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It's Different This Time: The Scariest Equity Market Chart Around

Tyler Durden's picture


While analogs for periods past have been shown time and time again, the striking similarity of the last four months of this year and the same period last year is becoming extremely worrisome. The rips and dips are of almost perfectly equal size and duration and retail and professional participation is also very similar. July 21st marked the top last year after failing to break the highs of a July 4th week peak (which occurred on low average trade size). It would appear the bulls are hoping that it's different this time - or else it is very scary with S&P 500 set for the magic 1200 Bernanke Put strike very soon.

Each green and red arrow is identical from the current period to last year's. Notice the dark red arrow indicating the yellow bar (h/t @eminiwatch) indicating amateur or retail investors getting wrong-footed and then a subsequent failed rally with a lower high... which lead to the plunge - that would take us below 1200 in the S&P 500 currently...


The plunge in stocks - in case you were wondering - would imply a 10Y TSY rate around the magic 1% mark. While we do not use longer-term CONTEXTual models for trading, it is perhaps interesting to note how the highly correlated markets' behavior of May would have played out to now - implying an S&P 500 of 1200 (based on those risk-asset relationships from May)...


which just happens to be the same as the implied Bernanke Put Strike we worked through recently...


and just in case you were wondering about short-interest, Commitment of Traders looks very similar too...


Charts: Bloomberg, Capital Context, and Tradestation


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Mon, 07/16/2012 - 19:31 | 2622207 FieldingMellish
FieldingMellish's picture

Fed continues playing "keepy uppy".

Mon, 07/16/2012 - 19:32 | 2622214 Debtonation
Debtonation's picture


Mon, 07/16/2012 - 19:43 | 2622236 Michael
Michael's picture
OT Countdown to war with Iran is on but who really wants it? 'No War On Iran' Billboards up in Oklahoma City

Mon, 07/16/2012 - 19:53 | 2622272 cbxer55
cbxer55's picture

Interesting find! I've not seen them as of yet. You in Oklahoma, or just found that somewhere?

To be fair, I treat billboards like I do any commercial advertisement. I ignore them totally. So I gues it is no surprise I have not seen them. Don't watch the idiot box much. The few times I do, I change channels during the blah-blahs. When I get disgusted, I turn it off. Same with radio.


Mon, 07/16/2012 - 20:11 | 2622311 The Monkey
The Monkey's picture

Maybe Uncle Ben will hit the printers in time to spike crude so that the ensuing recession can be made worse. Then when it all falls apart, we'll get the 2008ish benefit of another glut.

Drive your Prius for the next few months, then be prepped to break out the Hum-Vee.

Mon, 07/16/2012 - 21:07 | 2622512 JohnG
JohnG's picture



IF Ben prints (that's a big if) it will be September.  That leaves enough lag time to make it look like "not a political move by O'shitforbrainsCriminal."  Oil won't spike hard before the elections, after that, it's QE to the moon.

Arable land is what you want, and read about (or even take some classes) on farming.  People MUST eat.  From my perspective, farm land is more valuable than gold, which I also own.

I feel lucky to be a farm boy at this point.  Thought it had little future until about 2004. 

It damn sure does now.

Mon, 07/16/2012 - 22:54 | 2622915 The Monkey
The Monkey's picture

NYSE shorts top 2011 peak just as cyclicals hit their trough, CPI hits zero, Bernanke hits the stage and Google / Apple are nearing earnings announcements.

Can you say SHORT SQUEEZE?!?

Tue, 07/17/2012 - 00:04 | 2623125 Spirit Of Truth
Spirit Of Truth's picture

Elliott Wave count agrees with this article's assessment....we should be on the edge of the cliff in terms of mass mood.  A potential question is, what will be the source of historical upset?  Certainly war is a possibility:

Let's hope and pray this is not the case, but the prophet's writing does seem to be on the subway wall for us to read...

Tue, 07/17/2012 - 02:35 | 2623310 SilverRhino
SilverRhino's picture

Farmers work for the ones with the most guns.   Sucks but it's true.  

Mon, 07/16/2012 - 20:27 | 2622357 Michael
Michael's picture

It's amazing the information you can find on Daily Paul that's not found anywhere else.

I also find it interesting Fox News has shut up Michael Scheuer's view on non-interventionist foreign policy in preparation for the Iran War.

