What is wrong with the US economy? Part 2

[Astronuc]

Uncle Sam: $407 billion in the hole
Deficit up by $246 billion in a year. Federal agency cites 'substantial increase in spending' and 'halt' in tax revenue growth. Also says it will add Fannie and Freddie to future estimates.
http://money.cnn.com/2008/09/09/news/economy/cbo_budget_update/index.htm

To date, 11 banks have been seized by the FDIC this year - not a high number historically, but higher than it's been in recent years - and that number is expected to grow in the coming months.

The CBO said it expected the deficit to exceed $400 billion - or 3% of gross domestic product - for each of the next two years if current policies remain in place. It also forecast several more months of "very slow" economic growth.

"The nation is experiencing a significant period of economic weakness," said Peter Orszag, director of the CBO, in a press briefing.

The CBO's estimate for the cumulative deficit over the next 10 years is now $2.3 trillion. Earlier this year, the CBO estimated the country would have a $300 billion surplus by 2018. But that was wiped out in part because of new spending approved by lawmakers for the war in Iraq and Afghanistan and revised economic projections.

And the 2.3 trillion figure doesn't account for the likelihood that the 2001 and 2003 tax cuts will be extended or that the middle class will continue to be protected from the Alternative Minimum Tax - or so-called wealth tax. If those extensions are made - and both presidential nominees have been calling for that, at least in part - then the 10-year deficit projection jumps to more than $7 trillion.

Putting Fannie and Freddie on the books
. . . .

More good news - http://www.bloomberg.com/apps/news?pid=20601087&sid=a08O9REm5k9c

 

[kronon]

Consumerism itself, seems to me, has at least some role to play in the foundations of the recent credit tumult, yet its something we've heard very little about.

For a good to be valued less for its durability and more for its fashionability seems a strange requirement for any rational economic/banking system to have to accommodate.

And I think its caused some problems. Some fortunate portions of society have used part of their credit to buy hard assets (homes etc, and while plummetting are not zero); while other portions used their credit on thin-air: goods that are probably already piling up on the junk heap. Likely helped to hammer in the wedge between future haves and have-nots considerably deeper.

 

[Astronuc]

Consumerism itself, seems to me, has at least some role to play in the foundations of the recent credit tumult, yet its something we've heard very little about.

I don't think the media would wish to alienate their customers or the politicians their constituents by telling them that some of them borrowed too much and that they contributed to the crisis.

It's a confluence of problems - too much debt, insufficient economic growth, surge in energy prices and probably cost of health care - and boom - cost of living exceeds ability to pay, and everyday expenses (including debt service) exceed income.


Meanwhile - U.S. stock futures down ahead of rescue plan vote

NEW YORK (MarketWatch) -- U.S. stock futures fell sharply on Monday as fears intensified the $700 billion rescue proposal may not be enough to restore confidence in the financial system as Wachovia Corp. and lenders around the world received government backing of some sort.
. . .
The deal reached during the weekend calls for $250 billion upfront to be given to the Treasury to buy troubled assets. Treasury could purchase the bad debt through an auction process as well as direct purchases, a Treasury official said in a conference call.

Equity strategists at Credit Suisse say $700 billion represents about 12% of mortgages not backed by Freddie Mac or Fannie Mae -- "probably an appropriate amount to ensure markets become more liquid." But they said it was too small, especially compared to the original Resolution Trust Corp. program that rescued savings-and-loans.

Merrill Lynch's currency strategists said it was "more or less as expected" -- and they too warned it might not be enough.

"If, as we expect, money markets do not calm down, we would expect risk to weaken in a broad way. Policymakers may then start thinking of even bigger and more unconventional policies," they said.

Deutsche Bank's Mike Mayo, a well-regarded banking analyst, said the positives were mergers can be jump-started and problem banks now have an exit strategy. But he too saw negatives.

"Our issue is that the plan is likely not sufficient for banks to meaningfully expand business, to reduce the slide in home prices, or to halt the likely increase in problem loans for the next year," he said.
. . . .

