[phaster]

Just wondering how do you explain what's happening in the economy?

The reason I was asking is because I've been getting lots of stuff via eMail about the economy, go figure...

So a few days ago I started working on a page on my site that actually tries to put what's happening to the economy in terms and experiences people not really into economics, might actually understand and relate to. Check it out and tell me what ya think... actually kinda hoping if I made any major errors, you'll let me know!

The reason I started it, is because it seems all the talking heads on CNBC, are mostly free market idiots IMHO because they didn't see this mess happening in the first place. Perhaps its the format of TV, but all those sound bytes IMHO don't have much intellectual substance.

I've also kinda poked around various economic sites, trying to figure out if there was any theory that would accurately model the downfall, and show how far down the economy might go. Anyway I'm not an economist, but find the topic pretty damn interesting. FYI I also have a morbid fascination with "peak oil" which is why I drop by this forum, every so often.

What I'm kinda thinking about right now is adapting models of how a forest fire spreads, and substituting in various amounts of "credit" in place of fuel loads which is one major factor in determining how large a wild fire becomes. Figure this would be a pretty cool tool for an "amateur" economist to look at financial markets.

So anyone else on this forum (regulars, semi-regulars which is what I consider myself, or lurkers), trying to model the economy or stuff related to peak oil?

[perdition79]

That was a great primer. I think that link you gave is easier to understand for just about anyone. You should send it to some high-school teachers, to help educate the youth about this issue.

I try to explain it to educated people in terms of Gaussian distributions, exponential growth and exponential decay. Include the whole doubling period and the Malthusian catastrophe in the discussion.

[Micki]

Phaser, I repeate what I've said many times before;
Free market idiots didn't see this coming because we don't have a free market. US for instance hasn't had a free market for decades.
If yo dig through my posts you can for instance find links to Fed Reserve documents from 1961 discussint the value of intervening in FX markets. Then we have Summers (Geithner's mentor. The other wone is Mr Strong Dollar Rubin) who came out with his paper "Gibsons paradox and the gold standard" where he concluded that surpressing gold price helps keep down interest rates. We have constans adjust ment of inflation statistics with substitution and hedonic adjustment, we have birt&death models to massage unemployment numbers, the federal reserve/Greenspan kepe interest rates artificially low for way too long, we have SEC and CFTC ignoring their responsibilities and turning blind eyes to obvious sscams and manipulations etc etc. (and I would be extremely surprised if there wasn't a PPT)
To quote or paraphrase Chris Powell of GATA; We no longer have markets, only intervention.
Free markets can only operate in a free environment. What we have here is a fascist model where government works with big business and supporting them in every way.
And it sadens me to know that free market model is going to be made a scapegoat for this mess so that governments get carte blanche to grab more powers and most people are going to fall for the rethoric.

[mefistofeles]

What happened is very simple. The US consumer simply borrowed too much and finds himself unable to pay back all the money he owes.

In the process he has destroyed the world's financial system.

The graph is a bit dated but I think it tells the story quite well:



Princeton's economic Department has also done an excellent presentation on the economic collapse.

Roubini has also written a comprehensive piece on the collapse .

However the basic principle is still the same I would call the financial equivalent of Malthus's Law .

Debt increased geometrically and income increased arithmetically. The end result was going to be disaster.

Of course another theory is Minsky's theory of Ponzi finance. You can actually download Minsky's Paper in the form of a .pdf

[JoeW]

What happened is very simple. The US consumer simply borrowed too much and finds himself unable to pay back all the money he owes.

In the process he has destroyed the world's financial system.

That's a component of the problem, but it didn't happen without some instigation by the government and the media. The media hyped the real estate boom as much as they had hyped the tech boom of a decade ago. Repeated stories on "flippers" filled the airwaves--people who would buy a property, do almost nothing to it, and sell six months later for a 10 or 20% profit. Because people are not rational beings, and self-serving by nature, everyone and their brother decided to get into it.

