News What is wrong with the US economy?

[Astronuc]

Jeez, Astronuc - you really believe the US is in for complete and permanent economic collapse?

I don't believe the US is headed for a complete or permanent collapse, but I do see the possibility of something similar to the Great Depression. The economy may recover, but I don't think it will be 'stronger than ever', simply because per capita wealth is decreasing, and demand will begin to greatly exceed supply of goods and services. With the increase in economic disparity - more folks will have to do with less.

Back in the 60's and 70's, the railroads in the NE US deteriorated and they adopted a policy of deferred maintenance. The two biggest railroads, Pennsylvania and New York Central merged into the PennCentral. The result was disastrous and eventually resulted in one of largest bankruptcies in US history at the time, and this precipitated bankruptcies of several other railroads which interchanged with the PennCentral. Investors lost billions, and many RR employes lost their jobs. Ultimately the US government took the pieces and made Conrail, which was ultimately privatized, and since Conrail was broken in two and the pieces sold to CSX and Norfolk-Southern. With the sail of Conrail, the US government recovered less than 10 cents of the dollar compared to what was invested. The taxpayers lost ground, but a few individuals (the deal makers) made out very well.

The transportation infrastructure in the US is suffering from deferred maintenance, and even with the deficit spending, the deterioration of the infrastructure is not being addressed.

Given that demand for goods and raw materials will increase around the world, and that their are finite resources, I believe the US economy will not necessarily be increasingly stronger and better than ever. In the near term, I see the potential for a partial collapse, but I don't know how severe it will be. Certaily, if the current ways are not changed, the inevitable downturn could be significant - and one measure of that would be an increased mortality rate.

 

[turbo]

Per capita wealth is definitely on the decline, even in stable savings accounts. My money market account (have to stay somewhat liquid for some portion of my investments) is gaining slowly on paper, due to the fact that the Fed keeps cutting rates and banks don't pay much interest on these accounts anymore PLUS the value of the dollar is declining.

The combination of deficit spending, tax cuts for the wealthy, tax breaks, bailouts, and incentives for business is weakening our dollar, resulting in a back-door transfer of wealth from citizens to business. The Fed keeps dropping rates to satisfy Wall Street, but they would be far better off to let stocks fall short-term until bargains become evident, at which point an upward correction will occur.

 

[edward]

A lot of people keep saying that this is just a natural market correction. And this may be true, but the need for a market correction was not brought on by normal market activity. The need for a correction was brought on by unprecedented speculation and obscene numbers of sub prime loans that were fired by just plain rampant greed bordering on being illegal. The investigations have only just begun.

As far as a natural market correction goes, this is like saying that a local economy may naturally correct the results of a massive bank robbery.

The federal government is already bailing out companies like bear Stearns, because they know that natural market forces will never succeed at stopping the downhill slide of the economy.

 

[mheslep]

...The federal government is already bailing out companies like bear Stearns, because they know that natural market forces will never succeed at stopping the downhill slide of the economy.

If you mean by that tax payer dollars are going to b. Stearns that's wrong, no such thing is happening.

 

[mheslep]

Paulson admits deregulation has failed us all
Commentary: Mortgage proposals spell end to decades of looking other way

That Market Watch piece has a ridiculously misleading headline, "Paulson admits deregulation has failed us all". The Secretary made no such dramatic statement, never used the word deregulation in his lengthy remarks. If anything sums up what he said its his own words: "...regulation needs to catch up with innovation..." http://online.wsj.com/article/SB120541755150333389.html?mod=googlenews_wsj".

 

[edward]

If you mean by that tax payer dollars are going to b. Stearns that's wrong, no such thing is happening.

The FED guaranteed the bail out loans from JP Morgan, if Morgan fails to repay within 30 days the taxpayers get stuck with it.

It is probably irrelevant now that JP Morgan has just purchased Bear Stearns company for $2 per share.

EDIT:

The Fed has assumed liability for $30 billion of Bear Stearrns' debt anything over that amount will be the liability of JP Morgan.

 

[Jimmy Snyder]

I don't believe the US is headed for a complete or permanent collapse, but I do see the possibility of something similar to the Great Depression.

Yes, well, anything's possible. Do you have anything to say about what's probable?
One statistic often cited from the Great Depression was the 25% unemployment rate. Are you predicting something similar to 25% unemployment? Would you say that 5% was something similar? What real meaning, if any, is in your words, other than agreeing with Russ, that we are not headed for complete or permanent collapse?

