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Glenn Beck: 'Greater depression' coming?

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indiaBPOking

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Feb 28, 2008, 8:03:58 PM2/28/08
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http://www.cnn.com/2008/US/02/28/beck.commentary/index.html

By Glenn Beck
CNN

Editor's note: "Glenn Beck" is on Headline News nightly at 7 and 9 ET.
Glenn Beck

Glenn Beck says to always question conventional wisdom.

NEW YORK (CNN) -- "The people who survived the Great Depression were
the ones who had money to buy when everybody else was selling." -- My
grandfather

I learned a lot from my grandfather, but that might have been the
greatest lesson he ever taught me. He wasn't just talking about
managing money, he was talking about managing life -- and his words
have stuck with me since I was a child.

A few years back, I was taking a theology course and the professor
recommended only the books whose authors he agreed with. I read those
books, but I also asked that professor which books he thought had it
completely wrong -- and I read those too. Then I made up my own mind.
After all, following the herd is fine until they all run off the side
of a cliff together.

Less than a year ago, a recession was the last thing on anyone's mind.
In fact, over the summer, as I was questioning the conventional
wisdom, I read an article on my television show that quoted a
financial expert as saying, "It is the strongest global market that
we've seen in the history of measuring these things."

That's when I realized how fast the herd was approaching the cliff.

But with predictions of a recession now more common than Fed rate cuts
-- and that's saying something -- maybe now it's time to look at a
worst-case scenario. After all, considering all sides of an issue, no
matter how extreme they may be, doesn't make you a crazy person; it
makes you an educated one.

So to understand what a real meltdown could look like, I turned to
Nouriel Roubini, chairman of RGE Monitor and professor of economics at
New York University's Stern School of Business. He's also a former
adviser to the U.S. Treasury Department.

Professor Roubini recently laid out what he called the "12 steps to
financial disaster." Unfortunately, they were really complicated, and
I have severe ADD, so I've boiled them down into five phases that even
a rodeo clown like me can understand.

I think of these like our military's "DEFCON" -- or defense readiness
condition -- scale, except that this countdown could end in the
meltdown of your bank account:

* DEFCONOMY FIVE

How you'll know we're here: The housing downturn turns into a free
fall, making it the worst collapse in our country's history. That not
only triggers massive numbers of foreclosures and lost household
wealth, but it also sets off another large wave of bank write-downs.

Odds we get here: Roubini told me that it's "extremely likely, even
unavoidable" that we hit this stage because "the excess supply of new
homes in the market is like we've never seen before." Prices, he
believes, "need to fall another 10 to 20 percent before that clears."

* DEFCONOMY FOUR

How you'll know we're here: Americans upside-down on their mortgages
and unable to pay their home equity loans begin defaulting on other
debt, like credit cards, car loans and student loans. In addition,
bond insurance companies lose their perfect credit ratings, forcing
already troubled banks to write down another $150 billion.

Odds we get here: High. Roubini says that 8 million households are
already upside-down on their mortgages and he thinks we could see that
number go to between 16 million and 24 million by the end of 2009. A
lot of those people, he believes, will simply walk away from their
homes and send their keys back to the bank.

* DEFCONOMY THREE

How you'll know we're here: Some banks begin to crack under the
pressure of continuing write-downs and mounting defaults by consumers.
A national or large regional bank finally collapses, triggering hedge
fund failures and general chaos on Wall Street, potentially leading to
a 1987-style market crash.

Odds we get here: Very good. Roubini says that we'll likely socialize
the losses, "effectively nationalizing the mortgages or the banks." It
would be, he told me, "like Northern Rock (the large bank in England
that was recently taken over by the British government) times three."
He thinks the stock market will head south throughout the year as
fears about a severe recession are confirmed.

* DEFCONOMY TWO

How you'll know we're here: Most forms of credit (both to consumers
and businesses) become virtually nonexistent. That results in a
"vicious circle" of additional write-downs, stock market losses, and
bank collapses, which leads to even less credit being available.

