Interesting to see some discussion on the next depression. But let’s put our crystal balls away for a moment. Does anyone know what causes a depression? For example, let’s look at the depression from 1929. Any thoughts on what caused this rather depressing time in history?
* Do you believe that it might be caused by a share market crash, because there have been plenty of crashes since then which haven’t had this effect.
> That is very true. But this situation is going to be different – mainly because we will have more people taking money out of the stock market than putting into the stock market, for the last 30 yrs it’s been the opposite.
* Do you believe that it might be caused by a really BIG share market crash, because the crashes since then have wiped much more money off the market than the one in ’29.
> True, but as I said before there have been larger injections of capital than ever before (superanuation/401Ks/IRAs), and considering that MOST western Governments are FORCING employees to put their money into the stock market the ‘boom’ will continue until older people start to withdraw their money…
* Do you believe that everyone just got ‘depressed’ about things? Because A LOT of people were depressed when the tech got wrecked. And no ‘depression’ then…
> Again because there is so much capital around, funds with billions of billions of dollars have to put it somewhere. And as such even after the stock crash super/401k’s were still having massive inflows and again had to put it somewhere, either bonds (and the yield for bonds is hopeless: 1%) or the only real alternative: Stocks…
* Do you believe that a property market crash might perhaps cause a depression? Imagine a bank not lending you money to buy property in the US? Sounds like ’89, but no depression.
> Imagine allot of peoples retirement (super) money goes from many $$$ to very few $. People look at their only other real asset and decide to downside (or sell their negatively geared IPs), unfortunately a large section of the population has had the same idea and a property crash occur. Prices keep falling and banks start to demand higher LVRs (to satisfy this new risk factor) meaning people wanting to buy have to put up larger and larger deposits to the point where people cannot buy. So you have a large scale stock market crash and a large scale property crash with next to no buyers….
* Do you believe that we all agree on a date, and then quit our jobs when this date arrives?
> No, but I guess if enough people are going to retire same within 3-5 yrs we should just assume everything will be okay, because it will be…. (since there all not leaving their job on the same day).
And as a side note for those whom want to keep in the work force that assumes employers will want to keep employing older people who are seen to be slower with technology….
* Do you believe that a war causes depression? No depression after WWII.
But there was the Depression after WWI…
* Or maybe you believe that the date of the next depression comes from a book, or one of your financial know-it-alls?
> No it comes from looking at raw data. For example say we have 10-8 workers to every 1 pensioner, can we really afford to have 2-1 workers pay for every 1 pensioner? The tax rate is already very high (though I wouldn’t know that [oink]) and how can these people save for their retirement? If you want to see how thats working out, have a look at Japans economic growth record (in fact the only reason why they are well off is because of the massive savings and investment Japan has (as a side note it’s investment earnings were higher than it’s export earnings recently)). Just pretend that pension costs didn’t go up, do you really think that medical costs won’t sky rocket?
What do you believe………….?
> I believe that the stats point to a depression, and of course so do looking at cycles. I believe that the reason we haven’t had a depression is because the baby boomers are at the very top of their earning potential. So there is massive capital – in fact there is to much capital – that’s why stock market jitters have been shrugged off, and that’s why there are still unrealistic P/Es on tech companies (google for example has a P/E of roughly 120). The Chinese have a ‘curse’ that goes along the lines of “may you live in interesting timesâ€. Well times are going to get allot more interesting pretty soon.
Hellman
As for the date 2012-2015 is when the Baby Boomers start to retire, of course there might be a panic before that, but in reality I think there will be more of a panic of where to invest their money into something safe and secure which will provide high enough returns. This will be a great time for those whom know how to invest well. My guess is that allot of smart money will be in hedge funds (which can short sell stocks).
As for Real Estate I think if you positive gear you should be okay and in fact ironically you might be worth more as “investors” (or lvl. 3s) run around trying to find good investments that offer safer returns (than the stock market) and that will give cashflow (I reckon the yield of bonds will be very low as Reserve Banks reduce rates to try and stimulate their economy).
Of course this is all speculation, but in the end something must happen, because while I have faith in GOv. & Reserve Banks, they cannot stop the stats or the cycles.
Hellman
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