Is a depression just around the corner

[Angelo]

Hi all

I was wondering if people could offer some insights regarding when we can expect the next major recession/depression and why they think this is the case.

I’ve been reading up on the subject and based on historical data it appears that at about 2023 the economy is going to have a bad hair day. It is interesting that when looking at this data, it appears that major and minor depressions seem to happen like clock work. Rich dad’s prophecy suggests that it is probably going to happen between 2010 and 2020 and he raises some good points in his book. There are also others that are 100% sure that 2009 – 2010 is when IT WILL HIT!!!. I’m not sure why they think this, but they appear pretty adamant that it is going to happen then.

Based on historical data, some good sound reasoning and the fact that never before in history have we seen such a polarization between countries that are in economic deficit and countries that are in surplus, I can’t help but feel that a big downturn is on it’s way.

There are about 14 years between 2009 and 2023. Can anyone narrow the date down and suggest why. It will be useful to have an idea about when the down turn may happen so we can be significantly cashed up for when it does happen and then take our cheque books out with us when we go shopping for property.

Love to hear from you

 

[Ausprop]

"There are also others that are 100% sure that 2009 – 2010 is when IT WILL HIT!!!. I’m not sure why they think this, but they appear pretty adamant that it is going to happen then. "

Do they know why they think this? Are they wealthy (and not as a result of selling books)?

 

[paulie]

Ausprop, it says you posted at 11.49pm MY TIME = Perth time, so that make's it about 1.49am Friday morning Tasmania time.

Now thats depression.


haha - paulie

 

[Aceyducey]

Angelo,

There's actually going to be a depression in 2007.

Based on historical evidence, sound reasoning and the fact that never before have we seen a woman grow fingernails this long I know a depression is guaranteed.

Lee Redmond (USA), who hasn't cut her nails since 1979, has grown and carefully manicured them to reach a total length of 7 m 51.3 cm (24 ft 7.8 in).

Guinness book of records


Predicting a depression based on 'and it never has happened before' is a big call. perhaps the current state of world economics will result in a much strong global economy. Equal chance really.....

And 'sound reasoning' seems to result in different conclusions for each individual. It's often used to justify a conclusion that is influenced by the personal biases of an individual or group. After all it's sound reasoning to consider that no conclusion by an emotional being can be truly objective and hence no such reasoning can be sound.

I predict that within a few years humans will confirm that prediction is a highly imprecise passtime and that despite our love of making statements about the future, our ability to predict more than a few minutes ahead is highly inaccurate. In the future they may even invent a word to describe this, potentially written like 'ges'.

At the end of the day, predicting depressions is a fun mental game, however I find it much more profitable to look at trends in the near term.

Cheers,

Aceyducey

 

[sydneydave]

Could be sooner than expected...

Check out www.elliotwave.com.

 

[Bill.L]

Hi all,

Elliot wave? There are still people who believe this is a useful tool in long term predictions??

Many years ago, I was a subscriber to the newsletter. They made lots of predictions, but always had a bet each way (like the price of beans will go up if it does not go down instead ) The elliot wave believers can always see the end of the financial world just around the corner. In 1990 when the DJIA made 3000, the EWT newsletter kept claiming that this was going to be the all time high, never to be repeated number, all doom and gloom from then on. With the DJIA making 12000 last night, I think we can safely say they were wrong.

Japan has had falling house and share prices for 15 years, would anyone define that as a depression?? or are we looking for something more substantial??

My understanding of history is that we have not had a world wide depression since the abandonment of the gold standard. Recessions yes, but no depressions.
Unless there is a major change in the way credit is created (having no limits since the early 1930's) then most governments are likely to inflate their way out of any impending depression.

If the question was a little different, like asking about the next recession, then I would have to answer yes there will be one 'soon'. This is because history teaches us that there is one every 10-15 years, and we are currently overdue.

bye

 

[see_change]

I like this book for predicting depressions . Was very popular and convincing.

http://ideas.repec.org/p/wpa/wuwpgt/0502021.html

See Change

 

[MarkB]

If the question was a little different, like asking about the next recession, then I would have to answer yes there will be one 'soon'. This is because history teaches us that there is one every 10-15 years, and we are currently overdue.

