US Economy Headed for Toilet: Great Depression 2?

[selfAdjoint]

Here, courtesy of poster Ann on Brad de Long's blog, is a http://www.cepr.net/publications/debt_trends.htm . Whovever gets elected in November, he will be facing an economy headed for the toilet, and likely to drag the world economy down with it. Great Depression, second act?

 

[JohnDubYa]

Yes, the end of the world. Do you have any locust population trends?

 

[graphic7]

Yes, the end of the world. Do you have any locust population trends?

Is it just me or does anyone notice that whenever someone mentions something that *might* point towards Bush's direction, Dubya gets defensive?

The thing is, SelfAdjoint didn't even have to mention Bush, and Dubya became defensive.

 

[russ_watters]

SA, I'm confused by your title - are you happy about this?

In any case, I share JD's objection: you can't apply a trend to everything - especially something known to by cyclical. Consumer debt is high because interest rates are low. As interest rates rise, consumer debt will decrease. I'm not seeing a crisis here.

 

[russ_watters]

Is it just me or does anyone notice that whenever someone mentions something that *might* point towards Bush's direction, Dubya gets defensive?

The thing is, SelfAdjoint didn't even have to mention Bush, and Dubya became defensive.

Hmm... in fact, the only one so far to mention Bush is you...

 

[JohnDubYa]

Extrapolation is a nasty thing.

 

[graphic7]

If either of you had read the article, the first sentence mentions the "Bush Administration."

Not reading, and replying is a nasty thing, also.

 

[Ivan Seeking]

Yes, the end of the world. Do you have any locust population trends?

A mind is a terrible thing to waste.

 

[Smurf]

Here's a fun one: http://www.well.com/~sunbear/deficit.jpg

 

[graphic7]

Here's a fun one: http://www.well.com/~sunbear/deficit.jpg

Smurf, you better watch it. You'll get the republicans, Russ and Dubya all fired up. :rofl:

 

[JohnDubYa]

Edit: Misread the timeline

 

[Smurf]

Damnit! now I am all wondering what he said =(

 

[graphic7]

He was going to say that the line was already in decline before Bush came in office.

 

[Gokul43201]

http://www.well.com/~sunbear/deficit.jpg

Hmmm...looks like every Republican President (with the exceptions of Nixon and Bush Jr., who converted surpluses into deficits) has, by the end of his term, nearly doubled the deficit he inherited. Among the Democrats, only Carter caused the deficit to increase - by about 25%. Johnson and Clinton converted deficits into surpluses.

Umm...just paraphrasing the data here, for those people unable to access that link for whatever reason. No political bias is intended.

 

[graphic7]

I wouldn't be suprised if I see an outcry from one of the republicans here for some sources of the data displayed in the image. That's what *always* happens..

 

[member 5645]

I started to reply, but this thread has already turned into cess pool. You people REALLY need to get off the partisan garbage. Before anyone even responds, there's already been multiple "Republicans..."
You think that is going to bait us in?? Or are you just trolling to do so?


EDIT - wait, all of the Republican bashing replies were due to Graphic7. When is this crap going to be cleaned up?

 

[selfAdjoint]

Oh you should add Gokul too, and while you're at it, add me; I think Bush is a disaster. But the deficit and the foreign debt is a bipartisan stupidity; Congress just waggled another unfunded tax cut^*, a "middle class" one that Bush will certainly sign, nd the Democrats had their noses in the trough right along with the Republicans.

And no, I am not happy to see another Great Depression threatening. I am one of the few posters here who can just remember the original; the joy of finding a dollar bill stuck under the upholstery of our couch, when we weren't going to have any money over the week-end till Daddy's (diminished) allotment check cleared. I live like that again now on Social Security, and people are saying the SS trust fund is the first place they'll look if the general fund comes up short, as it will, in a year or two.


^*Yes, I know they were really extending a tax cut that was up for rnewal, but they had two responsible choices: Let it die a decent death, or if they had to have it, fund it with other taxes.

 

[graphic7]

Excuse the bashing or rather the "trolling" some of you may call it, but I'm really sick of you people stating the economy was already in decline before Bush took office and that it was Clinton's fault.

