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EJ
11-09-07, 02:15 PM
http://www.itulip.com/images/HouseFire.jpgIt's the FIRE Economy, stupid

by Eric Janszen

The US cannot maintain foreign demand for financial assets while depreciating the currency in which those assets are denominated. As destructive as FIRE Economy industrial policy is, ripping out its key support with an implicit Weak Dollar Policy is insanity.

This week US stock markets finally started to price in reality of a fundamental conundrum that is never discussed. Can a crashing FIRE Economy be rescued with Production/Consumption Economy policy tools?

Here's a brief Reuters report that summarized the key issues affecting the market this week as this policy mismatch began to hit home.


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The collapsing housing bubble continues to hammer the US economy, hitting auto makers and retailers and driving consumer confidence to two year lows. The bonds that built the housing bubble continue to sell off, while banks tighten lending standards and politicians pig-pile onto the banks, right on cue, to make a bad situation worse.

The credit crisis caused by failures in the ratings process of structured credit products, far from being over, is now beginning the critical stage. "We believe the liquidation process has begun," S&P said in its statement.
S&P says State St-managed CDO liquidating assets (http://www.reuters.com/article/bondsNews/idUSL0954927220071109?sp=true)
Nov 9, 2007 (Eric Burroughs - Reuters)

The trustee of a $1.5 billion collateralised debt obligation (CDO) managed by State Street Global Advisors has started selling assets, apparently starting a process of liquidation, Standard & Poor's said late on Thursday.

The news from the ratings agency raised worries of similar action on a wider array of structured securities, and stirred more fears about the exposure of U.S. financial institutions to credit markets.
The impact on the financial markets is expected to be severe.
Credit crisis worse than LTCM - Lehman's Malvey (http://www.reuters.com/article/bondsNews/idUSN0933594920071109?sp=true)
Nov 9, 2007 (Walden Siew - Reuters)

The U.S. credit crisis is now worse than the crisis of confidence following the collapse of Long-Term Capital Management in 1998 and recession risks are growing, said Jack Malvey, chief global fixed income strategist at Lehman Brothers.

In 1998, investor confidence was shaken after deep losses resulted in the collapse of Long-Term Capital, which spurred the Federal Reserve to initiate a bailout of the hedge fund to avert a wider financial collapse.

"This is the deepest correction we've ever seen in structured finance," Malvey said in an interview on Friday. "This is now worse than Long-Term Capital."
Fiscal stimulus and inflationary short term rate cutting options have been "used up" since the 2001 post-stock market bubble recession, meaning they will either fail to produce much in the way of additional economic stimulus or will only do so at the price of unacceptable levels of inflation. The only remaining economic reflation tool to ward off recession, that is only moderately versus highly inflationary, is dollar depreciation to boost exports. US economic policy makers have been working the Weak Dollar Policy with a vengeance.
U.S. Economy: Trade Gap Shrinks, Exports Offset Housing Slump (http://www.bloomberg.com/apps/news?pid=20601087&sid=a4wlMknwTy9g&refer=home)
Nov. 9, 2007 (Bob Willis and Courtney Schlisserman - Bloomberg)

The U.S. trade deficit unexpectedly narrowed in September as the strongest global economy in almost three decades and a weaker dollar prompted economists to raise their estimates for third-quarter growth.

Customers abroad snapped up American products from cotton to semiconductors, offsetting the deepening housing recession that is eroding consumer confidence. Exports have reached a record for each of the past seven months, the longest surge since 2000.
The flip side of the Weak Dollar Policy is reflected in the prices of commodities priced in dollars. The resulting inflation is no more obvious than in the commodities index.


http://www.itulip.com/images/commodities.gif


The application of the old fashioned beggar-thy-neighbor currency depreciation economic rescue has been widely deplored this week, from the Wall Street trading floor to the testimony of Ben Bernanke, which was roundly and effectively abused by Rep Ron Paul. Former Treasury secretary Robert Rubin chimed in to sound the alarm.
Rubin Says Relying on Weaker Dollar Isn't `Sound' (http://www.bloomberg.com/apps/news?pid=20601087&sid=a7Kjk6HIW7mw&refer=home)
Oct. 30 (Sophie Caronello and John Brinsley - Bloomberg)

Former Treasury Secretary Robert Rubin said relying on a falling currency to stoke exports isn't a ``sound approach'' and urged economic policy changes that would strengthen the dollar.

"The lower the exchange rate, the less that we receive in exchange for what we produce, and that lowers our standard of living," Rubin said in an interview after attending a conference in Washington. "Our objective ought to be to have a strong currency based on sound policy."
In the video below (thank you, Sapiens), a Wall Street trader criticizes both the Weak Dollar Policy and Bernanke's testimony before Congress.


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Our old nemesis Jim Cramer, while railing against New York State Attorney General Andrew Cuomo's "Communist" interference in the NY housing market and on Fed policy, continued in the video below (thank you, WCDRob) with spot-on criticism of the Bernanke Fed. He started with his criticism back before the Fed cut rates sharply a couple of months ago and the DOW was trading close to 14,000. His point then was that the Fed should not crash the dollar but should instead allow the stock market to take a 1,000 point hit then rather than build structural inflation into the economy. A couple of months later, the market has gotten both: structural inflation and a nearly 1,000 drop.


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Our chief criticism of dollar depreciation is not merely that long term inflationary costs outweigh the short term growth benefits. In case US economic policy makers hadn't noticed, in the early 1980s the US economy became a FIRE Economy (http://www.itulip.com/forums/showthread.php?p=6738#post6738), with industrial policy focused on Finance, Insurance, Real Estate. It's Production/Consumption Economy is now subservient to the FIRE Economy.

The US imports raw materials and finished goods and exports financial assets, on net.


http://www.itulip.com/images/globalogna.gif


Currency depreciation is a bad idea for an economy that primarily gains access to foreign exchange from the sale of raw and finished goods because–as Thailand, Indonesia, and Korea learned in the late 1990s–speculators can jump in a turn a gradualist currency depreciation policy into a currency crash. But the US FIRE Economy depends on the sale of financial assets not "stuff" to earn foreign exchange.