 

[Astronuc]

DOW dropped 293.00 pts, or a decline of -2.36%, the day after it rose 420 points.

All is not well!

 

[russ_watters]

The economy may recover, but I don't think it will be 'stronger than ever', simply because per capita wealth is decreasing,

Do you have sources for either of those claims? The fact that household incomes continue to grow faster than inflation would seem to indicate that that is not the case.

and demand will begin to greatly exceed supply of goods and services.

Do you have a source for that? Why would that be true?

With the increase in economic disparity - more folks will have to do with less.

That one's definitely wrong. That's the 'economics is a zero-sum game' fallacy that is pounded into us by liberal politicians and you've apparently fallen for. The fact that the disparity is growing does not imply that those on the bottom are going down. The fact of the matter is that those on the bottom (over the long term) are going up, but those on the top are going up faster. That increases the disparity even as everyone (on average) is improving.

Given that demand for goods and raw materials will increase around the world, and that their are finite resources, I believe the US economy will not necessarily be increasingly stronger and better than ever.

Do you have any kind of timeframe for that prediction? With nuclear power, recycling, and resource management, it does not need to be true. Certainly, certain resources will get more expensive, but that will just motivate proper management. Ie, environmentalists will eventually get over their irrational fear of nuclear power even if it takes $1/kWh electricity to make it happen.

In the near term, I see the potential for a partial collapse, but I don't know how severe it will be. Certaily, if the current ways are not changed, the inevitable downturn could be significant - and one measure of that would be an increased mortality rate.

What a misery!

I'm just not seeing any evidence that what we are in for over the next year has any potential to be anything we haven't seen before. Unless that was a tongue-in-cheek crack about stock brokers jumping out of windows, it would take a meltdown beyond the great depression to have a significant impact on mortality.

This thread is a year and a half old. I've been waiting for the evidence that we've got something horrendus in store for us, and have so far seen nothing that would imply anything beyond what I'd call 'normal problems'.

 

[russ_watters]

Per capita wealth is definitely on the decline, even in stable savings accounts.

Do you have a source for that claim?

 

[russ_watters]

A lot of people keep saying that this is just a natural market correction. And this may be true, but the need for a market correction was not brought on by normal market activity. The need for a correction was brought on by unprecedented speculation and obscene numbers of sub prime loans that were fired by just plain rampant greed bordering on being illegal. The investigations have only just begun.

As far as a natural market correction goes, this is like saying that a local economy may naturally correct the results of a massive bank robbery.

The last recession was prompted by the worst stock meltdown since the great depression.

The one before that was prompted by the S&L scandal.

The one before that was prompted by the fallout from the oil crisis of the 1970s (stagflation).

There are virtually always major triggers for a recession.

http://en.wikipedia.org/wiki/Category:Recessions

 

[russ_watters]

The FED guaranteed the bail out loans from JP Morgan, if Morgan fails to repay within 30 days the taxpayers get stuck with it.

It is probably irrelevant now that JP Morgan has just purchased Bear Stearns company for $2 per share.

EDIT:

The Fed has assumed liability for $30 billion of Bear Stearrns' debt anything over that amount will be the liability of JP Morgan.

Right, so the point is that you are predicting that it will happen. It isn't a foregone conclusion.

 

[Art]

That one's definitely wrong. That's the 'economics is a zero-sum game' fallacy that is pounded into us by liberal politicians and you've apparently fallen for. The fact that the disparity is growing does not imply that those on the bottom are going down. The fact of the matter is that those on the bottom (over the long term) are going up, but those on the top are going up faster. That increases the disparity even as everyone (on average) is improving.

Would you explain the maths to justify how this is possible in a contracting economy i.e. recession as I don't see how a shrinking pie can simultaneously deliver bigger helpings to all the recipients. Don't you agree economic growth is required to fulfil that or perhaps Jesus and the miracle of the Seven Loaves And Fishes.

 

[wildman]

Do you have a source for that claim?

Stable savings accounts are in decline because of an inflation rate that is higher than the interest rate. This often happens.

 

[jaap de vries]

The bottom line is that no, of course the economy isn't perfect (yeah, that was an exaggeration, but hey - this is a politics forum!), but the economic data is pretty overwealmingly positive right now. And intentionally miselading analysis (the SFGate article) doesn't change that. The OP is likely in response to the liberal politicians, pundits, and posters that are trying to pound the idea into the American consciousness that the economy is doing poorly. We have several active threads about it, and SFGate articles have popped up before (there was a recent one about how people can't afford housing because it is too expensive - how do you think it got expensive? ). And it just plain isn't true.

