News What are the potential impacts of public confidence on the economy's recovery?

[russ_watters]

That's fine, but has nothing to do with political affiliation. A small business owner whose getting paid more because one of his clients received stimulus funding isn't going to say "Well, I'm a Republican, so I'm going to burn this cash in my backyard"

We're not talking about how he got the stimulus passed, or the political ramifications of it, we're talking about the effects of the stimulus on the economy. You still haven't demonstrated where political affiliation comes into play for this

Political afiliation comes into play because Democrats are closing their eyes while Obama swipes our credit card. They are acting like the stimulus money is free money when it isn't.

Besides - need I remind you that you just claimed the stimulus could stimulate without spending money?:

It should be obvious the argument is that the stimulus, y'know, stimulated the economy. I.e. got people not receiving economic stimulus funds to spend more money, or even just encouraging the people who did get those funds to spend more than just that money.

 

[WhoWee]

Political afiliation comes into play because Democrats are closing their eyes while Obama swipes our credit card. They are acting like the stimulus money is free money when it isn't.

Besides - need I remind you that you just claimed the stimulus could stimulate without spending money?:

I haven't posted since May 22 - and the economy has not gotten any better in this time.

If you recall, the signing of the stimulus bill was so important and so urgent that our elected officials did not have time to read it. The money had to flow out to those "shovel ready" jobs immediately or the economy would collapse...

It was BS then and it's BS now.

The same can be said of the save or create jobs line. A government job (especially jobs created to count the census) is not helping the economy to recover. To pay for a government job - the government has to borrow, tax or print money. Lost private sector jobs means lost tax revenues.


I've been working on a wage credit project. Last year over $9 billion went unclaimed - this year the number could be $30 billion. Basically, there are tax credits available - incentives to hire certain workers at a rate of $1,500 to $9,000 per worker. There are hundreds of different programs nationwide. The best credits are provided for hiring minorities, youth, ex-felons, and welfare recipients. The most lucrative incentives are in inner city "Empowerment Zones".

The problem is the credits (which are actually REDUCTIONS - dollar for dollar reductions of an income tax liability) can only be used if the business has a tax liability. The majority of the small businesses in the "EZ's" are not profitable. Instead of hiring workers and taking advantage of these incentives, many of the businesses are laying off workers or closing.

Businesses run on revenues - sales drive business. Wages are not possible without sales revenues. Taxes come from sales, wages, and profits. Government runs on taxes.

No sales - no taxes - no legitimate government spending.

 

[OmCheeto]

Housing prices have dropped to what appear to be appropriate non-bubble levels

http://mysite.verizon.net/vzeqrguz/housingbubble/united_states.png
http://mysite.verizon.net/vzeqrguz/housingbubble/"

Perhaps that's why

http://news.yahoo.com/s/nm/20090818/bs_nm/us_usa_economy"
Tue Aug 18, 5:44 pm ET

WASHINGTON (Reuters) – Ground-breaking for new U.S. single-family homes rose for a fifth straight month in July and producer prices tumbled, keeping hopes for an economic recovery alive.

...

The economy is recovering, this is the turning corner. We will have positive growth this quarter, but not a lot of strength. It very much looks like a U-shaped recovery rather than V-shaped,

...

The housing market, the main culprit behind the worst U.S. economic downturn in 70 years, is being closely watched for signs of recovery after a three-year slump.

70 years! Wow. No wonder everyone's all in a huff about it.

And one of my staff members told me yesterday that our company no longer has a hiring freeze.

And my portfolio is up 19%. Woo Hoo! I've made $164 in only 8 months. Bwah hahaha... move over Mr. Buffet, OmCheeto's in town.

 

[bleedblue1234]

OMCheeto I don't understand why you go around spewing this nonsense. You grossly assume that your situation applies to all 300+ million Americans in this country, which is complete nonsense.

The U.S. economy has not improved at all, and in fact we are faced with drastically larger issues down the road. Sure, if you pump trillions upon trillions of dollars into any economy, you will buy a short term bounce, but it is silly to assume that growth rates of an economy can be maintained in such a way.