What happens when you weaken the currency of a FIRE Economy dependent country? Short term you get a narrow economic boost that is reflected in, as Jim Cramer says in the video above, "What, ten stocks?" Long term, you get a sell-off in that country's major export, financial assets.

Using a Weak Dollar Policy to rescue the finance-dependent US economy isn't just a bad idea, it's insane. It guarantees that the export products that the US mostly depends on to maintain personal consumption, on which 70% of the US economy depends, will lose value. For a finance-based economy, a falling currency begets a falling currency. Where it stops, nobody knows.

Here is what a Weak Dollar Policy is doing to US stocks. Below, the DJIA today priced in euros.


http://www.itulip.com/images/DOWinEuros.gif


As bad as the rout in US stocks has been for US investors, for foreign investors it has been a disaster. In our previous update of this chart mid-October, the DOW in dollars year to date was up 8.8% and the DOW in euros up 1.4%. As of today, the DOW in euros has plunged to a 6.4% loss.

Will "Emerging" P/C Economies save us?

Consider the USA's economic opposite, China. China's is not a consumer economy. China is a factory that imports raw materials and produces finished goods. It runs a massive trade surplus in the process and is able to build national savings as a result. The chart of relative current account balances of all major nations below shows China looking not emerging but emerged, with the largest current account surplus of all countries and the US submerged on the other end of the scale with the largest deficit.


http://www.itulip.com/images/currentaccountbalanceMED.gif (http://www.itulip.com/images/currentaccountbalance.gif)
Click to Enlarge

While we like to think that China will some day become a major market for US goods, an honest assessment of long term Chinese industrial policy is that this is never going to happen. Chinese industrial policy is to consume, for example, Cisco Systems' networking gear only to the extent that 1) it is needed today to build productive capacity, and 2) Cisco's gear cannot be replaced by domestically produced equipment made by Chinese telecommunications and networking equipment vendor Huawei Technologies. The latter condition will change eventually, and the US will lose one of the few remaining areas of competitive advantage outside its FIRE Economy.

A Weak Dollar policy should help companies like Cisco lead the US economy away from the edge. But as Ron Paul, Jim Cramer, and the trader in the videos note, the benefits are both expensive–in terms of loss of foreign purchasing power of income–and short lived. Just how short is coming as a surprise to Wall Street.
Tech Stocks Drop After Cisco Warning (http://biz.yahoo.com/ap/071108/high_tech_comedown.html)
November 8, 2007 (Michael Liedtke, AP Business)

Tech Stocks Plunge Amid Signs of a Widening Economic Slowdown in US

SAN FRANCISCO (AP) -- Technology stocks made an abrupt U-turn Thursday, reducing the gains that had been piling up as investors sought refuge from the lending and housing morass weighing on the U.S. economy.

Intenet networking supplier Cisco Systems Inc. took one of the biggest beatings after its chief executive, John Chambers, warned that weakening demand among major customers, including banks saddled with huge loan losses, would probably slow Cisco's growth.

Cisco's shares plunged $3.12, or 9.5 percent, to close Thursday at $29.63. That marked the sharpest decline in the San Jose-based company's stock price since a 10.6 percent drop in August 2004.
Another example of Chinese P/C Economy versus US FIRE Economy industrial policy is reflected in steel production and consumption.


http://www.itulip.com/images/worldsteel.gif


All of the growth in world steel production since 2001 has come from Asia, and most of that from China: more than doubling in four years. A country does not experience that kind of growth in an industry without heavy government subsidies. This recent report (http://www.trade.gov/press/speeches/lavin_020707.asp) by the International Trade Administration of the U.S. Department of Commerce explains.
Steel production in China was 418 million tons last year, up from 182 million tons in 2002, which is 129 percent in four years, making China the largest steel producer in the world. This is more than the production in the European Union, Japan, and the United States, the next largest producers, combined.

Growth in China’s capacity has transformed it from a net importer to the world’s largest steel exporter. Last year China displaced Canada as our primary source of steel imports.

China continues to use a wide-range of what appear to be illegal subsidies under WTO rules. For example, the Chinese government gives exporting companies 50 percent off of their income taxes if they sell 70 percent of their products abroad. This is clearly a violation of WTO rules.
Fact is, Chinese per capita consumption has been declining since 1952, reflecting long term economic policy aimed at building domestic capacity for capital formation and national savings at the expense of personal consumption, essentially the opposite of US FIRE Economy industrial policy.


http://www.itulip.com/images/chinausaconsume.gif
Personal consumption is growing in China but not as fast as GDP.
In the US, personal consumption has been growing faster than GDP.


The USA's P/C Economy polar opposite is not going to pull the US FIRE Economy out of hole it dug itself by allowing a bubble to form in the real estate sector of its dominant FIRE Economy. As the FIRE Economy heads into crisis with the demise of large segments of the securitized debt market that were build on a foundation of ill-conceived and poorly regulated applications of the concept of securitized debt, the only policy tools available to central banks to fight the P/C Economic economic problems now beginning to emerge were designed to fight the last war. In fact, using the old tools is counterproductive.

As the US depreciates the dollar, US financial assets lose value. Financial assets are the primary goods the US needs to sell outside its borders to cover its current account deficit, not to mention finance its fiscal deficit spending.

A Weak Dollar policy applied to the FIRE Economy represents incompetent execution of bad industrial policy. By pushing dollar depreciation, economic policy makers are going to get more than they bargained for: a massive crisis in the US and global economy, followed by a level of restructuring that historically brings about total political regime change. Let's hope the change is constructive.

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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lobodelmar
11-09-07, 03:01 PM
Eric Janszen for Fed Chairman!

NemoPublius
11-09-07, 04:48 PM
EJ, you have outdone yourself. Amazing.

So are you a Ron Paul supporter?

- Nemo

P.S. Hey, that's the Cramer video I uploaded to YouTube! I've hit the BIG TIME, baby!

