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Ask YC: How bad is the economy?

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Re: Ask YC: How bad is the economy?

#31

Post by corentin »

Don't panic.

Despite what the media say (their job is to tell doom stories, after all), it's not the end of the world as you know it. If you don't know anything particular about finance, just follow your guts, keep your savings account and listen to the experts telling you to invest in whatever with a grain of salt. Don't try to act differently. We're not always rational economic actors in the first place, and panic only makes things much worse. Simply follow the prices, as you would usually (e.g. if you see a bargain at the supermarket, go for it if it's something you would usually do).

Re: Ask YC: How bad is the economy?

#32

Post by kingkongrevenge »

nradov wrote: post #19
sant0sk1 wrote: post #11

Earlier quoted context omitted.

During WW2 people in Germany would take wheel barrows of cash to the grocery store to buy bread and milk. The value of German currency dropped so low that people would steal your wheel barrow and dump out the cash. While I agree with your sentiment that you should only buy what you can pay for today, I wouldn't put too much trust in your (US) cash being worth tomorrow what it is today. Investing in foreign currencies…

In most recessions/depressions you are more likely to see deflation instead of inflation. This is driven by a drop in demand. The Federal Reserve has been increasing the money supply lately (printing) which by itself would be inflationary, but that action has been more than balanced out by reductions in credit. If customers can't get credit to buy things then demand drops and prices fall.

It depends how you measure. Asset deflation (property, equities, etc) is a sure thing. Household expenses do not deflate. Despite all the talk of deflation in Japan over the 90s the cost of living continued to rise, and that was in an era of cheap commodities.

I think prices for all sorts of things will collapse, but your grocery bill will continue to rise.

Re: Ask YC: How bad is the economy?

#33

Post by tptacek »

kingkongrevenge wrote: post #29
tptacek wrote: post #26

Earlier quoted context omitted.

No, it does not make sense to stash a thousand bucks under your pillow.

I haven't done this, but I actually think it's a good idea to have $1K in fives hidden somewhere. If the power goes out for a week in a region that would be a great thing to have.

Also: canned goods, petrol, ammunition.

Re: Ask YC: How bad is the economy?

#34

Post by jpcx01 »

furiouslol wrote: post #2

In McCain's words, "the economy is sound". In my words, the economy is heading for a long-drawn recession due to a much needed deleveraging, albeit a drastic one. The world was too flush with credit in the past decade. The financial system is currently fubar with the credit market virtually frozen at this moment. Banks don't trust each other. The Chinese government has instructed their banks to stop lending to US fin…

Don't be an idiot. He said "while the fundamentals are sound..." as part of a warning on a possible downturn.

What do you want him to say? "The fundamentals are crap! Don't invest in USA!". There are several states in the country, right now, that are booming. If you don't think so, visit Austin and see how "depressed" it is.

Re: Ask YC: How bad is the economy?

#35

Post by kingkongrevenge »

mrtron wrote: post #25
known wrote: post #14

Very bad. Stay away from Stock Markets.

Any time you hear that it is time to invest! As painful as the current situation is for some, it certainly is a better buying opportunity than a few months ago.

> Any time you hear that it is time to invest!

Your perceptions of the prevailing market psychology are distorted. Surveys show that retail investors have remained bullish. The general sentiment is extremely far from "never invest in stocks," which is what usually marks the bottom of a big recession.

Believe it or not, most homeowners continue to think they will see appreciation next year.

This recession has barely started and investors have barely even realized we are in a recession.

Re: Ask YC: How bad is the economy?

#36

Post by nostrademons »

hugh wrote: post #16
steveplace wrote: post #4

Protect yourself from what, exactly? Your savings is protected by the FDIC up to 100k per acct. I honestly don't believe that the tech/info sector is going to lose that many jobs. If Cisco does consolidate, it (hopefully) will be non-core resources, such as HR, and internal operations. If you have a 401k, you're screwed either way since you have very few options on where to invest. If you have an IRA, you can hedge r…

Anyone know exactly how the FDIC thing works? Supposing my bank goes under (which I sure as hell hope it won't, cuz it's Bank of America), I'm guessing it'll take some time for them to get their act together and I might not be able to access money in the short term. Is this correct? Or can they swing into action immediately to keep the money coming out of the ATMs? In that case it might make sense to have stashes of…

> Anyone know exactly how the FDIC thing works?

