much in the first place, so nothing really changes there.

Of course the wealthy, the banks and those involved in international business and commerce will be hit, but I'm not sure I see that trickling down to the common man so much.

I'd be interested in hearing others' views on this.

Very true. With regards to Ukraine, the average Ukrainian economically, won't fall very far, especially since most are already near the bottom.

[BC]

Very true. With regards to Ukraine, the average Ukrainian economically, won't fall very far, especially since most are already near the bottom.

Some, yes.. (as here or there), those I met seem to be doing just fine in one way or other, unless they thought debt was a good choice.

[Misha]

Very true. With regards to Ukraine, the average Ukrainian economically, won't fall very far, especially since most are already near the bottom.

I can't speak of Ukraine, but Russia will be impacted.

Yes, the bottom 70% won't notice it as much, but they are likely to be hit by higher inflation and possibly a devalued ruble in the next year if the crisis lasts and oil prices continue to fall. Yes, the poor grow their potatoes, but it is hard to grow the medicines you need at your dacha or pay your electric bill with potatoes.

Those who will feel it the most is the new "middle-class" in Russia. These are the people who benefited from improving salaries, easy credit and a booming economy to improve their living standards and travel abroad to places such as Turkey and Egypt. They are likely to be hit by a double-whammy of higher inflation and potential job losses. It is estimated that one-half of the new "middle-class" were government workers. If the Russian government goes into a deficit because of falling oil prices, then it may have to shed a lot of workers or pay those workers it has in its bloated bureaucracy a lot less (or simply print more money which will mean people's earning power will drop and inflation rises).

[Makkin]

Hmmm,

  I suppose you might try telling a Ukrainian that they won't suffer and the reaction they might have is I'm already suffering?

  Imagine every economic sector of the western world suffering and even those like the Ukrainians will suffer more. It's a trickle down or trickle up problem that has no safety net in sight except the financial sector and business as usual.

  Surely the less production of food will happen and those countries who give to the poor may give less?
   Ukrainians will suffer more because what they have seen now is nothing compared to what is about to happen in Europe.

Makkin

[BC]

Hmmm,

  I suppose you might try telling a Ukrainian that they won't suffer and the reaction they might have is I'm already suffering?

  Imagine every economic sector of the western world suffering and even those like the Ukrainians will suffer more. It's a trickle down or trickle up problem that has no safety net in sight except the financial sector and business as usual.

  Surely the less production of food will happen and those countries who give to the poor may give less?
   Ukrainians will suffer more because what they have seen now is nothing compared to what is about to happen in Europe.

Makkin

But who will remain more resilient to change?

I haven't the slightest idea how to grow potatoes... MIL and FIL can live fairly decent on a few hundred a month.. we can't.  They and we own our homes outright.  Care to guess who will sell first in a crunch?

[wxman]

I agree that Russia would suffer more, because they rely heavily on the sale of oil. Look at the price today $79 a barrel. It has gone down almost 50% since May, and will probably fall to around $60. For countries such as Saudi Arabia and Kuwait, it won't hurt as much since they have such huge surpluses and a modern infrastructure. But for countries such as Russia, Venezuela and Iran who are spending huge amounts of their revenues on social programs and infrastructure, a long world recession is going to take a toll on them. Russian leadership will survive this, but the leaders of Venezuela and Iran have to be sweating as revenues dry up and more unrest develops. The US doesn't have to do anything to aid regime change. The people in those countries will do it themselves as they see unemployment and inflation get higher.

[Misha]

MIL and FIL can live fairly decent on a few hundred a month.. we can't. 

Well, there is a difference between can't and don't have to. Planting potatoes isn't exactly the hardest of things to do. If properly motivated, most people can learn easily enough.

[wxman]

Well, there is a difference between can't and don't have to. Planting potatoes isn't exactly the hardest of things to do. If properly motivated, most people can learn easily enough.

How true. I have a garden in my back yard and I grow a variety vegetables. It really is as simple as turning over the soil, planting the seed and watering.