MLM
11-09-07, 05:07 PM
Nice, though somewhere between depressing and terrifying, work Eric. You gotta know that when you are agreeing with Cramer about anything that cats are about ready to lay down with dogs and the s@#t is about ready to hit the fan.

jk
11-09-07, 05:58 PM
color me dense, but i don't see why currency depreciation hurts capital goods exporters. e.g.:

As the US depreciates its currency, it makes its capital goods less valuable. Capital goods are what the US sells to cover its currency account deficit.
i would say that as the u.s. depreciates its currency, it makes its capital goods less COSTLY [to purchasers with appreciating currencies], and so MORE DESIRABLE. would you rather be boeing or airbus while the dollar is going down v. the euro? so the goods are less costly in e.g. euros, but they still generate the same dollar income. what am i missing?

metalman
11-09-07, 06:32 PM
color me dense, but i don't see why currency depreciation hurts capital goods exporters. e.g.:

i would say that as the u.s. depreciates its currency, it makes its capital goods less COSTLY [to purchasers with appreciating currencies], and so MORE DESIRABLE. would you rather be boeing or airbus while the dollar is going down v. the euro? so the goods are less costly in e.g. euros, but they still generate the same dollar income. what am i missing?

dude. he said capital goods, not airplanes. stocks and bonds. pretend you're buying canadian stocks with bonars in the future when the loonie is falling. you may get more stocks for your bonars but they are worth less. if you buy an airplane, and i do have several :cool:, it's the same plane for less so your point is correctomundo in that case. or think of it this way: what's happening to the cap goods that china already purchased as the dollar tanks. yeh, they are losing purchasing power.

rj1
11-09-07, 06:33 PM
EJ, you have outdone yourself. Amazing.

So are you a Ron Paul supporter?

- Nemo

P.S. Hey, that's the Cramer video I uploaded to YouTube! I've hit the BIG TIME, baby!

And it was promptly removed.

jk
11-09-07, 06:35 PM
dude. he said capital goods, not airplanes. stocks and bonds. pretend you're buying canadian stocks with bonars in the future when the loonie is falling. you may get more stocks for your bonars but they are worth less. if you buy an airplane, and i do have several :cool:, it's the same plane for less so your point is correctomundo in that case. or think of it this way: what's happening to the cap goods that china already purchased as the dollar tanks. yeh, they are losing purchasing power.
you are confusing capital goods and financial instruments. for an airline, an airplane is a capital good. other capital goods are robots, tractors, heavy equipment, etc.

Definitions of capital goods on the Web:
stocks of physical or financial assets that are capable of generating income.
www.powerhomebiz.com/Glossary/glossary-C.htm (http://www.google.com/url?sa=X&start=0&oi=define&q=http://www.powerhomebiz.com/Glossary/glossary-C.htm&usg=AFQjCNHQoI0Hpj-uWtavhQTut6Sx1Y1bLw)Any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological upgradation or expansion. ...
sezindia.nic.in/HTMLS/Glossary.htm (http://www.google.com/url?sa=X&start=1&oi=define&q=http://sezindia.nic.in/HTMLS/Glossary.htm&usg=AFQjCNF-4Q1Rs2ay2ysELqRKHEtSisfE_g)Produced factors of production, such as tools, buildings, transportation facilities, partially finished goods, and both cash and consumers goods which make it possible for the owner to engage in more time-consuming and more productive processes of wealth production than would be possible if he ...
www.mises.org/easier/C.asp (http://www.google.com/url?sa=X&start=2&oi=define&q=http://www.mises.org/easier/C.asp&usg=AFQjCNEZ_p9rg7yJS2gPTc98VRJT6TT7Ng)A factor of production category consisting of manufactured products used in the process of production.
www.photius.com/countries/brazil/glossary/index.html (http://www.google.com/url?sa=X&start=3&oi=define&q=http://www.photius.com/countries/brazil/glossary/index.html&usg=AFQjCNHk828UDk_Oa5_LscKPQw3NG_c6lA)the machines and buildings firms invest in, with funds from the capital market
www.wwnorton.com/stiglitzwalsh/economics/glossary.htm (http://www.google.com/url?sa=X&start=4&oi=define&q=http://www.wwnorton.com/stiglitzwalsh/economics/glossary.htm&usg=AFQjCNEXjq4egMGu8c6i9iLEkspUGMu6xQ)are the goods used in the manufacture of finished products, such as textile machinery, which is used to produce cloth for sale.
www3.estart.com/india/finance/budgetglossary.html (http://www.google.com/url?sa=X&start=5&oi=define&q=http://www3.estart.com/india/finance/budgetglossary.html&usg=AFQjCNGAV5-wZKrjkF2yhW6OicpCsboudQ)Capital goods are manufactured products that are used to produce other goods.
www.indiana.edu/~ipe/glossry.html (http://www.google.com/url?sa=X&start=6&oi=define&q=http://www.indiana.edu/%7Eipe/glossry.html&usg=AFQjCNF2P8J8xNQhymflfsKiv1YwrrS7sA)

EJ
11-09-07, 06:43 PM
you are confusing capital goods and financial instruments. for an airline, an airplane is a capital good. other capital goods are robots, tractors, heavy equipment, etc.

