Jan

23

Thoughts, from Gary Rogan

January 23, 2009 |

1. A complete worldwide economic collapse has become unavoidable. There is no way out, there are no realistic scenarios that avoid this outcome. The sooner there is a consensus that playing with shifting debt around is not going to solve the problem, the less dramatic this collapse will be. There may not always be an England:

The country stands on the precipice. We are at risk of utter humiliation, of London becoming a Reykjavik on Thames and Britain going under. Thanks to the arrogance, hubristic strutting and serial incompetence of the Government and a group of bankers, the possibility of national bankruptcy is not unrealistic.

The political impact will be seismic; anger will rage. The haunted looks on the faces of those in supporting roles, such as the Chancellor, suggest they have worked out that a tragedy is unfolding here. Gordon Brown is engaged no longer in a standard battle for re-election; instead he is fighting to avoid going down in history disgraced completely.

This catastrophe happened on his watch, no matter how much he now opportunistically beats up on bankers. He turned on the fountain of cheap money and encouraged the country to swim in it. House prices rose, debt went through the roof and the illusion won elections. Throughout, Brown boasted of the beauty of his regulatory structure, when those in charge of it were failing to ask the most basic questions of financial institutions. The same bankers Brown now claims to be angry with, he once wooed, traveling to the City to give speeches praising their "financial innovation".

Palindrome is mostly right, but mostly too optimistic, or at least allows for a solution — but it's kinda like saying "if everyone had at least a million dollars we wouldn't have poverty": nice but deficient in real world applicability.

2. The problem with destroying scoring systems, or at least something that invariably happens along with such episodes, is that that the societal order crashes and burns. It pretty much has to, both as a cause and a consequence of something so serious. Usually there is a lot of shooting, fires, homelessness, and hunger that results. It becomes pretty much impossible for a large percentage of people to retain control of physical assets. The oligarchs or Russia simply outsmarted everyone else, and in many cases out-shot them too. They were not always yesterday's communists and to the extent that they are, which is more common now than in the early years, that was because as the ruling party communists were associated with armed elements, some of whom have managed to survive, and in one case even rise to the very top.

We are facing a worldwide calamity unprecedented in peace time. Just as financial manias happen in good time, what I call "bad meme bubbles" happen to prosperous societies during long periods of relative calm: wrong ideas become accepted because applying them doesn't hurt enough to figure out they're bad. During the rising tide even the overloaded boats stop scraping the bottom. Today really, really bad, long discredited and some brand new ideas are all the rage. Costly and massive cures to difficult problems are accepted simply because some guy says that's the way to do it. The "bad meme panic" will start when the destructive power of bad solutions as well the true extent of the problems become apparent. Through globalization the world has become a much tighter coupled, as well as a more complex, system than it used to. Local positive feedback loops are starting to shake the system, and the resonances in more distant parts from the points of origin are starting to appear. Like the doctors from the Middle Ages, the current shamans will apply more bleeding to the patient shaking uncontrollably after a little bleeding only makes him weaker, which they will explain as the consequence of the underlying disease. They will not stop until the patient dies either from the disease or their "cures".


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10 Comments so far

  1. Rocky Humbert on January 23, 2009 11:05 pm

    The author writes: “A complete worldwide economic collapse has become unavoidable. There is no way out, there are no realistic scenarios that avoid this outcome.”

    This statement exhibits the textbook definition of ballyhoo. I find it, and the text which follows to be repulsive — the arguments and thought processes are eerily reminiscent of some writings from Weimar Republic.

    The comments exhibit a fundamental lack of belief in the goodness of man, and what he can achieve in the face of adversity; it is an affront to the many thousands of hard working people who make democracy and capitalism succeed; who innovate and create; who don’t rely on the government for handouts or look to the government for solutions.

    Of this I am confident: The author did not live through the Blitz of London nor the Great Depression. He chooses to forget the gas lines in 1973, and the dark 14 days of October 1962. He ignores the riots of the 1960’s in Brixton and Watts. I speculate further that the author never served in the military, defending the liberty of his fellow citizens. If he had, he would understand the virtues of self-sacrifice and ideals, rather than the inevitability of anarchy and hatred. He also chooses to ignore the many successes of capitalism, democracy, science, technology. He seems to be the sort of person who hides under his desk waiting for the “inevitable” launch of Soviet ICBM’s.