Michael Scheuer: Ron Paul, Judge Nap, Israel and Fox News (video)

Mon, 07/16/2012 - 21:10 | 2622521 DanDaley
DanDaley's picture

Michael Scheuer is one of the true patriots.

Mon, 07/16/2012 - 21:57 | 2622726 Shizzmoney
Shizzmoney's picture

I also find it interesting Fox News has shut up Michael Scheuer's view on non-interventionist foreign policy in preparation for the Iran War.

"Interesting", eh?  More like "obvious".  First they can the Judge (like him or not, he was also against the iran War).  Then they trash Ron Paul throughout the whole Republican Primary process (and Romney, too....until Fox conceeded the fact that they are in bed with this guy).

Pretty obvious a) where Fox wants to go and b) where we are headed with Iran by the end of the century.



Mon, 07/16/2012 - 23:16 | 2622986 yrad
yrad's picture

Daily Paul is my homepage. Then ZH. Best site on the web. Ron Paul will be missed...

Tue, 07/17/2012 - 08:41 | 2623711 StychoKiller
StychoKiller's picture

Do some internet streaming: (Jazz - "The Oasis in the City")

Mon, 07/16/2012 - 20:52 | 2622458 ParaZite
ParaZite's picture

> Implying that our corrupt, criminal, politicians actually listen to "we the people". 


They have billion dollar campaigns to fund, and that requires a lot of oil, and a lot of blood.

Tue, 07/17/2012 - 03:21 | 2623351 bankruptcylawyer
bankruptcylawyer's picture

boy oh boy do i remember 2003 when people were biking around with signs 'bikes against oil wars' . 

i'm an avid cyclist and was very angry about the march towards war in 03. but my anger was mixed with the hopeless passiveness of impotence. and seeing those signs, made me feel even more so, knowing those hippy bitch bikers were the last people to be taken seriously by anyone on the street or in power. 

it was sad. the same will happen, the signs are all the same. 


i'm convinced the u.s. will only stop warring if it loses the ability to make war aggresively, which means when we have a massive domestic financial collapse , and the international markets stop accepting dollars at anywhere near current currency/price levels. when we can no longer purchase the loyalty of marginally allied countries like pakistan, the slow decling of american aggresion will begin. only then will we start to see if american military is willing to go full as nuts into provoking a full scale war of destruction against russia and china. somehow, i think not. i think the gameplan is set. But how much longer will the chinese provide us slave labor. 

perhaps the next big leg 2o or 30 years from now, is the industrialization of africa, and turning african nations into slave laborers for the developed world AND for Russia and China, while maintaining an uneasy peace between all major superpowers. 

sort of hard to believe. seems too complicated. but if we are to reduce the possibilities to the simple ones, than some sort of small war between major powers somewhere is bound to flare up into a bigger war in the next decade or so. and this beckons the question of who will lose the game of chicken, or will superpowers all go off the cliff together?

Mon, 07/16/2012 - 19:54 | 2622275 vast-dom
vast-dom's picture


Tue, 07/17/2012 - 00:40 | 2623190 BeatTheMarket
BeatTheMarket's picture


        Ponzi Ponzi

             Ponzi Ponzi Ponzi

        Ponzi Ponzi Ponzi Ponzi


Tue, 07/17/2012 - 04:10 | 2623378 Satan
Satan's picture

Indeed! Who would have thought that Charles Ponzi would become one of the most influential economists of our time?!

Tue, 07/17/2012 - 05:13 | 2623406 AvoidingTaxation
AvoidingTaxation's picture

Genio Italico

Mon, 07/16/2012 - 21:20 | 2622569 billwilson
billwilson's picture

Of course it looks the same. They are running the same algorithms as last year. There are not any real people left trading, just algorithms ... running the same programs over and over and over.

Mon, 07/16/2012 - 21:48 | 2622700 PC Load Letter
PC Load Letter's picture

So does my girlfriend

Mon, 07/16/2012 - 19:31 | 2622210 Diet Coke and F...
Diet Coke and Floozies's picture

Gentlemen and ladies, I have discovered the PERFECT solution for everything: Everybody on earth stops having kids. In 120 years, no more problems!


It has been noted that the chief cause of problems are solutions...

Mon, 07/16/2012 - 19:43 | 2622240 Bobportlandor
Bobportlandor's picture

Actually no more problems occure when last fertile women is 60 years old.