Definitions of capital goods on the Web:
stocks of physical or financial assets that are capable of generating income.
www.powerhomebiz.com/Glossary/glossary-C.htm (http://www.google.com/url?sa=X&start=0&oi=define&q=http://www.powerhomebiz.com/Glossary/glossary-C.htm&usg=AFQjCNHQoI0Hpj-uWtavhQTut6Sx1Y1bLw)Any plant, machinery, equipment or accessories required for manufacture or production, either directly or indirectly, of goods or for rendering services, including those required for replacement, modernisation, technological upgradation or expansion. ...
sezindia.nic.in/HTMLS/Glossary.htm (http://www.google.com/url?sa=X&start=1&oi=define&q=http://sezindia.nic.in/HTMLS/Glossary.htm&usg=AFQjCNF-4Q1Rs2ay2ysELqRKHEtSisfE_g)Produced factors of production, such as tools, buildings, transportation facilities, partially finished goods, and both cash and consumers goods which make it possible for the owner to engage in more time-consuming and more productive processes of wealth production than would be possible if he ...
www.mises.org/easier/C.asp (http://www.google.com/url?sa=X&start=2&oi=define&q=http://www.mises.org/easier/C.asp&usg=AFQjCNEZ_p9rg7yJS2gPTc98VRJT6TT7Ng)A factor of production category consisting of manufactured products used in the process of production.
www.photius.com/countries/brazil/glossary/index.html (http://www.google.com/url?sa=X&start=3&oi=define&q=http://www.photius.com/countries/brazil/glossary/index.html&usg=AFQjCNHk828UDk_Oa5_LscKPQw3NG_c6lA)the machines and buildings firms invest in, with funds from the capital market
www.wwnorton.com/stiglitzwalsh/economics/glossary.htm (http://www.google.com/url?sa=X&start=4&oi=define&q=http://www.wwnorton.com/stiglitzwalsh/economics/glossary.htm&usg=AFQjCNEXjq4egMGu8c6i9iLEkspUGMu6xQ)are the goods used in the manufacture of finished products, such as textile machinery, which is used to produce cloth for sale.
www3.estart.com/india/finance/budgetglossary.html (http://www.google.com/url?sa=X&start=5&oi=define&q=http://www3.estart.com/india/finance/budgetglossary.html&usg=AFQjCNGAV5-wZKrjkF2yhW6OicpCsboudQ)Capital goods are manufactured products that are used to produce other goods.
www.indiana.edu/~ipe/glossry.html (http://www.google.com/url?sa=X&start=6&oi=define&q=http://www.indiana.edu/%7Eipe/glossry.html&usg=AFQjCNF2P8J8xNQhymflfsKiv1YwrrS7sA)

I obviously meant financial assets.

FRED
11-09-07, 06:53 PM
I obviously meant financial assets.

Actually, you wrote "financial assets" and someone changed it. :o

qwerty
11-09-07, 10:01 PM
YouTube clip with panelist backing Bernanke saying unless you spend your money abroad, a depreciating dollar is not important.

Been there. Done that.


"From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.

"What it does mean is that we shall now be able to sell more goods abroad on a competitive basis."

British Prime Minister, Harold Wilson, 1967
Full story: http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

metalman
11-09-07, 10:58 PM
Actually, you wrote "financial assets" :o

i take it these ideas are harder to think up and the articles to write and edit than they are for us to poke a hole in. so, thanks! imho, this one's tighter than an ant’s asshole!

metalman
11-09-07, 11:02 PM
YouTube clip with panelist backing Bernanke saying unless you spend your money abroad, a depreciating dollar is not important.

Been there. Done that.


"From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.

"What it does mean is that we shall now be able to sell more goods abroad on a competitive basis."

British Prime Minister, Harold Wilson, 1967
Full story: http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

what a find! ha ha! famous last words.

1967: Wilson defends 'pound in your pocket'
<!-- S BO -->The Prime Minister, Harold Wilson, has defended his decision to devalue the pound saying it will tackle the "root cause" of Britain's economic problems. The government announced last night it was lowering the exchange rate so the pound is now worth $2.40, down from $2.80, a cut of just over 14%.



quaint, isn't it? that was back in the days when pols didn't know to just LIE about it. "the MARKET is depreciating the currency, not little ol' me!" so much ******* progress since then, eh?

DemonD
11-09-07, 11:14 PM
Seems pretty simple to me, continue to buy commodity based investments and also a healthy investment in international large cap stocks (JNJ, MO) will continue to be a market-beating strategy for the medium term.

Oh yeah and our gov't is screwed and we are all effed. yada yada

metalman
11-09-07, 11:22 PM
Seems pretty simple to me, continue to buy commodity based investments and also a healthy investment in international large cap stocks (JNJ, MO) will continue to be a market-beating strategy for the medium term.

Oh yeah and our gov't is screwed and we are all effed. yada yada

that's what i've been doing! (http://itulip.com/forums/vbtrade.php?do=topportfolios)

GRG55
11-10-07, 01:18 AM
Actually, you wrote "financial assets" and someone changed it. :o

While we are making edits, I think the word "imports" was intended to be "exports"?

"...The only remaining economic reflation tool to ward off recession that is only moderately versus highly inflationary is dollar depreciation to boost imports. US economic policy makers have been working the Weak Dollar Policy with a vengeance..."

FRED
11-10-07, 07:32 AM
While we are making edits, I think the word "imports" was intended to be "exports"?

"...The only remaining economic reflation tool to ward off recession that is only moderately versus highly inflationary is dollar depreciation to boost imports. US economic policy makers have been working the Weak Dollar Policy with a vengeance..."

Thanks, GRG55. Friday's are tough for editing these long pieces and getting them out on deadline. :o:rolleyes:

GRG55
11-10-07, 11:49 AM
Thanks, GRG55. Friday's are tough for editing these long pieces and getting them out on deadline. :o:rolleyes:

No sweat. You got all of us here to lend a hand... ;)

jk
11-10-07, 12:37 PM
I obviously meant financial assets.

wasn't obvious to me, ej, because i have so much respect for you that, instead of thinking it was an editing error, i assumed there was something i was missing.

metalman
11-10-07, 12:43 PM
Thanks, GRG55. Friday's are tough for editing these long pieces and getting them out on deadline. :o:rolleyes:

Dear Fred,

YOU'RE FIRED!

Signed,

Donald Trump Janszen

FRED
11-10-07, 03:58 PM
Dear Fred,

YOU'RE FIRED!

Signed,

Donald Trump Janszen

Thanks a lot. From now on I might as well add this pic to my signature.


http://www.itulip.com/images/plplplplpl.jpg

Spartacus
11-10-07, 06:31 PM
Actually, you wrote "financial assets" and someone changed it. :o

it wasn't phred was it? or was it PHRED?

Contemptuous
11-10-07, 07:23 PM
A very winsome "Saturday Morning Smile" indeed.

