Planet Money on NPR yesterday did a whole show on what happened in Greece when the government took over monetary policy, basically, by cooking the books.
The man who was finance minister, I think?, at the time, was the guest on the show and according to him it took 10 years of painful inflation and recession before Greece came out of their disaster. The main topic of the show was what happens when you can't trust the statistics/numbers any longer, and how Greece just made up their own to make the government Big Wigs feel good. Sound familiar?
Science really doesn't matter. In Kennedy's dialectical illusion, he needs A excuse was needed why he was a junkie. Hence his obsession with vaccines. Less Uncle Drunky was a drunk before MRA vaccines. Denial is river.
Everybody has their biases. In the past progressive liberals and holistic libertarians were the big fans of this stuff.
It's like they are all playing musical chairs, circling, circling, watching one another instead of what they should be paying attention to (Trump&Co openly working to crash the economy)
The Wall Street Journal and The Economist have belatedly been sounding alarm bells after decades of peddling trickle-down tax cut slop. It’s been a small tonic watching their increasingly frantic efforts to reverse the Titanic’s throttle as it heads toward the iceberg.
I'll agree with your assessment of the WSJ, which became a useless rag after the Murdoch family took over, but as a 15+ year reader of the Economist, I don't recall them ever defending the nonsense of trickle down economics. That said, the Economist is today a brutal critic of 47's economic policies, which is more than can be said for the WSJ.
Agree, Scott. I’ve subscribed to The Economist for 37 years and while it has its quirks (it insists on calling trucks lorries, for one small example), it has consistently called out the BS, by nearly everyone. But even the WSJ is too - as the Prof says, it’s become impossible to ignore.
Trump's policies are ruining small businesses for creatives -- art materials, craft materials, collectibles from eBay, all are either subject to tariffs or the elimination of the minimal value postage. I can no longer use several of my US sources as they can no longer import from abroad.
It's the MAGA judges sitting on the SCOTUS, not the wording of the law that is the problem. You can write all the laws you want, any way you want, and the corrupt judges will still find a way to evade them. Fix the SCOTUS.
Most of the Dem leaders look to be efficient managers. Good at cleaning up, and unfortunately, covering up! republican disasters.
But I don't see any real leaders there. I was hopeful about Buttigieg, until he made a bland, meaningless statement about Israel's genocide. That isn't leadership.
Disagree. The problem with Dems is they're lousy with messaging, and unwilling to lie as repetitively and shamelessly as Repubs. Which is easy for GOP politicians, because all they need to do is simply parrot the talking-point-du-jour from FOX News.
Do you really think that this regime will allow Democrats to regain either the congress or White House in 2026 or 2029? Hard to believe that Bill Miller is that naive.
Trump had no right to be on the ballot. He’s not a legitimate president. Retake Congress and the Senate. Impeach and convict. Bring the full weight of a restored-to’itu ognndiy fadeMr areeW-health legal system down on him and the seditious scum who plotted and enabled. How will traitors facing hopeless, inescapable permanent ruin plus incarceration approach elections? We’re already finding out
Thanks, Martha. I was driving while listening to the broadcast, so couldn't take notes, and wasn't sure what the name was anyway! I'll look for Mr. Varoufakis's book.
"The inimitable Nathan Tankus summarizes this by saying that the market is not, as stylized economic models would have us believe, a mechanism that pools the knowledge and informed judgment of millions of investors. It is, instead, a “conventional wisdom processor.” "
I prefer Neil deGrasse Tyson's view that "the stock market is the world's biggest casino".
And right now the losing gamblers are all thinking that if they just keep betting, their luck will turn.
I guess it's coming up on time to start converting my retirement into, well, I don't know what. Precious metals aren't exactly highly fungible. And stocks and bonds seem like a sucker's bet. Pure cash will be nice until inflation really picks up.
We've been in laddered CD's for years - steady growth, no losses during the financial shocks of the last 15+ years - quite happy with the returns, even if they aren't the spectacular ones the brokers keep pushing off on the public.
Only now we have to worry that the FDIC will hold. If the Fed is gone as a reliable institution, nothing will hold steady.
I'm investing in foreign stocks and mutual funds. Public utilities too. This is worse than the great repression after the great recession. At least then you were very slowly losing money to inflation. I don't think there will be anything slow at all about the next crash. If Trump's still in power, he'll turn a grass fire into one of those tornedos of fire.
That's when the Tech Bros and Christian Nationalists can fight it out for domination.
Similar...a mélange of short-term Treasury funds has provided a "safe" — until tRump machinations prove otherwise — ca. 5% return. Virtually no exposure to the overbought equities markets, and we'll keep it that way...no FOMO, or "greater fool" bidness for these two seniors.
the Asian tradition - China, India etc - is to have real gold. Some women refugees have almost no possessions but are draped in gold jewellery - their life savings, basically.
Governments and wealthy individuals have been buying gold for a couple of years now. But as the journalists in Money Talks, the Economist podcast, said, 'if things get so bad that gold is the only real currency you'll have people with guns stealing it from you.'
Sorry, your assault rifles aren't going to do much against the bigger and bigger criminals.
People will choose the most awful authoritarians over chaos. Think Afghanistan. The people don't like the Taliban, but at least with them there is some predictability. Organized crime is better than disorganized crime.
Yes, I recall an article on gold jewellery that mentioned that Chinese women prefer 24 karat gold because it can act as a financial asset. May or may not be true, but is plausible.
That’s the tradition in India, too. But it isn’t clear if that would work in a country like the USA which doesn’t have a recent history with trading gold among average people. It would be good to start building local non-tech trading networks using local script/money as in Marin County CA and various counties during the Great Depression.