Mon, 07/16/2012 - 19:54 | 2622277 Dr. No
Dr. No's picture

If you use the FED models, it never actually gets to zero, it only "approaches".

Mon, 07/16/2012 - 21:17 | 2622554 JohnG
JohnG's picture

Do economics majors even require calculus?

Mon, 07/16/2012 - 21:30 | 2622625 The Monkey
The Monkey's picture

Business calculus, a weak cousin to it's counterpart.

Mon, 07/16/2012 - 19:56 | 2622281 babylon15
babylon15's picture

This already happened in Europe and East Asia (Japan, Hong Kong, Macau, Singapore).  Now it is happening in the United States, as we will record our first year in United States history with a fertility rate below replacement rate of 2.1 (it is 1.89 this year).

Tue, 07/17/2012 - 08:17 | 2623628 madcows
madcows's picture

I have 4 kids, a wife and a house.  I tell everyone I meet "Don't get married.  Don't have kids.  Don't buy a house.  Work 2 jobs and you might stand a chance."  It seems they are at least listening to the no kids and no house part.

Mon, 07/16/2012 - 19:38 | 2622226 ATM
ATM's picture

When the Algos run the market this is what you get - repeating patterns. And we know the Algos run the market.

Mon, 07/16/2012 - 19:47 | 2622253 Everybodys All ...
Everybodys All American's picture

I'm waiting for the eventual exposure of the Algos/HFT/Fed/PPT in the same form as the LIBOR manipulation at some point.

Mon, 07/16/2012 - 19:42 | 2622238 Kiss My Iceland...
Kiss My Icelandic Ass's picture

Past performance is No Guarantee of Future Results

Mon, 07/16/2012 - 19:59 | 2622284 putbuyer
putbuyer's picture

QE threats are there for sure, but TA is the best we have right now. This analysis and guys like Shanky call them very close.  IMHO, I think Technical Analysis is our best friend right now. Peace

Mon, 07/16/2012 - 20:55 | 2622467 CrashisOptimistic
CrashisOptimistic's picture

TA was based on a principle.  It attemped to characterize repeatable human emotion response to stimuli.

Given 75% of volume is no longer humans, TA has no further basis.

Tue, 07/17/2012 - 07:32 | 2623524 Withdrawn Sanction
Withdrawn Sanction's picture

And machines are programmed by....?  (esp the dump "switches")

Mon, 07/16/2012 - 19:48 | 2622255 Meesohaawnee
Meesohaawnee's picture

whats so scary about the "market" trading and behaving like a "market"???

Mon, 07/16/2012 - 21:20 | 2622574 JohnG
JohnG's picture

Because it's not a market anymore.  It's a casino, and it's rigged.  At least in Vegas you know the house has the advantage.  That's the "scary" thing.

Mon, 07/16/2012 - 19:49 | 2622260 max2205
max2205's picture

Cookie cutter market. Like groundhog year, not day

Mon, 07/16/2012 - 19:50 | 2622261 TraderTimm
TraderTimm's picture

Who trades equities anymore, not the little guy.

Doesn't bother me, I'm up 30%+ on my last BTC trade. At least it acts like markets used to act, with actual consolidation periods, rallies and breaks.

Makes me miss the S&P when it wasn't swamped with 'effing HFT robots.

Mon, 07/16/2012 - 19:51 | 2622264 Everyman
Everyman's picture

Each green and red arrow is identical from the current period to last year's.


Why would you expect a different chart pattern?  The only thing that HAS been consistent is the market manipulation and the FED RES POMO, QE and twists.  NOTHING has changed, and FOR THAT REASON ALONE this chart should scare everybody in the financial sector.  WHY???  Because it indicates that all we have done with the interventions and fiscal policy is paint over the dirt.  The economy not only sucks since 2008, but in 2012 it is worse, unstable and repetitive.

The can kicking will continue, but the effectiveness of the kick, or this distance the can travels is rapidly decreasing into non effect.


We are done, and THAT is what this chart shows.

Mon, 07/16/2012 - 20:06 | 2622300 Goldilocks
Goldilocks's picture

Live Free or Die Hard (2007)


Matt Farrell: Seriously, you probably shouldn’t antagonize them since they have all the loaded guns and whatnot.