The Outback Oracle
11-11-07, 02:07 AM
With due respect to the enormous amount of total intelligence that is contributed in this place........it is surely impossible to come up with a policy of any sort which will correct 20 or 30 years of disastrous economic policy that was always going to end in, at best, tears!
So it occurs to me...devaluing the currency is a mistake! revaluing is a mistake...high interest rates are a disaster, anything less than high interst rates ..like about 20% nominal (allowing for taxation and a real return to encourage people to save) is a disaster. There was never going to be an easy answer and clearly there is none!
In making this comment let me make it clear that i think the policies of successive Australian Govts of every political colour(so they have given the population what they thought they wanted) have been even more stupid than the US!

Cheers

GRG55
11-11-07, 03:55 AM
With due respect to the enormous amount of total intelligence that is contributed in this place........it is surely impossible to come up with a policy of any sort which will correct 20 or 30 years of disastrous economic policy that was always going to end in, at best, tears!
So it occurs to me...devaluing the currency is a mistake! revaluing is a mistake...high interest rates are a disaster, anything less than high interst rates ..like about 20% nominal (allowing for taxation and a real return to encourage people to save) is a disaster. There was never going to be an easy answer and clearly there is none!
In making this comment let me make it clear that i think the policies of successive Australian Govts of every political colour(so they have given the population what they thought they wanted) have been even more stupid than the US!

Cheers

It seems all the Anglo-Saxon countries follow the exact same path. Perhaps something in our common history influences us?

Canada appears somewhat better off today only because its chronically socialist-leaning governments pushed the limits of deficit spending and "bribing the voters with their grandchildren's money" a great deal harder than most everyone else from the 1960's to mid-1980's. At that point the country's finances were dreadful, and the waterfall declines in resource tax revenue was literally threatening an IMF workout. Privatization and spending cuts, made easier to sell to voters because of the Reagan/Thatcher era influence, and currency depreciation to compete with US business, coupled with major income and consumption tax increases (the Gouge and Screw Tax - GST) finally corrected the situation.

Having learned nothing, the current crop of worthless politicians are playing back the same old videotape. Both Federal and Provincial (state) governments are rushing to cash in on rising resource revenues by getting their "fair share" of the loot, even though they've been running fiscal surpluses for years. The tenured academics and (government funded!!!) so-called NGOs and left-wing think-tanks that are the primary source of staffing for the government's beloved issue "study panels" (like the recent royalty review committee in Alberta) are in pig trough heaven. They know if the government gets more money it will sprinkle large dollops of it on their institutions and favoured research projects. There's nothing a Canadian politician loves to do more than make a keynote speech at a Ministry-funded shrimpfest full of academic-egghead fawning media.

Ohhhhh Canada...

(metalman must be having an influence on me; definite rant tendencies materializing - although I fall well short of his piquant eloquence and concise astringence :D)

Tulpen
11-11-07, 06:08 AM
So it occurs to me...devaluing the currency is a mistake! revaluing is a mistake...high interest rates are a disaster, anything less than high interst rates ..like about 20% nominal (allowing for taxation and a real return to encourage people to save) is a disaster.
Out of curiosity, why do you think that raising interest rates is a disaster?

The Outback Oracle
11-11-07, 09:01 AM
Tulpen re raising interst rates being a disaster. I am a bit afraid of running up against that old adage...
Teach not thy parent's mother to extract,
The embryo juices of the bird by suction.
The dear old lady can that feat enact,
Without thy kind instruction!

It probably doesn't matter which of the Anglo saxon countries we are talking about. As I'm sure you, and every reader here, are well aware the average Joe is deeply in debt. Most of the debt is on houses and other non-producing assets (which in the Australian national accounts in my young days were a "consumption" item not an "investment" item) The raising of interest rates, particloarly if they are raised to the extent necessary to cover "real" inflation, plus tax plus give an incentive to save, would of course cause major economic dislocation and hardship to a lot of people.
So it would be a disaster for a lot of folks.

Now whether this is a disaster for the future of the nation, or for the generations to follow us is a moot point. Clearly I would suggest we now have to "pay the piper" and lean in the direction that will start doing some good no matter what the apparent price in the short term. If we decide that, then SOME increase in interst rates must occur. However, I doubt we can fix the wheels before they fall off, without wrecking the train.

My main point is that the tinkering half a point up here or half a point down there will not solve 30, 40, 50 (in Australia's case)years of incompetent populist Economic (mis)management.

Again i would not wish to derail the excellent thread headed by EJ with my amateur economic meandering.

The Outback Oracle
11-11-07, 09:14 AM
Crikey GRG
I thought you were talking about AUS! The Federal Govt here is running a surplus. I'm not sure how this comes about as they keep ladling out more and more money and building new bureaucracies every day! Most of the states are spending far more than they earn in the midst of the biggest Mining and Real Estate boom that there has ever been! One fears what is going to happen when things turn down! The Mogambo is right.
I still can't figure out why the A$ is flavour of the month all over the world. Perhaps it is because we are the most willing to sell off our Economy to the highest bidder so we can have more Ipods, Flat Screens and Benz's.
In any case, our external account is deeply in debt. We run a CAD which is 6% of GDP and repatriated dividends and interst are now becoming a serious portion of that deficit and yet we are being held up as some model economy!
I dunno I must be stupid...I just don't "get" it.

Rajiv
11-11-07, 09:14 AM
It seems all the Anglo-Saxon countries follow the exact same path. Perhaps something in our common history influences us?


This article "Breaking The English Tradition (http://www.reinventingmoney.com/documents/BreakingEnglishTradition.pdf)" by E. C. Riegel may shed some light on your question


The Politics of Money

In addressing the “money problem,” I can do no better than the following essay. In it, E. C. Riegel is at his most eloquent, providing in a few short pages a concise review of the pertinent history, a lucid and persuasive argument as to the Constitutional scope of government’s monetary role and power, a scathing indictment of legal perversion and usurpation, and an inspiring revelation as to the natural locus of the money power and how it can be applied to liberate us all.