And then there were constant stories on tv and in the newspaper about how people were using their homes as ATM's... To a lot of people, this planted a seed in their brain that if the going got tough (or if they really really had to have a shiny suv in the driveway), they could use their home as an ATM.

The end result is all these homes sitting on the market at prices that no one can afford. The government wants to prop up the prices. The only way I see to do that is to figure out how to increase the average household income by ~25%. Isn't it a lot easier to let the market correct itself, and have those home prices come down to reasonable levels again?

I've got no sympathy for people who get over their head in debt by taking out home equity loans.

[TreeFarmer]

I think that to adequately explain what happened to someone they first need to watch Money as Debt. Just Google "Money as Debt" and watch the 47 minute animated video. It explains quite simply how the debt train works.

Once firmly on the debt train the US consumer's evergrowing debt load powered the world economic expansion. That debt load is no longer growing so the US and world economy is no longer growing.

TF

[BlueGhostNo2]

The thing I think you're missing is this debt problem does not actually put the USA in a big hole.
This is because the US can and will cheat by printing money. (it's already talking about it, and the currency has been de-valuing anyway)

What happens if you do that?
Your currency debases and you're forced to stop running a current account deficit (who loans money to a printer?!).
Well that sucks, Americans will have to drastically reduce their consumption of imports.

As in this model the USD starts to change in value drastically we'll use 2007 figures.
In 2007 the US Deficit was 700 Billion dollars.
There are around 300 Million Americans.

SO, in order for the US to balance it's trade deficit you all need to stop buying imported crap to the tune of 2,200 US 2007 Dollars.

Of course some people will consume markedly less than that and others markedly more.
But the figure shows that the world is not going to collapse just because you can't keep running up the credit card.
It gets even better, with every $ that US citizens stop consuming the over production in the rest of the world gets more acute and they're forced to sell at lower and lower prices.

So everythings hunky dory... Nooo.

The option is not so cut and dried, as the US _the_ major player if they took such drastic steps the world economy would likely crash.
Which leads us to the current situation, they continue to borrow all the whilst holding the threat of default / printing. The rest of the world takes it because they need the US to consume some of the over capacity to try and beat the deflationary spiral.

SO, the deflationary spiral is the real threat. Because either way the US current account deficit cannot last, and this way you get to keep your internal economy functioning before you print off / default the debt.

[kuidaskassikaeb]

I just finished reading Krugman’s return of depression economics and the original post by Phaster, and I have to say that Krugman’s version makes a lot more sense. There are some overlaps but Krugman’s story is different.

Krugman’s story, but it’s probably typical of economist thinking, goes something like this. The credit default swaps CDSs mentioned in the Phaster’s post are just a small part of an enormous shadow banking system, which collapsed. In fact one of the very frightening things about the book is that in October 2008, when he wrote it, traditional bank lending had actually increased. Economists redefined banking as any activity which transfers money between short term liquid assets to long term illiquid assets. A lot of banking happened under the rubric of money markets. Hedge funds, which are typically short in T-bills and long in things like Russian bonds, were acting as banks too. One of the things that bugged me about the post was the use of the word “fractional reserve banking,” all banking has been “fractional reserve banking” since the Renaissance. The shadow system had a lot smaller “fractions” than the more regulated banks, and they are just as subject to runs. The shadow system was also not a side show, but actually bigger than traditional banking. In some circles, not regulating the shadow banking system is considered the prime cause of the collapse.

Krugman also talks about some of the problems caused by globalization and how they make business cycles more volatile. When Asia, and Mexico, and Russia collapsed they were unable to do the standard economic thing and run deficits and lower interest rates. It turned out that the world currency system has a problem with exchange rates. Basically countries have had to choose between stable currencies, but with constraints on monetary policies, and free monetary policies with unstable currencies. The U.S. tried to force stable monetary policies, through the IMF, which caused deeper recessions than were absolutely necessary, but protected investors to some extent. Up till now the U.S. has decided to float its currency and have a free monetary policy. As the constant talk about a dollar run show, that period may be coming to an end. This probably means that Obama won’t be able to borrow enough money to dig out of the recession.