Lucy McClane: Listen, will you just take a minute and dig deep for a bigger set of balls, ‘cause you’re gonna need them before we’re through.

Matt Farrell: Wow, I know that tone. It’s just weird hearing it come from someone… with hair.   ;)

Mon, 07/16/2012 - 19:51 | 2622267 nmewn
nmewn's picture

Oh Billy billy billy billy...just sink this putt.

Mon, 07/16/2012 - 19:52 | 2622270 Need More Cowbell
Need More Cowbell's picture

Big red line = one loud NIEN!  Grab those balls that we all know you have Merkel.

Mon, 07/16/2012 - 19:53 | 2622273 cougar_w
cougar_w's picture

It might seem similar, but this is the year running into US elections. Starting in about a month, I can't see how TPTB (in the Obama camp at least) will leave anything to chance or technicals.

Their illusions will be our reality. Nothing else will survive.

Mon, 07/16/2012 - 19:59 | 2622282 buzzsaw99
buzzsaw99's picture

Where is the twelve month gold chart? lulz

How about a 12 month chart comparing TLT to GLD? BWA AH AH!

Mon, 07/16/2012 - 19:58 | 2622285 LeisureSmith
LeisureSmith's picture

Like a rock skipping across the surface of a lake.

Mon, 07/16/2012 - 19:58 | 2622286 lemosbrasil
lemosbrasil's picture

thamks a lot zero hedge...ive put at my blog this same algorithm......ive put too in last post the link......congratulations cause your work is simply amazing  and spetacular

Mon, 07/16/2012 - 20:03 | 2622297 q99x2
q99x2's picture

Ya didn't think the FED was going to pay to upgrade its software did you?

Mon, 07/16/2012 - 20:05 | 2622299 mayhem
mayhem's picture

a crash now would be great for Obama. QE to the rescue would start a rally into election day and he can take credit for it. Voters wouldnt even remember the summer crash. i think this might be the secret plan. maybe last year was a practice run to see what a fall run did to consumer confidence... um votes. maybe we should look at obamas approval rating last election day  

Mon, 07/16/2012 - 20:08 | 2622303 bnbdnb
bnbdnb's picture

The pattern is the same because the same computers keep playing the same game.

Mon, 07/16/2012 - 20:09 | 2622307 TwoJacks
TwoJacks's picture

just a matter of time. the Fed can't stop the inevitability of the next move.  it's over

Mon, 07/16/2012 - 20:15 | 2622321 FischerBlack
FischerBlack's picture

Well, at any time, Bernanke could throw everyone a curveball and raise his inflation target by 50 bps or something which would basically guarantee nonstop QE if he's watching the 5y5y forwards. Since 2.5 is what the market expects for inflation 5-10 years out, it would be just like him to raise his target to that level. Then we'd have thr 5y5y hovering around 3 and everything will be just peachy. Gold might go to a zillion, though. He might want to be careful.

Mon, 07/16/2012 - 20:27 | 2622358 fonzannoon
fonzannoon's picture

I think he would be more scared of treasuries selling off than gold running. Although both would probably happen.

Mon, 07/16/2012 - 21:04 | 2622495 The Monkey
The Monkey's picture

If he were to suddenly raise the inflation target a few months after first establishing it, think about the message that would be sent to treasury investors (and the bond market overall).

We have been underrunning the 2% target for a while now, so the printers will be back online soon, and our friends in Brazil will be throwing stones our way again. Competitive devaluation at it's best.

Mon, 07/16/2012 - 20:21 | 2622334 Fecklesslackey
Fecklesslackey's picture

All that really counts is where we were in the QEx cycle

Mon, 07/16/2012 - 20:25 | 2622352 Al Huxley
Al Huxley's picture

You know, almost seems too easy - just load up on SPY puts and hit the jackpot.  Still, in the big casino that is the market these days, maybe its worth putting down a few bucks.

Mon, 07/16/2012 - 20:28 | 2622365 fonzannoon
fonzannoon's picture

I don't know Al, I love ZH but I think, especially lately, that charts like these are what gets people slaughtered.  There always seems to be one more epic short squeeze waiting to happen.

Mon, 07/16/2012 - 20:26 | 2622355 RobotTrader
RobotTrader's picture

I doubt that scenario plays out.