Dean Baker published a paper in 2002 showing the housing bubble. He sent it to regulators and others but all dismissed it.
In 2006 I (and others like me) in the real estate industry (me, a senior lawyer in a national title insurer) was so convinced that the bubble was by then bursting, that I considered selling our home to cash out and park the cash which would become king after the dust had cleared. Ultimately, we decided to just stay put but not because of any uncertainty about what was happening in real time.
Yep. I was a follower of the Calculated Risk blog at the time, and cashed out a lot of stuff in the summer of '07 because of the discussions on there, and was totally prepared. I only got the timing wrong, because I thought the crash would happen by Dec., but Bernanke managed to hold it off till '08, when the train crash picked up speed.
Yes Jane: Bernanke, Larry Summers, Hank Paulson, the completely useless Christopher Cox at the SEC, Tim Geithner all have praised themselves as the heroes who saved the joint when in fact they were bullies who shut down any and all warnings of the impending crash until it had actually happened. It’s the same today. Only a few (Paul Krugman, The Economist, others) are sounding the alarm. Timing the crash is the big challenge: I concluded in February 2024 that the risks were enormous and the market upsides were unlikely so I sold all equities…and missed out on the booming market all the way to March 2025. So now, like a lot of others, I’m hedging by being in but also standing close to the exits. When the markets turn, it’ll be a stampede to get out the door first.
As soon as Trump started imposing tariffs for real, after the first head fake, I sold everything as well, and never looked back. I have everything in laddered 5% CDs, which should be ok unless the downturn is so bad that banks fail. I wouldn't put it past Trump to burn the monetary system down to scorched earth.
I actually cashed out my entire portfolio, and my parents entire portfolio, the day before the market crashed in 2008. I had been poring over data knowing things were going South, but the thing that made my hair stand on end was the total collapse of the Baltic Dry Goods Shipping Index. For some reason, I knew, and sold everything in the nick of time. We would have been wiped out.
My husband and I are at the age when we're thinking seriously about moving to a smaller, more manageable place. We're considering a continuous care retirement community within the next 5 - 6 years.
Now I'm wondering if we should accelerate that timeline and sell our beloved house before home prices fall (we're in a desirable neighborhood in the city). But probably the soonest we could do it would be 2 - 3 years, which might not be fast enough to get ahead of what I think is coming.
We have friends who went into Assisted Living Facilities. They had to pay exorbitant rent with poor care (partly because of a labor shortage), and the costs increased faster than inflation. They tried 4-5 different facilities. Even without economic collapse, selling a non-mortgaged home to go into a facility costing $60-$120k per year may not be the best choice. Based on their experiences we chose to downsize into another house.
Find 4 to 5 couples (friends, family). Buy n+1 houses in a nice cul-de-sac or apartment complex. Offer the extra one rent free to a care assistant, a chef and a gardner. DIY care home at a fraction of the cost...
We would like to sell our house now that our youngest is out of high school and we don't need to be in our expensive school district, but the market is so soft we think we would lose a lot of equity. Just too much uncertainty in the entire economy to make any big decisions or investments right now. We're sitting tight.
How much of the market stability is attributable to either/both realities that (a) a ~fifth of US euity market holdings sit with index funds, which have little latitude/incentive to pull out, and (b) in the context of maximum chaos everywhere, all the time (e.g., bonds, gold, emerging markets...?), few credible alternatives exist for active fund managers and investors? Sitting still may be easier for the insecure fund manager to defend than to switch to...what safe haven in a world of bubbles?
Active fund managers are the epitome of Wile E. Coyote. During the Russian invasion of Ukraine I had some investments in a Vanguard actively managed emerging markets fund that had some Russian investments. I was asking them "What about the Russian investments?". A few months later, without selling, they were valued at $8 -- for the entire fund!
I don't know what we pay fund managers for if they don't manage.
“But for reasons that would take another long post to explain — maybe a primer one of these days — there never seem to be enough such investors to shake market complacency, no matter how unwarranted.”
That would be a fascinating post, and I hope you do get around to writing it one day.
I’d also be interested in any research on whether investors are optimistic when there’s an administration that favors wealthy people and fails to regulate corporations
It's highly illogical to be optimistic about stock prices in a service economy that depends on consumer spending at at time when the government is deliberately impoverishing consumers,
As a longtime corporate employee/contractor and reader of PK, I agree and offer another supporting theory to help understand the deafening silence: the sunk cost fallacy. Trumpers have been marching behind their dear leader for a long while now. It might be dawning on them just how much they have sunken into this disaster… and for such a low bid.
What's a smart investor who sees the coming issues to do? If the answer is not to take their money and put it under a mattress the markets won't seem to be freaking out.
I'm assuming that Trump either by firing or a bit more slowly replacing will get a complacent Federal reserve that will lower interest rates below where they should be. With some significant lag inflation will take off at least more than it is now. If you assume low interest rates and inflation that's a reason to take your money out from the mattress and put it into the stock market because inflation will eat away everything under the mattress, but companies own assets which will appreciate. Or you can buy shortish term bonds which will probably go up when the interest rates go down. You could imagine putting your money in investments outside the US, but Trump is doing his best to damage the whole world's economy not just ours.
Those who saw the 2007-8 crash coming took bets against the market using sophisticated financial instruments to do so. Eventually, having lost their bets many times the crash occurred and they won big. Taleb and Paulson were two who did that as I recall.
Your point about financial markets is absolutely spot on. Let me add some specific examples:
During the 1998 Russian crisis, I was in charge of foreign exchange derivatives trading for a major bank covering Russia, Eastern Europe, Middle East and South Africa. In summer 1998, my view that Ruble then trading at around 6.0 levels would trade beyond 7.0 was aggressively denied by the whole market including sl economists. A couple of months later when Micex failed to fix, and banks would not even give nontradeable reference rates, I made 11.833 to settle the day's NDF and NDO contracts that set the USD/RUB rate for the day across the whole world. Nobody had a clue where to price RUB for the day. Soon NDFs were trading at high 28 levels.