The reason I'm bashing the republicans is simply you're the *only* ones that support Bush. How many democrats or liberals (they wouldn't be liberals or democrats then) support Bush? Not many I bet, therefore, I have to bash you.

And Phatmonky, perhaps you should get off some of that Bush propaganda, eh?

 

[JohnDubYa]

Excuse the bashing or rather the "trolling" some of you may call it, but I'm really sick of you people stating the economy was already in decline before Bush took office and that it was Clinton's fault.

They're just stating their opinions.

I am heading out. Over the last week we have had a new slur of posters and the arguments have really degenerated. It seems we have about six Adams in here now, and the forum is beginning to look like the Democratic Underground, complete with conspiracy theories in every thread. I don't even care that much. Kerry winning wouldn't be the end of the world for me, especially since it keeps you-know-who at bay for another four years.

 

[Gokul43201]

Oh you should add Gokul too, and while you're at it, add me; I think Bush is a disaster.

Hold your horses, mister ! (I mean, Supreme UberMentor)

While I share your "Bush is a disaster" sentiment, I won't go so far as drawing up generalized correlations from a National Deficit timeline. I was merely making a joke, while perhaps, at most, raising a suspicious eyebrow.

 

[Gokul43201]

And Phatmonky, perhaps you should get off some of that Bush propaganda, eh?

graphic7, I've heard (read) phatmonky (who is clearly a conservative) criticize Bush's economic policy, but haven't come across any Kerry criticisms from you (and surely there are at keast a few out there). If I'm wrong on this observation, ignore me, but it seems that perhaps, phatmonky may be far more objective on this issue than you think.

 

[graphic7]

Perhaps you're correct in phatmonky's aspect; I haven't read too many of his posts to know much about his policy. As for Kerry, in no way does Kerry have my full confidence, however, I do think he is the lesser of two evils. I've made one comment where I believe Kerry sways in his beliefs too much for me. Just my opinion, I guess you could say.

 

[member 5645]

Oh you should add Gokul too, and while you're at it, add me; I think Bush is a disaster. But the deficit and the foreign debt is a bipartisan stupidity; Congress just waggled another unfunded tax cut^*, a "middle class" one that Bush will certainly sign, nd the Democrats had their noses in the trough right along with the Republicans.

And no, I am not happy to see another Great Depression threatening. I am one of the few posters here who can just remember the original; the joy of finding a dollar bill stuck under the upholstery of our couch, when we weren't going to have any money over the week-end till Daddy's (diminished) allotment check cleared. I live like that again now on Social Security, and people are saying the SS trust fund is the first place they'll look if the general fund comes up short, as it will, in a year or two.


^*Yes, I know they were really extending a tax cut that was up for rnewal, but they had two responsible choices: Let it die a decent death, or if they had to have it, fund it with other taxes.

My problem isn't debating that Republicans are wrong. My problem is with the prejudice shown before I, or any other "right winger", get a chance to even reply.
Childish generalizations like "I wouldn't be suprised if I see an outcry from one of the republicans here for some sources of the data displayed in the image. That's what *always* happens.." before anyone even replies is pretty sad. It adds nothing to the conversation and really takes away my want, or hope, to have a real debate.
I'm just saying, let's try to drop the hyperbole and generalizations.

 

[member 5645]

Excuse the bashing or rather the "trolling" some of you may call it, but I'm really sick of you people stating the economy was already in decline before Bush took office and that it was Clinton's fault.

The reason I'm bashing the republicans is simply you're the *only* ones that support Bush. How many democrats or liberals (they wouldn't be liberals or democrats then) support Bush? Not many I bet, therefore, I have to bash you.

And Phatmonky, perhaps you should get off some of that Bush propaganda, eh?

I'm sick of not even having a chance to reply before I'm told what I think and WILL reply with.

Zell miller, an elected democrat, is one. Bashing isn't what this forum is about, so no, you DON'T have to bash me.

I haven't even had a chance to give an on-topic reply in this thread. How do you know what 'propaganda' I'm believing?

 

[russ_watters]

If either of you had read the article, the first sentence mentions the "Bush Administration."