The essay is reproduced below in its entirety, as it was written, except that I have added some bold emphasis, a few bits of punctuation, and occasional editorial comments. Here then, in a nutshell, is the problem, its context, and its solution. – Thomas H. Greco, Jr., May 9, 2004.

bart
11-11-07, 11:49 AM
Thanks a lot. From now on I might as well add this pic to my signature.


http://www.itulip.com/images/plplplplpl.jpg





No worries, paddle sales and public education are going quite well methinks. :D


http://www.nowandfutures.com/grins/shit_creek.jpg

GRG55
11-11-07, 01:28 PM
Crikey GRG
I thought you were talking about AUS! The Federal Govt here is running a surplus. I'm not sure how this comes about as they keep ladling out more and more money and building new bureaucracies every day! Most of the states are spending far more than they earn in the midst of the biggest Mining and Real Estate boom that there has ever been! One fears what is going to happen when things turn down! The Mogambo is right.
I still can't figure out why the A$ is flavour of the month all over the world. Perhaps it is because we are the most willing to sell off our Economy to the highest bidder so we can have more Ipods, Flat Screens and Benz's.
In any case, our external account is deeply in debt. We run a CAD which is 6% of GDP and repatriated dividends and interst are now becoming a serious portion of that deficit and yet we are being held up as some model economy!
I dunno I must be stupid...I just don't "get" it.

It's truly depressing to see the cycle being repeated in Canada. The governments will raise resource taxes, an immensely popular move, and over time (usually in the run-up to each election) repeatedly trim back on the broader, and less popular consumption and income based taxes. Once they have over-concentrated their dependence on the resource sector, after say a 10 or 12 year boom, the inevitable cyclical turn will gut the government's revenues, drive them to deficit spending initially, and then into program and spending cuts. In the end the very people they profess to be helping, at the low end of the income scale, get hurt the most.

Your country and mine seem to have a lot in common...

jk
11-11-07, 01:42 PM
It's truly depressing to see the cycle being repeated in Canada. The governments will raise resource taxes, an immensely popular move, and over time (usually in the run-up to each election) repeatedly trim back on the broader, and less popular consumption and income based taxes. Once they have over-concentrated their dependence on the resource sector, after say a 10 or 12 year boom, the inevitable cyclical turn will gut the government's revenues, drive them to deficit spending initially, and then into program and spending cuts. In the end the very people they profess to be helping, at the low end of the income scale, get hurt the most.

Your country and mine seem to have a lot in common...
these are the politicians who get elected and reflect the same short-sightedness that has led to the huge overhang of personal debt. i remember when 2nd mortgages, which then morphed into "home equity loans," were for major renovations or additions to the home on which they liened. [i know that's not english, but shouldn't it be?] then it was "pay off your high rate credit cards," then it was "don't you deserve a vacation?" short sighted, greedy policies have come to the fore both individually and nationally, and will lead to their usual results. i think i am one of the more "liberal" [american definition], soft-hearted members of this board, but sometimes i think there's no point in worrying about people who won't think and won't learn.

metalman
11-11-07, 02:38 PM
these are the politicians who get elected and reflect the same short-sightedness that has led to the huge overhang of personal debt. i remember when 2nd mortgages, which then morphed into "home equity loans," were for major renovations or additions to the home on which they liened. [i know that's not english, but shouldn't it be?] then it was "pay off your high rate credit cards," then it was "don't you deserve a vacation?" short sighted, greedy policies have come to the fore both individually and nationally, and will lead to their usual results. i think i am one of the more "liberal" [american definition], soft-hearted members of this board, but sometimes i think there's no point in worrying about people who won't think and won't learn.

i'm one of the "let 'em fry" hardasses and have to say that some of the videos here make me think. your average joe doesn't have time to surf such web sites even if so inclined. the economy is too competitive, no job security, kids to raise, etc. so he watches tv and guess what's there? 9000 ads for home equity loans to pay for a vacation and pay off credit cards.

the tv says, no inflation! naw, gas prices aren't rising. what's joe to do? here's what. crime is one of the ways we all pay for the televised lies. get ready for more...

