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The World's Economy is Going to Pot and Here I am Playing this Game
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skrumgaer wrote
at 11:22 AM, Friday October 10, 2008 EDT
Actually I have not played this month, because being an economist by profession, I have had other things on my mind. But here I offer a few comments on the current downturn.
1. We are not likely in for a repeat of the Great Depression because we have much faster access to and processing of data, particularly in regard to inventories. Therefore those who manage resources will be able to muster data and decide what actions to take in a much shorter time. 2. Having access to data can lead to too much access to data, and the system can get into a resonance where handlers of data attend to each other rather than to reality. This is what happened in the big market crash of October 17, which was not followed by a depression. 3. The biggest crashes seem to happen most often in the month of October. I think that this is because the crops have been gathered in and people have more time to reflect on the future. A test of this hypothesis would be to look for big crashes in April in markets in the southern hemisphere. But since those markets are small, the effects may be hard to detect. Open thread. |
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bcmatteagles wrote
at 7:24 AM, Tuesday October 14, 2008 EDT uglygolfball - i tend to agree mostly with your points, seems like you've followed this rather closely and know what's going on.
Just curious what you think the best way out of the mess is and the best way to try and prevent it from happening the next time. |
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skrumgaer wrote
at 11:26 AM, Wednesday October 15, 2008 EDT I am not ashamed to admit that I refer to Wikipedia in a lot of stuff that I have no day-to-day contact with.
Having looked over the Wikipedia article on credit default swaps, I think that an analogy in everyday life is if you could take out life insurance on anyone, not just yourself or a close family member, the amount of life insurance outstanding would be many times the income of the people being insured. Most of the insurance contracts will expire (the people not having died). If too many people die at once, the insurer may go poof, but if you bought insurance on someone else's life, what have you lost? The premiums you paid in to the defaulting insurer. Doesn't sound like the end of the world. I suppose the equivalent regulatory remedy would be as one is not allowed to take insurance on some else's life if that person is not related to you, one does not buy a CDS that refers to an obligation that you do not own. |