I also disagree with the constant moralizing about debt. If anybody remembers, one of the reasons Greenspan said that he didn’t pop the housing bubble is that the rest of the economy wasn’t doing very well, and housing was about the only growth industry. Low demand was the major problem in the developed world, due to demographic factors, not skyrocketing consumption.

One of the excuses for the bubble, according to Bush and company, was that there was too much savings. This savings, because of low growth of demand, had too few productive outlets. If you remember all the graphs about how if you save enough, you’re retirement will be just huge. Well the world is full of savers that are expecting that. But it only makes sense if there are enough places to put the money. When there aren’t enough real productive assets, you get bubbles or asset inflation, whatever you want to call it. The financial markets become what everybody thinks they always are, which is a casino. Essentially Wall Street managed to dress up gambling on interest rates, as bonds. The brokers only needed people willing to buy houses to make the chips. The casino was the shadow banking system mentioned earlier. History is full of bubbles, and their collapse leads to recessions.

[bratticus]

Just wondering how do you explain what's happening in the economy?

Short version of my answer: http://dieoff.org/m1.html

[bratticus]

Just wondering how do you explain what's happening in the economy?

Short version of my answer: http://dieoff.org/m1.html

Long version of my answer:

Capitalism and industrial civilization grew up in tandem. Sure there was capitalism before but it was insignificant.

HISTORY OF CAPITALISM
The origins of capitalism: 13th - 16th century AD

... The essential characteristics of capitalism only become evident with an increase in scale - in two quite separate contexts. One is the formation of joint-stock companies, in which investors pool their resources for a major commercial undertaking. The other, not evident until the Industrial Revolution, is the development of factories in which large numbers of workers are employed in a single private enterprise. ...

Industrial civilization is to capitalism as petroleum is to industrial civilization as anabolic steroids are to bodybuilding. We didn't get to the moon on coal (the two lower stages of a Saturn V rocket were powered by guess what?); only through making synthetic oil from coal could coal possibly be used to power an airplane, etc. The power in oil is magical.

To say "the housing bubble crashed the economy" is to overlook the question of "why did institutions and people make crazy investments?" To say "because they were greedy" is to overlook the questions (1) "weren't they always greedy?" and (2) "why did their greed work in, say 1950 or 1960 but not in 2008?"

US Peak Oil was reached in 1971. After an economic crisis the US economy stabilized mostly by Jimmy Carter conceding to sell weapons of war to the Saudis in exchange for guaranteed oil supplies at a guaranteed price range.

In the 1980's under Reagan, we started moving factories to Mexico in exchange for oil. We lost factory jobs but the lights stayed on and the cars stayed on the road, etc. Later NAFTA was formalized. Every energy-intensive factory moved to Mexico meant less US-domestic energy consumption.

All the while investors in the US are becoming more expert at investing in nothing and getting foreign nations to play along which gets the US their money. The S&L scandal and the dot.com bubble were merely preludes for the scams to come which were necessary because the US was in decline and had nothing real to invest in anymore. US Peak Oil necessitated fake investments.

Eventually we perfected globalization getting China and India to do the manufacturing and the US to do nothing but make up absurdities like credit derivatives.

When world petroleum production rates peaked probably in 2006 what followed was a brief price war, up to $147/barrel in July 2008 followed by a relatively-unexpected pair of hurricanes, Gustav and Ike which took consumers offline from Texas to Tennessee and precipitated a rash of foreclosures that led to the chain reaction of phony investments failing. In 2009 this chain reaction is continuing.

[rangerone314]

I can describe what's happening with one sentence:

"The chickens are coming home to roost"

[phaster]

That was a great primer.