It was the same during the Dotcome bubble of 2000.
It was the same in Hungary in early 2003 when hedge funds and banking selling EUR/HUF options at 2% implied vol were buying them back at 21% the same day. This was more of a technical move as HFs had been seeking higher yields in a currency they saw as less risky - but never understood liquidity and feedback.
The period 2006- 2009:
As global head of trading, structuring and Quant R&D for major international banks during the subprime crisis, the same happened. In 2006, I could see trouble gathering but I knew market forces would push implied volatilities down. So I wanted to be slightly short implied volatility Vs long what was what we call volgamma (vol of vol). The market sold me cheap vol-of-vol for 1 to 2 year tenors that set up the books for the next 2 years. They were selling this vol of vol at deep discounts ( selling 5 and 10 delta options super cheap compared to ATM options).
Even the so called crisis of 2008 actually started in April 2007 when interest rate markets suffered upheavals. FX markets ignored these until mid August 2007 when they blew up. In the few weeks prior, from June 2007 onwards, I had managed to buy very low probability One Touches at an average cost of around 1.5% of the payout. They all triggered for a roughly 75x return in a few weeks.
Despite runs on banks in the UK in late 2007, and the obvious credit crisis, equity markets strung along. By April 2008, despite the mother of all explosions about to come, S&P 500 levels were at 1400 levels, not far off from the historical high of 1,542 with the low of below 600 yet to come not only not forseen but not even in play as VIX levels were back in the 20%ish range - then the long term average range.
What always astounded me was how my fellow colleagues in both big banks and hedge funds always failed to see the inevitable. Nobody would believe me or even engage in discussion.
A global head of equity derivatives trading at a European bank then explained it.
He said" You are different. You make.money from thinking. We all try to copy each other. We all make money when everyone else is making money. And we all lose when others are losing so we never stand out. That's the way we all do it."
After record profits during the 2007-2009 crisis a major HF called me and said I shouldn't set up own fund but join them..I asked why. They said "you think differently from everyone else. And we think there is value in that."
Good question. Trump was talking about changing the rules and making it possible for retail investors to access the dodgy stuff. Fairness. Let everyone gamble with the big boys. I don't know, but who doesn't he control yet?
So Soc, right now, are the alarm bells ringing again? Are there data points we laymen can look at to give us the warnings, just as The Prof cited the Case-Shiller home prices index?
Soc, Trump is aligned with the tech bros who want to do away with humanity and replace everyone with AI. They want to destabilize the dollar and undermine it as the world's reserve currency. The goal would be to strengthen cryptocurrencies as a surrogate for the USD, which would greatly benefit organized crime and kooks who want to do away with nation states. However, most of the world's wealth is held in USD, so it could not be done without massive finanical crisis and upheaval. The USD has fallen 19% since January, so if that is the plan, it's working so far. It sounds like you would have a more sophisticated take on this than I. Thoughts?
I think there might be some people looking ahead, wishing and planning for our collective demise through financial collapse. But its also a good idea to keep in mind incompetence and group think motivate most people. Conspiracies feel good. There is comfort in thinking there is a cabal of people who have that kind of foresight and power. We have someone to blame, or save us.
I do think the AI crypto crowd are ultimately a destructive force in the world right now. Especially in the US. I've been reading Careless People, Money Go Up and now Empire of AI. Its amazing how many of the themes resonate through the books. GREED is Good! Greed is God! Their whole business strategy is to create a world dominating monopoly.
They say they are saving humanity, even though many of them think AI has a significant chance of destroying us. AI is going to save us from asteroids, from climate change even though right now is making it worse. AI will come to the rescue with the Tech Gods riding high.
An electorate was angry about high prices & then voted for even higher prices & stagflation
The economy that Trump inherited was the envy of the developed world [WSJ & Economist 10//24]. For all of its problems—such as lingering high prices and longstanding inequality—Biden and his advisors navigated post-pandemic inflation better than almost anyone.
In just a few months Trump has wrecked that progress. And he takes pleasure in destroying his predecessor’s accomplishments.
No other president from either party would have launched a trade war that has already pushed the U.S. economy to the brink and it’s highly unlikely that anyone else would have launched such a destructive war against the Federal Reserve. Such are the consequences of an electorate that was angry about high prices and then unwittingly voted for even higher prices.
I think it can be explained by one phrase (found in Prof Krugman’s third paragraph): “sooner or later” and in one word: “traders.” I like to think of traders as being different than investors. Much of any current market price is set by traders, not investors. Traders, who debase the meaning of the word “value,” operate on the basis of what they believe the market will pay in the next minute (or nanosecond), not on the basis of what the market will pay “sooner or later.”
Right. The "Marketplace" show on NPR used to have a comic trader in Dallas. I loved to listen to this guy. Unfortunately, the middle of the financial crash wasn't a good time for comedy about the market, and he moved on. Anyway, a few weeks before he left, he said "I'm a trader. I can make money whether the market is up or down."
You mention how Trump is pursuing a rate setting policy similar to Turkey. It is worth elaborating on that:
Turkish president Tayyip Erdogan slashed interest rates in the face of rising prices, from 19% in 2021 to 8.5% by 2023. He actually said “I have a thesis that interest rates and inflation, they are directly correlated. The lower the interest rates, the lower the inflation will be." He was eventually forced to reverse course as inflation rose to 85% and the value of the Lira collapsed. Turkish interest rates today stand at a painful 42.5%.