Odds we get here: Good. Roubini says that credit conditions are
becoming worse everyday across a variety of markets and won't be
getting better anytime soon. Without extra credit available, people
might have to actually (gasp!) live within their means.

* DEFCONOMY ONE

How you'll know we're here: Welcome back to 1929. A full economic
meltdown results in a complete failure of the underlying financial
system. What will be known to future generations as "The Greater
Depression" has arrived.

Odds we get here: Not likely. Roubini believes that this will be a
"very painful and severe recession" that could last for 18 months or
more, but it will be more like 1981 than 1929. Families may be eating
soup again, but at least it'll be in their own kitchens.

Now, do I think any of what you just read will happen?

I have no idea, and that's exactly the problem. I'm not an economist
or a stockbroker; I'm just a guy trying to make the best decisions I
can, and picking the brains of real experts helps me do that.

But I do know one thing for sure: Depressions aren't advertised in
advance. Last time around we went from the Roaring '20s to bread lines
in a matter of just a few years.

Anyone who says that can't happen again either doesn't know history,
doesn't understand how interconnected the world's economies have
become, or is lying to you. While that doesn't mean you should panic,
it does mean you should prepare -- something my grandfather would've
done a long time ago.

Straydog

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Feb 28, 2008, 11:11:25 PM2/28/08
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I have no idea why BPOking (or cnn) makes a big deal about this. The
housing bubble was being discussed in the WSJ over one year ago, and
it is pretty obvious that a large amount of the smart money is going
into selling USD and buying Euros and Yen (the other two strongest
currencies in the world) and anyone who has been looking at the
exchange rates knows this.

So, all this post (by BPO) is really meant to do is irritate US people
and all I can do is snore, yawn, or go to sleep. Business cycles have
been around for hundreds of years, at least going back 500 years as
per the history books. What this post (by BPOking) does do is not what
he intended: show the rest of us how really ignorant he is and how he
has his head stuck in the sand, totally unaware that there will be a
backwash into India's economy from this.

Add to that that IT business is starting to shift to Mexico and Latin
America (references I've already poste), and it doesn't look good for
India. Then, its funny how all the Indians here just think China is
some ghost or non-existent entity. China is going to eat India.

-----------------------------------------------

visual...@yahoo.com

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Mar 1, 2008, 1:04:02 PM3/1/08
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On Feb 28, 11:11 pm, nos...@nospam.nospam (Straydog) wrote:
> I have no idea why BPOking (or cnn) makes a big deal about this. The
> housing bubble was being discussed in the WSJ over one year ago, and
> it is pretty obvious that a large amount of the smart money is going
> into selling USD and buying Euros and Yen (the other two strongest
> currencies in the world) and anyone who has been looking at the
> exchange rates knows this.


Have you shipped out of dollars yourself?

Straydog

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Mar 1, 2008, 5:14:30 PM3/1/08
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On Sat, 1 Mar 2008 10:04:02 -0800 (PST), visual...@yahoo.com
wrote:

I am doing just fine, where I am, and have everything I need.

But, if I wanted to help myself further, I would, yes, "ship" out of
USD, too, thus making my own currency cheaper than before because then
fairly soon I would buy it back because --like all business cycles--
it will rise again at some point in the future. Everything that goes
up will someday go down, and, likewise, everything that goes down will
someday go back up. I have been watching these markets longer than you
have been alive.

visual...@yahoo.com

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Mar 2, 2008, 12:11:24 AM3/2/08
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On Mar 1, 10:14 pm, nos...@nospam.nospam (Straydog) wrote:
> I would buy it back because --like all business cycles--
> it will rise again at some point in the future.


Exactly how far would this point in the future be?

You have lived the majority of your life at a time when the US had
little/no competition and was a net creditor. Times have changed.

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