Thanks, glad ya found it interesting. I'm basically kinda thinking out loud and using the page to try and figure out for myself what's going on. I figure if I have an understanding of the problem, I greatly increase my chances to figure out a way how to profit from the mess.

BTW I'm a big fan of reality TV specifically disaster theater, I'm also lucky enough to have a DVR so I can record various news reports for later viewing.

Anyway a few weeks ago I was able to record the IOUSA TV news program on CNN, and just this past week there was another news show on CNBC, called "house of cards" which looked at the credit crisis from various points on the food chain. In case ya missed watching either very informative shows about the economy, check out my page page again, I just added some new stuff (specifically links to video clips of the whole CNBC news program "House Of Cards").

Free market idiots didn't see this coming because we don't have a free market. US for instance hasn't had a free market for decades.

I for one have come to the conclusion that there is no such thing as a free marketin the real world, since it is an idealized condition that economists and politicians only can aspire to; and the same goes for the idea of 100% command economy.

Basically idealized conditions such as a free market are for lack of a better term, just a wet dream of various political and economic ideologues IMHO, because the way I see things is, there is a sliding scale where ideas and policies exist along spectrum.

Correct me if I'm wrong but free market advocates tend to believe that its best to have little or no government intervention or regulation. Looking at this economic crisis I thought of how many subprime loans were packaged, basically from what I've read about and seen, the free market was vary much alive and well in that the loan originators had little or no oversight, same goes for all the wall street firms that bundled and securitized various subprime mortgages and sold the resulting $hit up the line to a global market (this new stuff which mixed not only subprime revenue streams, but also included other future revenue streams) was now transformed into Collateralized debt obligations.

Because the global market, required AAA rated bonds, the "free market" pressured ratings agencies to put their stamp of approval on aforementioned $hit. To create the illusion of safety, the "free market" created credit default swaps, which was insurance for $hit financial instruments.

I understand your wish for some kind of "gold" standard monetary system where there is some kind of self regulating mechanism to prevent bubbles, but due to the nature of "free markets" which find interesting ways to create various kinds of "credit" in a global economy, the traditional idea of a "free market" from my own analysis will always have economic volatility (both on the up side and on the down side).

What happened is very simple. The US consumer simply borrowed too much and finds himself unable to pay back all the money he owes.

yup that's a good first order approximation of the problem

Once firmly on the debt train the US consumer's evergrowing debt load powered the world economic expansion. That debt load is no longer growing so the US and world economy is no longer growing.

this debt problem does not actually put the USA in a big hole.

IMHO debt isn't all that big a problem provided the debt is serviceable, and the debt was used to invest in items that would generate returns in the future. Sadly society as a whole thinks like a consumer (basically live for today) and not like an investor (who resists the temptation of short term consumer thinking, and spends money in such a way that it will provide future returns).

As it stands IMHO the USA is on a downward trend, because the debt it accumulated was not spent wisely on items that will provide returns in the future.

The credit default swaps CDSs mentioned in the Phaster’s post are just a small part of an enormous shadow banking system, which collapsed. ... One of the things that bugged me about the post was the use of the word "fractional reserve banking," ... I also disagree with the constant moralizing about debt.

In doing my own analysis of the economy, I'm using the concept of "fractional reserve banking" in the general case where some seed money is used to create some kind of "credit" in either the formal banking system or informal shadow banking system. Think of it this way, when Mastercard or American Express extend credit to a customer, they have some kind of seed capital to get the process of credit creation started. Without seed capital Mastercard or American Express would not be able to start the "credit" money making process.

IMHO I consider "credit" as just another tool to be used wisely. For example a scalpel (which is tool) in the hands of surgeon can save a life BUT if ya give a child a scalpel, the child most likely would get hurt playing with a tool they don't know how to use. Sadly what has happened is too many people were given "credit" and just like a child playing with a dangerous tool, they hurn not only themselves but society as a whole.