Russ please don't use the term liberal media bla bla bla itis the kind of O'reillynesqe propaganda that makes you look less intelligent than I know you are.

By the way, I was watching FOX (hardly 'liberal media'!) news the other day at they make it seem like we're on the brink of a http://www.foxbusiness.com/article/economic-activity-drops-fifth-consecutive-month_529129_1.html".
"A gauge of future economic activity dropped for the fifth consecutive month in February, suggesting that the weakening U.S economy could, indeed, be slipping into recession."

The national economy is not linearly related to the stock exchange. that being said, there are some real problems real people are having

http://www.washingtonpost.com/wp-dyn/content/article/2007/06/14/AR2007061400513.html"

These are problems that hit real people on the ground and to say nothing is wrong is simply not true. The interest rate at this level only inflates the dollar more which was a an http://www.iht.com/articles/2008/03/07/business/7dollarFW.php" against the Euro.

In my opinion, the financial markets is based on trust. People simply don't have any trust in the government at this moment nationally and certainly internationally and what we see is simply a reflection of that in the financial mirror.

I agree that a lot of media sensationalize everything including the economic trouble but that does not mean there is no ground for concern what so ever.

 

[Astronuc]

Please be aware that the quote attributed to Russ in the previous posted is dated 09.18.06 - 18 months ago. Certainly activity then has contributed to the current crisis.

Basically the economy is over-leveraged.

Economy 'grinding to halt,' leading data say
Leading indicators fall 0.3%, fifth straight decline

WASHINGTON (MarketWatch) -- The U.S. economy may be "grinding to a halt," the Conference Board said Thursday, reporting that the index of leading economic indicators fell 0.3% in February for a fifth-straight decline.

The coincident indicators -- the best overview of the current economy -- have been flat for three straight months, the private research group said. Read the full report.

"Growth will be weak this spring," said Ken Goldstein, labor economist for the Conference Board. "A small contraction in economic activity cannot be ruled out."

The leading indicators are designed to forecast economic activity six to nine months ahead. The last time the leading index fell for five straight months was in early 2001, at the beginning of the last recession.

The index "has sunk to levels that are generally seen only during recessions or the period immediately preceding one," wrote Tim Quinlan, an economist for Wachovia.

Global Business Cycle Indicators
http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1

Do you have sources for either of those claims? The fact that household incomes continue to grow faster than inflation would seem to indicate that that is not the case.

Does one have a source for one's claim(s).

http://money.cnn.com/2008/03/06/real_estate/home_equity.ap/index.htm?postversion=2008030612
Federal Reserve says homeowners' debt on their houses exceeds their equity for the first time since 1945.

NEW YORK (AP) -- Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.

Homeowners' percentage of equity slipped to a revised lower 49.6% in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9% in the fourth quarter - the third straight quarter it was under 50%. That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

The total value of equity also fell for the third straight quarter to $9.65 trillion from a downwardly revised $9.93 trillion in the third quarter.

I'm looking for reliable data on household income - but I believe it is down.

 

[Noone]

There are only a fixed amount of outcomes this could lead to.

Just try to find the people that would profit the most from the collapes of the U.S. econ. I am sure it will lead to the commpainy that is creating effects that have reactions that would decline the U.S and some world markets. Mainly it can be compared to pupet's and puppet master's. the U.S is playing the puppets thinking that there doing what they need to do, by what they are doing will benifit the puppet master in the end. Hard to say now adays with all the greed and open and non-open manipulation of consumer's and market's, through the means of T.V. and internet

 

[Noone]

Just to point out that China has the most to gain from the U.S. decline

 

[Cyrus]

What are you talking about Noone? I can hardly understand your sentences or your point. Please don't make 5 posts 1 min appart each.

 

[jaap de vries]

Please be aware that the quote attributed to Russ in the previous posted is dated 09.18.06 - 18 months ago. Certainly activity then has contributed to the current crisis.

You are right Astronuc, time has already proved him wrong.
I should check the dates more carefully next time do. My points are still valid!

 

[Astronuc]

Slump Moves From Wall St. to Main St.
http://www.nytimes.com/2008/03/21/business/21econ.html
PETER S. GOODMAN, NY Times, March 21, 2008

In Seattle, sales at a long-established hardware store, Pacific Supply, are suddenly dipping. In Oklahoma City, couples planning their weddings are demonstrating uncustomary thrift, forgoing Dungeness crab and special linens. And in many cities, the registers at department stores like Nordstrom on the higher end and J. C. Penney in the middle are ringing less often.