WILLISTON: Lyndonville man arrested for stealing gas (http://www.burlingtonfreepress.com/apps/pbcs.dll/article?AID=/20071111/NEWS01/71111003/-1/NEWS05)
BurlingtonFreePress.com, VT - <nobr>32 minutes ago</nobr>
Claffy stopped Petri and took him into custody for the theft of the gas. Petri also was issued traffic tickets for a person under 21 with a blood alcohol ...
<table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">County fleet manager accused of grand theft (http://www.ocala.com/article/20071110/NEWS/211100344/1001/NEWS01)
Ocala.com, FL - <nobr>Nov 10, 2007</nobr>
County officials claimed Walters ordered gasoline hoses and filters for Sheriff's Office Fleet Management head Wyatt Earp. Walters denied ordering any parts ...
Cocaine found as Clermont man is arrested (http://www.orlandosentinel.com/news/local/lake/orl-lbriefs10_307nov10,0,2909041.story) <nobr>Orlando Sentinel</nobr>
<nobr>all 2 news articles »</nobr> (http://news.google.com/news?hl=en&ned=&ie=UTF-8&ncl=1123423918)
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Two in SC face charges of gas theft (http://www.wilmingtonstar.com/article/20071024/NEWS/710240470/-1/State)
Wilmington Morning Star, NC - <nobr>Oct 25, 2007</nobr>
Authorities said Jeffrey David Barnes, 26, of Honea Path, and James Tyrus Vaughn, 29, of Donalds, used a battery-operated pump to siphon gasoline from Duke ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Gasoline theft operation shut down (http://www.baynews9.com/content/40/2007/10/18/296035.html?title=Gasoline%20theft%20operation%20s hut%20down)
Bay News 9, FL - <nobr>Oct 18, 2007</nobr>
LAKELAND (Bay News 9) -- A gasoline theft operation in the Bay area may have filled up for the last time. The Polk County Sheriff's Office has taken ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Police: man waived gun at gas station attendent (http://www.wcax.com/Global/story.asp?S=7335047&nav=4QcS)
WCAX, VT - <nobr>Nov 9, 2007</nobr>
The man then pumped $28 worth of gas into his car. Meanwhile, the clerk noticed a police car next door and ran over to it to report the theft. ...
News Minute: Here is the latest New Hampshire news from The ... (http://www.wcax.com/Global/story.asp?S=6507675&nav=menu183_4_3_1) <nobr>WCAX</nobr>
<nobr>all 2 news articles »</nobr> (http://news.google.com/news?hl=en&ned=&ie=UTF-8&ncl=1123477261)
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Gasoline Theft Operation Shut Down, Sheriff Says (http://www.theledger.com/article/20071017/BREAKING/71017014)
The Ledger, FL - <nobr>Oct 17, 2007</nobr>
LAKELAND - A large-scale operation involving the use of a covered trailer to steal thousands of gallons of gasoline from area gas stations' underground ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Deputies Arrest Suspect in Massive Fuel Theft Operation (http://www.theledger.com/article/20071018/NEWS/71018015/1004/News)
The Ledger, FL - <nobr>Oct 18, 2007</nobr>
So far, he has been charged with grand theft in Polk and Pasco counties. He also is suspected of being part of a gas theft ring, and deputies are searching ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">News of record (http://www.chillicothegazette.com/apps/pbcs.dll/article?AID=/20071111/NEWS01/711110306/1002)
Chillicothe Gazette, OH - <nobr>6 hours ago</nobr>
Theft - A tall, skinny blonde female in a Red Pontiac drove away without paying for gas at the Shell at 2121 Western Ave. 7 pm Friday. ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">News of record (http://www.chillicothegazette.com/apps/pbcs.dll/article?AID=/20071110/NEWS01/711100313/1002/NEWS01)
Chillicothe Gazette, OH - <nobr>Nov 10, 2007</nobr>
Theft - $46.70 worth of gasoline was stolen from BP Oil on North Bridge Street; 6:24 pm Thursday. Theft - $40 worth of gasoline was stolen from Shell Food ...
</td></tr></tbody></table><table valign="top" border="0" cellpadding="2" cellspacing="7"><tbody><tr><td class="j" valign="top">Haven Man Jailed for Using Company Card (http://www.theledger.com/article/20071110/NEWS/711100568/1004)
The Ledger, FL - <nobr>22 hours ago</nobr>
A Winter Haven man is in jail on 91 counts of fraud after detectives say he used a company credit card to buy thousands of dollars of gasoline, ...

</td></tr></tbody></table>

jk
11-11-07, 03:20 PM
in the late 70's there was an epidemic of gasoline theft, leading to locking gas caps as well as siphons becoming big sellers, e.r visits by people who swallowed gasoline when they used a plain tube siphon, etc.

metalman
11-11-07, 03:23 PM
in the late 70's there was an epidemic of gasoline theft, leading to locking gas caps as well as siphons becoming big sellers, e.r visits by people who swallowed gasoline when they used a plain tube siphon, etc.

they've gotten smarter! back in the 70s there was no "how to steal gas" web site like youtube...


<object width="425" height="355"><param name="movie" value="http://www.youtube.com/v/WZmrW9k_RaQ&rel=1"></param><param name="wmode" value="transparent"></param><embed src="http://www.youtube.com/v/WZmrW9k_RaQ&rel=1" type="application/x-shockwave-flash" wmode="transparent" width="425" height="355"></embed></object>

tree
11-13-07, 01:24 PM
Re: gas thefts...imagine a country where all the aging baby boomers who can't afford pre-Medicare health care but can leave the country for cheaper places do split. Then the most desperate of middle-class and working-class citizens duke it out for survival...when not scanning the gossip columns and other forms of consumer pornography for comic relief. Meanwhile the MSM continue to pretend that everyone is rich or happily middle-class. Ugh.

metalman
11-13-07, 05:59 PM
Re: gas thefts...imagine a country where all the aging baby boomers who can't afford pre-Medicare health care but can leave the country for cheaper places do split. Then the most desperate of middle-class and working-class citizens duke it out for survival...when not scanning the gossip columns and other forms of consumer pornography for comic relief. Meanwhile the MSM continue to pretend that everyone is rich or happily middle-class. Ugh.

darker vision than i could dream up. maybe... how's this: poor people who can't afford gas or to pay their bills and run out of credit join the service for $$$ and go fight us wars. how's that for a sick outcome?

oh, wait. they're already doing that.

Spartacus
11-14-07, 12:21 AM
darker vision than i could dream up. maybe... how's this: poor people who can't afford gas or to pay their bills and run out of credit join the service for $$$ and go fight us wars. how's that for a sick outcome?

oh, wait. they're already doing that.

The most likey thing IMHO is

real estate prices in cities with "good" public transit (by North American standards) goes way, way up - NY & Chicago[?] real estate goes TO TEH NOOOOOM !!!
This will be even more pronounced where high density living is the norm - where people are used to small apartments & condos.

The burbs become the boonies - Houston, LA, bunch of others become ghost towns

[?] from what I know of it the transit is "good", for some variable value of "good"-ness ...

rzero
11-14-07, 02:19 AM
Time to bring Ka-Poom v1 out again?

FRED
11-17-07, 05:11 PM
‘Rough patch’ ahead for economy says Fed governor (http://www.centralvalleybusinesstimes.com/stories/001/?ID=7013)


Where economic misfortune is concerned, a word on nomenclature is necessary. In the course of his disastrous odyssey Pal Joey, the most inspired of John O'Hara's creations, finds himself singing in a Chicago crib strictly for cakes and coffee. He explains this misfortune by saying that the panic is still on. His term–archaic and thus slightly pretentious–reflects the unfailing O'Hara ear. During the last century and until 1907, the United States had panics. But, by 1907, the language was becoming, like so much else, the servant of economic interest. To minimize the shock to confidence, businessmen and bankers had started to explain that any current economic setback was not really a panic, only a crisis. They were undeterred by the use of this term in a much more ominous context–that of the ultimate capitalist crisis–by Marx. By the 1920's, however, the word crisis had also acquired the fearsome connotation of the event it described. Accordingly, men offered reassurance by explaining that it was not a crisis, only a depression. A very soft word. Then the Great Depression associated the most frightful of economic misfortunes with that term, and economic semanticists now explained that no depression was in prospect, at most only a recession. In the 1950s, when there was a modest setback, economists and public officials were united in denying that it was a recession–only a sideways movement or a rolling readjustment. Mr. Herbert Stein, the amiable man whose difficult honor it was to serve as the economic voice of Richard Nixon, would have referred to the panic of 1893 as a "growth correction."