Not reading, and replying is a nasty thing, also.

And the second sentence goes off in a completely different direction. The article was not about the federal budget deficit or the Bush admin.

Excuse the bashing or rather the "trolling" some of you may call it, but I'm really sick of you people stating the economy was already in decline before Bush took office and that it was Clinton's fault.

The economy was in decline before Bush took office. Check the numbers. But IMO, the president doesn't have a whole lot to do with that and even if he does, he doesn't affect it instantly. Sorry, graphic7, but either way, you can't have your cake and eat it too on this one.

But hey, anyone want to actually discuss the article? It was about consumer debt, not about Bush. Anyone...? Or is anti-Bush blustering all people really want to do in this forum?

 

[selfAdjoint]

Russ, I think you and Phat are whining over nothing. You seem to think that you can be snarky to liberals but if anybody comes back and uses your own tactics on you it's dirty pool. Wake up and smell the coffee! This board doesn't belong to right wingers or libertarians lone, anybody can come and post.

 

[Nereid]

It's the consequences of the current trends which are so unnerving ... a house-price bubble (aka real estate bubble) is what folk in the US, Australia, parts of the UK, ... are certainly experiencing. Unlike a stock market bubble (at least, in countries other than the US), a real estate bubble affects a majority directly ... and western economies have little experience dealing with these. Add the bubble to a job-less recovery, record low interest rates, and record foriegn debt, and the prognosis is ugly indeed.

The foreign debt thing could have truly awful global consequences, given the role of the US$ in world trade, and the importance of the US market (imports and exports) to trading nations (esp China). Add to that the fact that the RMB (Chinese currency) is pegged to the USD, that many central banks now hold humongous amounts of USD and US-Treasury backed securities, and you've got a brew of explosives.

Finding a goat (donkey? elephant?) to sacrifice for how we all got into the current mess may provide some emotional satisfaction, but won't do anything at all to stop the impending train wreck.

 

[russ_watters]

Russ, I think you and Phat are whining over nothing. You seem to think that you can be snarky to liberals but if anybody comes back and uses your own tactics on you it's dirty pool. Wake up and smell the coffee! This board doesn't belong to right wingers or libertarians lone, anybody can come and post.

?? Huh? You posted this thread - what was the point? I figured from the article that you posted it in order to discuss consumer debt. Was that your intent or not? If you intended this to be a Bush-bashing thread, not a discussion of an economic issue, then I misunderstood and graphic7 was correct in posting a Bush-bash in reply. By all means, continue and I'll get out of the way.

And also, if you ever see me using tactics like the ones I objected to (specifically, graphic7's post), by all means point them out to me. I have no desire to be a hypocrite.

 

[russ_watters]

If discussion of the paper, not just random Bush-bashing is the point, allow me to expand on my objection:

From figure 1, you can clearly see that household debt is cyclical in nature and depends on interest rates. But the extrapolation done is linear. That's simply an incorrect analysis of the data. From the caption:

While the ratio of debt to income is clearly far above prior peaks, and is rapidly headed higher, many analysts have noted that debt service payments are not especially onerous, due to fact that current interest rates are unusually low.

Its interesting to me that they note "prior peaks" (indicating that they know the data is cyclical) but then extrapolate linearly up from today.

I also think that there is a feedback effect here: the ratio is higher than other peaks and higher than you might expect by extrapolating interest rate vs peak because interest rates are so much lower than normal, people are putting extra effort into buying real estate right now.

Consumer debt is revolving and if it were much above normal, that would be a big problem - but it isn't.

I can't speak to much about the foreign debt issue though.

 

[kat]

It's the consequences of the current trends which are so unnerving ... a house-price bubble (aka real estate bubble) is what folk in the US, Australia, parts of the UK, ... are certainly experiencing. Unlike a stock market bubble (at least, in countries other than the US), a real estate bubble affects a majority directly ... and western economies have little experience dealing with these. Add the bubble to a job-less recovery, record low interest rates, and record foriegn debt, and the prognosis is ugly indeed.