Hi Bill

Yes, history does tell us that there is a recession / depression ever 10-15 years or so, and by that logic we are overdue.

But really - is that logical?

What reasons are there that our future be governed by our past?

Mark

 

[Shonnie]

because we've made the same mistakes over and over again for thousands of years.. dont see why this generation/century would be any diff.

 

[see_change]

What reasons are there that our future be governed by our past?

Mark

I'm with Shonnie

I don't see any evidence around the world than mans basic underlying nature is changing and that is what will end up putting up into a recession.

At the moment the human race has several balls ( as in juggling... ) up in the air and any slip could cause one to hit the ground

See Change

 

[simonjulie]

Well, I would like to think that I am making a difference even if it is only helping folk out on this forum. If we learn something collectively then that has to be good. It might even delay the next recession by at least a couple of hours.
Simon

 

[Nicholas H]

Other then it might be fun to speculate, I can not see any benefit. I think it is good to think if it does happen how do I react, but it is just as likely to not happen. History does not repeat it self, it might show similarities, but it is not always a predictor. I mean even in the depression people were still going on world tours.

I could see many situations that could cause immense pain in the country, which would force change and some people, would win and some lose. Like what happens if petrol keeps going up it is just about keeping informed and being flexible, plan for different situation and react according. Continually get feedback and keep adjusting cause you will never predict exactly what is going to happen.

 

[alexlee]

Hi Bill

Yes, history does tell us that there is a recession / depression ever 10-15 years or so, and by that logic we are overdue.

But really - is that logical?

What reasons are there that our future be governed by our past?

Mark

The main reason, IMHO: humans are extreme creatures. We seldom maintain balance. We tend to be manic depressive. In terms of the economy, that means we will overshoot in both good times (by thinking the good times will continue forever and buy too much house, consume too much) and bad (by thinking good times will never come again). There is no crash without a boom, and the extreme nature of humans creates both. It's not logic, it's just how humans are.

Booms and busts would be reined in if enough people just said 'you know, I'm not going to try to wring every last dollar out of this market, I'm going to step back'.
Alex

 

[sailor]

Many factors have to occur at the same/similar time for a depression to occur. Causes of the Great Depression of the 20's and 30's were multi-facited.
http://en.wikipedia.org/wiki/Great_Depression

I don't see that we have all the variables lining up, to cause a depression within the forseeable future.

 

[Angelo]

Hi Sailor

I think that there are a few things lining up.

1. Huge differences between deficit and surplus countries. The US is in massive deficit (this is 1/3 of the worlds economy) and this deficit is funding massive surplus in other countries such as the Asian countries. This is not sustainable.
2. large populations of people beginning to retire at once (baby boomers) and drawing money out of the stock market therefore placing downward pressure on the stock market. Stock markets go up when people invest in it and they go down when people pull money out of it. (point 5 determines how far down it will go).
3. Historical cycles that seem to happen like clock work, indicating that 2020-2023 is when we are due for some problems (this coincides with point 2)
4. Rising energy prices. This increases costs of goods and therefore pushes up inflation, placing more pressure on the global economies.
5. Booms and busts which are observed in our stock markets are related to two human emotions, Fear and Greed. Our race has yet to do away with these emotions.

I don't mean to be a doom and gloomster. A depression doesn't necessarily need to be depressing, particularly if we are prepared for it. I feel that there are a number of factors lining up now and I think that it may be prudent to exercise a little caution during these times.

I'm not suggesting that we should stop investing but rather review our investment strategies so that we are safeguarded if things do go bad.

Based on various factors beginning to coincide I think that there is enough things suggestion that it wouldn't necessarily be unrealistic to think that 2020-2023 could be rough.

Do others think that this is a load of garbage, or do you think that it is realistic or can you suggest another time it may happen and if so why (we've already heard the fingernail explanation. Thanks for that)

 

[Bill.L]

Hi all,

Angelo, 2020-23?? you have got to be kidding. What about 2017-2020, or 2023-26?? or 4059-5076??