We'll have to wait and see if the Summation Index rolls over:

If the market does crash out from here, the Gold Bugz better brace themselves for sub $1,000 gold and $15 silver.

So, if I were a Gold Bug, I would be rooting for:

1) Paul Krugman "Final Solution" adopted

2) Massive central bank intervention

3) Dow 15,000 by the end of the year

4) Entire mining, materials, and solar industry bailed out

5) Brian Sack appointed future Treasury Secretary


Mon, 07/16/2012 - 20:38 | 2622386 oddjob
oddjob's picture

Measuring from the highs on a percentage basis, Gold would have to fall back to under $500/oz to compete with your legendary Netflix losses .

Mon, 07/16/2012 - 20:42 | 2622413 Fecklesslackey
Fecklesslackey's picture

Robo was actually pimping NFLX? 297 ---> 60 in four months, nobody can be that wrong!

Mon, 07/16/2012 - 20:42 | 2622417 tao400
tao400's picture

you have been wrong about gold now for years, literally. you know that don't you?

Mon, 07/16/2012 - 21:11 | 2622528 Rob Jones
Rob Jones's picture

I'm rooting for sub $1,000 gold and $15 silver. Not expecting it but we can dream, can't we?

Tue, 07/17/2012 - 04:15 | 2623381 Rogue Trooper
Rogue Trooper's picture

RT are you a real person or just a really sharp fuckin' ALGO .... with some 'bad spellun' programmed in just to create some blog-posting-cred?

This is a real question...... IMHO, I kinda feel you read 'wooden' but you may be a work in progress.

Mon, 07/16/2012 - 20:38 | 2622396 ZeroAvatar
ZeroAvatar's picture

Poor Hussman.   He has been beating the drum now for at least 16 straight weeks, saying the S&P 500 is at the worst .5% of historical 'crash' markers.  He is expecting a 40% drop, and soon.  He's right on. 


What I DON'T get are the two hedge fund managers quoted this morning on Yahoo Finance.  UBER-Bullish, to put it mildly.  (I just looked but couldn't find article).  "The stock market is going to head straight up from here" kind of stuff.  Man, are they gonna be in for a headache.

Mon, 07/16/2012 - 21:20 | 2622566 The Monkey
The Monkey's picture

That's how every bear market works. It's always a hard call when prices are going to tank. The Fed (intentionally) makes it even harder, but when prices tank these days, they tank hard.

Mon, 07/16/2012 - 22:46 | 2622891 Fedophile
Fedophile's picture

Or maybe they are getting out while the gettings good, playing the GS game.

Mon, 07/16/2012 - 20:48 | 2622436 catch edge ghost
catch edge ghost's picture

Very Stimulating*.


*If you experience a correction lasting longer than 4 years, discontinue use of Fiatra and call your Austrian immediately.

Tue, 07/17/2012 - 08:52 | 2623751 StychoKiller
StychoKiller's picture

Catch Edge Ghost FTW!! :>D

Mon, 07/16/2012 - 21:18 | 2622559 IMA5U
IMA5U's picture

If everyone would stop trying to set up for the market crash the market would finally have a chance to crash

Mon, 07/16/2012 - 21:22 | 2622580 The Monkey
The Monkey's picture

Instead, we will be loaded up with shorts to squeeze and the market will go the other way!

Mon, 07/16/2012 - 21:44 | 2622680 Boilermaker
Boilermaker's picture

ES soaring for no reason right now.

Fuck it.

Mon, 07/16/2012 - 22:38 | 2622863 The Monkey
The Monkey's picture

ES moving on positioning ahead of Bernanke tomorrow + Google and Apple earnings on deck in the next few days. If Bernanke jawbones, we could get a pretty sharp rally here in the next few days.

Risk on!

Tue, 07/17/2012 - 01:13 | 2623243 indianajohns04
indianajohns04's picture

been a frustrating year to be short....all my TVIX gains from last summer POOF!

Mon, 07/16/2012 - 22:36 | 2622854 ThunderingTurd
ThunderingTurd's picture

And they're off!  QE rumors starting early this evening on Bloomberg prior to the Bernank's testimony tomorrow.  Now, where did i see a chart of the Fed 'unintentionally' manipulating the market prior/post Fed speak?  Oh that's right, I read it first on ZH and then 5 other places three days later.  Great work ZH...keep fighting the good fight!