. . .

Unemployment, meanwhile, still remains at a relatively low 4.8 percent.

But even after the Federal Reserve’s extraordinary efforts to prevent the collapse of Bear Stearns from spreading to other financial institutions, the danger still lurks that banks will grow even tighter with their funds and will starve the economy of capital.

“If lenders and debtors don’t trust each other, that causes a power outage,” said Michael T. Darda, chief economist at MKM Partners. “And that’s where we are now.” Until recently, Mr. Darda was among those still holding to the notion that the economy could generate enough jobs to keep the economy rolling. But the private sector has shed jobs for three consecutive months. Mr. Darda is now worried.

“We’ll be lucky to make it out of this without something that looks like a recession,” he said.

On Thursday, FedEx , whose global courier business tends to rise and fall with swings in the economy, reported that its earnings actually dropped in the United States and warned that in future months it expected to fall well short of its customary double-digit annualized profit gains.
. . . .

Unemployment went down largely because the number of people fell into the discouraged worker category, i.e. they gave up.

 

[lisab]

Just to point out that China has the most to gain from the U.S. decline

Not necessarily. We buy a lot of what they manufacture; if we stop buying, it will hurt them as well.

 

[edward]

Not necessarily. We buy a lot of what they manufacture; if we stop buying, it will hurt them as well.

We can't stop buying from China. They manufacture the majority of our consumer goods and our factories no longer exist.

 

[turbo]

Not necessarily. We buy a lot of what they manufacture; if we stop buying, it will hurt them as well.

True, but many of their products are among the lowest-priced examples available, which favors them. As peoples' buying power drops, they can forgo some discretionary spending, while buying cheaper Chinese-made necessities. My wife visited a local Dollar store shortly after it opened to see what they stocked, and she came home with nothing and never went back. She said practically the whole store was stocked with cheaply-made Chinese products.

Stores like that might actually do well in a mild recession.

 

[Gokul43201]

...per capita wealth is decreasing...

Per capita wealth is definitely on the decline...

Do you have a source for that claim?

Since I haven't seen any direct response to Russ' question, let me try to fill in the gap here.

Americans poorer than a year ago

WASHINGTON (MarketWatch) -- Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday.

The net worth of U.S. households fell by $533 billion, or a 3.6% annual rate, in the fourth quarter of 2007, the first time total wealth has fallen since late 2002, the Fed said.

Source: http://www.marketwatch.com/news/sto...x?guid={C5C59CEB-E4A2-48C7-86CF-4C49ABF3A1F0}

Factor in the population growth rate of 0.9% in the year 2007, and you get a slightly bigger decline in per capita wealth (still roughly 3.6-3.7%).

 

[Astronuc]

Since I haven't seen any direct response to Russ' question, let me try to fill in the gap here.

Source: http://www.marketwatch.com/news/sto...x?guid={C5C59CEB-E4A2-48C7-86CF-4C49ABF3A1F0}

Factor in the population growth rate of 0.9% in the year 2007, and you get a slightly bigger decline in per capita wealth (still roughly 3.6-3.7%).

That looked familiar. I posted that in Ivan's thread "Exports on the rise: It's a load of garbage!"
https://www.physicsforums.com/showpost.php?p=1638558&postcount=7

Is that direct wealth, i.e. equity in home, savings, investments, etc. I have to wonder if that is just household debt (mortgage, home equity loans, credit card debt), because if not, the one has to factor in the Federal debt as well, and then a lot of americans would have zero or negative wealth.

The current budget deficit is about $400 billion, but then the war on terrorism is done by supplemental spending (which is not in the budget, because it's supposed to one-time, extraordinary spending, which the Bush administration and successive Congresses have been doing each year since the war in Iraq started).

Then factor in the deterioration of the infracture, i.e. repairs not funded, then the per capita wealth drops again.

Then factor in the cumulative trade deficit and borrowing to cover that, and the wealth is even less.

 

[mheslep]

Since I haven't seen any direct response to Russ' question, let me try to fill in the gap here.

Americans poorer than a year ago

WASHINGTON (MarketWatch) -- Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday.

The net worth of U.S. households fell by $533 billion, or a 3.6% annual rate, in the fourth quarter of 2007, the first time total wealth has fallen since late 2002, the Fed said.

Source: http://www.marketwatch.com/news/sto...x?guid={C5C59CEB-E4A2-48C7-86CF-4C49ABF3A1F0}

Factor in the population growth rate of 0.9% in the year 2007, and you get a slightly bigger decline in per capita wealth (still roughly 3.6-3.7%).