Wrights Investor Service

On the positive side of the consumer balance sheet, U.S. household wealth grew 1.4% (11% year over year) to a record $46 trillion during the second quarter of 2004, according to the latest Fed statistics. Compared with end of 1999 levels, holdings of equities and mutual fund shares have shrunk by more than 20%, while real estate wealth has expanded by 50% or $5.5 trillion through the middle of 2004. Alan Greenspan maintains that there is no real estate bubble, and one certainly hopes the Fed chairman is correct. Still, it would seem prudent to expect real estate wealth to increase more slowly, if not shrink, as mortgage rates normalize over the coming five years.

Bankrate.com

Ever since the NASDAQ meltdown some folks have been waiting for the next big bad equity story. Since most equity is found in peoples' homes, that's where pundits have been focusing. They face disappointment however as they watch and wait for the "house-price bubble" to burst.

It's not going to happen -- there isn't one.

http://www.seacoastonline.com/news/09042004/biz_nati/35898.htm

"There is no national price bubble. Never has been; never will be," says David Lereah, chief economist for the National Association of Realtors. That leaves room for local housing bubbles, but Lereah sees no sure signs of those, either.

etc. etc. etc.

 

[gravenewworld]

The economy was in decline before Bush took office. Check the numbers.

Was it? According to the US Commerce's Bureau of Economic Analysis and the National Bureau of Economic Research, the recession began in March of 20001 and ended in Nov. of 2001, which is entirely under Bush.

Also let's get one thing correct here, the interest rates that economists refer to is the Federal Fund Interest rate, which is how much banks have to pay in interest in order to borrow money. It is NOT the interest rates you and I get from the bank to buy houses and cars etc.

Bush and Kerry are both bad for the deficits, Bush with his addiction to tax cutting and spending and Kerry with his education and health care package that is estimated to cost over 1 trillion dollars in government deficit.

3rd, the housing market has mostly seen a boom due an increase in the population in the United states. A record amount of people owned homes this year, and the year before that, and the year before that,...etc. because the population of the US has been steadily increasing.

 

[russ_watters]

Was it? According to the US Commerce's Bureau of Economic Analysis and the National Bureau of Economic Research, the recession began in March of 20001 and ended in Nov. of 2001, which is entirely under Bush.

As any Democratic economist will tell you today, GDP isn't the only economic indicator (but it is what a "recesion" is based on). http://www.lowrisk.com/nasdaq-1929.htm site gives a rather more specific date than I would, but they say the Internet Bubble burst on March 11, 2000 - nearly 8 months before the election. The stock market is, of course, a leading indicator.

And even still - what was the GDP growth in each quarter of 2000 - was the rate increasing or decreasing? And btw, I'm letting go the revisions in the GDP that were made later that show the recession itself started in 2000 - it isn't relevant to showing the overall economic downturn started in spring, 2000.

Also, since everyone knows the economy is cyclical, what (if anything) does it say that in this particular cycle, the recession was unusually soft? Is that surprsing or unsurprising considering the high was unusually high?

Also let's get one thing correct here, the interest rates that economists refer to is the Federal Fund Interest rate, which is how much banks have to pay in interest in order to borrow money. It is NOT the interest rates you and I get from the bank to buy houses and cars etc.

Yes, of course. But all other interest rates do follow it. I bought a car this year at 3.85%. I know several people who bought houses at under 5%. My parents, on the other hand, bought their house in 1975 at something like 7.5% and were told they'd likely never see it any lower in their lifetime.

 

[Nereid]

That's nice kat ... how about we ourselves look at the data? Of course we have to include Alan's (and many other economists') views too, and it's a tricky area in economics (not your average highly liquid market, plenty of distortions), but the data are the data (US figures):

- 9.4% year-on-year increase (Q2 03 to Q2 04); 6.5% (Q2 02 to Q2 03)
- 57% rise, 1997-2004 (so it's not just a one year blip)
- 126 = ratio of house prices to incomes (vs 1975-2000 average = 100), a record high; previous high was ~106
- 125 = ratio of house prices to rents (vs 1975-2000 average = 100), a record high; previous high was ~104
- vacancy rates are at their highest levels since 1965 (so the high prices aren't being driven by immigration, as the popular US myth has it)

etc, etc, etc. (The Economist, 11th September 2004 issue, Finance and Economics section, has a good article on the bubble and why the US continues to be in denial, unlike Australia and the UK, and why the myths are indeed myths; it also discusses why it's so much more dangerous in the US than elsewhere ... basically, too little room to manoeuvre, what with low consumer savings, low interest rates, and massive government deficits)