Mark/Pitt st,
On a more serious note,
My opinion is that hte central bankers/governments/economists do not have the same agenda, and as such will look at different ways to solve the same perceived problems.

For example the use of interest rate rises to solve the problem of the 'booming' resource economy, overlooks the bigger picture. Basically we have the north and the west booming because of the resource boom while the south and the east are flat.
The blunt instrument of interest rates are increased in an attempt to quell 'demand'. However this will work easily in the flat(maybe slightly depressed areas?) of the south and east, but the booming areas will all but ignore it.

The booming areas will respond to changes in the demand for commodities, which easily outstrip the price paid for money at present. But our ever knowing RB looks at the overall/countrywide numbers.

Eventually that sector will slow down, and the all knowing RB will suddenly find rates too high, while 'on average' growth starts to fall. Do this for 2 quarters and bingo we have a recession. (It will take a quarter for the figures to filter through)

Basically we have a split economy, but the instrument currently used to control it (interest rates)does not segregate the parts. This in itself has to tell us that the powers that be do not have all the answers, and therefore the likelyhood of another "unexpected" recession is very likely.

bye

 

[Bandita]

I believe that one of Robert Kiyosaki's views were that history always repeat itself (hence why we like to buy properties in suburbs that have a long history of capital growth, look at past trends in terms of crime, demographics, growth, rental yield, etc, etc...)......

And one of the things that have always repeated themselves in history is a depression hits approx every 75 years. The last one was in the 1930's. So what does this mean? Well, in terms of history, YES, we are do for a depression. Will it happen? Who knows?!? When will it happen? Who knows?!?

So, based on history, a depression is coming now.......however....Have I prepared myself properly - No. Am I proud of this - No. Do I know how to prepare myself propery - No. Have I ever lived through a depression - No.

Personally, I don't know what to do to prepare properly for a depression, except for what my great-grandparents tell me - which is to put all of my money into tin-cans under the floors.....not quite at that state yet, but yes, I may be kicking myself in 5 years time. My investing strategy doesn't account for a depression in the next 10 years ( a recession I'm ready for, lived through several in the USA - a depression, never).

The main thing I always remember is "The Roaring 20's" - followed by the Great Depression. Well, in Oz at least - 2000-2006 has been pretty "Roaring"!

What's next? Will history repeat - as it always does???

Wish I knew!!!!

Cheers,
Jen

 

[Les]

G'day Angelo,

A good thread - thanks for initiating it.

2. large populations of people beginning to retire at once (baby boomers) and drawing money out of the stock market therefore placing downward pressure on the stock market.

I wonder about this quote - it seems a bit too glib to me. Taking it piece by piece (I work/think better that way...)
large populations of people beginning to retire at once
Well first off, large populations DOES seem to equate to baby boomers - no argument there.

BUT, how do we define "at once"? Are you talking within a 2 year period? Or 5? 10? Or even 19 years that originally defined the "boomer" segment (1946 - 64)? What does "at once" mean in your context?

and drawing money out of the stock market therefore placing downward pressure on the stock market.

Umm - I'm not sure I agree with this. But then, I'm thinking from my current perspective (as one with a few shekels set aside for retirement). Would I want to withdraw them all at once? My current thinking says NO !! Keep them in there doing their work - I'll take "a few shekels yearly" to live - but I reckon I'll still want the rest to be growing.

Of course, if a "run on shares" developed, I'd probably want to pull it out and put it under the bed too - or find another asset class. But, while things are ticking over nicely, let's leave the share market to do its thing.

Will other boomers think like me? Umm - dunno. And yes, I've read "Prophecy" by Kiyosaki. It is certainly thought-provoking, and (as a warning), maybe it's out there early enough to advise us not to go down that path - or to prepare ourselves to stay safe if it all hit the fan.

Re "taking it all out" - there would be little need for me to do this. However, I DO understand that many have Super that makes up HUGE amounts of input to the share market. As boomers move on in their retirement, this could lead to such a run - especially for those who "may not have enough set aside" - they will possibly pulling it sooner rather than later.


No, Angelo, I really don't have too many answers. But, as always, I'm interested in hearing other thoughts too re this subject.

