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• Wednesday, April 2, 2008 09:52 AM

  Beware of the hype!

  So when you hear the phrase "since the Great Depression," you know it's time to tighten your belt, and maybe put off splurging on that next vacation

  This talk of "since the Great Depression" is very bothersome, and also hyperbolic, since - economically speaking- we are no where near that economic nadir! Hence, it is quite irresponsible to continue dragging "Great Depression" lingo into the mix.

  The Financial Times a couple weeks ago featured a graphic that compared all the great crises since the 1907 Bank Panic. The comparison was in terms of diminished economic activity("downturn"), given as a percentage from the most recent "norm". In that scale, the current crises registered at about "-16%" which was no where near that for the Great Depression at a whopping downer of (-84%).

  The Savings and Loan debacle registered at (-29%) as I recall. So, if anything, it is THAT 1989 debacle that one should compare the current crisis too - and NOT the Depression.

  I do realize, however, that we have a way to go. There are still all those monoline insurers out there (those who insured the bonds for the Big Boys that funded the collateralized debt obligations and SIVs, or "structured investment vehicles" - and of course, there are an estimated $44 TRILLION in credit default swaps lurking.

  So sure, one could foresee a nightmare world where all those CDS come due and there's no trust in anyone, any institution to be responsible, and worldwide mass deflation strikes.

  But I would guess the odds of that happening are less than a hundred to one right now. I believe the key here, and it is turly critical, is that the Fed is able to handle the credit crisis, while not allowing the dollar's value to "crash dive" and cause a run of investors to every other currency.

  I think when the value of the euro gets to $2, it is time to start shitting bricks .....and growing your own crops, getting a generator etc.

  —droogoy Read droogoy's other letters
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