[ScottinCrimea]

Hmmm,

  I suppose you might try telling a Ukrainian that they won't suffer and the reaction they might have is I'm already suffering?

  Imagine every economic sector of the western world suffering and even those like the Ukrainians will suffer more. It's a trickle down or trickle up problem that has no safety net in sight except the financial sector and business as usual.

  Surely the less production of food will happen and those countries who give to the poor may give less?
   Ukrainians will suffer more because what they have seen now is nothing compared to what is about to happen in Europe.

Makkin

Makkin, you didnt provide any specifics about specifically how Ukrainians will suffer more except that there might be less production of food in other countries so they won't send so much to a poor country such as Ukraine.  To my best knowledge, Ukraine doesn't depend on food donations from other countries.  They seem to produce their own quite nicely and have enough to export as well.

The average Ukrainain has been working without a safety net for a long time now.  They have learned not to depend on their government to bail them out in hard times as we have in the West.  They depend on their own resources and on their family and friends.  We have gotten too used to either borrowing more money to survive in hard times or expecting government programs to prop us up.  We haven't built up the savings or types of relationships that will pull us through hard times. Now that the credit has dried up, the government is broke and our "friends" are looking the other way, we're lost.

Of course I'm generalizing to a large degree.  Many in the West used their common sense and were prepared, especially those who went through some of the financial crises of the past and learned their lesson.  Perhaps this is all a good "teaching moment" for those who won't learn from the past.


I don't disagree that Russia in general will suffer more, but again, that those most affected will be those in the upper middle class and above and those in the larger cities such as Moscow and SPB whose economies have grown on the back of the rise in oil prices.  Russia is a big, diverse country and it would be difficult to make any type of generalizations.  That's why I chose to focus more on Ukraine.

[IAmZon]

Although the real impact may be limited to the rich and middle class, there will likely be a major effect in currency exchange rates, cost of travel and luxury living.  This could easily affect the mood of the the culture in the more cosmopolitan centers.  This could have a direct baring on issues related to the MOB industry.

[Makkin]

  Here's one specific that claims itself to common sense Scott.

  When an already suffering society has to suffer more then how on earth is it stronger or more able to maintain it's thin hold on what little it already has? You may feel that because a person or persons suffer then it means they can easily handle more but I don't agree.
   If my patient has a low blood volume am I to assume that because they have always had this problem then surely a little less blood won't matter much more?

   The foolish way to look at it may be the way you imply in that because a group is starving then a little more of this won't matter but in africa we see this is not true from history.

Makkin

   

[ScottinCrimea]

  Here's one specific that claims itself to common sense Scott.

  When an already suffering society has to suffer more then how on earth is it stronger or more able to maintain it's thin hold on what little it already has? You may feel that because a person or persons suffer then it means they can easily handle more but I don't agree.
   If my patient has a low blood volume am I to assume that because they have always had this problem then surely a little less blood won't matter much more?

   The foolish way to look at it may be the way you imply in that because a group is starving then a little more of this won't matter but in africa we see this is not true from history.

Makkin

   

I think you misunderstand me.  I didn't say that more suffering is okay, I simply asked for specifics on how the current situation would cause the average Ukrainian to suffer more or if they will even suffer at all because of it. There is no need to spout off about common sense and foolishness.  If you don't have an answer, just say so.

[ambach123]

There are some predictions that oil will drop to $20 or below per barrell, depending upon how bad the world wide recession is.

If that happens, the Russian economy will take a bath.

Ukraine was the " bread basket " of FSU. It exports grain primarily to FSU countries. If they can't pay, Ukraine would have no income. The farmers can't get paid for their crops.

[Turboguy]

I don't think I will feel all that much sympathy if the oil rich countries suffer because of the recession. The sky high price of oil was a major factor in causing the recession.

[ScottinCrimea]

Ukraine was the " bread basket " of FSU. It exports grain primarily to FSU countries. If they can't pay, Ukraine would have no income. The farmers can't get paid for their crops.

Ukraine's grain exports have been projects to triple this year and increase six times in 2009. I suspect that food would be the last import that nations would cut back on.

