Good Layman's guide to the financial crisis

**Ski** · 11-23-2009

Considering the source - an economist working for one of the largest banks in the world who has a track record of predictive success...take it or leave it, doesn't matter to me.

As for oil, the price can go higher due to demand outside the United States, which is possible.

As far as I'm concerned, there are no more "likely" scenarios to be played out within macroeconomics and the economy. The "changes" that have been applied after the last collapse have only reinforced the same system...there have been no structural reforms.

Caveat emptor as usual.

**Ski** · 11-23-2009

http://www.telegraph.co.uk/finance/e...-collapse.html

Very interesting story here. Hits a lot of the core issues of why this economy is nowhere near healthy - private debt becoming public debt, inflation, junk bonds, etc...

Societe General is the 11th largest bank in the world.

**Dayuhan** · 11-29-2009

You might want to ask your economist exactly why he expects oil prices to respond to a renewed crisis in a manner opposite from what experience and common sense would suggest. It's worth noting that the SG worst case scenario report that you link to sees oil dropping to $50 a barrel in a renewed crisis.

Hits a lot of the core issues of why this economy is nowhere near healthy - private debt becoming public debt, inflation, junk bonds

Interesting how we see what we are conditioned to see. The article cites deflation as a threat, not inflation; junk bonds are mentioned only as a symptom (junk bond yields dropping in the event of the worst case scenario), not a cause.

This is a worst case scenario, not a forecast. many of the big financial houses are doing this now, they put out 3 forecasts instead of one, best case, worst case, median. It's basically an ass-covering maneuver, no matter what happens it will be within the forecast range. Focusing entirely on the worst case scenarios gives as distorted a view as focusing on the best case scenarios would.

There's a tendency these days to confuse the financial services industry and the financial system with the economy; it's neither honest nor useful. Financial issues, debt particularly, are certainly matters of concern but they are not at the core of what troubles the US economy. The core issue to me is American competitiveness, or the lack thereof.

**Schmedlap** · 11-30-2009

My eyebrows are raised at the striking correlation of weakening dollar and rising stock market prices (reposted below for convenience). This would seem logical if the weaker dollar were spurring exports, but it's not.

**Dayuhan** · 11-30-2009

Originally Posted by Schmedlap

My eyebrows are raised at the striking correlation of weakening dollar and rising stock market prices (reposted below for convenience). This would seem logical if the weaker dollar were spurring exports, but it's not.

I'm not sure there's any direct relationship beteen the sliding dollar and the rising equity markets at this point. It could be argued that a cheaper dollar makes it cheap for foreign investors to put money into US equities, but that would tend to push the dollar up.

I'd say the falling dollar runs back to 2 basic causes: very low interest rates make dollar holdings unattractive, and rapid increases in emerging market indices make it attractive to borrow cheap dollars and invest them in non-dollar markets that seem to offer higher returns, a dangerous practice but not an unusual one.

Stock markets are up in a lot of places, partly because there's a lot of cheap money around and partly because of an anticipated economic recovery: stock markets tend to respond more to expectations than actual conditions. I personally think stock markets have outrun fundamentals and are walking on pretty thin ice - and that many emerging markets are moving into bubble territory - but I'm by nature suspicious of such things.

It's always hard to base a conclusion on the relationship between two data points - in this case the dollar and US stock markets - simply because there are so many other factors out there that influence both.