As far as credit default swaps, I don't think you or the general public understands the danger they pose. The way I look at the problem is they same way I'd analyze a black hole. When an astrophysicist studies black holes, they do not observe them directly, but rather study how they perturbate nearby objects in space. The reason so many financial types don't understand structured investment vehicle (SIV) is because they were put together by math and physics refugees, who feel pretty damn comfortable with derivative contracts and what typically happens is they made some pretty wacked assumptions as far a growth rates in the economy. Business types, not wanting to appear dumb, basically went along with the whole thing, cause for awhile everyone was making money.

FYI the money spent on bail outs is still pretty small in the grand scheme of things IMHO because to put things into perspective size perspective, consider the following ball park figures:

800 billion, first obama bail out bill
2+ trillion cost of various bush economic stimilious
14 trillion estimated annual GDP of the USA
30 to 60 trillion estimated value of credit default swaps

http://www.data360.org/dsg.aspx?Data_Set_Group_Id=591
http://www.iht.com/articles/2008/02/17/ ... 17swap.php

I listed an estimated range of values for credit default swaps, cause these contracts pretty much are just between two parties. Because they are private contracts no one really knows the exact size of the market, to get a basic idea of the size of the problem one needs to look at how the economic system is being pertubated.

[unseeNaxiom]

The Baby Boomers through the use of 401(k)s and less money replacing the retired money coming out, Flippers that bought 6 houses, OIl Reaching 150 dollars a barrel, A Shadow "unregulated" banking system, an uninformed moronic "American Idol" consumer, Lifetime politicians, Decreased percentage of productivity with the increased use of "free trade" NAFTA styled agreements to increase profits while killing the American worker, technology and the replacement of humans with computers, overpopulation in relation to "actual" sustainability, world wide conflict, drought and food shortages, fundamentalist "religious" ideologies, no Gold standard, changing weather conditions, and good old fashioned Greed are just a few of the problems that got us to this situation.

The Bubble that is now bursting has been in the works for at least twenty years (more like 25 -30 years.) If you take a look at the macroeconomic indicators of production, and subtract the debts and obligations (ie Social Security, Medicare, etc) there isn't a chance in hell that we can "inflate" our way out of this problem. The national debt has exploded on both a governmental and consumer level. The ONLY way to correct this imbalance is allow for a depression. The politicians knew this years ago. The only question is how to allow for the correction, hard landing or "end of everything as we know it landing". The powers that be have opted for the hard landing, in a hopes that the "end of everything as we know it landing" is actually unavoidable. I guess only time will tell, but I have little faith that it can be avoided.

We need to do away with money. We need a fundamental change in how we treat each other, how we view our place in the universe, how we care for our planet, etc..etc. I'm not so blind as to think that we can get rid of greed, but I am optimistic that we can put into place a system that doesn't foster greed. If someone was addicted to drugs, letting them work in a pharmacy wouldn't be a good idea. We continually allow greedy people to have access to all the drugs they want, in fact we continue to elect them in to positions of being in charge of the pharmacy. It would only be worse if they were in charge of the companies that made the drugs in the first place....oh crap, they are already.

[kuidaskassikaeb]

Kuidaskassikaeb wrote

The credit default swaps CDSs mentioned in the Phaster’s post are just a small part of an enormous shadow banking system, which collapsed.

phaster wrote in reply

FYI the money spent on bail outs is still pretty small in the grand scheme of things IMHO because to put things into perspective size perspective, consider the following ball park figures:

800 billion, first obama bail out bill
2+ trillion cost of various bush economic stimilious
14 trillion estimated annual GDP of the USA
30 to 60 trillion estimated value of credit default swaps

Um yeah so we agree. That was kind of my point. Credit default swaps were basically mortage insurance and they grew to 5X the regular economy, and now that market doesn't exist. I would really like to blame the average american, but seriously this stuff is much bigger. The housing bubble was part of it, but as Krugman pointed out the homeowners of America have lost something like 5 trillion dollars, and the investor class something like 1 trillion. But the hedge funds are dead. You can't bail them out because they are so leveraged that a 5% loss, and well, they're gone too.