Did you check any sources before you claimed that Ukraine exports primarily to FSU countries or was this just an assumption promoted as fact?

My sources show that 34% of their exports go to the Middle East, 32% to EU countries, 17% to Northern Africa and only 3% to FSU countries.  Here's the link:

http://www.fas.usda.gov/grain/circular/2005/12-05/graintoc.htm

[Makkin]

  Okay Scott let me list the many specific ways that could and most likely will happen.

(1) Loss of monetary value versus the dollar which has already happened thus causing it to be more expensive to purchase products internationally. Not to mention that the monetary unit is already weak but who cares if it gets weaker right?...lol

(2) When the trickle up and down effects happen in any society there is always a "dry up" effect that causes businesses to go "out" of business. This is already happening.

(3) You seem to paint a picture of people with nothing have nothing to lose but that's not true....just ask them... The food will dry up quickly or become very very difficult to find unless you are the upper class and at that point we doubt that sharing will come into effect.

(4) Energy prices will still rise because the national monetary unit does not bode with international norms and values. The local monies will become only effective in the local country and not very effective at that.

(5) Paints a clear picture of what many people already live like in Ukraine but when the amount of suffering doubles or triples then what will you have. Maybe similar to North Korea because it won't matter how smart you are to eat food.

(6) The internals of the Ukrainian government to not protect the people as you know so the lack of infrastructure will again be evident in many ways. The possible run on the banks as well as the hospital will become evident and tensions will develope.

)7) Russia will help out again right? The suffering will continue and maybe Russia will purchase Crimea like we did Alaska???

Makkin

[ScottinCrimea]

  Okay Scott let me list the many specific ways that could and most likely will happen.

(1) Loss of monetary value versus the dollar which has already happened thus causing it to be more expensive to purchase products internationally. Not to mention that the monetary unit is already weak but who cares if it gets weaker right?...lol

(2) When the trickle up and down effects happen in any society there is always a "dry up" effect that causes businesses to go "out" of business. This is already happening.

(3) You seem to paint a picture of people with nothing have nothing to lose but that's not true....just ask them... The food will dry up quickly or become very very difficult to find unless you are the upper class and at that point we doubt that sharing will come into effect.

(4) Energy prices will still rise because the national monetary unit does not bode with international norms and values. The local monies will become only effective in the local country and not very effective at that.

(5) Paints a clear picture of what many people already live like in Ukraine but when the amount of suffering doubles or triples then what will you have. Maybe similar to North Korea because it won't matter how smart you are to eat food.

(6) The internals of the Ukrainian government to not protect the people as you know so the lack of infrastructure will again be evident in many ways. The possible run on the banks as well as the hospital will become evident and tensions will develope.

)7) Russia will help out again right? The suffering will continue and maybe Russia will purchase Crimea like we did Alaska???

Makkin

You bring up some good points so let's expound on them a bit:

1) Thinking of the products purchased internationally (I'm assuming you mean imports) by the typical Ukrainian, I can think of clothing, cars and some building materials, but not much else. perhaps someone here can add to this list.  Some foods are imported during the off season, but these tend to be more expensive and are viewed as extras for the most part, not necessities.  I don't see a direct hit there but the effects on the stores if they aren't buying clothes or the construction workers if the current building boom eases could have some impact on employment.  The average Ukrainian doesn't borrow money to do home repairs, they use cash, so if the prices go up for materials they will hold off on upgrades or spend less.  On the other hand, if there is less work for builders, it becomes more competitive and their prices could go down, somewhat offsetting the increas in building material costs.  Much of the Ukrainian economy is based on dollars.  For example, when we bought our apartment we had to pay in US dollars.  Many merchants accept dollars instead of hrv.  There is s significant number of Ukrainians that receive money from abroad, commonly from relatives living in Europe or the US.  They would see an increase in buyng power.

2)  Of course if the customers dry up, companies will go out of business and I'm sure many will be impacted.  One difference is that the the smaller businesses there don't have the small business loan and credit options available in the US so they start up using cash.  Because of this they can weather a downturn in the economy better.