The budget committee just released estimates of a $10 trillion dollar deficit extending out 10 years, and that will bring the national debt WELL above 150% of GDP, and as such we will face massive issues trying to finance and sustain economic growth as well as finding a way to pay our obligations to other nations.

You also fail to realize that stimulus is buying at best a one year bounce, and at worst an even shorter time frame. I will propose that by November of this year we will once again be facing "economic catastrophe" just as it was last year. We have not fixed the banks in any meaningful way, we have not turned this country around in any drastic way, the only thing we are doing is buying a one year bounce with an incredible amount of stimulus dollars. We need to completely change the way this economy works, and I am simply not seeing that happening, and until we do we will not see a 'recovery' and we will only continue sliding off into the economy abyss.

The home market is still much to saturated with excess housing, and if you look at the housing report, 50% of the houses purchased in July were attributed to new home buyers which is most likely bolstered by the government $8,000 tax credit on down payments, which further distorts actual demand. You cannot tell me we are growing at a rate to sustain 50% of housing sales to first time home buyers.

Secondly, you fail to see the stock market is simply in another bear market rally...

Here's an example:

During the crash of 1929, you see a 60% rebound in stock prices (we are at approx. 53% today vs. March lows), followed by a steady decline interspersed with several rallies, but the inevitable conclusion is that the market continues to decline. Now in the situation we have today, the market could actually gain nominally in value, but because the dollar has been so weak (it is extremely close to making record lows once again), the actual realized value will still be lower.

 

[russ_watters]

OMCheeto I don't understand why you go around spewing this nonsense. You grossly assume that your situation applies to all 300+ million Americans in this country, which is complete nonsense.

You're kinda new in the politics forum, so I'll be nice here and say you just need to calm down and take a breath. Of the things in OMCheeto's post, only one was a situation specific to him. The things that apply to the economy in general:

-Housing prices
-The stock market
-Home building

There were a few good points in your post, though, such as the problem of the deficit and the possibility of a double-dip recession.

 

[OmCheeto]

OMCheeto I don't understand why you go around spewing this nonsense.

What in my post struck you as nonsense?

The home market is still much to saturated with excess housing

Then why is anyone bothering to build new ones?

I will propose that by November of this year we will once again be facing "economic catastrophe" just as it was last year.

I propose that by November of next year, my portfolio's profit will still be around 20%, given that I invest monthly. As was pointed out by Mr. Karl, we appear to be in a U shaped recovery rather than a V shaped recovery. I'd have preferred an L shaped recovery myself, as I have 8 years to continue investing before I retire. But that's just being greedy.

 

[russ_watters]

"...worst U.S. economic downturn in 70 years..."

When it ends and we get some distance betwen us and it, we'll see how economists actually rank it. A good, recent candidate that could be considered worse:

Early '80s. The NBER says there were two recessions in the span of three years. That's rediculously short and they should probably be seen as part of the same economic crisis. Regardless, the 2nd recession was the worse and might on its own be a candidate for being worse than the current crisis. It included a 20% prime interest rate, and 10.8% unemployment to go with 4 nonconsecutive quarters of negative gdp growth with two of them being consecutive at -5 and -6%. The 20% interest rate chased away the 10.3% inflation from 1981.

http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

People often list the length of the current recession as being the reason it is so bad, but the economy essentially plateau'd for a year before the recession really took off in the beginning of this year (precipitated by the stock market crash and bank failures last fall). So the length is not a good measure without proper context.

 

[OmCheeto]

"...worst U.S. economic downturn in 70 years..."

When it ends and we get some distance betwen us and it, we'll see how economists actually rank it. A good, recent candidate that could be considered worse:

Early '80s. The NBER says there were two recessions in the span of three years. That's rediculously short and they should probably be seen as part of the same economic crisis. Regardless, the 2nd recession was the worse and might on its own be a candidate for being worse than the current crisis. It included a 20% prime interest rate, and 10.8% unemployment to go with 4 nonconsecutive quarters of negative gdp growth with two of them being consecutive at -5 and -6%. The 20% interest rate chased away the 10.3% inflation from 1981.

http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

People often list the length of the current recession as being the reason it is so bad, but the economy essentially plateau'd for a year before the recession really took off in the beginning of this year (precipitated by the stock market crash and bank failures last fall). So the length is not a good measure without proper context.

hmmm... Your link somehow led me here:

http://en.wikipedia.org/wiki/List_of_countries_by_past_GDP_(PPP)

Interesting how 200 years ago we were a pauper nation, 100 years ago we were number 2, and now, at the depths of a catastrophe, we come to the following graph

It's no wonder McCain said there was nothing fundamentally wrong with our economy. I actually agreed with him. I wish everyone else had.