 

[Greg Bernhardt]

Citigroup buys Wachovia. Dow down 250. CNBC interviewing some congressman that say they will vote no on the bill. Not sure if that is useful.

 

[kronon]

and boom - cost of living exceeds ability to pay, and everyday expenses (including debt service) exceed income.[/url]

The precise point at which this occurs and the dynamics leading to it I find fascinating. Suddenly, the numbers just stop adding up for the average citizen..."basic expenses x, income 0.9x, and no more overdraft or tax credit...". Game-over. It marks the start of what may be a stalling economy, tarp or no tarp.

 

[Astronuc]

Citigroup buys Wachovia. Dow down 250. CNBC interviewing some congressman that say they will vote no on the bill. Not sure if that is useful.

I heard the initial vote in the House was something like 220 Yes - 198 No, which is awfully close. I guess some just want to say they were forced into a Yes to protect the economy. Too bad these guys weren't paying attention during the last decade or so.

Dow was down a little over 300 when I last checked, and NASDAQ was down about 5%.


Well, I suppose it could be worse.

 

[turbo]

I heard the initial vote in the House was something like 220 Yes - 198 No, which is awfully close. I guess some just want to say they were forced into a Yes to protect the economy. Too bad these guys weren't paying attention during the last decade or so.

Dow was down a little over 300 when I last checked, and NASDAQ was down about 5%.


Well, I suppose it could be worse.

After the deal is finalized (and it will be, much to my dismay), watch the Republicans up for election this year start hammering their opponents about the "Democrat Bailout Package". It's coming, sure as little green apples.

 

[Greg Bernhardt]

So far vote has not passed the house. However CNN says they can leave the vote open for people to change position for as long as they need.

DOW down 400+

 

[Astronuc]

Dow down 653 - 5.9%! I saw it down 6.1% momentarily!

Panic has set in?


Apparently the Dow was heading back up. Yahoo reported it down 700 points at one point as the vote on the $700 billion rescue bill was starting.

 

[edward]

I am wondering if any of this is a part of, or will lead up to the rumored October surprise.

 

[jal]

The precise point at which this occurs and the dynamics leading to it I find fascinating.

There will be books and books trying to find out.
There used to be a time when people never borrowed for "daily expenses".
"Somebody" changed the way people think.
"Somebody" set up the "mechanisms" that would allow people to be able to borrow without worrying about paying the money back.
"Somebody" was Benefiting from those transactions.
Talk to seniors ... they hate to buy if they do not have the money.

Yea - 207 Nay - 226

 

[Greg Bernhardt]

Dow down 653 - 5.9%! I saw it down 6.1% momentarily!

yup low at 705!

no votes have changed in the past 15min

edit: bill actually lost two votes! 205 now

 

[Greg Bernhardt]

cnn reports dem leadership says bill is dead. they will go back to the drawing board and construct a new deal

 

[LowlyPion]

cnn reports dem leadership says bill is dead. they will go back to the drawing board and construct a new deal

I'd say throw the bums out.

The people's representatives are not doing the people's business.

A lot of good McCain did going back to Washington. (Or is this the ploy? Have McCain step into make an impassioned plea to the party and get them to come along and then look like a hero? They've tried dumber things. Look no further than Palin.)

 

[Jimmy Snyder]

Score one for America. You can take that $700 billion figure and stuff it back where you got it from.

 

[turbo]

How about a new plan that backstops the bad mortgages and keeps people in their houses, propping up the bundled securities made up of those mortgages? The thought that investment banks could sell the taxpayers all the bad debt they hold is just too ridiculous to contemplate. If my exposure to investment banks (through mutual funds, etc) causes me to lose money as some banks fail, that's one thing. It's another thing entirely to come after me for money to reward the people who took unacceptable short-term risks. Also, re-regulate the banks and forbid the issuing of any new derivatives - they appear to be so complex that auditors can't evaluate them, and are thus a great way to scam individual investors at the expense of insiders.