Trump's views about inflation and interest rates would appear to be similar to Erdogan's, he has called for lower rates when economic data has been strong. He is also ignorant about tariffs, which literally raise prices by definition, saying they are not inflationary.
Perhaps the most dangerous element in all this is an unshakeable self confidence - he will never think he is wrong and there is no one in his administration who has the guts to try to tell him anyway, for fear of dismissal followed by public humiliation on X. And if things go badly and there are eventually real world consequences, he will blame someone else.
One can only wonder what America will look like three years from now. It could be uninvestable.
I think Trump doesn't know much about anything, and has surrounded himself with a group of extremists with fringe ideas. He's relying on Stephen Miran on tariffs. If you read Miran's paper on restructuring the global trading system, you get the foundation of the very unorthodox ideas Trump is parroting about tariffs.
Thanks you. I couldn’t imagine why the markets weren’t reacting to Trumps insane policies, and it’s refreshing, if frightening, to read an explanation.
Another explanation for the markets right now is inflation expectations
I mean, where are you going to store your money? Inflation is likely to eat cash and attack bond prices. Real estate valuations seem inflated. Money has to go somewhere.
The old saying in the market is that "the U.S. sneezes, and Europe gets a cold." I have a fair amount of my IRA in non-US stocks and bonds. I sincerely hope that that saying no longer holds true.
I AGREE WITH KRUGMAN THAT 6-12 MONTHS FROM NOW OUR ECONOMY WILL BE A MESS
At 91 I have witnessed a number of stock market absurdities Personally, the worst was from 1969-1982, topped by stagflation, unemployment of over 10%, and interest rates approaching 20%.
The dot-coin bubble burst as did the housing bubble in 2008-2009. I share Dr. Krugman’s view that we are on the precipice of a Trumpian economic mishmash. ‘King’ Donald is engaged in unimaginable economic arrogance and.stupidity.
Despite the current burgeoning stock market, I expect that reality will set in during the coming 6-12 months. AI stocks may lead the collapse, though I am reticent to predict precisely which stock sectors will crash.
The impact of Trump’s whimsical tariff blackmail (India 50% because Trump doesn’t like India’s purchase of Russian oil—Brazil, despite a positive US trade balance, a whopping tariff because a corrupt buddy of ‘King’ Donald is being prosecuted) reminds me of the saying ‘the chickens eventually will come home to roost.’
I’m humming the song “SLOW DOWN, THERE’S A MUDDY ROAD AHEAD, SLOW DOWN, PAY HEED TO WHAT I’VE SAID.”
In the same way that the folks from The Big Short were not well known, after this is over a book and movie will be made about the folks that are banking on the collapse and gonna make a ton on shorts and other odd securities.
I’m not 100% sure it’s true as I don’t follow super close, but I’ve read Buffet has a huge amount of his portfolio in cash right now. (Google AI says it’s true) so that might be some indication he’s hedging heavy right now.
He does, reported in The Economist. Over 250 billion if I remember correctly. The official reason given is that he hasn't found companies to buy that meet his criteria.
It's not mysterious why Buffett is holding cash. I watched a summary of his Berkshire Hathaway annual meeting in May 2025, I think, and he is quite clear about the metrics he looks at to determine an oversold stock market and an increased cash position.
Planet Money on NPR yesterday did a whole show on what happened in Greece when the government took over monetary policy, basically, by cooking the books.
The man who was finance minister, I think?, at the time, was the guest on the show and according to him it took 10 years of painful inflation and recession before Greece came out of their disaster. The main topic of the show was what happens when you can't trust the statistics/numbers any longer, and how Greece just made up their own to make the government Big Wigs feel good. Sound familiar?
It's stories like that that caused Trump and his minions to cancel funding to PBS/NPR.
Please report the bot. It’s the usual advertising.
If anyone's interested, here's a link to the Planet Money story https://dcs.megaphone.fm/NPR5799051520.mp3?e=1256971798&key=6c7e0d71bd0607334988d1141cc6c4c4&p=510289&request_event_id=2be4f449-3bf8-410b-ad8b-f1a34e9e8fa4&sc=siteplayer&session_id=2be4f449-3bf8-410b-ad8b-f1a34e9e8fa4&size=33468587&t=podcast&timetoken=1756385919_E7CB2C8EDBF0771EECB469ED92BDBD4C
Thank you!
The lesson? Like Wile E Coyote “Super Genius” knows, physics always wins. The corollary to that is economics always wins.
Yes, science always wins. Vaccines work. Absent vaccines, viruses can kill.
"Reality is that which, when you stop believing in it, doesn't go away."
Philip K. Dick
Might not be a bad thing depending on who is infected.
Exactly!
Science really doesn't matter. In Kennedy's dialectical illusion, he needs A excuse was needed why he was a junkie. Hence his obsession with vaccines. Less Uncle Drunky was a drunk before MRA vaccines. Denial is river.
Everybody has their biases. In the past progressive liberals and holistic libertarians were the big fans of this stuff.
"Some" liberals were fans - never anywhere near a majority, while now being anti-science is the bread and butter of the republican party.
To be excessively fair, more than a few leftish people tended to follow their anti-establishment convictions into being faddists.
It's like they are all playing musical chairs, circling, circling, watching one another instead of what they should be paying attention to (Trump&Co openly working to crash the economy)
Brilliant.
Glad you like the pithy, yet truthful statement!
The Wall Street Journal and The Economist have belatedly been sounding alarm bells after decades of peddling trickle-down tax cut slop. It’s been a small tonic watching their increasingly frantic efforts to reverse the Titanic’s throttle as it heads toward the iceberg.