    Before the author has the audacity to suggest that the “societal order [will] crash and burn,” I’d suggest that he spend an afternoon with my father — who grew up in an charity orphanage during the Depression (after his mother died from TB); was an anti-aircraft gunner in the South Pacific during WWII; had his extended family murdered by Nazis; had countless business failures as an entrepreneur; and, as an employee, was layed off during more recessions than he can count. My father can justifiably say, “I’ve seen it all, and this ain’t so bad.”

    My father will explain that life is not easy, and stocks don’t rise 8% every year. He will explain that nothing productive (or even remotely interesting) comes from predicting the demise of civilization. He will explain that good things come from optimism, study, pragmatism and hard work, from teaching our children good values and faith; from the willngness to make the ultimate sacrifice for ideals in which we believe.

    [Revised 2009/01/24 14:10 EST]

  2. ld on January 23, 2009 11:23 pm

    Gary - What an alarming outlook… I respectfully hope you have miscalculated the situation completely and that the system has a few extra emergency shut-offs and emergency discharge pipes to prevent an explosion, an implosion, or a complete collapse. I say this because such calamities have resulted in wars and suffering. I have faith (albeit blind) in smart people in charge of world affairs and in the goodness of man. Above all, may God’s grace be upon us if what you describe is indeed what’s coming.

  3. Musingsofatrader on January 26, 2009 2:22 pm

    Thank you Mr. Humbert. Your entry is like a breath of fresh, clean and cool air.

  4. Gary Rogan on January 26, 2009 10:28 pm

    Rocky, I didn’t say we would never recover from the collapse. And to simultaneously quote Niels Bohr and Yogi Berra, both of whom are credited with the following, prediction is very difficult, especially about the future.

    Let me just ask you a question related to the Weimar republic and my supposed “fundamental lack of belief in the goodness of man”: how exactly did the Weimar republic end and what do the dozen or so years that followed it say about the goodness of man? And while I have the utmost respect and admiration for your father based on your description of his life, could you honestly say that millions of those who perished in those years had “I’ve seen it all, and this ain’t so bad” as their final thought before their lives were extinguished, some under the most horrifying circumstances?

    I am in total awe of the “successes of capitalism, democracy, science, technology”. Yet I am totally disgusted that after all those successes we are where we are. Do you see much public admiration for capitalism these days? Do you see much rationality in the mainstream public debate? If you do, may you be right in what you expect.

    ld, I sincerely hope I’m wrong. Being right for the sake of being right is not important to me. In Jan. 2007 I wrote the following here:

    “I know this is not a political website, but let me make a prediction about something that will have dramatic consequences, economic and otherwise: Bush (or more precisely the U.S.) will succeed in Iraq, in the sense that within a year the situation there will be significantly calmer that it is today, to the point that it will be hard to argue that it’s not a relative success, whatever the definition. I’ve been following the conflict very closely in minute detail for at least a year based on all available public information. For the first time I believe the U.S. has reached critical mass, based on the latest military, local political, and economic trends and very recent achievements by the U.S. military on the ground. Also the tactics have finally been improved to an acceptable level.”

    Please remember that at that time such predictions were considered pure madness. I was called an idiot by some commenters outside of this website. Yet this prediction came to be, although I got the political implications totally wrong.

    I believe in two things: (a) Good eventually wins over evil (b) It’s human nature to take long detours.

  5. Craig Bowles on January 27, 2009 8:31 am

    Looks like we now have closer to $4 trillion stimulus now and makes you wonder how they come up with that number and not do $40 trillion. Bob Prechter was the second speaker to the Georgia Economic Congressional Committee and noted the following: With various govt stimulus having moved over $3 trillion, here's a list of what that would buy in today's dollars. The Louisiana Purchase, The entire New Deal, the Marshall Plan, the Korean War, the race to the Moon, the Vietnam War, the SNL crisis, the Gulf War, the War on Terror. All of these combined cost a total of approximately $3 trillion. WWII cost $3.6 trillion. Prechter is the second speaker on 12/10. Other speakers note housing inventory is closer to two years since so many homes have been pulled off the market since they didn't sell. There's 10 years of new home plot inventory in Atlanta, so that will take a while to work off also.

  6. Gary Rogan on January 27, 2009 12:22 pm

    Craig, like I said the shamans are bleeding the patient faster and faster while he is dying of the underlying disease and previous bleedings. The scale of what is being attempted is something to behold.