 

[mheslep]

...
It's no wonder McCain said there was nothing fundamentally wrong with our economy. I actually agreed with him. I wish everyone else had.

It all depends on what one calls the fundamentals. On what I call the fundamentals I think he was generally right, but politically it was a dumb thing to say with this many people losing jobs and the banks in dire trouble. He should have further clarified.

 

[russ_watters]

It also doesn't help that he made is statement just before the recession and bank failures gained steam. The one thing (and it is big) that was fundamental and wrong at the time was financial regulation. Just about everything in this recession can be traced to the financial system's problems.

 

[mheslep]

It also doesn't help that he made is statement just before the recession and bank failures gained steam. The one thing (and it is big) that was fundamental and wrong at the time was financial regulation. Just about everything in this recession can be traced to the financial system's problems.

Agreed.

 

[OmCheeto]

It all depends on what one calls the fundamentals. On what I call the fundamentals I think he was generally right, but politically it was a dumb thing to say with this many people losing jobs and the banks in dire trouble. He should have further clarified.

In September 2008, when he made the comment, the unemployment rate was only http://www.davemanuel.com/historical-unemployment-rates-in-the-united-states.php" . Hardly the thing of nightmares.
And he did acknowledge the financial turmoil:

You know, there's been tremendous turmoil in our financial markets and Wall Street and it is -- people are frightened by these events. Our economy, I think, still the fundamentals of our economy are strong. But these are very, very difficult time.

And the market may have been down, but wouldn't http://blogs.abcnews.com/moneybeat/2008/10/the-stock-marke.html" for another 3 weeks. So it really only became politically dumb in hindsight. If the crash hadn't occurred, he'd have been correct, and no one would be talking about the comment.

 

[Astronuc]

http://finance.yahoo.com/banking-budgeting/article/107575/rise-of-the-super-rich-hits-a-sobering-wall.html

Putting the recovery in perspective -

But economists say — and data is beginning to show — that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

Last year, the number of Americans with a net worth of at least $30 million dropped 24 percent, according to CapGemini and Merrill Lynch Wealth Management. Monthly income from stock dividends, which is concentrated among the affluent, has fallen more than 20 percent since last summer, the biggest such decline since the government began keeping records in 1959.
. . . .

Perhaps some are poorer, and others are not getting richer as fast as they were.

. . . .
In one stark example, John McAfee, an entrepreneur who founded the antivirus software company that bears his name, is now worth about $4 million, from a peak of more than $100 million. Mr. McAfee will soon auction off his last big property because he needs cash to pay his bills after having been caught off guard by the simultaneous crash in real estate and stocks.

“I had no clue,” he said, “that there would be this tandem collapse.”

. . . .
Over the last several years, Mr. McAfee began to put a large chunk of his fortune into real estate, often in remote locations. He bought the house in New Mexico as a playground for himself and fellow aerotrekkers, people who fly unlicensed, open-cockpit planes. On a 157-acre spread, he built a general store, a 35-seat movie theater and a cafe, and he bought vintage cars for his visitors to use.

He continued to invest in financial markets, sometimes borrowing money to increase the potential returns. He typically chose his investments based on suggestions from his financial advisers. One of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

. . . . [But - then came the bust]

In 2007, Mr. McAfee sold a 10,000-square-foot home in Colorado with a view of Pike’s Peak. He had spent $25 million to buy the property and build the house. He received $5.7 million for it. When Lehman collapsed last fall, its bonds became virtually worthless. Mr. McAfee’s stock investments cost him millions more.

One day, he realized, as he said, “Whoa, my cash is gone.”

His remaining net worth of about $4 million makes him vastly wealthier than most Americans, of course. But he has nonetheless found himself needing cash and desperately trying to reduce his monthly expenses.