I'll agree with your assessment of the WSJ, which became a useless rag after the Murdoch family took over, but as a 15+ year reader of the Economist, I don't recall them ever defending the nonsense of trickle down economics. That said, the Economist is today a brutal critic of 47's economic policies, which is more than can be said for the WSJ.
Agree, Scott. I’ve subscribed to The Economist for 37 years and while it has its quirks (it insists on calling trucks lorries, for one small example), it has consistently called out the BS, by nearly everyone. But even the WSJ is too - as the Prof says, it’s become impossible to ignore.
No speak American, English only!
One also sees increasing comments by people complaining that Trump is ruining their businesses, mostly with tariffs.
Trump's policies are ruining small businesses for creatives -- art materials, craft materials, collectibles from eBay, all are either subject to tariffs or the elimination of the minimal value postage. I can no longer use several of my US sources as they can no longer import from abroad.
It's the MAGA judges sitting on the SCOTUS, not the wording of the law that is the problem. You can write all the laws you want, any way you want, and the corrupt judges will still find a way to evade them. Fix the SCOTUS.
Biden's biggest mistake was in not loading up SCOTUS with some decent judges.
Amen to all of that! But what you suggest requires one thing the Democratic party seems to lack…courage of conviction. So far, I see little of that.
Most of the Dem leaders look to be efficient managers. Good at cleaning up, and unfortunately, covering up! republican disasters.
But I don't see any real leaders there. I was hopeful about Buttigieg, until he made a bland, meaningless statement about Israel's genocide. That isn't leadership.
You aren’t a real commentator
Disagree. The problem with Dems is they're lousy with messaging, and unwilling to lie as repetitively and shamelessly as Repubs. Which is easy for GOP politicians, because all they need to do is simply parrot the talking-point-du-jour from FOX News.
Tarred and feathered and rolled down the Capitol steps, one by one, for all to see‼️
Do you really think that this regime will allow Democrats to regain either the congress or White House in 2026 or 2029? Hard to believe that Bill Miller is that naive.
Re: the 2008 stock market crash. The movie The Big Short is most informative.
The stock market's reaction to tariffs this April was almost the largest and fastest crash and rebound in history.
That's right - very good.
Trump had no right to be on the ballot. He’s not a legitimate president. Retake Congress and the Senate. Impeach and convict. Bring the full weight of a restored-to’itu ognndiy fadeMr areeW-health legal system down on him and the seditious scum who plotted and enabled. How will traitors facing hopeless, inescapable permanent ruin plus incarceration approach elections? We’re already finding out
Sounds like we’re cooked. 😱
Yes, his was an amazing piece
Greece! Greece I tell you!
Huh. That's sort of what our author is telling us.
George Papaconstantinou, then Finance Minster. You probably want to read Yanis Varoufakis on how Germany squeezed Greece into debt slavery . . .
Thanks, Martha. I was driving while listening to the broadcast, so couldn't take notes, and wasn't sure what the name was anyway! I'll look for Mr. Varoufakis's book.
In Reality the EU screwed Greece over bigtime. Gave them loans to payback other loans on ever higher interest rates
Yike!
https://www.npr.org/2025/08/22/nx-s1-5499343/what-happens-when-people-stop-trusting-their-governments-economic-data
Yes, IR - that was the takeaway. The other takeaway I got was never letting one man be in charge of monetary policy! ;-)
"The inimitable Nathan Tankus summarizes this by saying that the market is not, as stylized economic models would have us believe, a mechanism that pools the knowledge and informed judgment of millions of investors. It is, instead, a “conventional wisdom processor.” "
I prefer Neil deGrasse Tyson's view that "the stock market is the world's biggest casino".
And right now the losing gamblers are all thinking that if they just keep betting, their luck will turn.
But tRump is famous for bankrupting casinos.
famously, for casinos, 'the house always wins'. But it's not our house...
NdT is right.
I guess it's coming up on time to start converting my retirement into, well, I don't know what. Precious metals aren't exactly highly fungible. And stocks and bonds seem like a sucker's bet. Pure cash will be nice until inflation really picks up.
Maybe dry goods like beans, rice, and jerky?
We've been in laddered CD's for years - steady growth, no losses during the financial shocks of the last 15+ years - quite happy with the returns, even if they aren't the spectacular ones the brokers keep pushing off on the public.
Now, that holds until Dear Leader guts FDIC legislation - THEN it's beans and ammo.
Only now we have to worry that the FDIC will hold. If the Fed is gone as a reliable institution, nothing will hold steady.
I'm investing in foreign stocks and mutual funds. Public utilities too. This is worse than the great repression after the great recession. At least then you were very slowly losing money to inflation. I don't think there will be anything slow at all about the next crash. If Trump's still in power, he'll turn a grass fire into one of those tornedos of fire.
That's when the Tech Bros and Christian Nationalists can fight it out for domination.
Similar...a mélange of short-term Treasury funds has provided a "safe" — until tRump machinations prove otherwise — ca. 5% return. Virtually no exposure to the overbought equities markets, and we'll keep it that way...no FOMO, or "greater fool" bidness for these two seniors.
the Asian tradition - China, India etc - is to have real gold. Some women refugees have almost no possessions but are draped in gold jewellery - their life savings, basically.
Governments and wealthy individuals have been buying gold for a couple of years now. But as the journalists in Money Talks, the Economist podcast, said, 'if things get so bad that gold is the only real currency you'll have people with guns stealing it from you.'
Sorry, your assault rifles aren't going to do much against the bigger and bigger criminals.
People will choose the most awful authoritarians over chaos. Think Afghanistan. The people don't like the Taliban, but at least with them there is some predictability. Organized crime is better than disorganized crime.
There's a saying, I believe it was attributed to someone in Iraq, "A 100 years of tyranny is better than a decade of anarchy. "
Yes, I recall an article on gold jewellery that mentioned that Chinese women prefer 24 karat gold because it can act as a financial asset. May or may not be true, but is plausible.
