"Debt

Macroeconomists, including the current chairman of the U.S. Federal Reserve Bank System Ben Bernanke, have revived the debt-deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher. In the 1920s, in the U.S. the widespread use of purchases of businesses and factories on credit and the use of home mortgages and credit purchases of automobiles, furniture and even some stocks boosted spending but created consumer and commercial debt. People and businesses who were deeply in debt when a price deflation occurred or demand for their product decreased were often in serious trouble—even if they kept their jobs, they risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.

Massive layoffs occurred, resulting in unemployment rates of over 25%. Banks which had financed a lot of this debt began to fail as debtors defaulted on debt and bank depositors became worried about their deposits and began massive withdrawals. Government guarantees and Federal Reserve banking regulations to prevent these types of panics were ineffective or not used. Bank failures led to the evaporation of billions of dollars in assets. Up to 40% of the available money supply normally used for purchases and bank payments was destroyed by all these bank failures.

Furthermore, the debt became heavier, because prices and incomes fell 20–50%, but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 banks failed. In all, 9,000 banks failed during the decade of the 30s. By 1933, depositors saw $140 billion of their deposits disappear due to uninsured bank failures. [1] Bank failures snowballed as desperate bankers tried calling in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. [2] Banks built up their capital reserves, which intensified deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression." -From Wikipedia

I am sure I am going to get slammed for this, but what if? The actions by the Fed for the last 2 days tells me that there is a much bigger problem than previously thought.

Someone on here has to know more about macro economics than I, so what do you think? Could it happen? Are we not in a similair situation?

The reason I bring this up is I was talking with a Realtor partner I work with. I just did 2 cash out refi's and 1 rate and term on his primary and investments. After talking with him he explained that he is taking all the cash and investing it either in gold or over seas. Any thoughts?

"Trade Decline and the U.S. Smoot-Hawley Tariff Act

Many economists have argued that the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign trade. Most historians and economists assign the American Smoot-Hawley Tariff Act of 1930 part of the blame for worsening the depression by seriously reducing international trade and causing retaliatory regulations in other countries. Foreign trade was a small part of overall economic activity in the United States and was concentrated in a few businesses like farming; it was a much larger factor in many other countries. [3] The average ad valorem rate of duties on dutiable imports for 1921–1925 was 25.9% but under the new tariff it jumped to 50% in 1931–1935.

In dollar terms, American exports declined from about $5.2 billion in 1929 to $1.7 billion in 1933; but prices also fell, so the physical volume of exports only fell in half. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. According to this theory, the collapse of farm exports caused many American farmers to default on their loans leading to the bank runs on small rural banks that characterized the early years of the Great Depression." -From Wikipedia

Also, I heard there will be a tax up for a vote on Chinese imports in November. Notice all the China hating in the news lately? Check out this article; http://www.reuters.com/article/politicsNews/idUSN1921934520070719
hmmm...

and this; http://www.morganstanley.com/views/gef/archive/2007/20070511-Fri.html#anchor4871

This information is great....keep sharing.

This is not my info, I'm just putting puzzle pieces together in my head. Not sure if they even fit together. What do you think?

You are starting to see the true picture of what could be in store for the US.

Go to the Yahoo finance message boards and read some of the viewpoints on Countrywide's (ticker:CFC) board. Scary as hell.

Not only US Banks have invested in US Mortgages, but so have some German Banks to the tune of 7.8 Billion Euros, and they are on shaky ground as we speak. They invested in AAA papers and are writing off losses, some invested in the sub-prime market and are losing it.
This is starting to be a global problem.

http://www.spiegel.de/wirtschaft/0,1518,499451,00.html

I just wanted to add this, which I saw in another post:

http://www.oftwominds.com/blogaug07/sublime-subprime.html

"Nervous foreign owners of dollars, U.S. mortgage and corporate bonds may decide to cut their losses and unload some of their holdings. These owners are unlikely to be persuaded by Paulson and Company's sweat-flop pleas to buy more or even hold on: China stopped buying US mortgages in May. Even modest selling could beget further selling, creating a selling frenzy beyond the control of our financial markets' handlers. Thus do raindrops become rivulets which becomes streams which join into a massive unstoppable flood."

Well as much as I wish I did, I don't speak German.

An apparently, as much as I wish I was wrong about this, it doesn't appear that way.

How does FDIC insurance work? Could that prevent another depression era?

Sorry, here it's in English.

http://www.spiegel.de/international/business/0,1518,499160,00.html

Apparently this guy sees the same thing... US a "Paper Tiger"

My fear is that the mortgage crisis will worsen and widen and that we are way over 1-2 years from recovery. Even today look at the Wal-Mart and Home Depot earnings forecast. If such a large number of people used their equity like slush funds to buy "goods" then what happens to the WHOLE economy when this money is gone? If consumer spending is 2/3 of the economy and you take away a large chunk of the 2/3 you have a HUGE correction/crash. Right? I'm no economist but the pieces I'm putting together aren't good for the economy. The talking heads, CEOs, politicians, etc have to keep Joe Public in the dark or else risk full panic like the 20's & 30's. Also, those in the know are probably in the process of diversifying into other investments and they don't want us (Joe Public) pulling out at the same time. The little people are always left standing when the music stops. (my conspiracy theory).

Anyway, I hope my house sells SOON so my equity can be put somewhere else.

Well, remember kids you heard it here first!

I'm really afraid for the US market. All this talk is going to completely sink the home market in and of itself. With the worsening stock market, people are going to lose faith and start selling and that's going to cause a meltdown.

edit: I may also completely be wrong, and hope I am! But that's just how I see things.

Just read an editorial (by a die-hard bear) that said ten trillion worth of derivates are at risk of collapsing..... ten trillion. Zowie.

Well, I'm going to err on the side of conservancy and say roughly 63 trillion is at risk, roughly the value of the US economy.

Adam,
You said:
"After talking with him he explained that he is taking all the cash and investing it either in gold or over seas. Any thoughts?"

I met with my cousin yesterday that is building condos in Costa Rica. He informed me that the money is flowing in from California and across the US from investors and buyers. The outflow to oversea's purchases is going to throw a real curve at the demise of the US market.