Mon, 07/16/2012 - 22:57 | 2622905 chump666
chump666's picture

Oh dear, Chinese are buying USDs on the dip. 

Very bearish.  So, Bernanke sends more inflation to China and a creditor nation just sits there as a weaker debtor nation (America) screws with it's bond markets and takes it?  I don't think so.  Bernanke will hint more easing, that will be it, markets are capped as China contends with major stagflation problems and a widespread systemic failure.  Europe is illiquid and pointless, cue riots pre and post UK games.

Volatility and chaos.

Mon, 07/16/2012 - 22:59 | 2622930 The Monkey
The Monkey's picture

Markets may be capped, 70 S&P points NORTH of here, and that's WITHOUT QE. Big short squeeze on the way!

Tue, 07/17/2012 - 01:21 | 2623255 chump666
chump666's picture

No, we just had it.  Yes, the market could squeeze higher but it's broken the June high which is the initial resistance.  Don't expect a massive rally unless the money is on the table and even then...

Tue, 07/17/2012 - 01:26 | 2623260 chump666
chump666's picture

Also every trader in the universe should be watching the USD/CNY, which suggests something seriously is f*cking wrong within China.  Everyone is selling USDs on Bernanke's stock market heroin shot, except the Chinese. 

Goggle Brazil inflation 1990's.

Mon, 07/16/2012 - 22:58 | 2622928 zerotohero
zerotohero's picture

Is anyone else experiencing "overload" with regards to all the daily bombardments of market bullshit manipulation and feeling like a passenger in a vehicle driven by a phsycopathic drunk? I've taken the usual steps over the last couple of years - bought bit of gold and silver, taken cash out of banks etc. But the reality of an economic collapse in our near future is truly going to be fucking aweful for everyone no matter how prepared you are. When you really think about how it is going to affect our daily lives and that of our loved ones - it scares the hell out of me. The next 24 months are going to be historical.

Mon, 07/16/2012 - 23:21 | 2623001 Johnk
Johnk's picture

Love the headline.  Thought I was reading BusinessInsider.

Mon, 07/16/2012 - 23:47 | 2623086 yofish
yofish's picture

Someone help me out with these chart things.....They always look so angry, spiking up and down! It helps when all those smooth lines are added by some, arabesques , helmets, and pretty swoops. But still, the effect is disturbing, especially when they add those bright red arrows.

Tue, 07/17/2012 - 01:23 | 2623249 Centurion9.41
Centurion9.41's picture

The "striking similarity"....

Here's the the thing TD. How can one be so surprised as to characterize the similarity as "striking" WHEN the driver and issues have been the exact same?

Seriously, market making 101 is learning the behavior/personality of the "hammer" in the particular product. Getting a feel for the macro & retail flow, second. Knowing the hammer's perception & tactics is always primary. Without that one is ignoring the greatest medium term influence on the product. Granted the hammer will eventually be "wrong", over powered by the macro &/or they mis-read. But one must know the greatest beta creator first.

I this world, it's the Bernanke - as screwed up and as wrong as he is, he's still the hammer& you are the nail. Everything, until the other CB's say f-u to him, is ripples on a tide. Maybe waves of a storm. But storms don't change the tide.

Striking, no. Rhyme, yes, again.

I'm in Vail; hence the short & done. Beautiful, even with the rain. Fly fishing begins tomorrow. As a salt-water guy by birth, it looks to be the greatest bait fishing trip I could have ever conceived. Still, to me, these mountains call out silently for an old lever action and a horse. Someday.

Striking, no. But neither is the market.


Tue, 07/17/2012 - 02:26 | 2623303 GregMozart
GregMozart's picture

The problem is that our economic system is set up to panic when faced with greater unemployment, or wage repression. We have to institute safety nets to mitigate this trigger.

The great depression, just like the current recession, was preceded with a massive surplus production.

In the great depression, it was suddenly an impressive increase in farm productivity. And because our system is not set up to handle huge employment swings like that, this contributed to lower aggregate demand. People saved money, hoarded money gold and other assets basically, rather than spending it on goods and allowing those producing the goods from hiring other workers. Individually it made sense, collectively it was a death spiral. "We have nothing to fear but fear itself" was a great phrase which reflected this reality.