That’s the tradition in India, too. But it isn’t clear if that would work in a country like the USA which doesn’t have a recent history with trading gold among average people. It would be good to start building local non-tech trading networks using local script/money as in Marin County CA and various counties during the Great Depression.
European Jews kept diamond jewelry prior to WWII. It was still traditional with some in the 1960s.
In Great Expectations by Dickens a character from India tells Pip several times to "get portable wealth, i.e. gold jewelry".
Pip doesn't understand cause he doesn't realize he's being used by Ms Haversham.
Suckers.
Maybe consider adding some ammunition… based on your geography and physical risk factors.
I did that some years back. If it comes to that, I won't live long enough to use all of mine.
Ammunition could be more valuable than gold.
I like the idea of taking small steps... even small steps can help... and building and strengthening our local social structures.
Meanwhile, Jessica Wildfire (surely a pseudonym) has interesting reading:
https://www.the-sentinel-intelligence.com
Neodymium. And water.
You can always short sell an index fund (which Krugman mentioned as a possibility that few take). Proshares.
SPY puts
Dean Baker published a paper in 2002 showing the housing bubble. He sent it to regulators and others but all dismissed it.
In 2006 I (and others like me) in the real estate industry (me, a senior lawyer in a national title insurer) was so convinced that the bubble was by then bursting, that I considered selling our home to cash out and park the cash which would become king after the dust had cleared. Ultimately, we decided to just stay put but not because of any uncertainty about what was happening in real time.
Yep. I was a follower of the Calculated Risk blog at the time, and cashed out a lot of stuff in the summer of '07 because of the discussions on there, and was totally prepared. I only got the timing wrong, because I thought the crash would happen by Dec., but Bernanke managed to hold it off till '08, when the train crash picked up speed.
Yes Jane: Bernanke, Larry Summers, Hank Paulson, the completely useless Christopher Cox at the SEC, Tim Geithner all have praised themselves as the heroes who saved the joint when in fact they were bullies who shut down any and all warnings of the impending crash until it had actually happened. It’s the same today. Only a few (Paul Krugman, The Economist, others) are sounding the alarm. Timing the crash is the big challenge: I concluded in February 2024 that the risks were enormous and the market upsides were unlikely so I sold all equities…and missed out on the booming market all the way to March 2025. So now, like a lot of others, I’m hedging by being in but also standing close to the exits. When the markets turn, it’ll be a stampede to get out the door first.
As soon as Trump started imposing tariffs for real, after the first head fake, I sold everything as well, and never looked back. I have everything in laddered 5% CDs, which should be ok unless the downturn is so bad that banks fail. I wouldn't put it past Trump to burn the monetary system down to scorched earth.
I actually cashed out my entire portfolio, and my parents entire portfolio, the day before the market crashed in 2008. I had been poring over data knowing things were going South, but the thing that made my hair stand on end was the total collapse of the Baltic Dry Goods Shipping Index. For some reason, I knew, and sold everything in the nick of time. We would have been wiped out.
My husband and I are at the age when we're thinking seriously about moving to a smaller, more manageable place. We're considering a continuous care retirement community within the next 5 - 6 years.
Now I'm wondering if we should accelerate that timeline and sell our beloved house before home prices fall (we're in a desirable neighborhood in the city). But probably the soonest we could do it would be 2 - 3 years, which might not be fast enough to get ahead of what I think is coming.
Another thing to consider is whether or not continuous care retirement communities will be viable after the economic collapse
We have friends who went into Assisted Living Facilities. They had to pay exorbitant rent with poor care (partly because of a labor shortage), and the costs increased faster than inflation. They tried 4-5 different facilities. Even without economic collapse, selling a non-mortgaged home to go into a facility costing $60-$120k per year may not be the best choice. Based on their experiences we chose to downsize into another house.
Find 4 to 5 couples (friends, family). Buy n+1 houses in a nice cul-de-sac or apartment complex. Offer the extra one rent free to a care assistant, a chef and a gardner. DIY care home at a fraction of the cost...
Another option--could be a good one!
That's a very good point.
We would like to sell our house now that our youngest is out of high school and we don't need to be in our expensive school district, but the market is so soft we think we would lose a lot of equity. Just too much uncertainty in the entire economy to make any big decisions or investments right now. We're sitting tight.
Irrational exuberance ad nauseum
How much of the market stability is attributable to either/both realities that (a) a ~fifth of US euity market holdings sit with index funds, which have little latitude/incentive to pull out, and (b) in the context of maximum chaos everywhere, all the time (e.g., bonds, gold, emerging markets...?), few credible alternatives exist for active fund managers and investors? Sitting still may be easier for the insecure fund manager to defend than to switch to...what safe haven in a world of bubbles?
Active fund managers are the epitome of Wile E. Coyote. During the Russian invasion of Ukraine I had some investments in a Vanguard actively managed emerging markets fund that had some Russian investments. I was asking them "What about the Russian investments?". A few months later, without selling, they were valued at $8 -- for the entire fund!
I don't know what we pay fund managers for if they don't manage.
“But for reasons that would take another long post to explain — maybe a primer one of these days — there never seem to be enough such investors to shake market complacency, no matter how unwarranted.”
That would be a fascinating post, and I hope you do get around to writing it one day.
I’d also be interested in any research on whether investors are optimistic when there’s an administration that favors wealthy people and fails to regulate corporations
Stock Market gains are not correlated with GDP growth. They would logically be correlated with capital's ability to capture wealth from labor.