 

[russ_watters]

Nereid, though I'm saying I don't think there is a problem (and further, I think there is a major flaw in SA's link), I'll freely admit the current condition can be considered a "bubble" - in the same sense, every cyclical high is a bubble. Obviously, the bigger the bubble, the worse it is when it pops, but there are a lot worse (read: unstable) things to invest in than real-estate. I think the fact that all this money is tied up in real-estate indicates the burst won't be anywhere near as bad as if the money was all in stocks (for example).

When a stock market bubble bursts, it can be pretty life-altering: I think a lot of the reason unemployment is high today is because there are more older workers working than there should be. My parents (59 and 61) would both be retired today if the market bubble hadn't been a bubble.

But when a real-estate bubble bursts, what happens? Home values drop. That puts you in a bad situtation if you're selling, but otherwise you still own a home you can live in. And if the problem is from the cash-flow end, ie you took on more debt than you can really handle, typically that means selling your house and buying one you can actually afford - or going bankrupt but (usually) keeping the house. That's taking it on the chin, but it isn't fatal.

Besides which, once you're in a fixed-rate loan, you're in. You enter based on what you are earning today, even knowing that (hopefully) in 5 years you'll be making 50%+ more than today and really could afford to pay more then. Yeah, some of my friends are pretty debt-loaded right now, but their situation will improve with time, not get worse, assuming only that they aren't utterly worthless workers.

Also, knowing my current situation (not yet a homeowner, but soon), and that of my friends, I see a lot of people who are right on the edge of being able to afford a home, and a small help like a good mortgage deal can get them there. The downpayment (or closing costs), not the monthly payments is almost always the biggest obstacle.

 

[NateTG]

When a stock market bubble bursts, it can be pretty life-altering: I think a lot of the reason unemployment is high today is because there are more older workers working than there should be. My parents (59 and 61) would both be retired today if the market bubble hadn't been a bubble.

Considering that the price/earnings ratio of the market is still AFAIK at historical highs, that claim has limited credibility. Really, there are other economic factors that are probably contributing more, probably the same ones that led to both your father and your mother working rather than just your father. The fact is that the retirement age has been climbing and that worker income has been shrinking relative to cost of living for a long time, and pointing to the .com rush as a cause is rather silly.

But when a real-estate bubble bursts, what happens? Home values drop. That puts you in a bad situtation if you're selling, but otherwise you still own a home you can live in. And if the problem is from the cash-flow end, ie you took on more debt than you can really handle, typically that means selling your house and buying one you can actually afford - or going bankrupt but (usually) keeping the house. That's taking it on the chin, but it isn't fatal.

You know, there was a real estate burst in the US about 75 years ago. It didn't do much either.

Besides which, once you're in a fixed-rate loan, you're in. You enter based on what you are earning today, even knowing that (hopefully) in 5 years you'll be making 50%+ more than today and really could afford to pay more then. Yeah, some of my friends are pretty debt-loaded right now, but their situation will improve with time, not get worse, assuming only that they aren't utterly worthless workers.

Let's say that we get into a nightmare scenario where interest rates climb to around 10%, propery values drop 40%, and that homeowners are primarily in 20% down loans that are five-year fixed rather than 15 or 30 year fixed. Now, a homeowner is stuck because selling may well represent an unafordable loss. At the same time the drop in real estate prices is liable to push the owner into a higher interest rate situation since the debt is now larger than the value of the property. Since the homeowner's situation is systematic, this type of situation can easily lead to bank problems since the banks end up eating large foreclosure lossess increasing interest rates, and a simultaneous housing glut which drives the market down exasperbating the problem. In this nightmare scenario, the rising interest rates also sap at business increasing unemployment, and, once again, attacking the housing market.