3)  I don't paint a picture of people with nothing to lose, but instead people who have much less to lose because they don't deal so much on the financial and international levels we are talking about and haven't been trained to depend on credit and government subsidies for their quality of life.  The quality may be less, but it's not so fragile.  I do paint them as a people who have been through hard times, are more self sufficient and can deal with a bad situation without panicking.  Keep in mind that this current crisis is fueled by panic as much as anything.  They have less to lose so that equates to less panic.

4)  As I mentioned before, much of the Ukraine economy runs on dollars and euros.  We're seeing the demand for dollars grow with this crisis and more people and companies will demand dollars as payment instead of hrv. For those that get paid in hrv, this will have an impact on their buying power.

Their primary sources of energy are coal, which is local and relatively cheap and abundant and natural gas which they are forced to import because, although they have sufficent reserves, they don't have the refineries.  I expect the prices for natural gas would go up affecting the average person's heating costs and this would have a significant effect on those on a very limited budget.  Gasoline prices will reflect what is happening globally, and at this time the trend is down, so transportation costs would go down.

5) Contrary to what you seem to believe, most people don't live so badly in Ukraine.  They live within their means.  They don't take out huge mortgages for a house they can't afford and they don't depend on credit to satisfy their spending urges.  the same would hold true for someone in the US who did the same, living within their means and avoiding debt..  They wouldn't fear foreclosure and loss of credit to feed their spending habits.  You can't really compared Ukraine to North Korea.  for one thing, Ukraine is truly the "foodbasket of Europe" and unless Stalin rises from the grave, you're not going to see mass starvation.  My in-laws could live quite comfortably on the food they grow at their dacha.

6) I'm sure there will be a decrease in infrastructure improvements and maintenance by the government and this will have a direct effect such as in road maintenance, water and fuel supply, etc.  There was a run on the banks during the Orange Revolution and the government put limits on withdrawals for awhile.  They don't have FDIC insurance.  Many people don't trust banks and therefore don't rely on them.  My in-laws saw their entire life savings confiscated from a bank so they just don't use them. The affect would be less than here but any panic would have an impact.  So far the banks there seem to be faring better than in the US, but no guarantee that this will continue.

7)  Crimea doesn't have enough industry for Russia to go after it for economic reasons and with the drop in gas prices, they couldn't afford it now anyway.  we may see the tourism industry in Crimea go down and this would have a real impact there because many are dependent on that as their source of income.  In fact, as far as Crimea is concerned, this would be the biggest blow.

[Gator]

Scott,

Who now in America is the most worried if not already suffering the most?  The leveraged.  For example, banks who followed conservative loan guidelines and insisted on conservative covenants are surviving the storm.  

So you are correct in that the self-sufficient will somehow not suffer as much as the new middle class.  Yet, what kind of life will it be?  Ukraine has been here before.  During my first visit to Ukraine in 2002 I noted much bartering.  For example, medical doctors had a government salary of $30/month and survived by requiring patients to barter.  If one were seriously ill, one had to give the doctor a ham.  UW in 2002 had one or two good outfits, one good pair of shoes, and an abundance of future dental problems.  IMO, almost everyone was suffering in 2002.  

A key difference in 2002 was the fact that Ukraine received much investment activity from thriving Western businesses.  What companies will be in a position to invest in Ukraine in 2009?!  2009 could easily be worse than 2002.  As bad as Grapes of Wrath?  Not unless there is a war or some natural disaster, yet it will be far from cozy.

The key to this mess around the world is to get the money flowing again.  I assert that fully developed Western societies will find this easier to do than developing countries, and those same societies will care less about Ukraine and Darfur.  Nevertheless, whenever the global economy starts cranking again, the developing countries will again be on the forefront.

[wxman]

At least no one is as bad off as Iceland. Going from the status of most developed country in the world with the highest per capita income, to being bankrupt with a currency worth nothing in less than a year.  Now thats a long way to fall.

[ambach123]

What did really happen to Iceland causing this precipitous fall?

With the oil prices falling couldn't the same thing happen to Russia?