Usually, they arrange the sale of a bank to another financial institution over the weekend. When branches reopen on Monday, they're owned by a different company. Customers don't notice any difference except the logo on the statement.

The WaMu failure is a textbook example, except it happened on a Thursday instead of a Friday.

I believe that if the FDIC can't find a buyer, then it assumes the deposits itself and pays them out of its $45B slush fund (now somewhat depleted after IndyMac). Cash flows from ATMs as usual, but it's provided by the FDIC instead of the bank.

Re: Ask YC: How bad is the economy?

#37

Post by hugh »

tptacek wrote: post #26
hugh wrote: post #16

Earlier quoted context omitted.

Anyone know exactly how the FDIC thing works? Supposing my bank goes under (which I sure as hell hope it won't, cuz it's Bank of America), I'm guessing it'll take some time for them to get their act together and I might not be able to access money in the short term. Is this correct? Or can they swing into action immediately to keep the money coming out of the ATMs? In that case it might make sense to have stashes of…

No, it does not make sense to stash a thousand bucks under your pillow.

Why not? (Apart from the fact that most people tend to move their pillows around during the night...)

It's not the perfect response to every crisis, but it can't hurt. If one day you can't get your money out of the bank, for whatever reason, you have enough to pay for your immediate needs for a while. And it's only a thousand, so at most you're missing out on fifty bucks a year in interest.

NB. Not that I'm doing it myself, but I already have my money split across two different countries anyway.

Re: Ask YC: How bad is the economy?

#38

Post by nostrademons »

kingkongrevenge wrote: post #29
tptacek wrote: post #26

Earlier quoted context omitted.

No, it does not make sense to stash a thousand bucks under your pillow.

I haven't done this, but I actually think it's a good idea to have $1K in fives hidden somewhere. If the power goes out for a week in a region that would be a great thing to have.

Yeah, my sister stocked up on $20s before Hurricane Ike, and it saved her butt. Houston is only now getting power back, so everything was cash-only for a week or so.

Also - pasta salad is apparently a lifesaver. It serves like 10, can be eaten cold, and doesn't go bad all that easily.

Re: Ask YC: How bad is the economy?

#39

Post by jon_dahl »

jpcx01 wrote: post #34
furiouslol wrote: post #2

In McCain's words, "the economy is sound". In my words, the economy is heading for a long-drawn recession due to a much needed deleveraging, albeit a drastic one. The world was too flush with credit in the past decade. The financial system is currently fubar with the credit market virtually frozen at this moment. Banks don't trust each other. The Chinese government has instructed their banks to stop lending to US fin…

Don't be an idiot. He said "while the fundamentals are sound..." as part of a warning on a possible downturn. What do you want him to say? "The fundamentals are crap! Don't invest in USA!". There are several states in the country, right now, that are booming. If you don't think so, visit Austin and see how "depressed" it is.

I agree, but lay off the name-calling.

Re: Ask YC: How bad is the economy?

#40

Post by nostrademons »

kingkongrevenge wrote: post #28
hugh wrote: post #16

Earlier quoted context omitted.

Anyone know exactly how the FDIC thing works? Supposing my bank goes under (which I sure as hell hope it won't, cuz it's Bank of America), I'm guessing it'll take some time for them to get their act together and I might not be able to access money in the short term. Is this correct? Or can they swing into action immediately to keep the money coming out of the ATMs? In that case it might make sense to have stashes of…

The FDIC is insolvent. There was never a substantial fund; insurance premiums were simply deposited at the treasury. If a few more large banks fail the treasury will have to come up with the money to cover. Odds are low that the usual customers for treasury debt will want to help (China, et al), so the Treasury will have to collude with the Fed to print up the money to cover. Which means inflation. Another thing to k…

> so the Treasury will have to collude with the Fed to print up the money to cover. Which means inflation.

Not in this case. If the Fed prints up money to cover a failed bank, it's only replacing the dollars that were destroyed when the bank went under. (When a bank fails and nobody buys it, the money in deposits doesn't flow to a different party: instead, it just vanishes.) The net effect on the money supply is zero.

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