It's highly illogical to be optimistic about stock prices in a service economy that depends on consumer spending at at time when the government is deliberately impoverishing consumers,
As a longtime corporate employee/contractor and reader of PK, I agree and offer another supporting theory to help understand the deafening silence: the sunk cost fallacy. Trumpers have been marching behind their dear leader for a long while now. It might be dawning on them just how much they have sunken into this disaster… and for such a low bid.
What's a smart investor who sees the coming issues to do? If the answer is not to take their money and put it under a mattress the markets won't seem to be freaking out.
I'm assuming that Trump either by firing or a bit more slowly replacing will get a complacent Federal reserve that will lower interest rates below where they should be. With some significant lag inflation will take off at least more than it is now. If you assume low interest rates and inflation that's a reason to take your money out from the mattress and put it into the stock market because inflation will eat away everything under the mattress, but companies own assets which will appreciate. Or you can buy shortish term bonds which will probably go up when the interest rates go down. You could imagine putting your money in investments outside the US, but Trump is doing his best to damage the whole world's economy not just ours.
If hyperinflation hits, putting cash under the mattress won't help much, except to create a lumpy bed.
Those who saw the 2007-8 crash coming took bets against the market using sophisticated financial instruments to do so. Eventually, having lost their bets many times the crash occurred and they won big. Taleb and Paulson were two who did that as I recall.
Your point about financial markets is absolutely spot on. Let me add some specific examples:
During the 1998 Russian crisis, I was in charge of foreign exchange derivatives trading for a major bank covering Russia, Eastern Europe, Middle East and South Africa. In summer 1998, my view that Ruble then trading at around 6.0 levels would trade beyond 7.0 was aggressively denied by the whole market including sl economists. A couple of months later when Micex failed to fix, and banks would not even give nontradeable reference rates, I made 11.833 to settle the day's NDF and NDO contracts that set the USD/RUB rate for the day across the whole world. Nobody had a clue where to price RUB for the day. Soon NDFs were trading at high 28 levels.
It was the same during the Dotcome bubble of 2000.
It was the same in Hungary in early 2003 when hedge funds and banking selling EUR/HUF options at 2% implied vol were buying them back at 21% the same day. This was more of a technical move as HFs had been seeking higher yields in a currency they saw as less risky - but never understood liquidity and feedback.
The period 2006- 2009:
As global head of trading, structuring and Quant R&D for major international banks during the subprime crisis, the same happened. In 2006, I could see trouble gathering but I knew market forces would push implied volatilities down. So I wanted to be slightly short implied volatility Vs long what was what we call volgamma (vol of vol). The market sold me cheap vol-of-vol for 1 to 2 year tenors that set up the books for the next 2 years. They were selling this vol of vol at deep discounts ( selling 5 and 10 delta options super cheap compared to ATM options).
Even the so called crisis of 2008 actually started in April 2007 when interest rate markets suffered upheavals. FX markets ignored these until mid August 2007 when they blew up. In the few weeks prior, from June 2007 onwards, I had managed to buy very low probability One Touches at an average cost of around 1.5% of the payout. They all triggered for a roughly 75x return in a few weeks.
Despite runs on banks in the UK in late 2007, and the obvious credit crisis, equity markets strung along. By April 2008, despite the mother of all explosions about to come, S&P 500 levels were at 1400 levels, not far off from the historical high of 1,542 with the low of below 600 yet to come not only not forseen but not even in play as VIX levels were back in the 20%ish range - then the long term average range.
What always astounded me was how my fellow colleagues in both big banks and hedge funds always failed to see the inevitable. Nobody would believe me or even engage in discussion.
A global head of equity derivatives trading at a European bank then explained it.
He said" You are different. You make.money from thinking. We all try to copy each other. We all make money when everyone else is making money. And we all lose when others are losing so we never stand out. That's the way we all do it."
After record profits during the 2007-2009 crisis a major HF called me and said I shouldn't set up own fund but join them..I asked why. They said "you think differently from everyone else. And we think there is value in that."
Those games are great if you're a big player.
Totally sucks if you're a nobody with just a house and a retirement you can live on...as long as it isn't stolen from you.
I think the Trump and Comp is going for retirement funds with all of the open financial games.
I'm afraid you're correct. Who has control over the IRA rules?
Good question. Trump was talking about changing the rules and making it possible for retail investors to access the dodgy stuff. Fairness. Let everyone gamble with the big boys. I don't know, but who doesn't he control yet?
Now if we could only get governing 'by thinking.' Unfortunately I see little of that in our current state of affairs.
So where do you suggest people put their money to protect it this time?
So Soc, right now, are the alarm bells ringing again? Are there data points we laymen can look at to give us the warnings, just as The Prof cited the Case-Shiller home prices index?
Soc, Trump is aligned with the tech bros who want to do away with humanity and replace everyone with AI. They want to destabilize the dollar and undermine it as the world's reserve currency. The goal would be to strengthen cryptocurrencies as a surrogate for the USD, which would greatly benefit organized crime and kooks who want to do away with nation states. However, most of the world's wealth is held in USD, so it could not be done without massive finanical crisis and upheaval. The USD has fallen 19% since January, so if that is the plan, it's working so far. It sounds like you would have a more sophisticated take on this than I. Thoughts?
I think there might be some people looking ahead, wishing and planning for our collective demise through financial collapse. But its also a good idea to keep in mind incompetence and group think motivate most people. Conspiracies feel good. There is comfort in thinking there is a cabal of people who have that kind of foresight and power. We have someone to blame, or save us.
I do think the AI crypto crowd are ultimately a destructive force in the world right now. Especially in the US. I've been reading Careless People, Money Go Up and now Empire of AI. Its amazing how many of the themes resonate through the books. GREED is Good! Greed is God! Their whole business strategy is to create a world dominating monopoly.