[rangerone314]

There is another aspect to economics I don't see discussed very often: population increase.

I personally believe that much of our economic system is based on population increase. Countries like Japan that don't have population increase essentially feed off of those that do like the US by an export-driven economy.

Being dependent upon population increase and cheap energy essentially makes the US economy a big pyramid scheme. When a much larger percent of the population becomes non-productive economically (i.e. retired), the scheme will probably collapse.

Also a large world population has been supported by the petroleum-based "green revolution". That will probably be coming to an end.

Energy, food production and population are all interdependent... and the economy will contract when all of these inevitably contract. In turn, energy, food production and population will probably contract as the economy contracts. It will probably become a self-reinforcing spiral until it reaches a more stable state.

I'm not sure what this stable state will be like, how many people it will support, how long it will take to get there, and what energy production will be by then.

[shady28]

Just wondering how do you explain what's happening in the economy?

It's the economic cycle, one that takes about 60 years to complete. You know, the one we supposedly had beaten? Nothing more and nothing less. Check the link in my sig for one of the more respected views on economic cycles.


http://theroxylandr.wordpress.com/2007/ ... ff-winter/

"My deceased friend, Teddy
Butler-Henderson, met Alan
Greenspan in the 1960’s. They
apparently discussed the
Kondratieff Cycle. According to
Teddy, Alan Greenspan confided
that he hoped he could
be Federal Reserve Chairman
at the onset of a Kondratieff
winter, because he felt he
could defeat winter by substantially
increasing the money
supply and reducing interest
rates to near zero. He had his
wish and effected those actions
following the 2000 stock
market peak."


Greenspan failed.

[phaster]

Kuidaskassikaeb wrote

The credit default swaps CDSs mentioned in the Phaster’s post are just a small part of an enormous shadow banking system, which collapsed.

phaster wrote in reply

FYI the money spent on bail outs is still pretty small in the grand scheme of things IMHO because to put things into perspective size perspective, consider the following ball park figures:

800 billion, first obama bail out bill
2+ trillion cost of various bush economic stimilious
14 trillion estimated annual GDP of the USA
30 to 60 trillion estimated value of credit default swaps

Um yeah so we agree. That was kind of my point. Credit default swaps were basically mortage insurance and they grew to 5X the regular economy, and now that market doesn't exist. I would really like to blame the average american, but seriously this stuff is much bigger. The housing bubble was part of it, but as Krugman pointed out the homeowners of America have lost something like 5 trillion dollars, and the investor class something like 1 trillion. But the hedge funds are dead. You can't bail them out because they are so leveraged that a 5% loss, and well, they're gone too.

when ya mentioned "just a small part of an enormous shadow banking system" that's what threw me off, cause the value of the "credit default market" dwarfs eveything else.



sadly few people seem to realize the risk of "credit default swaps" guess everyone is kinda preoccupied with the current doom and gloom news, and not thinking about the bigger danger a few steps ahead (which IMHO is how come society is in the mess its in).

[kuidaskassikaeb]

Krugman and your self are obviously on the same page at least economically. I looked back at the book, and although there are a lot of different acronyms the size of the insurance market was mentioned. Some of the difference is due to the fact that this is a reissue of a book written in 1999 and updated. There is obviously a certain amount of “I told you so” in it and the details have changed.

Where the book surprised me is that it seems that our entire financial crisis can be explained by fractures in the economic system. We all have our unified field theories of collapse, which go something like over-population leads to peak oil and over-shoot. But I really thought that the economic system was well understood, at least within its own terms. The interesting problems in economics were all externalities, that economics really can’t deal with. Things like peak oil and environmental disaster. But while we were all waiting for that to happen, the economy collapsed on its own. When reading the book I got the sense that he was really relieved that economics had something to contribute.