  7. Rocky Humbert on January 27, 2009 6:30 pm

    Gary-
    I am going to intentionally NOT debate you on the issue(s) of substance here. The arguments and rebuttals have been made, and intelligent readers can draw their own conclusions. Especially since the last sentence in your rebuttal is Churchill-like.

    Instead, I’m going to risk Vic’s assessment of a round of drinks “on me,” and recite some of your other previous predictions with just a tiny bit of invectiveness:

    March 8, 2007, you wrote: “….all this makes Giuliani the odds-on favorite to win the Presidency…. Neither Hillary nor Obama now have a realistic chance of victory. Gore will be under a lot of pressure to enter the race, as he is currently the only viable Democratic contender. If Gore doesn’t enter, Giuliani will win.” WRONG.

    November 8, 2006, you wrote: “The only thing that’s likely to get done for sure is “immigration reform”. WRONG AGAIN.

    October 10, 2006: “While the most important “skill” in the prediction game is not to make any outright predictions that can be disputed, it’s important to know how to weasel out of anything that can be interpreted as an actual prediction gone wrong.”

    The irony of this last post is beyond words. Perhaps you should consider taking your own advice? If you insist on predicting the end of the world, you should refrain from providing a date and time.

    Regards, Rocky.

  8. Gary Rogan on January 27, 2009 10:44 pm

    Rocky, the "weaseling out" comment was clearly a disparaging comment about those who are professional prognosticators ready to stealthily deny their own predictions. I have no such desires, therefore the irony is mostly based on your interpretation of that paragraph. I noted at the end of my Iraq prediction reiteration that I got the political implications totally wrong. I did get the price of oil prediction in the early summer completely right with oil being around $135 at the time, it was carefully articulated in terms of seeing $100 before $150, while the vast majority of big-time analysts were prediction $150 in weeks and $200 by the end of the year. This was in a comment so it's hard to locate. I also predicted total market returns range for a particular quarter here within a narrow range and that turned out be exactly right. Again it's hard to locate, but I remember writing to Victor about how well that prediction turned out and he was nice enough to congratulate me in a return e-mail. I predicted that the "private equity" boom was coming to an end just a few months before it did, although I totally missed the toxic mortgage debacle. I also got many predictions wrong. The Giuliani one is the only one I'm ashamed of because I used highly flawed and primitive logic to arrive at it. Just to demonstrate that I was even more wrong than that, I quickly wrote a follow-on e-mail trying to correct myself when Fred Thompson's name came up about hedging my bet that was never published, and of course I screwed that up too. The "immigration reform" failed with such a narrow margin and in such an interesting way, and came so close, that the logic wasn't really flawed. If your point is that I’m not a credible predictor of anything, the evidence is inconclusive. The question would be "Not credible compared to whom?". Actually I'm not even sure what the point is, since I didn't attach date in time to my "calamity" prediction yet you admonish me for doing so.

    Clearly any prediction is based on the range of possible outcomes AS IMAGINED BY THE PREDICTOR. Any prediction that involves a fair number of people can clearly go completely of track because people are capable of doing totally unpredictable things individually or as a group. I think arguing on the merits is more beneficial than trying to paint me as a worthless predictor simply because it limits debate.

  9. rocky on January 28, 2009 9:03 am

    Gary:

    I disrespectfully disagree.

    Arguing on the merits requires a disagreement with your summary statements: “I believe in two things: (a) Good eventually wins over evil (b) It’s human nature to take long detours”

    I agree with these beliefs (which you did not articulate in your original post). I believe that they are the paramount points, and most all else in life derives from them. Had you made these statements, I would not have responded to your post at all.

    As to your self-congratulations, a wise man once told me: “Even a blind squirrel sometimes finds a nut.”

    This is my last post on this thread, as the discussion has morphed into a meta-discussion. Sir, you may have the last word, if you choose.

  10. Gary Rogan on January 28, 2009 2:46 pm

    Rocky, the only thing that I find puzzling is the venom of your statements. When someone uses words like “repulsive” and “disrespectfully” this indicate that I touched a nerve I had no intention of touching. Had I advocated leaving children with disabilities by the side of the road to die as ancient Romans did or gassing members of a particular ethnicity, I could understand it. When I hear someone predicting the end of the world in 2012 because both Nostradamus and the Mayan calendar had predicted it, I find it funny but not repulsive. Perhaps you happen to be particularly offended by people who expressed confidence in something not backed up by sound reasoning or by “all is lost” mentality. Oh well, as you’re not interested in further discussion this will be one more puzzle I’ll live with.

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