Thats a loss only on paper, realized only if you panic or are otherwise forced to sell your house. Inflation and earnings are the metrics to watch, as that's what really effects your ability to send the kids to college, etc.

 

[turbo]

That looked familiar. I posted that in Ivan's thread "Exports on the rise: It's a load of garbage!"
https://www.physicsforums.com/showpost.php?p=1638558&postcount=7

Is that direct wealth, i.e. equity in home, savings, investments, etc. I have to wonder if that is just household debt (mortgage, home equity loans, credit card debt), because if not, the one has to factor in the Federal debt as well, and then a lot of americans would have zero or negative wealth.

The current budget deficit is about $400 billion, but then the war on terrorism is done by supplemental spending (which is not in the budget, because it's supposed to one-time, extraordinary spending, which the Bush administration and successive Congresses have been doing each year since the war in Iraq started).

Then factor in the deterioration of the infracture, i.e. repairs not funded, then the per capita wealth drops again.

Then factor in the cumulative trade deficit and borrowing to cover that, and the wealth is even less.

We have deferred maintenance on infrastructure to the point at which the only spending will be on systems that suffer catastrophic failure. Road construction in Maine has been slowed to a crawl, and we now have probably 1000 miles or more of state roads that desperately need rebuilding (removal of the road-base down to a stable substrate, rebuilding the base and re-paving) but at over $800,000/mile for such rebuilding of 2-lane state highways, there is no way that we can afford to improve our worst roads. Re-paving is not an attractive option - it is like putting a band-aid on a bullet wound. It won't address the underlying problem, except as a temporary cosmetic gesture.

 

[Astronuc]

This was published last August, when things started to go really wrong.

Household incomes rise but ...
Census Bureau reports slight rise in 2006 incomes but as a group, households aren't doing as well as before the 2001 recession.
By Jeanne Sahadi, CNNMoney.com senior writer
August 28 2007: 2:21 PM EDT

NEW YORK (CNNMoney.com) -- Household income crept higher and the poverty rate edged lower last year, the government said Tuesday, while the number of Americans without health insurance rose by 2.2 million to 47 million people.

Median household income rose 0.7 percent to $48,200, adjusted for inflation, the Census Bureau reported. But more people had to be at work in each household to get there.

And when both spouses work - costs go up, so even if earnings increases, that may be offset by increased costs, e.g. daycare and transportation.

That's because median earnings for individuals working full-time year-round actually fell for the third consecutive year. For men, earnings slipped 1.1 percent to a median of $42,300, while for women, earnings sank 1.2 percent to a median of $32,500.

The percent of Americans living below the poverty line, meanwhile, slipped to 12.3 percent in 2006, or about 36.5 million people, from 12.6 percent, or 37 million, the year before. The drop in the number of people living in poverty is not a statistically significant change, but the rate of decline is, marking the first drop since 2000.

The rise in household income and decline in poverty are positive developments, and they were expected given low unemployment last year. But U.S. households have yet to return to the higher income and lower poverty levels they reached during the last recession.

"In 2006, the poverty rate remained higher, and median income for non-elderly households remained $1,300 lower, than in 2001, when the last recession hit bottom," said Robert Greenstein, executive director of the liberal Center on Budget and Policy Priorities in a statement. "It is virtually unprecedented for poverty to be higher and the income of working-age households lower in the fifth year of a recovery than in the last year of the previous recession."

The poverty threshold varies based on age and household size. A single person under 65 is considered poor if his income is below $10,488 while a family of four with two kids under 18 is considered poor if their income falls below $20,444. [These thresholds are obscenely low]

Poverty thresholds are not adjusted for geographical differences in cost of living so the same threshold applies in Brownsville, Texas, as it does in New York City. Nor do they reflect the value of household subsidies intended to alleviate the effects of poverty (e.g., food stamps, tax credits, Medicaid).

Just try to live on $10,500, food stamps, and tax credits, and just hope you don't get sick. The very poor can't afford bank accounts, so they use check-cashing shops that charge a decent fee on top of excise (sales) taxes. Paychecks cost a fee to cash, then bill payments each cost an additional fee.

 

[Gokul43201]

I also notice that for fourth quarter 2007, per capita GDP declined. Real GDP grew at 0.6% which is slower than the population growth rate. And if I'm not mistaken, the personal savings rate is also in the negatives (but I think that's been the norm for the last couple years or so).