[phaster]

Krugman and your self are obviously on the same page at least economically. I looked back at the book, and although there are a lot of different acronyms the size of the insurance market was mentioned. Some of the difference is due to the fact that this is a reissue of a book written in 1999 and updated. There is obviously a certain amount of “I told you so” in it and the details have changed.

Where the book surprised me is that it seems that our entire financial crisis can be explained by fractures in the economic system. We all have our unified field theories of collapse, which go something like over-population leads to peak oil and over-shoot. But I really thought that the economic system was well understood, at least within its own terms. The interesting problems in economics were all externalities, that economics really can’t deal with. Things like peak oil and environmental disaster. But while we were all waiting for that to happen, the economy collapsed on its own. When reading the book I got the sense that he was really relieved that economics had something to contribute.

I've never really read any in-depth analysis by Krugman because I just not have had the time or the opportunity to pick up one of his books. As far as the study of economics, I'm just digesting stuff that pops up on my screen and incorporating it into my own economic theory.

The reason I don't follow any one school of economics, weather its the chicago school of economics, the supply side school, the austrian school, the keynes school, etc., is because I realized long ago when I started gaining an interest in the subject, that each economic philosophy was based on a small data set. Unlike a hard science such as physics, where one can look at multiple events and write out an equation describing an event.

Big events in economics don't happen all that often, for example the 1637 Dutch Tulip mania, the Panic of 1873, the Panic of 1907, the 1930 depression, the 1973 oil embargo, the Stock Market Crash of 1987, etc. are IMHO caused by different players, so there are no constant variable one can model. So when ya have an "expert" like Bernanke who studied the 1930's depression, there is no formula one can use to calculate an exact course out of the problem. The closest analog I can think of is schroders wave equation, which describes probabilities in quantum physics, but since there are so many degrees of freedom in an economic system I don't see how its mathematically possible to model the economy.

Hate to say it but IMHO managing an economy is an art, that requires having the right background, and mind set at the right moment in time. In other words its much like art works being sold in the marketplace and seen at a museum. For example the economic art work of President Bush, I didn't think vary much of because it seems biased, amateurish and not very thoughtful. Contrast that with the economic art work of President Obama, which thus far seems much more thoughtful and introspective. Only time will tell how the tone Obama sets, will color the economy.

One advantage of not having been formally taught economics is I'm unbiased and unencumbered by economic traditions. So perhaps I tend to tend to go off on the deep end following my own tin foil hat theories. For example one thing that really had not caused much of a splash in the main stream media, is the treasury department bank stress test.

http://news.google.com/news?num=50&hl=e ... 1&ct=title

Perhaps its because its not a subject that does not have any salacious celebrity aspects, but the "credit default swaps" IMHO are a pretty damn intriguing topic, cause they have the ability to destroy the economic system as we know it.

http://phaster.com/_peak/_peak_expectat ... ault_swaps

[kuidaskassikaeb]

Phaster wrote

The reason I don't follow any one school of economics, weather its the chicago school of economics, the supply side school, the austrian school, the keynes school, etc., is because I realized long ago when I started gaining an interest in the subject, that each economic philosophy was based on a small data set. Unlike a hard science such as physics, where one can look at multiple events and write out an equation describing an event.

Yes I agree. I have this argument with my brother, who actually is a trained economist, all the time. I think I even used something close to your physics argument once, and we do all wear tin hats, according to him. They do, however, write out equations all the time, events just don't fit the terms too well. To use a metaphore, economics is a tool box with one or two tools. They can be very powerful, but they don't even really explain economics, although they can explain why abortion reduces crime. You don't seem to be the kind of person who likes to be confined inside of small boxes so it does't surprize me that you find economics constricting.

I was really trying to figure out in my own mind weather this contraction was internal to the economic system, or the first hit of peak oil. Krugman convinced me that it was economics alone, but it really is an academic point.