They say they are saving humanity, even though many of them think AI has a significant chance of destroying us. AI is going to save us from asteroids, from climate change even though right now is making it worse. AI will come to the rescue with the Tech Gods riding high.
An electorate was angry about high prices & then voted for even higher prices & stagflation
The economy that Trump inherited was the envy of the developed world [WSJ & Economist 10//24]. For all of its problems—such as lingering high prices and longstanding inequality—Biden and his advisors navigated post-pandemic inflation better than almost anyone.
In just a few months Trump has wrecked that progress. And he takes pleasure in destroying his predecessor’s accomplishments.
No other president from either party would have launched a trade war that has already pushed the U.S. economy to the brink and it’s highly unlikely that anyone else would have launched such a destructive war against the Federal Reserve. Such are the consequences of an electorate that was angry about high prices and then unwittingly voted for even higher prices.
Trump & his admin must own all of their destruction. https://newrepublic.com/article/199657/trump-recession-coming
#Resist & #Vote Blue!
Also blame wealthy donors who wanted Trump’s tax cuts and thus supported Trump.
I think it can be explained by one phrase (found in Prof Krugman’s third paragraph): “sooner or later” and in one word: “traders.” I like to think of traders as being different than investors. Much of any current market price is set by traders, not investors. Traders, who debase the meaning of the word “value,” operate on the basis of what they believe the market will pay in the next minute (or nanosecond), not on the basis of what the market will pay “sooner or later.”
Right. The "Marketplace" show on NPR used to have a comic trader in Dallas. I loved to listen to this guy. Unfortunately, the middle of the financial crash wasn't a good time for comedy about the market, and he moved on. Anyway, a few weeks before he left, he said "I'm a trader. I can make money whether the market is up or down."
You mention how Trump is pursuing a rate setting policy similar to Turkey. It is worth elaborating on that:
Turkish president Tayyip Erdogan slashed interest rates in the face of rising prices, from 19% in 2021 to 8.5% by 2023. He actually said “I have a thesis that interest rates and inflation, they are directly correlated. The lower the interest rates, the lower the inflation will be." He was eventually forced to reverse course as inflation rose to 85% and the value of the Lira collapsed. Turkish interest rates today stand at a painful 42.5%.
Trump's views about inflation and interest rates would appear to be similar to Erdogan's, he has called for lower rates when economic data has been strong. He is also ignorant about tariffs, which literally raise prices by definition, saying they are not inflationary.
Perhaps the most dangerous element in all this is an unshakeable self confidence - he will never think he is wrong and there is no one in his administration who has the guts to try to tell him anyway, for fear of dismissal followed by public humiliation on X. And if things go badly and there are eventually real world consequences, he will blame someone else.
One can only wonder what America will look like three years from now. It could be uninvestable.
I think Trump doesn't know much about anything, and has surrounded himself with a group of extremists with fringe ideas. He's relying on Stephen Miran on tariffs. If you read Miran's paper on restructuring the global trading system, you get the foundation of the very unorthodox ideas Trump is parroting about tariffs.
https://www.hudsonbaycapital.com/documents/FG/hudsonbay/research/638199_A_Users_Guide_to_Restructuring_the_Global_Trading_System.pdf
Thanks you. I couldn’t imagine why the markets weren’t reacting to Trumps insane policies, and it’s refreshing, if frightening, to read an explanation.
Another explanation for the markets right now is inflation expectations
I mean, where are you going to store your money? Inflation is likely to eat cash and attack bond prices. Real estate valuations seem inflated. Money has to go somewhere.
In Trump's pockets? /s
As long as the dollar is still worth something, you can e.g. invest in European stocks.
The old saying in the market is that "the U.S. sneezes, and Europe gets a cold." I have a fair amount of my IRA in non-US stocks and bonds. I sincerely hope that that saying no longer holds true.
I AGREE WITH KRUGMAN THAT 6-12 MONTHS FROM NOW OUR ECONOMY WILL BE A MESS
At 91 I have witnessed a number of stock market absurdities Personally, the worst was from 1969-1982, topped by stagflation, unemployment of over 10%, and interest rates approaching 20%.
The dot-coin bubble burst as did the housing bubble in 2008-2009. I share Dr. Krugman’s view that we are on the precipice of a Trumpian economic mishmash. ‘King’ Donald is engaged in unimaginable economic arrogance and.stupidity.
Despite the current burgeoning stock market, I expect that reality will set in during the coming 6-12 months. AI stocks may lead the collapse, though I am reticent to predict precisely which stock sectors will crash.
The impact of Trump’s whimsical tariff blackmail (India 50% because Trump doesn’t like India’s purchase of Russian oil—Brazil, despite a positive US trade balance, a whopping tariff because a corrupt buddy of ‘King’ Donald is being prosecuted) reminds me of the saying ‘the chickens eventually will come home to roost.’
I’m humming the song “SLOW DOWN, THERE’S A MUDDY ROAD AHEAD, SLOW DOWN, PAY HEED TO WHAT I’VE SAID.”
In the same way that the folks from The Big Short were not well known, after this is over a book and movie will be made about the folks that are banking on the collapse and gonna make a ton on shorts and other odd securities.
I’m not 100% sure it’s true as I don’t follow super close, but I’ve read Buffet has a huge amount of his portfolio in cash right now. (Google AI says it’s true) so that might be some indication he’s hedging heavy right now.
He does, reported in The Economist. Over 250 billion if I remember correctly. The official reason given is that he hasn't found companies to buy that meet his criteria.
It's not mysterious why Buffett is holding cash. I watched a summary of his Berkshire Hathaway annual meeting in May 2025, I think, and he is quite clear about the metrics he looks at to determine an oversold stock market and an increased cash position.