He has sold a 10-passenger Cessna jet and now flies coach. This week his oceanfront estate in Hawaii sold for $1.5 million, with only a handful of bidders at the auction. He plans to spend much of his time in Belize, in part because of more favorable taxes there.

Next week, his New Mexico property will be the subject of a no-floor auction, meaning that Mr. McAfee has promised to accept the top bid, no matter how low it is.

“I am trying to face up to the reality here that the auction may bring next to nothing,” he said.

In the past, when his stock investments did poorly, he sold real estate and replenished his cash. This time, that has not been an option.

. . . .

. . . .
Perhaps the broadest question is what a hit to the wealthy would mean for the middle class and the poor. The best-known data on the rich comes from an analysis of Internal Revenue Service returns by Thomas Piketty and Emmanuel Saez, two economists. Their work shows that in the late 1970s, the cutoff to qualify for the highest-earning one ten-thousandth of households was roughly $2 million, in inflation-adjusted, pretax terms. By 2007, it had jumped to $11.5 million.

The gains for the merely affluent were also big, if not quite huge. The cutoff to be in the top 1 percent doubled since the late 1970s, to roughly $400,000.

By contrast, pay at the median — which was about $50,000 in 2007 — rose less than 20 percent, Census data shows. Near the bottom of the income distribution, the increase was about 12 percent.
. . . .

 

[Astronuc]

It also doesn't help that he made is statement just before the recession and bank failures gained steam. The one thing (and it is big) that was fundamental and wrong at the time was financial regulation. Just about everything in this recession can be traced to the financial system's problems.

It was actually just before people became aware of just how troubled the economy had become. All those uncovered liabilities were in place one or two years before. Defaults and foreclosure had been on a steady rise since mid 2006 - most of which were in the subprime market.

Bush's statement regarding the sound economic fundamentals, and McCain's echoing that statement, is just an indication of how out of touch both were about the economy.


The subprime mortgage crisis was part of the problem. There was an underlying problem:
Weak Regional Labor Market Conditions (slide 13)

Parts of the industrial midwest have experienced job losses, particularly in the manufacturing sector.

• Michigan’s rate of non-farm employment growth was -4.6 percent from the fourth quarter of 2001 through the second quarter of 2007.
• The corresponding figure for Ohio was -0.9 percent.

From the second quarter of 2005 through the second quarter of 2007,

• Michigan had the third largest increase in the total number of foreclosure starts (behind California and Florida).
• Ohio had sixth largest increase in the total number of foreclosure starts.

Slide 23 - Mortgage fraud

[Alarm bells were going off in 2007]
December 3, 2007 - Rapid Reporting
FBI Report Shows Mortgage Defaults and Foreclosures Linked to Borrower Fraud
http://www.mortgagemag.com/news/2007/1201/1000008650070.htm
70 percent of early payment defaults linked to misrepresentations in mortgage loan applications



If the GDP is increasing, it is because the government is borrowing and spending - which is an unsustainable situation. At some point, the debt has to be repaid.

 

[russ_watters]

Bush's statement regarding the sound economic fundamentals, and McCain's echoing that statement, is just an indication of how out of touch both were about the economy.

That would have more teeth if other politicians predicted that another shoe was about to drop, but they didn't. Obviously, even if he knew it would happen, it would have been suicide for Obama to say "Over the next year this recession will deepen into the worst we've ever had." He had no idea. Heck, he still has no idea what the economy is doing!

 

[OmCheeto]

Heck, he still has no idea what the economy is doing!

Well, I don't think anyone else does either.

Here's an old article from March of this year.

http://online.wsj.com/article/SB123671107124286261.html"

U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.

...

Economists were divided over whether the $787 billion economic-stimulus package passed last month is enough. Some 43% said the U.S. will need another stimulus package on the order of nearly $500 billion. Others were skeptical of the need for stimulus at all.

Economist = Phrenologist, still stands in my mind.

If the GDP is increasing, it is because the government is borrowing and spending - which is an unsustainable situation. At some point, the debt has to be repaid.

I think it's not decreasing as fast as it was, rather than increasing.