 

[LowlyPion]

Also, re-regulate the banks and forbid the issuing of any new derivatives - they appear to be so complex that auditors can't evaluate them, and are thus a great way to scam individual investors at the expense of insiders.

I tend to agree. The thing that is so difficult to figure is the systemic damage that has been created by these irresponsible derivatives sweeping loose credit terms in and bundling them about in the unregulated market.

While I have no love for seeing 700B spilled down the bunny hole, the concern for me is the holes in the fabric of the credit markets that still need repair. The Federal Reserve stressed itself further today opening up larger international credit swaps to stimulate liquidity.

At some point the apparatus simply fails and it's not clear what pieces are left.

The number one best thing we can do is get this election out of the way, and get McCain and his deregulation fat cat buddies into retirement, with the epithets of an ungrateful nation for what they have wrought.

 

[LowlyPion]

Now the Republicans are trying to blame Pelosi for delivering a Partisan speech?

These guys are real rubes.

 

[Astronuc]

I suppose if stock prices fall - then a few more financial services companies may not have adequate capital. If there is a liquidity crisis - some companies may not be able to make payroll.

I suspect during this week the equities markets will be rather volatile.

 

[Greg Bernhardt]

I am toast in the market today. Down 16% personally.

 

[LowlyPion]

I am toast in the market today. Down 16% personally.

If you had Wachovia shares you'd be crispy fried.

 

[mgb_phys]

How about a new plan that backstops the bad mortgages and keeps people in their houses,

You mean like some sort of federal mortage corporation backed by the goverment?
It might work as long as it wasn't privatised to become just another Wall St casino although one without any regulation, congressional oversight or financial stabilty.
I can't see that ever happening.

 

[turbo]

I am toast in the market today. Down 16% personally.

Sorry to hear that. I'm pretty well-diversified, but I've been taking a pounding almost all year. I just don't want to look at the numbers today.

I've got a money-market account with the interest rate tied to prime. It was great when I started the account, but every time the Fed freaks and cuts prime to free up money for the market, I take it in the neck. If the Fed cuts rates again, I might have to put my money under the mattress. At least it will be handy when I have to fill a shopping-bag full of bills so my wife can pick up some bread and milk.

 

[Astronuc]

http://60minutes.yahoo.com/segment/194/the_big_bailout

Paulson says that many of the problem mortgages originate at the state level where they are regulated. Too many people put nothing down or bought second or multiple houses. He's answering Scott Pelley's question of why they didn't see this coming.

They should have read this thread 2 years ago.


Sorry to hear about your loss today, Greg. Consumer products equities JNJ, KFT, PG are where you should put your money now. They have less of a downside. I think C and GS would be good buys.

I heard about 28 down for every 3 up on the NYSE earlier today.

 

[Art]

How about a new plan that backstops the bad mortgages and keeps people in their houses, propping up the bundled securities made up of those mortgages? The thought that investment banks could sell the taxpayers all the bad debt they hold is just too ridiculous to contemplate. If my exposure to investment banks (through mutual funds, etc) causes me to lose money as some banks fail, that's one thing. It's another thing entirely to come after me for money to reward the people who took unacceptable short-term risks. Also, re-regulate the banks and forbid the issuing of any new derivatives - they appear to be so complex that auditors can't evaluate them, and are thus a great way to scam individual investors at the expense of insiders.

AFIK there never was a plan to buy banks' bad debts. The fund was to buy illiquid assets i.e. those bundled mortgage derivative packages that banks cannot trade any more because their true value is not known.

If there is no bail out then I'd say the banking sector will go critical in a matter of weeks. Just today Wachovia in the US collapsed and was bought by Citigroup whilst in Europe one of the UK's biggest mortgage lenders, Bradford and Bingley was nationalised at a cost to the other UK banks of up to £14 billion and Benelux giant Fortis needed to be bailed out by three governments at a cost of 9 billion euro as did Germany's Hypo Real Estate to the tune of 28 billion euro.

The collapse of the financial sector will be closely followed by the wider economy as firms lose access to capital funding and lines of credit are withdrawn. A realization of which is causing the stock market to plummet.