<a href="http://www.amazon.com/gp/product/0735100705?ie=UTF8&tag=wwwitulipcom-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0735100705">Money: Whence It Came, Where It Went</a><img src="http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=0735100705" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /> by J. K. Galbraith (1975)

Chapter 9: The Price
Redefined definitions: panic, crisis, depression, recession, growth correction (Page 113)From "panic" to "crisis" to "depression" to "recession" to "growth correction" and now "rough patch."

bart
11-17-07, 05:33 PM
From "panic" to "crisis" to "depression" to "recession" to "growth correction" and now "rough patch."



"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand."
-- Milton Friedman


“Facts do not cease to exist because they are ignored.”
-- Aldous Huxley


"Economics exists to make astrology look respectable."
-- John Kenneth Galbraith

"The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."
-- Joan Robinson, Cambridge University

FRED
11-17-07, 05:39 PM
I like this one:




"The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists." - Joan Robinson, Cambridge University

And I really, really like this one:


“Facts do not cease to exist because they are ignored.”
-- Aldous Huxley

Thanks!

bart
11-17-07, 05:50 PM
Thanks!



You're most welcome.
Here's a few more that I like that are mostly relevant to the topic:


"If some lose their whole fortunes, they will drag many more down with them . . . believe me that the whole system of credit and finance which is carried on here at Rome in the Forum, is inextricably bound up with the revenues of the Asiatic province. If Those revenues are destroyed, our whole system of credit will come down with a crash."
-- Cicero, 66 B.C. (Translation by W.W. Fowler, 1909)



"Giving money and power to government is like giving whiskey and car keys to teenage boys."
-- P.J. O'Rourke


“Nations are not ruined by one act of violence, but quite often, gradually, and almost imperceptibly, by the depreciation of their currency, through excessive quantity”.
-- Nicolas Copernicus, 1525


"Men who believe absurdities will commit atrocities."
-- Voltaire


"I learned very early and painfully that you have to decide at the outset whether you are trying to make money or to make sense, as they are mutually exclusive."
-- R. Buckminster Fuller



And from the lighter side:
A bird does not sing because it has an answer. It sings because it has a song.
-- Chinese proverb

“On the issue of inflation, I think I could solve it no matter how much money it took.”
-- Pat Paulson: 1968 Presidential Candidate & Comedian

metalman
11-17-07, 06:36 PM
“On the issue of inflation, I think I could solve it no matter how much money it took.”
-- Pat Paulson: 1968 Presidential Candidate & Comedian

remember his many runs for president? he was awesome!


Pat Paulsen’s multiple candidacies in '68, ’72, ’80, ’88, ’92, and ’96, with the slogan: "Just a common, ordinary, simple savior of America's destiny."

Like Mr. Colbert, Mr. Paulsen’s comedy and subsequent campaigns are best described as satirical,rooted in absurdity. In his editorials for the Smother Brothers’, Mr. Paulsen lampooned the hypocritical and pierced the balloons of the sanctimonious. Many of his routines still sound fresh.

On poverty: “Poverty is necessary. Because without it, we couldn't have a poverty program.” Though Mr. Paulsen never made it to the oval office, he finished second to President Bush in 1992 in the North Dakota Republican Primary and second to President Clinton in 1996 in the New Hampshire Democratic Primary (he received 921 votes). Mr. Paulsen passed away in 1997.

http://www.hnn.us/articles/44536.html

i miss him. he was great.

GRG55
11-18-07, 03:11 AM
"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand."
-- Milton Friedman

Peak Sand? Yikes! :eek:


Saudis 'fear sand shortage'
Saudi Arabia has reportedly imposed strict border checks to enforce a ban on the export of sand.
Last Updated: Wednesday, 5 November, 2003, 14:03 GMT
BBC News: There are fears that the growing demands of the construction industry could lead to a shortage in the desert kingdom.
The Arab News newspaper reports that neighbouring Bahrain needs to import large quantities of sand for reclaiming land from the sea.
Demand is also expected to grow as the process of reconstruction in Iraq gathers pace...
Link to article:
http://news.bbc.co.uk/1/hi/world/middle_east/3243623.stm

metalman
11-18-07, 08:53 AM
Peak Sand? Yikes! :eek:

Saudis 'fear sand shortage'
Saudi Arabia has reportedly imposed strict border checks to enforce a ban on the export of sand.
Last Updated: Wednesday, 5 November, 2003, 14:03 GMT
BBC News: There are fears that the growing demands of the construction industry could lead to a shortage in the desert kingdom.
The Arab News newspaper reports that neighbouring Bahrain needs to import large quantities of sand for reclaiming land from the sea.
Demand is also expected to grow as the process of reconstruction in Iraq gathers pace...
Link to article:
http://news.bbc.co.uk/1/hi/world/middle_east/3243623.stm

we laugh but maybe there's not as much sand as appears to be. what's under all that sand, anyhow? rocks, i assume.

GRG55
11-18-07, 11:32 AM
we laugh but maybe there's not as much sand as appears to be. what's under all that sand, anyhow? rocks, i assume.

Where I am, limestone.

But to answer your question we went on a scouting mission just to be sure. This is what we found (the specks are the 4X4s):

http://www.ad4x4.com/gallery2/d/17245-2/BI20061229c-056.JPG (http://www.ad4x4.com/gallery2/v/members/adiga/BI20061229c-056.JPG.html)

And this is what happens if you hesitate going over the top and get turned sideways to the fall line (if you're lucky):

http://www.ad4x4.com/gallery2/d/16876-2/CIMG2364.JPG (http://www.ad4x4.com/gallery2/v/members/adiga/CIMG2364.JPG.html)