Unless you're talking about these economist's predictions.

http://www.portfolio-adviser.com/lwm/article/659"
We continue to believe that the recession is coming to an end and that US gross
domestic product (GDP) growth will be positive in the third quarter.

Based on historical patterns, a recession of the current magnitude would typically result in GDP growth levels of between 6% and 8% over the next 12 months, but with the economy still facing deleveraging and credit issues, we expect growth to be, at best, half of those levels. In the near-term, economic growth will benefit from an end to inventory liquidation and ongoing fiscal stimulus, but a sustained recovery will be difficult to achieve without jobs creation. By our analysis, the leading economic indicators are suggesting that we may start to see some growth in jobs by the end of this year, which would be good news.

But I trust the opinions of economists about as much as I do financial advisers:

from your McAfee post above:

He typically chose his investments based on suggestions from his financial advisers. One of their recommendations was to put millions of dollars into bonds tied to Lehman Brothers.

I ain't believin nothin anymore till I read it in a history book.

 

[WhoWee]

It also doesn't help that he made is statement just before the recession and bank failures gained steam. The one thing (and it is big) that was fundamental and wrong at the time was financial regulation. Just about everything in this recession can be traced to the financial system's problems.

McCain is not a great communicator. Unfortunately, too many people embrace how a speaker looks or how their voice sounds and the way a message is presented (or whether the person is popular or has a celebrity status), and not the content of the message.

A good example is the media coverage for Sean Penn - enough said?

 

[Astronuc]

That would have more teeth if other politicians predicted that another shoe was about to drop, but they didn't. Obviously, even if he knew it would happen, it would have been suicide for Obama to say "Over the next year this recession will deepen into the worst we've ever had." He had no idea. Heck, he still has no idea what the economy is doing!

At least Obama is not saying "the fundamentals of the economy are strong (or sound)".

Would one expect anyone in Washington to have an idea (a real idea) about what the economy is doing? Maybe Bernanke does, and he's not saying.

The term I heard recently was 'delay and pray'.
How long can banks 'delay and pray'?
http://marketplace.publicradio.org/display/web/2009/08/26/pm-banks-q/

Is this anyway to run an economy?

Meanwhile - Is the FDIC too big to fail?
http://marketplace.publicradio.org/display/web/2009/08/27/pm-fdic/
Tess Vigeland: The Federal Deposit Insurance Corporation rescued quite a few banks over the last year or so. From IndyMac and Washington Mutual, to Colonial Bank and four others just last week. The total so far this year is 81 banks. But 400 more are listed as "troubled."

 

[Astronuc]

I think it's not decreasing as fast as it was, rather than increasing.

I think it the GDP is supposed to have grown in the 3Q 2009. 'Cash for Clunkers' was a big boost.

 

[Ivan Seeking]

I think it the GDP is supposed to have grown in the 3Q 2009. 'Cash for Clunkers' was a big boost.

Some growth was expected in the third quarter. New home sales were up almost 10% in July!

It certainly looks like the worst is behind us," said Leif Thomsen, chief executive officer of Mortgage Master, an top non-bank lender. "The key is to make sure interest rates stay low."

Sales for last month, while 13.4% lower than in July 2008, are up 31.6% from the January bottom, the data showed...

http://www.marketwatch.com/story/us-new-home-sales-jump-nearly-10-in-july-2009-08-26

I got a call from a fairly large customer the other day that hasn't called in two years!

We timed our home reconstruction work perfectly - everyone was hungry. Every contractor I called responded and we received highly competitive bids. Last year I could only get one company to even show up. [Edit: Actually, I guess that was the year before. Last year Tsu fell and broke her hip, and the summer was shot]. We also bought a car when NO ONE was selling cars. Got that for a song as well. The cash for clunkers wouldn't have helped as we always buy fuel-efficient vehicles.

I would have liked to have bought another investment home, but with my business in the dumper for the last couple of years, we couldn't afford that and the remodel, which couldn't wait any longer.

 

[flatmaster]

Less consumption.

QED

 

[Ivan Seeking]

Less consumption.

QED

You might elaborate a bit.

 

[flatmaster]

You might elaborate a bit.

More people using fewer things to thrive, strive, and survive.