 

[Art]

http://60minutes.yahoo.com/segment/194/the_big_bailout

Paulson says that many of the problem mortgages originate at the state level where they are regulated. Too many people put nothing down or bought second or multiple houses. He's answering Scott Pelley's question of why they didn't see this coming.

They should have read this thread 2 years ago. Sorry to hear about your loss today, Greg. Consumer products equities JNJ, KFT, PG are where you should put your money now. They have less of a downside. I think C and GS would be good buys.

I heard about 28 down for every 3 up on the NYSE earlier today.

Even some of the safe haven consumer companies are dodgy now because of the Chinese milk poisoning scare. Cadburys and allegedly Kraft have found Melamine in some of their products produced in China which I imagine isn't going to help their share prices. http://news.bbc.co.uk/2/hi/asia-pacific/7641317.stm

Seems there is nowhere safe to go at the moment for one reason or another.

 

[turbo]

You're right about PG, Astronuc. Solid performance, good marketing, and the major business is in consumables that have to be bought over and over again. When I was with Scott/SD Warren, they were our biggest competitor in consumer products. I gave the CEO of Scott hell when he visited my control room on the paper machine because instead of expanding the production/distribution of 1000-sheet rolls of Scott tissue to establish a presence west of the Mississippi, he and his marketing advisors chose to build a tissue mill on the west coast to produce highly-lofted 250-sheet/roll tissue to try to compete with P&G on their own turf. What a maroon (Thanks, Bugs!).

 

[Astronuc]

Even some of the safe haven consumer companies are dodgy now because of the Chinese milk poisoning scare. Cadburys and Kraft have found Melamine in some of their products produced in China which I imagine isn't going to help their share prices.

Seems there is nowhere safe to go at the moment for one reason or another.

I heard Cadbury was recalling a lot of chocolates, and the Chinese government busted a ring in one of the provinces that was adding melamine to milk. US and European companies need to think twice about food and pharmaceutical products from China. Inexpensive products often means low quality - and pressure to cheat with substitutions to make a buck.

They need to think about QC at the source.

Meanwhile - At 3:18PM ET: 10,527.05 616.08 (5.53%).

I bet they can't wait until 4pm EDT.

 

[LowlyPion]

Barney Frank just commented that if they will tell me the names of the 12 Republican Members that got their feelings hurt by any Partisanship, he will go to each one of them and "talk uncharacterically nicely" to them and try to persuade them to put the best interests of the country first.

His real opinion is that the Republicans couldn't deliver the votes that they said they could and are now painting it as a partisan issue. True that.

 

[mgb_phys]

US and European companies need to think twice about food and pharmaceutical products from China. Inexpensive products often means low quality

A number of european countries and US states have been caught adding antifreeze to wine, so you can't trust expensive products either!

 

[Astronuc]

Dow 30 was down by 732.28 at one point (which just eclipsed the previous record low of 721 first day open after 9/11/2001), and flirted with a new 52-week low. It has recovered somewhat - climbing about 160 points.

 

[Art]

A number of european countries and US states have been caught adding antifreeze to wine, so you can't trust expensive products either!

It all adds up to a confirmation of the need for regulation and oversight. All of these diverse problems from the financial markets to food quality are a consequence of a lack of these in pursuit of free market economics.

 

[Astronuc]

Just before close:
Dow30: At 4:14PM ET: 10,365.45 -777.68 (-6.98%) I'm wondering if this is the close.
Nasdaq: 1,983.73 -199.61 -9.14%

Ouch that hurts someone!

I wonder how badly the Asian and European will do in the morning? Will they or the US market recover tomorrow?

 

[LowlyPion]

Just before close:
Dow -689.59 -6.02%
Nasdaq -199.61 -9.14%

Ouch that hurts someone!

I wonder how badly the Asian and European will do in the morning? Will they or the US market recover tomorrow?

Dow now showing -777.68 after the close.

 

[Astronuc]

I wonder if that's after hours - or it was delayed?