This time it happened more slowly, but more relentlessly and across more industries. Today thanks to technology the average worker is 4x more productive than in 1950. Thanks to this and to outsourcing, the demand for US human labor is not so high, and therefore the wages have fallen. For a time you were able to prop this up with credit markets, and you are right, I agree with you and Hayek that the government was wrong to artificially prop up the credit markets for the last 20-30 years. An egregious example is the NINJA loans regulation that Clinton is responsible for.

However, the cause is the same, and you have to address it once and for all with safety nets or a negative tax. Our economy has to stop panicking due to unemployment. Some tax money has to be redistributed to those who are unemployed -- not enough to make them complacent, but enough to give them the confidence to A) spend money back into the economy (rather than hoard it), and back to the productive sector, and B) take financial RISKS themselves like sitting at home and studying a new profession. A person who can barely afford their rent isn't going to go to college, they won't even qualify for a loan from a bank, much less have the capacity to make that investment on their own steam. No, they will continue to be in a rut, earn little, spend little, etc. And the safety nets will actually make the average unemployed citizen a more economically productive citizen -- contributing more to aggregate demand, and giving them the opportunity to accumulate knowledge that will make them employable for higher wages, and therefore boost aggregate demand even more once they do get that employment. etc and etc.

So this is where the morality becomes the bottleneck. Many think it's immoral to "confiscate" money to "redistribute wealth". And I say that, outside of religion, morality is just another system, whereby groups of people agree on things and enforce them using shame and blame. On an individual level, something may seem smart, but on a collective level that same thing can be destructive. Savings is one of those things. These are called collective action problems. And sometimes the ways to solve them might seem "immoral" on an individual level, but in the end everyone is better off.

Tue, 07/17/2012 - 08:59 | 2623779 TrustWho
TrustWho's picture

Welfare is designed to keep the poor masses docile. Add TV, IPAD, air conditioner and you can keep them inside and out of sight.

Tue, 07/17/2012 - 14:19 | 2625078 GregMozart
GregMozart's picture

Consumerism is also designed to keep the masses docile. There is a great documentary about this, called "The Century Of The Self" (BBC ... I highly recommend you watch it on google video for free). The PR industry was practically started by Edward Burnays. Product placement, appeal to emotions (see Axe commercials for example) and offers of products to satisfy those emotions.

In the past, people might have experienced frustration (subconsciously ... sex and other urges unfulfilled) and discontentment ... they got together into an active revolution. Today, those same urges are satisfied by consumerism. Feel bad? Buy that new ikea set you wanted. The internet made it even more satisfying. Lonely? Chat on social networks. Horny? Porn sites. People are more docile and I feel more safe in this country :P

But from an economic point of view, all this is tangential. Sure, people now make emotional decisions to buy things (like erroneously trusting bottled water over tap water at home, due to creative advertising) which doesn't really help them. It does increase demand in general thanks to human culture in America now being one of rampant consumption and discarding. And sure, this also leads to really sad things like the Great Pacific Ocean Garbage Patch.

However, I am talking about one thing mainly: we have to reduce the sensitivity of our economic system to Crises of Productivity which will and do happen with increasing magnitude (this is a prediction from Marx's theory of capital). The great depression was very conspicuously preceded by a crisis of productivity on the farms. And this one was more slowly preceded by an erosion of demand for US labor through outsourcing and automation across the board, most recently with intelligent computers. Example: businesses that have gone through the recession have learned to do just as well with less workers.

We have to get past the emotional and moral arguments for everyone to receive money because they are employed. Look at concepts like Negative Tax (something Milton Friedman, a libertarian and monetarist, advocated). In my opinion, the reason we have less of a downward spiral this time than we do in the great depression is simple: SAFETY NETS. What we have now is actually an economy operating at a lower level of output (Keynsian theory predicts this), but not going down any further. The unemployment is now going to be permanently at 8% unless something boosts demands for American jobs.

The biggest problem we have is that workers in professions whose wages are repressed / are laid off (due to reduced demand for their services in those professions) need to have a safety net, so they can A) spend more back into the economy, and B) have time to educate themselves to earn more from the economy. That is what's missing.

Tue, 07/17/2012 - 04:07 | 2623376 Rogue Trooper
Rogue Trooper's picture

So everyone's fate now depends on what the 'Skynet Algo' decides to do... it became aware late last week I understand... 

Tue, 07/17/2012 - 08:31 | 2623670 shutupnsing
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