Thanks again,

Regards,

 

[Aceyducey]

Hi Angelo,

I stated in my earlier post that you're drawing a long bow, and I thing some of you subsequent comments reinforce this.

Remember that many self-evident truths are neither self-evident (nor often truths) - question your own assumptions!

here's some points you may want to think about further...

1. Huge differences between deficit and surplus countries. The US is in massive deficit (this is 1/3 of the worlds economy) and this deficit is funding massive surplus in other countries such as the Asian countries. This is not sustainable.

On what basis do you draw the conclusion that this is not sustainable?

The US had a strong economy, an ability to service its debt and if the US ceased to be in a position to service a deficit it would be detrimental to the surplus countries who only have surpluses because of the US. Hence there are lots of forces in action to keep the US in play.

Never before in history have we understood so much about economics and the dangers of pulling the rug out from debtor countries, never before in history have we had such an entwined global economy.

Maybe it is time to think of the situation in another way - not as individual countries but as a global economy where certain parts buy more and others sell more, but all are balanced by market forces to keep everyone doing well (with periodic ups and downs of course).

I see it as a global dance, with a couple of wallflowers just about to step onto the dancefloor.

2. large populations of people beginning to retire at once (baby boomers) and drawing money out of the stock market therefore placing downward pressure on the stock market. Stock markets go up when people invest in it and they go down when people pull money out of it. (point 5 determines how far down it will go).

Les has covered this one, but to summarise and add a bit more:
a) Baby boomers are likely to retire over a twenty year period - IF NOT LONGER due to their lack of super. Many baby boomers either don't want to retire or are being offered (already) special deals to remain in the workforce as their skills and experience are not quickly replaceable.

Also baby boomers are less likely to have large portfolios of shares, property and superannuation as they grew up in a less investment-orientated (self-service retirement) environment.

When they started at work there was no super and no need to invest as the government was going to look after you. Hence the impact on stock markets is likely to be less than expected.

3. Historical cycles that seem to happen like clock work, indicating that 2020-2023 is when we are due for some problems (this coincides with point 2)

What historical clockwork cycles?

Every cycle is different and you cannot set your clock by them.

That in itself makes it important that you think about this further.

When you say historical cycles are you looking at 10-year, 50-year or 500-year cycles anyway? Constant innovation is at the moment totally disrupting the old cycles of hundreds of years ago when change was much slower.

New innovations shift cycles onto new tracks that none of us can predict from history. We can only look at the lessons of the past and look for repeated trends.

4. Rising energy prices. This increases costs of goods and therefore pushes up inflation, placing more pressure on the global economies.

I agree with you partially on this one.

Yes energy demand is increasing and costs have also increased. However as each new high is reached new resources come into play and more dollars go into development of replacement sources of energy. I'm an oil investor in a major way and a big proponent of peak oil, however in more of a cautionary way - I expect energy problems to be solved by society - with some pain and cost - and I also expect to profit enormously through this process.

5. Booms and busts which are observed in our stock markets are related to two human emotions, Fear and Greed. Our race has yet to do away with these emotions.

But we're getting better at mitigating their effects. Look at the speed of recovery after 1987, 1991 and 2001 versus 1929. Sure different and complex causes, but our backstopping is getting better.

I don't mean to be a doom and gloomster. A depression doesn't necessarily need to be depressing, particularly if we are prepared for it. I feel that there are a number of factors lining up now and I think that it may be prudent to exercise a little caution during these times.

I'm not suggesting that we should stop investing but rather review our investment strategies so that we are safeguarded if things do go bad.

This is what investors should do at ALL times as it doesn't take a depression to see a sector stagnate or decline in value (such as the property market) and individual 'depressions' are also possible if your personal decisions prove to have been made in error.

So regardless of a 'looming' depression or a 'looming' boom, investors should regularly reevaluate their investments and make adjustments as required for the conditions.

However 2020 is much too far out for most of us to plan as yet (though I admit I have been - around global warming and energy positioning).

Cheers,

Aceyducey

 

[Tim]

A global depression will not hit in 2020-2023 it will be much sooner, in fact it will be in October 2012. I know this for a fact as the Mayan calendar stops then and they must have known...

Tim