 

[Ivan Seeking]

More people using fewer things to thrive, strive, and survive.

I think we all know that, but do you have a point?

 

[flatmaster]

I think we all know that, but do you have a point?

No, not really.

 

[russ_watters]

I think it the GDP is supposed to have grown in the 3Q 2009.

Probably, yes.

'Cash for Clunkers' was a big boost.

What is "big" to you? I'd estimate that the $3 B put into it by the govt was matched by around $9 B from consumers, for a total of $12 B. If our $11 T GDP is spread evenly throughout the year, that would be about 0.11%.

I don't consider that big.

 

[Astronuc]

Probably, yes. What is "big" to you? I'd estimate that the $3 B put into it by the govt was matched by around $9 B from consumers, for a total of $12 B. If our $11 T GDP is spread evenly throughout the year, that would be about 0.11%.

I don't consider that big.

Certainly $12 billion is not big in a ~$14 Trillion annual GDP, and I was not referring to the annual basis.

$12 billion is about 1% of ~$1.1-1.2 trillion, which is about the monthly average of the GDP. The 1% is the magnitude of GDP growth in the month (on an annual basis) of which I heard - and most of that appears to be the 'Cash for Clunkers' program in Aug. Of course, the 1% was an estimate (ball park) and could be revised up or down. And it does not translate into the entire quarter - or the entire year.


Reluctance to Spend May Be Legacy of the Recession
http://www.nytimes.com/2009/08/29/business/economy/29consumer.html

“Lower-income households can’t borrow, and higher-income households no longer feel wealthy,” Mr. Zandi added. “There’s still a lot of debt out there. It throws a pall over the potential for a strong recovery. The economy is going to struggle.”

I can see that locally.

The 4 story garage where I park my car when at work used to be nearly full. Now it's half empty at 10 am.

 

[mheslep]

Probably, yes. What is "big" to you? I'd estimate that the $3 B put into it by the govt was matched by around $9 B from consumers, for a total of $12 B. If our $11 T GDP is spread evenly throughout the year, that would be about 0.11%.

I don't consider that big.

I'd question throwing the $9 B from consumers into the same 'stimulus' bucket, though it is often thought of that way. The $9 B might well have been targeted by the same consumer group for spending or investment in something more important than replacing the clunker - perhaps paying off that 17% credit card was the more rational move. Now, that money has been redirected to Detroit, though most of the clunker consumers did _not_ need a new vehicle (yet) - the one they had still got them down the road. There's an economic term for this redirection, but it escapes me at the moment.

 

[Astronuc]

An interesting perspective on the apparent recovery -

An Echo Chamber of Boom and Bust
http://www.nytimes.com/2009/08/30/business/economy/30view.html

THE global signs of a recovery in economic confidence seem puzzling.
. . . .
What happened? Economic analysts often turn to indicators like employment, housing starts or retail sales as causes of a recovery, when in fact they are merely symptoms. For a fuller explanation, look beyond the traditional economic links and think of the world economy as driven by social epidemics, contagion of ideas and huge feedback loops that gradually change world views. These social epidemics can travel as swiftly as swine flu: both spread from person to person and can reach every corner of the world in short order.

As George Akerlof and I argue in our book, “Animal Spirits,” the business cycle is tied to feedback loops involving speculative price movements and other economic activity — and to the talk that these movements incite. A downward movement in stock prices, for example, generates chatter and media response, and reminds people of longstanding pessimistic stories and theories. These stories, newly prominent in their minds, incline them toward gloomy intuitive assessments. As a result, the downward spiral can continue: declining prices cause the stories to spread, causing still more price declines and further reinforcement of the stories.

At some point, of course, the process must end, as when the market falls so low that it becomes enticing, or when new stories emerge. Similarly, an upward movement in stock prices generates its own upward feedback.
. . . .

 

[russ_watters]

Certainly $12 billion is not big in a ~$14 Trillion annual GDP, and I was not referring to the annual basis.

$12 billion is about 1% of ~$1.1-1.2 trillion, which is about the monthly average of the GDP.

Looking back, I should have made it quarterly, since you did say say quarterly in your post. So that should be 0.44%. Again, hardly something to get excited about.